More thoughts on the adult allowance

Here’s a post from yetanotherpfblog that inspired this one.

Long-time readers of the blog may be aware that DH has a weekly allowance, and I don’t.  DH keeps track of this allowance himself.  I *think* it is currently set at $40/week and an additional $400 for Christmas and another $400 for his birthday (I think it got bumped up the last time he got a raise).  So… if my math is right, that’s $2,880 in discretionary spending each year that he does that we don’t talk about.  It covers everything he wants to buy that he doesn’t want to talk over first except things he buys at the grocery store and meals out with at least one other family member.  It does not cover clothing, and it wouldn’t cover the gym or medical stuff if he had it… but we talk about those things first.  (So coffee out by himself comes out of his allowance, but if he takes one of the kids with him to get a hot chocolate it doesn’t.)  Usually things like subscriptions to audible or blue bottle would also come out of it (but not Tea Runners because the herbal quarter of each delivery is mine).  He also uses it for most of his hobbies, fancy food things he doesn’t buy at the grocery store, presents for me, and the occasional paying for a mistake kind of thing to make me happy (ex. parking tickets).

The most recent change was me getting tired of him buying awful Starbucks beans from the grocery store (so they don’t count against his allowance) and telling him to put a blue bottle subscription on the family budget because gosh darn it we are rich and we do not need to be drinking burned coffee.  (He is fine with more robust coffee than I am.)   The bad beans are because he’s been saving up– he’s trying to decide between a 3D printer and an RC plane.  I am hoping for the printer because we already have at least two mostly unused RC flying objects in the house (3 if you count the one the kids have that can’t be controlled).  But it’s his money, so he gets to decide.

He likes his allowance because it lets him manage his own budget without affecting the general budget and I like it because there’s a predictable amount going out.

One thing we do sometimes is the cost of a low-end or average thing will come out of the joint account but if DH wants a really nice version the difference will come out of his allowance.  So if he wants an office chair, we’ll pick an amount that a reasonable office chair would cost (say $500), and if he wants a fancy $1K chair, the additional $500 would come out of his allowance.  We tend to do this with things like monitors or the one video projector replacement we’ve done.

I don’t have an allowance– I do all the money stuff so I don’t need to spend a predictable amount for me to do planning since it’s my spending and don’t have the need to spend all the money vs none of the money that DH has and I don’t get enjoyment out of the shopping process like he does. Generally this means we talk about every penny I spend that’s not on grocery/utilities/etc., although since we’ve gotten rich I’ve started making lots of $25 donations without telling DH about it right away.  I just don’t buy things frequently (my MIL is so generous with the kids that we rarely have to buy more than socks, underwear, and the occasional orchestra outfit).  I buy clothing in one fell swoop once every two years on a full day shopping trip and shoes every few years. The things we talk about are things we should talk about like what kind of stove to get or whether to replace the projector or what summer camp to send our kids to or to drive vs fly. Also I tend to put smaller things on my amazon wishlist throughout the year and people buy them for me at Christmas.

When we were younger and poorer we discussed more individual purchases, but these days we can afford to buy whatever can be bought at the grocery store out of the joint account. When I buy something I mention I’m going to do it and he says ok.  It’s not so much permission as discussion and informing. Money is a tool to provide happiness, and we want to balance what it can do in terms of present vs future consumption.

It really hasn’t been a big deal to discuss our spending beyond DH’s allowance, at least not once we instated the allowance.  Back when we couldn’t afford all our wants I’d have looked at our cash flow and emergency savings and I would have been able to say if it was going to put too much pressure on the joint account or if we could handle it.  There were some startup costs when we were first figuring things out and we were getting on the same page but it got easier.

How do you (and, if applicable, your partner) deal with discretionary spending?

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Repair or replace?

The fan on my computer’s video card is dying loudly.   DH says my options are a $90 video card or a new computer for $1-2K.  My current computer is from 2012, but I have a more recent laptop.  There are some other problems with the desktop, which is still running the old version of windows.  Dropbox no longer plays with it, for example.

We often have the choice to repair an appliance or replace it entirely.  Long-time readers have seen plenty of discussions about whether or not I should just give up on repairs and buy a new car.  DH has also used his mad engineering skills and youtube videos to fix our clothes washer to replace the dishwasher and freezer motors.

