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

Filing Your Taxes: The Basics

Hi there!

Since no one answered my poll (sigh) I decided the next topic on my own.  Filing your taxes (or Form 1040)!  How fun!  The deadline is April 15, so you still have a decent amount of time to gather everything you need, plop yourself down on a couch, and do the dreaded task that no one wants to do.  I actually think filing taxes are really fun, mainly because I know that I'll likely be getting cash at the end of it. 

Why do I have to file in the first place?  The government wants a little piece of every dollar that you make.  They need that money to give us highways and public schools and parks and unemployment benefits and everything else to run this country.  They also want this money consistently throughout the year, which is why every time you get a paycheck you should see federal and state and perhaps city withholdings.  Your employer takes out the amount of taxes from your paycheck that it thinks you owe, but it's an estimate.  It doesn't account for any deductions that you may have or credits that you may have earned.  So, when you file your taxes, you are taking that estimate and adjusting it to what it really should be.  It may be the case that you have underpaid your taxes throughout the year, so you will owe money, or it may be the case that you have overpaid your taxes throughout the year, so you will receive a refund.

What do I need to file? Before you even think about filing your tax return, you need to have your W-2.  Your employer should either mail it to you or allow you to access it electronically at your workplace, but this is the most important (and sometimes only) document you need.  It's the backbone of your tax return.  It lists out your earnings, federal and state withholdings, and other taxes that are all entered into the tax form.  The company also sends your W-2 to the IRS, so the IRS will be able to see any discrepancies between what you file and what is on the W-2 that they receive.  If you have multiple employers, you should receive a W-2 from each employer, and you'll have to enter all of this information separately into your tax return.

What else do I need? Depending on the deductions/credits that you plan to take, you'll need a few more documents.  If you gave any money to a church, synagogue, or charity, those organizations should provide you with documentation listing the total amounts you've donated throughout the year. Donations to charities and nonprofits are deductible.  If you made student loan payments, your servicer should provide you with the form 1098-E, which lists out the amounts paid on the interest portion of your loan. Only the amount paid on interest is deductible.

Did you do Standard vs Itemized? I hear this a lot.  These are the 2 types of deductions.  The standard deduction is the deduction that the government gives everyone, regardless of the deductions that they actually have.  It varies a little each year and is different if you are married or single, but for individuals, the standard deduction is $6,100 for the taxable year 2013.  The itemized deduction is  calculated on your own, and you will obviously only itemize if your deduction is greater than the standard.  How do you calculate it?  You use the various tax forms that you've received and just add up what your potential deduction would be.  If you use any programs (like the ones mentioned below), the program will calculate the deduction and determine whether you should use the standard or itemized deduction.

There are a bunch of sites that offer free filings of the federal return (states are a different story). You can file through the IRS, TurboTax, TaxACT, or H&R Block all for free. Because we are pretty simple people with only a few simple deductions, it's really not necessary to buy a TurboTax Deluxe program or hire an accountant.  Remember that you also have to file a state return for every state in which you have earned income, and you usually have to shell out some money for these returns (no more than $30).

Happy tax filing!

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