Thoughts on my Thoughts
By JLP | May 13, 2008
I have been getting a lot more emails from readers lately asking for advice or help with their financial situations. While I am ALWAYS happy to help out (a lot of the questions make great blogging material), I do need to make something clear to readers:
My responses to these requests MUST NOT be construed as advice. I’m not getting paid for my thoughts. Therefore, my thoughts should only be the beginning step on your financial journey. Unless you are comfortable making your own financial decisions, you should always consult a paid financial planner (I prefer fee-only planners but that’s just me) for specific advice.
Also, if you send me a question and I don’t post it, it’s probably due to the fact that the topic is either too complex to blog about or I just don’t have time to get to it. In addition, I like to post questions that draw reader participation. So feel free to add your comments to any of the posts I write.
And please, no hard feelings if I don’t address your question.
Thanks for reading.
Topics: Blogging | 1 Comment »
How Should This 44-Year Old Invest $18,000?
By JLP | May 12, 2008
I received this email last week:
Hi JLP,
I found your blog thru real simple magazine. Props to you. Nice.
So here is my question, 44 years old, female, broke my whole life, no savings, wanna change. Came into 18K (my Dad died) and I don’t know what to do with it. It has been sitting getting like 2% since December 07. So if you can help or have a suggestion great, if not I understand.
Thanks,
DG
First things first. If you’re broke, you probably need an emergency fund. If you don’t have access to 3 months of expenses, you need to save towards that goal first. Just make sure that you treat your emergency fund as just that: an emergency fund.
After that…
I try to refrain from giving specific advice on this blog. That said, I would DEFINITELY put this money away for the long-run by opening a Roth IRA and depositing $4,000 per year for the next 4+ years. As far as where to open your Roth IRA, I would say either a discount broker like Scottrade or a mutual fund company like Vanguard (I’m NOT necessarily recommending these companies). The easiest route to go would be a fund company like Vanguard. Vanguard offers lots of low-cost index funds as well as exchange-traded funds. The simplest route to go would be to go with a target retirement fund. Since you’re 44 years old, I would considering looking at Vanguard’s Target Retirement Fund 2030 (other mutual fund familes have target date funds that are worth looking at).
I wouldn’t stop there.
Based on some simple math, I figured that your $18,000 lump sum will be worth somewhere in the neighborhood of $65,000 at retirement (assuming a 9% rate of return minus a 3% inflation rate). That’s hardly enough for a comfortable retirement. I would make saving for retirement a big priority. If you have access for a company-sponsored retirement plan, use it. If not, you should try to save at least $4,000 per year towards your retirement. Doing so could give you nearly $184,000 at retirement (again, adjusted for inflation). It’s not a lot but it’s better than nothing.
Good luck!
Topics: IRAs, Investing, Mutual Funds, Retirement Planning, Roth IRA | 8 Comments »
I Don’t Like Automatic Gratuities
By JLP | May 12, 2008
The definition of gratuity according to Merriam-Webster:
“something given voluntarily or beyond obligation usually for some service”
The other night my daughter had her first dance recital (my daughter calls it a “dance cital”). After the recital my wife and I took her family to Olive Garden to celebrate the evening. It was after 9:00 pm by the time we arrived at the restaurant so our wait was minimal. After we were seated the restaurant started clearing out, which meant that our server had fewer tables to serve. I’m sure with the closing time approaching, our server did have other things to do besides serve our table.
Although her service wasn’t “bad” it wasn’t “good” either. It was sort of in the middle. What bugged me was when the check came and I noticed that the tip had been automatically added to the check because we were a party of more than eight people. It wouldn’t have bothered me so much if it had been the standard 15% tip. Instead it was 18% and then there was a line for an additional tip.
When did the standard tip percentage increase from 15% to 18%?
Now before you start thinking that I’m a mean guy, let me be clear that I am a fair tipper. I don’t undertip and when the service warrants it, I leave a nice tip. But, in accordance with the definition of gratuity, the tip should be VOLUNTARY! I did notice at the bottom of the check, there was a note that stated that an 18% voluntary gratuity would be added to parties of 8 or more. When they autmatically add it in, it doesn’t feel voluntary. It puts me in the position of looking like a mean ol’ customer if I don’t think the service warranted an 18% tip. If 15% is the bottom line, then why not make that the voluntary gratuity?
I understand that restaurants started adding in tips because of cheap customers. But, how is waiting tables in a restaurant any different than spending several hours or days working on a presentation in order to make a sale and still losing out on the business? Should the company that refused to do business with you be required to compensate you for the time involved in putting your presentation together?
I have never been a server in a restaurant so this post was written solely from the customer’s point of view. I’m sure current or former servers will have a different point of view from mine. That’s okay. I will say that as far as I’m concerned, the automatic tip will almost ALWAYS be less than I would have given on my own.
Topics: Budgeting, Rant | 29 Comments »
Should You Manage Your 401(k) Yourself?
By JLP | May 9, 2008
This question comes to us from a guy I have known my entire life:
I read your article the other day Should Portfolio Rebalancing Be Considered Market Timing? and it got me thinking about my 401k balance. I’m turning 40 next month and am looking at my 401k balance, thinking should someone with my level of investment knowledge be managing this account?
