Know Your Stuff: Breakin’ Down the Roth IRA

Investing in your retirement has never been more important than it is now. With the current state of the economy, there’s not much of a reason to have faith that you’re social security payments will provide much stability to you in your golden years. With the rising costs of living and pretty much everything else, social security contributions can’t and won’t keep up with inflation, and what may barely pay your bills now certainly won’t pay them when you’re 65.

This leads us to the following, inevitable fallback plan:  start piling up your own source of future income.  Since retirement planning is such a vitally important part of everyone’s long term plan, the government has blessed us with the Roth IRA. Keep on reading for a few basics that you need to know to get started with one:

• A Roth IRA is an Independant Retirement Account which allows you to save money for retirement by contributing a set amount of money per year and letting you earn interest through investments.
• Roth IRA’s currently have a contribution limit of $5,000 a year, considering that your earned income falls below $101,000.
• The major difference between a Roth IRA and a Traditional IRA is that you are not penalized and charged a fee if you take out your contributions (not your earnings) before you retire.
• The Roth IRA is 100% completely tax-free when you make your withdrawals after your retirement age. Kiplinger gives this startling (and inspiring) example: If a 25-year-old contributes $5,000 each year until she retires and makes an average annual return of 8% on her investment, she’ll have $1.4 million saved by the time she retires at age 65. If that same 25-year-old invested that same $5,000 a year in a regular taxable account earning the same 8% return, she’d only have about $1 million after 40 years if her earnings were taxed at 15% federal. That’s more than one-fourth less money than if she’d gone with the Roth.
  

There is really no excuse against opening a Roth IRA account. It will only benefit you and it also offers this additional bonus:

• You are allowed to take out up to $10,000 tax and penalty free to purchase your first home. This is per person, so if you and your significant other both have a Roth IRA, this would give you a $20,000 limit.

To open a Roth IRA Account, you need to first decide what you feel most comfortable investing in. A lot of people choose to go the mutual fund route because it offers a more diverse portfolio (investing in many different industries as opposed to just focusing in on say, real estate). There are a few places where you can open a Roth IRA:

• A bank – this is a good choice if you want to invest in COD’s (Certificates of Deposit) and Money Market Accounts, which are less risky investments.
• A Fund Company like T. Rowe Price or Vanguard is a good choice for mutual funds because you will have a professional choosing your stocks. For these funds, you normally need around $2,500 to start, and they will usually waive the minimum if you sign up for monthly automatic deposits into your account.
• A Brokerage Firm – this is a good choice for a more seasoned investor to purchase individual stocks and bonds. Usually the same $2,500 minimum applies, but these companies tend to charge hefty fees when it comes to each trade and maintaining the account. You should always double check to make sure your fees won’t hurt you.

If you’re young, going the Vanguard route may be the way to go – you have plenty of time to increase your earnings with a much higher return compared to a traditional COD.  It’s also the best way to get a well-rounded and diversified portfolio for your money without paying huge management fees.

But if the idea of calling up an investment company is still a little daunting, set up a meeting with a financial advisor at your current banking institution.  It’s free, and they’ll be able to set you up quickly with an IRA account or at the least, give you a sampling of helpful information to get you started on the right path.

The Worst Debit Card Ever? UPDATED

Capcom, a video game distribution company, is now promoting a new VISA debit card designed to promote Capcom-Unity points for their Accelerated Rewards program to be used for auctions, raffles, and to take advantage of company promotions (like access to Beta tests and priority entrance at Capcom events).   Read more

Recession-Proof Activities III: Bigger, Badder, Harder

So, New Yorkers…how are your finances? If you’re like the majority of Americans riding out the recession wave, penny pinching, saving, and being financial responsible is more vital now than in any other time in our lives. Still, you can have plenty of smile without opening your wallet, purse, or murse. It’s Recession-Proof Activities III, the follow up to follow up to Recession-Proof Activities I and II. Consider this a sequel that doesn’t suck.

Download free music from RCRD LBL: The brainchild of GDGT’s visionary Peter Rojas, the vowel-less RCRD LBL is an ad-supported site that lets users download free, legal MP3s–no RIAA lawsuits up in this piece. The MP3 catalog is a mix of new and established artists (Black Dice, Santogold) who get a cut of ad profits. The icing on the cake? You don’t even have to sign up for an account–point your browser toward RCRD LBL and commence partying.

