I know I haven't posted in a while. I am looking for new and interesting topics within the scope of this project. In the meantime, please enjoy $2 of free music on Amazon MP3 using the promo code MOMROCKS through April 22.
http://www.amazon.com/gp/feature.html/ref=tsm_1_fb_s_mom_m2qk15?ie=UTF8&docId=1000796081
Thursday, April 19, 2012
Friday, March 30, 2012
Life Insurance
You are going to die.
That's a fact. Sorry to be the bearer of bad news. Just because you are young does not mean you aren't going to die. But, you can be smart about your death. It's called life insurance.
Many people my age do not have life insurance. It's an extra expense, and they don't think about the costs still present after the die. Here are my top reasons to get life insurance.
1) You have a mortgage
2) Your kids are expensive
3) The average cost of a funeral is about $7500 http://www.ehow.com/about_5196905_cost-average-funeral.html
If you own a house, and you do not have the money in the bank to pay it off, you should have life insurance. It's not as if the bank forgives the debt when you die. If you want to ensure that your family doesn't get foreclosed on because they can't pay the mortgage, you should get enough life insurance to cover the mortgage.
If you have children, and you can't pay the cost of their college education and other expenses out of money you already have, you should get life insurance. A college education costs hundreds of thousands of dollars (see my posts on 529 Plans), and unless you would prefer that your child not go to college, having a life insurance policy large enough to cover their expenses is a good plan.
Finally, get enough to cover the funeral. You don't want to end up like Donny from the Big Lebowski, with your ashes covering John Goodman and Jeff Bridges. http://videosift.com/video/The-Big-Lebowski-Scattering-Donnies-Ashes
Here's the bright side. If you are reading this, chances are you are young, in good health, and have good habits. You can get a large policy, for a long period of time, for not too much money. I have a large term life insurance policy for 30 years, and I pay a very manageable amount per month. For a discussion of the difference between Term Life Insurance and Whole Life Insurance: http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/ By the end of the term of this life insurance policy, my kids will be out of college, and I'll likely have paid off most of my primary residence. Then, when I need to renew my policy, I can get a much smaller amount because I will not have large financial obligations coming down the road.
Life insurance is smart, in particular if you own a home or have children. Face the facts: You're gonna die, and life is expensive. Now do something about it.
That's a fact. Sorry to be the bearer of bad news. Just because you are young does not mean you aren't going to die. But, you can be smart about your death. It's called life insurance.
Many people my age do not have life insurance. It's an extra expense, and they don't think about the costs still present after the die. Here are my top reasons to get life insurance.
1) You have a mortgage
2) Your kids are expensive
3) The average cost of a funeral is about $7500 http://www.ehow.com/about_5196905_cost-average-funeral.html
If you own a house, and you do not have the money in the bank to pay it off, you should have life insurance. It's not as if the bank forgives the debt when you die. If you want to ensure that your family doesn't get foreclosed on because they can't pay the mortgage, you should get enough life insurance to cover the mortgage.
If you have children, and you can't pay the cost of their college education and other expenses out of money you already have, you should get life insurance. A college education costs hundreds of thousands of dollars (see my posts on 529 Plans), and unless you would prefer that your child not go to college, having a life insurance policy large enough to cover their expenses is a good plan.
Finally, get enough to cover the funeral. You don't want to end up like Donny from the Big Lebowski, with your ashes covering John Goodman and Jeff Bridges. http://videosift.com/video/The-Big-Lebowski-Scattering-Donnies-Ashes
Here's the bright side. If you are reading this, chances are you are young, in good health, and have good habits. You can get a large policy, for a long period of time, for not too much money. I have a large term life insurance policy for 30 years, and I pay a very manageable amount per month. For a discussion of the difference between Term Life Insurance and Whole Life Insurance: http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/ By the end of the term of this life insurance policy, my kids will be out of college, and I'll likely have paid off most of my primary residence. Then, when I need to renew my policy, I can get a much smaller amount because I will not have large financial obligations coming down the road.
Life insurance is smart, in particular if you own a home or have children. Face the facts: You're gonna die, and life is expensive. Now do something about it.
Friday, March 16, 2012
Apple Computer
The iPad3 comes out today, the 3rd release of an ipad in two years. Thousands will buy it, many of whom bought the Ipad2 last year and the original ipad in 2010. So, people may be spending more than $1500 dollars in two years on a tablet computer, and its newer models. http://www.apple.com/ipad/
In this post, I'd like to advise readers to be more discerning about buying Apple products. I remember reading an op-ed a while back about how Apple is more like a religion than a company http://www.washingtonpost.com/opinions/apple-is-a-new-religion-and-steve-jobs-was-its-high-priest/2011/10/07/gIQAjYlgTL_story.html, and i think it is true. Many Apple adherents have a tendency to be fanatics, and will not consider other similar products from other companies. Samsung recently mocked these qualities in advertisements http://mashable.com/2012/01/20/samsung-apple-super-bowl-ad/.
I would suggest looking to another frame of reference when determining whether or not to make an Apple purchase. Baseball has a statistic known as VORP, or Value Over Replacement Player http://en.wikipedia.org/wiki/Value_over_replacement_player. In short, is what you have worth more than the average, and how much more? Apple's primary product lines include tablet computing, personal computing, mobile telephones, mobile music players, digital music, and a variety of other revenue streams. It is necessary to apply VORP to Apple purchases. How much more is it worth it to buy from Apple than a replacement?
In digital music, there is very little value. The itunes store has many popular songs available for $1.29, and are write-protected so they are not transferable between accounts. Meanwhile, Amazon mp3 has the same songs available for 99 cents, and they are not write protected. http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011. Further, they are saved to a cloud drive, and can be downloaded to a player or accessed from the cloud. The VORP of the itunes store is zero.
In the interest of brevity, I am not going to go through this analysis for each of Apple's product lines. Generally, when I make technology purchases, I try to compare the specifications and attributes of the products on websites like cnet.com, to determine what is best for me. In my opinion, Apple's VORP in digital music, personal computers, tablets, and mobile phones is very low. Apple's products are more expensive than their competition, and often do not carry all of the features, such as the problems viewing flash video on Apple products (Apple has since provided workarounds http://www.macobserver.com/tmo/article/adobe_delivers_flash_video_to_iphone_ipad/, but this still presents a consumer frustration).
In the interest of comprehensiveness, if you have not read the article on the conditions of the factories supplying Apple, you should. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all. Things like this affected product lines from Kathy Lee Gifford and Nike, and Apple shouldn't be treated differently.
Additionally, in an effort to be even-handed, there isn't a very strong competitor or "replacement player" for the ipod. Microsoft attempted to create one with Zune, but that was ultimately unsuccessful. http://www.time.com/time/specials/packages/article/0,28804,1898610_1898625_1898633,00.html. Unless you download all of your music to a cloud and can play from that cloud remotely, the ipod is probably the best option.
Don't just go out and buy from apple. Do a VORP analysis, looking at an Apple product's attributes and drawbacks, and whether or not it is worth the price over its competitors. You may find yourself getting an excellent alternative product and saving money at the same time.
In this post, I'd like to advise readers to be more discerning about buying Apple products. I remember reading an op-ed a while back about how Apple is more like a religion than a company http://www.washingtonpost.com/opinions/apple-is-a-new-religion-and-steve-jobs-was-its-high-priest/2011/10/07/gIQAjYlgTL_story.html, and i think it is true. Many Apple adherents have a tendency to be fanatics, and will not consider other similar products from other companies. Samsung recently mocked these qualities in advertisements http://mashable.com/2012/01/20/samsung-apple-super-bowl-ad/.
I would suggest looking to another frame of reference when determining whether or not to make an Apple purchase. Baseball has a statistic known as VORP, or Value Over Replacement Player http://en.wikipedia.org/wiki/Value_over_replacement_player. In short, is what you have worth more than the average, and how much more? Apple's primary product lines include tablet computing, personal computing, mobile telephones, mobile music players, digital music, and a variety of other revenue streams. It is necessary to apply VORP to Apple purchases. How much more is it worth it to buy from Apple than a replacement?
In digital music, there is very little value. The itunes store has many popular songs available for $1.29, and are write-protected so they are not transferable between accounts. Meanwhile, Amazon mp3 has the same songs available for 99 cents, and they are not write protected. http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011. Further, they are saved to a cloud drive, and can be downloaded to a player or accessed from the cloud. The VORP of the itunes store is zero.
