Questions About Unit Pricing, Social Security, Cloth Napkins, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Unit pricing
2. Waiting for Social Security
3. Handling leftovers
4. Relocating as a contractor
5. Sudden credit score decline
6. Relocating as a contractor
7. Second jobs for additional income
8. Digging out of tax problem
9. Vanguard and conflict of interest
10. Cryptocurrency question
11. Lifestyle inflation
12. Cloth napkins versus paper

As many of you know, I relish the warm weather of spring and summer. I spend all winter looking forward to the warm days of spring, where I can go on hikes in the woods looking for morels and exploring trails.

Sometimes, however, Iowa likes to hold onto winter, stretching it out well into April. Yesterday, on the first, my family drove through a snowstorm after visiting people for the Easter weekend. The extended forecast rarely shows temperatures breaking 40 F and shows many patches of snow.

Some years, I’ve already hiked for many hours in the beautiful spring weather at this point. Other years… not so much. This is one of those very late springs, and I’m counting the weeks, days, hours, and minutes until warm weather arrives.

Q1: Unit pricing

As I was walking through the grocery store last night I was looking at unit pricing on a few items and thought to my self I am surprised I have never seen Trent do an article on Unit Pricing. Just thought it might be a money saver for some people who some of which likely don’t even know what it is.
– Jim

I haven’t written about it in a while (the last time I really covered it well was in this article a couple of years ago) but it’s a good topic to touch on regularly.

Unit pricing is a simple way to compare very similar products in the store – for example, the four roll package of toilet paper and the nine roll package of the same kind of toilet paper. To do that, you break the item down into individual “units” – in this case, individual rolls. What’s the cost per “unit” of the four roll package? Well, the cost per roll is the price of that package divided by four. What’s the cost per “unit” of the nine roll package? It’s the price of that package divided by nine. Buying the one with the lowest cost per roll is the best bargain.

The actual “unit” to be compared varies a lot. You might compare the cost per ounce or the cost per bag or the cost per tablet, for example. You should also consider whether there’s any chance of it going bad before you’d use it up.

Using unit pricing to decide which particular package to buy at the store is a good way to minimize cost provided you have the storage space for bulk items. However, it isn’t always the bulk items that have the best unit price (though it often is) – it’s worth your time to calculate it.

Q2: Waiting for Social Security

My question is about Social Security benefits. We are both waiting until 70 1/2 because we are doing fine, even saving. When we start getting SS, what is the best way to save it? We both have some investments, I have a nice deferred compensation account from my job. We have no debts, own our home, live frugally. We might take one major travel adventure in the near future.
– Anna

I would delay getting Social Security benefits for as long as possible. The longer you wait, the larger the monthly benefit will be.

Once you do start receiving them, I would make absolutely sure that you’re fully funding your Roth IRA each year. As you’re over 50, your annual contribution limit is $6,500, so I’d hit that cap. With money beyond that, I would shore up your expenses by putting money aside for your next vehicle replacement, an emergency fund, and any upcoming major home repairs. All of that can (and probably should) be done in an ordinary savings account.

Without a full picture of your retirement, I can’t really give you more specific advice than that, but that plan will serve almost everyone who nears retirement.

Q3: Handling leftovers

I just read the answer below about how to be sure that leftovers are safe to eat. The system I have used for many years is to simply put the leftovers in a sealed container, put a small piece of Scotch tape on the lid of that container, and use a Sharpie black pen to write the current date on the piece of tape. My husband and family use this system too, and know that anything not eaten within one week should be composed or thrown away. When the container is washed, the tape is removed and the process begins again. This system minimizes food waste and maximizes food safety.
– Monique

I received a bunch of emails about leftovers over the last few days; this was one of the most clear ones.

Over the course of my life, I’ve lived in several distinctly different climates. For example, I grew up living in a very warm and humid climate. We didn’t have air conditioning and lived very close to a very large body of water. Food would go bad at the drop of a hat, sometimes within an hour or two, and it would even go bad in the fridge in a couple of days depending on what it was.

Today, I live in a much drier place – it’s simply never very humid outside – and it’s colder, too, as I moved quite a bit northward. Here, things seem to last for ages without going bad. I can leave food in the refrigerator for insanely long periods without any problem, things that would go bad in a few days back where I grew up.

