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The Simple Dollar

This file photo shows the Atlas Farm stand at the Copley Farmer's Market in Boston, Mass. Hamm offers tips on negotiating prices, which he says are usually most effective with street vendors. (Joanne Ciccarello/The Christian Science Monitor/File)

5 tips for negotiating better prices

By Guest blogger / 04.03.12

A few days ago, I ran across some older videos that I made during some of the work-related trips I took early in the last decade. Most of them were merely videos of presentations done by me or by coworkers, but some of them were quite nice, such as a long shot of a ship slowly departing from a harbor in New York and another one of a sunset out of the window of an airplane.

My favorite one, though, depicted a friend of mine (that I’ll call Tom) at an open air market in Mexico City in about 2003. Tom knew enough rudimentary Spanish to communicate well with the people selling in the market. In the video, he’s standing there talking to a person selling hats. As my camera pans around trying to capture the market (it was actually resting on top of an old Aztec ruin, which I found really fascinating), you can hear him negotiating in the background for one of the hats.

As my camera pans back to him, he’s holding a hat. Although the sign said 100 pesos, Tom informed me that he had only paid 50 pesos for the hat. When I asked him how, he just smiles and says that he told the vendor that all he had to spend was 50 pesos and that made the negotiation much easier.

I didn’t realize it at the time, but that experience with Tom (and a few others while traveling with him) had a profound impact on me. He taught me that there are a lot of situations where you can negotiate, there’s nothing wrong with doing it, and you can often save money doing it.

I’m an introvert. Negotiating is something that is inherently difficult for me. In such situations, I’m much more comfortable just paying the asking price if I want the item and quietly walking away with a minimal amount of information exchanged.

What I’ve found over the years – and particularly over the last year – is that negotiating for a better price isn’t really that difficult if you just follow a few specific tactics.

First of all, when does negotiation work? Negotiation tends to work best when the person you’re negotiating with has the power to be flexible with the price you’re paying. For example, if you’re in the checkout at a large chain store, you’re likely not going to have any success negotiating because the person you’re interacting with has very little power to change your price.

Where I’ve found repeated success with negotiating is with street vendors. If you see someone selling their own wares at a stand on the street or at a market where vendors of this type are collected, you can almost always negotiate a better price.

Here are some basic techniques that I use. I’ve found enough success with these tactics and have done them enough that I feel quite comfortable doing them in a situation where I feel price can easily be negotiated.

First of all, have an idea of what you think you should be spending on the item before you even start. Evaluate the item a bit. Consider similar items you’ve seen recently and what their prices were. If you need to, do a bit of research on your own using a cell phone or another nearby stand. This isn’t always an exact science because many items involve what value you think the maker has added to the item.

Once you have that number in mind, ask about the item without mentioning price. This often gets the vendor to quote you a price verbally rather than you just reading a number on a sign. If necessary, I’ll ask how much the item is. I usually look at this as the opening price in the negotiation.

I usually then respond with an offer that’s below what I intend to pay for the item. This gives me some room to move up later on if needed. I’ll just say something like “How about $5 for these six?”

Sometimes, the other person will basically disengage from the negotiation at this point. If that’s the case, I don’t view it as too much of a loss. If I really want the item, I’ll pay the listed price, but most of the time, I’ll just keep walking.

If the person says, “Sorry, I just can’t drop the price,” which sometimes happens, I’ll respond by moving up to the price I expected to pay and simply saying that I can’t afford to spend more than that on the item, so they can take the sale or leave it.

Every once in a while, they’ll take my initial offer, which is great, of course!

Most of the time, though, the person throws out a counteroffer that’s lower than their initial price but substantially higher than what I offered. Negotiation begins, in other words.

At this point, I rely on a bit of mental math. Let’s say that the item is listed at $5 and I offered $2 with an expectation of paying $3 for it. The person counter-offers $4. At that point, I try to figure out what percentage they went down from their target price toward my target price. There’s a $2 difference between their price and my target price and they went down $1, which is 50%. So, I’ll do the same i in the opposite direction – the difference between my initial offer and my target price is $1 and 50% of $1 is $0.50, so I’ll add $0.50 to my offer. Sometimes, that mental math is easy. At other times, it’s tricky and I have to just give a rough estimate.

When the price gets close to my target price, I’ll often simply “lock up” when I get to my target price. I’ll usually just say “I can’t afford to spend more than that on this” when the negotiation is close to the target I’ve set.

If you can’t seem to get the price you want, you have to be willing to walk away. That doesn’t mean the negotiation is over – many times, the vendor will agree to your request if you’re strolling away from them. It means a customer lost, and they’re better off making a bit less profit than making no profit at all.

If they let you walk away, you need to decide on your own whether you’re willing to pay the lower price, even if it’s higher than your target price. Sometimes you will, sometimes you won’t.

I have a lot of respect for street vendors. They’re out there trying to earn a living as directly as possible, selling the wares they have directly to the public. I want them to earn enough to make a living, because if they don’t, they’ll close up shop and find something else to do.

The thing to always remember in negotiations like this is that the vendor knows what the true cost of the item is. You do not. (Well, usually, you don’t know the true cost.) All you’re negotiating is how much profit the vendor will make from this sale. As I said, I want them to earn some profit from the sale, but I also want to pay a fair price for the item. They know how to negotiate already and they know what their costs are and profit margin is, so they always have that advantage in negotiation. Because of that, you should always be able to negotiate without guilt, because you’re merely negotiating to save money against the information advantage that the vendor has.

Late last year, I found myself in a situation where I could really put my own negotiating skills at work. I came across a booth where a person had artistically modified glass bottles into cups, mugs, and other forms while retaining as much of the original character of the glass bottle as possible.

I really loved two of the pieces, but I found the price to be a bit high. The items were marked at $12 apiece, but the materials were recycled and a skilled person could do the modifications fairly quickly, probably while doing something else fun.

I decided that $15 for both items was a fair price – after all, there was some value added here. I asked about the price of these two items and they immediately offered me a discount if I were to buy two of them, bringing the price down to $20 for the pair.

I thought about it and offered $12 for the pair. They thought about it and counteroffered $18. I offered $13.50 in response.

The seller paused for a second and then said, “You paying with cash?” When I said yes, he responded with the magic number – $15. I accepted, and I walked away with $24 in items having paid only $15.

The seller still made a pretty nice profit, but I also saved some significant money. That’s the power of negotiation.

The L.L. Bean retail store in Freeport, Maine, is shown in this file photo. Hamm argues that paying more for brand names can be cost-effective over the long run if the products are high quality. (Robert F. Bukaty/AP/File)

When should you buy brand name clothes?

By Guest blogger / 03.30.12

Almost every article of clothing you buy has a little brand label on it somewhere, whether stitched into the lining or on a little tag or elsewhere. This little piece of information lets you know what company is responsible for making this clothing item. I consider it a pretty useful piece of information when buying many of my items.

Why? It’s not because I’m a “brand snob” or anything like that. I just simply know from my own experience that certain brands indicate items that have been well made and will hold up over a long period of time. These brands usually have certain standards as to what will go out the door with their logo on it. While some companies will put their name on anything, others know that there is real value in having standards for your product, and knowing some brands that have standards is worthwhile.

I’m quite willing to pay a little more for an item if it’s going to last twice as long because my cost per use of that item will still be lower over the long run. I’m also not going to return to the store nearly as often, too, which also saves a bit of time and money.

Take my Carhartt coat. Over the years, I’ve owned two Carhartt winter coats. I wore one of them for a few winters when I was a teenager. I passed it on to my nephew, who, after a few years, passed it on to his younger brother. The thing is still in pretty good shape, even after being worn on countless outdoor excursions over a dozen or so winters by teenage boys who enjoy hiking in the timber and other activities that could really add wear to it.

My second Carhartt jacket was purchased when I was an adult. I’ve had it for almost ten years now and the thing looks almost exactly the same as when I bought it. The coat I had before that had stitching ripping out within two years. A jacket I received as a gift three years ago has two large holes in it already. Carhartt produces sturdy and reliable (and warm) winter coats, which is exactly what I want when I’m out sledding with my kids.

Another example: a few years ago, I came across a sale on some very well-made t-shirts from Harbor Bay. The price was really low on them for the quality, so I purchased several. These things are indestructible. I’ve worn most of them dozens of times and none of them are showing any kind of significant wear.

In the future, if I’m looking for t-shirts, I’ll look for a Harbor Bay sale. If I’m looking for a winter coat, I’ll look for a Carhartt sale.

But why is this important? The math reveals the story.

Let’s say I see a coat for sale for $30 from some brand I’ve never heard of. I also see a coat from Carhartt on sale for $50. I need a new winter coat. Which one do I buy?

My experience tells me that the Carhartt coat will last for a dozen winters or so. My experience also tells me that buying a coat without knowing much about it will often result in an item with some significant problems after three or four winters. I don’t know this – it might be a very good and long lasting coat. Let’s be generous and say that on average, this unknown coat will last for five winters.

