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. Moving out of the US
2. When to combine finances?
3. Ultra-convenient foods for cheap
4. Tipping question
5. Cryptocurrency basics (like Bitcoin)
6. Not saddled by a mortgage
7. “Stressing” about saving money
8. Gifts for geocachers?
9. Tips for house shopping
10. All Roth?
11. Cutting costs of youth sports
12. Glad about old purchases
Whenever a holiday comes around on our calendar, I try to take some time to explain why we have that holiday to our children. Today is Labor Day, so I’m explaining to them why we have today off from school and work.
Today is a day celebrating the efforts and ingenuity of American workers and how that has contributed to the lasting prosperity of America. What does that actually mean, though, aside from a nice three day weekend to cap off the summer with parades and a barbecue?
The way I explain it is that Labor Day is literally a day off at the end of the summer because people work hard, and this is a “perk” given to workers to celebrate that. Many workers who do work on Labor Day are given overtime compensation for doing so.
“Then, Dad, why are you writing on Labor Day?”
That’s a good question, so when this mailbag is finished up, I’ll be closing my laptop and going on a bike ride with them and cook something on the grill later. Time to celebrate the end of summer.
Q1: Moving out of the US
After 7 years in the U.S., I will be moving back to Europe soon (came here to study, then stayed to work in a nonprofit). During my three years at the nonprofit, I’ve amassed almost $10,000 in my 403(b). I don’t intend to ever get back to the U.S. to work, so my question is what to do with the money now. My plan would be to keep it until next calendar year (when I would have no U.S. income), cash it, pay any tax penalties that come with cashing it early, and move it out of the U.S.
Anything wrong with this plan? I know I’ll lose some money, but don’t really want to spend much effort over the next several decades managing relatively little money across the Atlantic.
Assuming that you don’t want to leave money in the account until you reach retirement age (at which point you’d avoid any early retirement penalties), you have a couple of options to minimize taxes.
Your first is to do as you suggest and withdraw all of it during the first year in which you’re not earning any income in America. You’ll have to pay a 10% early withdrawal penalty on the money, plus you’ll have to pay some income taxes on it as it will be considered income. After your standard deduction, you’ll be paying taxes on about $6,000, which won’t be too much. So, you’ll lose about 10% of the value, plus a small amount of additional taxes.
If you’re a little more patient, you can avoid those additional taxes, too. Simply wait until your first full year without any income in America, then withdraw just $4,000 from the account. You’ll still have to pay the 10% penalty (leaving you with $3,600) but your earnings are so low that you won’t owe any income taxes on that money. Repeat this process each year and you’ll not pay any taxes aside from the early withdrawal penalty (plus some of the money will grow as it’s left in the account for longer).
You’ll have to fill out a very simple tax return each year that you withdraw money, but it’s simple enough that you’ll be able to fill it out on the IRS website.
Q2: When to combine finances?
I’m going to get married in November. We have lived together for a year and a half but kept our finances separate – I paid rent, he paid other shared bills and most of the food. I feel like it’s probably time to combine our finances but he says “What’s the rush?” When should we combine our finances? Is there a reason not to continue what we’re doing?
You guys are already in a situation where your finances are intertwined, regardless of whether or not you share accounts. If you stopped paying the rent, it would have a really negative impact on his life. If he stopped paying the other bills, it would have a negative impact on your life. If you happen to be cosigned on any debts, not paying them would have a negative impact on both of you.
Similarly, positive financial moves are beneficial to both of you if you’re intending to spend your life together. If one of you is saving a lot for retirement and you genuinely intend to spend your full lives together, then that’s a benefit to both of you (providing you are keeping your bills paid).
Combining finances is like a financial “check” for both of you. You both have access to your full financial state. You know whether the bills you rely on, both today and in the future, are getting paid.
When you’re making moves to intertwine your life with someone else’s, you’re taking on unnecessary financial risk when you maintain a wall that prevents you from seeing the full picture of your future financial state. If your partner is digging a giant debt hole, you’re going to eventually have to deal with the consequences of it, one way or another, and keeping accounts separate means that you probably won’t know about it until it’s too late.