Over the years, it’s grown to a significant amount without any research on my part, I just deposit money spread it over several funds and watch it grow. Rebalanced the 401k last year using a financial engine software supplied by my company, but as it turns out my market timing was bad. Overall, I think the diversification across 12 mutual funds is good, but still wonder if I could maximize gains or choose better times to rebalance the portfolio.
I’m guessing that most people manage their 401k’s themselves, but should they? Especially once the 401k reaches a higher balance as there’s so much more growth potential. Is there any added value to authorizing a professional to manage your 401k?
Thanks,
Ken
Wow! I can’t believe one of my friends is turning 40!!!!!
First off, just because you made changes to your plan and the market went down, does not mean you made a bad choice. Remember, we’re looking long-term here so we really shouldn’t care what happens right now. No, it’s not fun to watch a 401(k) balance drop but we have to look at the big picture.
If you have a relationship with an advisor, they might be willing to take a look at your plan. However, if they are commissioned-based, I wouldn’t expect them to spend a lot of time analyzing your plan and making suggestions since they don’t get paid for that kind of work.
There are lots of fee-only financial planners out there that will offer advice on 401(k)s. You’ll have to pay an hourly fee but it might be worth it if you think you need a second opinion. I will tell you that lots of planners are just going to run your fund choices through Morningstar or something similar to Financial Engines, so you’ll most likely get the same results as you already got when you ran the numbers yourself. A good planner will also help you assess your risk tolerance and educate you on the best asset allocation for you based on your risk tolerance, age, and time horizon. So, there could be some value added there. Just be prepared to spend $150 - $300 for the advice.
I’m not sure it is necessary for you turn over management of your 401(k) to a professional. Asset allocation is pretty cut and dry and can be easily grasped by most people by reading any number of books. I realize that reading a book on asset allocation is probably not at the top of most people’s list of desirable activities but I honestly believe that EVERYONE should have a basic grasp of investing and asset allocation. Fortunately, there are books out there that are very easy to understand and are actually interesting. One of the best books I know of is a short little book called The Coffeehouse Investor
If you want something beyond that, I would suggest taking a look at The Intelligent Asset Allocator
So, those are my thoughts on 401(k) management. What do you guys think? Should people hire a professional to manage their 401(k) account? Why or why not?
Topics: 401(k), Asset Allocation, Investing, Question of the Day, Retirement Planning | 16 Comments »
How Do You Turn Away Cold Calls From Charities?
By JLP | May 8, 2008
EVERYBODY wants my money. I bet I get 5 - 10 phone calls per week asking me to support this charity or that charity. Most of them sound like legitimate causes. However, it’s not possible for me to say yes to all of them.
I normally cut the person off fairly quickly and tell them that I’m not interested and hang up the phone. I know it probably sounds rude but I really don’t know what else to do. I figure they would rather find out sooner than later that they have no hope of success with me. In other words, I’m helping them move on to other potential donors.
As far as our giving goes, my wife and I tithe as well as give to several causes that we feel are important. We budget for these donations and have them paid automatically through our bank account. As a general rule, our budget doesn’t allow for extra giving (although maybe we should pencil in a small “spontaneous giving” fund).
My question to you is:
How do you say no to legitimate calls for help without feeling guilty?
Do you give to pretty much every charity that asks something of you or do you limit your giving to just a few charities?
Topics: Giving, Question of the Day | 34 Comments »
The Impact of Gas Prices on the Family Trip
By JLP | May 8, 2008
Summer is just around the corner, which means a trip to Kansas to visit family is in our future. Since I have had gas prices on my mind lately, I thought I would calculate how much we can expect to spend on gas for our trip.
Although we don’t own a gas-guzzler, our Rendezvous hardly gets the best gas mileage. Once my wife and I load the car down with kids, junk, and throw a car top carrier up on top, I’m lucky to get 20 miles per gallon (on some parts of the trip the MPG might be more like 18). For us, a roundtrip to Kansas is around 1,400 (not including driving around while we are up there). With gas at $3.50 per gallon, it looks like we can expect to spend $245 just on gas for our trip. If my memory is correct, that represents about a 45% increase over last year.
If gas goes up to $4 per gallon, a roundtrip will cost us $280. It won’t break the bank but it is a significant increase over last year. Yes, I could save some money if I were to drive slower but I find when I’m in a car full of kids I like to get where I’m going as fast as I can. Besides, I don’t see slowing down adding much more than a mile or two to my MPG.
Ah, I remember the good ol’ days when we spent about $125 for a round trip. Of course we had less money back then so it still seemed like a lot.
Topics: Budgeting, Cars | 16 Comments »
OT: Massive Sinkhole About 50 Miles West of Me
By JLP | May 8, 2008
Check this out:
That picture was on the front page of today’s Houston Chronicle. From the article:
The sinkhole, which appeared near the center of Daisetta on Wednesday morning and grew to four football fields in diameter and 200 feet deep by nightfall, did not grow severely during the night and no evacuations have yet been ordered, a Liberty County sheriff’s official said today.
