Questions About Mortgage Escrow, Summer Camp, Glass Bottles, Stimulus Debit Cards 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. Escrow shortage question
2. Reusing glass drink bottles
3. Retirement savings in my 40s
4. Frugal summer camp replacement ideas
5. Home delivery without getting scammed
6. Suggestions for mortgage payment troubles
7. Traditional or Roth 401(k)?
8. Glass jars for windowsill garden
9. Endless insurance rate cycle
10. Financial role models
11. Cheap caffeine
12. Stimulus debit card question

Many reader mailbag questions come about as a result of a longer conversation, in which a series of back-and-forth exchanges are compressed down into a single question (or series of questions) and a single answer.

Often, the first question that people ask gets right to the heart of the matter, but it’s missing some key details that sway the issue one way or another. How stable is their current situation? What is the interest rate on that debt? Are there any other debts? Do they have any savings or investments? The questions go on and on.

Often, through the simple process of asking and answering those questions, the best solution becomes really obvious. It happens more often than you think.

What does that mean for you? One of the best things you can do if you have a financial problem is to sit down with your partner or with a very close friend and simply have an open conversation about the situation. Check emotions at the door. The goal is to come up with the best route forward. Often, the simple back and forth of questions and answers between a struggling person and someone who cares about that person reveals the best path forward. Open, trusting conversation with negative emotions checked at the door is one of the most powerful tools we have as people for solving not just financial problems, but life problems of all kinds.

On with this week’s questions (quite a few of which are compressed from longer conversations).

Q1: Escrow shortage question

My escrow account has a shortage and I am faced with the question of: Do I pay it in full or pay it off in installments throughout the year? Escrow shortage happened because taxes and insurance went up and it has happened every year since 2012. No fees for escrow shortage but it is annoying to deal with extra payment. Account offers no interest on escrow money. I’ve done both single payment and installments, but I thought I’d ask your opinion on the best option.
– Brenda

If there’s no penalty for making installment payments rather than a lump sum, and there is no financial benefit for having extra money in the escrow, I would pay this as slowly as possible, keeping money in your own accounts rather than handing it to them.

If you have enough to make a lump sum payment, great — put it in a savings account where it will at least accrue a little interest for you while you make payments. Ideally, you’re able to make automatic payments and you can transfer enough from savings each month (automatically) to cover those payments.

Unless a mortgage escrow account incentivizes you to have extra money in there, either with the “carrot” of interest or the “stick” of penalties, you shouldn’t have any more than the minimum in that escrow account.

Q2: Reusing glass drink bottles

A good strategy for making iced tea and cold brew coffee at home is to get a bunch of reusable glass drink bottles like Snapple bottles and taking off the label and filling them when you make a batch. I have a bunch of 16 oz Snapple bottles that I have been using for years. I make a gallon batch of iced tea and fill about eight of them and keep them in the fridge. When I drink one it goes in the dishwasher. I usually make a new batch when I’m down to three or four in the fridge, then I put new ones behind the old ones.
– Emily

This is a really good idea! I use an old pitcher to store my cold brew coffee and just pour out a cup each morning or put it in a water bottle if I want to take it with me, but this seems more convenient.

The trick is that Snapple bottles seem to be in plastic only unless you buy a six-pack or 12-pack of them. If you bought a 12-pack, that would be a good starter setup for this kind of system. You’d be paying around $8 to $10 for 12 bottles of Snapple, which isn’t the worst thing in the world.

I can see myself migrating to this kind of system in the future. I make cold brew coffee in roughly 24-ounce batches, so I could just mostly fill up two Snapple bottles. Alternately, I could just move to a larger scale cold brew system, or make two batches at once.

It’s all about making inexpensive, good, convenient coffee and tea!

Q3: Retirement savings in my 40s

I’m 42, male, single, never intend to marry. I’ve had a bunch of jobs over the years but never bothered to contribute to retirement except for one job that contributed automatically on my behalf. I woke up one day recently and realized that I need to start doing this unless I want to work forever and I most certainly don’t! I’ve been reading about investing for retirement and I don’t really know where to start other than just putting money in my 401(k). Is that the right move for me?
– Daniel

I can absolutely guarantee that contributing to your 401(k) at work is a good move, but I can’t guarantee that it is the best thing you can do without a lot of additional information.

