What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Where should retirement savings go?
2. Buying furniture on credit
3. Buying a house to flip
4. Bonus issue
5. You Need a Budget recommendation?
6. Scentsy and other marketing schemes
7. Intermittent fasting?
8. Leveraging outside interest for raise
9. Overvaluing the now
10. Earning money in Roth IRA
11. Options for journaling
12. Thoughts on prayer
One of the biggest self-improvement projects I’ve ever had for myself is to simply become more focused in my professional productivity. What I mean by that is that I have a certain amount of tasks to complete in a week and some of them require some brainstorming and thinking time, so what’s the most efficient way I can get all of those tasks done with quality results? The reality of my life is that my “work hours” are defined not by the clock, but by the projects I need to get done. If I can get a day’s tasks done in four hours, I can stop working at the four hour mark. If they take me twelve, then I need to work twelve. Thus, more efficient work directly results in more free time for other things in my life.
I’ve figured out that I’m much more productive on work projects in the morning and that my productivity really starts to decline in the afternoon. I’ve figured out that it comes in waves and that I really need a 10-15 minute break every hour or so, unless I can slip into a “zone” where I more or less lose track of time but I’m really productive. Thus, my goal on many days is to slip into that “zone” state if at all possible, but I simply can’t quite pull it off every day. I’ve figured out that there are certain little things that I can do that really help, like meditate/pray and get some exercise and get very hydrated and eat enough so that I’m not hungry but not overly full and turn off my cell phone and close my web browser and put on some ambient techno music. Lately, I’ve figured out that drinking a cup of coffee immediately followed by a cup of green tea can help a little bit.
It’s a constant experiment, though, and it’s something I take notes on. I know that I’m far more productive today than I was eight years ago or so, and that’s largely due to trial and error and sticking with the things that work. I can get about as much done in 4 hours today as I did in 7 or so hours several years ago, which makes a huge difference in my life.
The key, more than anything else, is experimenting, keeping track of what works, and repeating it.
Q1: Where should retirement savings go?
I left my job in 2011 to attend graduate school. I rolled over my 401k proceeds into an IRA and did not contribute any additional money during the two years I was in school. When I started my new job after graduation, I had to wait a full year to contribute to my company’s retirement plan. In the interim, I contributed $100/month to my rollover IRA. I’ve continued to do this for the last few years, and have also been contributing 7% of my salary to my employer 401k. My question is whether I should continue to contribute $100/month to my IRA as I have been, or if I should direct that instead to either my employer 401k or open a Roth IRA instead.
– Jeanine
The first question you need to ask is whether or not your employer is matching any of your 401(k) contributions. Are you getting any matching at all?
If you’re not getting any matching, you should open up a Roth IRA and channel all of your retirement savings into that. Try, if you can, to hit the annual contribution limit of $5,500. If you want to save more than that, turn back to your 401(k).
If you are getting matching, contribute as much as you can to get every drop of matching funds from your employer. If you want to save more, open up a Roth IRA and contribute there.
The reason for this is that you should try to balance your pre-tax and post-tax retirement savings, and it sounds like everything you have right now is pre-tax. A Roth IRA is a post-tax vehicle, which means you won’t have to pay taxes on what you withdraw in retirement, which means your tax rate in retirement will effectively be lower (since you won’t need as much pre-tax income, like work income or money from a 401(k)).
Q2: Buying furniture on credit
My wife and I are looking to purchase several new pieces of furniture for our living room. We aren’t buying anything super high-end and have plenty of cash saved to make the purchase, but we were considering opening a new credit card through our bank with no interest over x number of months and paying the full amount off before the interest kicks in. We are young and have little credit history—so the thought is that every little bit might help increase our score (as long as the credit limit is high enough on the card). Do you have any opinion or thoughts on this?
– Kevin
I don’t see any problem with doing this provided that you spend significantly less than what you have saved for this. Don’t spend more than you have saved; don’t even spend everything you have saved. Then, I’d make minimum payments on the card until a month or so before the zero interest period ends, then I’d pay off the whole thing.
