I’ve Paid For This Twice Already…

Frugal living and debt reduction tips for a better financial future. This is one family’s story.

Archive for the ‘personal choices’ Category

4 Good Reasons Why You Should Open and Invest Actively in an IRA

Wednesday, September 25th, 2013

An individual retirement account, or IRA, is one of many possible savings avenues that you can build toward your retirement. IRAs put the investment decisions on the account holder, you, so you’ll need to educate yourself on some investment basics before you start. If you’re under 50, you can contribute up to $5,500 of your income to an IRA tax-deferred each year. Check out Sunwest Trust, Inc., for more information on updated IRA contribution limits. If neither you nor your spouse can take advantage of a retirement plan through your workplace, then any contributions you make are deductible from your tax returns.

You can also contribute to an IRA whether you have a retirement plan through your workplace or not assuming that you have an earned source of include. In general, if you want to help build extra savings for the future, then IRAs are one of the most flexible individual savings plans that you should consider.

1. Liquidity

Most workplaces offer some form of retirement or pension saving plans to go along with other benefits of your employment. If you’ve been employed for most of your life, then your savings might be locked up in a pension account that may have additional restrictive rules limiting when you can pull out your funds for such things as a down payment on a second home or on a new car. Worse yet, you may be locked into a low rate of return and further limited as to where and when you can invest those funds.

2. Self Managed IRA Arrangements

While attempting to grow your nest egg, a self managed IRA arrangement provides you a host of additional non-standard investment options to invest in, so it’s possible to benefit in more ways than one. Since you are not restricted to public offerings, you should research private ventures to see if there are any companies that you like and could be profitable. It’s just like a venture capitalist looking to get in on the ground floor of a brand new business idea, your IRA can help a promising business grow by pumping cash into it early during its lifecycle. If your investment is successful over time and depending on your contractual arrangement and the profitability of the venture, then you may stand to gain a nice return on your investment.

3. Individual Investment Real Estate, Not REITs

Buying an investment property with an IRA may be one of the investments that you would like to do with your retirement funds. It can be a long-term investment that you can sell whenever you’re ready, and you can put money into it to increase its value. With self directed control of your retirement plan, it places you in charge of the direction of the investment activities and opens up the real estate market to you as a possible investment opportunity. You can use the funds not only to buy an investment property, but also you can draw on funds within the account to improve the property. When you’re ready if you have purchased the investment property right, you have done your homework and know the market, then you can hopefully sell your asset for a decent return.

Single-family investment property isn’t the only potential market up for grabs. Assuming you are savvy enough, investing in an apartment complex can give you long term income as you age. Although, you will need to devote IRA resources toward maintenance and repair, you can use the property for rental income to build your retirement savings account.

4. More Diverse Investment Options, Including Franchises

Your IRA can also help you get involved in other alternative investments that are outside the standard model of owning the traditional stocks, bonds, mutual funds and REITs. Investing your funds in a franchise may give you the chance to own an established business in a highly trafficked area, and it can be great for building your retirement savings, so at or after the age of retirement you can build up enough cash to replace your job income. One thing that should be pointed out before investing in a franchise, is that most franchises is that although they are proven, they also can take three to five years for you to see returns, so you must be willing to wait sometime to see a return on the investment. However, if you are patient and are willing to take a risk, then you could wind up as a big winner.

Save Now for the Future

For the forward-looking person, an IRA represents a temporary tax haven during your working years to divert a portion of your personal income into savings on a tax-deferred basis. An IRA gives you lots of options for controlling your money and building for your retirement and hopefully it inspired you to learn more. Can you think of any more reasons to open an IRA? I’d love to hear about them in the comment area.

4 Smart Ways to Spend Extra Cash

Friday, April 19th, 2013

So you finally went ahead with the decision of putting yourself on the budget and you see that extra cash trickling in each month. Now depending on what type of financial goals you have in your budget, there are many, many options. Each of these options could be good or bad to you in their own way. So what do you do? How do you avoid the confusion? Let’s look into a few constructive ways to use that extra money effectively…

#1: Pay Down Your Credit Card Principle

You know how it’s super-annoying to keep paying on a monthly basis and still not see your credit card debt disappear? So instead of just sticking to that, use your extra cash go above and beyond your minimum monthly payments. Every little step that you take towards your debt-free goal will help you achieve it sooner. Remember, the extra money you have should be used constructively so that you’re able to live a life with peace of mind.

#2: Start Your Own Rainy Day Fund

There are times and situations when things happen unexpectedly. It could be you losing your job, facing any life emergencies or having your car break down. By having savings saved with you, you actually make things easier for yourself. Your rainy day fund typically should be able to pay your living expenses for at least 6 months. It’s okay if you already don’t have that much saved at the moment because it obviously takes time/effort. However, considering that fact that more than 25% American works don’t even save anything, you’re already ahead by saving whatever little you are right now.

