Two interesting articles today, both for people just starting their financial lives.
1. Put Your Finances On Autopilot, from Kiplinger's excellent Starting Out Center, is a primer on ways to start out on (or readjust to) the right financial foot easily and painlessly. I'm going to send this one to a friend who graduated a month ago and yesterday asked me for advice about managing her money. I continue to be surprised by the number of people who aren't aware of the number of simple and easy options available for money management in the pragmatic, daily sense, especially with the glories of the internets all around us.
2. Popular Advice You Shouldn't Take, from the Wall Street Journal's "Getting Going" column, is more controversial. Much of the advice is sensible (buy a moderately sized house, don't be suckered into buying cash value life insurance, and start out investing at your comfort level), but the author also argues against accruing an emergency fund. He argues that we can borrow in the event of emergency (he advocates plastic and/or 401(k) loans) and that our money can work harder in 401(k)s and Roth IRAs. While it's certainly true that the interest rate on liquid cash in even the highest high-yield savings account isn't competitive with what you earn in a tax-sheltered mutual fund, I still believe in the value of a cash reserve (and am leery of the wisdom of borrowing in an emergency--isn't it a little like being kicked when you're down?).
I used to feel very differently. Given my youth, health, employability, and total lack of dependents, I thought, who needs a big emergency fund? Here's the thing, though: I do not have a set plan for my life. If I knew that I were going to continue working at this job, advance, get married, buy a house, and have kids, well, I might be bumping up my retirement contributions and saving for a down payment right about now. But for me, and I think for a lot of young people, money is the power to make choices based on what I want to do and where I want my life to go rather than on where next month's rent is going to come from. I think I'll have more freedom with $10,000 in the bank, and I think having freedom is completely crucial at this stage of life.
Friday, July 06, 2007
Point, Counterpoint
Wednesday, May 16, 2007
What I Wish I'd Known About Money When I Graduated
It's that time of year, and it means that I'm no longer the most recent class of college graduates (this eliminates some of the power of the "but I just got out of college!" excuse, alas).
So I'm thinking about the financial mistakes I made as I tried to set up my life, and the things that I learned from them. Here are some things I blew:
1. I put money in a CD.
It seemed like a really good idea to me to put $1,000 of my hard-earned campus-job money into a CD the summer after graduation, to ensure that I'd still have it a year later. And I do, so, points for that. However, I really botched the interest rate, because I bought the CD through my bank, and the interest rate on a CD at a brick-and-mortar bank is not only lower than you can get on a CD through an online bank, it's lower than the interest rate I earn on my liquid savings at ING. No good. Check out Bankrate for the latest rates.
2. I was reluctant to put my money in an online bank.
It took me a long time to be willing to dip my toes into the world of online banking, and that cost me a better interest rate on that aforementioned thousand bucks. It's not that scary, really, though, and the interest rate is great. We're the internet generation: go for it.
3. I set up my housing from far away and by proxy.
I was in touch with my boyfriend by phone as he and our current roommate hunted for an apartment--and it was profoundly logistically difficult. In addition to the money I spent having things notarized and FedExing them (both of which would have been unnecessary had I been proximate), I ended up overpaying my portion of the initial costs (broker's fee, first/last, deposit, &c.). Technically, this just means that the guys I live with owe me money, but actually, I never expect to see that thousand bucks again. This would never have happened if I'd been there to write the check myself, as opposed to having to ask my father to access an account on my behalf and send a check.
...and here are some things I did a good job of:
1. Taking it slow on the startup costs.
Though getting into my apartment blew a big chunk of money, I did a good job of minimizing the cost of starting my life as a grownup. I bought some work clothes & shoes, but kept it minimal. I took hand-me-down kitchenware and asked for housewares for Christmas and my birthday. I limited my initial furniture outlay to a bedframe (bought from Overstock.com, split with my boyfriend) and a couch (bought at Macy's home sale, split three ways). K and I have only just gotten around to putting up shelves, and we are just now planning on going shopping for a dresser (actually, that one I'd recommend you do right away). We use a dining-room table that K inherited from a previous roommate and mismatched chairs. And our friends still think our apartment is great. You don't have to leap into grown-up-dom with a living room set and color-coordinated everything and a credit card bill to match.
