I just got a call from a consumer survey group, which—well, I don't know how they got my cell phone number, but it was probably because I filled out a bunch of forms on the internet, and now I'm kicking myself. A highly disinterested-sounding (and rightly so) phone rep asked me questions about my brand choices, settling on the topic of cigarettes. I'm a light smoker—a pack a month, maybe—so I treat myself to cigarettes that don't make me foul-smelling and vaguely nauseated: Nat Shermans, about $8 a pack. The rep didn't recognize the brand name, but proceeded to ask me questions about Marlboro and Camel, including:
"Which brand is a fun brand?"
"Which brand is always introducing new products?" (Is that good or bad?)
and the best of the bunch:
"Which brand helps you express your individuality?"
My response: "Definitely neither."
I have a whole bunch of thoughts about the way in which "individuality" is a notion that's been coopted by branding, but right now I'm too gobsmacked to be articulate. Which brand helps you express your individuality, indeed.
Tuesday, January 30, 2007
Brand Identity=Your Identity. Didn't You Know?
No Dollar Cost Averaging For Me, Thanks! (And Here's Why)
As I mentioned, my parents wrote me a lump-sum check for the money they're contributing to my life. I've already transfered 1/3 of that sum to my ING "travel" subaccount. It only remains to send the remaining 2/3 over to my Roth at Vanguard. But how to do it? In a big chunk or in regular smaller chunks?
For those of you new to investing: investing a big (or big-ish) chunk of money in smaller, regular increments is called "dollar-cost averaging." The idea is that by investing regularly, you guard yourself against the risks of buying anything at its peak and avoid the temptation to try to time the market.
To my mind, there are two major points against dollar-cost averaging:
1. Convenience
I can schedule automatic transfers from my checking account to the Roth--that's not a particularly big deal. But where would I hold the money that hasn't yet been transfered? No way I'm going to keep that money in my checking account, earning no interest while I wait to transfer it. I could, then, transfer it over to ING and let it earn 4.5% until I move it into the Roth--but that requires a lot more work: remembering to beat my scheduled transfer by several business days and transfering money from ING to Bank of America and waiting for the automatic ACH from Vanguard to hit. Irritating. One ACH transfer from my checking account to my Roth? Way easier.
2. Rate of return
Check out Google's three-month and six-month graphs of the target fund in which my Roth is fully vested. Look at the y-axis points (price) at which it crosses the x-axis unit marks (months). Each one is higher than the last: there is no point at which each month has brought net depreciation, which means each successive month, my regular investment would buy fewer shares. This is a graphic depiction of the points made by several recent posts and articles about the downsides of dollar-cost averaging, including this comprehensive but somewhat dense one and this convincing one from MSN Money. Even taking into consideration that my non-invested money would be earning 4.5%, it seems lump-sum investing beats dollar-cost averaging over 60% of the time. That article also points out that the times that dollar-cost averaging wins out are in periods spanning a major crash.
Both are important factors for me, and both point towards lump-sum investing as the way to go. That's what I'll be doing: initiating a transfer for the full amount from my checking to my Roth, and waiting for it to grow.
Monday, January 29, 2007
Monetizing Personal Finance Blogs (Without Being a Hypocrite)
ISPF and I have been having a discussion about the merits of blog ads versus blog tip jars. Personally, I hate the ads on most blogs--it might be different if bloggers negotiated individual advertising or sponsorship deals, but there's nothing weirder than reading a personal finance article with little blurbs about credit cards and payday loans pressing in thick from both sides. (Plus, text ads are ugly.) I'd rather provide ad-free content, and I'd consider running a tip jar to continue to make that possible. What would you think of that?
The broader question, really, is about how monetizing a blog about money affects its message. I'd love to hear your thoughts.
Friday, January 26, 2007
Friday Feedback: Katherine Hepburn Double Feature Edition
It's Friday, so here's what the English Major is...
Reading: Well, same as last week, but I've also picked up Jean Rhys's Wide Sargasso Sea. I'm only a little ways in. It's enjoyable--it's written in a pared-down style that always manages to be sort of hypnotically evocative (and that also persistently reminds me of Rousseau's paintings). I'm looking forward to the intertextuality kicking in full-force, which hasn't yet happened. My problem with the book is the same problem I had when I read Fear of Flying a few years back--though I know, intellectually, that this book predates the trend (of postcolonial reimaginings of canonical texts, in this case, frank memoirs of female sexual desire with a dash of artistic neurosis in the other case)--that it was, in fact, pioneering, groundbreaking, I can't help reading it in light of its successors, and finding it a little bit dull. Nevertheless, recommended. Every library worth its salt will have this book.