In the interest of brevity, I am not going to go through this analysis for each of Apple's product lines. Generally, when I make technology purchases, I try to compare the specifications and attributes of the products on websites like cnet.com, to determine what is best for me. In my opinion, Apple's VORP in digital music, personal computers, tablets, and mobile phones is very low. Apple's products are more expensive than their competition, and often do not carry all of the features, such as the problems viewing flash video on Apple products (Apple has since provided workarounds http://www.macobserver.com/tmo/article/adobe_delivers_flash_video_to_iphone_ipad/, but this still presents a consumer frustration).
In the interest of comprehensiveness, if you have not read the article on the conditions of the factories supplying Apple, you should. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all. Things like this affected product lines from Kathy Lee Gifford and Nike, and Apple shouldn't be treated differently.
Additionally, in an effort to be even-handed, there isn't a very strong competitor or "replacement player" for the ipod. Microsoft attempted to create one with Zune, but that was ultimately unsuccessful. http://www.time.com/time/specials/packages/article/0,28804,1898610_1898625_1898633,00.html. Unless you download all of your music to a cloud and can play from that cloud remotely, the ipod is probably the best option.
Don't just go out and buy from apple. Do a VORP analysis, looking at an Apple product's attributes and drawbacks, and whether or not it is worth the price over its competitors. You may find yourself getting an excellent alternative product and saving money at the same time.
Friday, March 9, 2012
Paying Off Debt
Debt is the albatross for young people these days. Often, we're leaving college or grad school with more than 100k in debt. http://www.forbes.com/2009/03/10/college-graduate-school-loans-personal-finance-retirement-grad-school-debt.htmlWhile this is daunting, this debt is an investment in future earnings and options. However, there are a number of excellent options in debt repayment which could help you to greater financial flexibility faster.
First, get rid of all of your private and personal debt. That means credit card debt, car debt, and any private loans. Credit card debt and car debt can be avoided with effective budgeting, restraint in shopping, and avoiding overspending. Private loans are a different story. Often, these loans will carry a higher interest rate, and thus, be more costly than government subsidized loans. There are two ways to manage this money. One, try to avoid it by working while you're in school, and thus avoiding the need for private loans. A second option is the immediate termination of the private loan through no-interest methods. One way which can work is by asking for a salary advance from your job. Your employer will dock your pay to cover it, but you're not paying out over 13%. http://www.thefreemortgagecalculator.com/interest_rates/Personal_Loan.html
If a salary advance is not available, perhaps a no interest loan from family or a close friend may be an alternative. But getting rid of that high interest rate is crucial.
In terms of federally subsidzed loans, look into consolidating your amounts and getting the lowest interest rate possible. http://studentaid.ed.gov/PORTALSWebApp/students/english/consolidation.jsp?tab=repaying The goal is to ensure you get the lowest interest rate possible. Also, at the same time, don't just pay the minimum. Find out how much you can afford to pay off monthly, and do your best to devote a lot of cash to that. The money you are paying in interest is for the privilege of having enhanced earning power, and you should do everything in your power to make that cost as small as possible.
If you have a very low interest rate (some Stafford loans are around 2.4%), don't concern yourself with paying that off on a rushed schedule. You may be able to get a better return for your money in other investments, and so, it would be a prohibitive opportunity cost to pay off the debt rather than get that return.
Also, remember that there are potential loan forgiveness programs and loan repayment options offered from employers. Ask your HR about whether or not your job can help you out. Further, mortgage interest and interest on education loans may be tax deductible, depending on your income. Research this to see if you qualify, and if so, take advantage of these deductions.
Do your best to remove the bad debt (debt with high interest, no tax benefits) as soon as you can, as long as you are not sacrificing more lucrative opportunities. You can find yourself debt free much sooner, allowing you greater financial freedom.
First, get rid of all of your private and personal debt. That means credit card debt, car debt, and any private loans. Credit card debt and car debt can be avoided with effective budgeting, restraint in shopping, and avoiding overspending. Private loans are a different story. Often, these loans will carry a higher interest rate, and thus, be more costly than government subsidized loans. There are two ways to manage this money. One, try to avoid it by working while you're in school, and thus avoiding the need for private loans. A second option is the immediate termination of the private loan through no-interest methods. One way which can work is by asking for a salary advance from your job. Your employer will dock your pay to cover it, but you're not paying out over 13%. http://www.thefreemortgagecalculator.com/interest_rates/Personal_Loan.html
If a salary advance is not available, perhaps a no interest loan from family or a close friend may be an alternative. But getting rid of that high interest rate is crucial.
In terms of federally subsidzed loans, look into consolidating your amounts and getting the lowest interest rate possible. http://studentaid.ed.gov/PORTALSWebApp/students/english/consolidation.jsp?tab=repaying The goal is to ensure you get the lowest interest rate possible. Also, at the same time, don't just pay the minimum. Find out how much you can afford to pay off monthly, and do your best to devote a lot of cash to that. The money you are paying in interest is for the privilege of having enhanced earning power, and you should do everything in your power to make that cost as small as possible.
If you have a very low interest rate (some Stafford loans are around 2.4%), don't concern yourself with paying that off on a rushed schedule. You may be able to get a better return for your money in other investments, and so, it would be a prohibitive opportunity cost to pay off the debt rather than get that return.
Also, remember that there are potential loan forgiveness programs and loan repayment options offered from employers. Ask your HR about whether or not your job can help you out. Further, mortgage interest and interest on education loans may be tax deductible, depending on your income. Research this to see if you qualify, and if so, take advantage of these deductions.
Do your best to remove the bad debt (debt with high interest, no tax benefits) as soon as you can, as long as you are not sacrificing more lucrative opportunities. You can find yourself debt free much sooner, allowing you greater financial freedom.
Sunday, March 4, 2012
Another Piece on Home Buying
A great peice in The Atlantic on buying a home. Thank you to Jed, for bringing it to my attention.
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
Thursday, March 1, 2012
Practical vs. Beautiful in Baby Purchases
I have a son who is 16 months old, and I have spent a ton of money on him. We've been through a mountain of bottles, toys, clothes, and all sorts of accessories. I have learned one simple lesson. Never buy anything which does not seem incredibly practical.
A good anecdote is the crib. We have a very nice crib made by some french company, whose instructions are in french. When it came time to lower the crib, it took approximately four hours to loosen bolts, re-align the frame, and then re-tighten bolts with an Allen wrench. Some other cribs can be lowered with very simple latches. But we chose beauty over practicality. Additionally, we have bumpers in our crib, which are nice, but impossible to wash. They need to be washed from time to time, due to vomit, or stains or who even knows. But they are super bulky. I wanted to buy wonder bumpers http://www.gomamagodesigns.com/wonder-bumpers, which prevent suffocation and if they need to be cleaned, can be washed very easily. But our crib could not accommodate wonder bumpers. Take note, that the baby bargain book http://www.amazon.com/Baby-Bargains-Secrets-furniture-maternity/dp/1889392405 will recommend a 99 dollar ikea crib, which you can dress up however you want. But no, we have wasted money and time.
Another place to be super practical is clothes. My kid has a large head, so any kind of clothes with a tight head opening can be a real pain in the butt to put on. But anything which buttons or fastens up the middle is a dream. If your child is in the top 50% for head size, this may be an important factor for you. Remember, with most baby clothes, there is a yelling, screaming, human doing their very best to avoid putting on whatever you want him or her to wear. So, if you want to save yourself tons of headaches, buy clothes with fasteners and not with an army of buttons. But the goal is to get the child dressed, and if you are too exhausted from trying to dress the child, then you don't want to go show them off anyway. Also, whatever you buy is going to have to stand up to a ton of washing, with extra rinsing. Don't buy anything frilly or delicate, because it'll get torn to shreds.
A final thought is toys. There are tons of toys out there, and kids go through them super fast. Instead of buying toys outright, without knowing whether or not your baby will be interested in them, look into subscribing to http://babyplays.com/. If your child loves the toy, go buy it. But if he or she seems to ignore it and not be interested, then you may have saved yourself a fair bit of money. You could waste hundreds or thousands of dollars on toys, and have maybe a 50% success rate. This is an option to try before you buy.
Think about the goals behind these purchases. Envision the whole picture. It is very easy to waste money in this realm, but by asking a ton of questions, and finding the products which fit your individual needs, not just whimsical excitements, can save you a lot of cash, frustration, and energy.
P.S.: If you would like to know the questions my wife and I have learned through the process, contact me privately.
