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 Tue, January, 29, 2008 at 06:11 PM Quickly, the tax rebate (if passed by Congress) looks to give up to $600 to singles, $1200 to couples and $300 to qualifying children assuming certain requirements are met.
DO NOT BUY:
Of course this legislation hasn't been passed yet, so we'll have to keep watching.
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.
Credit Cards, Debt, Taxes 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.
Thu, August, 30, 2007 at 04:48 PM Okay, now that I have your attention, let's talk. While this is possible, it's quite risky and you may end up with very little. However, here's a one way to make you a millionaire by the time you retire. Best of all it doesn't even take all that much work.
All you have to do is save $4,000 in a Roth IRA for the rest of your life until retirement. With luck (smart management, smart asset allocation, controlled risk, and a hope the market doesn't spiral down) you'll be a millionaire at retirement. As some people like to call this strategy GET RICH SLOWLY or GET RICH EVENTUALLY.
----+---+------------+---+----------+-------------
Year|Age|Contribution|APY| Growth | Balance
----+---+------------+---+----------+-------------
2007| 23| $ 4,000.00 | 0%|$---------|$ 4,000.00
2008| 24| $ 4,000.00 |12%|$ 480.00|$ 8,480.00
2009| 25| $ 4,000.00 |12%|$ 1,017.60|$ 13,497.60
2010| 26| $ 4,000.00 |12%|$ 1,619.71|$ 19,117.31
2011| 27| $ 4,000.00 | 8%|$ 1,529.38|$ 24,646.70
2012| 28| $ 4,000.00 | 8%|$ 1,971.74|$ 30,618.43
2013| 29| $ 4,000.00 |10%|$ 3,061.84|$ 37,680.28
----+---+------------+---+----------+-------------
2014| 30| $ 4,000.00 |12%|$ 4,521.63|$ 46,201.91
2015| 31| $ 4,000.00 |12%|$ 5,544.23|$ 55,746.14
2016| 32| $ 4,000.00 |12%|$ 6,689.54|$ 66,435.67
2017| 33| $ 4,000.00 | 8%|$ 5,314.85|$ 75,750.53
2018| 34| $ 4,000.00 | 8%|$ 6,060.04|$ 85,810.57
2019| 35| $ 4,000.00 |10%|$ 8,581.06|$ 98,391.63
2020| 36| $ 4,000.00 |12%|$11,807.00|$ 114,198.62
2021| 37| $ 4,000.00 |12%|$13,703.83|$ 131,902.46
2022| 38| $ 4,000.00 |12%|$15,828.30|$ 151,730.75
2023| 39| $ 4,000.00 | 8%|$12,138.46|$ 167,869.21
----+---+------------+---+----------+-------------
2024| 40| $ 4,000.00 | 8%|$13,429.54|$ 185,298.75
2025| 41| $ 4,000.00 |10%|$18,529.88|$ 207,828.63
2026| 42| $ 4,000.00 |10%|$20,782.86|$ 232,611.49
2027| 43| $ 4,000.00 |10%|$23,261.15|$ 259,872.64
2028| 44| $ 4,000.00 | 7%|$18,191.08|$ 282,063.72
2029| 45| $ 4,000.00 | 8%|$22,565.10|$ 308,628.82
2030| 46| $ 4,000.00 |10%|$30,862.88|$ 343,491.70
2031| 47| $ 4,000.00 |10%|$34,349.17|$ 381,840.87
2032| 48| $ 4,000.00 | 6%|$22,910.45|$ 408,751.32
2033| 49| $ 4,000.00 | 7%|$28,612.59|$ 441,363.92
----+---+------------+---+----------+-------------
2034| 50| $ 4,000.00 |10%|$44,136.39|$ 489,500.31
2035| 51| $ 4,000.00 | 8%|$39,160.02|$ 532,660.33
2036| 52| $ 4,000.00 | 9%|$47,939.43|$ 584,599.76
2037| 53| $ 4,000.00 | 7%|$40,921.98|$ 629,521.75
2038| 54| $ 4,000.00 | 6%|$37,771.30|$ 671,293.05
2039| 55| $ 4,000.00 | 6%|$40,277.58|$ 715,570.63
2040| 56| $ 4,000.00 | 7%|$50,089.94|$ 769,660.58
2041| 57| $ 4,000.00 | 6%|$46,179.63|$ 819,840.21
2042| 58| $ 4,000.00 | 5%|$40,992.01|$ 864,832.22
2043| 59| $ 4,000.00 | 6%|$51,889.93|$ 920,722.16
----+---+------------+---+----------+-------------
2044| 60| $ 4,000.00 | 4%|$36,828.89|$ 961,551.04
2045| 61| $ 4,000.00 | 5%|$48,077.55|$1,013,628.60
2046| 62| $ 4,000.00 | 6%|$60,817.72|$1,078,446.31
----+---+------------+---+----------+-------------
You can see in this spreadsheet that I took into account variances in the market and also a more conservative spread as you get older. You can see the $4000 contributed anually and you can see the result of your balance: as promised one million dollars at retirement.