There’s also video footage on the page of the article as well as a gallery of larger pictures if you’re interested.
Question:
What happens if you are the owner of the property? I guess you’re screwed.
It’s amazing to me that things like this can happen. What was holding the ground up all that time? What would cause it to just start cratering like that?
Topics: Miscellaneous | 12 Comments »
OT: Things That Remind Me of My Dad
By JLP | May 7, 2008
I realize that this stuff isn’t personal finance-related but it is one of the ways that I can honor my dad.
My dad’s been gone over two months now. I don’t think a day has gone by that I haven’t thought about him. Most of the time it’s just me thinking to myself that I can’t believe he’s gone. Then other times it’s certain things that remind me of him.
1. Warren Buffet or anything to do with Berkshire Hathaway - My dad was a big fan of Warren Buffett and was a Berkshire Hathaway shareholder. He used to tell me over and over how I needed to read 101 Reasons to Own the World’s Greatest Investment
2. Every time I use his calculator. - A few years ago my wife and I bought my dad a Texas Instruments BA II PLUS calculator. As a kid, I remembered dad sitting in his chair with pages and pages of numbers. He used to sit there and “figure” stuff. So, I bought him a calculator and tried to show him how to use it but I don’t think he ever took it beyond simple math. All that, “Push the “2nd” button followed by the #5 button…” didn’t sit well with him. LOL!
Anyway, after he died I found his calculator sitting beside his chair and mom told me to take it because she wouldn’t ever use it and nobody else in the family knew how to use it. So, it sits on my desk and I think about dad every time I use it.
3. Every time something cool happens with this blog. - Other than my wife, my dad was my number one cheerleader when it came to my blog. Strangely, he NEVER left a comment on any post. I don’t know why. But, I knew he kept up with what I was doing from time-to-time. I also called him frequently to discuss ideas and to tell him when a magazine or newspaper mentioned me. He always thought that was cool and he would brag to everyone about it.
4. Every time I see a cool new car. - My dad was a car nut. He LOVED cars. I remember him taking me to car shows when I was a kid. I’m pretty sure he was a major influence in my car tastes. A month or so ago, I saw a new Jaguar XF and even though he was already gone, my first thought was to call my dad and tell him about it.
I’m sure there’s a lot more things that make me remember him—I just can’t think of them right now.
What about you? What reminds you of your parents?
Topics: Personal Growth | 13 Comments »
Anyone Else Have a Broken RockBand Drum Pedal?
By JLP | May 7, 2008
My son was playing the drums on RockBand for Playstation 2 the other day when he heard a crack. He didn’t think much of it and kept playing until the drum pedal fell apart. The break appears to have due to stress as there is a spring located just under where the break took place.
I went on the RockBand website and found out how to get a replacement. Electronic Arts is handling support for all the replacement parts.
They have two options for getting a replacement part:
1. You can give them your credit card information and they will send you a replacement part along with a postage-paid envelope so that you can send them the broken part. If they don’t receive the broken part within 28 days, they will charge $125 to your credit card.
2. You can have them send you a postage-paid envelope first, you send them the broken part and they will send you a replacement as soon as they receive the broken piece.
Not wanting to give out my credit card information, I went with the second option. It will take a little longer but it will just make the game feel “new” again to my boys once it’s all back together. LOL!
I’ll let you know how it works out. We’ll see if this post gets re-labeled as a “Rant” post.
Topics: Miscellaneous | 9 Comments »
Why Are People STILL Buying Trucks and SUVs?
By JLP | May 7, 2008
Although I don’t see as many new trucks driving around as I used to, I’m still seeing quite a few brand new trucks and SUVs out on the road. I don’t understand why anyone would buy anything these days that doesn’t get over 25 miles per gallon.
Think about it, if a truck averages 18 miles per gallon (which seems high to me) and you drive it 12,000 miles per year, with gas at $3.50 per gallon you’re looking to spend $2,333 per year (or nearly $200 per month). If you drive a Hummer H2 that averages 11.5 miles per gallon* and drive it the same number of miles per year as the previous example, you’ll spend OVER $3,600 per year just on gas!
Unfortunately, those who already own large trucks and SUVs are going to have a tough time selling them. Demand for trucks and SUVs has fallen, leaving lots of unsold vehicles on dealer lots. Dealers are offering incentives, which is hurting the used car market. I’m so glad that we didn’t go for a big SUV when we were car shopping 6 years ago.
What about you?
Are you in the market for a car or have you recently purchased a new car or truck? If so, what did you buy and what thought process did you use in making your decision? Did the price of gas weigh in your decision?
*I used mileage numbers from this Wikipedia Hummer H2 page, which lists the H2 as getting 13 MPG highway and 10 MPG city. I took those numbers and averaged them arriving at 11.5 MPG.
UPDATE: I should have mentioned in my post that there are circumstances in which people NEED trucks. I wasn’t trying to imply that no one needs a truck. That said, I have seen LOTS of pickups that NEVER see work! LOL!
Topics: Budgeting, Cars | 38 Comments »