A good anecdote is the crib. We have a very nice crib made by some french company, whose instructions are in french. When it came time to lower the crib, it took approximately four hours to loosen bolts, re-align the frame, and then re-tighten bolts with an Allen wrench. Some other cribs can be lowered with very simple latches. But we chose beauty over practicality. Additionally, we have bumpers in our crib, which are nice, but impossible to wash. They need to be washed from time to time, due to vomit, or stains or who even knows. But they are super bulky. I wanted to buy wonder bumpers http://www.gomamagodesigns.com/wonder-bumpers, which prevent suffocation and if they need to be cleaned, can be washed very easily. But our crib could not accommodate wonder bumpers. Take note, that the baby bargain book http://www.amazon.com/Baby-Bargains-Secrets-furniture-maternity/dp/1889392405 will recommend a 99 dollar ikea crib, which you can dress up however you want. But no, we have wasted money and time.
Another place to be super practical is clothes. My kid has a large head, so any kind of clothes with a tight head opening can be a real pain in the butt to put on. But anything which buttons or fastens up the middle is a dream. If your child is in the top 50% for head size, this may be an important factor for you. Remember, with most baby clothes, there is a yelling, screaming, human doing their very best to avoid putting on whatever you want him or her to wear. So, if you want to save yourself tons of headaches, buy clothes with fasteners and not with an army of buttons. But the goal is to get the child dressed, and if you are too exhausted from trying to dress the child, then you don't want to go show them off anyway. Also, whatever you buy is going to have to stand up to a ton of washing, with extra rinsing. Don't buy anything frilly or delicate, because it'll get torn to shreds.
A final thought is toys. There are tons of toys out there, and kids go through them super fast. Instead of buying toys outright, without knowing whether or not your baby will be interested in them, look into subscribing to http://babyplays.com/. If your child loves the toy, go buy it. But if he or she seems to ignore it and not be interested, then you may have saved yourself a fair bit of money. You could waste hundreds or thousands of dollars on toys, and have maybe a 50% success rate. This is an option to try before you buy.
Think about the goals behind these purchases. Envision the whole picture. It is very easy to waste money in this realm, but by asking a ton of questions, and finding the products which fit your individual needs, not just whimsical excitements, can save you a lot of cash, frustration, and energy.
P.S.: If you would like to know the questions my wife and I have learned through the process, contact me privately.
Thursday, February 23, 2012
Credit Card Management
There are a myriad of credit card offers in the marketplace, and it is important to choose which credit card is right for you. It goes without saying that you should never carry any kind of balance, and you should treat your credit cards like charge cards or debit cards, where the full balance is paid off every month. If you budget effectively and exercise some discipline, this should not be too hard. Also, I find very little reason to pay an annual fee. It's a cost benefit analysis, and I have found that the costs generally lose out. Which means that credit card choice often comes down to the rewards and incentives.
Many of my friends in the past few years have focused on getting credits cards with very particular rewards programs. The Starwood American Express is particularly popular, as is the Amtrak Guest Rewards Visa. Other friends have focused on particular airlines, and their linked credit cards. I generally think these are the wrong way to go.
Websites such as kayak.com have democratized the travel industry, and locking in loyalty at one hotel brand (Starwood), or one airline, provides a psychological block to other alternatives. It may make sense if you live in a place where there is only one real airline serving your metropolitan area, but in a place like Washington DC, where there is excellent service from Southwest, USAir, American, and United, it makes very little sense to be wed to just one of those. There are similar situations in most metropolitan areas, which are served well by larger carriers and smaller carriers. Additionally, focusing on airlines leaves you at the whim of black out dates, which at times seem arbitrary, and increasing levels of miles necessary for rewards. It can now require 60,000 for a round trip ticket on Delta, meaning you need 120,000 miles if you are not traveling alone. http://dmn.delta.com/skymiles/direct/charts/us49/. When was the last time you had 120,000 miles?
Instead, I focus primarily on getting cash back rewards, because I can then use the cash for whatever I want. To look at miles vs. cash, check out: http://www.creditcards.com/credit-card-news/cathleen-mccarthy-6-questions-cash-back-miles-1433.php. I like having the options. I personally carry the Chase Freedom Card, because I can get up to $300 in bonus cash back in any given year. https://creditcards.chase.com/credit-cards/chase-freedom.aspx The opt-in for the bonus categories is simple and easy, and most of the categories are in things I buy anyway, like gas and groceries. I also carry Blue Cash Everyday from American Express, because I get three percent back on groceries. http://www304.americanexpress.com/getthecard/side-by-side/bluecashever-bluecashpref/12006. If I drove a car regularly, I would probably carry the Bank of America Cash Back card because it offers 3% back on gas. https://www.bankofamerica.com/credit-cards/marketinglist.action?context_id=marketing_list&category_id=2012
The point here is that you want the ultimate flexibility in your rewards, and you want rewards which give you the most for what you spend the most. We only use the Amex for groceries because of its specialized benefit. We focus on using the Chase card on its bonus categories to maximize our cash back. At the end of the year, I have a few hundred extra dollars in my pocket to use at my discretion.
Disagree? Got a credit card you love that I should be using? Let me know. Thanks.
Many of my friends in the past few years have focused on getting credits cards with very particular rewards programs. The Starwood American Express is particularly popular, as is the Amtrak Guest Rewards Visa. Other friends have focused on particular airlines, and their linked credit cards. I generally think these are the wrong way to go.
Websites such as kayak.com have democratized the travel industry, and locking in loyalty at one hotel brand (Starwood), or one airline, provides a psychological block to other alternatives. It may make sense if you live in a place where there is only one real airline serving your metropolitan area, but in a place like Washington DC, where there is excellent service from Southwest, USAir, American, and United, it makes very little sense to be wed to just one of those. There are similar situations in most metropolitan areas, which are served well by larger carriers and smaller carriers. Additionally, focusing on airlines leaves you at the whim of black out dates, which at times seem arbitrary, and increasing levels of miles necessary for rewards. It can now require 60,000 for a round trip ticket on Delta, meaning you need 120,000 miles if you are not traveling alone. http://dmn.delta.com/skymiles/direct/charts/us49/. When was the last time you had 120,000 miles?
Instead, I focus primarily on getting cash back rewards, because I can then use the cash for whatever I want. To look at miles vs. cash, check out: http://www.creditcards.com/credit-card-news/cathleen-mccarthy-6-questions-cash-back-miles-1433.php. I like having the options. I personally carry the Chase Freedom Card, because I can get up to $300 in bonus cash back in any given year. https://creditcards.chase.com/credit-cards/chase-freedom.aspx The opt-in for the bonus categories is simple and easy, and most of the categories are in things I buy anyway, like gas and groceries. I also carry Blue Cash Everyday from American Express, because I get three percent back on groceries. http://www304.americanexpress.com/getthecard/side-by-side/bluecashever-bluecashpref/12006. If I drove a car regularly, I would probably carry the Bank of America Cash Back card because it offers 3% back on gas. https://www.bankofamerica.com/credit-cards/marketinglist.action?context_id=marketing_list&category_id=2012
The point here is that you want the ultimate flexibility in your rewards, and you want rewards which give you the most for what you spend the most. We only use the Amex for groceries because of its specialized benefit. We focus on using the Chase card on its bonus categories to maximize our cash back. At the end of the year, I have a few hundred extra dollars in my pocket to use at my discretion.
Disagree? Got a credit card you love that I should be using? Let me know. Thanks.
Wednesday, February 15, 2012
Investing, a.k.a. You're Not Smart
With the stock market up around 8 or 9% recently, a number of friends of mine have gotten more active in trading. This is something which can end up losing you money unless you're careful. A few tips:
1) Ask yourself why you are investing. Is it to get a better return than a bank? That would be a good reason, because generally, the stock market has outperformed the interest rate you will get at banks. However, it may not be a good reason if you need money in the short term. The stock market is quite volatile, and many analysts tie recent volatility to the uptick in Exchange Traded Funds (ETFs). http://money.usnews.com/money/personal-finance/mutual-funds/articles/2011/09/08/are-etfs-to-blame-for-the-rise-in-volatility. You need to make sure you have the money you need, when you need it. In other words, don't invest money you need quite soon.
2) You're probably not that smart. You may think you know a lot, and have done your research, but then again, a lot of people felt that way right before the market crashed in 2008. And the tech market crashed in 2000. And in 1987. A strong way to invest money and rely less on your inflated sense of financial intelligence is to invest in low-cost index funds. http://www.ehow.com/list_5852407_list-low-cost-index-funds.html. Personally, I'm a fan of Vanguard, as the management fees for their investment funds are very small, and the cost to invest in most of their funds is 0 (meaning that you don't have to pay a service fee to invest). As you can see, Vanguard's expense ratio (how much they make off managing your money) is less than 20% of the industry average. https://personal.vanguard.com/us/funds. Take a look at their options, or those at other brokerages, and see what may work for you.
