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. Trading up for fuel efficiency
2. Average age of credit accounts
3. Switching to one vehicle
4. Found this great stock!
5. Canadian pharmacies
6. The “rental” lifestyle
7. Investing in treasury notes
8. Toaster oven purchase
9. Series EE savings bonds?
10. Spotify worth it?
11. Library book sale excess
12. Books on curbing materialism
I regularly spend a lot of time thinking about ideas that are really useful in shaping my life as a whole, with personal finance as a significant part of that life. The challenge for me is relating those ideas in a context so that their value to my financial life is clear.
I basically see life as a series of interconnected areas. Physical health. Mental health. Focus and concentration. Spirituality. Intellectual ideas. Marriage. Parenting. Key social relationships. Community relationships. Hobbies. Finances. All of those things are interconnected. All of those areas have at least one strong connection between each of those other areas. Your finances do not live in a bubble. I could literally write an article on the connection between any two of those things. In fact, I might actually write an article about each of those areas and how they connect to finances.
Because of that perspective, when I find an idea that’s really useful in one area, it turns out that the idea is often useful in many other areas as well because it tugs on those connections.
For The Simple Dollar, I’m interested in all of those things, but I’m particularly interested in exploring that area’s connection to finances and how that improvement lifts up one’s financial state. That goes alongside topics that are focused largely on financial benefits, like frugality topics.
The truth is that if I didn’t see those connections to finances and I didn’t realize how much the other areas of my life support good healthy financial habits, financial independence would be a far more difficult journey. While the actual mechanical steps for improving one’s finances are easy, maintaining them requires strong connections and support from the other areas in life, which is something I’ve really come to appreciate in recent years. It’s all connected.
On with the questions.
Q1: Trading up for fuel efficiency
I am trying to make a decision about trading in my vehicle for a more gas efficient one. My daily driver is a Jeep Wrangler and while I enjoy driving it, it isn’t so great on gas mileage. I currently relocated to California where gas prices are higher than my previous home in Texas. With my commute to work alone (approx. 40 miles) I spend about $100 a week on gas. My Jeep is paid off, but I’m wondering if it makes sense to trade it in for something that does a little better on the gas mileage front. Crunching the numbers, it makes sense to think about trading it in but I really enjoy having the vehicle. Any suggestions on making a decision about getting rid of something you “love” for the greater good of saving money?
Based on my guesstimation as to the age of your Jeep Wrangler, it looks like it gets about 15 miles per gallon on average. That lines up well with your $100 a week in gas costs given your commute and the assumption that you use it for a few other things.
If you swapped it for a Toyota Prius, for example, your fuel costs go down to about $30 a week, as a Prius approaches 50 miles per gallon. Over the course of a month, that’s about $280 in savings. It’s probably going to be cheaper in terms of insurance, too.
The thing I’d ask myself when comparing the Jeep and the fuel efficient car is what exactly you get out of the Jeep that you won’t get out of the fuel efficient car, and is that difference worth $300 a month to you? That is the lens through which I would evaluate that purchase. What I usually find in situations like this is that the lower cost item often has much of what I like in the higher cost item and breaking it down to paying a lot of money for relatively minor features seems silly.
It’s also worth noting that you actually have more options here than just “keep the Jeep” or “sell it and get a very fuel efficient car like a Prius.” You also have the option of “moving closer to where you work” which saves a lot on fuel regardless of what vehicle you have and cuts down the time invested in your commute. You might also look for work closer to where you live if moving isn’t an option for some reason. There are lots of things to consider here.
Q2: Average age of credit accounts
Instead of opening a new account which would lower the average age of my credit accounts, should I increase my credit limit on a secured card? Currently it is at $800. I could deposit another $200-$300 to raise my limit.
It’s not the average age of your credit accounts that really matters in terms of your credit score. It’s the age of your oldest active account that matters.
There is a minor negative impact on your credit score from opening a new line of credit, but it’s minor and short lived. Often, that impact is counterbalanced by having a better debt-to-credit ratio (meaning the sum total of your credit card balances divided by the sum total of your credit limits). If you open a new card with no balance, your total credit limit goes up but your debt stays the same, this improving your credit score (this only works to a certain extent, but will definitely work if you’ve only got one card and are opening a second one).
In your shoes, I would definitely open an unsecured card if you’ve been handling the secured card well for a while. I wouldn’t close the secured card for a while, though. Leave them both open, then close the secured one (and get your deposit back) in a few years.
