Snowballll Fiiiiight!

Honey, it's snowing outside!

In the spirit of snow, I thought I would write a post on snowballing. Ironically when I googled this, some really ridiculously nasty sexual practice came up...please note, I will not be discussing that type of snowballing in this post. I learned about this concept back in grad school. Snowballing is a popular method of paying down debt quickly and has been made popular by Dave Ramsey, a financial guru type fella with books and his own tv show. It's the concept of paying down debt by paying off the smallest debts first and eventually allowing your payments to snowball to become debt free.

Here's Dave explaining the Debt Snowball:


hahaha gotta love Dave's enthusiasm. So it works like this: (this is a simple example I got from wikipedia that does not take into accruing monthly interest)

A person has the following amounts of debt and additional funds available to pay debt (the debt is listed with the smallest balance first, as recommended by the method):
Credit Card A - $250 balance - $25/month minimum
Credit Card B - $500 balance - $26/month minimum
Car Payment - $2500 balance - $150/month minimum
Loan - $5000 balance - $200/month minimum
The person has an additional $100/month which can be devoted to repayment of debt.

Under the debt-snowball method, payments for the first two months would be made to debtors as follows:
Credit Card A - $125 ($25/month minimum + $100 additional available)
Credit Card B - $26/month minimum
Car Payment - $150/month minimum
Loan - $200/month minimum

After two months (presuming the person has not added to the balances, which would defeat the purpose of debt reduction), Credit Card A would have been paid in full, and the remaining balances as follows:
Credit Card B - $448
Car Payment - $2200
Loan - $4600

The person would then take the $125 previously used to pay off Credit Card A and apply it as additional payment to the Credit Card B balance, which would make payments for the next three months as follows:
Credit Card B - $151 ($26/month minimum + $125 additional available)
Car Payment - $150/month minimum
Loan - $200/month minimum

After three months Credit Card B would be paid in full (the final payment would be $146), and the remaining balances would be as follows:
Car Payment - $1750
Loan - $4000

The person would then take the $151 previously used to pay off Credit Card B and apply it as additional payment to the car loan balance, which would make payments as follows:
Car Payment - $301 ($150/month minimum + $151 additional available)
Loan - $200/month minimum

It would take six months to pay the car loan (the final payment being $240), whereupon the person would then make payments of $501/month toward the loan (which would have a $2800 balance) for six months (with the last payment at $234).

Thus in 17 months the person has repaid four loans, with two of them being paid in a mere five months and three within one year.

Now the point of snowballing is to pay debts off in the order of balances. There is also something called avalanche-ing which pays debts off in the order of interest. The differences between these two methods is that you pay more interest but pay debt off quicker with snowballing and you pay less interest and it takes slightly longer with avalanche-ing. Another reason snowballing is favored over avalanche-ing is because, mentally, you get a sense of encouragement from paying off debts every few months.

Linked here is a free spreadsheet that helps you keep track of your snowballing debt plan (complete with tabs and formulas already there). Click the download now button on the right.

This is REALLY useful if you're trying to get rid of multiple debts. Snowball away!

Rent vs Buy

Came across this interesting equation on CNN Money.

I know I've struggled with whether I should continue to rent or buy a place. I've stuck with renting because I'm not quite ready to be completely settled. I'd like the option of being able to pick up and move quickly, without having to worry about a property somewhere. Not sure if many of you have gone through the pros and cons of renting vs buying now that you've begun your career, but here's a cool way to know whether it's smart for you to buy versus rent according to the housing market.

Purchase price of a home

                                        _______________________       =     Rent/Own Ratio

Annual rent of a similar property

If this ratio is less than 15. You should buy. If it's over 15, it's probably financially better to rent.

The CNN feature went over 12 cities in the U.S. and whether it's smarter right now to rent or buy. Unfortunately Chicago wasn't on the list, but it's still cool to see the cities in case you're ever looking for a move.

Tax Tantrum Tuesdays: What is the point?

Tax convos between myself and close friends are revving up as tax season is well underway. One thing I've noticed...time and time again, is that people don't really understand the purpose of the infamous tax return. More specifically they don't know that doing it "right" means owing $0 and getting $0...it means paying in exactly what you owe.

