Beyond Paycheck to Paycheck

at January 31, 2008 in Debt management, Media and Saving Strategies. 0 Comments

While there’s plenty of debate among the talking heads and politicians as to the longer-term impact of the Federal Reserve’s second reduction in federal funds rate–

You: Wait a second. Aren’t talking heads and politicians the same people?

Ah, you’ve been watching the debates. Here’s what I think is going on:

All politicians are talking heads.
Nearly all talking heads are politicians.
Most talking heads are not running for office.

You: Oh. I’m still not sure who to vote for.

Not going there. As I was saying, the degree of financial stimulus that the Fed’s rate cut provides will be debated for sometime. However, there are definitely issues and opportunities that, in the short-term, both debtors and savers will face as a result of the interest rate cut.

Today, I’m quoted discussing the challenges and opportunities facing savers in “Rate-cut spree aims to jolt economy,” a front page news story in today’s edition of the Pittsburgh Post Gazette.

On the debtor side of the equation, I chatted with CreditCards.com and was quoted in their story Fed Rate Cuts and Your Credit Card.

I hope you enjoy the articles and find them useful on your journey down a path of living Beyond Paycheck to Paycheck.

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It’s a carnival of personal finance

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at January 28, 2008 in Investing and Saving Strategies. 0 Comments

Last week’s post The stock market is way up, which I wrote during a day in which the Dow Jones Industrial Average was down about 100 points, was highlighted as a money article of the week in the Carnival of Personal Finance. It was also included in Free Money Finance’s (a wildly popular and useful financial blog) post featuring a short listing of “star money articles.”

If you’re looking for additional sources of candid real-person financial tips and information, those postings (with countless links) are great places to start. In the interest of your time (which, I don’t know, just may be limited), I’ll highlight two relatively brief posts that I found particular thought-provoking:

7 Tips for Streamlining Your Shopping List includes some good tips for saving time and money while grocery shopping.

This post has a picture in it that makes my skin crawl. And it has nothing to do with the fact that I’m allergic to caffeine.

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What if you had a kid?

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at January 25, 2008 in Media and Saving Strategies. 0 Comments

You: Sleep deprived?

Check.

You: Dozens of diaper changes daily?

Yup.

You: Smitten?

Completely.

There is perhaps no greater joy than the birth of a child. And so the memory of the four in the morning wake-ups and the related diaper changes soon fade away (hopefully the related odors will as well.) Financially, many things do change, as I discussed with American Baby magazine in a recent issue. Click here to check it out.

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The stock market is way up!

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at January 22, 2008 in Investing. 2 Comments

You: Dude, that is so not what the websites I visit are saying. Have you even used the Internet today?

Of course I did.

You: Then what, exactly, are you smoking?

Just good clean (albeit cold and occasionally by dirty-diaper-flavored) oxygen. I’m fine.

Gary: You shouldn’t write your posts so far in advance.

Wrong, Gary! I’m writing this right now!

Of course the Dow Jones is down from yesterdays close, by about 1%. But when you read the web today, watch the national news tonight, or look at the good old fashioned newspaper in the morning, the articles, and especially the headlines focus on what happened at its worst today, and that was a 465 point decline.

Yet if you bought an equal amount of every stock in the Dow Jones Industrial Average this morning and sold it at the end of the day, you’d have made a tidy profit.

You: What?

The Dow opened down about 400 points, yet closed down about 100 points so, roughly speaking, it gained 300 points from open to close.

You: I didn’t realize.

Since that’s not sensational, it doesn’t make the headlines.

You: I guess I should have read the whole article, huh?

Perhaps. Another alternative is to ignore them completely. After all, if today’s stock market activity proved anything, it is that volatility is in all parts of the market and that it is still impossible to predict which way things will go.

You: So what does it mean to me?

It’s actually a good thing for most people, particularly to those that are still working.
You: How can that be?

If you’re still working, you ought to be saving. (If you’re not, here are some tips to get started now.) And if you’re saving, you ought to be investing. When you see stock prices come down (as they have been doing consistently for the last few weeks), it means that your most recent (and likely, next several) investment purchases (i.e, through your 401(k) plan and IRA) are going to be made at a time when stock prices are relatively cheap.

That’s good, because it means you will get more shares for the same dollar value. Long term investors love stock market dips.