Q3: Switching to one vehicle
While evaluating my year-end financial moves, I wondered if I could switch down to one vehicle to cut expenses. A Google search led me to an article you wrote on eliminating one car. I’d like to give you some information and get your thoughts on it. I live alone and travel regionally for work. I bought my second vehicle in late 2017 to tow a trailer with my son’s racing kart. I can probably drop the full coverage insurance on the vehicles to save some money.
I have a 2010 Honda Civic with 248,702 miles on it. I get about 32 mpg and drove 34,529 miles last year. I had $1933.36 in necessary repairs last year. The 2018 annual insurance was $467, the 2019 cost is projected to be $594.
I also have a 2006 Honda Ridgeline with 147,422 miles on it. I get about 20 mpg when I am not using it to tow and drove 4,851 miles last year. It may be higher but I only used it when needed. I had $572.07 in necessary repairs last year. The 2018 annual insurance was $148, the 2019 cost is projected to be $301.
If you think it’s possible with your lifestyle to cut down to one vehicle, you probably can do so. It’s usually professional constraints or other life constraints that keep people from being able to pull it off, so if you don’t see such an issue in your life, you can probably do this.
The big issue I see is that the Civic is going to be far better for commuting, but the Civic can’t tow. Do you have any other option for towing that cart? Do you have a solution in place for what the Ridgeline does for you if you drop it?
If you do (or if you come to the conclusion that you don’t need the towing ability), then I’d drop that Ridgeline like a hot potato and keep the Civic. As many miles as you’re driving, the fuel efficiency of the Civic is going to save you a ton of money on gas versus driving the Ridgeline that much.
I think that if you drop the Civic and keep the 2006 Ridgeline and put almost 40,000 miles a year on it, the gas costs are going to be stupendous. My back of the envelope math says you’re better off keeping both cars as they are right now rather than switching to an all-Ridgeline solution.
Q4: Found this great stock!
Here’s a brain teaser for Trent: My boyfriend bought shares of MORL about two years ago and put it on automatic DRIP. Now he gets about $600 a month on average gross. I studied this stock and I just don’t really understand it, but it seems like it’s just about like printing money!! But if it is so great why isn’t everybody in it? So don’t publish this on your Q&A thing, because I want to keep this quiet. Not looking for a pump and dump scenario, just wondered your thoughts on it.
MORL is the stock ticker name for UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN. Basically, it’s a bundle of mortgages put together by UBS using borrowed money. Imagine that someone borrows $100,000 to buy an investment. They owe interest on that loan, but they’re fine as long as the investment offers a better return on that loan.
Now, imagine you used that investment as collateral for an even bigger loan, which you then used to buy control of mortgages, so that people paying their mortgage bills are actually now writing the checks to you. You can often buy mortgages at below face value – a $200,000 mortgage might be on sale for $150,000 or whatever if someone needs money fast, so if that mortgage ends up getting paid off, you make $200,000 plus the interest over the course of a few years.
This is a great way to multiply your money, but it’s really risky. If enough people stop paying their mortgages, you are in bad, bad shape because you can’t afford to pay the interest on the loans you have. The whole thing falls apart.
That’s what MORL is.
MORL is an extremely risky investment that only works well while the housing market is stable and interest rates are low. It’s double-leveraged and uncollateralized housing debt, which basically means that if people were to suddenly have difficulty paying their mortgages (like what happened in 2007 and 2008) MORL is going to tank hard. Double-leveraged essentially means it rises twice as high when things are going well and falls twice as hard when things are not going well.
I would not hold that investment for anything I was relying on for the future. If you’re playing around with investments with money you can afford to lose, sure, but that’s basically to gambling.
Q5: Canadian pharmacies
I’m curious about your opinion on Canadian (or other foreign) pharmacies. My husband used them back in the day while caring for his mother. I tried one or two and wound up (computer) virus laden. Are there any good sites for Canadian pharmacies? Is it better to go straight to Canada for better prices?
So, here’s the deal. Bringing prescription drugs into the United States from Canada is illegal under the Prescription Drug Marketing Act of 1987. However, because of the vagaries of having to deal with every special case of people living along the US-Canadian border, the DEA and the border patrol do not really enforce the law provided you’re getting 90 days or less of a prescription filled and it’s not a narcotic. Basically, they just look the other way because it’s easier than dealing with the specifics of a case and the bad press that would come from taking away an 87 year old’s arthritis prescription or a diabetic person’s insulin.