Nowadays I get annoyed when I hear folks say..."Girlllll, I can't wait for my refund!" The point of the tax return is NOT to have a refund. Of course that is more desirable than having to owe but the most desired outcome is to owe nothing and receive nothing. You think I'm crazy...hear me out.

So when you start a job, you fill out a W-4. It asks you to specify how many allowances you want to claim for your federal and state withholding. For most single folks with no dependents we put 0 or 1. Sidenote: you can actually put whatever number you want. hahaha. For some reason I remember someone telling me I had to put 0 or 1. Now I know that's not true. I can't put 5 if I damn well please...but that would be very dumb. 

Anyway, what exactly does this number mean and what does it control? That number tells the government how much money to take out of your check every pay period for taxes. By law, everyone has to pre pay at least 90% of their taxes throughout the year (or an amount equal to 100% of your previous years taxes). Sorry, that was technical. In short, that just means, if you wanted to just have no money withheld from your check and write the government a big fat check in April for whatever tax you owe, you could be assessed a tax penalty because by law you have to pay 90% of that tax throughout the year. So this rule is why we even have federal taxes withheld from our checks in the first place.

Now, for the fun part. The lower your federal allowance (remember the 0 or 1) the MORE money the government takes out of your check. This means if you're 25 with no deductions and you practically get taxed on all of your income then you should probably be at 0 or 1. But if you're a 25 year old who owns a home and contributes tons to charity (thereby racking up let's say $20,000 in itemized deductions), you know that your taxes are going to be lower...so you might hike that allowance number up to 2 or 3. That's what you're supposed to do. Now let's talk about what happens when you ignore these facts and decide you're gonna cash out every April.

See you think you're smart...but the fact of the matter is the government is smarter (and then there's me of course...the smartest teeheehee). The government has you GEEKED UP because you get this huge check in April...but what you don't know is that, THAT check is of total benefit to them and not a lot of benefit to you. I know this is getting good right.

 Let's say you're the 25 year old with a house and you contribute tons to charity. You have itemized deductions of about $20,000 but you leave your allowance number at 0 because you want to have a fat return. Let's say tax time roles around and your accountant tells you that you're getting a $7,000 refund on the money you overpaid in taxes...you're elated...money money money monayyy. Wait a min...SAY WHATTTT? I overpaid the government? You mean to tell me, there was $7,000 I could have been getting in my paycheck over the course of the last year (if you get 24 paychecks a year that's an extra an extra $291 PER paycheck you've been missing out on) but I basically let the government hold a 0% interest loan (from my broke a$$).

Does that make you feel dumb? It's okay, I still struggle with being excited about the little refund I get. The government is basically getting a free loan up outta ya. Holding on to your overpayment for 12 months (well actually 15 months if you count Jan-Mar of the next year) and not even paying you interest!

Now some of you ambivalent folks who don't want to believe that your tax refund in fact is not the best thing since sliced bread may say...so what?! I mean regardless of whether I'm getting it in my paycheck (extra $291 each paycheck) or all at one time ($7,000 tax return)...at least I'm getting my money.

Well for youuuu...let me tell you like this. TVM. Time value of money. #1 rule of finance...a $ today is worth more than a $ tomorrow. Actually the only thing I really remember from finance...lol. If you took that $291 each paycheck...deposited it into an investment providing an 8% return (for the sake of simplicity let's just do simple interest) you would end up with $7,560 at the end of 12 months. You are more than halfway on your way to some red bottoms with an extra $560! So now, think about it like that.

This has gotten long so...

Let's recap: What is a tax return? A loan you've given the government...that they hold on to...interest free...for 15 months...and then give it back to you like they're doing you a favor.

Now, trick question, what should a tax return be?

$0 and [almost] a pair of red bottoms. Woot woot! #pow

Til next Tuesday....

Deeper in Debt

So...my previous post regarding my personal student loan debt and my personal sentiments about it brought about a lot of feedback. Most of it positive...many people can relate to the struggle of student loan debt and find it encouraging that I'm talking about it. Some of it negative...well momma Speedy Spender didn't really appreciate my complaining about my blessings...or putting my business out there. I chalk part of that up, actually no, most of that up to the generational gap...and I'm moving on. Luckily, because I've had such an outpouring of support from my peers and readers, I know that I'm doing something right here.

