Reader Mailbag #40

Each Monday, opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. Several people lately have asked for my picks for books on time management. Here are links to my reviews of the four best ones I’ve read to date.
Getting Things Done
Do It Tomorrow
Leave the Office Earlier
Find More Time

And now for some great reader questions!

I remember reading about a custom debt snowball you used to pay off debt. Apparently, you piled up savings until the balance was enough to pay off your next debt. Can you discuss a little more about the mechanics of this process, and why it worked better for you than the traditional debt snowball method of making large debt payments each month?
– Frugal Dad

It’s pretty simple, really.

The usual snowball tactic is to apply a large payment each month to your “worst” debt, making it go away as quickly as possible. Instead of making that huge payment each month, I’d just make the minimum payment and instead apply all of that extra to a savings account.

That account would serve as an “extra” emergency fund in case of something truly disastrous – like a job loss. This was important to me, as I had a young child at home and was worried about protecting them.

When the balance of that account became substantially higher than the worst debt, I’d pay off the entire debt in one swoop. This would enable me to snowball more into that savings account each month since I was no longer responsible for the minimum payment on that debt.

This technique helped us blow through our credit cards and our vehicle loans within about a year of our financial turnaround. I never felt nervous along the way about walking a “low emergency fund tightrope,” either.

I have been trying hard to pick up reading. As soon as I start reading, I tend to think of ways to avoid reading that book. Chances are it is because I have a ‘productivity’ book in my hands. Could you recommend a few books I can get started with, which don’t bore me. I am hoping to completely read one book and use that momentum to start reading more books.
– Ravi

I don’t know what books bore you and what ones don’t, so I can’t really recommend anything specifically.

I think the big problem here is that you’re, well, focusing on books that are boring to you. They’re not piquing your interest and keeping you involved.

Focus instead on books that cover areas that are genuinely interesting to you. What subjects really light your fire? Focus on books in those areas, instead.

If you want to focus on one area but find it boring, look for ways to bridge the gap between that area and an area you’re passionate about. Let’s say you truly love college basketball but you want to read a book on leadership. Why not try something like , which takes some strong leadership principles and ties them to anecdotes from a legendary college basketball coach?

Question about my parents: My dad has 50% of his 401K in company stock. My mom and I have been telling him that he should diversify, but since his company stock has grown so much in the past 15 years he never wanted to. Now we are in today’s market and everything has plummeted. Is it still a good idea for him to diversify now in today’s market?
– Angela

It’s always a good idea to diversify. I would feel extremely uncomfortable having 50% of my retirement portfolio in the stock of one company no matter what company it was.

I would make a concerted effort to reduce that fraction to 20% at the most, but I’d keep the rest in the same asset class (stocks). Look for broad index funds to put that 30% into. That way, you’re not simply taking big losses from the recent fall – you’re just moving from one stock investment to another.

How can I reconcile ethics and frugality? I have a stable of horses who have worked with me for years teaching people to ride. They have literally carried the financial burden of our farm on their backs. Now these animals are getting old and can’t really be asked to work much. And as they age, much like humans, they cost more to care for than when they were younger. With the downturn in the economy, my business is down and the cost of maintaining the older animals is uncomfortable. But my ethics tell me I owe them; they worked faithfully and deserve a comfortable retirement for as long as they can live in reasonable health. But the longer I keep them, the less I have to save for the future. Can you provide some insights?
– Robin Crickman

If I were responsible for such horses, I would plan for their “retirement” when they were young, just as you would for any employee. Set aside a bit of money each month for their retirement years and don’t touch it.

Then, when they get old, turn to that retirement account for that horse and use that money to pay for their care.

In an environment like you’re describing, it seems good, ethical policy to treat the horses as you would any employee who has given the best years of their life to you and your operation.

For now, though? I think the ethical thing to do is to just ride it out.

I’m wondering how much you tip if you do go out to eat.
– Kristina

I tip around 18% on average. I tip lower than that if the service is poor – down to about 15%. If it’s especially good, I’ll tip 20+% – but more importantly, I’ll take a minute to personally tell their supervisor that they’ve done an excellent job.

While I do understand that a good portion of a waiter’s income comes from tips, that doesn’t mean that they shouldn’t be given less for poor service or more for great service. I believe both to be true.

What kind of clothes do you wear on a typical work day, since you work at home? What does a “work-at-home” wardrobe look like?
– Sammy

I usually wear very comfortable business casual clothes – usually a button-up shirt with a tee underneath, khakis. I don’t worry about ironing unless I’m meeting with someone, however.

Some days, if I plan on doing something outside part of the day, I’ll wear blue jeans while working.

For me, at least part of getting into the right mindset for work is putting on “work clothes.” Getting dressed for work flips something of a mental switch for me, getting me ready for the day of work ahead.

Please summarize, what are your investment plans for 2009. Thanks.
– AK

My primary goal is to eliminate my final student loan, which is locked in at around 7%.

Once that is done, I plan on focusing on my investing portfolio, which is intended to mature in ten to twelve years. This portfolio will consist of about 75% stock and 25% cash, bonds, and real estate, switching slowly to more cash and bonds as time goes on.

The stock portion will mostly be in index funds, with about 25% of the total stock investment in individual stocks. My wife has a great deal of faith in my ability to pick individual stocks and is encouraging me to try it out, since the investments are mostly intended to eventually build our dream home.

We’re about to have our first baby – a girl. But we’re stuck on the name issue. Got any ideas?
– Susan

I like looking at lists of baby names that were popular 100 years ago, going down the list to roughly slot 500 or so, and looking around in there. There are a lot of beautiful, unusual names in that time frame – somehow unique and classic at the same time.

Another way to dig around is to browse through , a really great blog on trends in baby names.

My suggestion? Don’t use anything that’s trendy in 2006 or 2007 or 2008 or else your daughter will have the same name as tons of other people her age. Instead, look for something distinctive, yet classic.

Personally, my favorite girl’s name is Emily, but we can’t quite use that one ourselves because it’s taken by a close family member.

What’s your “rule of thumb” for how big one’s emergency fund should be?
– Adam

Two months’ worth of family living expenses for every dependent listed on your income taxes. That’s the rough rule of thumb I use.

Thus, with our family, we’d have to have eight months worth of living expenses in the bank to cover things. We’re not quite there at the moment, but fairly close.

What’s on your Christmas wish list this year?
– Andy

I typically don’t make up a Christmas “wish list.” The closest thing to it is how I use the Amazon wish list feature. I tend to add things to my Amazon wish list whenever I think about them, then if family members or friends wish to give me a gift but have no idea what to get, they go look up my wish list on Amazon and get some ideas. I clean out the list a few times a year. I find it’s a great way to record things I see that intrigue me (but that I forget about over time) and it makes it easy for people to find great gifts – or at least starting ideas for gifts – for me.

If you’re asking the broader question of what I would like to receive for Christmas as a gift, I usually enjoy consumables quite a bit. I like receiving bottles of good wine, for example, or cheeses. I like receiving books or music or movies that people spent some time thinking about or that they personally found very powerful. I like homemade items, particularly consumable homemade items. I also like gifts to charities in my name.

I guess I like gifts that involve sharing with people you care about, not just a gift bought at the last minute. It really, really is the thought that counts.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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