I suggest combining accounts very quickly after marriage, if not before. I also suggest maintaining separate retirement accounts, both of which are receiving contributions, but both of which are open for each other to see so that you’re both clear on the full picture.
Q3: Ultra-convenient foods for cheap
I have zero interest in cooking and mostly want healthy and super-convenient foods for cheap. How can I do this inexpensively? I currently drink protein shakes and eat mostly hardboiled eggs and fruit.
The hardboiled eggs and fruit portion of your diet is already very cheap and very convenient. There are a lot of cheap, inexpensive things you can add to that to make a more well-rounded diet.
However, it seems that from your food choices, you’re mostly wanting things you can use grab and eat on your way to your destination, which is a pretty stiff restriction.
The best ideas that come into my mind are yogurt containers (you’ll have to wash spoons for that one), nuts, sandwiches (you can prep one in about a minute and put it in the fridge to grab it just before you go), and containers of prepared vegetables such as baby carrots or cut-up broccoli or cauliflower or cherry tomatoes (you can really quickly assemble these yourself by buying reusable containers and your own individual vegetables, but that may be more prep work than you want). I’d keep using the fruits and hardboiled eggs that you mention above.
At least with those options, you’re getting a more well-rounded diet without spending too much money.
Q4: Tipping question
Whenever I go to a coffee shop I usually tip by rounding up to the nearest dollar and either adding that onto my receipt or dumping the change in the tip jar. This seems right for a cup of coffee that I’m paying $4 or $5 for as it’s usually somewhere between a 10% and 25% tip. I have been told by a coworker that such a tip is insultingly low and that she usually pays with a $10 and tells them to keep the change as they need the money. To me, that seems crazy high. What do you think?
I think that your original tip is reasonable, provided they actually did provide friendly service and you aren’t in situations where you’re tipping a few cents because you rounded up from $4.97 to $5.
You might be tipping only part of a dollar each time, but the time spent serving you is also much lower than at a normal restaurant and your total bill is much lower, too. Note that they’re serving a lot of people in an hour, much more than a waiter at a restaurant, so the tip per customer doesn’t need to be higher to compensate. I think that a healthy portion of a dollar is completely appropriate.
Your friend is tipping very generously, in my opinion. There could be any number of reasons for this, but your friend is definitely tipping above and beyond the average tip that a barista would receive. That’s not a bad thing, but that’s above and beyond any normal expectation.
Q5: Cryptocurrency basics (like Bitcoin)
How does one even get started with Bitcoin? I tried to read up on it but it all sounds enormously complicated and confusing. Not sure how a system like that would ever catch on compared to cash.
Imagine if there was a way to send the cash you have in your hand automatically to anyone in the world. That transaction would be stored anonymously in a ledger that anyone in the world could see and could be used as proof of payment in a dispute. That’s essentially the promise of Bitcoin.
The practical nature of Bitcoin is a bit different. The metaphor I like to use to explain Bitcoin to people is to imagine that there is a very secure bank out there that has a HUGE number of vaults in it, each with a small amount of money in it. Each vault has a unique key that’s very hard to pick. Bitcoin is essentially the key, and because that very secure bank is so trusted, people are willing to trade those keys. Those keys are the tradable part of Bitcoin – they’re what people buy and sell.
Another caveat is to think of the keys as all being one-time-use keys – once you use them, they break, and the bank then issues you a new one.
The problem is that with the currency being digital, you need to be extremely confident of the security of your keys, because if someone picks your “digital pocket,” that money is gone. (It’s gone because Bitcoin payments are irreversible – unlike real payments, when you send money via Bitcoin, you can’t reverse the transaction later, so if someone gains access to your Bitcoins and transfers them, you’re not getting them back unless they send them back to you.) Using the key metaphor, imagine if someone picked your pocket, made a quick copy of your key, put it back, and then headed off to the “bank” to use that key. It’s a one-time-use key, so once it’s used, the old copies of that key become worthless.
Most people who invest in Bitcoin use a great deal of security for their keys, which takes away from the convenience of usage and it’s part of why Bitcoin seems so complicated to first time users. You have to fully trust who you’re sending money to and you also have to take steps to secure your Bitcoin wallet (just like you keep your own real wallet secure).