The cost per winter for the cheaper coat is $6. The cost per winter for the more expensive coat is $4.17. Every winter I wear the more expensive jacket, I’ll save almost $2 compared to the other jacket. (Of course, this is an example comparing two lower-end clothing items that are on sale. Some people will spend far more on their winter coats, making the difference per winter much larger than this example.)

For me, one of the key factors when buying a clothing item is how many times I’ll get to wear it before it becomes too worn. The higher that number, the lower the cost per wearing is going to be, and the lower the cost per wearing, the better the long-term bargain.

While brands can certainly help you with this, there are a lot of factors to look at when figuring out whether an item will stand up to a lot of wear. The blog Already Pretty has a great list of these, including seams, lining and reinforcement, material (stick with natural fibers), weight (heavier is generally better in terms of long-lasting items), care instructions, and already-existing damage. The author of this article also values the brand, stating that “clothing brands earn their reputations. They won’t stamp their names on garments that don’t meet their standards.”

Buy good items that last, even if you have to pay a little more. The brand can help in this process.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Sen. Jack Reed, D-R.I., join students impacted by the student loan rate rate hike, during a news conference on Capitol Hill in Washington in this file photo. According to Hamm, paying down a loan balance as quickly as possible is better than following a prescribed payment plan. (Manuel Balce Ceneta/AP/File)

Student loans: the more you can pay at once, the better

By Guest blogger / 03.29.12

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. Back to school dilemma
 2. Precautions before romantic trip
 3. Pool membership dilemma
 4. Favorite vegetable garden plants
 5. Telling a story to kids
 6. Handling massive student loans
 7. Spending and saving focus
 8. Is having another child hard?
 9. Useful IRA tips for education
 10. To refinance or not?

When school is in session, my work day begins when the kids leave and more or less ends when they return home.

This is a good thing in that it gives me a set period of quiet time in which to work, which mostly means writing.

This is a bad thing in that it puts a cap on things when I’m in a writing groove. There are days where, if I did not have such an end cap, I’d write until midnight.

In the end, the good outweighs the bad. I’d far rather prepare a snack for my children when they get home than continue to work.

Q1: Back to school dilemma
 I am in a position to go back to school for a post-graduate degree using my husband’s GI bill. This could not have come at a better time for a variety of reasons, which I won’t go into here. We are truly fortunate – and here is my dilemma, as I do not want to squander this opportunity:

Do I go back and get the most bang for my buck and get a law degree/MBA or something along those lines, even though neither one of those areas really float my boat (that I know of!), though I think I would be fairly good at either?

Do I totally go the other way and just go back and get say, a degree in music, or theater, or French – all of which totally excite me, but are less….practical, in terms of ROI?

I suspect the answer lies somewhere in between, but I am at a loss as to how to objectively assess my skills/interests/talents moving forward. Do you know of any online assessment tools/books/resources for 40-year old wannabe grad students looking for a subject to study? One that will both be practical with regard to longevity (what if, god forbid, I become a single parent to my son and have to support him on my own) but also tap into my talents and interests (“if you love your job, you’ll never work a day in your life” type idea)?
 - Augie

There are a lot of skill assessment tools online, such as this one from iSeek, that can help point you in a solid direction when it comes to pairing your skills with a worthwhile and potentially lucrative career. If you want more, the best book I’ve found for digging into one’s career path is What Color Is Your Parachute? by Richard Nelson Bolles.

I think the best option for you is, as you mentioned, somewhere between the two. I don’t think it’s a good idea to go into a field that you have no interest in whatsoever, because unless you’re exceptionally gifted, you’re not going to make a strong career out of it. From what I’ve seen, most people can make it in a field with natural talent or a lot of passion and drive, and people who really succeed tend to have both. If you don’t have either… it can be pretty tough.

Dig into the assessments above and see if you can find a career that excites you (at least a little) and earns a good income, too. I’m a firm believer that there’s something out there like this for everyone.

Q2: Precautions before romantic trip
 Next month, I’m going to fly to Boston to meet a guy I met on a discussion forum. We’ve been talking for months and our relationship has moved to the point where we’re going to meet. I’m really excited!

In that excitement, though, is a little bit of worry. In all honesty, I’ve never met the guy and I don’t know for certain what will happen when I go. Do you know of any financial precautions I should take?
 - Jill

A friend of mine did this a few years back. I’ll tell you what I told her.

First and foremost, never go anywhere without your cell phone – and don’t go anywhere without letting someone you know at home know where you’re going. If you need a moment, go to the restroom before you leave to go anywhere and send a text to a close friend letting them know where you’re going. This is a safety precaution, nothing more, nothing less. If the guy seems stressed out about this, then there’s a big red flag for you. He should understand the situation you’re in and, if anything, encourage you to do this. The more info you can share with people at home, the better.

Before you leave, make sure several of your friends have your flights, the address of the hotel you’re staying at, the address of the person you’re going to visit, and info on any other locations you’re sure you’re going to go to – restaurants and so on.

Also, if I were you, I’d try to live on cash as much as possible and leave my credit and debit cards in a separate secure place. If the guy is a good guy, this will work fine. If the guy is just trying to scam you or something, your cards would be a good target. I also wouldn’t take any excessive pieces of personal identification. A driver’s license will probably be needed for the trip, but things like a Social Security card are probably best left at home (or better yet, in a safe deposit box at a bank).

This might seem to lean toward paranoia, but the entire reason for doing it is to keep you as safe as possible. If you do this and things turn out well, it won’t have a negative impact on your trip. If you do this and things go bad, you’ll be incredibly glad you took these steps.

Q3: Pool membership dilemma
 A couple of years ago we moved into a new house that we love and don’t plan on moving. This past June our daughter was born. Recently we’ve discussed the community pool that is only 2-3 blocks from our house. The pool is open Labor Day to Memorial day and costs $400/year for a family membership. There is a lifetime membership that costs $4,000. It seems to us that the lifetime membership is the better option but we’re unsure whether to do it now, or wait until our daughter would enjoy the pool more.
 - Will

Before I spent any of that money, I’d want to know everything about the pool. Is it crowded during the times you’d want to use it? Is there always a lifeguard on duty (for that kind of money, the answer needs to be yes)? Are there times when the pool is closed? Does the fee include swimming lessons for your daughter? Would you use the pool right now, with your daughter being less than a year old?

The real question is whether that pool provides enough value for your family at a rate of $400 a year. If it does not, then I wouldn’t get either membership.

Now, if you do decide that the pool has enough value for that $400 a year rate, I would buy a single year and see how it went, particularly if that $400 went toward the $4,000 lifetime membership. At the end of that year, I’d reevaluate my long-term situation as well as the value I got from the pool. I’d also look into additional issues with such a membership, such as whether lifetime memberships are transferable and whether or not the $400 invested in a year’s membership can go toward an annual membership.

Will had another question.

Q4: Favorite vegetable garden plants
 We just planted seedlings for our garden a few weeks ago. This got me to thinking, what are the best (cost savings or taste wise) items to plant. Here’s my top 3.

Tomatoes (taste)
 Green Beans (taste)
 Bell Peppers (cost)

What’s your top 5?
 - Will

I agree with those three. They’d be in my top three for reasons much like what you name. They’re all rather easy to grow, too.

On top of those three, I’d add cucumbers. They’re similarly easy to grow and can be eaten in a variety of ways. Our family loves to make what we call “refrigerator pickles,” where we put fresh cucumbers in a vinegar and water solution along with some dill and eat them at our convenience over the next few weeks.

If I had to pick a fifth one, I’d choose strawberries. Again, they’re pretty easy to grow (if we haven’t killed them, they must be easy) and they produce such wonderful fruit late in the summer.

Q5: Telling a story to kids
 I read my kids a story every night before bed. Some nights, though, they ask me to tell them a story. I manage to make something up and get through it and they seem happy, but it always seems awful to me. I know you tell your children a lot of stories. Any tips?
 - Alan

For starters, I usually include my children (and often myself) as some of the characters in the story. My children love tales where they are the protagonists, perhaps receiving help from a grizzled old mountain man known as Dad along the way. Doing this immediately ties the children into the story.

I also often borrow plots wholesale from movies I’ve seen that perhaps they haven’t seen. I’ve reused pieces of The Princess Bride countless times as a general plot guidance, for example. I don’t completely duplicate the story, but I use enough of it so that I know where the story is going when I start.

As I go along, I constantly allow them to add details. In fact, I usually prompt them for it. “The heroes are passing through the forest when they come upon a very unusual tree…. what’s unusual about the tree, do you think?” They come up with some idea and then I just roll with it. It keeps them engaged throughout the story and often adds flavor I would have never considered.

The end result is usually a memorable bedtime story for the children. They often request that I do this.