The benefits here are twofold. One, you’ll build credit by having that credit card and by making your minimum payments on it. Two, because it’s zero interest, you’ll be able to leave your money in savings where it will still earn a little bit for you before you pay off the card.
Just don’t spend as much as you have saved. You’re going to want to have some “extra” for an emergency fund if something goes haywire in your life.
Kevin has a second question.
Q3: Buying a house to flip
My wife and I currently rent our home for $850 a month. We chose to rent when we moved here because we didn’t know the area and knew that we would likely have to move again in 3-4 years. I have found a small home that is livable but in need of renovation that is currently priced at $65,000, which would of course mean a much lower monthly payment than our current rent. And, with the money we save, we could put some sweat equity into the home and likely flip it for a moderate gain or rent it out (we live in a fast-growing area where rentals are in demand). However, I’m still hesitant to purchase, because we will likely be moving in less than 2 years. How would you proceed in this situation?
– Kevin
If you have a passion for home improvement and that would become your main hobby, then go for it. If it’s not something that excites you and not something you’d want to do most days after work, then don’t go for it.
House remodeling and flipping is a great hobby for someone who loves those kinds of tasks. I have a friend who is happier than a clam when he’s in the midst of a home remodeling project, for example. For me? It’s something I’ll do if it needs to be done, but I don’t get excited about it (I don’t particularly hate it, either; it’s more like indifference, as I can appreciate it but it’s not the thing that lights my fire).
If you don’t have that passion, this is going to end up being a bad move, as you’re going to feel obligated to invest a lot of time into something that you’re not passionate about for fairly modest gains (you’re going to invest a lot of time and quite a few materials; you’ll get a return but not a huge one for the time you’ve invested). If you’re passionate about it, then you get additional joy from the time invested and that makes the whole project “worth it;” if you’re not, then it’s not worth it.
Q4: Bonus issue
A bit of background, I make just under what would qualify me for HCE which is good that I can put 24K into my 401k (i’m over 50). Recently our bonuses got much larger and last year it was going to put me over the HCE max which meant I was going to be limited to 3.2% of my salary (that’s the average put in where I work).
So dropping from 24K going into 401k to just over 3K was a big issue. Around this time I was offered another job which I considered, talking to the owners of the company I had said that the 401k issue was a big concern for me. They suggested that my bonus be paid to my wife (she also works here) instead of me. Hey, I’m fine with that, they asked me to sign a paper saying to pay her my bonus, which I did.
Is this legal? If not, would it be me or them that would get into trouble?
– Stephen
I was unsure about the legality of this arrangement, so I asked a friend in the legal profession who informed me that it’s likely in a gray area and it depends on the locale and the wording of the agreement.
I would consult a lawyer in your area regarding the legality of the arrangement; lawyer-client confidentiality should keep you safe here, and this is what my legal-minded friend suggested as well.
That’s usually the best route when you’re unsure as to the legality of an arrangement. Check with a lawyer before you sign anything that you’re unsure about.
Q5: You Need a Budget recommendation?
I’ve just read your article where you use YNAB. Now that YNAB has changed to a subscription based, do you still recommend YNAB to new users?
– Carrie
I still use You Need a Budget, but I don’t use the subscription version. I continue to use the older version, YNAB 4, which is still available here. They are no longer officially supporting the old version, however.
I do not and will not use the new subscription version of the product. It has transformed into software that stores your financial data in the cloud, and I have no use for such software. No matter how good their security is – and it is quite good – it simply becomes another potential failure point for identity theft, and I do everything I can to minimize those. A “failure point” is simply any company that potentially has access to your data in such a way that they could be hacked, and every new account you have is another potential failure point.
If the old version ceases to work for me, I’ll go back to using my old PearBudget spreadsheet. I have no interest in sharing my financial data in the cloud with any company more than I have to.
