Greetings from Hershey!

Hi to all my readers - all 5 of you. 

If we are real friends or friends on Facebook, you should know by now that I have officially moved out of NYC.  Over the weekend, I moved to the sweet town of Hershey to be closer to a boy.  People in Hershey think I'm nuts, but boyfriend and I have been together for almost 7 1/2 years and have spent 6 of those years apart.  Are we stupid or what?  Anyway, I was sick of it and he was sick of it, so I made the move.  And here I am.  In Hershey. Actually, Hummelstown.  But let's just stick with Hershey.

I'm not sure how great this whole budgeting/finance/accounting themed blog will stay afloat here, so the direction of this blog (as discussed with some friends) may change. I'll have a lot more time to cook and design and go on dates and shop for plants, but who knows?  Budgeting is something that everyone has to do, not just those folks who live in NYC.  Hershey is obviously drastically different from NYC in terms of cost.  I've been here exactly 3 days, and I'm just gonna go through a few things that are "normal" here.

1) Grocery stores have real sales.  Like legit sales.  Stupid Trader Joes (they don't believe in sales) and Wholefoods (what's a sale when 3 leaves of kale is still $10) led me to believe that grocery stores don't offer decent sales, but boy was I wrong.  I got 4 bell peppers for $4! A can of chickpeas for $0.89! Who knew?

2) Parking is $1 for 15 minutes in Manhattan. Parking is 25 cents for 5 hours in Elizabethtown (a town just outside of Hershey where I found the most adorable coffee shop and spent 3 hours reading and chatting it up with a grandpa on how to connect to wifi.)  A quarter for 5 hours.  And I didn't have to worry about coming back to a dented and keyed car.

3) Outlets are the greatest thing known to mankind.  Why did I ever buy anything at a normal store when outlets have the same exact thing but at 50% of the price and then have an additional 50% off on top.  I don't get me sometimes.  I wish I could tell 20 year old me to put down that full priced blouse at J.Crew, suck it up, and just go to the damn outlet.

That's all for now.

Love,

Ali

Saving for Retirement: The Traditional IRA

Today, I will go over the Traditional Investment Retirement Account (IRA).  Yay!

The Traditional IRA: This account, like the Roth IRA, is an account that you can open up with most banks.  (Remember that a 401K is one that is opened up through your workplace.)  Banks will likely give you a bunch of investment options, ranging from CDs to money markets to mutual funds to stocks and bonds, and you can choose what you'd like to invest in based on your own preferences of risk and return.  The IRA is kind of a blend of the 401K and the Roth, and I'll explain why.

Pros: Like the 401K, your contributions are deductible.  That means you can adjust your income to deduct any contributions to your IRA, which will reduce your taxes.  Because your money is growing tax deferred, this means that the gains on your account will be larger.  Unlike the Roth, there are no income eligibility requirements, so if you're making $50K a year or $250K a year, you'll be able to contribute to the IRA as long as you're under 70 1/2 (don't ask me why they make up these weird age limits).  The max amount you can contribute during 2014 is the same as the Roth - $5,500 a year.

Cons: Because you are deducting your contributions (AKA not paying taxes on the money when you initially put it into the IRA), you will be paying taxes on it when you start to pull the money out.  Another requirement of the IRA is that you will be mandated to take money out once you turn 70 1/2, whereas with a Roth you're not required to do that. Consistent with the other retirement accounts, you will be hit with a 10% penalty fee if you start taking money out before 59 1/2, unless you meet one of the exceptions.

I know saving for retirement seems like a long, long way off, but it is really essential to start saving for it, especially when you're young.  The difference between starting a retirement account when you're 23 vs. 33 is huge. Like really, really huge. Some people think, "Oh, I'm still young, I'll start it when I'm 33 because I'll be able to contribute a lot more." What I say to those people is, "You are likely wrong."  Even if you're contributing a lot more when you're 33, the amount you can compound in 10 years with a smaller amount of money will likely be bigger.  My advice to you all is to open one up as soon as you can, even if you know you'll be putting just a little bit in each month.  I put aside 10% of my paycheck into my 401K.  I could decide later to put some into a Roth and some into an IRA, but this is just works for me at this stage of my life.  It's totally all personal preference, and there is no right or wrong retirement account to invest in or right or wrong amount to contribute, but something is better than nothing.