You know what's even better? IT'S IN A FREAKING ROTH IRA WHICH MEANS AT AGE 65 AND A HALF... you can take out almost every penny* six months after your 65th birthday... AND NOT OWE A SINGLE PENNY IN TAXES ON THAT MONEY!!! Aren't Roth IRAs great?
Of course you wouldn't want to ACTUALLY do this, but it's great to know you can. What you would want to do is take out what you need to live and allow the money in your account to keep growing and growing. Do you notice that "growth" column? That's the money you make on interest and capital gains every year BY DOING NOTHING! That's why the saying "it takes money to make money" is so true.
Now, you're a millionaire and you owe no taxes on that million dollars you have. And you're probably MORE than a millionaire because (hopefully) by this time you have at least one house paid off. You also probably contributed to a 401(k) which should have your employer's free matching money giving you probably more than a million dollars in that account (you'll have to pay taxes on it when you take it out, however). So when you add all these things up... I bet you ARE a millionaire by 40.
*You have to keep your money in a Roth IRA for at least 5 years before withdrawing it to avoid penalties. So really at age 65 and a half you could take out all but $20,000 penalty free - which, by the way, is still over a million dollars.
401(k), Retirement, Roth IRA, Savings, Subscriber Questions, Taxes Thu, July, 12, 2007 at 03:37 PM Jonathan Clements of the Wall Street Journal writes a good article that everyone should take a look at and thing about how it applies specifically to their own lives. His advice has solid grounding, but the execution of the advice could be a potential pitfall for some people.
http://biz.yahoo.com/wallstreet/070701/sb118323893642354294_id.html?.v=1&.pf=banking-budgeting
You are reading part 1: Amass cash
As Mr. Clements notes, “some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses, with this cash tucked away in conservative investments like money-market funds and certificates of deposit.”
I fully agree with the paths and ideas Mr. Clements takes and find this section of the article to be rock solid. There are circumstances, however, where following Mr. Clements advice can be extremely dangerous.
Let’s say you’re great about your spending habits and regularly sock away 10% of your income for a liquid savings account for your emergency funds. Let’s also say your living expenses are roughly $25,000 a year. You would need to save $12,500 to make up your 6 month reserve. If you’re making $50,000 that would take a little more than two years, and if you’re making $30,000 it will take nearly four years.
Why do the numbers seem larger than they really are? I didn’t just do simple division, but took into account savings growth compounding of four percent, a three percent annual raise in income, but also TAXES. Therein lies the key word why you shouldn’t focus on an emergency stash. Taxes.
Chances are if you focus solely on building your emergency stash you’re not contributing anything to a 401(k) nor an IRA of any sort, and that is the key mistake Mr. Clements focuses on. By doing this you are giving up too much of your hard earned money to taxes and potentially losing out on some FREE money.
By contributing to your 401(k) you get the free money your employer gives you as a match. You also lower your taxable income for the year by the amount that you contribute. A Traditional IRA will lower your taxable income as well, but the advantages of a Roth IRA clearly win in the end. You do pay the taxes on the money you put in, but when you take the money out during retirement (this is called a distribution) you pay no taxes on the distribution. That means that any gains and growth the account accumulated gets paid to you tax free! You potentially have hundreds of thousands of dollars in tax free money here.
