Tue, September, 30, 2008 at 09:38 AM No really. Please. Stop it. The media is TERRIBLE at choosing stocks or even predicting the market (a serious consideration to those of you who want to or even think they can time the market). Let’s look at a bunch of notable examples:
Investments, Mutual Funds, Savings, Stocks Thu, February, 7, 2008 at 07:13 PM Here, we’re going to quickly talk about the different investment vehicles you have open to you, how they work, and what some of the pros and cons are for each of them.
Investments, Savings Wed, February, 6, 2008 at 11:42 AM I am often asked what things people should be doing and why when it comes to personal finance. Everything seems to come at you at once, and taking care of your finances can be a lot of work – work that most people do not want to do. As a result, people tend to do nothing because everything seems so daunting. So, here we go on a list of things to get you started.
Wed, January, 30, 2008 at 12:21 PM Although I usually remind you to get a Roth IRA (loads of tax advantages – do it today) and contribute to a 401(k) because you get so much money out of them in retirement, today I have a reason for you to contribute: THE TAX SAVER'S CREDIT!
There are three basic rules to get this credit:
By the way, you can file an amended return (Form 1040X) up to three years after the original filing date to claim tax breaks you missed in the past. This credit was introduced with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and made permanent by the Pension Protection Act of 2006.
I would take this credit... if I qualified for it :/ To Lizzie (and other readers outside the US – this is United States Federal Tax specific – sorry)
Disclaimer
What Isn’t
This blog is NOT financial advice. I am not a financial guru. I do not speak at seminars. I do not write books (yet). I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA). I do not even have a business degree!
What Is
This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it. This is that neighborly talk you have about money. Sometimes the advice is sound. Sometimes the advice is stupid. You judge that for yourself. What works for me may not work for you. This is an open discussion about my financial life and what I would do in certain situations. Agree or disagree, leave comments and I will respond to them or write further entries regarding them.
About Me
My name is Jason. I am 24 years old. I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it. I am currently employed full time and single (from a financial standpoint). I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.
401(k), Retirement, Roth IRA, Savings, Taxes, Traditional IRA Mon, January, 28, 2008 at 11:49 AM If you read my budget you may be lamenting on how excruciatingly slow it seems to make any progress. It's true, but after one month on the program I have seen significant savings gains and have controlled my impulse spending on electronics items and games!
As of 24 Jan. 2008
$101,375.00 net worth
My net worth is actually reduced by $9,100.00 since I still owe that amount of money to my savings accounts. I charge myself 4.00% APY which must come out of my discretionary funds. In this way, I can fund my IRA and keep my savings goals intact for the long run.
Budget, Retirement, Savings Mon, January, 28, 2008 at 11:41 AM $821.60 per week is my gross pay ($42,723.20/year)
-$82.16 per week goes to 401(k) (Rockwell matches 75% up to 8% of your pay and I contribute a little more) ($4,272.32/yr)
After taxes, medical insurance, dental, optical, Social Security, Medicare, etc. My take home pay is:
$535.22 ($27831.44/yr)
-$8.22 per week goes to my Employee Stock Savings Plan (ESSP) ($427.23/yr)
-$40.00 per week goes to a down payment on a house ($2,080.00/yr)
-$8.25 per week is set aside for any additional income tax I might have to pay in the future ($427.23/yr)
-$96.25 per week is set aside for a Roth IRA ($5000/yr)
-$17.75 per week is set aside for an emergency cash fund ($910.62/yr)
-$126.75 per week is set aside for rent and homeowners insurance ($6,580.00/yr)
-$42.00 per week is set aside for car care ($1450 insurance, $500 repair, $125 registration/smog, $90 AAA) ($2165.00/yr)
-$81.00 per week is set aside for all bills (necessary and unecessary) ($4150.00/yr)
-$31.75 per week for food (this REALLY forces me to control my eating out habits) ($-1651.00/yr)
After all this, I have approximately $2,200 of income to spend on whatever I want to. I seperated it into the following categories:
My budget does not take into account:
Mon, January, 28, 2008 at 11:33 AM After reading Rich Dad Poor Dad I felt one thing in particular: entertained. At best the information "gets you to think about your money" and at worst the more advanced information Kiyosaki presents is just downright dangerous and/or useless to the average person. I would think seeing a huge credit card statement or a paycheck "gets you to think about your money." The one thing I did notice about the book is that people who rave about the book have not really done anything to change their lives and habits. They are still in the same (or worse) financial situation six months after reading the book than just before reading the book.