Q6: Handling massive student loans
 My husband of less than two years has quite a student loan bill that we are going to begin paying back now. You would think by the amount he owes, $110,000 that he was a doctor. But no, this is what happens when you have a terrible paying job for years, go into forbearance on your loans and end up paying $40K+ in capitalized interest alone. I think the original bill for his private college education was about $40K…I’m not totally sure based on the paperwork I have seen.

He went to this private school after serving 2 years active duty in the army and 4 years in the reserves. I don’t really know what kind of government discount or benefit he got from that. I do know that he took every cent of his student loan and used it not just to pay for school but also to pay for books and general living expenses. His career is in communications and he was in an extremely low-paying job for at least 5 years. During that time he was outrunning creditors, car reposessors, etc. and paying back his student loan was not a priority.

Today, 15+ years later, he is finally making good money at his alma mater within the last three years. He began taking classes for a masters degree a couple years ago, which delayed the need to pay back these loans yet again, but now they have become due as he is nearly finished his degree.

We have looked into public loan forgiveness options where he would pay it back 120 times in a row and be forgiven on the loan. The trouble I have with that program is that you make 120 payments and there isn’t much in the way of forgiveness…by my calculations, you pay back the entire loan. They gave him a quote of $1600 per month, which would more than cover the cost plus interest.

The loan is approximately $110,000 at 8.5% interest, and he owes $754 per month. It’s certainly do-able for him/us, but slows down our cash savings. I wondered if you have any suggestions as to ways to get this loan down or if we are stuck? They didn’t offer him a lower interest rate, and I don’t even know where to begin to look to try to find one for a student loan. He actually thinks that there is going to be some miracle plan that will relieve him of this debt, whether that is some sort of grant, something from the military, etc. I don’t know what planet he thinks that will come from, especially if he doesn’t do the legwork to find it.

We got a decent tax return back, about $3,500, and he used $2,000 as a payment towards the principle on the student loan. Do you suggest tossing extra money at this loan as often as possible or sticking to the outlined payments? On one statement it estimated that he’d end up paying $220,000 over the course of this loan with all the interest due!
 - Shauna

If you’re stuck with this loan, tossing extra money at it is always going to be a good idea. It will mostly affect you in terms of reducing the length of the loan, but every extra dollar you throw at it will trim a couple of dollars (or more) off of the last payment you make on the loan.

Now, are you stuck with this loan? Probably. I wouldn’t expect a miracle out of the sky to fix it. However, you likely do have at least some options regarding the loan. The first thing I’d look at is loan consolidation. I’m unable to tell if he’s eligible for loan consolidation or not from your email, but if he is, it’s well worth looking into as it will significantly reduce your interest rate. Even if you’re not eligible, you may want to talk to other lenders besides your current lending institution to see if they can make a better offer and take over the loan.

How do you begin looking for these types of offers? The first place I’d check is the financial aid office at his alma mater. Given that he attended there and that he currently works there, I’m pretty sure they’ll be able to offer some suggestions for his situation and perhaps find you guys a better lending institution to work with.

Shauna had a second question.

Q7: Spending and saving focus
 What is the best way for us to spend our money when we have some left over?

We have a mortgage that is too high to refinance, but we are looking into it anyway. $281K in a 30-year fixed at 5% that we bought in late 2009. According to Zillow, our house is now worth about $259K. The house appraised for $279K when we bought it (we got a seller’s assist hence the higher mortgage). We recently did some home renovations (again, money burning a hole in the pocket plus want versus need…did we NEED to renovate half of the kitchen? no. Are we hoping that this would have added to the value and aesthetic of the home? Yes. Not sure how to find that out…) that cost about $6,000. We took a wall out between the dining room and kitchen, cut a doorway into another wall, bought a kitchen island and installed granite countertops (didn’t need to redo the cabinets or appliances).

We have approx $10,000 in savings at the credit union account we opened together (less than 1% interest rate) that is going to be minus about $3,000 after these home reno bills are paid. I have an additional $4,000 in a savings account that he has equal access to, plus a $6,000 ING savings account (about 3% interest) that he doesn’t know exists (until we do our SCFR worksheet). We don’t have any particular goals for these savings other than having an emergency fund set up. We like to travel, but when we go to pay the bills for the renovation or the travel, my husband prefers to take it out of what he has left in his checking account rather than pulling out of savings, therefore strapping himself for the month a little bit. I prefer to pull out of savings, though it really pains me to do so.

His car has 129K miles on it and he plans to keep it forever. My car has 84K miles on it, only about $700 left on the loan (will be paid off in June), and I plan to keep it as long as I can, or until we have a child. Since I am going through infertility treatments right now (about $150 a month), that means I’ll have the car a while yet (we do not plan to do IVF…if we aren’t meant to have children we are perfectly ok with that.)

As for retirement accounts, I save 5% with a company match of 4% that started in January 2012. I am currently considering changing jobs even though I have only been here a little over a year. I do not know what percentage my husband saves, but I know he does make contributions.

I try to cut my expenses as much as I can. I clip coupons and bring my coffee, breakfast and lunch to work as often as is feasible. I only shop sales and never buy clothes full price. I hardly ever buy new clothes…maybe a few new pieces each season. My credit card bill is not great, however. I have about $1,500 on it and I can never seem to keep it under control. I am trying to use it less and less but sometimes I use it to pay for things I purchase over the internet (like 5K race entries or Amazon.com/paypal purchases), and I don’t count it in my monthly budget as expenses…it just goes into my budget as a Visa payment of around $300 a month. I can definitely do better there.

Should we be saving more cash, investing our extra cash, making extra payments on our mortgage? When my husband’s money burns that hole in his pocket, where should I tell him to put it?
 - Shauna

Given your student loan situation and your mortgage, I think the best thing for you guys to do any time you have some extra money that isn’t needed for anything urgent is to put it toward one of those debts, preferably the one with the highest interest rate. Every dollar you put toward such a move will save you three (or so) off of the last loan payment you’ll have to make.

I don’t see anything that you’re doing wrong, though. You have a solid emergency fund when you consider the whole of your cash savings. You seem to have your spending largely under control and are slowly whittling down your debts rather than watching them escalate. You’re doing the right things. It just takes time.

One thing that might be useful is to just sit down together one weekend afternoon and spread all of this out. Together, get a picture of how much you have (savings, retirement, home value, etc.), how much you’re spending each month, how much you’re bringing in each month, and how much debt you have. Talk about where you want to be in the future, and I strongly encourage you guys to really think about debt freedom (trust me, it feels fantastic). Just talk about things. You’ll feel better about everything if you get it all out there on the table together, trust me.

Q8: Is having another child hard?
 My husband and I are thinking of having another child. Our first one was a real life changer and our biggest worry is that our second child will bring some disharmony into our life after we finally feel like we have a good balance. Are there any things we should be thinking about?
 - Andrea

The biggest change our second child brought into our life was during the first year. Since our oldest was only two at the time and still needed a lot of help with basic things (diaper changes, bedtime routines, etc.), we found ourselves pairing off, with one adult handling one child and the other adult handling the other child.

That wasn’t too much different than what we did before, but with just one child, one parent found themselves free to take care of household tasks or just to relax. That vanished, particularly during the first year, and that was the biggest challenge.

Once our second child got to about nine to ten months or so, we were able to have one parent handle the routines with both of them while the other parent was able to return to housework and other tasks. (This whole pattern, of course, repeated with the third child.)

The first child was the one that caused the real life changes. The changes with the second were more subtle. The changes with the third were pretty easy.

Q9: Useful IRA tips for education
 [Y]ou can pay for higher education expenses (tuition, books, fees, and even in some cases lodging) from funds in an IRA without the early withdraw penalty. If it’s a Roth IRA you dont have to pay income tax on the earnings either.

The funds can be used to pay for expenses for yourself, spouse, OR children.

You can see where this will save even more money since you wouldn’t have to pay extra income taxes. Obviously you would need to choose wise investments here, but you could go for some more conservative investments or just buy up some money market funds, but if you went ahead and invested it in a decent portfolio (mine is all ETFs) then you could actually make some money on it and cut that monthly savings requirement by a large amount.

Wish I had known this last year, so now I have to pay off the student loan I got, but at least this year will be much easier to afford.
 - Wayne

This certainly works, and it’s one approach to saving for college.

My only hesitation is that doing this shoots your annual window for IRA savings for retirement. You’re only able to save about $5,000 a year in IRAs for retirement purposes and for many people, IRAs can be invaluable retirement savings tools. Using them for the education of your children is going to postpone your own retirement, no two ways about it.

For some, that might be an acceptable outcome, but why not use the IRA for your retirement and start a 529 for your children’s college education? I may use my IRA for education in a pinch, but I’d far rather have it as a retirement asset. The best gift I can give my children is to not be a financial burden on them when I’m old, and my IRA will help to ensure that.