Listening to: Aimee Mann, Bachelor No. 2. For me, this is mood music. If you like to take contemplative walks (and don't mind the whole singer-songwriter approach), you need this on your iPod.
Watching: Nothing, out of respect for Six Feet Under. I'm breaking my fast tonight, though, with the first of a Katherine Hepburn double feature at the Loew's Jersey, an olde-time moviehouse (it's cheap, but then again, I have to buy a PATH ticket). Tonight is Philadelphia Story, tomorrow is an archival print of The African Queen. If you haven't seen them, put them in your Netflix queue, now.
The IRS Man Goeth
Despite being confused, intimidated, and totally clueless, I sat down (okay, flung myself across my bed with my laptop) to do my taxes last night.
I discovered that, like a lot of financial tasks that come bundled with scary baggage, it's actually not all that hard. The only way in which my parents claiming me as a dependent affected the return is that it made me automatically ineligible for the Earned Income Credit (for which I believe I am ineligible anyway) and meant that I couldn't claim education expenses (which I couldn't have done anyway: my parents paid them). As HC very helpfully commented, I still qualified for the standard deduction on the basis of earned income. There were some complications because I spent half the year as a student (in a place that's not here) and half the year (less, actually) as a full-time employee, but the complications only involved frustration, not financial ruin.
The bottom line is that I filed for free without having to do any math and now I get money back (kind of a lot, actually: $701, total). And it's done. And I'm relieved. The real bottom line is that I, like, I think, many others, build things up in my head to be harder and scarier than they are, and just doing them often reveals that they are no big deal.
Thursday, January 25, 2007
The IRS Man Cometh
I got my W-2 today. I have no idea what to do with it.
I'm ashamed to admit it, but I've never filed taxes myself before. My parents have filed for me on the assets in my name (which I guess means there are some--I think I'm a listed beneficiary on the trust that contains my grandfather's paintings) and claimed me as a dependent. Apparently, they can claim me as a dependent for this year, too, because I was a full-time student through May, with all of the tuition bills that full-time studenthood [at a small private college] entails.
I want to do a free e-file, but I am up against the barricade of not knowing how to start figuring out what to do about being a dependent versus filing independently, et cetera, et cetera.
But I promise you this: if I get a tax refund, it's going right into my Mini-E.
Wednesday, January 24, 2007
The Symbolism of Money
I was quite touched by this post by Tired But Happy on the financial finagling within families. It reminded me of a big family dinner that took place after my uncle's funeral. The oldest of the three living brothers had always paid for these family excursions, and now, with both of his brothers dead, my father was the patriarch. So my father, once the youngest of three brothers in a tenement apartment in Brooklyn, sat at a big table at a Chinese restaurant in Boca and proudly pulled out his platinum card to pay for a big dinner for his wife and children, and for his brother's children and their spouses and children. Paying for that dinner meant that even after a loss, the family was still whole, that its members could still depend on each other and most of all on my father, that he would step up as patriarch, as communal caretaker, as the conduit that would connect us all with our collective past and with our dead.
I guess I was probably sixteen or seventeen when this happened, but I remember it clearly. My father is quite frugal about personal purchases, but very generous when it comes to other people: he regularly treats his nieces and nephews and their families to dinners and theater tickets. This was beyond generosity: with the opportunity-slash-obligation to pay for this family dinner, my father's role in our family changed.
This, I think, is why family dynamics around money can be so complicated. Over a dinner check, we enact not only our relations as individuals (who has more money? who has expensive taste? who's a spendthrift, who's frugal?) but our relations as a family (who takes care of whom? from whom must we declare our independence? from whom can we accept help?).
So when I sat down with my parents last night to discuss their offer of financial help, all of these symbolic meanings came into play. I don't want to be dependent upon them, but I also don't want to shut them out by refusing the help they can and want to give. I tried to speak calmly and confidently about my plans for the money they'd offer me (save it: 2/3 for my Roth, 1/3 for travel). I assured them that this would open up my budget for the "fripperies" they wanted to make sure I had a little room for, because I wouldn't be pushing so hard to save from other sources. They wrote me a check for a lump sum for the year, trusting me to handle it over that time on my own. The conversation ended well, with no one anxious or upset--we had successfully negotiated the emotional issues that create the tension around financial issues. No one felt stepped on; no one felt diminished--it seemed to me that all three of us felt confident in our choices and in each other.