2. Making friends with my Roth IRA.
This is such a good account for young people, and I think everyone should have one. It's especially valuable for those new grads who start out in hourly jobs, or other jobs without benefits (including not-for-profit jobs where there's no employer match in the 403b). I'm really pleased that I prioritized contributing to my Roth, and I'd advise that everyone do so, even if it's only a few bucks a month (indeed, there are companies that will let you open the Roth with very low or no minimums).
3. Starting off on the right foot.
It's way, way, way easier to learn to live on a smaller amount of money than it is to start out living on your full salary and then trying to start saving. I saved from my very first paycheck, which helped mitigate the feelings of deprivation. (Subsequent increases in saving and giving have been far more noticeable.)
4. Being eager to learn.
The best thing, hands down, that I did for my finances after graduation was devote myself to learning how they work. That's why this blog exists. The prospect of opening a retirement account, say, is really, really daunting--even just the logistics of it. The how and where remain mysteries even after you grasp the why. Again: the internet is great for this stuff. I pretty much just read everything I could get my hands on, and now I know enough about the basics of financial planning that I pretty much feel comfortable making my financial choices.
I think that last one is really the most important--if you're trying to learn and figure things out, you probably won't make the worst decision even if you don't make the best. The easiest way to botch your finances is to ignore them, so a little effort goes a long way.
Good luck, class of '07!
Thursday, May 10, 2007
The $300 Kitchen
For the recent or soon-to-be college grad in your life, this handy article from the Times lays out a plan for purchasing the necessities of a well-equipped kitchen for $300.
I contend that with a bit of savvy, patience and a willingness to forgo steel-handle knives, copper pots and other extravagant items, $200 can equip a basic kitchen that will be adequate for just about any task, and $300 can equip one quite well.
The key point? Restaurant supply stores. Every city has one, and if it's good enough for the pros, it's good enough for the beginning home cook.
Monday, May 07, 2007
Financial Literacy
I don't know why it took me so long to find this, but Bankrate.com is running a year-long financial literacy-o-rama. It's great, a very accessible and thorough look at the basics of financial planning and money management. A very good primer, excellent for beginners--I think, when it's finished, this will be something young people can refer to as a way to get acquainted with lots of basic concepts of personal finance.
Monday, February 05, 2007
Wednesday, January 17, 2007
Quitting Your Day Job
Last night, I went to a performance of my friend's new show (overshooting my entertainment budget for this pay period by $15). It was also his birthday: he's 27. The show is only in previews (off-Broadway, hopefully moving but I don't want to jinx it), but ever since it entered the full-time development phase, it has been his primary occupation. You know what that means: no day job. He gets paid to do what he wants to do.
Other friends are making this leap as well. K. quit his day job more than a year ago, and now earns his living doing freelance video editing (he usually gets work as an assistant editor, which is close to the actual-editing that is What He Really Wants To Do). One of my two high school best friends splits her time: half exciting, fulfilling creative work for no pay; half slightly mind-numbing office administration and sporadic but lucrative tutoring gigs for the paycheck (she also lives at home). Other friends try to marry the two by doing something similar to what they ultimately want to do: they do administrative work at museums while applying to grad school in curatorial studies, they do entry-level work at urban planning firms and try to make the jump into the policy arena, they do corporate web design while trying to get their independent graphic design careers off the ground.
Me? Well, my day job was supposed to be an "almost"--as it turns out, it's sort of almost almost what I want to do. I'm taking on two volunteer opportunities (both involve working academically with socioeconomically disadvantaged kids), and if one works out particularly well, I may apply for a job with that organization.