Q10: To refinance or not?
 I’m looking at refinancing a condo (I rent it out) using the the new HARP 2.0 program. I’m currently owe around $73K @ 7% in year 11 of a 30 yr mortgage. The loan I’ve been offered is for $78K (closing costs & anticipated spring taxes) @ 4.5% for 20 years. The loan is a $5K difference, but $2K of that will be be offset by exchanging escow accounts between the 2 lenders, which I would sink the payout back into the new loan. If I do the deal, it will save me about $135 a month on my payments. So, I figure the $3K+ on the new loan would be paid off in under 2 years by saving the $135 a month. I’m not looking to keep this property as rental income forever. I’d actually like to get it to the point where I could sell it off for what I owe on the loan, which I hope to be in about 5 yrs. Currently properties in the area go for $45K-$50K. I already pay an additional $150 a month & would continue to just pay that same amount on the new loan since I’ve already figured that amount into my budget. Does it make sense to do this deal? Should I refinance this loan at a larger amount, even though I’m itching to get out as soon as I can? I would love to get out now, but I’m so far under water, I can’t get the funds to cover the difference. What are your thoughts?
 - Jim

If you’re going to stay in the home, this refinancing makes sense. It lowers your interest rate, doesn’t significantly extend the length of the mortgage, and reduces your monthly payment. Those are all good things.

I don’t know how much you’ve shopped around for this deal, but depending on your credit, this is either a good offer or a great offer. You could try for a better one (and you might get one), but it won’t be significantly better, as the interest rate is pretty competitive.

There is always the option to walk away. However, when you’re in a fixed rate mortgage that low with that relatively low balance, it’s probably not a really good option.

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.

In this file photo, shoppers walk past a clearance sign at the New York & Company outlet store at the Dolphin Mall, in Miami. When shopping at an outlet store, make sure the prices are actually lower than at a regular retailer, Hamm notes. (Lynne Sladky/AP/File)

Make the most of your outlet store shopping

By Guest blogger / 03.28.12

While thrift stores and secondhand stores are my first line of defense when it comes to new clothes, I don’t always find what I need there. I’m very tall with a long upper torso, which means that a lot of shirts just don’t fit me well. They’re either cut for someone who weighs a lot more than I do or they simply aren’t long enough to the point that they reveal my lower back when I’m just standing normally. Neither of these things are really acceptable, so I have to be fairly careful when buying clothes.

There are similar sizing issues for our children. They each have my relatively long torso, which means that children’s sizes sometimes fit them well and sometimes do not. As is the case with me, we have to be a little selective in the clothes we buy them lest they look comically baggy or too short.

If we’ve had a dry run with Goodwill and other highly discounted secondhand shops, we’ll often move up to the next level, which is a little more expensive but adds a lot of options: consignment shops and outlet stores. We use consignment shops and outlet stores primarily as a follow up to stores like Goodwill. In general, prices are higher at consignment and outlet stores than at Goodwill, but it’s easier to find items that match what you’re looking for.

Let’s clarify what exactly we’re talking about here first. Outlet stores typically are an outlet for a particular clothing factory or clothing brand. Usually (and I’ll discuss this more below), they sell slightly flawed versions of normal items – something isn’t stitched right, something has a minor flaw, something has a hole, or something else like that. Because of that flaw, they can’t sell it at normal price, but the flaw isn’t bad enough to make it unusable, and that’s what an outlet store is for. They’ll sell items with minor flaws that are otherwise normal for a discount price.

Consignment shops are typically where high-quality used items are sold on a per-item basis. Usually, someone has a nice wardrobe, takes it to a consignment shop, and the consignment shop picks which items they think will sell. The sale price of the item is split between the shop and the person who contributed the item.

Here are a few tips.

For starters, some outlet stores have the same prices as normal stores – they just put the word “outlet” on the sign to get customers in the door. Sarah and I experienced this firsthand very recently when we visited an outlet center only to discover that most of the stores in the outlet center were barely discounting their prices and seemed to be selling the usual things that would be sold in one of that brand’s normal stores.

Don’t simply trust that a store has bargains just because it says “outlet” on the window. Come equipped with a sense of what the items should actually cost (and don’t be afraid to use any mobile devices you might have to check). If the prices aren’t a bargain, don’t buy.

Consignment shops are generally a good place to look for nicer, dressier clothes. My general experience has been that consignment stores generally don’t bother with items that aren’t pretty nice, though the policies tend to vary from consignment shop to consignment shop. I’ll utilize these as part of my search if I’m looking for nicer clothes for special occasions, but for ordinary wear, I rarely find good items in consignment shops.

In other words, if you’re trying to find a good price on a great dress or a suit, a consignment shop that sells clothing would be a good place to look for a bargain, though, as I mentioned above, consignment policies do vary.

As always, be selective. Just because something is on sale or has a really low price does not mean you have to buy it. Never shop for clothes unless you have a genuine need for clothes or see that need coming in the near future.

For us, consignment shops and true outlet stores are a great place to look for clothes if other resources (clothes swaps, Goodwill, and so on) don’t pan out. The prices are still usually very good for what you find and you’ll often come home with some quality items.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Bernadette Llaga shops at The Goodwill Store thrift shop in Quincy, Massachusetts, in this file photo. Finding a thrift store you like, checking back often, and shopping with a friend are three tactics Hamm suggests for successful thrift store shopping. (Melanie Stetson Freeman/The Christian Science Monitor/File)

How to be a successful thrift store shopper

By Guest blogger / 03.28.12

One of my best resources for finding new clothes comes from going to the nicest neighborhoods in a metro area (in my case, usually Des Moines) and finding the nearest Goodwill or other secondhand clothing shop. That’s where I begin almost all of my clothes shopping.

Why do it this way? Simply put, people in nice neighborhoods seem to be far more likely to get rid of items for very minor reasons than people in other areas, and like most of us, they’ll simply find the closest place to drop those items. Thrift shops and secondhand shops in upscale neighborhoods are the beneficiaries of this, and they’re often loaded with wonderful items.

Here are some tactics for getting the most out of these stores.

First, do some scouting. If you go to the Goodwill closest to the nicest neighborhood in your area and it doesn’t suit you, it does not mean this entire idea doesn’t work. Thrift stores and secondhand stores often operate on widely varying policies.

Start with that store in the relatively ideal location, but cast your net a bit wider. Look at all of the thrift shops near (or within) most of the nicer neighborhoods in your area.

What are you looking for? You’re looking for good quality and low prices. Finding a thrift shop or a secondhand store with a great balance of the two is well worth your time and effort, because it will be something you can draw on for a long time.

Second, widen your vision a little. Don’t completely disregard a secondhand shop because they don’t have the perfect item on the shelves at that moment. The wares at a good secondhand shop or thrift store rotate surprisingly quickly.

Instead, look for items that are close to what you’re looking for. Are there items in your size that you might not necessarily pick? Are there items in sizes close to yours that you might otherwise buy? Are there other items of interest in the store? Are these items priced reasonably considering they’re from a secondhand store or a thrift store?

These are indicators of the potential of the store to have items that you’d like to buy in the future, which I consider to be more important than items I want to buy right now. I’m more likely to go back to a store that has 50 items that are close to what I want than a store with two perfect items and nothing else.

A final tip: do this with a friend. Usually, social shopping is a bad thing, as people tend to talk each other into purchases. However, I’ve found the opposite effect is true when going thrift shopping.

For starters, if I have a friend that’s excited enough about thrift shopping to spend hours jumping into various thrift stores and secondhand stores with me, they’re not going to be the type that spends money recklessly. That person is going to be at least as conservative with their dollars as I am, which is just who I want to shop with.

Given that, the shopping companion would also make a strong second pair of eyes, helping you to see stuff that you might not otherwise notice. This is incredibly valuable when scouting stores, as every set of eyes helps.

Not only that, doing this with a friend makes it a social occasion (and a rather fun one) instead of just a shopping trip. A friend that is willing to pack some sandwiches and spend the day hitting thrift shops with you is going to be a pretty good person to hang out with.

There are fantastic deals all around. All you have to do is find them.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

This file photo shows tomatoes and green onions on display at a farmers' market in Alexandria, Va. Buying fresh vegetables in bulk and then canning or freezing the leftovers is a good way to pay less for fresh produce, according to Hamm. (Andy Nelson/The Christian Science Monitor/File)

Six ways to save money with fresh produce

By Guest blogger / 03.28.12

For the last twenty months or so, I’ve been switching back and forth between a vegan and vegetarian diet for health reasons (also occasionally eating fish). Sarah has more or less adopted the same diet, although we do often make vegetarian and non-vegetarian variations of the same meal.

The result of all this is produce – lots of produce. Before switching diets, we already ate a lot of fresh vegetables and fruits, but the dietary change has taken things to a whole new level. Fresh fruits and vegetables are now the largest part of our diet, and with that we’ve had to really focus on techniques for minimizing cost and maximizing value when it comes to produce.

As I sat down to write this article, I started off with a long list of specific tips before eventually realizing that many of them boiled down to variations on the exact same tactic. In the end, I found six useful and flexible tactics that we use constantly to trim our produce budget.