3) Use a discount brokerage. Most of the information you want to research on investing is available for free and online. Discount Brokerages like Charles Schwab, Fidelity, and Etrade Financial are all great bets because they charge less, meaning you keep more. Many of these brokerages also offer ETFs, which can be another way to get a diversified investment portfolio, so that your risk is spread across a broad spectrum of stocks as opposed to a single stock. UPDATE: I've been told to include TD Ameritrade and Sharebuilder from ING as well. Thanks for the tips...
4) Get in it for the long haul. Try to find a group of funds, stocks, and ETFs which work for you and invest what you can each month. Trying to game the market may means you miss the highs and instead, catch a disproportionate amount of the lows. Continually putting money into your accounts and reinvesting the dividends will likely yield a stronger return. http://money.cnn.com/2010/01/05/pf/funds/market_timing.moneymag/index.htm
5) Ask lots of questions. Ask your friends who work in finance, or the financial advisers at the brokerage you use. They are there to help, and a lot of their information is free of charge. Take the free workshops they offer. Find out how you should analyze a stock on your own. But ask lots of questions. Far better than losing lots of money.
1) Ask yourself why you are investing. Is it to get a better return than a bank? That would be a good reason, because generally, the stock market has outperformed the interest rate you will get at banks. However, it may not be a good reason if you need money in the short term. The stock market is quite volatile, and many analysts tie recent volatility to the uptick in Exchange Traded Funds (ETFs). http://money.usnews.com/money/personal-finance/mutual-funds/articles/2011/09/08/are-etfs-to-blame-for-the-rise-in-volatility. You need to make sure you have the money you need, when you need it. In other words, don't invest money you need quite soon.
2) You're probably not that smart. You may think you know a lot, and have done your research, but then again, a lot of people felt that way right before the market crashed in 2008. And the tech market crashed in 2000. And in 1987. A strong way to invest money and rely less on your inflated sense of financial intelligence is to invest in low-cost index funds. http://www.ehow.com/list_5852407_list-low-cost-index-funds.html. Personally, I'm a fan of Vanguard, as the management fees for their investment funds are very small, and the cost to invest in most of their funds is 0 (meaning that you don't have to pay a service fee to invest). As you can see, Vanguard's expense ratio (how much they make off managing your money) is less than 20% of the industry average. https://personal.vanguard.com/us/funds. Take a look at their options, or those at other brokerages, and see what may work for you.
3) Use a discount brokerage. Most of the information you want to research on investing is available for free and online. Discount Brokerages like Charles Schwab, Fidelity, and Etrade Financial are all great bets because they charge less, meaning you keep more. Many of these brokerages also offer ETFs, which can be another way to get a diversified investment portfolio, so that your risk is spread across a broad spectrum of stocks as opposed to a single stock. UPDATE: I've been told to include TD Ameritrade and Sharebuilder from ING as well. Thanks for the tips...
4) Get in it for the long haul. Try to find a group of funds, stocks, and ETFs which work for you and invest what you can each month. Trying to game the market may means you miss the highs and instead, catch a disproportionate amount of the lows. Continually putting money into your accounts and reinvesting the dividends will likely yield a stronger return. http://money.cnn.com/2010/01/05/pf/funds/market_timing.moneymag/index.htm
5) Ask lots of questions. Ask your friends who work in finance, or the financial advisers at the brokerage you use. They are there to help, and a lot of their information is free of charge. Take the free workshops they offer. Find out how you should analyze a stock on your own. But ask lots of questions. Far better than losing lots of money.
Tuesday, February 7, 2012
Buying a Home
I bought a home two years ago, and it was a great experience. I learned a lot, both about the home buying process, and about what levels of frustration and confusion it can cause. Through the process, and watching a number of my close friends buy homes, here's a couple of ideas for what to think about when buying a home.
1. Forget what you think you want. Price Per Square Foot (PPSF) is what is important. My friend recently showed me some homes he was looking at on Redfin http://www.redfin.com. I asked him why he cared about having two full bathrooms when he would be living there alone with his wife, why he wanted two parking spots when he had only one car, or why he would want to live far away from his friends, public transportation, or where he or his wife work. He was thinking of amenities to the homes, but not the bottom line. What is most important is PPSF, along with location. If you buy at a higher PPSF than other comparable homes in your neighborhood, then you have done the seller a favor. It may be ok to have a higher PPSF than your neighbors, but you better be able to rationalize it with big ticket items, like modern kitchens or bathrooms, new HVAC systems, or other amenities which clearly set your home apart.
2. Location. It takes me six minutes to bike to work in the morning. It takes my wife 11 minutes. So, we get to spend a whole lot of extra time with our son. If there is an emergency, like the freak earthquake that occurred in DC, we can be home very quickly. We love our location, and are a little puzzled by our friends who moved out to the suburbs. It's ok for those people who work out in the exurbs, or people that moved for the school districts. But location is crucial. Location quality can be determined by a number of factors. Use these as they apply to you: Supermarket, School District, Public Transportation, Public Park, Crime Statistics, Travel Time to Work/School, Major Thoroughfares, Public Library. If you don't live close to these location factors which you want/need, or the crime statistics aren't good, you should pay less for where you live.
3. Down Payment. Many many friends of mine have put down less than 5% on their homes. While this may be beneficial for tax purposes (it means you pay more in interest, which you can deduct on your federal return), it generally increases your monthly burden. If you keep money in a rainy day fund, and your mortgage is high, you will be limited in case an emergency comes up or you need enhanced cash flow. Personal Finance Personality Dave Ramsey recommends a 20% down payment http://www.daveramsey.com/article/how-much-house-can-you-afford/100362/, and some bills in Congress will penalize you on your interest rate for putting less than 20% down. http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html. Save your cash, and make a strong down payment. Remember, you can tap your IRA for up to 10k in earnings to buttress your down payment if it is your first home. Failing make a strong down payment could leave you in a potentially dangerous situation.
4. Do Your Research. Find out about the neighborhood. This is likely the biggest purchase of your life and you should make sure you're not getting into anything unexpected. Redfin can show you prices, and local blogs or websites can give you a neighborhood feel. Discount your first impression at your first open house because part of what you're feeling is pure excitement. Don't go live in a neighborhood which doesn't suit your interests or passions, because you will be spending an inordinate amount of time there, and why would you want to spend that time disappointed.
Buying a home should not be something which occurs in a state of passion. It is a very serious, analytical decision, which requires years of preparation and research, personal reflection and analysis, and questioning the knowledge you think you have gleaned. If for one second you question your own knowledge on the subject, seek out a friend who has bought before, and find out what they did and what they hate about their current home so you can add it to your checklist of what you are looking for in yours. Talk to your parents about what they would change as well. Through careful research, saving, and investigation, you'll be able to find a home you love and save a ton of time and money.
1. Forget what you think you want. Price Per Square Foot (PPSF) is what is important. My friend recently showed me some homes he was looking at on Redfin http://www.redfin.com. I asked him why he cared about having two full bathrooms when he would be living there alone with his wife, why he wanted two parking spots when he had only one car, or why he would want to live far away from his friends, public transportation, or where he or his wife work. He was thinking of amenities to the homes, but not the bottom line. What is most important is PPSF, along with location. If you buy at a higher PPSF than other comparable homes in your neighborhood, then you have done the seller a favor. It may be ok to have a higher PPSF than your neighbors, but you better be able to rationalize it with big ticket items, like modern kitchens or bathrooms, new HVAC systems, or other amenities which clearly set your home apart.
2. Location. It takes me six minutes to bike to work in the morning. It takes my wife 11 minutes. So, we get to spend a whole lot of extra time with our son. If there is an emergency, like the freak earthquake that occurred in DC, we can be home very quickly. We love our location, and are a little puzzled by our friends who moved out to the suburbs. It's ok for those people who work out in the exurbs, or people that moved for the school districts. But location is crucial. Location quality can be determined by a number of factors. Use these as they apply to you: Supermarket, School District, Public Transportation, Public Park, Crime Statistics, Travel Time to Work/School, Major Thoroughfares, Public Library. If you don't live close to these location factors which you want/need, or the crime statistics aren't good, you should pay less for where you live.
