Retirement savings are small for a couple that's turned 30. Save 10 percent of his salary, at a minimum. See question No. 7 in the reader mailbag.
Calpers Retirement Program Specialist Michael Saragoza helps a client over the phone at their headquarters in Sacramento, Calif., in this 2009 file photo. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people. When individuals delay, it takes them more money to fund their retirement savings.
Max Whittaker/Reuters/File
Enlarge What?s inside??Here are the questions answered in today?s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1.??Waskuya? (corn)
2.?Illegal income
3.?Interest rates and national debt
4.?Playing the lottery
5.?Managing financial progress
6.?Charity
7.?How much for retirement savings?
8.?Bryce Harper and Mike Trout
9.?Monetizing a blog
10.?Dental care
The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds ? we just want simple ways to manage our finances and save a little money.
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For the past several days, our children have been visiting grandparents, leaving Sarah and myself at home without any children around.
The biggest difference is the quiet. Our house is so quiet now that it?s almost unnerving. When the children are around, there is so much laughing and singing and talking and playing that there?s almost always noise of some sort going on in our house during the day.
Without them, it?s quiet. It?ll be a strange thing to get used to when they grow older.
Q1: ?Waskuya? (corn)
When I worked on a Sioux reservation here, I learned an even cheaper way to enjoy sweet corn all year round. The ladies made ?waskuya? or dried corn all summer and saved it to eat during winter, making yummy corn soup. You take a mess of sweet corn, blanch it, take off the kernels with a tablespoon so you get all of the sweetness down to the cob, then spread it out on bedsheets on the grass. You walk around turning it every now and then so it dries evenly, then save it in jars or plastic containers or whatever you have. No freezer required. I?ve heard the Navajo ladies who have access to the oilfields and have made some bucks even sew it into bags like pillowcases and use their clothes dryers! A dehydrator would work too, but would use a lot of electricity over the summer.
- Jane
Drying corn is a really good idea. Dried sweet corn still works as a really good ingredient in meals that cook for a while and allow the corn kernels to rehydrate.
I?ve used dried corn myself in many recipes, though I?ve never made it myself (it?s been gifted to me).
Given that many people don?t have the uninterrupted yard space (meaning devoid of children and pests) to use the ?drying on a sheet? trick, the dryer technique seems particularly useful.
Q2: Illegal income
A few days ago, I found out that a significant portion of my husband?s income over the last few years has come about as the result of [an illegal activity].
I?m really unsure how this affects our finances. Should we have a larger emergency fund? What about taxes?
- Angela
I had to edit this email quite a bit so that it didn?t turn into a discussion of said activity, as that?s not really the issue here. She?s not pleased with her husband?s choices and they are looking at options to extract themselves from said illegal income, though it will take them some time.
My suggestion would be to contact a tax attorney. Attorneys are bound by lawyer-client privilege to not share what you?ve told them about your activities. Such an attorney would probably provide the best advice.
Your goal should be to minimize your legal liability should this end up in a bad situation. Thus, if I were you guys, I?d probably maximize my emergency fund just in case.
Q3: Interest rates and national debt
You often discuss interest rates as being cyclical and allude to a time in the future when we will again see safe investments like CDs and such at 5% APY. My concern is with national debt, being that if the Fed were to raise rates a few percent, interest on national debt could outpace GDP. In light of that, do you think we will really ever see any policy decisions but ZIRP and higher-than-reported inflation as long as the status quo is maintained? I?ve been a dedicated student to investment strategies, but I feel that the macroeconomic climate of late has made much of that knowledge obsolete. What are your considerations on the bigger picture and the savings/investment climate going forward?
- David
I?m often frustrated when people want to make wild leaps with their finances based on their understanding of ?macroeconomics.? Galbraith and Hayek didn?t understand macroeconomics well enough to make useful predictions that actually worked all the time, so why would a layperson think that they should bet their future on the macroeconomics they?ve heard and understood?
The best step anyone can take is to minimize their reliance on the dollar and maximize their self-sustainability. Own your house and your car. Have some supplies on hand so that you won?t starve. Have a strong social network of people that you can cooperate with in a bad situation.
If you want a hedge against economic disaster, take real steps. Don?t just move investments around based on ZIRP and debt to GDP ratios.