For me, the key to navigating this conversation successfully was about understanding that we were working largely in a metaphorical realm, using financial words to describe an emotional state: how we're handling the fact that I'm growing up and distancing myself from my parents in the normal way. In ten years, perhaps, I will look back on this the way I look back on my father paying for that dinner, and understand that it was a moment of symbolic negotiation, a place where something changed.
Tuesday, January 23, 2007
Thanks For Nothing, David Bach
David Bach's latest column on Yahoo! Finance demonstrates (again) the fact that when it comes to financial advice, one size does not fit all. Not one of his five suggestions for saving money applies to me.
1. Lose the premium cable television package and save $960.
That would work. If I had a premium cable television package. Which I might have, if I had a television.
2. Get real about your cell phone and save $240.
Nope. I'm still on my mother's family plan, so my phone costs less than two-thirds of the $60 figure that Bach cites as a bare minimum.
3. Go wireless [i.e. cut your land line] and save $600.
Yeah, the last time I had a land line was the one year I lived in the dorms (that would be 2003).
4. Exercise smart and save $240.
My major source of exercise is walking (I do, after all, live in New York). It's free.
5. Shop for car insurance and save $500.
...and because I live in New York, I have no car to insure.
My point here is just a quickie, and one I've made before (though I think this is a nice example): while experts' tips can provide a jumping-off point for a course of action that will save you money, nothing works like knowing your own behaviors and options.
Frugal Hair Care
Inspired by the discussion sparked by my recent post about considering cutting my own hair, today we'll be discussing reducing your hair-care costs. Boys, this applies to you too, but I'm going to guess that you're not that interested (or don't spend enough on hair products that it's worth making an effort to cut back). I'm not offended. Come back later today for an article on gentrification.
So, for my remaining readers: here's the thing. What we're going to do here is focus on cutting costs by cutting back on the number of products you use. You may actually spend more on individual products using this method, but you'll use far fewer of them. The theory here is by that cutting back on products that damage your hair in the long term, you reduce your need for products to control or correct that damage. This is based on my own personal knowledge, gained when I began researching a hair-care regimen suggested by a stylist, so I don't have handy links--when in doubt, just Google the name of a chemical. Off we go.
So, the major thing you need to be avoiding are sulfates, or surfactants. Check your ingredients list: the most common surfactants are sodium lauryl sulfate, sodium laureth sulfate, ammonium laureth sulfate, and ammonium laurel sulfate. These ingredients serve two purposes: 1) They're industrial-strength detergents (that's right, like in laundry detergent or dishwashing soap). 2) They create lather. Lather has nothing to do with cleansing--it's an advertising trope that's so ingrained in us as product consumers that we link lather to a feeling of "cleanness."
Sulfates strip your hair and thus dry it out. That means that they create the symptoms of dry hair: frizz, flyaways, breakage, lack of shine, et cetera. You know, the things you buy products to deal with (this is a perfect example of products manufacturing needs to fill).
So, you say, I'll just stop using products with sulfates in them. Here's the problem: they're in the vast majority of drugstore shampoos, and many drugstore conditioners as well. They're hard to avoid. Another problem: sulfates serve a purpose, which is to remove water-insoluble ingredients (like silicone) from your hair. So here's what happens. You use a shampoo with sulfates. It dries your hair out, so your hair's frizzy and dull. You use a shine serum and an anti-frizz mousse, say, thus adding ingredients like silicone, dimethicone, amodimethicone, cyclomethicone, and cyclopentasiloxane to your hair. These compounds coat the shaft of the hair, preventing the natural hair oils from soothing the damage done by the sulfates until you strip them off using more sulfates, thus increasing the need for them. If you don't use sulfates to strip your hair of water-insoluble ingredients, they build up and eventually make your hair dull, limp, and flat.
So the trick is to stop using water-insoluble chemicals on your hair when you stop using sulfates. There will be an adjustment period of a week or two, while your hair gets used to its new chemistry. My hair went from very dry to slightly oily, but before long, the oiliness went away.
Your pared-down, hair-healthy, frugal hair-care routine looks like this:
1) Conditioner. Something without any sulfates or water-insoluble emollients/humectants. This is absolutely the most important part of the routine.
2) Styling products. I use a water-soluble gel and refreshing spray, both occasionally.