Q6: Scentsy and other marketing schemes
I am curious what knowledge you have with companies such as Perfectly Posh, Scentsy, Thirty-one, being at home businesses that actually make you money. Is it possible? My wife has been part of Perfectly Posh for over a year. I’m not sold on the fact that she’s making money and not just losing money.
– Philip
Perfectly Posh, Scentsy, and many other similar companies all fall under the umbrella of multi-level marketing or network marketing organizations. In a nutshell, those organizations are very difficult for the people on the ground actually selling the product to make a lot of money from unless they are exceptional salespeople, in which case they can find much better paying gigs in actual sales departments.
There are a lot of reasons for this, but the key reason is that such organizations tend to reward those who recruit new salespeople much more than it rewards the salespeople. The people doing the selling on the ground almost always have to invest in the products themselves and then sell those items at a markup in order to make money, but they’re usually losing some portion of that markup to the person that recruited them.
So, let’s say they want to sell items that are listed at $500 in the catalogue. They either have to sell from the catalogue, which is difficult because there’s no product to show and the buyer has to wait for the item to come in, or they have to invest in the product themselves. So, that person has to invest in a bunch of product that they may or may not sell – they may have to spend $300 on that product, then store it in a room somewhere while they sell it. There’s also usually a cut for the person that got them into selling – let’s say it’s another $30. So, they’ve invested $330 in items that they have to sell. If they sell every single item, they’ll make $170. Every single unsold item cuts into that profit. Every single item that they use for promotion or demonstration cuts into that profit. All of the time they invest in selling that stuff reduces the income per hour.
What usually happens is that sellers are lucky to break even and, even if they do, they’ve invested so many hours that their hourly wage is measured in pennies rather than dollars. Not only that, there’s a good likelihood that they’ve pressured their friends into buying things that their friends do not really want, which can strain friendships.
It’s just not worth it. However, if your wife has sunk money into product that she has on hand, she needs to sell most of it to recoup what’s already invested.
Also, be aware that such companies use lots of tricks and misdirection to disguise the details of this arrangement and make it look better to new salespeople and outsiders. They use a lot of positive psychology and other techniques to make this feel like a “real business.”
If your wife does manage to easily sell all of this stuff without dinging her friends, then she’s a good enough salesperson that she should get a real sales job and make a lot more money than she could ever make through this system.
Q7: Intermittent fasting?
I’ve been researching intermittent fasting diets to improve my health and cognition. I did a search on The Simple Dollar and noticed you haven’t covered this yet. So, I thought I’d just shoot you an email and the attached article in the hopes that you would consider writing on it.
http://ift.tt/2jc4NN0
– Nina
Intermittent fasting is one of many topics that I have considered writing about on The Simple Dollar but I was unable to find enough real evidence or personal experience to really warrant it as a tool for self-improvement or reduced spending.
There is some evidence that intermittent fasting can help with weight loss and health improvement, as summarized in this JAMC article, but the question remains whether it is as effective as simply dieting as normal.
I sometimes intermittently fast just as part of a normal day. I’ll skip breakfast and lunch and eat a fairly large dinner with my family. I don’t notice any real benefits from it, though, other than it definitely reduces my calorie intake for the day provided I don’t just pig out at dinnertime.
Q8: Leveraging outside interest for raise
I have 9-10 years experience in my field and have been at my current employer for almost 3 years. In those 3 years, I have quickly earned a lot of responsibility, rising into a leadership role (although not formally recognized as a promotion), added an extracurricular role by joining the hiring committee, and my company has steadily increased my pay during the 2 yearly performance reviews I’ve had. I enjoy genuine friendships with several coworkers, something lacking at past companies.
The local job market in my field is quite strong currently, especially for those at my experience level. I receive regular inquiries from job-recruiters (usually through LinkedIn, but occasionally they call my office voicemail) and I typically do reply with a short and polite, professional note saying thanks but no thanks.