There are plenty of reasons that can cause a loss of income and this is the key area to analyze before figuring out how much of your potential retirement money you should sacrifice for the relatively low yield, non-tax advantageous liquid emergency stash.
Can you move in with your parents? If your answer to this is yes, then you have a huge advantage in not needing to save as much for emergencies. Moving back home will provide you a huge sum of money for savings. Notice the key word is CAN. The question is not is it EASY to move back in with your parents. It, likely, will not be easy. You may even have to throw all your stuff in storage and move back to your home state, but it’s something that can save you boatloads of money.
Are you a contract worker or otherwise unstably employed?. An emergency stash is insurance. It’s there should you ever need it, but you may never need it! If you’ve got a pretty stable job (no one can predict layoffs or a sour economy) you probably don’t have to save so much for emergencies. If you know you’ll be without income soon or know that your income isn’t always guaranteed (commission, sales, etc) then you’re going to need a bigger stash.
Do you have other sources of emergency stash? Perhaps your parents gave you a life insurance policy you can borrow against? Maybe you finally lost your source of income a little later in life and your wise decisions allowed you some equity in your home you can borrow against? Even as a last resort you could borrow against your 401(k) after all. Your stash may already be pretty large without it being so obviously cash.
Do you have the urge to spend cash? Be honest with yourself here. If you see cash and spend it, then an emergency stash is a poor choice for you. The point of it being liquid is so you can get access of it quickly and easily. However, if you spend it, you’ve wasted your tax advantage and your stash as well. The other problem is that the cash you sock away is likely to touch your hands first before it gets put away. 401(k)s are taken directly from your paycheck and you never have the temptation to touch the money.
Swallow your pride Sometimes to make a living you have to do something beneath you or a job you don’t really like. If you’re fed up with your job, that’s fine! Find another one, but don’t quit your previous job until you have to. Put up with it just a little longer and it might save you from needing a stash or taking out loans. Also, full time grocery store workers get health benefits (pretty good ones I hear) which may just carry you through.
Change your lifestyle! It’s really amazing how much crap and junk we amass as consumers. Sell off the stuff you don’t need to raise some income and change your spending habits to match your new lower income.
Take advantage of government programs. Make the effort to qualify for as many programs as you can. It may be degrading, but it’s money available to you. Technically it’s YOUR money that you’ve been paying in taxes. That means take advantage of unemployment, disability, Medicaid, food stamps ,COBRA, whatever.
Again, the usual holds true: no advice is one-size-fits-all. Everyone is different and needs to take their own circumstances into consideration before deciding what’s best for them. This includes risk tolerance. If you can stand the risk, by all means live on the dangerous side, but understand your situation and make plans just in case. It’s one thing to live dangerously, it’s a whole other thing to live stupidly. If not having that cash there will cause you insecurity and lost sleep, then by all means make yourself happy.
Your money works for you so you can live life the way you want. You do not work for money. If you ever find yourself working for money, think about what you’re doing. Chances are there is a flaw in your plan somewhere.
401(k), Investments, Mutual Funds, Retirement, Roth IRA, Savings, Stocks, Taxes, Traditional IRA Thu, July, 12, 2007 at 03:32 PM Can you contribute to a Roth IRA from April to December or is it April to April? (i.e., is it tax year or calendar year?)
You can contribute to the current year starting January 1. However, up until tax time (April 15) you can elect to contribute to the past year.
April 16, 2007 to December 31, 2007: you can contribute to 2007 tax year only
January 1, 2008 to April 15, 2008: you can contribute to 2008 tax year (current year contribution) or the 2007 tax year (past tax year contribution)
April 16, 2008 to December 21, 2008: you can contribute to 2008 tax year only
Etc.
Retirement, Roth IRA, Savings, Taxes, Traditional IRA Mon, June, 11, 2007 at 11:27 AM I've been reading MSN money and I noticed something in the investing section. It's called investing basics. I went to that section and this link particularly caught my interest.Start Investing with just $100
http://articles.moneycentral.msn.com/Investing/Start Investing/StartInvestingWi thJust100.aspxIs this a good tip for beginning investors?Thanks!
Pros:
Sat, May, 12, 2007 at 02:02 PM My wife and I want to buy some stocks. Especially stocks in companies we buy products from. We have narrowed down our interests to 4 stocks. Is that too many to invest to? Should we decrease the amount?