Keep 10% of everything you make for yourself. PAY YOURSELF FIRST. Why should you be paying other people with your hard earned money. Pay yourself first. Take the amount of money you receive in your paycheck (the part after taxes and insurance and Medicare and Social Security) and keep 10% of that for yourself. 10% means move the decimal point to the left. If your paycheck is $528.23 then keep $52.82 for yourself.
Take advantage of the easy stuff! This step also takes advantage of tax breaks and free money. Max out your employer matching to your 401(k). Let's say your employer matches 50% of your contributions up to 6% of your pay. You put 6% of your pay into the 401(k) and you get an additional 3% free for your retirement! (Often you must work for the same company a certain number of years before you get to keep the company's matching funds - this is called being "vested.") Second, take advantage of our current federal tax situation by contributing funds to a Roth IRA. Any earnings, dividends, interest, and gains you make will be withdrawn TAX FREE when you retire. Taxable accounts can be taxed between 15% to 33% when you withdraw them.
Do not spend more money than you have. That is my bedrock advice. Take the amount you have left after keeping 10% for yourself, funding your 401(k), and funding your IRA. This is the money you have for living. If you get paid monthly, multiply your average take home paycheck by 12. If you get paid weekly multiply your average take home paycheck by 52. This is how much money you have to spend in a year.
This is a first step and you can add more categories if you want. Make your "simple" budget today. It takes about 30 minutes. I have employed this very scheme and I seperate my paycheck as soon as I receive it. Anything that's left is mine to spend however I want or put towards my savings goals.
Fri, September, 14, 2007 at 12:05 PM in Deals WE INTERRUPT THIS CREDIT CARD SERIES WITH THIS ANNOUNCEMENT!
Microsoft is offering it's Office Ultimate 2007 for $59.95 to currently enrolled college students (at least 0.5 units) who have a valid xxx@xxx.edu email address. This offer is good between September 12, 2007 and April 30, 2008.
Office Ultimate 2007 includes:
Go to http://www.microsoft.com/education/ultimatesteal.mspx to get the details.
Tue, September, 4, 2007 at 03:18 PM Everyone is taught to save money, and to do so most people open up a savings account. After all, it makes sense right? Maybe you also have a CD or Certificate of Deposit. Do you have a Bank Money Market account?
Usually when you go to a bank and open up an account you get a savings account (or core account) and a checking account of some sort. As a student, your goal is to open up such accounts WITHOUT FEES. Granted you cannot completely escape fees (over drafting, past account history, or returned checks for example), but you should have your banking needs taken care of without paying fees. You do not have the money to throw away for nothing. Usually it’s the checking account that has fees, so make sure to go for FREE CHECKING accounts.
Do not get sucked into an interest checking account. You have a core savings account which will make some amount (and usually always more than an interest checking account) of interest. Usually interest checking accounts average 0.85% or so while your typical savings account will give you maybe 1.25% interest.
Why not get 4.0% or even 5.0% interest on your money that’s sitting in a bank? Here’s where a money market account comes in. A money market is a type of savings account banks and credit unions offer. They usually pay higher interest, but they have higher minimum balance requirements. Sometimes you are limited to the number of withdrawals per month. Your goal is to get one with high interest, low minimum balance, and preferably unlimited transactions.