To date, I’ve gone into all my reviews expecting to be offered a modest pay increase, yet pumping myself up to try to negotiate another 1-2%. I’ve never actually followed through, however, and have accepted the pay increase in the moment, partially because the raise was a bit more than I expected but frankly also because I chickened out.
This year, however, with increased responsibility and a strong demand for my skills, I’m looking for a substantial increase. Should I be prepared to leverage outside interest, even if I have almost zero interest in switching employers? One recruiter claimed that he was referred to me specifically and that his client would offer a $10k+ bump if the interview went well, even without knowing my current salary. Such a tactic would be unfamiliar territory for me and always carries at least some risk. I’m pretty sure I’ve found my long-term “fit” here and wouldn’t want to jeopardize that. Still, these reviews are my only real opportunity to increase pay.
Thanks for any tips or advice in advance.
– Jake
If you have a history of strong performance reviews and there are no job security concerns, there should be no problem in discussing a 1-2% additional raise during a performance review. The best thing you can do is to simply document your case for why you should receive such a raise. I would literally write up a “report” of sorts that makes your case as to why you deserve the raise. Make a list of ten or so bullet points, basically made up of what you describe above, and take it with you to the meeting to give yourself something to refer to when making your case.
Outside interest can be a useful tool for leverage, but it does run its own risk of making you seem disloyal to the organization and that is not worth it when discussing a modest raise like this. It’s better if you’re going in and seeking a 10% or more raise, not a 1-2% raise.
Another tool to consider is whether or not some form of compensation outside of the actual raise might make you happy. What about some increased flexibility in your schedule, or some extra vacation time? Those are compensation tools that don’t directly impact the company’s bottom line but also provide value to you. Think about options like those as well if you’re nervous about asking directly for dollars and cents.
Q9: Overvaluing the now
My biggest financial problem is that I constantly overvalue now. In the moment, I don’t see it, but I see it later all the time. I decide that some small pleasure RIGHT NOW is much more worthwhile than bigger things down the road. Because of that I sometimes wind up in credit card trouble and I have a hard time saving much of anything. Help!!? How do I stop making the same dumb mistake!!?
– Connie
First of all, stop using your credit card. A credit card is like a knife; it’s a great tool in the hands of someone who can use it effectively, but it can also cut your thumb off. If you’re constantly using it to sate short-term desires, you’re closer to the “cut your thumb off” category. Just stop using it for a while. Rely solely on your debit card and keep close track of what’s going on in your checking account.
Second, set up some automatic savings plans that suck money straight out of your checking without you needing to take any action. Set up an online savings account at, say, Ally Bank and instruct them to withdraw, say, $50 from your checking each week. The money in that account becomes your emergency fund and/or your savings for big goals like a down payment on a car or a house. You can do a similar thing to get a Roth IRA rolling for retirement.
What you’re doing is effectively removing the options you have available to you to make those bad decisions in the moment. It’s a lot harder to decide to buy a $200 item if you only have $150 in your checking account rather than an effectively infinite credit card.
Q10: Earning money in Roth IRA
My father has given each of his kids a cash gift in the form of a Roth IRA contribution each year for Christmas. He just kind of handles all of it. He’s been doing it for several years but I haven’t really looked at it ever, but this Christmas he told all of us that we should start looking at our Roth IRAs and make some investment choices. It’s through Vanguard. I currently have $21,808 in Vanguard Prime Money Market Fund. What should I be doing with it?
– Kelly
Given that you seem to be very hands off in terms of personally managing your investing, your best bet would be to move all of it into a Target Retirent Fund. Figure out the approximate year in which you’ll turn 70, and then find the Target Retirement Fund that is closest to that year. For example, let’s say you’re 32 in 2017. That would mean you’d turn 70 in 2055, so you’d want to find the Target 2055 Retirement Fund and move your money into there.
A Target Retirement Fund is basically a mix of investments that’s geared to balance risk and reward as well as possible given that you’re planning to retire around that year. If you’re far away from it, it is high risk and high reward since you have plenty of time to recover from a downturn and you want to ride every rise in stocks and bonds over the coming years; if you’re close to it, it’s lower risk and lower reward to make sure that you’re not hammered at the last minute by a market downturn.