To exploit this “loophole” – actually, just an unenforced law – a lot of online pharmacies have popped up supposedly dealing in Canadian pharmaceuticals, but a lot of them are pretty dodgy. They’re already doing something illegal but unenforced and it’s a market that reputable companies will largely stay out of because the whole thing relies on the US government not enforcing its laws. You may be able to luck out and find a reputable seller online, but there are a lot of sharks in the water because it’s actually illegal.
I’d avoid it unless you’re actually going to Canada and buying the prescription drugs in person there, buying a small amount, and then coming home. Even then, you’re breaking the law, but it’s a law that’s not been enforced for a while.
Q6: The “rental” lifestyle
We are at retirement age and are thinking about buying a 5th wheel as our home for a number of years, as we are late to the savings game. It seems that used vehicles are the same price as new, and all of them expensive. What do you think about this alternative lifestyle choice that doesn’t include real property?
It seems reasonable. I have met many people who have retired to a camper or a trailer. Many of those wind up parking semi-permanently at a campground and serve as campground hosts, so it doesn’t seem like that unusual of a choice to me. (This shouldn’t be surprising – our family goes camping somewhere probably half a dozen times a year.)
I think the key is to be sure you’ve priced everything out and be open to part-time work, both as a way to make ends meet and as a way to fill your time. I also know a lot of retirees who find themselves without much to do to fill their hours once they’re retired.
If it seems appealing and the math works out, go for it. That’s my advice.
Q7: Investing in treasury notes
Question for you: I recently recovered some unclaimed property that I had lost to the state 12 years ago that they sold 8 years ago. I lost dividends for 12 years and lost the value the stock rose after it was liquidated. I wish to make up for my mistakes, so I was thinking of investing the money in T bills as I could use more stable investments. Do you have any opinions on T bills?
My feelings on US treasuries are that they’re about as stable as can be in terms of an investment but the returns they offer are really low these days, so low that they’re often matched by savings accounts. They’re rock-solid and they do offer a tiny return that’s as guaranteed as can be in this world, but the return is so small that I would not bank on them as a long term investment.
You don’t want to lock your money up for many years in treasuries that are returning less than 3% unless you truly need something rock solid. At this point, I’d probably just put the money in a savings account or a money market account instead and buy them when interest rates rebound.
The question of what kind of stability you need in your overall investments is something I can’t judge without seeing your full portfolio.
Q8: Toaster oven purchase
I’m hoping you’ll evaluate a recent purchase using your ‘buy it for life’ philosophy. This detailed evaluation is overkill for a single, cheap purchase, but it would be valuable to have a good strategy for similar future purchases.
I needed a new 4-slice toaster oven and decided to buy one at Walmart during a weekly shopping trip. Given the low price, I couldn’t justify spending the time or gas on a trip to another store. I also didn’t think I’d find many quality online reviews of sub-$30 toaster ovens.
The options that satisfied the size and features criteria were a $20 Mainstays brand model or a $25 Black & Decker brand model. I was skeptical that the Black & Decker model would last 25% longer, or be 25% more effective. Second, a toaster oven is relatively simple – I doubted there was any game changing technology that B&D incorporated into this model that the cheaper version lacked. My cynical mind also suspected the B&D model was only branded as such after being manufactured in a random factory. I bought the cheaper model. What would you have done differently?
I would have bought the cheaper model, but I would have probably waited a week and scoped out the local Goodwill first and bought whatever I could find there, as you can usually find toaster ovens there.
Aside from the Goodwill caveat, I basically agree with your way of thinking. I might have done some homework on toaster ovens beforehand by looking at Consumer Reports or other guides, but honestly, they’re simple devices to perform a simple task and aren’t overly expensive, so you’re probably fine in this case.
While I have no evidence for it, you’re probably right on the “relabeled” Black and Decker. Many items like this are functionally identical inside and have just a slightly different case on the outside. There really isn’t a whole lot of variance in toaster oven internal parts.
Q9: Series EE savings bonds?
I have been buying series EE savings bonds for my grandson for years. My son says that they’re not a good investment right now and that a better gift for his future is to contribute to a 529. Thoughts?