My cherished goal is to make my living doing work I love. I don't mean "never have to do anything boring"--that's unrealistic and ultimately kind of lame, because there are boring parts involved in everything interesting, and they're worth doing to achieve the ends they enable. I mean that I don't want a "day job"--a job I do just to pay the bills, a job for which I have to drag myself out of bed, a job with which I have to strain to feel connected. Watching my friends chase down work they love or like makes that possibility more real to me.
I have always thought that no matter what, I would serve out a year--that means working here until next September. Today, remembering the show, remembering seeing my friend flushed and happy at the party afterwards, glowing, and remembering seeing him on stage, crackling with energy, I think maybe I won't wait it out. I think I'll see what comes along, and, if it's almost-er than this is, take it.
I think there are a couple of major reasons to quit a job that, for you, is a "day job." First, I think your happiness is worth more to you than money (this came up repeatedly with the friend that quit this job recently--and she's far happier now, working at a bookstore and a bar). Second, I think any job for which you don't have a passion is a job in which your advancement opportunities are automatically capped by your lack of enthusiasm. I don't think I could do a job I didn't like well for any serious length of time. I think my flagging enthusiasm would take an inevitable toll on my job performance, and I think it would limit my career (rightly). But my musical-writing friend's career? His career is limited only by his talent and his drive.
I think that's an enviable position. It's the position for which I strive.
Friday, January 12, 2007
Planning for Sudden Expenses
My boyfriend's sister has tentatively set the date of her wedding for April 7. The wedding she has planned sounds lovely, small and low-key and beautiful. I haven't been to a wedding since I was like 15, and I've never been to the wedding of someone I consider a peer (Boyfriend's Sister is 26). So I'm looking forward to it, and beginning to think about how best to incorporate its extra expense into my budget.
Clearly, the best way to field this kind of expense is to start planning for it well in advance. For us, that means that I'll begin bugging my boyfriend for information that will let me begin planning as soon as possible. This is how I go about incorporating a large but not immediate expense into my budget:
1. What will my expenses be?
Here are certainties: we'll be flying to Chicago. We'll be buying a gift. I can probably adapt the brown chiffon dress I bought for my parents' Christmas cocktail party for spring, thus sparing the expense of a new dress, but to do that I'll need springy accessories--probably a new wrap or shrug and maybe a piece of jewelry. Last time we were in Chicago, we stayed with my boyfriend's parents, but I don't know if that will be the case this time around. For the sake of my bank account, I hope it is. Either way, there will probably still be incidental expenses there--eating out more than usual, that kind of thing.
2. Where might there be hidden expenses and how can I avoid them?
One thing I always have to keep in mind when considering the cost of travel is that it's subsantially cheaper to fly out of JFK than out of any other New York airport, because it's the only one that can be easily and reliably reached by public transportation. LaGuardia means a cab (there's a slow, complicated bus route, but...no), but since we live just across the Triboro Bridge, it wouldn't add nearly as much to the total travel cost as taking a car service to Newark. An itinerary out of Newark would have to be $100 cheaper than one out of JFK to actually save us money. We may be able to ask my boyfriend's parents to pick us up at the airport if we come in at a convenient time--the cheap redeye will mean a not-so-cheap cab ride on the other end.
Good planning can also save money around other necessary purchases--like things (gift, clothes) that are bought online. If we buy them well in advance, no expedited shipping will be necessary.
3. Where can I make this fit within my normal budget?
I budget some money every paycheck for things I buy regularly, like clothing and meals out. If I make the clothing I buy for the wedding clothing I'll wear on other occasions, I'll have no reservations about using my regular clothing budget here. I also regularly put money into a dedicated savings account for gifts. This gift will probably be pretty expensive, but I think I can be okay with taking $50 or so out of an account that should see total deposits of around $600 by the end of the year. I can probably pull a little from my normal eating-out fund, but I'm definitely going to need to have some budget flex for entertainment while I'm there. I don't want to be pinching pennies when I should be celebrating.