For starters, does your workplace offer any sort of contribution matching? If so, contributing to your 401(k) becomes practically essential — you want to gobble up every possible dime of matching because that’s basically free retirement money.

Is your income below $124,000 a year? If so, you should consider a Roth 401(k) (if it’s available through your workplace). If your income is in this range but you don’t have a Roth 401(k) at work and your employer doesn’t offer matching, you should open a Roth IRA for yourself and prioritize putting money in there. You’re capped at a total of $6,000 per year that you’re allowed to contribute to a Roth IRA, which is a hair more than $100 per week. If you use a Roth IRA, automate the contributions. This is essential. Don’t trust that you’ll just remember to do it.

Then there’s the issue of what to do with the money once it’s in retirement. The best option for most people who don’t want to spend a ton of time evaluating retirement options is to simply put it in a Target Retirement fund. Most 401(k)s and Roth IRAs offer several Target Retirement funds — you’ll want to choose one with a year close to when you’ll turn 65. For you, that would probably be a Target Retirement 2045 fund.

A final thing to consider: since you are starting later in life, you are already behind a little in terms of contributions. You will want to contribute as much as you can. You should be aiming to get every dime of matching funds from your employer. You should strive to max out your Roth IRA contributions if you possibly can, and contribute even more to your 401(k). The more you contribute right away, the better off you’ll be.

Q4: Frugal summer camp replacement ideas

My children go to a church summer camp each year but this year the camp is closed. They are so disappointed. My husband and I usually use that week for a staycation so we were thinking about trying to recreate a camp like that for them but we don’t know the first thing about how to do it and don’t have a big budget for it. The camp refunded their fees and we could add a little more, maybe $500 total? Ideas? Also want to socially distance if possible.
– Angela

Go camping! That’s your solution right there!

Go buy a sturdy family tent. Find a spot somewhere secluded — maybe a truly private campsite via Hipcamp. Pack up the car with the tent, pillows, sleeping bags, and plenty of food, and just camp. Camp for four days or so. Aim to do it during a week — Monday to Friday — as campgrounds are often pretty empty, especially smaller and more rural ones, though this summer may be an exception.

Fill your days with hiking on trails, swimming, canoeing, climbing trees, going geocaching, birding, whatever fits the bill based on the campsite you’ve chosen. Have them heavily involved in everything, from pitching the tent to making the fire to cooking the food. Get absurd amounts of fresh air.

Yeah, it’ll be different than their normal camp, and it will be a very different experience for you and your husband, particularly if you’ve never camped before, but it’s a pretty good substitute for a summer camp given your constraints.

If you’ve never done this before, here’s my guide for first-time campers. REI also has a great guide for your first time camping.

Q5: Home delivery without getting scammed

In my community, an enterprising young man started a home delivery service where he’d basically run any errand you’d like and pick things up for you for a reasonable fee. He started this in a community Facebook group. He stopped doing this after two weeks because he said that several people had scammed him, usually not paying him at all and leaving him with unwanted stuff or refusing to pay him any fee. How does one get a small business like this running without getting scammed and without appearing like you’re scamming customers?
– Barry

With any business like this, either the person doing the delivery or the person paying for the service is going to have to take the risk of getting scammed. In general, businesses like this get going by having a strong reputation upon which they can insist that people pay them beforehand for the items. That reputation means that they’re the trustworthy person in the exchange and thus can ask for upfront payment.

So, the best way to start with this is to be very selective with customers, choosing only customers that you really trust. Once you have some successful deliveries and good feedback from customers, ask them to share that feedback locally, thus establishing the strong reputation you need to be able to ask for upfront payment.

A friend of mine did this and asked for a flat $10 delivery fee as long as the item was within a certain radius, with a small addition if there were multiple items to be delivered at once from different places (so, he might grab your library books and pick up an item from the hardware store for you for, say, $13). He delivered library books, groceries, and other things. The way he got started is by doing several deliveries at the start for free in exchange for a good online review, then he began to charge for it upfront, accepting PayPal and Venmo for online payment.

