Reader Mailbag: Occupation

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. Student making ends meet
2. Roth and regular 401(k)s
3. Difficult career choice
4. Does frugality hurt the economy?
5. File or shred?
6. When should we combine finances?
7. Cost basis choice
8. Buying things and fulfillment
9. Budgeting challenges
10. Selling

A lot of people have written me in the last week asking me what I think of the Occupy Wall Street movement and other similar events.

My opinion of it is not too different than my opinion of the Tea Party movement. It’s great to see people politically involved. I think that both have some worthwhile things to say. I think that both are often undermined by the more extreme end of the people involved. I’m a bit distrustful of the people who are organizing these events, both Tea Party rallies and Occupy events.

Most importantly, I think what they’re both saying comes from the same essential source of frustration and unhappiness, and both sides would benefit by sitting down together, figuring out what issues they both support (and there are more than you might think), and fighting for those issues, because if you put the political muscle of both groups together, that would be a tremendous force.

Q1: Student making ends meet
I’m a graduate student getting my PhD in public health. By the time I get out, I’ll probably have 80k in student loan debt. I have two credit cards that have probably a total of $6500 on them (some of which is undergraduate tuition from when I was young and stupid). I have a car debt of 7k. It’s a lot of debt. It freaks me out at how much debt it is, so I try not to think about it. I don’t know what’s going to happen in terms of paying things off, but I guess my question is more of how to become more frugal with my current lifestyle so that it doesn’t get any worse than it has to be.

I currently work 20 hours per week at a cancer institute. It doesn’t pay a lot of money, but it has a 50% tuition benefit for my school, which helps, and my boss is the most amazing mentor I could have ever asked for. I also pick up work here and there doing patient simulation for med and nursing students. I make about $1200 a month, and supplement that with about $500 per month of student loans so that I can pay my bills and buy food for me and my dog.

I would consider myself pretty frugal in most areas except for food. I buy clothes at thrift and discount stores, I like activities that don’t cost money like hiking and running, and I try to keep my expenses relatively low. Food is difficult for me. I’m recovering from an eating disorder and food is a tricky subject full of a lot of emotions that I’m trying to navigate better. I need to eat out less, but since I feel extremely poor all the time, I justify food as needed outlets for socialization, stress reduction, and because it takes less time from my already crazy life of school and work than preparing 3 meals. Regardless of the justifications, I want to get better at eating in, but at this point, more frugality feels like such pinching, it gets to me mentally and I end up spending money just to alleviate the feeling of deprivation.

With my schedule and the demands on my time, it’s not feasible for me to work more or to find a second job. Other than the food, I’m already pretty budget friendly, and don’t really know where to get better. I guess I just feel depressed about it because when I read the readers in your mailbag, they all seem so much further ahead in their financial fitness than I do, I feel overwhelmed. I don’t have a 401k, my emergency savings is student loan-based, I can’t seem to feel like I’m making progress. Any suggestions you have, or perspectives, would be much appreciated.
– Anna

There are two words in your note that stand out from everything else – “graduate student.” That statement alone implies a minimal income and a lot of time absorbed into your studies, which aren’t paying off in terms of dollars and cents right now.

Ideally, they will. The biggest reason to get an advanced degree is to improve one’s earning potential, right? Well, the years spent in your studies for such a degree are themselves an investment. You are foregoing income right now for increased income later on.

In other words, if you’re living frugally as a graduate student, I really wouldn’t worry about the other stuff. Focus instead on getting that degree and building the connections you’ll need for your post-degree career path. That’s when you’ll start seeing the proceeds from this hard work and that’s when you can focus on things like retirement plans and so on.

Q2: Roth and regular 401(k)s
My employer offers a regular 401k and a Roth 401k. I currently contribute to both (6% and 2% respectively). My employer contributes 4% as well. Being in the 25% tax bracket, should I lower my contributions to the regular 401k in favor of the Roth 401k, with the thought that taxes will go up in the future? Also, since I have a Roth 401k, do I really need a Roth IRA now? I don’t see the advantage of having both currently. I’m paying off student loans and I don’t make enough to max out the 401k let alone an IRA. If I were to switch to a different job that didn’t provide a Roth 401k, I could roll it over into a Roth IRA at that time. Regarding the forced distributions at age 70, that’s 39 years down the road for me so I’m not concerned about that either and I would assume I could roll the Roth 401k into a Roth IRA at that time anyway. Is there an advantage to having a Roth IRA that I’m missing?

– Jeff

Choosing between a Roth 401(k) and a regular 401(k) is essentially a choice based on, as you say, where you think tax rates are going in the future. If you think they’re going to go up for your income level, then the Roth is the better choice.