I agree with your son. Series EE get very low returns right now; they’re best in environments with high inflation and high interest rates, neither of which is true at the moment. With a 529, the money can be invested more aggressively for much better long term returns if the account manager so chooses.
My only qualm here is the “gift horse in the mouth” issue. I hope that this discussion was a tactful one. It’s hard to say from the description. I consider complaining about a gift to be a pretty rude move.
If you have a relative giving savings bonds and would rather they contribute that money to a 529 for your child’s future, thank them for the bond, wait for a while, and then have a conversation with them about how you’re saving for your child’s college education. Mention that anyone can contribute to the fund, but let the gift-giver decide what to do with their gift. It’s their choice, not yours.
Q10: Spotify worth it?
I used to listen to the radio constantly. There used to be a radio station near here that played great music of a wide variety, from rock to bluegrass. The station was sold and now plays modern bland country music. I have tried listening to other stations but haven’t found anything I like. Considering trying Spotify or XM but wary of adding a monthly fee. Are they worth it?
We have a Spotify account that we use as a family. It is often being streamed through speakers in our family room or in our daughter’s bedroom.
My feeling is that such an account is worth it if you listen to a lot of music and want it to just stream and mix up song selections on its own without ads. If you don’t listen very often, I wouldn’t subscribe.
My suggestion would be to try Spotify with a 30 day trial offer – here’s the link. Set a reminder on your phone 27 days from now that reminds you to cancel it if you’re not using it. Then, install the app and try using it as you would a radio. My best experience has been with an inexpensive Bluetooth speaker.
Q11: Library book sale excess
Our local library has a book sale every year where you can go in on the last day and fill up a box for $2 which I have done for years. I finally realized that I had filled up half of our spare bedroom with books I’ll never read from those sales. I would end up grabbing 4-5 that I’d actually read and 40 that I won’t. What do I do with all of these books? I don’t want to throw them away.
My first suggestion would be to have a super cheap yard sale. If your town has a community wide yard sale, announce that you’re selling books, put them all out there for a quarter each on the first day, then knock it down to a dime each the second day, then a nickel each the third day. People will clean them up if you advertise it a little.
Another suggestion is to start dropping them in little free libraries around town. Just take some with you and whenever you see a little free library, stick one or two of those books in there. It’ll put that book in the hands of someone who will read it.
If nothing else, you can always donate used books to Goodwill or the Salvation Army. They’ll almost always accept used book donations.
Q12: Books on curbing materialism
Something I’m struggling with is my relationship with stuff. I’ve been thinking about it a lot lately. I think I feel like to some extent that my worth as a person is tied up in the stuff that I have, like I can’t really enjoy books without a large personal book collection or I can’t really be a good home chef without a lot of kitchen gear. The thought of getting rid of stuff really hurts because I feel like I’m agreeing to be worse at something or less at something. I think this is a feeling you’re familiar with. Do you have any advice or any books on how to curb this way of thinking? I need to stop accumulating stuff and start downsizing.
The easy answer would be the ever-popular Marie Kondo book, but I think you’re asking a somewhat different question than what she’s answering. I have three suggestions for where I think you’re at, ranging from the more practical to the more philosophical.
The first is The More of Less by Joshua Becker, which is definitely the most practical of the three books I’m suggesting here. Becker’s key argument is that owning too much stuff keeps you from the experiences you want to have because you’re constrained by space and clutter. Thus, take the approach that even a small fraction of your stuff represents more than a lifetime’s worth of experiences and pass on the remainder to those who will value it. It only takes a small fraction of the stuff you have to represent your life.
The second is Goodbye, Things by Fumio Sasaki, which is in the middle in that it’s a mix of philosophical and practical. This book, to me, focused on the connection between your sense of well being and the environment you inhabit and how that interconnection flows both ways. While it dives into practical steps, it focuses on how those steps reveal and promote a symbiosis between your own well being and your immediate environment.
The final book is very philosophical – Erich Fromm’s To Have or To Be? Fromm steps back from the practical but rather dives in a very thoughtful way into why we accumulate things. His argument is that we do so because we view them as a shortcut to a particular type of experience we yearn for, but that the item often serves as a substitute for that experience, an empty calorie that leaves us unfulfilled. This book ends up being an argument for experience rather than possession and I found it to be the most convincing but least directly practical of the three. Read this one to feed your thinking and inspiration; read the others for more connections to practical steps.
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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