3. Down Payment. Many many friends of mine have put down less than 5% on their homes. While this may be beneficial for tax purposes (it means you pay more in interest, which you can deduct on your federal return), it generally increases your monthly burden. If you keep money in a rainy day fund, and your mortgage is high, you will be limited in case an emergency comes up or you need enhanced cash flow. Personal Finance Personality Dave Ramsey recommends a 20% down payment http://www.daveramsey.com/article/how-much-house-can-you-afford/100362/, and some bills in Congress will penalize you on your interest rate for putting less than 20% down. http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html. Save your cash, and make a strong down payment. Remember, you can tap your IRA for up to 10k in earnings to buttress your down payment if it is your first home. Failing make a strong down payment could leave you in a potentially dangerous situation.
4. Do Your Research. Find out about the neighborhood. This is likely the biggest purchase of your life and you should make sure you're not getting into anything unexpected. Redfin can show you prices, and local blogs or websites can give you a neighborhood feel. Discount your first impression at your first open house because part of what you're feeling is pure excitement. Don't go live in a neighborhood which doesn't suit your interests or passions, because you will be spending an inordinate amount of time there, and why would you want to spend that time disappointed.
Buying a home should not be something which occurs in a state of passion. It is a very serious, analytical decision, which requires years of preparation and research, personal reflection and analysis, and questioning the knowledge you think you have gleaned. If for one second you question your own knowledge on the subject, seek out a friend who has bought before, and find out what they did and what they hate about their current home so you can add it to your checklist of what you are looking for in yours. Talk to your parents about what they would change as well. Through careful research, saving, and investigation, you'll be able to find a home you love and save a ton of time and money.
Tuesday, January 31, 2012
Amazon (Subscribe and Save & Prime)
I'm a big fan of finding ways to remove reminders and responsibilities from my life. If I can set up automatic payments or automatic billing, I try to do it just so I don't forget and find myself in a pickle. This is why I am a big fan of Amazon Subscribe and Save, and Amazon Prime.
If you are not familiar with Prime, it is a service where you pay 79 dollars a year for free two day shipping, a free kindle book from the lending library once a month, free streaming video from Amazon, and other discounts. http://www.amazon.com/gp/prime/ref=amb_link_84306931_4?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=auto-sparkle&pf_rd_r=8216E17D34CF41998504&pf_rd_t=301&pf_rd_p=1294973662&pf_rd_i=amazon%20prime
Subscribe and Save is a program where Amazon will send you things you need on a regular basis, without you proactively sending an order. You set up a recurring order, and it shows up at your door. http://www.amazon.com/Subscribe/b/ref=gro_SnS_sparkle_shop?ie=UTF8&node=979895011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=auto-sparkle&pf_rd_r=D4DD67B5027A4BBFA003&pf_rd_t=301&pf_rd_p=1345024122&pf_rd_i=subscribe%20and%20save
Subscribe and Save saves you 5-15% on every order. Prime has additional discounts on some orders. One thing I get through Subscribe and Save and Prime is Diapers. The diapers I buy go for 47 bucks on Amazon, but I save about ten dollars per order using Subscribe and Save, and Prime. Also, it's a plus that my son then never runs out of diapers.
Now, I'm aware that one of the chief concerns is that 79 dollars a year sounds like a lot to not have the patience for free super saver shipping at amazon. But looking at the diaper transaction alone justifies Prime. 7 out of those ten dollars saved is from the additional discount through Prime (as part of the Amazon Mom Program). So, based on my membership in Prime, I save 84 dollars on diapers per year. I need to outfit my son in diapers, and this is the most efficient, most cost-effective way to do it. Consequently, the expedited shipping and other benefits of prime are free when you consider the cost savings of diapers alone.
Think about what you need and use on a recurring basis and find out if Subscribe and Save, and Prime can save you significant amounts of money. We have used it for baby food, vitamins, and a host of other items. Think about it for coffee, packaged foods, supplements or whatever else comes to mind. You'll save money, remove additional stress of remembering to buy things you know you need, and avoid being caught in an unprepared situation.
If you are not familiar with Prime, it is a service where you pay 79 dollars a year for free two day shipping, a free kindle book from the lending library once a month, free streaming video from Amazon, and other discounts. http://www.amazon.com/gp/prime/ref=amb_link_84306931_4?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=auto-sparkle&pf_rd_r=8216E17D34CF41998504&pf_rd_t=301&pf_rd_p=1294973662&pf_rd_i=amazon%20prime
Subscribe and Save is a program where Amazon will send you things you need on a regular basis, without you proactively sending an order. You set up a recurring order, and it shows up at your door. http://www.amazon.com/Subscribe/b/ref=gro_SnS_sparkle_shop?ie=UTF8&node=979895011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=auto-sparkle&pf_rd_r=D4DD67B5027A4BBFA003&pf_rd_t=301&pf_rd_p=1345024122&pf_rd_i=subscribe%20and%20save
Subscribe and Save saves you 5-15% on every order. Prime has additional discounts on some orders. One thing I get through Subscribe and Save and Prime is Diapers. The diapers I buy go for 47 bucks on Amazon, but I save about ten dollars per order using Subscribe and Save, and Prime. Also, it's a plus that my son then never runs out of diapers.
Now, I'm aware that one of the chief concerns is that 79 dollars a year sounds like a lot to not have the patience for free super saver shipping at amazon. But looking at the diaper transaction alone justifies Prime. 7 out of those ten dollars saved is from the additional discount through Prime (as part of the Amazon Mom Program). So, based on my membership in Prime, I save 84 dollars on diapers per year. I need to outfit my son in diapers, and this is the most efficient, most cost-effective way to do it. Consequently, the expedited shipping and other benefits of prime are free when you consider the cost savings of diapers alone.
Think about what you need and use on a recurring basis and find out if Subscribe and Save, and Prime can save you significant amounts of money. We have used it for baby food, vitamins, and a host of other items. Think about it for coffee, packaged foods, supplements or whatever else comes to mind. You'll save money, remove additional stress of remembering to buy things you know you need, and avoid being caught in an unprepared situation.
Thursday, January 26, 2012
Monday, January 23, 2012
Automatic Withdrawal Budgeting
Idle hands may be the devil's plaything, but idle funds are what gets us into trouble. Unappropriated money is what leads to splurges, debt, and purchases which are later regretted. I have generally found that creating a budget which allowed for the least amount of idle funds is the best way to ensure that your money is going to where it belongs. But how can you properly appropriate funds. Automatic Withdrawals and payroll deductions.
There are some general payroll deductions which many employers offer which are smart for almost everyone. These include health insurance, 401(k), and a flexible spending account for medical expenses. All of these are deducted from your adjusted gross income, and should be utilized to some extent by everyone.
Then there are some personal initiatives you should take in order to secure yourself financially. Automatically paying off 100% of your credit cards, utility bills, mortgage, and insurance each month. Don't put yourself in a position where you need to think about it. Not only do most banks have online bill pay, but some provide incentives for signing up for it. http://online.wsj.com/article/SB110246841042693926.html Think about it. All of your bills get paid, you don't need to think about it, and you get an incentive.
Lastly, you can create ongoing disbursements for your personal priorities. Automatic withdrawals for your IRA http://helpcenter.ingdirect.com/ingd/Topic.aspx?category=DIST1, 529 Account http://www.529.com/content/how_aippayroll.html, Debt Payments http://www.moneyunder30.com/debt-payments, or just moving 10% of your take home salary to a high interest savings account on a monthly basis. http://www.gobankingrates.com/savings-account/easy-ways-to-build-your-savings-account-automatically/ This will keep your checking account pretty lean, and you will not be tempted by higher balances to purchase things you don't need.
We all have far too many things to think about, and setting up automatic withdrawal budgeting priorities from your checking account takes away the burden of remembering what needs to be done. It allows you to prioritize with a clear head and ensure that your money goes where it needs to be, and not where you may want it merely in the short term. Moving idle funds to your established personal priorities by setting up automatic payments and withdrawals will help you build the financial foundation you want without the revolving burden of keeping your priorities at the top of your to do list.
There are some general payroll deductions which many employers offer which are smart for almost everyone. These include health insurance, 401(k), and a flexible spending account for medical expenses. All of these are deducted from your adjusted gross income, and should be utilized to some extent by everyone.
Then there are some personal initiatives you should take in order to secure yourself financially. Automatically paying off 100% of your credit cards, utility bills, mortgage, and insurance each month. Don't put yourself in a position where you need to think about it. Not only do most banks have online bill pay, but some provide incentives for signing up for it. http://online.wsj.com/article/SB110246841042693926.html Think about it. All of your bills get paid, you don't need to think about it, and you get an incentive.