Anyway, I want to delve deeper in debt...specifically calling attention to this "Student Loan Bubble." Firstly, I want everyone to understand that the purpose of my last post was not just to complain about my student loan situation (ha. who am I kidding...okay maybe partially it was), but instead to provide a snapshot of the seriousness of the student loan matter from someone who is actually in it. Furthermore, through writing my story, I have become much more intrigued by this "Student Loan Bubble" that some suspect is currently brewing and how this is going to impact the economy IF this bubble does in fact burst.

Take a look at this:




And this:


Dude...this mess is crazy. How are you feeling about it? What do you think will ultimately happen? I'm not completely willing to jump onto the "this is going to turn out just like the housing bubble" bandwagon yet...but I'm definitely not confident that we haven't gotten ourselves into a ton of trouble here. But what is the solution?

College prices have sky rocketed, partially due to how easily colleges saw students getting money to pay them. Hey why not up the prices, these students have somewhere to get the cash from! If student loans become more difficult to get does that necessarily mean lower college tuition or just less people going to college? But...is less people going to college a totally horrible thing? I've read that the difference in income for a college grad versus a high school graduate is about $7,500 per year. Now I paid more than that this year alone in my student loan INTEREST. Granted that $7,500 probably becomes exponentially larger as we go farther into our careers...it still goes to show that while college is in fact an investment...it isn't always a good one. I think in all of this student loan talk...people have forgotten about one verrrrry important component of any investment...

ROI.

And with that...all I have left is...

Go Bears!

This is my story...

Placing the Blame as Students Are Buried in Debt

That's a link to this awesome article. Yes, the article is long. But it's my exact story. To the tee. Find and replace New York University (NYU) with University of Michigan (UM), up the salary a lil bit, and up the monthly loan payments toooo....

Okay let's start over.

Speedy Spender, what would you consider the biggest mistake of your life so far?

My school loans. It's such a conflicting feeling. I loved attending Michigan. I miss it, everyday. I was challenged, I learned a lot, met some great peeps, grew A LOT as a person, and thoroughly enjoyed myself. But if I had a choice to do it alll over or walk away and leave all of those great things I gained behind, I'd walk away.

Moment of clarity: I'm pretty ashamed of the amount of student debt I've racked up. Why? Because I don't think it accurately reflects how smart I actually am...which pisses me off. I'm okay with telling people I'm around about the $100,000 mark. But I think I've only admitted to one person outside of my family how much that amount actually is.

Channeling the courageousness of my lovely line sister Samantha...drum roll please...

$139,000

This is the total amount I would have to pay back today, including interest accrued up through January 2011.

Granted...I have two degrees with that amount. That makes me feel slightly better...I guess. In 20 years or so, when I finish paying my loans, I will be able to say that I put myself through school. That's empowering. God has blessed me with a job that even allows me to pay back my loans (a lot of people can't say that) regardless of how uncomfortable and hard it is. At the end of the day...I should be happy right?

Wrong.

Okay, forgive me Lord, for the massive amount of complaining I'm about to do. Please. Thank you.

I have these battles...in my head...all the time, where I try to convince myself not to feel horrible. I have all out emotional break downs asking myself what in the world have I done. Dreams of saving up enough money to purchase my first home...I don't even really think about it...as it stands I'm basically already paying off a 25 year mortgage. My degrees are my house. As of now, I can't even afford to LIVE on my own, renting. In essence, having my own, cozy, 1bdrm apartment, would require me being able to pay two rents essentially, seeing as though my loan payments are a rent in and of themselves. There isn't really anyone to blame wholly. I was young...I didn't know. My parents were proud...and my high school teachers and counselors told them not to worry, getting loans to pay for school was "normal" and my wonderful degree would make it all worth it. I actually think my mom still believes this to a certain extent. She always tells me "this was an investment." And in my head I say "yeah, a really bad one."

Now don't get it twisted. I had scholarships, grants, etc. My cost of attendance as an out of state student was $40k for four years of undergrad and $60k for one year of graduate school. That's $220k for 5 years. My loans, federal and private, account for about half of that pre-interest. So I wasn't just some lazy student unwilling to look for free money. However, free money doesn't come AS easy to middle class students whose parents "make enough" to pay for them to get through school. You know, too rich to be poor, too poor to be rich. That thing.