I want to try another type of investment. I figure I have time to just let my money sit in a brokerage account. I want this money to appreciate and help pay a small amount of a down payment. If anything a vacation or even just reinvesting it would be nice. It would also be good as a security basket. I think we can put about $1500-$2000.
1. Make Your Company Match
Make sure to take all the free money that you can by socking away up to what your company matches in your 401(k). Nothing beats free money.
2. Take Advantage of Your IRA and Spousal IRA
Make sure to put away the maximum contribution for your IRA ($4000 for 2007). Even if your spouse is not working she can have an IRA in her name by way of a spousal IRA as long as you're making more than $8000 year. Of course if she's working she can contribute her own earnings.
3. Liquid Emergency Funding
The experts say that you should have enough in liquid savings to live for 6 months without income. Since you still have strong family support and do not have much by the way of monthly expenses, this shouldn't be a problem for you, but for most people this is a good sum of money to have in a liquid asset and will take some time to save up the required amount.
4. Life Insurance and MAYBE LONG TERM CARE Insurance
Here I would say that single people in their 20s probably don't NEED Life Insurance but it may still be a good idea if you can afford it for the following reasons. If one spouse makes more than the other an unexpected death or debilitating injury the loss of in addition to the emotional grief may derail the surviving spouses life for months if not YEARS. Even a small policy (term if you can't afford GUL) can help pay for all the unexpected (or expected) expenses of death like funeral expenses or lawyer fees if anything goes wrong.
Long Term Care insurance protects you from the expenses of Long Term Care (Hospice, Convalesce, etc.) and may be something to look into. The costs of such care could run hundreds of dollars per day. It's a consideration in this world of rising health care costs where it can seem like one cannot afford for such care.
5. Brokerage Account
Here we can discuss your stocks...
Let us make that assumption and say you invest $2000 evenly in 4 stocks and you hold it for 2 years to sell in 2009. This means you have $500 and put $480 into the stock (the fee to buy). You make 10% in the first year now have $528. You make another 10% the second year and have $580.80 where you sell and get $560.80 after the fee to sell. You have capital gains of $60.80 (I don't believe they count the fees) and pay $6.08 leaving you with $54.72 or $218.88 for all four stocks.
Now let us make the assumption you invest $2000 in 1 stock and hold it for 2 years to sell in 2009. You make the purcase and have $1980 in the stock. It grows the same 10% and is worth $2178 after year one. It grows another 10% and is worth $2,395.80 before the $20 fee to sell. You end up with$2,375.80 and pay taxes of $37.58 leaving you $338.22. All because of the fees you had to pay for the more trades.
Obviously it pays to try to minimize your fees, but the more you diversify (smartly) the less risky your investment becomes. Smart diversification means a blend of value (income) and growth and a blend of sectors. Buying four transportation companies (even if you use all of them) leaves you at great risk if gas prices go up. Buying four tech companies leaves you at risk in a recession. Companies who produce every day products like Proctor and Gamble or Johnson and Johnson do very well in a recession because they produce products people won't stop buying in a recession.
Of course to achieve diversification, you can buy a mutual fund although many have minimums of $2500 which is slightly higher than what you're looking at right now. The downside is that you pay for your fund manager to actively manage the fund (buy this stock, sell that stock to try to make an even gain every year - capital gains hopefully offset by capital losses to keep the fund performing). This fee eats away at your growth! You also have to hope that your fund manager is good and can actually beat the overall indicies.
For this reason you can try an index fund. These funds just buy whatever is in the index that fund is tracking. For example Fidelity has FSMKX which tracks the S&P 500. If you can invest $10,000 Fidelity will even drop it's expense ratios 30% to 0.07%. Vanguard has a similar program in place dropping it's expense ratios by half to 0.09%. FSMKX is a no load fund which means you don't pay anything either at the front end or back end.
If you want to do lots of research in purchasing your stocks, I recommend starting at The Motley Fool and reading and reading and reading. Remember that buying a stock is really trading. What you think is a good idea to buy, someone else thought was a bad idea to stay in that stock. If you can figure out why someone is selling, you'll have an advantage in figuring out whether the stock will do what you want it to or not.