#3: Do Some Minor Home Repairs

Upping the value of your house should be one of your topmost priorities. Regardless of what your goal is in the long run, you should do things to improve the house’s value in the long run. And carrying out some small home repairs and fixing around your home will definitely help in increasing its value. But besides this obvious benefit, there could be other reasons too. For example, when you fix your leaky window casements, it can help you save cash on your utility bills. This is a good way to put your money to effective use, without having to worry that it’s getting wasted.

#4: Carry Out Smart Investing

A lot of people tend to ignore the power of investing. It’s a smarter way of saving. Just the way car insurance helps you get peace of mind, the extra money you have can be put to good use and help you get returns if you use it properly. Right from sending your extra cash to your 401(k) to opening a Roth IRA, you can do some intelligent investing and improve your chances of having a financially secure future. Even investing in a mutual fund works great. All of this helps in contributing each month. And as always, consistent saving over time will definitely pay off big time.

There you go! Simple and easy ways to not only spend extra cash that you might have and get the best returns on your investment. So what are you waiting for? Go ahead and start spending the smart way!

Why You Should Teach Your Kids Personal Finance Now

Monday, May 7th, 2012

Consumer debt, aside from obesity, is one of the biggest woes facing the average American today. Those suffering from thousands upon thousands of dollars of credit card debt, over the top mortgages, and high car payments generally have their lacking financial knowledge to blame. Credit seems to be easy money, and very few are able to determine how much such purchases will cost them in the end.

In today’s education system, finance or personal finance courses are not required in most schools. This leads to entire generations without the slightest idea of how to properly manage their money. To ensure their financial future and good spending, parents should be quick to teach their kids about good personal finance – even at a young age, just like they would good eating or personal hygiene habits. A few good ways every parent can teach their kids good personal finance include:

Practice Budget Creation

When you have to take the little ones with you to the store, don’t let them simply scour the aisles looking for their favorites cereals and snacks. Turn that time into a personal finance lesson. Before heading to the store, give each kid a set budget and a list with a few items from your list on it. Then tell them they must get what you need on the list within their budget. It’s a great way for them to learn to shop on a dime, and to not always reach for higher priced name brands.

Proper Allowance Management

For younger kids, teaching money management through allowance is a great way to mimic real life spending and savings. Their allowance is the real world equivalent to a paycheck, and they need to know how to properly earn and save their money. Make certain chores worth certain payouts, and teach your kids how to properly save parts of their allowance so they can make bigger more worthwhile purchases.

Open Checking and Savings Accounts

For older children, especially those interested in working outside of the home, you should encourage them to open both a checking and savings account with a local bank. Let them know about banking fees and interest rates, and encourage them to shop around for the bank that will be best suited for them.

There can be a strong difference between opening a savings account with a credit union and choosing a Discover savings account.  Kids need to learn at a young age how to make their bank accounts work for them, and having them shop around to find a great high interest savings account in a great way for them to learn.  Not only will they learn the importance of a higher interest rate, but they will learn about compound interest and how choosing that high interest savings account over a regular account will actually make their money work harder for them.

Prepaid Credit Cards

Whether you like it or not, there is a good chance that your kid is going to have to encounter credit cards if they wish to build and maintain good credit. So that they don’t sign up for the first credit card that offers a free pizza upon signing in college, teach them about credit cards and the interest rates and fees that are commonly associated with them.

A good way to do this is by giving them a prepaid or limited credit card while they are still under your roof. These cards essentially serve as practice cards and can enforce good spending habits without letting your kid get in over their head.

We all want the best for our kids, and although our focus is generally on getting them into a good school and insuring their health, parents also need to take the time to focus on proper financial education. Not only with teaching proper finance skills keep your kids from becoming a consumer debt statistic, but it will also allow them to achieve their future financial goals more easily.

Choice #5: Why My Credit Cards Remain in my Wallet

Monday, January 14th, 2008

Over the past month or so, I’ve gone into detail about some of the specific choices of our debt reduction journey, and why we’ve decided to do the things that we do in the way that we do them. I’ve talked about saving for college, paying off a 0% credit card well before the 0% offer elapses, the $1000 emergency fund, and paying off debts in interest order vs size order. And yes, I still believe that the $1000 emergency fund was the right choice for us at the time we made it, even with the recent emergency-fund-draining car problems.

The next personal choice I’ll discuss might be one of the most polarizing, or it might not really make a difference to anyone – who knows. :) I carry my credit cards in my wallet. In fact, so does my spouse. I have taken them out on occasion and kept them in my drawer, usually when I’ve felt like I “should” because that is the prevailing wisdom when you’re getting out of debt, but I’ve always put them back. I have three basic reasons, one of which my spouse actually shares with me.