Q4: Playing the lottery
My mother loves to play the lottery. When I go visit her each week, she gives me some money to buy groceries with, but she insists that I buy $5 worth of lottery tickets for her when I do so.
I?d like to just take that money and put it in a savings account for her so she has some money for things that might happen to her, but I?m torn. Is that the right thing to do?
- John
The lottery is a little spike of joy in your mother?s life. She buys those $5 worth of tickets because she gets to dream a bit. It?s also likely one of her few ways she has in her life to spend money that?s not revolving around a need (keeping food on the table and a roof over the head).
Let it be. It?s $5 a week and it brings her some joy.
Sure, it?s not the most effective use of $5, but there is no one alive that makes maximal use of their money. Everyone spends some of their money on frivolous things. This seems to be your mother?s frivolous thing.
Q5: Managing financial progress
When I bought my house last August I only had around $5000 in credit card debt, $7500 on a 3.5% car loan, and my student loans of $35,000 at 5%. I was planning to wait until December to buy, but was able to get my home at 4.25% fixed 30 year for only $132k when it had previously sold for $220k 5 years ago brand new. It was a HUD home, so it needed a little bit of TLC, but long story short, I have put less than $10k into my home and it?s now better than it was brand new, with some of the additions/changes I have made (wired whole-home Ethernet, upgraded kitchen appliances, etc).
Flash forward to today: I?ve made some financial mistakes along the way and am finding myself cash poor monthly, and am worried about the money ?running out? before too long.
Overview of my finances:
$1400 credit card at 19.99% (min. monthly payment $50, have been paying over $100/month)
$1500 credit card at 17.99% (min. monthly payment $50)
$5300 credit card at 13.24% (min. monthly payment $115)
$2700 credit card at 0% (monthly payment $166, min. monthly payment $96, appliances purchased w/24 months same as cash, must be paid off by August 2013)
$4750 car payment at 3.5% (min. monthly payment $335)
Monthly student loan payments $360
Monthly mortgage payment (with PMI, taxes, insurance) $1175
Utilities in my home are split three ways, and are roughly $75/month doing a 12 month average
Water/trash, etc is budgeted at around $45/month (I don?t charge my renters and portion of this)
Total fixed monthly payments: $2371
Monthly take home salary from work is $2750
Monthly income from two renters is $700 (not including the 2/3 of utilities they pay)
Total monthly income: $3450
Current cash on hand: $1500 with no bills due
These fixed payments don?t include anything such as entertainment, gas, food, car insurance, etc.; with those things budgeted in, I estimate my expenses to be close to $3000/month.
I hate saying to myself, ?I just have to make it to September, 2013? but that?s how I feel. At that point, my car will be paid off as will my appliances, freeing up around $500/month in payments. Around that same time, I should also have the 19.99% credit card paid off (currently I?ve been paying around $100/month on it).
Now to my question (and unconventional logic): Of these things, what should I do to best free up some additional cash every month, so that I ensure that I am in the positive cash flow each month? Currently I am working to cut back drastically on my entertainment and food (non-grocery) expenses every month. I have thought that maybe I should pay off my appliances first, just to free up the $166/month. The more I?ve read back through this email, the more I think that would be a bad idea, not only because of the fact that it?s 0% interest currently, but also because paying off both of the higher interest rate cards would still net me ~$150/month in freed up money, and eliminate the interest payments from those as well.
Another potential alternative would be to sell my car, but I travel a lot for work, and need something that is reliable, gets good gas mileage, and is comfortable to ride in for extended periods of time. My ?07 Accord gets 29-30MPG highway, is very comfortable and highly reliable, plus has the built in GPS for making those trips to remote locations easier to follow. At 145k miles, I feel that the car has many years of service left, even though I?m currently putting nearly 35k miles on it annually between personal and professional usage.
- Geoff
You are not in a truly bad debt situation. I think the only mistake you made was buying a house before you were ready to do so, as you?re paying PMI and had to incur credit card debts to keep the ball rolling.
You have to decide what?s more important to you: the quickest route to a bigger monthly cash flow or the quickest route to a complete payoff of all of your debts. There isn?t a right answer here and different financial gurus will give you different answers.
If I were you, I wouldn?t sell off important things unless it were an emergency. Instead, I?d just keep following the path you?re on, which is a good one. Debt freedom doesn?t happen overnight.
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