Tuesday, July 30, 2013

Grasshopper questions

My honorary daughter and my step-daughter are both moving into the "real" world . . . or at least into the next stage of the Academic World.  K-daughter is getting ready to head out of the house for her junior year of college; my step-daughter will soon be starting grad school in another state.  And they have both had lots of questions for me.

As usual, being a frugal-yet-slightly-pushy sort of person, I have lots of answers.  Here are some of them.

What kind of food is the cheapest to buy?
Free food.   Seriously.  When you're on a college campus, there will be all sorts of events that use food to try to lure people in; take advantage of those!  (The art talk/lecture/schmoozy stuff that goes with the food is often really good, too).  If you're at all connected to the organizer, offer to stick around and help clean up --- and maybe to take leftover food home.
Okay, but aside from mooched food, which kinds are cheap-but-nutritious?
Potatoes.  Rice and beans.  Add in healthy oils.  Think of traditional ethnic cuisines (curries, chili, etc), and you'll see how you can eat delicious meals for little money.   Don't forget to bulk-buy your food to bring the price-per-pound down even lower.
What's the best way to cook these small squash that are sitting on the counter top?
Cut them in half and scoop out the seeds; place the squash halves like bowls in a baking pan.  Make a mixture of olive oil, tomato, nuts, basil, parmesan cheese, and salt.  Use this as a filling for the squash.  Bake at 350 degrees.  Even J-son, who normally hates squash, said this tastes good.
Should I start saving for retirement while I'm still in school?
Wise people can disagree, but I say "yes".  The mere act of setting up a retirement account is the hardest part (from a learning/psychological/motivational point of view).  But that money you put in NOW is the most powerful money you can put in.   And setting up a retirement account is actually easy:  take it from Waste Less Grad Student!
What kind of retirement account does a young adult use?
Get a Roth IRA.   
Another alternative is a regular IRA, and that wouldn't be horrible, but it's better for high earners, which you are not, at least not yet. The difference is when the money gets taxed: a regular IRA gets taxed when you take the money OUT. If you're not making much money, you're not getting taxed much, so you would rather be taxed on the money going IN -- ergo, the Roth IRA is better for you right now.
You've heard of a 401K; that's what an employer sets up. You'll get that once you have a job, which you don't now, so 401Ks will come later. [Geek talk: My step-daughter has a graduate fellowship, so she's earning a bit of money, but isn't eligible for a 401K or 403b]. 

But can't I lose all my money?
Yes, if you invest in my uncle's Ostrich Farm.  He tried to get my parents to invest in that, but they decided not to do so, and you shouldn't either.  
If you invest in an "Index Fund" -- which sort of, but not exactly, means "an account that has a little bit of everything"-- then the only way to lose all your money is if every company on the planet goes broke, in which case you've got bigger problems than losing your money.  Then it's time for the underground survival shelter with a year's supply of canned food and water.  
But shouldn't I wait until I have a real job before I think about retirement?
Eh, if the choice is EITHER (a) saving for retirement while racking up debt, OR (b) doing neither, there's something to be said for option (b), it's true.  But if you're 25 years old, every dollar you put aside now will be worth $15 when you retire at age 65*.  If instead you wait just ten years to start your retirement savings at age 35, the dollar you invest then will turn into a mere $7.50.  That is, by starting now instead of waiting until you're settled in, you double the power of your money.  
*[Geek speak:  I'm using a 7% annual rate of return to get these numbers.  This is probably too low, or too high, depending on approximately 437,569 different factors you might want to add into the explanation.  But as a back-of-the-envelope computation, 7% is good enough to tell the story right.] 
Even more important than the total amount of money in your retirement account is the amount of money it can spit out at you every year you're retired.  That $15 in your Roth IRA will generate a dollar every year, for ever and ever*.  So forgoing a single movie now means you're setting yourself up to see movies every year of your retirement.  Skipping a spring break trip this year means you've funded a yearly vacation during each of your golden years.  To get the same benefit, but starting ten years later, you'd have to give up two movies or two vacations.  This is a powerful time in your investing life (and many 50 year olds can tell you regretfully they wish they'd known this).
*[Same 7%; same caveat.] 
How do you hem a black pair of pants?
Turn them inside out, put them on, and pin them up to the right length while they're on inside out.  Carefully remove the pants so you don't disturb the pins or poke yourself.  Baste with pink thread to check that you've done it right.  Try them on again.  When you're happy, do the hem in a regular stitch with black thread and remove the pink thread.  

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