You: They do? If I look at my current account balance it keeps going down. I hate minus signs, the color red, and the parenthesis around the change of value.

I hear you. That’s why the long-term investors tend to love the stock market dips the longer they have been investing and only passionately so when looking back. It is the shares purhased during these dips that typically show the largest gains later on.

You: So the net-net is?

Enjoy the sell-off.

Gary: I can’t believe this. I’m getting killed over here. I got tons of calls coming in and you’re telling people to enjoy it?

I’m telling everyday investors to enjoy it. I know you’re not enjoying it!

Also, never try to time the market. Even if you woke up this morning knowing it was likely to be a bad day (as many people felt it would be), had you sold first thing in the morning you would have lost far more than had you stayed in to today’s close.

You: What does tomorrow hold?

I don’t have a freaking clue. But long-term, smile. It’s the only way to live Beyond Paycheck to Paycheck.

What do you think about what is going on?

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How to get an engagement ring refund without getting a divorce

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at January 21, 2008 in Saving Strategies. 0 Comments

You: That is a crazy title.

I hear you. So I’m reading the newspaper the other day and my eyes drift to an advertisement that has as its header: “If you purchased a gem diamond . . . You may have a claim to receive benefits in a proposed class action settlement.”

I don’t know about you, but the engagement ring I purchased for my wife was one of the most expensive things I ever bought, so the idea of getting a partial refund without having to take the ring off my wife’s finger was rather intriguing. So I dug a little more. Here is what I found out and what you could benefit from:

Key considerations:

You had to buy the diamond between January 1, 1994 and March 31, 1996.

You: Darn. I got engaged in May 1997.

See?! You should have listened to your girl. If you had just went for it a few months earlier, you might have saved a few bucks.

You need to visit www.diamondclassaction.com and complete your form by May 19, 2008.

There’s plenty of more information there, and it’s fairly easy to follow. And, for what it’s worth, this applies to all diamonds, not just those on engagement rings. Furthermore, there’s over $100 million put away for this settlement.

You: How much will I get?

As you’ll see in their FAQs, they don’t know.

You: Well, what do you think?

I know even less than they do; I’m simply pointing out the opportunity. But the form takes just a few minutes. Even if you only a few bucks, it’s basically free money.

And smart people never turn down free money.

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Kids and Money

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at January 17, 2008 in Events and Saving Strategies. 0 Comments

My little girl–now four days old–still weighs less than the big bag of potatoes at the supermarket, but is much cuter. But in keeping with my “I just had a child, look at me!” theme, today’s post contains some useful suggestions from Pay Jr. on the topic of teaching children about money.

The best time to teach children about money is when they are children. Further, there’s never a better way to teach kids how to live Beyond Paycheck to Paycheck than by showing them; in other words modeling appropriate financial behavior yourself. That’s why, like Pay Jr., I am working with Jump$tart. If you live in New Hampshire, you (and your family), could see me this Saturday at Jump$tart’s Financial Fitness Fair. Regardless, check out these wonderful tips from Pay Jr:

# # #

Start kids off with a good sense of earning, saving and spending money so they know how to use money down the road. Start with chores and allowances.

PAYjr’s Allowance Do’s and Don’ts

DO start an allowance early. The best time to start giving an allowance is when a child learns how to count money. A good rule of thumb is to give $1 for per week per age (e.g., $7 for a seven-year-old) on a regular basis, such as once a week.

DO write it down. Whether in crayon or on the computer, help set expectations by writing out how the allowance will be earned, and how much and when it will be given.

DO encourage an entrepreneurial spirit. If children need money beyond their allowance, encourage them to find and suggest ways to earn the funds, instead of creating unnecessary jobs so they can meet their goal.

DO allow kids to make choices. Let children decide what items are important to them and how they want to spend their money.

DO let kids make mistakes. Children will learn the value of a dollar if they are allowed to make mistakes with their allowance, such as spending all of their money too quickly or on a toy that doesn’t stand up to its advertising.

Now for the Don’ts

DON’T ignore savings. Use an allowance as a tool to teach both good spending and good saving habits. Encourage kids to save a portion of each allowance payment, ideally in a kid-friendly, interest-bearing savings account, working their way up to saving at least 10 percent.