It’s worth noting that many of these tactics work well with other food items. Although our focus is on fresh fruits and vegetables, quite a few of the ideas carry over to meats, canned goods, frozen goods, and other items you’ll find in your local grocery store.

1. During much of the year, we let the produce sales lead our purchases and our meal plans (often resulting in food experimentation).
 More than ever, we let the fruits and vegetables completely lead our meal planning. If there’s a big sale on Brussels sprouts at the store, then we’re going to be experimenting with Brussels sprouts. If we’re able to find a great bargain on green bell peppers, then we’re going to be eating meals involving green bell peppers in the near future.

In order to pull this off, a couple of things have to be in place. First of all, we need to have a general sense of what kinds of things one can do with a particular vegetable. What can you do with a Brussels sprout besides merely steam it? It turns out that there are quite a few things one can do with it, and the more things you know (or can easily find), the more sense it makes to really stock up on that produce sale.

Much of that knowledge comes from experimenting and from reading, both in cookbooks and on the internet. In the kitchen, I really prefer to have a cookbook around because it’s usually very convenient for the food research process as well as for cooking, as you can bookmark it and leave it open while cooking and you don’t have to panic if you splatter a bit of sauce on a page.

Thus, we often snag cookbooks at garage sales and other discounted places, and I often receive them as gifts, too.

So, we’ve looked at the grocery flyer and we know what produce is on sale this week. We have some ideas about how most of the sale items can be used. The next step is to put together a meal plan.

This is usually pretty straightforward. We look ahead at our calendar for the coming week and identify which weeknights will allow us to cook something that might take a while, which nights need a quick meal, and which nights are going to rely on a crock pot. Then, we just start penciling in meal ideas into those boxes. We might have something like eggplant parmesan one night when we can cook slowly, a pasta meal when we need something faster, and perhaps a rice-and-beans-and-okra meal in the slow cooker on one of the other nights.

It all relies on what’s on sale. That’s what pushes the meals we select.

From this meal plan, we develop a grocery list. We just identify the items we need (beyond the on-sale produce item and the other items we already have on hand) to make the meals we’ve selected. This usually involves a bit of pantry digging, but a solid grocery list can come together within half an hour of sitting down with a store flyer.

2. If we see an amazing deal, we freeze or can the excess.
 Every once in a while, we’ll stumble across a deal that’s just simply amazing. A friend will give us twenty pounds of sweet corn. We’ll find some roadside stand selling tomatoes at ten cents a pound just to get rid of his excess before they rot. Some grocery store will offer up an amazing loss leader just to get customers into the store.

If we find a deal like this, we’ll go far beyond what we could consume before the vegetables or fruits go bad. We’ll find ways to store it, which often means freezing or canning the items.

For example, if I have twenty pounds of sweet corn, I’m likely to save a few dozen ears for eating immediately, then I’ll take the rest, shuck them, cut the kernels straight from the cob, and put them in freezer containers measuring about two cups apiece. These containers will make for wonderful additions to soups and stews in the fall and winter as well as potential side dishes and ingredients in other things.

There’s usually at least one very good technique for preserving each type of fruit or vegetable. Tomatoes, for example, can easily be frozen whole (soak them in water for a while, then freeze them on a cookie sheet and you’ll wind up with very firm frozen tomatoes which thaw wonderfully) or canned in a variety of ways. Some beans are usually best left to dry and stored in your pantry, while others can be canned or frozen. The National Center for Home Food Preservation has a ton of tips, from techniques to specific ideas for specific produce types.

3. Fresh produce isn’t just bought at the store.
 As I hinted at above, the local grocery store is just one source for fresh produce. There are many ways to get fresh vegetables and fruits into your kitchen.

Roadside stands These tend to populate the roads all over around here when it gets late in the summer or into the early fall. Prices will vary, mostly depending on how urgently the person needs to sell the items. Sometimes, you’ll find a really great deal; often, it’s just a bit lower than the prices at the store. If you find something great, take the items home, then plan the meals for the next week around them.

Farmers markets These tend to vary greatly, too, in terms of prices and what’s available. I tend to have a lot of luck going near the end of the farmers market, where someone needs to offload most of their remaining stock and is dropping the price rapidly.

Friends We have quite a few friends and family members who are avid gardeners. We informally swap fresh items with them, often in a “gift” method. If they have an abundance of tomatoes, for example, we might find a bunch of tomatoes on our front step.

Co-ops If you’re really willing to be flexible, a farmer’s co-op can be a great deal. In our area, most co-ops revolve around getting a box of whatever the farm is producing that week. Over the course of a year, the sheer weight of this ends up being a pretty strong deal per pound, but it’s unpredictable, both in terms of the exact poundage you’ll wind up with and the exact items you’ll get. Our neighbors are members of a co-op and they often wind up with more than they can eat and sometimes with items they’re unsure about.

And then there’s the big one…

4. We plan our garden to offer a lengthy harvest.
 Yes, we have our own garden.

We plant lots of different things in our garden, but we usually stick to beans, tomatoes, and cucumbers because they’re fairly hardy while growing and there are a lot of things you can do with them in the kitchen. We’ve also planted onions, broccoli, sweet corn, peppers, strawberries, and many different herbs over the years (and many other things that I’ve mostly forgotten about).

One key with our garden is that we try to stagger the plantings based on the expected harvest time. For example, let’s say we have access to two different kinds of tomato starts, one that will produce tomatoes in 70 days and one that will produce in 90 days. We might plant two or three of each of them, then wait ten days and plant two or three of each kind again. That means we’d have production from a few plants in 70 days, a few in 80 days (the 70 day plants plus ten more days), a few in 90 days, and a few in 100 days. That spreads out our tomato production, meaning we’re not dealing with a flood of them at once.

It takes a bit of planning, and it’s definitely not an exact science. With some luck, though, we’ll find ourselves spreading our harvest out over three or so months (late July to late October, usually) without having too much of a food flood all at once.

We do still wind up with extras, which we freeze or can, but we’re not stuck with a garage full of vegetables that have to be dealt with. A small batch can easily be handled in an hour or two. Fifty pounds of vegetables is a major project and often results in mass giveaways.

If you’re thinking of starting your own garden, here are some tips for starting a garden inexpensively.

5. What do we do with items that are getting late in their life cycle? We make vegetable soup!
 Even with this type of planning, we still often wind up with vegetables and fruits that are unused. We’ll buy three peppers and use two in a recipe, or we’ll have a few too many tomatoes from the garden – you get the idea. They stay in the crisper or on the table until they’re just starting to get old.

What we often do at that point is chop them up a bit, toss them into a large freezer container, and then wait until that freezer container is mostly full, then we just make a big pot of vegetable soup. We boil some water (or stock – see the next item), dump in all of those frozen vegetables, add a bit of salt and some spices, and let it cook slowly.

Because of the variety of vegetables, each batch winds up a bit different than the others. There will be one or two vegetables that contribute a strong flavor, while others fade into the background. Almost always, though, it’s delicious.

Another option if you don’t like the soup route is to simply make ratatouille with it. I love making ratatouille, as it’s just loaded with flavor. Ratatouille is quite easy, except that if you’re freezing various leftover vegetables, you do need to keep them all separate until you make it. What you’re going to do (roughly) is add your vegetables in order of toughness to a warm skillet with some heated olive oil until everything is tender. Here’s a good guideline for many common summer vegetables; a quick Googling will find other vegetables.

6. What do we do with scraps and other items still left unused? We make stock, and then make compost!
 Even after this, you’ll often still find yourself with a few leftovers. You’ll chop up a vegetable and find yourself with some edible-but-not-quite-perfect pieces left over along with some pieces that you wouldn’t want to eat. You’ll find some vegetables in the back of your freezer that have a bit of “freezer burn” to them.

Even those things don’t have to go to waste.

If the items are at least edible, we usually just turn them into a batch of vegetable stock. In our freezer, we have a container for leftover vegetable pieces – discarded bits of a tomato, a few extra spinach leaves, an unused portion of kale, and so on. These are things that could be eaten, but are fairly marginal.

When our container is full, we just put all of the vegetable scraps into a slow cooker, fill it most of the way up with water, and turn it on low for the day (often with just a dash of salt and ground black pepper).

At the end of the day, the water has transformed into delicious vegetable stock, a liquid that will make almost any dish better and will make soups absolutely amazing. We just strain out the remaining vegetable pieces and save the liquid in small portions (one or two cups).

What about the pieces we’ve strained? What about the inedible pieces? Those end up helping our garden next year via the composter.

 Behind our house, we have a barrel composter. Into that composter goes the really bad vegetable scraps, some yard waste, and a few other odds and ends (coffee grounds, for example). We keep it damp and rotate the barrel once a week or so.

In the spring (and sometimes in the fall), we empty out that composter and spread the dark organic material all over our garden. It’s an amazing natural fertilizer and it keeps the soil rich in our garden. This helps the plants to grow like wildfire the following growing season.