If you add on top of that the fact that some foods just go bad faster than others depending on salt content, acid content, and so on… it is just really hard to come up with hard and fast “leftover rules” that would work for everyone.

My sincere best advice for anyone, especially anyone that moves around much and/or eats a widely varied diet, is to simply know how to identify when food goes bad. You should be able to look at food, smell food, touch food, and know whether it’s safe to eat with a very high rate of success. Using actual day counts might work in your specific area, but they’re going to not work for other areas and they’re not always going to work from dish to dish.

Q4: Thoughts on Fundrise

What do you think about Fundrise as a way to diversify investments? Appears to be low cost and beat Vanguard’s REIT, at least in its short history. Although the yearly account management fees are small, it appears that a larger percent of money is taken out on distributions?
– Kara

I think you’ve got the right take on Fundrise.

Fundrise is basically a somewhat diversified way to invest in real estate. Essentially, they offer a selection of real estate that you can invest in at your choice (or let them choose for you using certain criteria). You’re investing in these with lots of other investors and you’re effectively co-owners of this property. Naturally, Fundrise charges some fees for this, which appear to be low by some measurements, but it’s unclear in other areas because this is a privately-held investment and isn’t subject to some of the disclosure that other investments must provide per SEC regulations.

Their returns look great, but the properties on offer through Fundrise are ones that are what I would describe as big winners when the real estate market is good and fairly shaky when the real estate market isn’t as good. Real estate has in general been pretty good since 2008.

I would categorize investing with Fundrise as being relatively risky, with the potential for high returns but some significant chance of bad returns and losses if the real estate market goes bad. I wouldn’t invest everything you have there regardless, but nothing strikes me as inherently flawed, either – it’s just a fairly high risk and (potential) high return investment opportunity with fees that are really hard to clearly identify (they may be pretty high and are being disguised by great returns at the moment).

Q5: Relocating as a contractor

I am considering relocating to another state (I presently reside in MA). In MA, I benefit from legislation which requires that employers make 401K plans and health insurance available to any employee, even if contracted to a client but paid via W2 through an agency. I am having difficulty discovering what will be available to me should I relocate to a different state where the employer/contractor distinction is very different, and I am treated more like a 1099 worker.
– Anna

It’s very likely that you’re signed to a contract that spells out your benefits that you’re receiving, as well as a termination date and other such information. As long as you have that contract in place, your employer and you will follow the terms of it.

When you move, your employer may choose to enact their termination clause in the contract and offer you a different one in line with the laws in your new state. There’s not much you can do about that. Likely, they’ll just stick with the current contract and offer you something different the next time around.

You need to look up laws for contracted employees in the state you’re considering moving to. Google really is your friend here. Then, you need to figure out if offers that follow those laws are something you can live with.

Q6: Sudden credit score decline

My credit score has been above 610 for long time. On March 21 it tanked to 525. Signed up today with credit repair service to fix score. dont know why score tanked as there have been no changes for a while. looking for possible loan of up to 1000 to repair van, get it tagged, buy washer and dryer. Just got approved for rental property but it doesnt come with any appliances. Need frig, stove, washer, dryer, dishwasher. can you offer any suggestions thank you gail sayre husband is a disabled vet. I just retired from nsg. and can no longer work.
– Ron

The first thing I’d do is head over to the Federal Trade Commission’s credit report site, where they allow you to get one credit report from each credit bureau each year. Get your credit report, go through it, and see if there’s anything on there you don’t know about. I’d do this first because my instinct is telling me that someone may be using your identity illegally.

If everything checks out there, make sure you’re not behind on any bills or carrying a large balance on any of your credit cards, as both of those things can ding your credit score.

If none of those things are true… I’m really not sure why your credit score would have fallen so much without more details. I’d say it’s extremely likely that one of the above things explains it.