Q6: Suggestions for mortgage payment troubles

Not really a question just some advice for folks who might be unable to pay their mortgage right now. First of all TALK TO YOUR LENDER ASAP. Don’t hide and don’t avoid contact with them. Talk to them! They would much rather work with someone who was obviously trying to get through a difficult time than someone avoiding them. Mortgage holders almost always lose if they have to foreclose and they don’t really want to do that unless they don’t have other options. They’d rather have a bumpy road of payments for a while than have to deal with foreclosure.

When you call your lender HAVE A PLAN. Figure out what you can afford to pay each month or if you can’t ask about some kind of forbearance for a few months. Don’t get on the phone without knowing what you can actually manage.

Most lenders right now are going to be really slow with foreclosure because it is just a terrible option for them. Remember that. Be proactive and you will not be the “low hanging fruit” for foreclosure. They will foreclose on the “low hanging fruit” first and that’s people who aren’t even trying to work with them.
– David

This is really good advice. Whenever you are really struggling to cover a debt or make a payment, the best thing you can do is contact the debt holder as soon as possible and see what you can work out. Repossession is a terrible conclusion for everyone involved. They’re losing money and you’re losing money. It is a losing proposition for everyone.

The second you feel like you’re on unstable financial ground, that there is a real risk that you can’t make a full debt payment, figure out what you actually can pay, then give them a call. The best move is to do this before you’re ever even late, but even if you are late on your payment, it’s still better than nothing.

Remember, they’re better off working with you (up to a point) than they are having to foreclose on your house. If they foreclose on your house, they have to cover all of the expenses related to the foreclosure process and then involve themselves in the process of selling that house to someone else (which involves even more expenses). They’d rather not, and if they see a reasonable path for keeping you in the home beyond this immediate rough patch, they’d rather do that. That’s why mortgage lenders don’t immediately repossess homes when someone is just a little bit late — they wait for months and months in most cases. Understand that, but understand that you need to have a plan, too. You both come out better if you work together and meet in a middle place where you stay in your home for now and they receive at least some income from the mortgage for now.

Q7: Traditional or Roth 401(k)?

My workplace offers both Traditional or Roth 401(k). Which one should I be contributing to?
– Charlie

First of all, let’s consider what would make each option “best.” The traditional option is best if the marginal tax rate you’re paying right now is higher than the marginal tax rate you will pay in retirement. The Roth option is best if the marginal tax rate you’re paying right now is lower than the marginal tax rate you will pay in retirement.

“Marginal tax rate” is the amount of tax you’d pay on an additional dollar of income. So, if you’re in the 30% tax bracket, your marginal tax rate is 30%, because the next dollar of income you earn will have a 30% tax applied to it.

The question is what will your marginal tax rate be in retirement? It’s impossible to know what the future holds for tax rates. My belief is that they will go up somewhat, but not tremendously. However, you probably have some idea of how your annual expenses in retirement will compare to your income right now.

If you expect your expenses to be a bit lower than, similar to, or higher than your income right now, you should probably use a Roth. The lower your income is, the more true this likely will be.

If you expect your expenses to be substantially lower than your income right now, you should probably stick with a traditional account. The higher your income is, the more true this likely will be.

I’m personally trying to use Roth retirement plans as much as possible, as I expect our expenses in retirement to be similar to our income now and I expect tax rates to go up a little between now and then.

Q8: Glass jars for windowsill garden

Saw some pictures on Facebook of people growing herbs in a windowsill. They had glass jars with soil in them and herbs growing out the top. Some people said this isn’t a good idea because plants might drown. Wanted your take before I bothered.
– Dani

The problem with using a glass jar as a planter is that there’s no drainage out of the bottom of the jar. This means that if you water the plant too much, the excess water can’t drain out of the bottom, meaning that you can essentially drown the plants. This doesn’t happen if you’re careful with watering, but it can happen pretty easily. I speak from experience.

A much better approach, particularly if you’re new to gardening, is to use plastic Solo cups and pop some tiny holes in the bottom of the cup. Then, put some styrofoam peanuts or gravel to fill maybe the bottom quarter of the cup, then put a circle of newspaper on top of the peanuts/gravel, then add soil on top of that. That way, if you over water, it will drip down through the newspaper and gravel/peanuts and then out the bottom without drowning the plant. You would then just set the cup on a saucer or other shallow container so that the water doesn’t run everywhere. This makes it practically impossible to drown your little plant!