3) Optional: Non-sulfate shampoo or scrubbing conditioner. Many grocery stores now sell organic store brands; these are good places to look for a shampoo without sulfates. Don't be concerned if it lathers less. These are only really necessary if your hair stays slightly oily after you cut out conventional shampoo. Personally, I scrub my scalp with a cheap drugstore conditioner that meets my ingredients requirements (Suave Naturals).
My big bottle of expensive conditioner cost me about $30 three months ago, and it's not even half finished. My styling products aren't even a third finished. I estimate that once these bottles are used up, my hair care costs will be about $8-$10/month. That sure beats using up three styling products plus midrange shampoo and conditioner every month or so.
And, perhaps most importantly, my hair looks great.
Saturday, January 20, 2007
Vindicated!
Remember how in this post I was all, "I may not know what I'm talking about, but these funds look like losers to me"?
Today, K received two things:
1) Notification that his IRA had successfully rolled over to Smith Barney (this was his parents' doing; now he can begin rolling it over again, to Vanguard), and
2) A call from the portfolio manager there, saying, "Hi, Mr. [K's last name], I'm [his name], at Smith Barney. I'm looking over the records for your Roth IRA, and these funds haven't made you any money. I'm going to recommend..."
I actually felt pretty awesome. A little financial research and a little common sense go a long way.
Friday, January 19, 2007
Friday Feedback
I've seen and liked this feature on other blogs, and mostly I really want to talk about Six Feet Under right now, so I thought I'd initiate a weekly update on what I'm watching, reading, and listening to. I'll offer a "buy or don't buy" recommendation on each. It's like a mini-Consumer Reports.
Without further ado, here's what English Major is
watching: Last night, K and I watched the finale of Six Feet Under, thus completing our sprint through the series made possible by his parents' gift of the full-series gift set. Seriously, if you have any way of getting your hands on this--Netflix, your local video store, the public library, whatever--please do so today. Watch every episode in order. There are two television shows that I really feel have added to my life--not in the contexts of watching them with friends or making jokes about them, but in and of themselves--and Six Feet Under is one of them. (The other is Buffy the Vampire Slayer, and any nonsense about "guilty pleasures" or "teenybopper television" will earn an overacademic diatribe in the comments, so I wouldn't, if I were you.) I love this show. I love it. I've never seen anything that really resembled life on television before, and that's a cheesy thing to say, but also true. I feel like I learned something from this show when it was at its most brilliant, but even when it wasn't, I enjoyed watching it. The acting is superb, the writing sparkles, and the direction is remarkable. Watch it. I suggest watching it with one of the cost-effective methods above before making the purchase leap (because it's worth it to buy the gift set if you like the show, but it's a big purchase), but if none is available to you? Yeah, go ahead and buy it. It's worth it. I promise.
reading: The new ninth edition of A Random Walk Down Wall Street by Burton Malkiel, for a book review on Get Rich Slowly. Naturally, this means I can't tell you anything about it except that it's the first book about investing I've ever read, and I find the experience both interesting and confusing.
listening to: Dave Ramsey podcasts & the Six Feet Under soundtracks. K is a big fan of Sia--he owns an import copy of her first album, which never got U.S. distribution--and feels vindicated by the use of her song "Breathe Me" in the finale's final moments. I wouldn't go out and buy these albums or anything (ours came with the gift box) because no one will like everything that's on there, but there are some great songs. If you're a fan of the show, I'd recommend checking Wikipedia's episode lists, which list the music in each episode, and purchasing via iTunes any of the songs that really grabbed you. The Dave Ramsey podcast is also available (free!) (though it's just one hour's worth, which without commercials is about 40 minutes) through iTunes.
Thursday, January 18, 2007
How Far Will I Go to Save Money?
I'm considering doing the reckless and ridiculous, taking a scary step into the frugal abyss. I'm considering cutting my own hair.
I think I've mentioned that I have lots of thick, fine curly hair. I love my curls. Partially, though, I'm able to love my curls because for the past few years they've been generally well-tended: healthy, shiny, low-frizz, and well-shaped. I do not want to botch a home cut and end up hating my hair like I did at 15.
I'm having a kind of baroque argument in my head:
Adventurous Frugality: I'm haircut-competent; I cut Alice's hair that time! It turned out great!
Cautious Vanity: Alice has straight hair.
A.F.: But that last haircut in [city in which I went to college], the woman just cut it dry until she liked the shape.
C.V.: And then I praised her artistry to the skies for months.
A.F.: If I were still in [see previous], I could get another cut with her. She was awesome. Her cuts were only $40.