Q7: Second jobs for additional income

I was wondering what your opinion is on second jobs for additional income. I’m thinking of getting a second gig to build up my savings faster. My pretax salary a year is around 75k. I put 175.00 per pay period (biweekly) into a 457 account pretax. I also use flex spending which comes out to 720.00 a year pretax. I work for city government so I have IPERS for a retirement in addition to my 457. I’m 42 years old, divorced, and no children. I have my mortgage and truck payment for debt. I save about 25% of my take home pay. I guess my question is if I get a second gig to save more, should I be concerned with making more and therefore paying income taxes next year?
– Will

I started The Simple Dollar as a “second job” and built it up while working a full time salaried job with a significant amount of travel.

Yes, if you earn more, you will be paying more in income tax next year, but the increase in taxes will be far, far less than your increase in income. The first $15K or so that you earn at your second job will be taxed at 25%; everything beyond that that you earn at your second job will be taxed at 28%. Nothing about your current job will change in terms of taxes.

Getting into a higher tax bracket doesn’t change anything about the taxation of your current income. It just means that any additional income will be taxed at a slightly higher rate, and the highest federal rate right now is 39.6%, which people don’t hit unless they’re making over $400,000 a year. Even then, their first $10K (approximately) in income is taxed at only 10%, and so on.

Q8: Digging out of tax problem

I think I’ve gotten myself into a very bad tax situation and I’m wondering what is the least costly way to proceed.

Several years back I was gifted a share of a limited partnership which holds some small businesses and commercial rentals- each year I receive a K-1 and a distribution that usually covers the extra taxes and a tiny bit more. The partnership is starting to wind down its investments and I just received my 2017 K-1: the partnership sold some assets which added an extra $100K of capital gains to my 1040 and also triggered AMT and investment surcharge so my tax liability went up quite a lot – my 2017 income taxes are $46,639 federal plus $12,778 state. I’d paid estimated taxes based on 2016 partnership income so while I don’t owe penalties I do owe an extra $25K.

I’ve been informed that the partnership will distribute around $35K in the next few weeks, and also to expect significantly higher capital gains next year as the sale closes on a larger real estate parcel. The remaining gains from the 2017 sale will be put into site-work for another parcel which may sell in 2018 or 2019. Note that I can’t sell my shares nor do I have any voting rights over how the partnership is run. My problem is 2018 estimated taxes. Given that I expect a higher tax liability in 2018 I need to pay the safe harbor rate 110% of 2017 taxes in order to avoid penalties. This comes to a total of $65,359 between federal and state. Looking at my payroll numbers so far this year and using tax withholding calculators, given that I’m contributing to my 401k the maximum $18K, my take-home pay after withholding the necessary taxes would be $242 per semi-monthly paycheck. I will also owe my usual property and car taxes, a yearly total of $4012, which necessitates saving $167 per paycheck. This leaves me with $75 per paycheck after taxes and retirement savings. I can’t live and work on $150 per month- my mortgage is $1260, my condo fee is $430, my utilities are $160 (electric, gas, and minimal internet and cell which are required for work), my gas for commuting to work is $80 and car insurance is $83… I live in an expensive real estate market – my current home is designated as “market-rate affordable housing” so I don’t expect I could find a better deal by moving; also we are in the midst of roofing and foundation work which make the place rather unappealing to buyers.

I do have ~$25K cash savings and ~$10K left from the 2017 distribution, but it seems too risky to spend down all of my savings in expectation of a large lump-sum distribution over which I have no control. I could stop 401k contributions for 2018 to free up an extra $18K but this seems like a terrible move given that my marginal tax rate will be at its max in 2018 compared to future years. I don’t think I could commit to a second job given that my main job in cybersecurity has long unpredictable hours and I don’t have any valuable assets to sell other than my condo, car, and a lot of retirement savings. I really don’t know what to do to pay my 2018 estimated tax liability. Furthermore, I’m concerned that the situation will repeat in 2019 given that another parcel is still for sale and the 2018 capital gains are projected to be significantly higher than the 2017 sale.

Something seems off about the situation to me – I shouldn’t be in such dire financial straits with a 110K salary and no debt except a reasonable mortgage (compared to rentals in the area it is a great deal), but as far as I can tell these are the numbers.
– Cal

I would take this whole situation to a tax specialist, because either (a) something is wrong with your numbers or (b) this partnership is being managed with an incredible level of incompetence that’s negatively affecting everyone involved with it.