Anyway, all of this was to say...many of you may wonder how I can be 25 and so financially conscious. I kind of don't have a choice but to be. I've already dug a pretty deep hole for myself. There's very little room for error left.  
I often feel trapped. I often feel blessed. I often feel hopeless. I often feel hopeful. I often feel angry. I often feel overjoyed.

My school loans. It's such a conflicting feeling.

That's my story. If you got nothing else from this post, at least now you know where the name "Speedy Spender" came from. ha!

And while I don't know who to blame...the article raises a good point. Whose fault is it? If lenders and schools continue making school loans so easy to accumulate for students graduating in an economy where they are even less likely to be able to pay them back...will we see a loan bubble similar to the housing bubble? Scary.

Tax Tantrum Tuesdays: You have arrived...

....when you can itemize. hahaha (In the tax world)

I told you all the day would come that I would explain itemized deductions. That day is here. Below is the Schedule A: Itemized Deductions tax form. There are so many fun deductions on here that you could rack up on some serious tax savings if you're able to accumulate enough of them to exceed the standard deduction of $5,700.

YOU HAD NO IDEA DID YOU?

When all of the items on this schedule are greater than the standard deduction ($5,700), you can deduct this schedule instead. That means if it's $6,000 you get to deduct that instead of  $5,700. If it's $10,000, you get to deduct that instead of $5,700. If it's $25,000 you get to deduct $25,000 instead of $5,700. Do you get my drift here?

You have arrived when you can itemize.

Let me put it like this. Remember when I talked about my tithes...Say I'm attempting to give the church $6,000 a year. Let's add to that my state income tax (which is withheld from my paycheck AND will go up in 2011), which this year was about $2,200. That's $8,200 of deductions PLUS my $2,500 deduction for student loan interest. This is without me even owning a home! That's a much bigger refund than I'm getting for 2010.

This is my version of effective tax planning. heh heh. I'm sure to be MUCH more excited about taxes next year. Lehgo!

Keeping Me Honest

So today was my first pay day of 2011. I have been looking forward to this day for approximately 14 days because I was excited to see how much my pay check would increase due to the lowered Soc. Sec. payroll tax. Instead of doing the calculation early on so I will know exactly what I have coming (like I normally do), I decided to surprise myself. Boy was I happy when I woke up to my pay stub email on my Blackberry this morn! A whopping $45 extra dollars ON DECK! After I got over my excitement, I remembered what I said I'd do with this money. Save it. So 10% goes to the Head of my life and the rest gets added to my automatic transfer to my savings account. This took my excitement level down a notch but it does feel sorta good to do something responsible with this extra money. Honestly, if it wasn't for this blog, I may have convinced myself that $80 extra per month in savings wouldn't make that big a difference...in fact it may have needed to go to my monthly spa fund...and I probably would've completely forgotten that 10% is supposed to go to my tithes! But lucky for me...I have you guys to keep me honest :-)

heheh - like my graphic additon? I really want this blog to be more than words. However, there aren't a lot of interesting pictures about finances soooo I'm still working the kinks out on that one.

Excuse My French - Good Debt My A$$

I get so sick of people attempting to remind me that student loan debt is good debt. I'm actually still pretty livid at whoever the first person was who convinced me that funding my college education by taking out loans was a good idea because I would definitely be able to pay back the loans with my amazing job that my amazing degree would get me. Even though that person wasn't necessarily lying...I was able to get an amazing job pretty easily. I do have a pretty darn amazing degree. My job and my degree do allow me to pay back my loans. But at what cost?!...I still hate that 20% of my take home pay goes toward my loan payment.

We all know that paying extra on your loans is the best way to get rid of them as quickly as possible and avoid exorbitant amounts of interest. But for someone who already pays over 50% of one paycheck on her student loan payments, there's just not much room for extras to Sallie Mae. Therefore, I've gone through a series of emotional breakdowns and finally resolved that I will be paying back my loans until I'm about 50 years old. The fact that the Obamas just finished paying off their school loans realllly makes me feel like there is an end in sight. 