I also recently got around to mending my pile of slightly torn clothing, mainly because I was running out of pants to wear.  Before doing this I (uncharacteristically) impulse bought a pair of pants online from Nordstrom.  Magenta.  Because… the magenta versions were on sale for $35 and the black pants were $60… and I did kind of need another pair of pants if I wasn’t going to mend.  (It turns out they’re polyester.  1940s style pants in a 1970s fabric.  So when I wear them, whenever I look down I get this disconcerting feeling that I’m attached to my grandma’s torso and legs.  I’m pretty sure she had a pair of pants in this exact color and fabric.  They’re very comfortable though!  So far I’ve worn them to work twice but only when I know the more fashion conscious of my colleagues will be out of town.)  Now that I’ve mended a couple of hems I no longer need to wonder whether to wear jeans or bright pink pants or dig out the least dirty pair of nice pants out of the laundry every couple of weeks, give or take.

Generally when we try to decide whether or not to repair or replace, we do a cost benefit analysis.  How much will it cost to repair?  How much will it cost to replace?  How guilty will we feel about the environment?  How difficult is it to figure out how to get rid of the broken thing?  How long will it take to figure out how to do the repair vs. how long will it take to actually pick out a replacement?

Generally in this household it’s that last item that is the deciding factor.  I hate shopping.  DH takes FOREVER when he picks something out (see:  slow kitchen renovation process).  If I need something sooner rather than later, ironically it generally takes less time to repair it than it does to get a new one.

So I decided to go for the video card option because picking a computer could take months and I need that noise to stop now.  (And DH satisficed and picked a video card without spending forever, but then the one he picked had a loud fan even when it wasn’t broken, so he sent it back (yay Newegg) and got one without a fan and now my computer is quiet and he wishes he’d made this switch ages ago.)  I’m thinking if we’d decided to pick out a new desktop he’d still be on the computer comparison shopping and my video card would be cachunking along if it hadn’t yet given up the ghost.

How do you decide to repair vs. replace?  Which are you more likely to choose?

Ask the grumpies: How to find a smart fee-only financial planner, or should we just give up and do it ourselves?

CG asks:

How to find a smart fee-for-service financial planner? We (especially DH) think we are pretty smart about investing (index funds!), but we have enough money saved now that we really would like another set of eyes on our choices. The people we’ve gone to so far are hearty retired-athlete types who are probably good at relationship building in general, but not with us. Basically we have to feel like the person is truly an expert and as smart as or smarter than we are or else we won’t be getting anything out of it. Do such people exist?

Here’s Walter Updegrave’s suggestion on the CNN Money Site and on his own website.

If you have a lot of money and are thinking about asset transfer/tax avoidance, then maybe a tax attorney or CPA.  I’m not sure how to find a good one of those as we’re not in that bracket.  If you have money in stocks there’s probably things that can be done with losses and conversions etc. to save money on your annual tax bill.

You are probably best off posting on the Bogleheads forum and asking your questions direclty. It is likely that the people who truly are experts and smarter than you are at this stuff are outside of what you’re willing to pay for their services.  If you are willing to spend a large sum, then you’d be best off asking rich friends to ask their rich friends, though many of them are probably also getting shafted by people who aren’t actually doing what’s best for them.

If what you want is just about balance of assets, then asking the Bogleheads forum is going to work well.  There are lots of smart and expert people on Bogleheads who are just giving financial advice to upper income folks away for free.

In addition, there’s a wide range of acceptable even given your personal risk tolerances.  There really isn’t one optimal mix given uncertainty and our uncertainty about how certain we are.  Because you are smart and have the basics down, if you do it yourself with the help of online calculators there won’t be much that a financial advisor can add.  If you’ve exhausted your annual retirement savings and have space for taxable, here’s our thoughts on what should go where when you’re investing.

To sum:  You are probably doing just fine.  But if you have doubts, check out the Bogleheads forum.  If you still want a financial planner, read through the Updegrave links above and you might get lucky, or be prepared to spend a lot and still have a chance of not getting much out of it.

Does anybody have better advice for CG?  Have you found a financial planner you love?  How?