As to whether you need an additional Roth IRA beyond these things, it really depends on your overall picture. If you’re saving 15% of your salary for retirement in your Roth 401(k), you probably don’t need it.

There’s no reason not to diversify a little, though, to hedge your bets when it comes to taxes, but if I were you, I’d be putting more into the Roth 401(k) than the regular one.

Q3: Difficult career choice
I am 33, newly married, no children, owner of a condo with 29 years to go and have a 6 figure salary with great benefits as a graphic designer. Lately I’ve been struggling with the fact that I have been working in this same field for 10 years and I’m yearning for more. I feel like it’s now or never to take the leap or else I am just going to stay in this field. I have been dabbling as a makeup artist for the past 2 years and have been doing great shoots for major companies which allows me to make an extra income but not consistently due to me having full time. Recently I got asked if I want to be a key assistant for a makeup artist in an agency. From the artist, I can learn more and be on set as his #1 assistant whenever he gets booked. It’s hard work, on foot all the time, early call times and basically I am the bottom feeder starting from zero. I will be quitting my secure full time job to a freelancer life, basically relying on the makeup artist’s job flow as well as hussling myself for jobs. My husband has a job but I make more at this point but if I do quit, I can get on his insurance. I do want babies soon but I’ll have to wait if I do the MUA atleast for 3 years. I do have over 8 months of emergency fund, and I will be staying till I get my bonus next year which will be a good chunk. Is this unrealistic? Should I not just go for it to see if I will succeed in that field? If I crash and burn, I can always go back to my graphic design field if anyone is hiring but I am scared I am jepordizingmy future for myself and for my future kids. Steve Jobs’ Stanford speech hit me hard.

– Richard

Life is too short to spend it in a career path you’re unhappy with, and money isn’t the ultimate answer to everything.

Sit down and figure out if you can financially make this move. What would you have to change in your lives to make this work? Is that realistic?

If it is, go for it. If you don’t, you’ll find yourself regretting this opportunity for a very long time.

Q4: Does frugality hurt the economy?
I am writing to get your opinion on something that I’ve been thinking about for a few weeks now. I used to go out every week and pick up at least 5-6 new dvds, video games, comic books, etc. to the point where I couldn’t even keep up with using them. I remember you making a post about the fullfillment curve. I’d say I was somewhere around a 6. I also used to go out to eat 2 or 3 times a week.

In the past year, I’ve switched jobs, and am now making a little over double what I was at my last job. I have also cut way back on my spending. I’d say in the past year, I’ve bought maybe 4 new things, total. I rarely go out to eat, and I also bring my own lunch to work. I’ve been living as frugally as possible and saving all of my money.

Here’s the question though: Aren’t my actions having a negative impact on the economy?
– Adam

No. You’re just putting your money into a different place.

For example, if you’re bringing your lunch to work instead of eating out, you’re putting more money into the grocery store and less money into restaurants.

If you’re finding yourself with more money at the end of the month, you’re probably doing something with it. For example, if you’re keeping it in a savings account, you’re helping capitalize the bank that it’s deposited with. Even if you’re burying it in a jar in your backyard, you’re removing money from the supply and helping to curb inflation.

Your choices are not hurting the economy at all. Whether they’re helping the economy is a different discussion, but I don’t think they’re hurting the economy one bit.

Q5: File or shred?
I try to reduce as much clutter as possible in my life but one of those things I get stuck on when managing personal finance is quite characteristic of those of us born in the 20th century with 20th century parents and living in a 21st century world. The question is this: is there any merit to saving paper copies of bills that various loan and utility companies send even though I pay them all online? I’ve requested most to be paper free but some still send me them and I feel too paranoid like what if I need it at some point to throw them away? Should I start a time consuming filing system them or shred?

– Jenny

I still keep a year or two of any printed bills that I receive, just in case an issue comes up. I store such bills in a “2011” folder box. At the end of the year, I’ll put it into storage and chuck the “2009” box.

I don’t really worry about organization within those boxes. I just focus on making sure all the bills are actually in the box where they belong.

It’s a decent system. The only use I’ve found for it, though, is when I’ve been trying to figure out whether I’ve improved things year over year in terms of energy improvements and the like.

Q6: When should we combine finances?
My boyfriend and I have started to go through your 31 steps and think they can help us get on the road to being financially secure. The question I have is this: since we’ll be working as a couple, is there a point where we should be combining our goals & either planning for them together or prioritizing them or something?

– Lily

The point at which you should start combining goals is the point at which you’ve started combining your lives, which it sounds like you have.

Is this a long term committed relationship? Do you anticipate being together for the long haul and making this relationship legally and/or religiously binding?

If the answer there is yes, then you should be combining your goals. If you hesitate, then you have another question to think about before asking yourself about combining goals.