I’ll start of with the one I think is kind of the oddest, but yet it is a reason anyway. If I have them in my wallet – I feel like I have them under my control. They aren’t just randomly stashed somewhere, or destroyed and the numbers are just out there in the universe. I know where they are, and I know where to find them. This makes me feel less nervous about my identity being stolen. It may sound strange, but it is true. If the numbers were just out there and I had no tangible record of them, I feel like they are more vulnerable to being ripped off. Honestly, typing that out, it seems odd, but it is how I feel. My spouse had his identity stolen several years ago and I’m still not over it. ;) However, this isn’t the reason my spouse carries his.

Second, honestly, I just don’t need to take them out to not use them. Different people have different ways they need to deal with things. For me, I was okay just deciding not to use them anymore. I was never really an “impulse” credit user. I always knew before I even started shopping if I was going to use credit or not. I just wasn’t a responsible user. And I did a whole lot more damage to myself with those credit card convenience checks than I ever did with the actual card.

Third, they serve their purpose as the “just in case” strategy. And I’m not talking about as an emergency fund – even when we decided to use credit in this recent emergency, we didn’t do it impulsively by whipping out one of our credit cards, it was a deliberate process that ended up not involving any of our existing cards. The “just in case” I mean is “just in case” our debit card stops working. This actually did happen, and we were fortunate enough to have it resolved before we would have had to use credit, but if it had happened when we were already on our trip instead of just starting on our trip, we might not have been so fortunate. At Gather Little By Little, glblguy talks about setting up a second bank account to serve this same purpose, and that might be something I choose instead in the future. At this moment, I’m still balancing keeping as little money as possible in my pocket and as much of it thrown at debt reduction as I can, and I think that the debit card not working is unlikely enough that I’d rather use my credit card as the backup plan. Oh and for those keeping score, this is the reason my spouse carries his.

In summary, I feel better knowing exactly where they are and honestly, I don’t think about them all that often. I think about the debt, but the cards themselves? I don’t give them much thought. So for me, being in my wallet doesn’t make their use more likely to happen. To each, indeed, their own.

This does not mean I think everyone should carry their credit cards. We all have our own spending triggers, and the key to navigating this is knowing what yours are and avoiding them. I can’t carry cash. I just spend it on randomness. I’d end up much further in debt if I just took all my money as cash and carried it around. I’d end up having to use credit to pay my bills and all would not go well. That’s the devil I have to eventually conquer.

Are you in debt? Do you carry your cards? Or have they gone through the shredder? Leave a comment and let me know! :)

Choice #3: Contributing to College Accounts

Monday, December 24th, 2007

Yes, we’re in debt. We’re getting out of debt, but we’re nowhere near there yet. With one exception (our car loan), all of our debts have much higher interest than our savings accounts earn. And yet, I am still saving a modest amount of money each month in two special accounts. Those accounts are college savings funds for my kids, and unless some drastic circumstance happens, I will continue to faithfully contribute to each of them.

I know all the arguments by heart. I know that the interest I am earning is not as good as the interest I would save by paying down debt. I know that my kids can get loans for college (in fact, my spouse and I are living proof of that, years and years after our respective graduations…) and we can’t get a loan for retirement (we do save a bit for retirement too). I know that if I focus everything into debt reduction, I can make up for it later with larger contributions to their accounts.

I have two reasons why I keep putting money away for my kids college. One is that I am just enamored with compound interest. The whole idea of it, and making it work for me, is a lure I just cannot completely ignore. I can’t help but want to make that interest work as long as possible for me and my children.

The other reason is a much less tangible one and very much tied into the emotions of my spouse and me. Because I grew up in a lower-income household, where my parents were making barely enough to squeak by, even by financial aid standards, I qualified for need-based scholarships from the college of my choice. I was able to go to my first choice school simply because we were poor and I chose a small liberal arts college that has a large endowment and need-based funding for students. My spouse wasn’t quite as fortunate. His parents were in a higher income bracket than mine, but had a similar amount saved to go towards his education (read that as not too much). He didn’t qualify for near as much financial aid, and ended up going to a large state school instead of his first choice. Now was that a bad thing? No one can judge that and go back in time to see how it might have turned out if it was different. But what I do know is that over a decade later, this is still something that my spouse is not happy with. I know if all else was equal, if he could go back and go to his first choice school instead, he would. My children will have to make some hard choices in life, this I know. But as far as a college education, I want to as best we can, try to give them all the options that we possibly can.

Now, I am not sacrificing our entire future for the sake of our children’s. I save a very small amount per month each. Once we are out of debt I plan to up that significantly, but I will also be upping our retirement savings and by a bigger margin. I won’t be able to save every penny they will need for any school they choose, but I plan to try and do the best we can. It is important to me that my children consider the idea of going to college – and if *I* want them to do something so expensive, I feel I should contribute to that monetarily as well.

I do need to establish 529 accounts for both of the kids though vs the savings accounts I currently use. I have been procrastinating simply because the idea is new to me and it makes me nervous – I am a creature of habit and disrupting my routine and branching out makes me edgy. 2008 will be the year of the 529. This I decree. I need to harness better compound growth ASAP.