I now own more than 4 pairs of shoes…

In college I owned one pair of (generic) sneakers and one pair of (Teva) hiking sandals at any point in time.  In graduate school I added (generic/bass/stonefly) brown or black loafers and (generic/stonefly) nice black sandals.  (The Stonefly were an investment in the last year when I was on the job market.)

Most of my professional adult life I’ve been content with one usable pair of brown sandals, one pair of black sandals, one pair of black maryjanes and one pair of brown semi-dress shoes.  All pretty expensive and extremely comfortable European varieties built for wide feet like my own.* Eventually I added hiking boots, for you know, hiking (though they would also get repurposed for things requiring tennis shoes).  I would justify spending $100-$200 on a pair of shoes by only buying shoes every 5 years or so.

I don’t know if it’s just my feet heading into middle-age, or the heady feeling of having two salaries, but I’ve now got more shoes.  Not like crazy Imelda Marcos shoes, but now I have a choice about whether to wear (naot vs pikolinos) maryjanes or (pikolinos) half-boots or even (super cheap target) canvas sneakers if I need a pair of black shoes.  It used to be if I was wearing something that required black shoes I’d check the temperature and pick the maryjanes or sandals.  Similarly for something that required brown shoes.  Now there’s choice.

I even got a pair of New Balance sneakers, which I think is my first name brand pair of tennis shoes ever**.

I’m losing more of my frugality/minimalist cred.

I’m not sure if this is a good thing or not.

Grumpy Nation, tell us about shoes and frugality and minimalism and cred (or the opposite!).

* I also usually keep one pair of completely worn out black flats and sandals of either color just in case that I didn’t count as part of the 4 pairs because they really should have been tossed. There have been a few occasions where I was glad to have kept them when my main pair needed to dry out (or be found).

** (with the exception of the Kinney Saddle Oxfords I had to wear in kindergarten as part of the uniform.  I don’t know why I remember that; it must have been a big deal for my mom.  I remember regularly polishing the white parts with white shoe polish.  I also had a really great pair of brown sandals that year that we bought in Mexico– the first pair that ever actually fit my wide feet.)

Ask the grumpies: Retirement vs. college savings

Alice asks:

How do you decide at what income level to begin funding a 529? I know the mantra of ‘max out tax-advantaged retirement accounts first’, but that is a lot of money to put away (~30% of income) before starting any college savings…I assume we’ll be in the ‘squeezed’ middle on college, with too much income for aid but not enough to pay full freight outright. It seems that at least some dedicated college savings are worthwhile after 15-20% retirement savings, even if not optimal as far as taxes go…We’re assuming private or out-of-state public are in the cards, and want to avoid student debt. I’ve heard the ‘Roth contributions can be used’ chorus, but that won’t go far with current tuition rates.

TBH, if I had to do it all over again, I would max out retirement first instead of regularly contributing to 529s. Because of financial aid.  You can read about how our minds have changed on this topic via this cut of our archives, though I’m not sure we ever spelled out the history in one concise post.  (For an alternate cut, here’s the college tag.)

If you’d asked us this question when we started the blog, we’d have told you to make sure you were (getting any employer matches and) saving 15% of your income for retirement (more if you need catch-up savings– we’d have recommended you play with online retirement calculators to see whether or not you were on track) and then put a regular amount away for college with every paycheck.  We’d have told stories of how we knew people whose parents had spared no luxury (cds, cars, clothes, regular vacations to Hawaii, etc.) but then the kids couldn’t go to the fancy college they’d gotten into because their parents made too much money for decent financial aid and they had nothing saved.  And that’s not terrible advice– make sure you’re on track for retirement and then put money away for college to give your kids more options.  I don’t completely regret having taken it when the kids were younger.  Their college savings have grown at a nice clip, and it’s likely both will be on track to go to the private schools of their choice even without financial aid.

These days we’re much more attuned to the importance of College Financial Aid (Forbes Magazine has a great series on the topic– click here for the latest updates).  You can ignore this concern if you prefer to think of tuition as a donation to the school (which for us depends on the school… I’m always irritated at the fundraising letters we get from DH’s graduate alma mater given their endowment).  Will you be squeezed?  It turns out there are calculators for that, and those calculators depend a lot on how much money you have that can be tapped for college.  Formalized retirement savings (even the Roth savings) do not count for financial aid.  This Forbes article from 2017 is a little out of date, but should give you a good idea of how your income translates into financial aid (or not) for different types of schools.