Q7: Cost basis choice
Today I received a letter from a mutual fund company telling me that I need to choose a Cost Basis Method to meet an IRS requirement. I honestly have no idea which one to pick; is one better than the others, overall, or is it really dependent on each individual investor? My choices are: First In First Out, Last In First out, High Cost First Out, Low Cost First Out, Loss/Gain Utilization, Specific Lot ID, and Average Cost. My funds default method is Average Cost.

– Richard

It’s dependent on each individual investor, but for most investors, it doesn’t make a huge difference.

The only situation where it would make a difference is if you’re wanting to minimize taxes one year in exchange for more taxable income in another year. This might happen if your income is widely variable. For example, I might want to choose “High Cost First Out” for my investments because I’d be likely to make a partial withdrawal during a year when my income was low, so a capital loss might be a big help on my taxes that year.

For most people, all of this is very hard to predict, so unless you have a lot of money tied up here, I’d stick with the “average cost” basis.

Q8: Buying things and fulfillment
I was curious whether you think that there are actually people out there who are truly fulfilled with owning the yacht/porsche/fine cigars/fine wines/dining out/more jewelry/huge house/servants? My sister lives in Hong Kong and has quite a few friends who got relocated to Dubai for work. She told me that her friends have told her “Dubai is SOOO cheap! Porsches are SO cheap!” and these friends are capable of living “very well” while not being extremely high paid (they are not CEOs).

That just got me thinking, “But are they really happy, and why do I always want to insist that materialistic people cannot be happy?” What do you think? Can a materialistic person be happy, and if not, why not? Why is reading a library book so darned great? why is it that it’s the “free walk on a trail or park” or “working in one’s garden” that brings happiness, and not really the 54” flatscreen TV? And if it’s really that darned simple, why do so many people not realize it? I never hear about my friends of friends who live simply or decided to live simply (I do read about it online, true); I only hear about friends of friends who “got that promotion” or somebody who is “thinking about buying a boat/porsche/joining a golf club.”
– Jeff

I know that there are people out there who get at least some degree of fulfillment from material purchases. Their lives are, in large part, based around keeping up with or keeping ahead of the people on their block. They really want to be seen as very affluent people – they get a lot of fulfillment from that and they’re willing to spend money for it.

The problem is that it’s never sustainable. There’s always someone new to compete with. There’s always someone with more money than you. There’s always someone that has something better than you. If you tie your fulfillment into this type of competition, it becomes a never-ending money pit and one that you can never consistently win.

The best fulfillment is one that comes from within. It doesn’t have to be sustainable because it’s tied directly to what you choose, not what other people do.

Q9: Budgeting challenges
I just finished graduate school and started my first job. I make $165,000 per year and after paying my rent and a loan from my employer, I have around $5000/month left. Starting in January I will begin contributing $6,000 a semester towards my younger brother’s education. I have around $50,000 in student loans (at 6.8% with a minimum payment of $400/month) and $21,000 in credit card debt. About $14,000 of that is charged interest and the rest is interest free until next September. I already have $3,000 set aside as an emergency/tuition fund (so when I pay his tuition in January, I’ll no longer have an emergency fund).

My current plan is to save $1,000/month for my brother’s tuition, make minimum payments on my student loans, pay down my credit cards as fast as I can ($500-$1000/month), and put off contributing to my 401k (which my employer does not match) until the end of next year when I’m out of credit card debt. Is this the right plan? The other problem I’m having is that I’m terrified of not having cash in the bank, so I’m leaning heavily on my zero-interest credit card (and making minimum payments) instead of paying with cash. I’m worried that after working so hard to pay down the interest-accruing cards, I’m going to be in the same situation next year with the zero-interest card. Any advice?
– Monica

This sounds like the best plan given your situation and constraints. Unfortunately, you’re correct in that by the time you get the other obstacles out of your financial path, that zero interest credit card is going to raise its ugly head.

My solution, honestly, would be to move that zero-interest balance around to other zero-interest offers over the next year or two until you can start to eliminate it. The reason for this isn’t to keep you from having to pay it, but to keep you from having to pay a lot of interest.

Until you’ve eliminated all of that credit card debt, though, I’d keep living reasonably lean and I’d focus on getting rid of that debt as rapidly as I could, focusing on the highest interest debt as the top priority.

Q10: Selling
Have you ever considered selling the site? I know that other blogs with similar levels of popularity to yours have sold for very nice money in the recent past.

– Shane

I’ve considered selling the site mostly because the elements I don’t like about running (talking to advertisers, doing server work, etc.) are the ones that a new owner would have to deal with, not me.

If I could come up with the right deal that simply left me alone to do what I enjoy doing – which is to write – I’d strongly consider it.

I’d want to keep writing about personal finance, of course, either as a hired writer or by starting a new site.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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