DON’T forget to pay allowance. Make paying an allowance on time a priority, so children can learn budgeting skills. Using online reminders or setting up automatic allowance payments at payjr.com can help.

DON’T always bail them out. Resist the urge to lend children extra money when they want to purchase an item beyond their allowance range. The concept of sacrifice and reward sinks in when children have to choose what to do with their hard-earned money.

DON’T avoid tying chores to allowance. Some parents may not want to pay money for every chore, but paying for some household tasks can help teach the lesson that money is earned through hard work.

DON’T practice “Do as I say, not as I do.” The best way for a child to learn how to manage money is to watch how their parents spend and save.

Get more tips about allowances, chores and how to pay your teen the safe and easy way visit www.PAYjr.com.

Here’s some additional information about Pay Jr. and a special deal for Total Candor folks:

Save $2 on a teen prepaid card when you design your own card. Enter Promo Code: TotalCandor

Need a safe and convenient way to give your teen money? Try the prepaid route
Try the PAYjr Visa Buxx Card

Save money with the lowest priced teen prepaid card available
Parents can easily load the card from their checking account & track all their teens’ transactions
Fraud protected, safer than carrying cash
Teens can shop online or anywhere Visa is accepted
Safely allows teens to learn about budgeting money without the risk of overspending

Checking accounts or credit cards often can lead to debt for young adults or unnecessary expense for parents. PAYjr Visa Buxx is an alternative to hidden and excessive bank fees, lost cash and overspending. Parents can now be in the know and in control and teens can have a flexible, secure way to make purchases: PAYjr Visa Buxx.

Check it out at www.PAYjrVisaBuxx.com

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It’s a girl! And a podcast!

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at January 15, 2008 in General Financial Planning and Media. 0 Comments

Sorry I’ve been out of pocket for a few days. Okay not really.

You: You blog. No time off.

Gary: Jeez!

Well, my wife and I just had our second child, so a new era of insanity has begun in my life. So much fun and so little sleep for the next several weeks months decades. Of course it will all be worth it.

Does the word “worth” make for a decent segue back to personal finance?

You: I think that’s the sleep deprivation talking.

Oh well. Anyway, I recently recorded a podcast series with Intuit, the makers of Quicken personal finance software. During this first podcast, I discussed getting started with personal finance management. There will be four more podcasts over the next few weeks on a bunch of different topics.

You: Any on the New England Patriots?

No, I’m sticking to personal finance, although I wouldn’t bet against the Pats.

"financial education"

How much tax do the Jones’ pay?

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at January 10, 2008 in Tax. 0 Comments

You: Do rich people pay more tax? Seems to depend on who you listen to.

Yes, for two reasons. And no for two more reasons.

You: You’re arguing with yourself publicly?

Perhaps, but a straightforward answer to this question doesn’t exist. You’ll be ready to have this debate with others soon.

Why the rich pay more tax

Reason 1

Often the rich have high incomes. Since income taxes are based on a percentage of one’s income, those with higher taxable incomes will pay more. This is just basic math. If you multiply a specific tax rate by a bigger taxable income, the product is bigger, and so is the tax bill.

Reason 2

The federal tax system is progressive. This means that the tax rates themselves increase as taxable income rises. Therefore, when you do the simple math above, both numbers (the taxable income and the tax rate) are higher for high-income earners than for those who make less. As a result, the higher wage earner’s tax bill increases dramatically.

Why the rich do NOT pay more taxes

Reason 1

Remember, it is not gross income but taxable income (income after subtracting your deductions) that determines your income tax. Rich people are more likely to have higher deductions due to their corresponding larger mortgages, state income taxes, and property taxes. These large deductions significantly reduce the amount of federal income tax wealthy people must pay.

Reason 2

Like it sounds, federal income tax is based on income—not wealth. If you’re worth a million dollars yet have little taxable income, you might not pay federal income tax at all. Take the extreme example (and one I’ve seen first-hand) of a multi-millionaire family where neither parent is employed nor does anything to generate significant income. Combined with an enormous mortgage deduction, they might pay no federal income tax.

Furthermore, high income does not mean you’re rich any more than a comparably lower income means you’re poor. As regular blog readers and those living Beyond Paycheck to Paycheck already know, becoming comfortable (and even rich) is influenced much more by your financial habits more than your income level. Don’t believe it?

You: I’m not convinced yet.