Even though I've dealt with this fate...I still look for ways to pay extra on my loans every month.

1. Additional job means additional money for loans. Since I work a ton and travel a ton, I can't pursue a 2nd job unfortunately. However, I do babysit on some weekends for money that I vow to put towards my loans. Whether it's $30 of $100...every little bit counts.
2. Gifts Gifts Gifts. I told myself that for Christmas I would ask my entire family to contribute to my loans instead of buying me presents but let me just say, I fell short this past Christmas. But I'm committed to making that more of a reality in 2011. 
3. Bonuses Bonuses Bonuses. I do work a job that surprises me with extra money from time to time. So whether it's a random $100 spot bonus for a job well done on a project or an extra $1000 at year end because the big guys want to give us a pat on the back...I put all of towards my loans (or savings).
4. Tax Return. Here's another place where extra money pops up. The IRS might as well write the check directly to Sallie Mae.

My ultimate goal of course is to win money on someone's game show (or the lottery) to get rid of these suckas. But this is my first full calendar year being super committed to paying extra when I can. Let's see how I do. 

What are some ways you contribute extra to your loan payments? Share with the group..give us more ideas!

P.S. If you EVER have the opportunity to live at home for close to free...GET OFF YOUR HIGH HORSE AND DO IT! Being able to use that money to pay down loans quickly will give you a peace of mind your parents can't ever take away!

Tax Tantrum Tuesdays: Deduct me please!

Tax time is 'round the corner. For young singles that usually doesn't mean much. Unless you're a homeowner or have a kid...you're looking at minimal deductions. Below I've listed the deductions/credits that I think we should pay special attention to because we may be able to squeeze a little somethin' out of them:
(in order of the form 1040 tax return)

1. HSA (Health Savings Account) Deduction
2. Moving expenses - a lot of people don't know this but when you move to a city that is 50 miles or further from your previous home for the purpose of beginning a job, you are able to deduct your moving expenses. This is most beneficial to recent college grads starting their first job. Moving expenses include everything down to the mileage you incur driving (or plane fare for flying) to your destination.
3. Student Loan Interest Deduction - for those of us who are swallowed in student loan payments, this one allows us some cushion. Maxing out at $2,500, this deduction could guarantee that you at least won't owe...it did for me at least.
4. Tuition and Fees Deduction - this deduction kept me getting ALL of my federal withholdings back while I was in college. In fact, for college students, this deduction is the #1 reason you should convince your parents NOT to claim you...except of course if they are providing over 50% of your living expenses.
5. Education Credits - not to be confused with Tuition and Fees Deduction, you can only take one OR the other. However, they are both just as gravy for you students.
6. Retirement Savings Contribution Credit - for those of us who aren't making the millions yet  but still contribute towards a retirement fund (IRA, 401k, etc) this can be beneficial. The not-so-fun part about it, is that you can't claim it as a single person unless you make under $27,500. And you can't claim this one as a student.
7. American Opportunity Credit - another big one for students filing independently. Seriously, as a student, there's NO reason you shouldn't get ALL of your money back.

As you can see...there's not much for us...but definitely keep these deductions in mind throughout the year. Thinking about taking that extra class part time while working...remember, the tuition can be tax deductible. Thinking about making a big move for a job but not excited about moving expenses...those can be tax deductible. This is why it's good to know taxes folks...you can think about how to pay less of them alllll year long!

Next week's tantrum: we're tackling Schedule A. I need everyone under the sound of my voice to understand itemized deductions.

There's money to be saved (and not spent) EVERYWHERE!

This will be a quick post.

Today, I arrived in Memphis for work but we conveniently had to work from the hotel lobby because of course with less than ANY snow, the entire city shut down. While in the lobby, I saw a quick snippet of the Clark Howard segment on HLN.

As most of you know, the social security payroll tax has been lowered from 6.2% for employees to 4.2% for employees in 2011. What does this mean? Basically, more money in your pocket. Analysts estimate that the average taxpayer can expect about an extra $2,000 to take home during 2011. Howard's suggestion on his segment was that instead of spending this extra money...save it...and guess where he suggested you save it?! Yeppers, a Roth IRA. Tooold ya so! He mentioned that some Roth's allow you to contribute as low as $50 a month.