My advice to 99% of people out there regarding Bitcoin is this: it is a brilliant idea in principle, but it still has a few serious kinks to be worked out before it’s ready for mainstream use. People using it now are early adopters or people who strictly need the benefits of anonymity that Bitcoin provides and thus are willing to jump through the extra security hoops to take advantage of it. Thus, my advice is to be aware of it, but don’t buy into it, because without some know-how and time invested in it, you’ve got a good likelihood of making a mis-step and losing your Bitcoins at some point along the trail. Think of it as being like carrying a wallet in the Old West.
Note: I owned a small amount of Bitcoin for a while just to learn about it, but later sold what I had and I currently hold no Bitcoins. Also note that this is an attempt to use a metaphor that makes sense to me for Bitcoin and may not be technically perfect, but is intended to be good enough to understand the system.
Q6: Not saddled by a mortgage
Why do people act as if you’re “saddled by a mortgage” but having a rental lease is somehow “freedom”? I can move and put my house on the market whenever I want. I can’t be evicted by a landlord. To me home ownership is the “free” path.
Both renting and home ownership have their advantages.
Renting is generally cheaper per month in terms of the money going out of your pocket compared to roughly equivalent living quarters. This, of course, is a comparison of the total cost of each – rent and whatever extra utilities aren’t covered by rent and renter’s insurance versus a mortgage, homeowners insurance, all utilities, property taxes, and so on. However, home ownership does build equity for you from the home itself, while any equity built from renting comes from investing the amount you save.
With renting, you are exposed to the whims of the landlord, but in general, the landlord just wants to make money and is happy to work with a good tenant. It’s often far easier to find someone to sublet your apartment if you’re in the middle of a lease than to sell a home. With home ownership, you’re subject to the whims of the real estate market and moving on while in the midst of a sale can be financially (and personally) trying.
It’s different strokes for different folks, really. I don’t think one is strictly superior to the other.
Q7: “Stressing” about saving money
Why do you stress about saving a few cents here and there? Not worth it.
First of all, I don’t really “stress” about anything financial these days since I got my finances straight. Most of my life stress comes from taking care of my children and dealing with their various challenges. I used to stress a lot about money, but I really haven’t stressed about it in a long time.
Instead, what I find fun about frugality is that it scratches my curiosity itch. I want to know what the “best” way of doing things is. Is it better to buy store brand hand soap or name brand, or maybe to just make my own? Can I make a good homemade laundry soap? Is it worth it to wash this Ziploc bag? What’s the actual cost of making a few liters of homemade sauerkraut, and how would I actually do it?
To me, those things are fun, and I end up feeling good when I think I’ve found the “best” way to do things – the best bang for the buck for my life. I wouldn’t even want to do it if the process were stressful. I just get joy out of knowing that I’m doing things in an efficient way, and I enjoy the process of figuring that out. The financial benefits are pretty sweet, too.
Q8: Gifts for geocachers
I had never heard of geocaching before reading about it on your site but in the last year my son and his wife and their kids have gotten really into geocaching. What kinds of gifts are good gifts for geocachers?
A kit to make their own geocache is usually a good idea.
A few magnetic nanocaches are a good gift, as it allows them to place a few tiny caches on the backs of signs and in other such places. Nanocaches are really tiny – they’re about the size of a bolt, hollowed out, with a slip of paper inside – but they’re fun to hide and easy for newer geocachers to maintain. Here are some good nanocaches.
Another option for a larger geocache is a watertight steel ammo can. You can find these at army surplus stores or some outdoor stores – just ask, as many such stores are familiar with geocaching and know what you need. Make sure it is watertight! You can also put a pocket notebook, a pen, and a few fun trinkets in there, too, as most such caches include those things.
A final idea is to get each of them a small pack containing some TOTTs – “tools of the trade.” Get a very small pack that can easily be carried or belted on and put in it a pen, a pocket notebook, a small container of bug spray, a small mirror, a small container of sunscreen, and a mirror. Other things that might cost a little more include a small flashlight, a pair of gloves, and a small multi-tool (think a Swiss army knife).