To get an even better idea, you should pick a set of colleges that you could see your kid potentially attending, and spin through their financial aid calculators.  These individual aid calculators have become quite sophisticated and you can see how different colleges will treat your different levels of assets vs. income etc.  So you can run the counterfactuals to see that, for example, if my DH loses his job and makes no income, that won’t at all give us any more aid at Harvey Mudd (which is stingy for high-income folks and extremely expensive) or our local state school (which we could cash-flow), but would make a big difference at Harvard (which is generous up the income distribution).  (Here’s us doing those exercises and contemplating how much we would need to save for a set of private schools .  I just spun through the super simple Harvard calculator and for spendthrift high income folks with no savings, your kids can still get a scholarship at a joint parental income of 260K!  You can play with how hiding assets in retirement changes aid compared to having to report them like with a 529.  Note that Harvard is a bit of an outlier both in terms of generosity and how easy it is to use their calculator.)

Loans for college are not a terrible idea, especially if you can get subsidized loans.  You can put money away for retirement now and then take out loans for college that you can repay more quickly by contributing less to retirement later when the contributions will no longer count for college.  If you’re maxing out your retirement options today at 30%, then you can drop down to the match later when your children need the money.

Many people feel uncomfortable using money for purposes that they have not initially dedicated that money to.  For this set of people, putting money in a 529 is the only way to guarantee that a child will be able to go to something other than the cheapest college option.  If this feeling is acknowledged, however, and planned for in advance, I think it can be gotten around.  You can decide now what money you want to earmark now for college, put that in retirement funds instead, then take out loans and repay them later for the amount in question by putting less in retirement later and cash-flowing.

In terms of using a Roth to save for college– there are a couple of wrinkles to doing that.  Drawing money out while your child is still in school can decrease your financial aid eligibility because some of that hidden money turns into income.   Here’s another post with more details on the pros and cons of Roth IRAs for college savings.  Note that these cons can be gotten around by delaying when you use the Roth until the child is close to graduation, assuming that doing so will not affect a younger child’s financial aid eligibility.  (And the principal rather than the earnings can be withdrawn after college is complete for no penalty.)

College is not cheap, and it may be worth saving 30% or more of your income now knowing that some portion of that is being saved for college (in terms of needing to save less than 15% of your income later) even if you’re not earmarking it.

Now, I noted that today we regret not having put the $500/month/kid in our kids’ 529s (not to mention mortgage pre-payments) in our retirement options instead.  The reason for that is that we are now high income and we are maxing out our retirement options (DH also has much less space to save than he did when he was working for the university).  Any money we save over that amount cannot be hidden from colleges.  There are a number of pricey schools out there that we will not get financial aid at should DC1 get in and decide zie wants to attend.  (DC2 may be better off in terms of financial aid since DC1’s tuition and living expenses will do a good job of eating all of those assets.)  We’ve paid off our house, have replaced DH’s car, will replace mine sometime in the next two years (Financial aid starts counting 2 years before college starts), and are renovating our kitchen, but even after all of that we will have assets leftover that could have been hidden in retirement accounts.  We could in theory buy a bigger house or I could get something other than a sensible car, but I guess I’d rather donate tuition to a university than make those changes.  (#richpeopleproblems)  (Note that if our income goes up more, then we can ignore all of this because we won’t be eligible at any asset-level, but if DH loses his job and our income is halved, then all of this becomes extremely important.)  Here’s our most recent recommendation of what order to save for multiple big financial goals, and here’s our recommendation of what vehicles to use.  Finally, if you haven’t opened up a 529, here’s our thoughts on which one to pick.

Grumpy Nation, what are your experiences with saving for college?

 

Reminder: Check your retirement (and other stock) accounts!