C.V.: New York is more expensive. I have money saved for this purpose; I can afford a cut at Devachan. Or maybe, if I'm willing to risk sacrificing quality for cost, Ringlet.
A.F.: I could put that money into my Roth! I could put it towards travel!
C.V.: Or I could put it towards not looking like a teenage girl!
A.F.: A wealthily-retiring, well-traveled teenage girl.
C.V.: A teenage girl with long, shapeless hair. What happened to my resolve to never have long, shapeless hair again? The amazing lady who did the last cut gave it such an awesome, funky shape!
A.F.: Which I could do at home. I watched her. I saw that she was basically sculpting with a scissor.
C.V.: I also saw that she could see the back of my head.
A.F.: If I pooled my clothing and haircut funds, I could more than double my travel fund. Or I could buy a ticket to Burning Man without feeling the pinch.
So far, it's a draw.
Remembering Financial Roots
Today I experienced a rite of passage: I got coffee. For someone else.
I also got $20 worth of bottled water. I can't decide if I found this experience sort of charming in a paying-my-dues kind of way, or just kind of embarassing. Nevertheless, I guess this is why I have a credit card--because I need the money in my checking account, and hopefully, if my (already-submitted) expense report is processed quickly enough, I can pay the credit card bill with my employer's money right away (otherwise, there's enough float in my checking account to cover it for a couple of weeks). Then I'll actually come out a little ahead, because I get reward points (or cash back--I use a Chase Freedom card).
Really, though, what this makes me wonder is when in your adult and financial life you forget that $25 meant something at some previous point. Both of my bosses were a little embarassed and were sure to remind me to file an expense report, but neither one of them thought it was important enough to warn me beforehand that it might come up (so that I could order in on the corporate card, or even just so that I could have cash on hand), and certainly not important enough that they'd open their own wallets and scrounge up some cash (that's how it usually worked in my various internships--the boss would give me cash, and I'd bring back the receipt and the change).
I don't think I ever want to forget that $25 can mean something to someone. It's hard. I know that it's the easiest thing in the world to assume that your baseline is everyone's baseline, that if a $25 bottle of wine is "cheap" to you, it's cheap to me, too (um, not so much). I just hope that as I get older and hopefully freer with money, I can remember that $25 used to be a lot, and that to some people it still is. This isn't really about finance per se--it's about the things to which finance is connected: our worldviews, our assumptions, our treatment of others. I'm not complaining--nothing terrible is going to happen to me even if I don't get that $25 back, which I will, eventually. I'm just resolving to try, in my day-to-day behavior and thinking, to look outside the blinders that my financial situation offers me.
Wednesday, January 17, 2007
Why The Latte Factor Doesn't Work For Me
There have been a couple of good posts lately about David Bach's idea of "the latte factor"--I'm sure you've heard of it, but just in case, it's the idea that cutting down on little expenses here and there can save you a ton of money.
The reason it doesn't work for me is quite simple and pragmatic:
I work from a budget ("spending plan," if you prefer). I budget money for savings at the beginning of each month. That means when I skip a titular latte (bad example--I've cut out Starbucks pretty much entirely; better example: when I bring my lunch from home instead of buying it) I don't "save" money. I can't go ahead and move the $6 price differential between bought and brought lunch into my savings account, because I still have a week (or whatever) to get through on my budget. I just have more money to spend in this category later.
Theoretically, if I brought my lunch from home every day, I'd end up with excess money in the "Work Lunches" line item--this much is true. I would also, however, probably overspend in the "Groceries" category. If that became a habit, I'd adjust my "Groceries" line item up somewhat, and my "Work Lunches" down somewhat and either add the excess to some other line item that needs it or--yes--to the "Savings" category. So while in the short term the "latte factor" might be able to save me $40 or something, in the long run, it's just a gimmicky catchphrase for the not-so-catchy "frugal habits save you money" maxim. But by knowing your own habits and planning for them (as well as maybe pushing them a little towards the frugal end of the spectrum), you can make your savings consistent and substantial.
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.
Tuesday, January 16, 2007
Overcoming Barriers To Financial Sanity, or: What The Hell Is An Annuity Anyway?
As of today, I have a new understanding of the fight-or-flight response that drives a lot of financial behavior.