Coming from a family that geocaches together, such gifts would be very much enjoyed by all of us.
Q9: Tips for house shopping
We are shopping for our first house. We’ve been reading tons of advice on what to look for and respect your views as The Simple Dollar has helped us a lot in getting to this point. Got any quick suggestions as to what to look for?
First of all, you’ll know when a house is right for you. It might not be “perfect” but you’ll know it when you see it.
Second, I’d suggest avoiding anything in a low-lying area. The predictability of weather is not something to hang your hat on these days and simply because a house has “never flooded” doesn’t mean it won’t. Look for homes that are in an area that’s a bit higher than others, and avoid the lowest houses within a three or four block radius, too.
Third, do not buy the nicest house in a neighborhood, as it’s often the one that gets targeted. Instead, buy an average house compared to the rest of the neighborhood.
Finally, buy a house that matches your needs now, not one that matches what you think will be your needs in a few years. If you’re thinking about having kids, don’t buy a house that’s built for a family of five quite yet. If you do end up having that many kids, you can always move.
Q10: All Roth?
My company recently started offering a Roth 401(k) along with the traditional 401(k) which I contribute to. Matching funds go in the traditional. I also have a Roth IRA that I fully fund each year. I prefer the Roth and wish to pay taxes now to avoid them later when I’m old. But is it a good idea to have everything Roth?
Honestly, choosing between traditional retirement plans and Roth retirement plans is a guessing game with regards to future tax policy. No one knows what income tax rates are going to look like in twenty years. A Roth might end up having been the best choice for almost everyone, or maybe a traditional will end up being the better choice. I usually suggest a mix.
If you personally feel more comfortable in a Roth, then I would do that. You’re not going to be in bad shape because of the choice. All you’re doing is choosing to pay a little more in taxes now to pay a little less later on. It’s also worth noting that your employer match is going into the traditional 401(k), so you will have some traditional retirement savings.
I say go for it, if that’s what feels right to you. In the end, it’s all retirement savings, which is all good.
Q11: Cutting costs of youth sports
My two children aged 13 and 12 are on two different traveling soccer teams and it just seems to be an endless vacuum of expenses. We are traveling almost every weekend for soccer games or tournaments and paying for meals and entry fees. I have been suggesting to them that they can stop doing it whenever they wish, but I don’t want to just pull them out and they both are really into it. I just need to figure out how to cut costs.
First thing: pack lots of picnic lunches and suppers and use hotels with a continental breakfast. You’ll be surprised how much money you’re saving just by finding ways to do this while avoiding restaurants. Our kids are in soccer leagues with some road games (thankfully nothing as intense as what you’re describing) and we just pack coolers of food and water bottles before we go. We eat many meals out of coolers in the spring and fall.
You also might want to consider the possibility of camping on some of the weekends when the weather is nice. Yes, setting up a tent takes a bit of time, but when you knock a $100 hotel room down to $20, that’s going to save a lot, especially when it’s repeated.
I don’t know whether some degree of carpooling is an option for you, but if you can travel in a van with another family, you can all save money on the driving portion of the travel.
Good luck. Even with local games, having multiple children in sports can be an exercise in frustration.
Q12: Glad about old purchases
Trent, do you ever look at something you purchased months or years ago and consciously think “Yes, I am glad I bought this”?
I do this all the time. However, the things that I’m glad that I purchased are things that I use all the time.
I’m glad that I own this laptop that I’m typing this response on. It has been insanely reliable and useful for the past few years. I’m glad that I bought this shirt I’m wearing, which has been in my wardrobe for a few years and has been something I wear regularly during the summers. I’m glad that we bought the house we live in.
I’m generally not glad about things that I pull out of my closet that haven’t been used at all in months or years. There have been a few times where I’ve pulled something out and realized that I could immediately put it to use and then become glad I purchased it, but most of the time, digging through the closet or the garage rafters is an exercise in regret.
Why do I feel this regret? The reality is that most of the stuff I buy and then quickly stick in the closet are items that I end up regretting. If they just wind up in the closet, they weren’t effective uses of my money. The effective items were ones that I use regularly.
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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