4. How much extra do I need?
If indeed we stay with friends/family as I hope will be the case, the only things that will require finding money will be the plane ticket and incidentals. A little research tells me I can probably bring the plane ticket in for under $100 round-trip, and having another extra $100 for incidental expenses will make me feel like I've got a nice buffer.
5. Where can I find extra money?
Well, as it happens, this one is easy. March is a three-paycheck month for me, and I can cover the trip's extra expenses with my extra free cash. If this weren't the case, I'd divide the $200 I need by the number of paychecks between now and then (6), and trim the excess ($33) out of my normal budget.
All of which means that I get to stay cool, calm, and collected while I enjoy a mini-vacation and celebrate Boyfriend's Sister's wedding. That's the reason I plan--to avoid stress.
P.S. Clearly, "my boyfriend" is becoming a tired phrase, and the person to whom it refers needs some kind of alias. I'm open to suggestions, but I balk at calling him Mr. English Major, both because of the marriage connotation and because he would never have been an English major.
Wednesday, January 10, 2007
How To Open Your Roth IRA at Vanguard.com
Today I knocked off part of my 2007 goal to open a Roth IRA & automate contributions: I opened my account at Vanguard! Because I always want to know what I'm getting into when I begin an online registration process, especially when it concerns $3,000, here's a complete walkthrough for those of you who are considering Vanguard.
You start by heading on over to Vanguard. It's a pretty intuitive site, if slightly cluttered, and two clicks will take you to the account opening process (the "open an account" link is at the top left of the personal-investment home page, then the "invest now" link on the left). You don't need to register with the site first (do that later), and you don't need to get there through an IRA-specific link. It will ask you what kind of account you want to open. Select "Roth IRA," and off you go.
You'll need the following information:
1) Basic identifying information
I'm guessing you probably know your address, phone numbers, email address, and social security number off the top of your head.
2) Account information for your linked account
You'll need the routing number of your bank and your account number for the account from which you intend Vanguard to pull its payments. You can get this information by looking at a physical check or, if your bank does this, by looking at an image of a check through your online banking. Vanguard offers a convenient diagram that tells you which information is which.
You'll need to consider the following issues:
1) What will you be investing in?
You probably chose Vanguard because you want to reap the benefits of their low-cost funds. That means that you choose "Vanguard Mutual Funds" when it asks you what type of investment you're looking for inside your IRA. But which funds? Because you can't contribute more than $4,000 per tax year and most Vanguard funds require a minimum contribution of at least $3,000, you can't really buy more than one fund. When I balked at this, my commenters and my subsequent research assured me that Vanguard's target fund is well-balanced and low-cost. If you're 18 to 25, you're probably looking to retire in either 2045 or 2050. Pick the fund with the date that best corresponds to your preferred retirement year, and dump your full contribution into it.
2) Who do you want to name as beneficiaries?
The signup process asks you to name beneficiaries, both primary and secondary. You can choose not to do this part, and I'm sure you can go back and change it later, but for now, if you want to name a beneficiary, you'll need to know his or her date of birth. I named my sister. She's also the beneficiary on my life insurance, so if I go missing, you know whom to investigate.
That's pretty much it. After you click "continue" for the last time, the site will give you your account information and prompt you to register for an account to manage your new IRA online. Do that. It involves the new security measures like pictures and questions about the hamster you had when you were eight. You can subsequently automate your contributions: go to the "My Portfolio" tab and select "Account profile," where the "Automatic investment" link will prompt you through a simple automation process.
You're really done. Once I'd made the decisions in advance, it took me 20 minutes to go through the entire account-opening process, register for the site, and add the new account to my net worth calculations in Bank of America's My Portfolio feature. No deterrence here.
So go give it a try!