Happy saving!

Ali

Saving for Retirement: The Roth

Hello my budgeting friends!

Sorry I have been so MIA for the past few weeks.  Busy season is finally coming to a close, and I will give this blog a little bit more lovin’.  I’m continuing my posts on retirement accounts. Here we go!

The Roth: Another popular retirement account that could be of interest to you!  The greatest advantage to the Roth is that the money comes out tax free -- you put in after-tax money, let it build, and you take out all the money without paying the government a dime of it. It’s a great retirement account to have if you believe your tax rates will be high in 40 years when you retire, which is why it’s popular amongst younger people (will explain this more below). You can open up a Roth with pretty much any bank, and the amount you can contribute to the Roth varies a little bit each year.  For 2014, the limit is $5,500/year. 

Pros: As I’ve mentioned, the huge advantage of a Roth is that your money comes out tax-free when you retire, which is not allowed with a 401K. So think about it. We’re young and we’re not making big money just yet, so our tax bracket is at the lower end.  Then, imagine yourself 40 years from now.  We’ll hopefully be making big money and that would put us into a higher tax bracket. If you put money aside now in a Roth, you’ll be paying very little in taxes and when you finally pull the money out in 40 years, you won’t have to pay any taxes on it! 

Cons: Because you pay taxes before you put the money in, you will be building less.  So, for example, instead of putting $100 pretax, letting it build up, and paying the tax on it when you retire, you are paying tax on the $100 first which will really be like putting in $70, letting it build, and then pulling it out tax-free.  Building up $100 over 40 years will get you more money than building up $70 over 40 years.  Another disadvantage of this account is that there are income eligibility requirements (another reason why it’s popular for younger folks). If you are making more than $114K a year, the contribution limits will start to phase out.  And while I don’t know any 23 years olds making this kind of money, if you make over $129K, you won’t be able to contribute to a Roth at all.  Some people who know that they will be making this amount in a few years don’t even bother creating a Roth because they know they will be phased out eventually.  Like the 401K, you cannot pull any money out of the Roth until you are at least 59 1/2 and have held the account for at least 5 years or you will incur penalty fees.  There are, of course, exceptions to this rule. 

If you're interested in starting an account, there's a great website I found that will be able to answer more of your questions if you have any.  Still trying to figure out how to create an anonymous question box.  Closest thing I got was a poll (see left).

Next up the IRA!

Ali

Saving For Retirement: The 401K

I know this seems a long way off, but starting as early as possible is the best way to go.  Just think about it.  If you want to retire when you're 65, and you don't die until you're 90, which is pretty common nowadays, you need to find a way to support yourself for 25 years without any income.  Retirement is all about compounding, which is a fancy word for adding onto what you already have, and the earlier you start setting aside money for it, the more you compound.

I'm going to share with you the 3 most common types of retirement accounts and the pros and cons of each type over three different posts (retirement accounts can get pretty heavy).   So here goes...

The 401K: If you work for any company with standard benefits, you'll be offered the opportunity to start with a 401K, the very basic retirement account that everyone talks about.  So what is it?  It's an account that you own, and will continue to own, for the rest of your life.  Even if you change jobs, you don't lose it.  It's yours.  You put money into it and choose how to invest it and hopefully make more money out of it.  Different companies have different plans (i.e. mutual funds) on how to invest.  There are some that are higher risk, but have greater returns.  Some with lower risk, but smaller returns.  Some are very actively managed so you may have to pay extra fees.  Usually big companies will match a small portion of your contributions, but that varies depending on where you work and how long you've worked there.  Regardless of whatever plan you choose to go with, the main purpose of this account is to save you money and make you more money for retirement.