I personally have the Citi Bank e-Savings account. It currently earns 4.25% APY (it used to be higher, but unfortunately it has gone down in recent months) and has no minimum balance requirements. You can link the account to your Citi Checking Account and transfer money online or using your Citi ATM/Debit card. You MUST open this account online – it cannot be done in a financial center – but once opened you can access your funds any way you like.
Why have a money market account? With online banking and ATM access it’s easy to move money around. You do not have to go into the branch at their in-“convenient hours” but rather just move money online or at an ATM. I do not write too many checks, and I pay for most things using my credit cards (get free stuff that way) so I do not have to worry about over drafting my checking account. This means my checking account needs very little balance in it. Consequently it means I have much more money to allow to sit in my money market account earning gobs more interest, and I am all for getting money for doing nothing.
What if you do not have the discipline not to touch the savings account? Here you have two options. One is to put the money into a CD. Pick a term where you know you will not need to touch the money. If you withdraw the principle before the end of the term, you will have to pay a penalty. CDs earn relatively good interest rates (usually better than money markets), but you have to plan well to avoid penalties for early withdrawal.
Another suggestion is to open up an online only money market account where you will not be tempted to spend money out of. I also have an E*TRADE Complete Savings Account which earns 5.05% APY. You do everything online and can transfer money into and out of your account through other bank accounts.
Other recommended choices include the HSBC Direct Online Savings Account earning 5.05% APY and the ING Direct Orange Savings Account earning 4.50% APY. UFB Direct in California has an account earning 5.31% APY with $1 minimum account balance; however I have had no experience with the bank.
Fri, August, 31, 2007 at 12:48 PM I came across this principle today and found it intriguing because I have known it to apply to so many other things, and yet I have never applied it to personal finance. My personal experiences with the principle stem from quality control and computer science, but ironically, the principle has its origins in economics.
A LITTLE BACKGROUND. The Pareto Principle is more commonly known as the 80-20 rule. Economists call it the Principle of Factor Sparsity which just furthers my claim that economics is “the science of common sense in a language only few can understand”. Vilfredo Pareto lived in the late 1800s and helped develop the field of microeconomics, notably the concept of Pareto Efficiency (unrelated to the principle). He once noted that 20% of Italy’s population controls 80% of Italy’s wealth. This is why the 80-20 rule is named after him.
QUALITY MANAGEMENT PIONEER Dr. Joseph Juran found what he termed the “vital few and trivial many” which determines where and how companies should focus to increase the quality of their products. Dr. Juran worked with Japanese businesses after World War II to improve what the world saw as cheap and poor products. Perhaps due to the processes derived from his work, thought to be an application of Pareto’s observations about economics, Japanese companies have built a reputation for quality and developed processes and business models followed by thousands of companies today.
THAT’S GREAT, BUT HOW DOES IT HELP ME? Have you noticed that you see this principle nearly every day? Take a step back and look at your life. Do you find any of the following apply:
* You spend 80% of your time with 20% of your acquaintances
* 20% of your activities in life account for 80% of your memories
* 20% of your customers account for 80% of your sales
* 80% of complains stem from 20% of products or idiosyncrasies
* 80% of your visitors only look at 20% of your website
* 80% of your money is spent on 20% of the things you own
* 20% of the articles you read in journals/magazines are valuable to you
* You wear your favorite 20% of clothes 80% of the time
What you need to be doing is making sure you’re spending the majority of your time and money doing the 20% of any equation. Here are a few things that suggest you’re in the 80% group:
* You’re frequently working on tasks you have zero interest in
* It seems like you’re always working on “urgent” tasks
* You’re spending a lot of time on things you’re not “good” at doing
* Activities seem to always take longer than you expect.
People have their strengths and weaknesses, and just like the rule would suggest, we’re probably good and practiced at 20% of all the things we could be doing. You will find that if you focus on that 20% you will:
* Enjoy what you are doing
* Be good at what you are doing
* Find you are fast at what you are doing
* Be efficient at what you are doing
* SMILE MORE!