Update 1/18/07:
I was reminded by a comment on the Consumerist post that linked here that I neglected to discuss the fee structure at Vanguard. That's an important topic, so:
Vanguard charges a fee of $10 for each fund with a balance of less than $5,000. If you're just opening your account, it's likely that you've only got one fund, because of the fund minimums, but if you have $2,000-$5,000 more (that is, above the $3,000 minimum) available to transfer into your Roth, you're in luck: you can avoid this fee. Until tax day, you can contribute either for the 2006 financial year or the 2007 financial year. That means that your initial contribution ($3,000-$4,000) can be for 2006 (the website allows you to differentiate by entering the amounts in different boxes on the contribution screen) and that you can subsequently contribute another $1,000 for 2006 and up to $4,000 for 2007. Max out for 2006 and add another $1,000 for 2007, and you're fee-free.
Welcome Consumerists! Thanks for checking out An English Major's Money. I'm a 2006 college graduate trying to figure my way around my financial life. I believe firmly that instead of following generalized "rules of thumb," the best way to get on top of my money is to figure out how I can tailor my finances to my personal goals. I invite you either to figure it out with me or to follow along whilst pointing and laughing at my ineptitude and occasionally tossing me a crumb of information. Either way, please poke around!
You might want to start here, where I lay out my financial goals for 2007. Another popular post was this one on emergency funds.
Tuesday, January 09, 2007
Pragmatic Personal Finance Tips For College Students: Small Liberal Arts Schools And Beyond!
Over here at The Simple Dollar, Trent offers some tips to help college students save money. The Simple Dollar is an absolutely top-notch blog, but a fair number of these tips simply don't apply to me. They presume a fairly specific college experience, and it's not mine. Of course, someone's having that college experience, even if it's not me, and I'm sure Trent's list is great for those people. But it got me thinking about the people who are having college experiences like mine, and what I'd like to tell those people about the day-to-day things that shape their finances in school. Here's my list of personal finance tips for some other college students. Probably the small-liberal-arts-college ones, because hey, you write what you know. This one's for all the people who find this blog by searching "English major salary."
Choose your bank carefully.
Most schools host little finance fairs, where banks offer you free student checking accounts with signup bonuses. Go. You will not get that signup bonus if you just wander into the bank, and in fact, the person you talk to at a branch may not even tell you about the student checking perks. But do your research first. These are the two most important things to keep in mind when you pick the bank you'll use for college:
1) Where will you withdraw money?
If the bank in question has an ATM on campus, that is a big, big plus. Because trust me, you will not always be diligent about making sure you have cash. If the bank in question is also a significant presence in your hometown, so much the better. You won't incur fees when you withdraw cash on vacation.
2) Where will you deposit money?
You're going to need an accessible branch. At some point in your college career, you are going to need to go to the bank in the middle of the day, between classes, to sort something out. See above re: hometown.
If these are a wash, look for the benefits of the student checking. Continue to ignore the bonuses--they won't make the difference in the long-term (doesn't mean they're not good to have). Look for a bank that offers to refund your first overdraft charge (Bank of America), or, even better, one overdraft charge a year (Washington Mutual) Look for a bank with extensive online banking capability and an interface you feel comfortable with; you do not want to have to do all your banking in person.
Get a credit card, but don't use it.
Too many of my friends are currently struggling to establish credit. Creditors are never so willing to extend credit to you as when you're in college. Get a student card. Leave it someplace safe (that is, not your wallet). Use it to buy books. Pay it off immediately. Don't use it for anything else.
Consider living off-campus. (After freshman year.)
Room and board are expensive. They're worth it while you're making friends and getting the hang of things (and besides, most private colleges have a residency requirement for freshman year), but after that, look into whether living off-campus could save you money. I lived, ate, and socialized in an off-campus apartment for the cost of just housing on-campus. If you have loans covering your housing: many (but not all) schools will apply them to off-campus living, which means that you will owe less overall. Some schools will apply grants to off-campus housing and give you the rest of the grant as a stipend. If your parents are footing the bill: they will appreciate this. (Subsidiary hint: Live with tons of people. Cheap and fun!) HC rightly points out that the crucial factors here are the prevalance of affordable housing within walking distance of campus or good public transit. Word-of-mouth should be sufficient to find cheap housing if it's close by; otherwise, try Craigslist or the college housing office.