Resurrect an old notebook with Linux: Have an old PC that chokes, wheezes, and coughs when you power it on? Put it to good use with Linux, a free open source operating system that has less bloat than Windows, so it runs fine on ancient hardware. Linux comes in many flavors, but we recommend Ubuntu which has an easy level of entry for wannabe techies. Simply download the ISO file, burn to CD/DVD, and boot your PC from the disc.

Check Out the NYC Public Library Cultural Calendar: If you’re looking to take in some learnin’, the NYC Public Library is here to help. The institution hosts lecture series covering a range of topics from business to science in various locations around the city.

Get A New Do–For Free!: The hair stylist ninjas at Bumble & Bumble (the salon to the stars), have to start somewhere–and the somewhere is Bumble & Bumble University. There the students learn to trim, dye, and cut with real human heads. Sign up, get styled, and take pride in knowing you’re assisting stylists-in-training make steps towards their dreams — and get a kick-ass hundred dollar haircut for nary a dime (they don’t accept tips).

Take A Ride on the Staten Island Ferry
The Staten Island Ferry shuttles 20 million people a year between St. George on Staten Island and Whitehall Street–without charge! Enjoy the terrific view of Ellis Island, Lady Liberty, and the city’s skyline as you cruise one of NYC’s most under-appreciated modes of transportation.

Sit In on a TV Show Taping
Many popular TV shows are taped right here in NYC such as the Daily Show, The View, The Colbert Report, Letterman,  and SNL,  and it won’t cost you a thing to sit in as a member of the studio audience. Tickets, naturally, can be hard to come by so you may have to call/request them online several times to nab one (or even stand in line outside of the studio in hopes of copping the seat of someone that’s canceled).

That’s Recession-Proof Activities III for you. Keep those eyes peeled for more freebie activities that will put a smile on your face no matter if you’re home or out on the town.

Redneck Bank: Makes Bankin’ Funner

Looking to make banking a little more “funner”?  Thanks to Redneck Bank, that’s now a possibility.  We found out about this new addition to the finance world from Tricia over at Blogging Away Debt.  And even though it’s name sounds more like a harebrained scheme than a legitimate business, that’s exactly what they are. Read more

5 Tips for Surviving on Peanuts

Before paying off my debt, I had always been one of those people who make the mistake of increasing their expenses each and every time I received a raise. Instead of being able to enjoy (and notice) the extra money coming my way, I’d throw it into a more expensive apartment, a subscription to cable – something to suck my money away before I even had a chance to notice it was there.

That was until I decided to really bunker down and get my bills paid.  This decision catapulted a series of major life changes, and consequently ended up with me living on half of my salary — the other half going straight to the bill collector.  Keep reading below for five tips that I put into use while living on a shoestring budget on half of my salary.

1.  Downgrade your Living Expenses – Unless you’re pulling in six figures annually, you can’t live on half of your salary and live alone.  I had to bite the bullet and take on two roommates — but I ended up getting a much bigger space in a super chill neighborhood — all at about half of what I was previously paying.

2.  Buy Food in Season – I existed on lots of vegetables — and still do.  They’re cheap, healthy, and can be prepared in a variety of ways.  By picking up stuff at my local supermarket (broccoli, tomatoes, carrots, rice, beans), I could usually pick up enough food to last me a week (lunch and dinner) for $20.  To really get the most bang for your buck, buy large bags of dry bulk — i.e. rice, beans and pasta.

3.  Cancel Cable and Other Miscellaneous Subscriptions – There are way too many ways to be entertained nowadays for free.  We’ve listed a ton of them in our Recession-Proof Activities lists, but there are still many we haven’t covered.  There’s no reason to pay for cable, net-flix, and video game rentals when you can do the same thing online for free.

4.  Surround Yourself with Positive Reinforcement – I found that the best way to keep myself from slipping up with my financial goals was to become part of an online community that had the same mission.  I read personal finance blogs, participated in online forums, and swapped tips with other readers and writers.  This gave me consistent new ideas on how to save money and the desire to keep at it.

5.  Take Advantage of Free Personal Finance Management to Monitor Spending – There are a ridiculous number of personal financial management tools on the web now for people to track their spending habits — meaning there’s absolutely no reason for anyone to not be monitoring their spending.  I personally use Mint, but there are quite a few good web-based programs out there to choose from.