OKAY, THERE ARE OBVIOUS BENEFITS TO THIS THINKING BUT WHAT ABOUT FINANCE? We tend to be consumers – massive ones at that – and we tend to collect tons of meaningless junk. Sure, we can think of tons of reasons for consuming and keeping, but it really shows in our pocket books. You probably only NEED 20% of all the things you buy. The other 80% is unnecessary fluff. (Hey – I sound like an English teacher). Concentrate on those 20% things and then ask yourself the following questions to figure out whether or not to buy it…
* How much happier will I be with this thing?
* How often will I use this thing?
* How expensive is this thing?
* How fast will this thing be obsolete?
* How much can I get for this thing when I get rid of it?
* What kind of memories will I have of this?
* Did you research this thing?
Be totally honest with yourself and avoid tricking yourself. Put it up to the 80-20 rule!
CASE STUDY. This can obviously be a great tool or it could be a worthless piece of junk. It really depends on what you’re going to do with it.
How much happier will you be with it? Don’t just ask will you be happy with it at first or happy with it until something else comes out or happy with it because it’s cool. Will you be happy with it 80% of the time you use it? Is it in the 20% of your stuff you’re happiest with? I’m happy now… will I be 20% MORE happy once I have it? When you ask these questions do you start to see how FEW products out there will meet these requirements?
How often will I use this thing? 80% of the time? Are you always going to be reaching for it, or is it going to spend 80% of it’s time on the shelf or in your pocket? Is it going to be among the top 20% of your objects that get the most use?
How expensive is this thing? Is it going to be one of the objects that fits the rule “20% of your things that take 80% of your money”? Those things are NECESSITIES! Housing (rent, utilities, insurance), Health (food, medicine, insurance), and Transportation (car, mass transit) usually fit those rules. Things that luxuries or fluff usually end up in this category but are not necessary for your life. You can cut out those luxuries you truly do not NEED and do not SUPER SUPER SUPER want or you will DIE.
How fast will this thing be obsolete? In one year will this still be one of your top 20% objects? 2 years? 3 years? This question depends on the object. Cars should last 7 to 15 years. Appliances 12 to 25 years. Think of what you feel the object should last. Is there an 80% chance it will last 20% longer than you think?
How much can you get for this thing when you get rid of it? Will it retain 80% of its value? Is it going to be among the top 20% of used things people buy?
What kind of memories will you have from this? Think of travel for example for this question. Will it be among your 20% most memorable things to have done in your life? Will you spend 80% of your time actually traveling or will you be in your hotel room doing nothing? Conversely are you going to spend 80% of your time RELAXING and having FUN (if that’s more your thing) rather than worrying about life and the nagging (yet honestly important) questions?
How much time did your research this thing? AVOID IMPULSE BUYING! IT’S THE SINGLE MOST WASTEFUL PRACTICE WE HAVE. If you can 80% eliminate this practice from you life, I bet you save 20% from being spent on worthless crap.
WHAT I HAVE TAKEN FROM THE 80-20 RULE. I am lucky I got a job I mostly enjoy doing. I probably get paid well below what I could have received from other jobs, but I am mostly happy here. I spend most of my time actually getting stuff done, and very little of my time running around doing the preparation trying to get things done. I complain about work, but really nothing major. Like everyone else I can always find something to complain about even if things were nearly Utopian. At home I have far, far too much crap and I really need to prune. I spend too much money on junk that I do not keep using. I buy things that have little personal or retail value. I hardly (until recently) used a $500 Dell Axim but I’d really hate being without my $15 Patton Industrial Fan. There’s so much CRAP in my apartment. I will be going through those things and applying all the 80-20 questions and relationships to those things and will decide what to do with everything from there. (If you want some free stuff – I’m getting rid of a ton soon!)
Take the time out in the next 2 or 3 days to really think about the 80% of your life that could be made better. Keep the 20% that’s great. Throw out 80% of the junk you don’t need.