Know your options.
Know what money is coming to you. Negotiate your parents' contribution to your living expenses beforehand instead of calling them up halfway through your first semester to ask for money. Know what your financial aid options are. Introduce yourself to people who work in the financial aid office. They'll be more inclined to work with you if they know you.
Know your resources.
There's no reason to buy a gym membership when you can work out for free. There's no reason to pay for gas when there's a shuttle. There's no reason to pay retail for anything at any store, restaurant, or entertainment venue that offers a student discount (ask!). Et cetera.
Get free stuff.
When I worked for the admissions office, they used to buy me lunch once a week--if I'd eat with prospective students and tell them about the school. (This is a brilliant plan: who do you like more than someone who just bought you lunch?) I also regularly attended faculty search lunches--free lunch and participation in the faculty hiring process: what could be better? The psychology students compensated other students for participating in their projects with free food and even actual money. Welcome to the world of free pizza at club meetings and free events to fill your evenings.
Apply for internal awards.
The University of Michigan is currently initiating an award for a graduating theater major: the winner of this award takes about $2,500 (the amount isn't yet finalized) to apply to living expenses as she or he begins her or his theater career. Find out what awards and grants your school offers, and apply for them if they're relevant. Among other opportunities, my school had five "bookstore scholarships" every semester covering up to $300 worth of books. Maybe your school will cover your travel expenses for academics-related projects, or front you the money you would be making if you worked instead of doing community service over the summer. Introduce yourself to the staff member who coordinates fellowships and awards, tell him or her your interests, and ask for any relevant awards opportunities. It vastly expands your options. You may not pocket money free and clear (then again, you may), but it may also allow you to do things that you wouldn't have been able to afford otherwise.
Get an on-campus job.
Unless you'll be making double the money elsewhere, the lack of travel time and the flexibility with hours (not to mention the resume boost and letter of recommendation) will make this job your biggest asset.
Play games with money.
I don't mean poker. Pick a category of money that you consider "found money": your paycheck from your on-campus job, your pocket change, every single you get in change, the money you get paid to participate in psychology studies...whatever. Put it away in a high-yield online savings account. Don't touch it.
Avoid driving whenever possible.
Most college towns offer pretty good public transportation; some schools even offer shuttles. Take advantage of them. Your time isn't at a premium right now, and riding the bus with your friends is more fun than driving alone.
Make regular thrift-store expeditions.
All the cool kids are doing it. Trust me. Seriously. The Gap is not cool. No matter how many scary Audrey-Hepburn-dances-beyond-the-grave ads they run. Even the not-at-all-outside-the-mainstream Olsen Twins look like the bag ladies of Karl Lagerfeld's wet dreams, and you can get that look for less. The super-cool local vintage stores (The Red Light, Avalon, Beacon's Closet, to name a few of my personal experience) are more expensive than the chain resale stores (Buffalo Exchange, Ragstock, &c.) are more expensive than the big-boxes (Salvation Army, Goodwill) are more expensive than the big-box outlets. When you absolutely must have a specific seasonal piece, hit Forever 21 and H&M. You'll find what you want for cheap, and by the time it's disintegrated, it'll be out of style anyway. When you're looking for something good that won't disintegrate immediately, hit the resale stores. You should also be selling your gently-used clothes to these places (a friend of mine in school made something of a business of buying the gems at Goodwill and reselling them to Buffalo Exchange). An afternoon rooting through the by-the-pound bins is fun, cheap, and keeps your wardrobe moving.
Word of mouth is king.
Ask questions. Ask people where they get cheap sushi, where they get cheap beer, where they get cheap couches and clothing and posters and cereal. Just ask. They'll tell you, and you'll be participating in the peculiar and wonderful mythology of your college by perpetuating the legend when you tell someone else.
That's...pretty much what I'd recommend. Readers, I'd love to hear your thoughts!