Pros: The great thing about putting money aside into a 401K is that you can make your contributions to the account pre-tax.  That means the money will come out of your paycheck before you are taxed, which means you get a tax deduction for it.  By getting a tax deduction, you will reduce your adjusted gross income (AGI), which will in turn put you in a lower tax bracket and allow you to pay less taxes throughout the year. Another good thing about putting in the money pre-tax is that you're able to build more interest over time (i.e. it grows tax deferred, which is a fancy way of saying you pay taxes on it later).  For example, putting in $100 pre-tax will build a lot more interest over time than putting $65 after-tax and having it build over time.

Cons: You can't touch the money until you're 59 1/2 years old or you will be hit with a 10% fee.  There are some exceptions to this, like if you take money out to buy a house or get really sick and need money for medical expenses or even qualified education expenses. Another big con about this account is that because you contributed to the 401K pre-tax aka tax deferred, you will get taxed when you take the money out.  So yes, that 10% early distribution fee seems rather small if you decide to pull out money before you're 59 1/2, but you're also going to get taxed 35% when you take the money out.  Another thing to be cognizant of is that the amount of money you can put in is capped at $17,500 per year. This changes slightly year to year.

Things to Consider: Tax rates.  Taxes will never, ever go away.  In some ways I'm grateful for taxes because I work as a tax accountant, and I'd be out of a job if we didn't have taxes, but it also makes you reconsider where you put your investments.  What if taxes in 40 years are really high and your retirement plan is only half of what it could be?  On the other hand, what if the taxes are really low when you retire and you end up with a lot more than you expected?  Taxes are a big reason why people diversify their retirement investments, particularly people with lots of money where taxes can really affect how much money they put in their pockets at the end of the day.  Another thing to consider is the type of plan you choose to invest your 401K.  You can choose a plan that invests mainly in stocks or a plan that invests mainly in bonds.  Stocks are riskier, but will generate much larger returns, whereas bonds are relatively risk free and generate very tiny returns.  It all depends on how you feel about risk, which is simply a personal preference.

More on retirement plans to come!

Cheers!
Ali

More Savings Fun

Happy Friday!  I was working late last night and a coworker and I started sharing some of our New Year resolutions.  I told her that one of my resolutions was to start saving more, and she said she wanted to do the same.  She told me about her savings plan, which I thought was pure genious and actually kind of fun, so I've decided to share it with all of you.

1.  On a piece of paper, write down the numbers 1 - 52.  (One number for each week of the year.)  You can also get 52 post-its or index cards and write down each number on one post-it or card, if you'd like.

2. Once a week, put an amount between $1 - $52 dollars in a jar and cross off that number on the piece of paper.

3. Repeat weekly, crossing out a different number each week.

Maybe during weeks when you're short on money you can cross the smaller numbers off your list, and certain weeks where you have more cash sitting around, you can hit the big numbers.  The great part about this savings plan is that if you do this every week, you'll end up with $1,378 by the end of the year!  Ridiculous!

Hope you all find this helpful and start making this a year of saving!

Cheers!

Ali

Finding Everyday Savings

Sometimes people are surprised that I'm able to pay my rent and loans and other expenses, but manage to still go on vacations and shop.  I thought I'd leave a few tips on some everyday things you can do to leave a little cushion in your budgets so you can splurge.

Be flexible:  This is the biggest one for me, I think.  My boyfriend and I have been long distance for almost 6 years now (sigh), so I've spent quite a lot of money on buses and trains.  Usually I plan my trips based on the cost of the train.  Thursday train tickets are usually cheaper than Friday tickets, so sometimes I'll take a Friday off work or work remotely to spend a long weekend with him and save money too!  It's a win-win.  Planning ahead is always a good thing, too.

Start cooking: Literally. Start cooking.  I usually go grocery shopping once a week and spend somewhere between $35 - $60 on average.  It really depends on what I'm feeling for the week, how my work schedule looks like, any plans that I have, any sales that are going on, etc.  Typically, I like to make all my meals Monday through Friday and splurge on the weekends.  This is not just because I don't want to gain weight, which is what usually happens if I eat out too much, but it's also so I can save moolah.  Cereal for breakfast, salad and fruit for lunch, and some sort of protein for dinner.  You can save a lot of money here.