I realllly love this idea. So after I finish building my emergency savings fund with that extra cash, I'm going to take him up on that suggestion. You should too! Even if you don't want to put it in a Roth...just try to set that money aside in a savings account instead of spending it. You'd be amazed at how you wouldn't even realize you're missing it.

Oh and btw: I'm SUPER excited to see how much my check has increased on the 15th. Super excited to SAVEEEEEE!

Do it while you're young honey.... (Part Deux)

Where did we leave off? Oh...the sucky things about Roth....

Now because the Roth is so accommodating, there are some rules. But the fact that most of these rules are easy to follow for us young folk is one of the reasons you should "do it while you're young honey...."

• You can only contribute money that counts as earned income. This means if you're in school, you can't use your refund to put into your Roth. However, you can use the money you EARN at your part time job.
• You can only contribute up to $5,000 a year to the Roth. This rule is for 2010 and the government adjusts it for inflation and other things every year, but generally the point is, the gov'ment is not about to let you pour tons and tons of money into this because it has so many great perks.
• Tied to the bullet above, you cannot contribute to a Roth if your income goes above $120,000 (single), or $176,000 (married filing a joint tax return). Now the government starts phasing out how much you can contribute once your income hits $105,000 (single), or $166,000 (married filing a joint return). This means that a single person making $110,000 can contribute something, but their max is below $5,000. But once they make $120,000, they can't contribute ANYTHING. This is another reason to "do it while you're young honey..." For most of us, our incomes won't get to $105k until we're a few years into our careers. I for one have a goal to be making at least 6figs by the time I reach 30. That gives me 5 years to contribute $5,000 a year ($25,000 to just let sit and grow tax free, until retirement...sounds good to me). Speaking of 5 years, I read if I do just that....$5k for 5 years and just let it sit...it would grow to nearly $500k by the time I hit 65. Sounds REAL good to me.
• Lastly...since Roth has so many tax advantages, there is no tax deduction for contributions made like there is for the 401k. However, coming out of college my income was too high for that 401k deduction anyway...so to hell with it.
  

Oh...point of clarification: Contribution vs Earnings. In the earlier bullets I talked about contributions being able to be withdrawn whenever you darn well feel like it without having to pay taxes on the withdrawal. Earnings are able to be withdrawn for certain things...sometimes tax free and sometimes taxable. Contributions are whatever YOU contribute to the Roth. The hard earned money from your pocket.  So for me that $25k I'm going to put in before 30. Earnings are whatever you MAKE off of the money you contribute. The money you get by just watching it grow but that you really didn't earrrrrn. That money will be taxed if you take it out before retirement (and I think there's a 10% penalty on top of that). But whatever earnings you leave until retirement...are YOURS YOURS YOURS tax free AND penalty free. So...do it while you're young honey!

Do it while you're young honey...

I've been exploring a lot of retirement investment options in addition to my 401k. As most of you know, generation y, you, me, the Millennials...won't be able to count heavily on Social Security benefits. Sucks for us! Some financial analysts predict that we're in for a rude awakening when retirement arrives. Because a lot of us don't take this as seriously as we should, they predict that our generation won't live very comfortable lives as old timers.

I am not claiming that mess, and I don't think you should either. So you can have a kitty litter of kids to take care of you orrrrr you can make some wise choices now to prove those analysts WRONG. I've read over and over again that one of the smartest things for young adults to invest in is a Roth IRA (of course this is after you've set up your emergency savings and are contributing as much as your company matches, to your 401k).

Another 2011 Resolution: by my 25th birthday...I'm going to be finished building my emergency savings and I'm embarking on the Roth. Let us explore....

One of the best things about the Roth IRA is the tax advantage! (oh how I love tax advantages) Because you can only contribute after-tax dollars into the Roth, you are able to withdraw the money tax free. Remember that with your 401k and a traditional IRA, the money goes in before it's taxed and therefore is taxed when you withdraw it out after retirement. Yeah...Unc Sam be bout his money. 