Lastly, you can create ongoing disbursements for your personal priorities. Automatic withdrawals for your IRA http://helpcenter.ingdirect.com/ingd/Topic.aspx?category=DIST1, 529 Account http://www.529.com/content/how_aippayroll.html, Debt Payments http://www.moneyunder30.com/debt-payments, or just moving 10% of your take home salary to a high interest savings account on a monthly basis. http://www.gobankingrates.com/savings-account/easy-ways-to-build-your-savings-account-automatically/ This will keep your checking account pretty lean, and you will not be tempted by higher balances to purchase things you don't need.
We all have far too many things to think about, and setting up automatic withdrawal budgeting priorities from your checking account takes away the burden of remembering what needs to be done. It allows you to prioritize with a clear head and ensure that your money goes where it needs to be, and not where you may want it merely in the short term. Moving idle funds to your established personal priorities by setting up automatic payments and withdrawals will help you build the financial foundation you want without the revolving burden of keeping your priorities at the top of your to do list.
Friday, January 20, 2012
The Public Library
I am an unapologetic supporter of the public library. Maybe it's because a lot of the libraries in DC have been spruced up as of late, but, I am a huge supporter on the following levels.
1) Music. How much money do you spend on music in a given year? Probably too much. In DC, the public library buys hundreds of albums per year, which you can rip to your ipod for free. Additionally, the library has a service called Freegal, http://www.freegalmusic.com/, which is a free, online distribution network run by Sony and a bunch of independent labels. You get three downloads per week, and I guarantee you will find at least a handful of artists on there you will like. Take a look at the entire music selection of the library (go to advanced search, select the format "music cd," and enter the year of release), and you'll probably be amazed at what you could be listening to for free. This should significantly decrease the amount you are spending on digital downloads.
2) Movies. We all know netflix has screwed the pooch of late, and that there are a number of competitors coming up. The library isn't an expert at streaming video yet, but they routinely get dozens of movies around the same time as netflix. You don't pay for them, and you have them for three weeks, and you can have out a handful at a time. My netflix plan is for one move at a time, without streaming, for 9 dollars a month. So I spend over 100 dollars a year on what I could easily get from the library. I routinely suspend my netflix account when I get frustrated.
3) Books. Duh. The library will give you books and audiobooks for weeks at a time. Addicted to your kindle or ibooks? There are digital downloads where you can rent an ebook for weeks at a time. Unless you are planning on collecting books for fun or plan on showing off books in your beautiful library, there is virtually no reason to buy a book anymore. Only in those very rare circumstances where you are looking for a book which is not available in the library should you consider buying, and even in that case, look for an interlibrary loan from a jurisdiction that has your book.
Check out your local library. It's free, and they probably have a bunch of programs you would really enjoy. See if they subscribe to Freegal, and if they don't, encourage it. Scroll through the online catalog and find out if there are downloads you might like. You'll be amazed to how much entertainment you can get for free. http://www.dclibrary.org/
1) Music. How much money do you spend on music in a given year? Probably too much. In DC, the public library buys hundreds of albums per year, which you can rip to your ipod for free. Additionally, the library has a service called Freegal, http://www.freegalmusic.com/, which is a free, online distribution network run by Sony and a bunch of independent labels. You get three downloads per week, and I guarantee you will find at least a handful of artists on there you will like. Take a look at the entire music selection of the library (go to advanced search, select the format "music cd," and enter the year of release), and you'll probably be amazed at what you could be listening to for free. This should significantly decrease the amount you are spending on digital downloads.
2) Movies. We all know netflix has screwed the pooch of late, and that there are a number of competitors coming up. The library isn't an expert at streaming video yet, but they routinely get dozens of movies around the same time as netflix. You don't pay for them, and you have them for three weeks, and you can have out a handful at a time. My netflix plan is for one move at a time, without streaming, for 9 dollars a month. So I spend over 100 dollars a year on what I could easily get from the library. I routinely suspend my netflix account when I get frustrated.
3) Books. Duh. The library will give you books and audiobooks for weeks at a time. Addicted to your kindle or ibooks? There are digital downloads where you can rent an ebook for weeks at a time. Unless you are planning on collecting books for fun or plan on showing off books in your beautiful library, there is virtually no reason to buy a book anymore. Only in those very rare circumstances where you are looking for a book which is not available in the library should you consider buying, and even in that case, look for an interlibrary loan from a jurisdiction that has your book.
Check out your local library. It's free, and they probably have a bunch of programs you would really enjoy. See if they subscribe to Freegal, and if they don't, encourage it. Scroll through the online catalog and find out if there are downloads you might like. You'll be amazed to how much entertainment you can get for free. http://www.dclibrary.org/
Wednesday, January 18, 2012
401(k) Matching
How much do you put away for retirement? The answer, invariably, is not enough. Money put into your 401(k) or other pre-tax retirement program is exempt from Federal income taxes, so it benefits you later by having money saved, and benefits you now in terms of lowering your tax burden. It goes without saying that you should, at the very least, contribute as much as your employer will match. For instance, my employer matches dollar for dollar up to the first 3% of salary, and then 50 cents on the dollar up to 5%. Translation: 5% of my salary is contributed, and 9% of my salary goes to my 401(k) equivalent each month.
But I could do more. For 2012, the contribution limit is $17000. http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html That's just under 654 dollars per paycheck, assuming you get paid on a bi-weekly basis. And because most millennials don't believe social security will be there for them when they get older, or at least, won't pay out what it pays now, http://iomechallenge.org/wp-content/uploads/NEW-iOme-Millennials-on-Social-Security.pdf, you should do whatever you can in your budget to get as close to this $17000 figure as possible. One thought could be this. Many people receive bonuses around Christmas or around the end of the year based on performance or other successes. Perhaps using that bonus to make a balloon contribution to your 401(k) would be a better use of the funds instead of consuming them on something unnecessary or trivial.
If your organization doesn't have a 401(k) program or equivalent with employer matching funds, check out my post on an IRA, and then you can at least get a benefit of $5000 a year (you don't get the tax benefit of the IRA if you also participate in a 401(k) or equivalent. If your organization does have a 401(k) or equivalent, start contributing at least to the point of full matching, BECAUSE IT IS FREE MONEY. Then, take a look at your budget and see if you can increase your contribution an extra 100 dollars per month. That's less taxable income, a more financial secure retirement, and intelligent budgeting for the future.
But I could do more. For 2012, the contribution limit is $17000. http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html That's just under 654 dollars per paycheck, assuming you get paid on a bi-weekly basis. And because most millennials don't believe social security will be there for them when they get older, or at least, won't pay out what it pays now, http://iomechallenge.org/wp-content/uploads/NEW-iOme-Millennials-on-Social-Security.pdf, you should do whatever you can in your budget to get as close to this $17000 figure as possible. One thought could be this. Many people receive bonuses around Christmas or around the end of the year based on performance or other successes. Perhaps using that bonus to make a balloon contribution to your 401(k) would be a better use of the funds instead of consuming them on something unnecessary or trivial.
If your organization doesn't have a 401(k) program or equivalent with employer matching funds, check out my post on an IRA, and then you can at least get a benefit of $5000 a year (you don't get the tax benefit of the IRA if you also participate in a 401(k) or equivalent. If your organization does have a 401(k) or equivalent, start contributing at least to the point of full matching, BECAUSE IT IS FREE MONEY. Then, take a look at your budget and see if you can increase your contribution an extra 100 dollars per month. That's less taxable income, a more financial secure retirement, and intelligent budgeting for the future.
Wednesday, January 11, 2012
Online Shopping
I like online shopping, for a number of reasons. I'm a little lazy, it's hard to go to stores when you have a kid, and generally, I know what I want and I buy enough in one order to qualify for free shipping. But I am always looking for some sort of incentive when I shop, and I believe I have found it in click through websites. The two which I use most often are http://www.ebates.com/, and http://www.upromise.com/.
Here's how it works. You know you want to buy something. You go through these websites to find the store you want to buy from, and these websites rebate you 1%-20% of the purchase. Upromise is a method of saving for higher education, and the money goes into high interest savings accounts, destined eventually for a 529 Account. Ebates refunds the money to you quarterly, through a check.