Make your coffee at home:  This one is simple.  Make your coffee at home!

Find the deals: This one is a little iffy, but I'll put it out there.  I try to do most of my drugstore shopping at CVS rather than Duane Reade/Walgreens.  Based on my experience, CVS tends to have better coupons and deals than DR.  They also have a coupon machine at the entrance where you scan your card and get a print out of all the coupons you can use.  If you're going to find the same brand of shampoo at both stores, why not walk a few extra blocks for a cheaper one? 

Get a little exercise:  Living in the city, we spend a lot of money on transportation: cabs, subways, buses, etc.  Why not start walking or biking? Not only will it keep you fit, but it will also save you some $$$.  I signed up for the CitiBike membership and have gotten pretty good use out of it.  It was only about $100 for the entire year, whereas subways cost a little over $100 per month.  Granted, for some people, it is simply not feasible to walk/bike to work, but if you can, I'd strongly advise it.  I take a 20 minute walk to work each day, rain or shine, and I'm lucky to avoid the crowds and get a little exercise each morning.  The rule that I typically use is, if it's 2 or less subway stops away, walk! 

For each of these tips, you'll save a few dollars here and there, but they will add up!  Trust me!  Give it a few weeks and you'll be able to buy those shoes you've had your eyes on.

Cheers!

Ali

Starting a Savings Account

One of my goals for 2014 was to start saving.  I was never a fan of savings accounts because I thought they were silly.  Most of them generate returns of only .01%, which amounts to pennies (literally), and that seemed pointless to me.  More and more, however, I realize that I have little self-control, and if I see the money in my checking account, I'll spend it.  The only real advantage of having a savings account is that it forces you to save.

When I was looking into different types of accounts, I realized that there are quite a few different kinds from different banks that you can choose from.  Here are the 3 most common types that you can choose that I found:

Regular Savings: These are basic savings accounts that usually have rates of .01% per year.  This means for every $100 you have in your savings account, you'll get a return of half a penny. Yes, 0.5 cents.  (It's nothing, I know, but again, remember that the purpose of a savings account is to force you to save, not necessarily making money off of it.) Regular savings accounts often have smaller dollar requirements for you to open and maintain, often $200-$300 depending on the bank.  They will also charge fees if you don't maintain that amount or if you don't have a reoccurring deposit in the account each month, somewhere around $20-$30, again depending on the bank.

Regular Savings on Steroids:  These accounts are just like regular savings accounts, but generate higher returns for higher balances.  Different banks will call them different names, like "Platinum Savings" or "Plus Savings".  These often require you to open and maintain at least $1,000 and will charge fees if you don't maintain that amount or don't have the reoccurring deposit.

Certificates of Deposits (CDs): These are different from savings accounts because they have specific and fixed terms with fixed interest rates. They are also virtually risk free and have rates higher than a regular savings account.  The downside of this account is that you need to start and maintain a higher dollar requirement - almost always $1,000 minimum.  Depending on the timeline that you choose, you will get a greater return.  So say you buy a 3 year CD of $1000, you will generate a higher return, maybe in the range of .13%-.17%, as opposed to a 3 month CD, where you will probably get .02%.  The caveat is that when you put the money in, you cannot take it out until your time is completed.  This is a good account to have if you have thousands of dollars just sitting in your account that you plan not to spend for a while.

Like I said before, I think savings accounts are more to force you to save rather than to generate a return.  Keep in mind that the interest rates don't really matter that much if you think about how much you're putting in.  If you put $1,000 in, you'll get 5 cents instead of 1 cent with a CD rather than a regular savings.  Woah! 4 cent difference!!  It would only really matter if you have more than a few thousand dollars sitting in your account, in which case you probably don't need to read this at all.

Cheers!

Ali