I know you’ve heard stories about celebrities who make piles of money yet wind up later in life with little money or even in bankruptcy. While celebrities get all the press, this tragic story is a sad reality for many others too—not just entertainers and professional athletes.

If you spend 100 percent or more of your income, no matter how high that income is, you will find it difficult to become wealthy. The opposite is also true. If you save enough money for a long period of time, you can be quite wealthy without ever earning a high income.

The conclusion is simple: some people never paid high taxes but are now rich, while some folks once paid a ton of taxes and are no longer wealthy.

Ultimately, there are just too many factors to permit a blanket answer to the question “Do the rich pay more in taxes?” It’s like obtaining a true understanding of how much money the Jones’s really have. While it’s likely a rich household pays more income tax than a poor one, you cannot be sure.

Pay less tax yourself

The important thing is to pay the least amount of tax (legally, of course) and to pay it as late as (again, legally) possible. Don’t get a huge refund and don’t save a couple hundred bucks in tax prep fees at the expense of missing a $1,000 deduction. Total Candor tax preparation can help, but if you’re filling out a 1040-EZ, you won’t miss the deduction, so save your money and do it yourself!

What do you think? Do the rich pay more in tax?

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Follow up on 401(k) contributions

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at January 8, 2008 in Benefits, Retirement and Tax. 0 Comments

Yesterday, I posted a question about the Roth 401(k) plan. While this follow-up question was written about a Roth 401(k), the truth is that the same logic holds for both Roth 401(k) and a regular 401(k):

You: I have another question. Or maybe it’s just a matter of ethics. I’m not sure how much longer I’m going to stick around this job. It’s just getting to the point where it’s hard to pull the long hours for something I don’t really care much about. However, I’d like to get the matching $2000 that my company offers. I’d like to condense my payments into the next 6 months instead of the whole year — do you know if that’s done?

Accelerating your 401(k) contributions

There’s no ethical dilemma here. Even without the intention of leaving, it’s always a wise financial move to get money sooner (time value of money, chapter 1). Most companies will match as you contribute (each paycheck) and stop doing so when you hit the annual limit. However, there are some companies who will do it straightline throughout the year. Obviously, I don’t know where your employer falls. However, you may be able to tell simply by looking at some of your December paystubs and 401(k) statements if you exceeded the matching amount in 2007.

It’s your money. Go get it!

"financial education"

Roth 401(k)

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at January 7, 2008 in Benefits, Retirement and Tax. 0 Comments

Entering 2008, the “new” Roth 401(k) is a hot topic lots of people want to talk about. Although this plan has been around for a couple of years, most employers did not decide to make it available to their employees until some recent additional Congressional tinkering made its existence permanent. I recently had a conversation about the Roth 401(k) that I thought you would enjoy.

My employer recently opened an option for employees to opt into a Roth 401k. It seems to make sense for me, as a young newish employee, to do Roth over traditional (i.e. tax along the way rather than at the very end). What do you think?

Roth 401(k) vs. Regular 401(k)

Like the Roth IRA, contributions to a Roth 401(k) are post-tax. This means that you can’t deduct your contribution from your taxes. On the other hand, that’ the only tax you’ll ever pay with regard to that money. Both the growth and the eventual distribution of the money in retirement are tax-free.

My only caution is the possibility that Congress decides it needs the money some day and decides to tax the previously tax-free growth.

You: Can they do that?

They’re Congress.

You: Have they done that before?

Tax something that was previously not taxed?

You: Yes.

Yes.

You: Wow. That sucks.
Indeed. Personally, I believe in diversification amongst the tax categories. In other words, you’ve already contributed to a 401(k) in prior years (and possibly traditional IRAs as well). Having Roth money provides another form of tax protection. While you never know what the government will want to take from you someday, the truth is you really never know. Still, absent law changes, the Roth is a no-brainer for someone young. It’s a smart move, even with my crystal-ball lacking caution.

But wait, there’s more!

If you are able to save the same $2,000 in a Roth 401(k) as opposed to the $2,000 you would have otherwise saved in a regular 401(k) AND you overall other spending/saving is unchanged, you would effectively be saving more as a percentage of your income because your net income went down (to the loss of your regular 401(k) tax savings). That’s a huge step towards living Beyond Paycheck to Paycheck, don’t you think?