I will be sharing a guide later this week on windowsill herb gardens. They’re really easy and cheap to start!

Q9: Endless insurance rate cycle

Does this always happen? About eight years ago I switched homeowners insurance because the rates seemed high and I heard they were lower if you switched. I switched to [a major insurer] and my rates dropped about 40%. The first year or two was fine, then premiums started inching up and last year I paid more than I ever did. So I shopped around and switched to [another insurer] and saved about 30%. Now my renewal came and sure enough, the premium went up about 10%. Is this just how they do business?
– Tammy

While I’m not going to say that this is a guaranteed tactic in the insurance industry, it’s definitely a common one. Insurers will throw a really low rate at you to get you to switch, then gently nudge that rate upwards over several billing cycles under the belief you’ll stick with them because it’s less hassle than shopping around.

Thus, it’s a good idea to shop around for auto and homeowners insurance every few years so that you tap into those introductory rates you get for switching. Then, when they start nudging things up too high, you just jump ship again.

It’s generally not worth it to switch if your rates are only 10% – 20% higher than they were when you first switched, but when you start seeing rates that are 40% or more above what your initial rate was, it’s time to start shopping around. In my experience, this takes a few years.

Q10: Financial role models

I have been naturally frugal as an adult and I realize now that it was because of my aunt and uncle. They were really frugal but they had such a cool unique home, and she was always showing me good things to do with stuff other people thought was trash. She’d give really cool gifts and they would be wrapped in brown paper (from grocery bags) or comic pages from the newspaper and I found out later she’d buy gifts all through the year and pay maybe $5-$10 for something that might cost $50. She inspired me to be frugal. I try to pass this along to my own nieces and nephews now by being that same kind of “cool, frugal” aunt.
– Dana

That’s a great idea! So many of the things we do as adults were inspired by good role models from our childhood.

For example, one of my big hobbies is making fermented foods and preserving them, and that’s something I learned from my father, who used to make big crocks of sauerkraut in the garage. It’s such a great way to turn abundant garden vegetables (and cheap produce from the store) into tasty healthy foods that last for a long time, plus it’s fun to do. I also picked up a lot of “fix it yourself” passion from him. From my mom, I picked up a passion for cooking at home and coming up with creative meals with what we have on hand.

It’s harder, I think, to find these kinds of inspirations as an adult. The easiest way is to try to establish friendships with people who practice frugality or practice the kind of financial restraint you want to have in your own life. Most of my friends are frugal and are fairly careful about their spending.

Q11: Cheap caffeine

What is the cheapest way to keep enjoying caffeinated drinks when I study? I added up the cost of soda and coffee and it is just too expensive, I can’t afford it. But I crash hard and have headaches if I don’t have something caffeinated.
– Brian

The cheapest caffeinated drink I know of is black tea. You can get a lot of black tea bags really cheaply — for example, you can get 312 bags of Lipton black tea on Amazon for less than $10.

You need about six tea bags and a gallon of cold water to make sun tea – you just need a gallon glass jar and a sunny spot. Put the bags in there, wait 24 hours, remove the bags, and you have a gallon of unsweetened black tea, which will definitely give you a nice little caffeine hit.

That box of tea bags will make 52 gallons of black tea. If you drink 16 ounces per study session, that’s 8 study sessions per gallon or about two and a half cents per 16 ounces drink. You can fill a 32-ounce water bottle of this stuff for a nickel’s worth of tea.

I don’t know of anything cheaper for getting your caffeine fix.

Q12: Stimulus debit card question

Got my stimulus debit card on Friday. I almost threw it away because it looked like junk mail! Should I just use this instead of cash or what? Seems like they want you to go waste it on stuff because it looks like a credit card.
– Chris

The smart thing to do with it is to use it at the grocery store instead of using cash or a credit card or your bank card, then use the money you didn’t spend to make a big extra payment on any debts or build up an emergency fund.

Let’s say you got a $1,200 debit card and you have $2,000 in credit card debt. If you buy $100 in groceries a week, just start using the debit card for groceries, then make a $400 extra payment on that credit card each of the next three months. You’ll pay off more than half the card.

The trick, then, is to utilize self-control and not just spend it. The stimulus money should be used to shore up your financial foundation, not to spend it on stuff you would not have bought anyway.

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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