My sister had 12K that was just sitting in the IRA she opened in college (and thinks she contributed to a couple/few times after getting her first job) making no interest in her etrade cash– it had been sitting there in cash for TWELVE YEARS.  (Her other two stocks in that account were etrade and paypal that she bought in college.  I’m pretty sure I didn’t advise her on that– I was telling everyone my age and younger to buy QQQ!  I understood both that tech was important *and* that broad-based funds (in this case a technology ETF) are the best.  I assume that was advice from our father.)  I put in a order right off to buy Vanguard’s 2060 target date fund with that cash (we chose 2060 because she has a defined benefit pension that has vested, so she can afford to be riskier with retirement savings).  Because if you’re going to set and forget…

Then she put in another 11.5K for 2018 and 2019 and is going to follow the steps to set up a backdoor Roth even though she thinks it’s sketchy.

She also has 30% of her 401(k) portfolio invested in company stock.  She’s been meaning to sell it off for a while, but with one thing and another over a decade has passed and here we are.  She’s not sure if she’s going to sell it all on Monday (the company value is currently coming out of a low point) or if she’s going to set up automatic quarterly sales.  I recommended the quarterly sales (there’s still more of this stock coming in!), and found the number for her to call in an email the retirement provider had sent to her this year saying she had too much invested in company stock, but I also said that if that’s too hard to set up to satisfice and just sell what she’s got.

I’m not a saint either– When I checked at tax time, I had over 1K sitting in my own etrade cash account (taxable) because one of the stocks my father had bought when he was managing my stuff got bought by another company and rather than me getting the other company, I ended up with just the cash.  Which sat there for a few months because I don’t pay attention to that account.  And for some reason last quarter all our QQQ etrade accounts stopped DRIPping (maybe there was a name change again?  It looks like it has lost a Q.) — there was enough in each account to buy one share, but with a $6.95 commission, so I put the money into VFINX instead.  Luckily I do look at these accounts once a year around tax time…  Etrade’s cash account doesn’t even make reasonable interest like Vanguard’s money market fund does!

The other thing we needed to change on my sister’s IRA account was her beneficiary– she’d listed our father, but she’s fairly sure that her niblings have a higher probability of being alive when she’s gone, so now that over a decade has passed and there is a younger generation that didn’t exist when she set up the account, she switched those over too.

To sum:

  1.  Take a look at your accounts to make sure you’re still invested in what you think you’re invested in.  (I’m not even talking about something complicated like rebalancing!)  Sometimes companies merge or die or your dividends stop dripping and you end up with a bunch of cash where you thought you were getting market returns.
  2.  Make sure the people you have listed as beneficiaries are still alive and are still the people you think should be inheriting.  If you’ve had additional kids since listing a beneficiary, make sure you’re not just listing the oldest!

When was the last time you checked your stocks?  Do you know who you’ve listed as beneficiaries?

I bought some plates

They’re the Lenox butterfly plates* I said I wasn’t going to get until my children were out of the house.

What changed?

Well… my MIL bought some before Christmas.  She got the kind that are made specially for Macy’s, so they’re blue.  I made sure to use them at every opportunity and got little sparks of joy while doing so.  They’re thicker than they used to be and the image isn’t printed on quite as nicely as they used to be.  Them not being quite as nice is likely related to the fact that the price has gone WAY DOWN since I wrote that post saying I wasn’t going to get them.  On top of that, the holiday sale that my MIL bought her plates from was still going on, so a set of 6 dinner/salad/cups in my preferred design was only $99 instead of nearly $400.    At that price, I can handle the predicted amount of breakage without tears.  It’s more than the white Corelle we’ve been getting (and slowly breaking into a zillion tiny fragments), but not *that* much more.

Next holiday sale, I think I might get the hydrangea pattern which will come with bowls instead of cups.

Now… we’re not actually *using* the plates right now.  The Corelle stuff (along with the four of our original floral Target at Home plates that haven’t broken) is on top of the Lenox in the cupboard and we haven’t really had time to entertain at all since we bought them.  But I’m happy to know that we have them and they didn’t cost too much.  As we continue to shatter the Corelle we will eventually start using them as daily plates rather than replacing the Corelle.

So… part of being willing to buy nice things is the price of said things dropping!

Are there things you would love to buy if they weren’t so darned expensive?  Do you keep your eye on things in case the price drops?  When the price does drop, do you buy?  For your specific wanted item, is it about not being able to afford it, or about feeling crappy if something goes wrong with the purchase?

*(Yes, I know this is a very grandma set of plates– I don’t care!  The heart wants what it wants.)