As a convenience, we do keep a small lidded pot on our kitchen counter, where we keep scraps over the short term. We usually fill this container, then take it out to the composter once every few days or so. That way, we’re not running to the compost bin multiple times a day.

And so the cycle continues. All along the way, we’re using tactics to reduce the cost of our food budget, from the seeds in our garden to the vegetables on our plate on to the scraps we’re about to throw out and back around again. These tactics keep our food budget under control and ensure that we always have fresh and delicious things to eat.

Northern Arizona University freshman Tyler Dowden speaks during a news conference on Capitol Hill in Washington earlier this month to announce the collection of over 130,000 letters to Congress to prevent the doubling of interest rates on student loans beginning this July. When stuck with huge loans, don't forget to save for retirement. (Manuel Balce Ceneta/AP/File)

Student loans are $300,000. Prepay them or save?

By Guest blogger / 03.27.12

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. Renting or selling land
2. My religion
3. College cash and investing
4. Transportation dilemma
5. Drawbacks of ebooks
6. Retirement and student loans
7. Walking away?
8. Garden vegetable choices
9. Roth 401(k) and Roth IRA?
10. Alternate oil choices in playdough

The main floor of our home has a large number of trays spread about, each full of seedlings.

Little green tips are just starting to peek through the surface here and there. Before too long, they’ll be ready to transplant outside.

These are the first steps toward a bountiful harvest later this summer.

Q1: Renting or selling land
My parents recently inherited 137 acres (total) of farmland from their parents, who died this past year. 100 of that 137 is tied up in a trust with other siblings, so I’m going to focus on the 37 here. My mother wants to sell her 37 acres so she can pay off her debt and finally be debt-free. I definitely support her desire to be debt-free. However, I feel that it is going to be financially more beneficial for her to keep ownership of the land and rent it out via cash rent.

In Iowa right now, land is renting for between $300-400/acre per month and selling at a minimum of $6,000/acre. I’m not exactly sure how the income tax works on rented vs. sold land, but here is the way I’m calculating the profits:

Renting 37 acres every year: 37 x 300 (monthly rent) = 11,100 x 12 (per year) = $133, 200 per year of income on the owned land, before income and property taxes

Selling 37 acres of land: 37 x 6000 (assuming the lowest value) = $222,000 total before income taxes

Now, after doing the math, the right path seems obvious to me. In two years, my mother would earn in cash rent what she had made if she sold the land. Is there anything I’m missing? I want to be able to show her this so she understands that it is much more beneficial to her in the long run to keep renting the land. But I want to make sure I’m understanding this correctly before I go to her with any of this information. Would you consult a lawyer and accountant in this case as well to determine what is the most financially beneficial route? My gut instinct is to never sell the land as the income will not only benefit my mother for the rest of her life, but then benefit me and my children for years to come.
- Linda

Since I live in Iowa and am friends with and related to quite a few farmers, I will say that the value of farmland is mostly pegged to the value of a bushel of corn and/or a bushel of soybeans – or at least the expected value of a bushel over the next year or two. Land values are also being buoyed by very low interest rates, meaning farmers can borrow money to pay for the land with very little interest attached.

I will certainly say that if a bushel of corn drops by 50%, you’ll not be able to find a farmer willing to rent land at $300 per acre, and the price for selling that acre will drop significantly, too. The same is true if interest rates start to rise.

The real question here is what will grain prices do and what will interest rates do? If grain prices stay high and interest rates stay low, the best thing to do is to rent, as you’ll make more money that way. If grain prices drop and/or interest rates rise, then you would have been better off selling and locking in those high values, as farmers will be unable to pay very much per month per acre to rent.

My personal gut feeling is that your mother should sell the land and eliminate her debts. A lot of factors are working against her if she holds onto the land – the interest rate on her debts, the future of corn and soybean prices, and the future of bank interest rates.

If you need some further guidance, I’d suggest talking to a lawyer in Iowa that specializes in farmland and farm inheritance, as that person should be able to guide you.

Q2: My religion
I’m curious what’s your take on religion. Do you believe in god? Do you teach your kids about this? How do you handle this?
- Kevin

Religion is something I enjoy studying and find deeply fascinating. My personal spirituality is something I struggle with greatly. I am constantly asking questions and trying to dig down and find answers, and often that just ends up being a cycle.

I call myself a Christian. I participate in a Lutheran (ELCA) church that’s pretty friendly and open. My wife often jokes that our church is mostly a big collection of Americans of Scandinavian descent who like to have potlucks (the NPR show A Prairie Home Companion can be eerily accurate at times). My children go to the Sunday school there, which is mostly a telling of a Bible story, followed by an art project and cookies. I’d pull my kids out of there immediately if I felt like they were being indoctrinated or forced into anything. My children ask a lot of questions and I answer them as best I can, but if they don’t end up being Christians, I don’t feel as though I failed them as long as they’ve followed their own spiritual journey and thought about the issues at hand.

While I have some things I hold to be true for myself, I don’t feel the need to evangelize to others because I feel that people are best served coming to their own answers about issues of faith, even if those answers end up being different than mine. If someone asks me privately about specific issues, I’ll answer, but I don’t think there’s anything wrong at all about having a different perspective than I have.

One of my greatest wishes for the world would be that everyone in it would wake up tomorrow and think, “It’s fine that other people think differently about God and about faith than I do. Let’s sit down over dinner and have a nice non-confrontational chat about it. At the very least, I’ll learn something new.”

Q3: College cash and investing
I am senior in college and in need of some suggestions. I am not sure what I should do with additional cash that I have from working at during my studies at college. Should I open up a high yield savings account or CD’s, or traditional or Roth IRA? I will not need the money for a few years.
- Ronald

If you’re going to use that money before retirement and want to have access to the money you’ve earned while it was saved or invested, then I wouldn’t consider a Roth IRA or a traditional IRA. Those both work best when you’re saving specifically for retirement.

Right now, a CD won’t earn you significantly more than you’d earn in a savings account due to the depressed interest rates. Of course, a savings account won’t earn you much, either. The advantage both have is that they’re insured by the FDIC, which means you’re not going to lose money on them. If you were to choose to invest your money in stocks or something via a brokerage account, you’re going to take on risk and a decent chance of loss, especially over a short period like a few years.

What this really comes down to is goals. What do you hope to do with that money? Are you going to graduate in May? Do you have a job? If you’re about to graduate and don’t have a job, I’d keep the money in a savings account because you may really need it soon. If you have a job locked up and are looking further down the road at things like a house or a car, I would consider putting some of it in a shorter term CD, but I wouldn’t lock up all of it (you still need an emergency fund, after all). If it’s truly for retirement, I’d probably put it in a Roth IRA. If it’s for starting your own business in fifteen years, I’d look at a brokerage account of some kind and invest it in stocks outside of an IRA.

It’s all about your goals, because your goals tell you how much risk you can tolerate and how liquid you need that money to be.

Q4: Transportation dilemma
I’m 27, have no cc debt, own a car that is fully paid off, and have about 50k in student loans (10k of which is at 6.55%, the rest is around 3%). I have about 10k in savings and 30k split between a Roth IRA and 401k. I currently live in southern CA, but my boyfriend and I are moving to DC (where I grew up) to be with family and friends. My parents have generously offered to let me live rent-free with them in order to expedite paying off my student loans, which is my biggest priority right now. My bf is going to rent an apartment nearby.

My boyfriend and I plan to drive his car across county to DC. The question is what to do with my car. I own a 2006 Mitsubishi eclipse. It has about 70,000 miles on it and needs a new timing belt, but other than that is in great condition. Its blue book value is around 9k (assuming I put in a new timing belt). I do not anticipate finding a job that will pay my relocation expenses and have estimated that it will cost $1,500 to have my car transported back home. I don’t think I could make the drive back in my car to DC on my own, so that is not an option.

I find myself torn on what to do! In scenario 1) I keep my car, pay $1,500 to transport it and run the car into the ground, as it is fully paid off. I hesitate about this decision as I feel like I’m outgrowing this car and am looking to have a car that has more space and could possible carry children in the not too distant future. Plus does it make sense to pay that much money to transport a car with a low value to it already?

In scenario 2) I sell the car and then buy another used car in DC. I’d want something reliable as the weather and traffic in DC isn’t easy to navigate and am thinking of using some of my savings to purchase something used around 12k or so. But then I also feel like this is delaying me from reaching my main object – paying off my student loans!

In scenario 3) I sell the car and then use public transportation. DC has a pretty good public transportation system so I was leaning toward option #3. My parents home (where I will be living) is about a mile from the metro and is fairly near bus stops. I was considering selling my car and attempting to see if I could just take the metro to work. When I mentioned this to my parents, they seemed to think I was absolutely nuts. They have never not had a car and my mom gets lost easily on the metro – so I think that could be part of their bias. But with that said, if I do sell my car and attempt to use the metro, I could very easily see them offering to drive me places rather than let me use the metro. They can be very giving and I don’t want to burden them, just because I am being frugal.