Mixing Morals and Debt Management

Getting your debt under control isn’t something that comes easily or quickly.  It’s a long, arduous process, not unlike a diet, that requires constant attention and focus.  For many, it’s the same process that starts and stops each year, a declining goal once the initial excitement has worn off.  But if there’s ever been a year to shore up your finances, 2009 is it.  So to make sure there’s no backsliding, we’ve mixed some time honored morals into the process to help you stay abreast of your financial objectives this year.  Keep reading for four fundamental values and how they should tie directly into your debt management goals.

1.  Discipline

You must constantly keep yourself consistent on monthly payments.  Just like that one slice of pie can throw off your new year’s weight loss resolution, so can one missed student loan payment throw off your debt repay schedule — and mentality.  You’ll make it that much easier for yourself to miss a payment in the future.  The best way to curtail this is to sign up for automated payments.  Don’t give yourself the option of cheating.

2.  Honesty

Being honest with yourself is extremely important not only when paying off debt, but with your personal finances in general.  When I was throwing back payments on my credit card and student loans, I would get a little too optimistic about what I could really afford to chuck at my debt each month.  And in those cases, I would find myself almost penniless at the close of the next pay period because I wasn’t honest with myself about what I could realistically afford to put towards my debt.  It was all done with good intentions, but when those instances occurred, I found myself borrowing $20 or $30 from my savings or overdraft accounts to cover the days remaining til I got my paycheck.

3.  Moderation

You can’t have your cake and eat it too.  If you’re really serious about being in good financial health, you have to make sacrifices.  And with sacrifices comes moderation.  Growing up in a time when a good majority of us were given whatever we wanted, this can seem like a painful cutback.  But it’s worth it.  I cannot count how many times I’ve gone out to lunch and along with a salad or sandwich, have picked up something extra like a brownie or a candy bar — something that pulled an extra couple of dollars out of my wallet just because I thought I may want it later.  It’s not necessary, and those small daily expenses really add up over the long haul.

4.  Dignity

Being financially aware and responsible is something to be proud of.  Rather than hoard worthless material trinkets to feed your pride, focusing on productive and worthwhile goals will give you a higher sort of accomplishment and self worth.  Practicing the art of self-discipline and frugality is difficult enough, but strengthening personal growth endeavors will bring you an unobjectionable sense of pride and accomplishment when you succeed in paying off your debt and reaching your financial goals.

Don’t Get Scammed! (Like I Did)

With all of the bank mergers and acquisitions taking place right now, many people are getting tons of updates from their banking and credit card companies regarding the transitions to other companies and new policies and procedures.  Read more

Recession-Proof Activities: Part II

The recession continues. In these tough financial times, penny-pinching is essential, but that doesn’t mean you can’t live it up. We’ve once again rounded up some of our favorite low-cost activities (you can find our original recession-proof list here) that are sure to bring a few smiles while keeping the debit card in pocket.

1. Chuckle It Up at UCB Theatre: The recession is taking its toll on Americans pretty hard, so why not get out for a few giggles? UCB Theatre, a staple of New York’s comedy scene, hosts “School Night” where those in dire needs of laughs can take in new, experimental improv, sketch comedy, and stand up for absolutely zero dollars. That’s right, zero, zilch, nada. The one caveat is that it tales place at 11PM on a Wednesday night, but hey, many of us aren’t waking up for work on Thursday morning anyway.

2. Get Your Game-On With Gametap: Thanks to the breakthrough success of the Nintendo DS and Nintendo Wii, gaming has expanded its scope beyond basement-dwellers to bring joy to the mainstream. With so many new gamers on the scene, we suggest checking out some of the classics courtesy of Gametap (compatible with both Mac and PCs). Although the meat of the Gametap’s library reserves are available only to subscribers, there are awesome freebies like Bubble Bobble, Final Fight, King of the Fighters ‘96, Metal Slug 2, Neo Turf Masters, and Street Fighter II: Champion Edition. Please note: some of the free titles are siphoned into Gametap’s premium area, so the content may vary from month to month.

3. Watch Public Domain Movies: Remember those old, campy black ‘n white monster double features that you used to watch on weekends as a kid? Many of them have fallen into public domain and are available as free downloads from moviesfoundonline.com. There you’ll find cult classics like Carnival of Souls, Attack of the Giant Leeches, House on Haunted Hill, Hercules vs. The Moon Men, and more. Take that, iTunes!