I spent much of yesterday afternoon and evening with K., trying to sort out his financial situation. On his last trip home, his parents handed over the information on his assets that they've been administrating (administering?). He has a Roth and an annuity, and frankly, either I fail to grasp some complexity of the situation or his parents are not so much on top of the finances. The Roth is at Smith Barney. The manager takes an annual fee, plus has the money distributed over three funds that each have an expense ratio of over 2%. To my (untrained) eye, it doesn't even look like the funds are doing that well. The annuity—well, what is an annuity, anyway? So far as I can make out, it's just designed to beat inflation while keeping you from getting at it, because it earns a pathetic 5% and has all sorts of bizarre restrictions. Suffice to say, it's confusing and looks like not so much a good investment vehicle.
The various frustrations of this day have reminded him of how he got into this pattern of financial procrastination and shed some serious light for me on how many obstacles there are for young people learning to manage their own money.
It's so much harder to switch tracks than it is to set yourself on a constructive one from the start. He has to deal with undoing things as well as doing them. He has to figure out the workings and rules of something he doesn't want to deal with before he can decide which of his various options he does want to deal with.
It's almost ironic that despite all the tsuris, as things go, he's not in a bad position. He's making a plan now, when he's 28, so he won't be living paycheck-to-paycheck anymore, and he has assets to the tune of about $45,000. But the frustration! The confusion and the fear and the anxiety of trying to get all this stuff dealt with is really pretty intense—I got frustrated and confused and anxious just from being in the room. He's only recently gone freelance, and so he's only recently had the financial burden of paying for health insurance—his parents had been helping him out with that, but now he wants to shoulder it himself, and there were moments when the budget I was working up with him just looked hopeless—looked like he couldn't even spend less than he makes, let alone save anything, and I just wanted to cry, I was so frustrated.
This is it—the major barrier. The major barrier is experiencing these feelings, feeling like you don't know what to do, and you can't figure out what to do, and you can't even figure out how to figure out what to do, and the stakes are high and if you don't succeed your life will spiral out of control. This is why K. has put off getting his financial house in order, and this is why lots of people, everywhere, especially young people, who feel like there is some sort of secret adulthood knowledge that they have yet to acquire, put off dealing with their finances: because they don't want to feel these things. And I think it's totally understandable.
This makes me think a lot about the obstacles young people face in taking control of their financial lives and how we can overcome them, but for now, in this specific situation, there are baby steps toward financial peace.
Yesterday, K.:
1) Registered for Mvelopes Personal and established a spending plan that allows him to live within his means while saving for future purchases and for an emergency fund.
2) Opened an account with ING Direct to earn the $25 opening bonus and automated monthly withdrawals from his checking account.
3) Decided to roll his existing Roth into a Vanguard Roth.
4) Decided to take disbursements from his annuity to pay an existing debt and max out his Roth for the year.
This week, he plans to:
1) Set up a meeting with a tax preparer.
2) Roll his Smith Barney Roth over into a Vanguard Roth.
3) Figure out what on God's green earth an annuity is and how it works and if it will actually conform to this plan (see #4 above) and if not, whether it would be a good idea to liquidate it and open a brokerage account.
I think (and he agrees) that the best thing he can do for himself here, and therefore the goal of this process, is bringing his financial life under his own purview. I think that means it may be worth liquidating the annuity and paying penalties in order to put the bulk of its assets into an investment vehicle that suits his goals and does not unnecessarily inconvenience or confuse him. In this case, as in most cases, I think he has to understand his financial position before he can make informed choices about how to improve it. So more baby steps are to come.
Sunday, January 14, 2007
Date Night Tribulations
So after a "date night" with the boyfriend, henceforth boringly-or-elegantly-depending-on-which-way-you-like-to-look-at-it referred to as K., I am $46 poorer. And that's just my half. Good lord.
On the other hand, we saw a pretty good movie ("The Painted Veil"), had delightfully greasy hamburgers, and enjoyed positively superior cake, and did not have to wait for the crosstown bus in the rain.
It's a tradeoff.
And I'll have to be very, very careful for the rest of the week. (I'm concerned because of two social engagements, but perhaps I can cut back enough on lunches that I can make it work.)
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.
Thursday, January 11, 2007
Tax Savings
I got my first paycheck of the year today, which means it's my first paycheck adjusted for flexible spending and 401(k) witholdings.
Previously, my take-home pay was $889. Now, after witholding $80 (7%) for my 401(k) contribution and $35 for my travel FSA, it's coming in at $806. That's $115 on which I don't pay taxes, and thus, about $20 in taxes saved every two weeks, for a projected yearly savings of $520. Not bad. I'll take it.
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.
