Trent Hamm Answers Reader Mail

Dec 2, 2008 at 6:17 am

Each Monday, The Simple Dollar opens up the reader mailbags and answers 10 to 20 simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. A few people have asked for suggestions for books on how to live cheap. Here are four suggestions (besides my own book):
The Complete Tightwad Gazette
America’s Cheapest Family
The Ultimate Cheapskate’s Road Map to True Riches
The Frugal Duchess

And now for some great reader questions!

My wife is pregnant and our first kid is due in April. It really is a miracle, but obviously money is always on the mind. Would it be better to:
1.) Buy life insurance in case something happens
2.) Start saving for their college
3.) Pay down our house payment to rid ourselves of the devil called PMI
4.) Pay down our very low (less than 2%) interest student loans that my wife and I have ($25g or so)

— Luke

Throw out No. 4 immediately. Compared to the others, it’s a very poor choice. Stick with the minimum payments on that one.

I would look into term life insurance for both you and your spouse, just in case. Many insurance salesmen will try to sell you more than you need; you should strive to replace one’s salary for a few years, plus enough to cover burial expenses. This shouldn’t cost you too much, though.

I’d also start a 529 plan for the unborn child. Start it with one of you as beneficiary right now and set up a regular contribution plan, then when the child is born change the beneficiary. You don’t need to contribute a ton to this one, either; $50 or $100 a month will give you a huge boost in 19 years or so.

I’d probably focus most heavily on getting rid of the PMI. Get your mortgage down to 80%, then refinance that thing. It’ll be more financially beneficial for you over the long run than almost anything you could do.

I’m a gin and tonic fan myself. What is your favorite gin?
— Tyler

I am highly partial to Bombay Sapphire for the gin. I’ve tried several different kinds and I keep coming back to it.

More important for a great gin and tonic, though, is good tonic water. Skip the Schweppes or the Canada Dry or the store brand. Instead, look around for Fever-Tree tonic water. I swear by it, but I have a hard time finding it locally.

I am currently a college student. Throughout high school I worked really hard to earn scholarships and save money for college. During my third semester in college, I started CoOping (if you are not familiar with this, it is where a college student works for a company that does work related to the student’s major, and the college student earns money and gets work experience). Not only am I funding my entire education, thanks to scholarships and CoOp, but I also have a lot of money just sitting in the bank earning no interest (on the range of about an extra $5,000 - $10,000). I am 21, and I have thought the best choice would be to wait until I make a down payment on a future house until I start investing long-term or putting money in a 401k. So I have been trying to put money in short-term CDs. However, I hear that CDs don’t even keep up with inflation at times (such as now - I think). Is there anything I can do with this spare money for short-term investing with little risk other than CDs? Is this the proper approach - waiting to invest after I purchase my first home (which I plan to purchase maybe 2-3 years after college)?
— Tim

CDs are probably your best choice. Given your situation, I would go CD shopping, perhaps using the CD rate tool at Allow yourself to look at CDs that mature when you’ll actually need the money - if you know you won’t need the money for three years, then look at CDs up to 36 months, for example.

I’m almost sure you’ll find a CD much better than what you’re buying right now. They’re a pretty good choice if you’re seeking a simple investment choice that keeps your balance safe.

Do you keep tabs of your web site's readers? How many did you have the day you began? How many at 6 months, 1 year, 2 years?
— Mol

Well, I started The Simple Dollar in November 2006. Let’s use Google Analytics to check my site usage.

During my first month, November 2006, The Simple Dollar had 6,287 visits and 17,080 page views.

During my sixth month, April 2007, The Simple Dollar had 288,301 visits and 586,509 page views.

During my 12th month, October 2007, The Simple Dollar had 423,359 visits and 864,551 page views.

During my 24th month, October 2008, The Simple Dollar had 626,939 visits and 1,178,976 page views.

Other than astronomical growth during the second and third months of the site’s existence, the growth has actually been extremely steady on average (with a few months of fluctuation).

If you are frugal and smart, you have a credit union as your bank. However, my credit union does not have safety deposit boxes. Boxes seem like they are becoming a rarity in my area. The only bank that has them is the BofA in the next town, and that branch is closing. I’ve switched to a fire-proof “go” box, but are there better alternatives?
— Mikey

I highly disagree with your first sentence. Credit unions are good for some things but not so good at others. For example, compare them to an online for-profit bank. Such banks can offer a higher interest rate than credit unions can because credit unions must pay for brick-and-mortar infrastructure. However, credit unions do have the advantage of manually underwriting any borrowing you might want to do, which means they’re a great place to go to get loans.

One option would be to open an “emergency fund” savings account at another local bank and use them for a safe deposit box. That’s probably the option I would use in your situation.

If money were no object, would you send your children to a private school?
— William

I would be open to it, but it would depend on the specific school.

I’d want to know about the school in detail. I’d want to tour it and perhaps take a look at the classes offered there. I’d ask around for referrals from people I trust in the community.

If it measured up, I certainly would send my child there. My primary motivation would be for my children to get the best education available to them, and if that meant a private school in my area and money didn’t matter then a private school is what they’d have.

Where do you purchase your Certificates of Deposit (CDs)? Are the online banks reputable?
— Chris

I buy my CDs through my primary bank, ING Direct. It’s been incredibly easy; just a few clicks and it’s purchased.

I have more faith, actually, in an online bank than I do in a teller-based bank in my local community. With a teller-based bank, you have other members of the community who have access to your personal financial information — and that, frankly, makes me nervous. I’ve known bank employees who openly gossip about the account status of people who bank there. With the online banks, you’re largely just a number; rather private.

If an online bank is associated with a large financial institution and the accounts are FDIC insured, I actually feel more secure with an online bank.

Do you actually practice all of the stuff you write about?
— Gillian

I try almost everything I mention on The Simple Dollar. Obviously, sometimes I mention tactics that simply aren’t routinely applicable in my current life. For example, frugal dating tactics - I’m not a part of the singles scene, so I don’t have a good opportunity to try them out. My wife and I tend to spend almost every evening home with the kids.

Quite often, I’m innately curious and I want to see if things work. Can I really make homemade laundry detergent that works? Does baking soda and water really do a good job at cleaning grout? How much money do CFLs really save? I’m naturally curious and following these questions often lead directly to posts.

In what areas of your life are you NOT frugal?
— Shawn

Our big area of splurging is food. I confess, although I do use shopping lists for my groceries, I tend to choose food items almost entirely based on quality and not on price. We buy a lot of organics and a lot of farm-fresh poultry products. We buy meat directly from a butcher as well.

When we do buy items, we’ve moved from just buying lots of things to rarely buying things - but when we do buy things, we buy high quality items. Rather than buying tons of cheap items for wall decorations, we’re now slowly buying high-quality items (original art, for example) that click with both of us, for example. We plan for these purchases pretty carefully, but we’re willing to spend for quality items that will last us forever.

Do you participate in meetups with other bloggers? If so, which ones?
— Joely

I’m willing to participate in such meetups, but rural central Iowa isn’t a hotbed of blogging activity. There is apparently a regular blogger meetup in Des Moines, but I’ve never attended it — it would take me almost an hour each way to go there for a one hour meetup, so I usually find that I have something more high priority to do.

My wife and I have discussed going on a long trip this coming summer to a few large cities. If we do so, I’d be willing to have meetups with readers in any large cities we go to: meet somewhere, have a drink and chat freely about whatever.

TRENT HAMM blogs about personal finance at If you have a question that you would like answered, ask in the commments on his blog.