If you find that the tax bill really is this onerous, you can talk to the IRS about a payment plan. I speak from experience when I say that the best route for dealing with the IRS when you are worried about your ability to pay taxes is to talk to them directly. They will help you figure out a way to pay it without putting yourself in dire straits and without stiff penalties.

If this really is bad management of your partnership (if that’s what your tax specialist concludes), I’d try to get ahold of some of the other partners and see if anything can be done about it. If a partnership is throwing out huge tax burdens to the partners like this, then it’s not benefiting anyone.

Q9: Vanguard and conflict of interest

I was reading on another messageboard about how Vanguard is better than other investment houses because it protects people from conflict of interest. I tried to figure out this statement but I don’t understand what it means. Help?
– Alan

Unlike most other investment houses, Vanguard is actually a collective of a bunch of smaller companies that essentially share a lot of business features (like marketing and account management and administration). Each fund is operated as an independent business with pretty thick walls between each fund.

What that means is that you don’t have situations where someone is involved with a whole bunch of funds and has personal reasons for favoring one fund over another one. This can happen at other investment houses, though it’s pretty rare today.

While this is an interesting feature of Vanguard, it’s not the reason to use it as your primary investment house. I use Vanguard, but that’s mostly because I agree with their philosophy of intense focus on using index funds.

Q10: Cryptocurrency question

I don’t understand why you are negative on crypto. High risk = high reward has a place in everyone’s portfolio.
– Daniel

High risk / high reward investments make sense as a part of a portfolio in an established and regulated market. Crypto is not an established or regulated market. It’s the Wild West out there, with hundreds and hundreds of different cryptocurrencies and many of them amounting to little more than pyramid schemes or pump-and-dump schemes.

The blockchain idea behind Bitcoin is brilliant. There are people, especially early adopters, who have become very wealthy because of it. That doesn’t mean it’s a sound investment, especially now that the “early adopter” period is over.

Most new cryptocurrencies being started right now are very questionable in terms of their support, their reputation, and their organization. That’s not to say that people won’t make money, but it’s pure speculation. It’s not something I’m ever going to recommend to someone as an investment.

Now, if you have some cash and are enamored with crypto and can afford to gamble, go for it. I’m not going to question what people do with money that they can afford to lose without disrupting their future.

Q11: Lifestyle inflation

Why do so many personal finance books and websites tell people to not spend any more when they get a raise or to not spend inheritance or lotto winnings? What is the point?
– Alex

The point is that if you’re living a content life right now, there’s no real reason to start spending more money. Instead, you should use that money to secure the life you have now against things that will inevitably come in the future.

No matter what, your car is going to wear out. No matter what, you’re going to get older and eventually want to retire. No matter what, you’re going to face some life emergencies and have to figure out how to handle them.

If your life is pretty good and you get a raise or a windfall, why not use that extra cash to preserve the life you have now and protect it against those kinds of things that you know are coming up? If you just spend that windfall or inflate your spending to gobble up that raise, you’re just going to get walloped by those events down the road, knocking your life down to worse than where it was.

If you have a good life, ensure you keep that good life. Don’t chase a very slightly better life for a short while before you stumble down into something worse.

Q12: Cloth napkins versus paper

Can cloth napkins ever pay off against paper ones? Decent ones cost so much that I don’t think you could ever use them enough.
– Drew

So, let’s start with the napkins. My preferred cloth napkins in terms of bang for the buck are these, which are simple and elegant and stand up to a lot of rewashings and bleach to remove stains. They cost $1.25 apiece.

What’s comparable with paper? These are supposedly good for the price (I don’t use many paper towels, so I’m not sure). You’re buying 12 rolls of 158 sheets each for $24.25, and you’d probably use 2 sheets as a napkin substitute. That’s almost exactly two and a half cents per napkin replacement. (This is an approximation, of course, depending on whether a folded paper towel is okay or you want an actual paper napkin.) So, in this case, you’d need to use a cloth napkin 50 times to replace a paper napkin. A good cloth napkin will last a lot longer than that.

Now, with cloth napkins, you’ve also got to wash them and replace them, but the cost to wash a cloth napkin in a big batch of whites is negligible.

So, if you’re going to use napkins a lot, then cloth napkins are worth it. If they’re rarely used, then don’t bother.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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