Past incarnations of this concept have provided less than stellar rewards (gift cards at undesirable stores) or sites where people didn't want to shop at. Ebates and Upromise both have a very large selection of stores. I have yet to meet someone who I have spoken with informally about these programs that could not benefit from them. My favorite stores on Ebates are Target.com (3% back), Groupon (3% back), Diapers.com (up to 4% back). Friends of mine have commented on their preference for Drugstore.com (12% back), J.Crew (1.5% back) ,and J.C. Penney (3% back). Take a look for yourself and see how much you could be rebated simply by clicking through a website when doing your online shopping. Plus, you get a ten dollar gift card just for signing up. Further, check out sites like http://www.retailmenot.com/ to make sure you are not missing out on any promotional codes for sales and free shipping. I've gotten about 50 bucks rebated to me in the last six months.
Upromise carries with it a few added benefits. There is a Upromise credit card which increases your deposit into the high interest account, and Upromise also has deals with a number of restaurants which will deposit a percentage of your purchase, provided you pay with a credit card registered on Upromise.com. They also provide rebates on gas and grocery purchases.
All in all, there are a number of benefits to doing your online shopping through these click-through websites. Also, both of these sites also can provide discount codes and coupons. All of these options should be considered to make sure that your money goes farthest when making your purchases.
Here's how it works. You know you want to buy something. You go through these websites to find the store you want to buy from, and these websites rebate you 1%-20% of the purchase. Upromise is a method of saving for higher education, and the money goes into high interest savings accounts, destined eventually for a 529 Account. Ebates refunds the money to you quarterly, through a check.
Past incarnations of this concept have provided less than stellar rewards (gift cards at undesirable stores) or sites where people didn't want to shop at. Ebates and Upromise both have a very large selection of stores. I have yet to meet someone who I have spoken with informally about these programs that could not benefit from them. My favorite stores on Ebates are Target.com (3% back), Groupon (3% back), Diapers.com (up to 4% back). Friends of mine have commented on their preference for Drugstore.com (12% back), J.Crew (1.5% back) ,and J.C. Penney (3% back). Take a look for yourself and see how much you could be rebated simply by clicking through a website when doing your online shopping. Plus, you get a ten dollar gift card just for signing up. Further, check out sites like http://www.retailmenot.com/ to make sure you are not missing out on any promotional codes for sales and free shipping. I've gotten about 50 bucks rebated to me in the last six months.
Upromise carries with it a few added benefits. There is a Upromise credit card which increases your deposit into the high interest account, and Upromise also has deals with a number of restaurants which will deposit a percentage of your purchase, provided you pay with a credit card registered on Upromise.com. They also provide rebates on gas and grocery purchases.
All in all, there are a number of benefits to doing your online shopping through these click-through websites. Also, both of these sites also can provide discount codes and coupons. All of these options should be considered to make sure that your money goes farthest when making your purchases.
Monday, January 9, 2012
Grocery Shopping
I've been cooking since I was 17, but only in the last few years have I taken responsibility for grocery shopping. I have friends that shop almost exclusively at Whole Foods or Trader Joes, and their bills reflect that. However, the bulk of my budget goes towards Harris Teeter and Safeway. Why? Weekly Sales.
I regularly save 20-35 percent on my shopping. It's very easy through http://www.redplum.com/ Now, I know a lot of people aren't into couponing, and most of my shopping doesn't involve coupons. Instead, Harris Teeter sends me their weekly sales every Wednesday, and most of my shopping list is made up of what's on sale (often at buy one get one free). Safeway also has sales which begin every Wednesday. I repeat, this is nothing like extreme couponing on TLC.
Many sources have talked about how one will save money by shopping with a grocery list. http://www.oprah.com/money/How-to-Save-Money-on-Groceries It is also common sense that if you buy groceries and eat at home, or make lunch to bring in to work or school, you will save a lot of money. You avoid sales taxes on food in restaurants (10% in DC), and the associated costs of everyone in restaurants who prepare your food (waiters, busboys, dishwashers, servers, janitors, etc.). But if you're not convinced, here are my top reasons to go grocery shopping more and use these weekly sales:
1: Preparing food at home tastes better (less salt, less fat)
2: Preparing food at home is romantic and sexy.
http://www.esquire.com/women/women-issue/funny-facts-about-women-0510 (339, 986, 144, 9)
http://www.womenshealthmag.com/sex-and-relationships/love?cat=10390&tip=10398
3: Last year, using this method, I saved over 1,000 dollars at Harris Teeter and a similarly large amount at Safeway. Teeter tabulates your year to date savings on your receipt. What could you do with an extra $1000?
Don't have a Teeter or Safeway? Check your local grocery store for their weekly specials on their website, or try to find it on Redplum. Chances are they have weekly sales, and by going grocery shopping with the discipline of a list based on what is on sale, you'll save a ton of money and have more fulfilling meals.
I regularly save 20-35 percent on my shopping. It's very easy through http://www.redplum.com/ Now, I know a lot of people aren't into couponing, and most of my shopping doesn't involve coupons. Instead, Harris Teeter sends me their weekly sales every Wednesday, and most of my shopping list is made up of what's on sale (often at buy one get one free). Safeway also has sales which begin every Wednesday. I repeat, this is nothing like extreme couponing on TLC.
Many sources have talked about how one will save money by shopping with a grocery list. http://www.oprah.com/money/How-to-Save-Money-on-Groceries It is also common sense that if you buy groceries and eat at home, or make lunch to bring in to work or school, you will save a lot of money. You avoid sales taxes on food in restaurants (10% in DC), and the associated costs of everyone in restaurants who prepare your food (waiters, busboys, dishwashers, servers, janitors, etc.). But if you're not convinced, here are my top reasons to go grocery shopping more and use these weekly sales:
1: Preparing food at home tastes better (less salt, less fat)
2: Preparing food at home is romantic and sexy.
http://www.esquire.com/women/women-issue/funny-facts-about-women-0510 (339, 986, 144, 9)
http://www.womenshealthmag.com/sex-and-relationships/love?cat=10390&tip=10398
3: Last year, using this method, I saved over 1,000 dollars at Harris Teeter and a similarly large amount at Safeway. Teeter tabulates your year to date savings on your receipt. What could you do with an extra $1000?
Don't have a Teeter or Safeway? Check your local grocery store for their weekly specials on their website, or try to find it on Redplum. Chances are they have weekly sales, and by going grocery shopping with the discipline of a list based on what is on sale, you'll save a ton of money and have more fulfilling meals.
Friday, January 6, 2012
Saving for College, and Saving on State Taxes
When my son was born in October 2010, one of the first things I did was make sure I had filled out his application for a social security number. Before he had one, I could not open a bank account, or a 529 college savings account in his name. A 529 college savings account is a state-run investment account which allows parents, friends, extended family (anyone can contribute) for someone's qualified education expenses. http://en.wikipedia.org/wiki/529_plan
What does this mean. It means you can invest money, and use the proceeds to pay for college, without paying taxes on the earnings. No capital gains taxes. Sounds good, right. You may think: But I don't want to have to remember it every month. Many plans will do an automatic withdrawal, so you don't need to think about it. http://www.axa-equitable.com/plan/education/529-plans/contributions-and-withdrawals.html
You may think: We just had a baby. Why should I save for college now? College tuition calculators, like the one below, suggest college in 18 years will cost about $440,000 for 4 years. Yeah. Take that in for a second. Now breathe. http://www.fool.com/college/college01.htm
BUT WAIT. There's an even better reason than pure panic to open a 529. Most states will allow for a state tax deduction for the amount you put into that State's 529 (you don't need to use the 529 of the state you live in, but that's the way to get the state tax deduction). My state (which is not a State), DC, allows $4000 in state tax deductions per filer (if filing jointly). http://www.dccollegesavings.com/pdf/dc_disclosure.pdf
Which means, if you are married, filing jointly, you can get an $8000 tax deduction. So, if you put away 666 dollars per month towards your child's education, you will get that much credited back on your taxes. Plus, after 18 years, you will have contributed 144000 of principal towards the account, and you'll likely have much more money in it due to investment growth. The deductions vary by state, and you should determine which plan you approve of based on its performance and tax deduction benefits. A good place to start your research is here. http://www.savingforcollege.com/compare_529_plans/
Also, you can have multiple 529 plans. http://www.savingforcollege.com/intro_to_529s/can-I-have-529-plans-from-multiple-states.php Say you live in DC and want the $8000 tax deduction, but want to contribute more, or want to contribute to multiple funds that may have a better performance. That's ok under the law, just don't contribute more than $13000 per contributor, per year. http://www.irs.gov/newsroom/article/0,,id=213043,00.html
In short, with proper budgeting, you can save a lot of money for college, and have the money you save refunded on your state taxes. College is going to be expensive, and utilizing a 529 plan is probably the smartest thing you can do to ensure your child's future education.