4. Read Some Books…Google Books, That Is: When Google Books Search fist launched a few years ago, it came under heavy fire from publishers who didn’t want their content available online for free. Fast forward to the present, and Google and the various publishers are working hand in hand to deliver loads of good reading to you for free. There are many sample chapters of books currently on the market so you can try before you buy (or hit up your local library). One of the best aspects of Google Book Search is the deep back catalog of magazines: you can read full issues of Baseball Digest, Jet, Prevention, and other ‘zines that have a few years age on ‘em.

5. Join the Secret Science Club: The Secret Science Club is a free science lecture and arts series, that’s open to the public. The high-end geek gathering meets the first Wednesday of every month in the basement of Union Hall in Park Slope, Brooklyn.  Their website has a long list of interesting past speakers like Leslie Vosshall, Neuroscientist at Rockefeller University and Paleoanthropologist, William Jungers.

6. Sit In On Barnes & Noble’s Author Readings: Every month B&N has authors that come in to promote their newest books by holding readings, Q&A sessions, and signings — all for free.  For instance, John Grisham will be promoting his latest novel “The Associate” on January 27th at 7pm at the Union Square Barnes and Noble.  You can check out your hood’s calendar here.

Free Suze Orman eBook: 2009 Action Plan. Keeping Your Money Safe and Sound

I was checking out the blog Full-Grown Single when I came across a link they had to a free download of Suze Orman’s latest book, 2009 Action Plan: Keeping Your Money Safe and Sound. The new book, which debuted at No. 1 on the New York Times Bestseller list, gives readers a heads up on how to take care of their money during 2009 and how to navigate financial pitfalls in the upcoming year. Read more

Coping with Crushing Student Loan Burdens

I’ve been reading more and more stories lately on how the high interest loans are putting an extraordinary burden on recent graduates paying off what they thought were federally controlled student loans. These loans were extended via private companies, but carried variable interest rates that, like a lot of mortgages, fluctuate with current interest rates. The ending result? Sky rocketing interest rates on loans for tens of thousands of dollars and none of the benefits you get with federal student loans like deferment and locked-in rates.

The LA Times published an interesting article about a young woman who recently graduated with a degree in photography. After taking out $140,000 in loans, she now has to pay out $1,700 a month towards these loans. And with some of these loans at a debilitating 18% interest rate, paying $1,700 a month isn’t going to go all that far.

To give a frame of reference, if she had taken out the entire $140K in private loans at 18% interest, she would have to chuck away $2,010 a month towards her loan, and then she would only be able to pay it off (at that same rate) after 30 years, all the while racking up a total bill of $618,464 — almost five times the original amount! Add in a missed payment one month, and you can see how this issue is gaining momentum as one of the most serious problems for new graduates — coupled with low employment rates.

While I think that loaning organizations are practicing dubious policies and purposely muddling the information that is given to the students who apply for loans, I also believe that a large part of the blame should go towards schools for not educating students on how to effectively finance their college education and what to realistically expect after graduation. FinAid, an online comprehensive financial aid guide, says that a good rule of thumb for taking out loans is that “…your total education debt should be less than your expected starting salary.”

I think that most students would pass up $100,000 in loans for a photography degree if they understood that they’d likely be making less than $40,000 in their first job after school. It’s unrealistic to think that a six-figure loan will be easily paid off after school unless you’re diving into a career in banking — and I don’t think that colleges are cementing this understanding to their students. According to a quote from the LA Times’ piece, Luke Swarthout (a former advocate at the U.S. Public Interest Research Group) said “The students think it’s an investment in their future, and the colleges are willing to let them borrow heavily because it helps them fill in their enrollment.”

I, for one, was never required to take any classes or lectures on how student loans work or where to look for financing. It was just assumed that you would take out loans and they pretty much had the paperwork ready. All they required was a signature. I guess I was lucky that I did indeed have a Federal Stafford Loan with a locked interest rate of 6%. I also went to a state school with relatively low tuition, so my student loan bills were far less of a burden than many of the students that I’m hearing about now.

So, just for argument’s sake, where do you guys believe the fault lies? Is it in the hands of the private loan sector for purposely providing confusing information and not disclosing full loan amounts? Does the blame go to the college for not providing better financial aid counseling? Or does it belong to the students for being too naive when agreeing to these terms?

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