I don’t know exactly how your father is contributing this money. I’m guessing he has a Vanguard account for you that he can log into and make the transfer. If that’s the case, just drop him a note telling him what you did with it and that you’d like any future gifts to go straight into that fund.
Q11: Options for journaling
I’ve been wanting to journal for awhile and was thinking about online journaling for ease of use. I’m still undecided about that and wanted an option for writing myself. I tried searching the archives for what journal Trent uses. I remember him talking about the binding of the one he uses which is a reason he selected it. Could you provide me with that information? Also, are there any good online journaling websites that may be around for a long time that I could possibly download my journals from? This question may have already been asked… the reason why I’m also hesitating to do online journaling is because of possible content that I would be writing about.
– Sandra
I personally do all of my journaling by hand. I find that it has a lot more impact on me personally and on my thinking if I actually write it out with a pen. I tend to think more about what I’m writing if I do it that way. I usually “back up” my journal entries by taking pictures of them and saving them in Evernote, which is protected by a really long password that only I know, but that’s a choice you can make for yourself whether you want to save them in that way.
If I’m buying the journals myself, I just buy college-lined composition books. I can find these for very cheap around the time of back-to-school sales, so I stock up. I can usually buy several for a dollar, so I’ll often buy $3-4 worth and that will last for a LONG time.
However, I fill up lots of notebooks and my family and friends know this, so I often receive notebooks as a gift. My favorite notebook is the Baron Fig Confidant and also their Vanguard. I absolutely love these and prefer them over all other notebooks. I do also use pocket notebooks to jot down reminders, and for those I do splurge a little and use Field Notes because they (usually) hold up really well in my hip pocket; however, there are some special editions of Field Notes that don’t hold up as well. If you buy the basic craft cover versions, they’re great in the pocket.
I don’t really have any thoughts on online journaling tools. When I’ve tried it, I’ve just journaled in Evernote, but I always switch back to doing them by hand because typing those entries just doesn’t have the same impact.
Q12: Thoughts on prayer
You have said before that you “meditate/pray” each day. What does that mean? Do you think that prayer helps with personal finances?
– Dana
In my mind, meditation and prayer are basically the same thing; the only difference is what you’re focusing on. I usually think of meditation as either focusing on some specific aspect of your own body, like your breathing, or phrase that’s meant to inspire calmness or self-improvement. Prayer, on the other hand, uses the same techniques, but tends to try to focus on a short religious passage or verse and tries to be open to spiritual questions. Some people may want to focus on the spiritual while others may not, but I think the same basic technique is helpful for everyone.
What I do is very simple. I choose something to focus on. I find that my breathing is a very useful target. A specific bible verse or even a portion of a bible verse can be a great target. A short quote or phrase can be, too. A concern you’re having can be one, too. Just find a comfortable place to sit or lay down, close your eyes, and focus on whatever your target is. If it’s your breathing, focus on the in and out rhythm of your breath; if you chose a phrase, repeat that phrase slowly over and over in your head; if you chose a prayer or a bible verse, repeat it slowly over and over in your head. Whenever your thoughts stray from that target, don’t get upset; just gently bring your focus back to the target of your prayer or meditation. Start off trying to do this for five minutes, but over many sessions lengthen it.
What does it do for me? It definitely calms me down. I usually feel ready to focus and be productive in the things I have to do. I am pretty convinced that it improves my ability to concentrate and focus, but it’s more of a gradual change there. I usually feel good after I do it. I think it makes me more mindful of my environment, what’s happening around me, and what other people are doing. It is said in many places that it helps with blood pressure and heart rate, though I have no data to back that up. I find that it’s well worth the ten or fifteen minutes you devote to it.
I usually do it for ten minutes at least once a day, and sometimes twice or thrice a day. I feel like it’s a good use of my time.
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.
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