So any thoughts on my current predicament?
- Leona

If you have a strong sense of the availability of public transportation, I would lean toward option #3 as well. DC does have great public transportation (I’ve used it myself during an earlier stage in my career) and if there’s an easy way to get from your place of residence to the public transportation system, that’s pretty close to a dealmaker.

If you’re making the case to your parents, suggest that by selling the car you could immediately pay off the higher interest loan (or close to it), plus you’d no longer be paying insurance or fuel for upkeep so you’d have more to channel toward your debts.

If your mother is stressed about using the metro, I would show her exactly how you get to and from work when you have employment secured. Turn it from navigating a bunch of routes to a simple matter of “go to the bus stop, wait for bus X, ride bus X to the train station, get on train Y, get off at this stop, and you’re right by my work!”

Q5: Drawbacks of ebooks
What are the bad aspects of having a Kindle? I know you and Sarah each have one and I’ve read so many positives. What are the negatives?
- Alan

There are simply some physical features of a book that a Kindle (or other e-reader) makes very difficult.

For example, if I’m using a book for reference, I often litter it with bookmarks. While bookmarking does exist on a Kindle, it’s not nearly as intuitive as it is for a paper book.

Another issue is when a book is trying to teach a technique. The layout of a printed page has a lot of flexibility when it comes to picture arrangement, for example, and an e-reader just doesn’t have that.

Of course, you could get many of these features on a tablet, but the actual experience of reading on a tablet is pretty hard on the eyes after a while. My eyes get blurry pretty quickly if I read a significant amount on a backlit screen.

My solution is to use a Kindle for a lot of my reading, but stick with real books for things like cookbooks and other reference books.

Q6: Retirement and student loans
My wife and I will be starting our medical residencies starting in July. We will be earning about $100,000 combined for the next three years. This will be both of our first jobs, and we have no credit card or vehicle debt, but about $300,000 in student loans combined (most at 6.8%, a much smaller amount at 3.6% and 8.0%). We would like to contribute about $5000 per year each to our retirement funds. Our hospitals offer 403(b) accounts without any matching. We are wondering whether we should (1) put our retirement savings in the 403(b) and use the savings from the deferred taxes towards our school loans or (2) put the retirement savings in a Roth IRA for the tax advantage when we are retired.
- Randall

If I were in your shoes, I would make absolutely sure that I was hitting my retirement targets before worrying about extra payments on those student loans.

Sit down with a good retirement calculator, like this one, and put in some numbers. Talk with your wife as you’re doing this and make sure you’re on the same page when it comes to your retirement goals. Eventually, you should be able to come up with an idea of what you ought to be saving each year.

So, what should you use? The usual recommended method is to invest in a 401(k)/403(b) up to the employer match limit (which for you is $0), then max out a Roth IRA, then put the rest into the 401(k)/403(b). This accomplishes a lot of good things – diversification for tax purposes and maximization of “free” matching money chief among them. You’ll need to keep an eye on income limitations on the Roth if you do this, because the income limitations are lower if you’re using your plan at work.

Once you’re saving properly for retirement, see what you have left over for paying off those student loans.

By saving for retirement now, you’re significantly reducing the amount you’ll have to save for retirement each month throughout your career. If you wait ten years, the amount you’ll need to save each month to reach your goals will skyrocket.

The only time you should cut back on the retirement savings is if it begins to look like you’re not going to be able to make minimum payments on your student loans or collateralized debts. Given your income, this shouldn’t be a problem.

Q7: Walking away?
Got myself into a little bit of a pickle during the housing boom/crash. Bought a newly built house for $145,000 in 2004. Then over the course of the next 2.5 years, I refinanced 3 times, taking advantage of some “pocket cash” opportunities. My employer filed for bankruptcy in June 2010 and cut my pay by 22%, none of which has yet been restored. I’m using maxxed out credit cards to help make ends meet for now. So I’m stuck in a home I for which I owe $192,000 and which has a value (according to zillow.com) of $71,400. I have a first and second mortgage, with payments adding up to $1,557 monthly. So, basically, I’m a prisoner in this home. It’s close to my work, and it’s big enough for my needs. I have a 15-yr-old and a 13-yr-old living at home with me as a 48-yr-old single dad. I live in AZ, meaning I can “strategically default” and only be held accountable for the total of the second mortgage, which is around $16K. I’d walk away in a heartbeat if not for the damage to my credit score. My question is this: would I be smarter to just stop paying the 1st and apply the whole $1557/month toward the second, and plan to do a short sale later in the process when I’ve paid a big chunk on the second? I know my credit score would dip into the 400s, but can I realistically expect to come out ahead on this mortgage by riding out the insanely huge underwater amount? I’m torn and conflicted. Any advice would be appreciated.
- Lonnie

The first thing I’d do is understand fully how the Arizona “strategic default” rules work. The right step here is to contact an Arizona property lawyer, since it seems as though the specifics of the laws regarding this have been changing steadily over the last few years due to court decisions.

What I’d suggest you think about in the interim is how important your credit rating is to you over the next several years. Are you going to need to make a major purchase that involves debt? If your plan to rent your home over the next several years and don’t anticipate needing a car loan, I wouldn’t worry too much about my credit and I’d focus on making moves that preserve the most money in your pocket.

Again, I think the best step for you is to talk this over with an Arizona property lawyer who specializes in such things.

Q8: Garden vegetable choices
What vegetables do you and Sarah plant in your garden? I have a patch of land where I could start a garden and am thinking about what to grow. I’m mostly interested in things that are easy to grow but produce veggies I can easily eat!
- Conrad

We plant mostly beans, tomatoes, and cucumbers each year. We eat these three vegetables by the pound in August and September and often end up freezing some for later in the fall and winter. The rest of our garden is perennial herbs and asparagus that are really low maintenance.

Honestly, part of the reason we grow these three vegetables is that they’re pretty hard to mess up. While I like to garden, I don’t exactly have the greenest thumb in the world, and the same is true with Sarah. Through all of our efforts to kill the plants in our garden due to our mistakes, we have the most luck not killing beans, tomatoes, and cucumbers.

I’d suggest visiting your local garden center and asking them for some very hardy and disease-resistant and pest-resistant examples of tomatoes, beans, and cucumbers, and plant those.

Q9: Roth 401(k) and Roth IRA?
I have a 401k with my company and if I contribute 9% they will match up to 8%. They also offer a Roth 401k version and the 8% is matched whether one is contributing to traditional or Roth 401k. I contribute 10% to traditional and 4% to Roth. The company 401k is setup through T Rowe Price. I also have a Roth IRA setup through Vanguard and I contribute $300 a month to it.

My question, does it make sense to contribute money to a Roth 401k and Roth IRA instead of just contributing to one, specifically my regular Roth IRA? If both Roths were equal in maintenance fees would the only benefit of the Roth 401k be that the money is taken out before I receive a paycheck? I am trying to maximize my take home pay now while still contributing the same level of money to retirement whether its through payroll deductions or after the fact. Thanks for your time and great work on the blog, I read it everyday.
- Patrick

The money that you put into a Roth IRA or a Roth 401(k) is post-tax money. In terms of contributions, they’re pretty similar.

If you’re contributing less than $5,000 per year and your income is significantly below $100,000 per year, the only difference between the two with respect to contributions is whether it comes home to you or not. The difference is, as you mention, maintenance fees and investment options.

This of course hints at some of the differences between the two. The Roth IRA has an income cap – if you earn much above $100,000 per year, you’re going to find yourself unable to contribute the full amount to a Roth IRA. There’s also an annual contribution limit for a Roth IRA, which is $5,000 a year if you’re under the age of 50. There are other differences, too, such as the investment offerings.

Q10: Alternate oil choices in playdough
When making homemade playdough, can you use other oils besides soy? We have a soy allergy in our home.
- Amanda

The basic recipe for homemade playdough is 2 cups flour, 2 cups warm water, 1 cup salt, 2 tablespoons vegetable oil, and 1 tablespoon cream of tartar.

You can use almost any kind of vegetable oil for the oil, so soy is not a requirement. I generally use whatever we have on hand.

The real key to making playdough is storing it in a sealed container so that it doesn’t dry out after the first use. If you let it dry out, you might as well just toss it.

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.

Kristen Gleason shows a sweater she is considering buying to her twins Alex, left, and Nick, in this file photo. Hamm suggests that picking clothes that don't need to be washed individually will add up to significant time and money savings. (Melanie Stetson Freeman/The Christian Science Monitor/File)

Laundry tips to save you money

By Guest blogger / 03.26.12

Several years ago, I owned this wonderful sweater that I liked to wear during the winter. It fit me almost perfectly, the color of it matched my complexion, it wasn’t itchy at all, and I loved the pattern.

As much as I liked it, though, I ended up wearing it only once or twice a winter, and I eventually ended up giving the thing away.