What does this mean. It means you can invest money, and use the proceeds to pay for college, without paying taxes on the earnings. No capital gains taxes. Sounds good, right. You may think: But I don't want to have to remember it every month. Many plans will do an automatic withdrawal, so you don't need to think about it. http://www.axa-equitable.com/plan/education/529-plans/contributions-and-withdrawals.html
You may think: We just had a baby. Why should I save for college now? College tuition calculators, like the one below, suggest college in 18 years will cost about $440,000 for 4 years. Yeah. Take that in for a second. Now breathe. http://www.fool.com/college/college01.htm
BUT WAIT. There's an even better reason than pure panic to open a 529. Most states will allow for a state tax deduction for the amount you put into that State's 529 (you don't need to use the 529 of the state you live in, but that's the way to get the state tax deduction). My state (which is not a State), DC, allows $4000 in state tax deductions per filer (if filing jointly). http://www.dccollegesavings.com/pdf/dc_disclosure.pdf
Which means, if you are married, filing jointly, you can get an $8000 tax deduction. So, if you put away 666 dollars per month towards your child's education, you will get that much credited back on your taxes. Plus, after 18 years, you will have contributed 144000 of principal towards the account, and you'll likely have much more money in it due to investment growth. The deductions vary by state, and you should determine which plan you approve of based on its performance and tax deduction benefits. A good place to start your research is here. http://www.savingforcollege.com/compare_529_plans/
Also, you can have multiple 529 plans. http://www.savingforcollege.com/intro_to_529s/can-I-have-529-plans-from-multiple-states.php Say you live in DC and want the $8000 tax deduction, but want to contribute more, or want to contribute to multiple funds that may have a better performance. That's ok under the law, just don't contribute more than $13000 per contributor, per year. http://www.irs.gov/newsroom/article/0,,id=213043,00.html
In short, with proper budgeting, you can save a lot of money for college, and have the money you save refunded on your state taxes. College is going to be expensive, and utilizing a 529 plan is probably the smartest thing you can do to ensure your child's future education.
Wednesday, January 4, 2012
Coffee
I've spent a lot of money on coffee. There is a Starbucks across the street from my job, a Mcdonalds across the street from my house, a Keurig inside my office, and even some stray five hour energy drinks just in case. Where I live, in Washington DC, a cup of coffee at McDonalds costs $1. A cup at Starbucks costs $1.50. At least, it used to. http://www.smartmoney.com/news/on/?story=ON-20120103-000322&cid=951
On Amazon, I can get 50 K-cups for $30 ($0.60 per cup). Also on Amazon, I can get 5 hour energy drinks for $0.62 per serving. I buy Peet's Coffee, which is not the most expensive, nor the least, for 8 dollars per 12 oz bag. You are supposed to use one teaspoon per cup of coffee. 6 teaspoons to the ounce means there is about 72 servings of coffee in my bag of Peet's. So, at 8 bucks a bag, that's 11 cents a cup. In summary:
Starbucks: $1.50
McDonalds: $1.00
5 Hour Energy: $0.62
K-Cup: $0.60
Brewing at Home: $0.11
So, brewing at home is 5 times cheaper than the next best alternative. If you go to Starbucks once a day, 5 days a week, you are spending over $350 dollars more than you need to on coffee per year. Under the same conditions at McDonalds, you're spending over 200 dollars more than you need to. It gets worse if you order complicated or bigger drinks, or if you buy more than one cup a day. It gets to be a better deal if you buy store brand coffee, like Safeway Select or Trader Joe's coffee, which is generally cheaper than my Peet's.
I know there are excuses: I don't have the time to wait for coffee to brew. Buy a coffee maker with a timer. I don't like hot coffee. Brew it the night before and refrigerate it in a tumbler. I hate the taste. Milk and sugar. In the end, even buying coffee from Mcdonalds should be considered a luxury, given how much more money is spent on a yearly basis on coffee at Mcdonalds than would be spent brewing similar coffee at home.
On Amazon, I can get 50 K-cups for $30 ($0.60 per cup). Also on Amazon, I can get 5 hour energy drinks for $0.62 per serving. I buy Peet's Coffee, which is not the most expensive, nor the least, for 8 dollars per 12 oz bag. You are supposed to use one teaspoon per cup of coffee. 6 teaspoons to the ounce means there is about 72 servings of coffee in my bag of Peet's. So, at 8 bucks a bag, that's 11 cents a cup. In summary:
Starbucks: $1.50
McDonalds: $1.00
5 Hour Energy: $0.62
K-Cup: $0.60
Brewing at Home: $0.11
So, brewing at home is 5 times cheaper than the next best alternative. If you go to Starbucks once a day, 5 days a week, you are spending over $350 dollars more than you need to on coffee per year. Under the same conditions at McDonalds, you're spending over 200 dollars more than you need to. It gets worse if you order complicated or bigger drinks, or if you buy more than one cup a day. It gets to be a better deal if you buy store brand coffee, like Safeway Select or Trader Joe's coffee, which is generally cheaper than my Peet's.
I know there are excuses: I don't have the time to wait for coffee to brew. Buy a coffee maker with a timer. I don't like hot coffee. Brew it the night before and refrigerate it in a tumbler. I hate the taste. Milk and sugar. In the end, even buying coffee from Mcdonalds should be considered a luxury, given how much more money is spent on a yearly basis on coffee at Mcdonalds than would be spent brewing similar coffee at home.
Monday, January 2, 2012
Individual Retirement Account
The first piece of advice I'd offer is to start an individual retirement account. There are two options in this arena. A traditional IRA has current contribution limits of 5000 dollars per year. If you contribute to one of these (which you can start at virtually any brokerage firm (mine is at Vanguard)), you can deduct the amount you contribute (up to 5000) from your tax liability. Also, you don't get taxed on the earnings until you take the money out of your account (like when you are in your fifties or sixties or later). The alternative, a Roth IRA, has the same contribution limits, but you can't deduct the money from your tax liability. However, when you remove the money later in life, all the money is tax-free. Basically, on a Roth, you pay the taxes now, and on a traditional IRA, you pay later. You don't pay taxes on the earnings on either. You can't contribute to a Roth if you make more than UPDATED 107,000 per year. For more details, on things like if you are married filing jointly, check out: http://www.rothira.com/tools/income-limits.php
Now, you may be thinking, why, as a 16 year old, should I think about retirement? First, you should think about lowering your taxes. Second, you can take the first 10,000 of earnings out of your IRA without paying a penalty if the money is for a down payment on your first home. 10,000 in tax free earnings towards the biggest purchase of your life. The third reason is that the longer you save for your retirement, the less you need to save per year. Remember, in retirement, you will be paying less in taxes because you will likely need less money, because large expenses in life like education and a mortgage will be paid off. So, your taxes will be lower. All in all, starting an IRA as early as possible sets you up when you want to buy a home, and when you want to retire.
http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index.htm
http://www.bankrate.com/finance/money-guides/irs-rules-for-early-ira-withdrawals-1.aspx
Now, you may be thinking, why, as a 16 year old, should I think about retirement? First, you should think about lowering your taxes. Second, you can take the first 10,000 of earnings out of your IRA without paying a penalty if the money is for a down payment on your first home. 10,000 in tax free earnings towards the biggest purchase of your life. The third reason is that the longer you save for your retirement, the less you need to save per year. Remember, in retirement, you will be paying less in taxes because you will likely need less money, because large expenses in life like education and a mortgage will be paid off. So, your taxes will be lower. All in all, starting an IRA as early as possible sets you up when you want to buy a home, and when you want to retire.
http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index.htm
http://www.bankrate.com/finance/money-guides/irs-rules-for-early-ira-withdrawals-1.aspx
Introduction
Hello, my name is Ben and I started this blog as a method of memorializing some financial lessons learned. At the start of this blog, I am a 29 year old father of one. I own my own condo, and I am married. The tips and advice offered on this blog are not intended to provide any kind of official endorsement, but rather, an instructional guide on how to create a strong financial foundation. The genesis of this blog was a few discussions I had with my peers, on how there is no decent guide towards personal finance in high schools and college, and all of the tax breaks and budget options available to young people. I am aiming it towards people 16 and older, who can participate in the workforce and have begun thinking about their life goals. I hope you find it helpful. I look forward to your feedback.
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