Why? It required individual washing. Every time I would wash the item, I couldn’t help but run the numbers on the extra time and money this sweater was costing me, and when I compared that side-by-side with a nice article of clothing that didn’t require such extra care, I always leaned toward the item that was easier to care.

At the time, Sarah and I lived in an apartment that had a coin-operated mini-laundromat in an adjacent building. To do your laundry, you would carry a basket of clothes over there, pop four quarters in the washer, come back in half an hour, pop four quarters in the dryer, and come back in about an hour.

Two bucks, you say. Big deal. Let’s think this through, though.

Let’s say I would wear this sweater five times a winter for five years. Each time I washed it, I need to use some cleaning agent, costing (say) twenty cents. Also, I’m going to have to devote, say, five minutes each time to the process of washing it.

Just to wear this item regularly as described above, I’m spending an hour and forty minutes just cleaning that shirt and spending $55 in the process. Even if I had my own washing machine and air-dried the shirt, I would still be spending about $18 over the life of the garment just for washing that one item (over 25 washings).

That realization led me to try other methods of cleaning it. Hand-cleaning worked wonderfully and saved considerably on the money side of things (I just needed the cleaning agent), but significantly increased the time investment. Having a cleaning service do it would have been even more expensive.

Eventually, I found myself wearing it perhaps once per winter, cleaning it afterward, then talking myself out of wearing it for the rest of the winter. I eventually donated it to charity.

The immediate response people might have to this experience is that I was being lazy or cheap. Regardless of whether or not that’s true, 

That’s why, given a choice between adding a garment I can wash normally to my wardrobe or adding one that requires individual washing, I’ll always lean heavily towards the one I can wash normally. It devours significantly less time and less money over the long haul.

I do still own multiple garments that require special cleaning, but I rarely wear them. All of the “special care” items were gifts. When the opportunity comes around to wear them, I often can’t justify the time and expense when there are many other wonderful items I can wear that don’t require specific cleaning methods. Why not just wear that nice shirt I can launder with everything else?

This response winds up informing my shopping practices. If I see an item with special cleaning instructions, I’m simply very likely to skip it.

Special cleaning instructions have a cost, both in time and in money. Keep that in mind when purchasing clothes, and don’t be afraid to look for similar items that don’t require special practices.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Relying on Social Security or a pension can be a dangerous game, since companies and even governments can default on future payments. But a 401(k) is savings money that stays under your control. (Courtesy of Brittany Lynne Photography)

401(k) plans available at work? Sign up. Now!

By Guest blogger / 03.26.12

This tip is directed at everyone who has a job where a 401(k)/403(b)/other individual retirement savings plan is available, but you’ve not yet signed up for it out of laziness, forgetfulness, or some other non-retirement-based reason. This tip is doubly directed at everyone whose employer offers matching money for that retirement plan and they’re not signed up for it.

Open that account now.

Let’s be realistic here. If you’re under the age of about 50 or so, you’re playing a fairly dangerous game in assuming that Social Security in anything close to its current form will be there for you when you hit retirement age. Most likely, the money will be a pittance and not nearly enough to survive on. There’s some chance that there will be nothing at all.

Don’t rely on that pension, either. Companies go under – even governments go under. Many look for ways to get out from under the financial burden of paying out that pension they’ve promised to their employees, and many get away with it.

The only retirement tool I believe in is one’s own savings for retirement, and that’s where a 401(k) (or similar plan) comes in.

For most people, a 401(k) plan is the absolute easiest way to get started saving for retirement. In many workplaces, you just fill out a form, they take a little money out of each of your paychecks, and you’re saving for retirement. Not only that, the money taken out of your checks isn’t very painful at all. If they take out $20, it likely only drops your take-home pay by $16 or so because the money is taken out before taxes are calculated.

Even more importantly, some employers offer free money into your 401(k) if you put money in yourself. Let’s say your employer offers a one-for-one match. If you sign up to put in $20 per paycheck, your paycheck only goes down $16, you put $20 into your account and your employer puts $20 into your account. That’s free money, and if you’re not signed up for it, you’re saying no to that free cash.

Some people stress out about the investment choices. Don’t. Even if you make a really poor choice among the investment plans offered, you’re still far better off putting money in there than you are not putting anything in at all. Saving money in a terrible investment is much better than saving nothing. You’re better off just picking a plan at random than you are putting it off another paycheck.

That’s not to say you shouldn’t look at the investments and try to figure out the best one. The thing is, you can do that later. You can change investments later on without much difficulty at all if you decide you’d rather be in something else. The only difference is that if you start saving for retirement now, you’ll actually have money in there to move.

Of all of the financial mistakes I made in my early life, the one I didn’t make was putting money away for retirement. I saw the challenges my parents were having as they neared retirement and I didn’t want to have that kind of difficulty. I put in quite a lot, and I’ve never really stopped.

Looking back on it, I realize that I would have had bigger paychecks had I not put that money away, but I know full well that if I had bigger paychecks back then, I would have just spent the money on things I didn’t need.

You won’t miss the small amount that’s gone from every paycheck, but a few decades down the road, you certainly will miss not having hundreds of thousands of dollars in retirement saved if you don’t make this move today. Just do it.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

In this file photo, a shopper checks a jacket from a sales rack with a final discount price of 1,900 yen (US$21) at a clothing store in Tokyo, Japan. Hamm argues that telling fellow shoppers when they can pay less for an item is a nice gesture, if you feel comfortable doing so. (Itsuo Inouye/AP/File)

Should you be a shopping Good Samaritan?

By Guest blogger / 03.24.12

A few days ago, Sarah and I were buying shoes for our daughter. She’s graduating to shoes with laces, as she’s developed the finger strength and dexterity to tie them for herself, plus her feet are just getting too big for her old ones.

After checking prices in several different stores, we found the perfect pair in an outlet store. The little girl fell in love with the purple design and the sparkles, I respected the sturdy craftsmanship, and the price was pretty solid, too – around $12.

Content with our purchase, we looked around for other items in the same area. We walked down to another outlet store about a block away and found ourselves browsing a mix of children’s clothing and shoes.

While there, Sarah spied a family of six – two adults and four small girls – trying on shoes. One of the pairs that one of the girls was trying on was virtually identical to the pair we had just bought for our daughter (it might have actually been the same model, but I wasn’t quite close enough to tell – suffice it to say that they were very similar). They then talked about the price of the shoes, and I saw Sarah almost choke when she heard that the family was about to pay $50 for that pair of shoes.

She couldn’t hold it in. She spoke up by tapping the mother on the shoulder and saying that we had found almost the exact same pair of shoes for 80% less at a store down the block. The mother’s eyes lit up, she thanked Sarah several times, and that family practically ran out of that store.

Since then, I’ve been flipping this situation over and over again in my mind.

First of all, is it intrusive to suggest lower prices to other customers? If I know that a person can get a lower price on a particular item elsewhere, do I feel appropriate telling them so? On the flip side, if a person in the store knows I can get an item at a lower price elsewhere, is it appropriate that they tell me?

For some people, the answer to both of these might be “yes;” for others, it’s always a “no.” For me, it’s a “sometimes,” mostly depending on context and often depending on how outgoing I’m feeling in that moment.

On the other hand, does it really make a difference whether I’m standing in a store or not? I’m very much willing to share a deal while sitting at my computer. I often visit blogs that share deals, particularly when I’m trying to find a discount on a particular item. Friends often email me deals on things they know I’m looking for, and I do the same for them.

In both cases, context really matters. I simply wouldn’t do such a thing at my preferred local game store, for example, because I value the continued existence of that business and I know that the multitude of services they provide are subsidized by selling things at MSRP. On the other hand, at a large chain store, I’d find myself much more likely to do it, particularly if the savings is quite large.

In the end, I don’t think there’s really anything wrong with sharing bargains with other customers in a store. Much of it has to do with your own social skills and the approachability of the other person.

This brings me to another interesting situation I found myself in recently. When I was shopping at a local store, I was picking up a container of my youngest son’s favorite fruit juice when I noticed that someone had actually stuffed a coupon for the item down inside the label so that part of the coupon was hanging out of the package. Naturally, I used the coupon.

It left me thinking about the person that did this, though. Most likely, a person clipped the coupon, decided it was still too much even with the discount, and decided to leave the coupon for some other buyer (in this case, me). That seems reasonable.

I often clip a lot of coupons that I don’t use. Should I just attach them all in a similar fashion as this mystery juice shopper did for me? Perhaps I could create a culture of coupon paying-it-forward at my local grocery store.

A week later when I was at the store again, I found myself leaving behind six coupons. I just stuck them inside of labels or left them on top of packages. I’d like to think that six lucky customers found the coupons, saved some money, and then maybe one or two of them decided to help someone else save a buck as well.

I think the notion of paying it forward is really what it all comes down to. If you have a chance to share savings with someone else and feel comfortable doing so, share it. It costs you nothing, but it certainly helps the other customer. Perhaps that person will share a savings tip with another person or two and someday the savings will come back around to you.

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