There are a few more big advantages of a Roth IRA:

1. Roths are much more flexible than your 401k because you can invest in pretty much anything you want...stocks, mutual funds, real estate...you name it, your Roth can put money into it for you.
2. You can withdraw any contributions you have made to your Roth whenever you darn well please without incurring any taxes OR penalties. (This is not true for either the 401k or traditional IRA)
3. You can use up to $10,000 of your Roth IRA to buy your first home (tax and penalty free). This not only includes your contributions but you can take out earnings also (TAX AND PENALTY FREE!), to go towards your first home. And this rule is for each person...so if you're a couple, each of you can take out $10,000 for the first home.
4. You can use money from the Roth towards the education expenses of your children. Although any earnings used are taxed...there is no penalty.
5. My absolute fav advantage is that your Roth can be as low or high risk as you'd like. Because you can invest in anything you want...this allows you the flexibility to be risk averse or risk seeking. I love that this gives me the ability to have a little fun and switch it up when I feeeeel like it!

 Next up...Roth IRA disadvantages. Yesss yesss...as wonderful as it is...Uncle Sam ain't plain dumb.

Stay tuned!

Let's play....questions :-)

I asked a few of my friends for feedback on 25 and retiring. One suggestion was that I have a day devoted to answering personal finance questions asked by readers. I like that idea so let's do it!

Starting today, email any questions you may have regarding personal finance to 25andretiring@gmail.com. Actually, I guess you can email questions regarding anything there...to be or not to be answered on the blog. I'm down with lending an opinion or two on various matters when asked (and when not asked) <-- people who know me just nodded and laughed at that.

I will answer the questions on Thursdays. Dare I name this segment "Thirsty Thursdays"?! ha. We shall see.

The answers will commence next Thursday :-)

Thanks for reading!

Introducing Tax Tantrum Tuesdays!

Disclaimer: This entry is long. My apologies beforehand. In my defense, it's kind of a tantrum.

Everyone I know has asked me a tax question at least once. It is only right that taxes have a very special place in this blog. I have named that very special place "Tax Tantrum Tuesdays."

I often attempt to convince everyone that income taxes are much, much more simple than people think. Regardless of me saying that over and over again everyone refuses to even want to attempt to bother with them. I think this is for one of two reasons:

1) The IRS has instilled some SERIOUS fear, or
2) These people just think I'm a flat out liar. <-- which is quite offensive

 I will admit, paying income tax is less than fun, but if you can think of the tax impact a financial decision may have before you make that decision, it's a great feeling. And you wouldn't realize how taxes can motivate you to do some really positive things.

For example...I resolved that this year I will tithe 10% of my take home pay to my church. Now previously I'd been tithing but definitely not 10%. *bbm embarrassed emoticon*  Let's say I take home $60k after tax every year. Tithing would require $6k from me over the course of a year (that's $500 a month...that's more than my car note).  

Now I know I deserve a slap on the wrist for even fixing my mouth to complain about how much I have to be tithing...but let's be real, I went from borrowing a dollar or two from my momma to throw in the collection plate, to putting in $10 or $20 of my own money, to writing a $50 check when I was feelin' myself to...$500 a month?! Lord, give me the strength. By the way, this is still a hypothetical.

But thanks to the wonderful world of taxes, I know that if I am able to itemize, everything I tithe to the church is tax deductible as a charitable contribution, as long as my church is a non-profit. Yes, yes, I know...God himself should be reason enough for me to want to give...I'm really showin' the heathen in me today. Sorry.

While this is in no way my entire motivation for tithing...it's definitely a great motivator. Especially when the little devil on my left shoulder tries to convince me in September that I can skip one month of my tithing commitment to go on a trip to Vegas with the girls.

Back to charitable contributions...I have noticed that they are by far the #1 misunderstood deduction. The charities that convince you to give lots-o-$$$ because it is tax deductible usually don't remind you that charitable contributions are only tax deductible if you itemize. What in the world is itemizing??? When you file your taxes you are able to take a standard deduction (which is $5,700 in 2010, set by the government and raised for inflation every year) OR you can itemize.

Itemizing, in the most simple terms possible, means that you add up a bunch of special deductions outlined by the IRS - charitable contributions being one of them, home loan interest and property taxes being two other very common ones - and if the total of all these deductions is greater than the standard deduction (which is $5,700) you can itemize. Then and only then do charitable contributions mean anything for you and your taxes.


So back to my example, if I give $6k (10% of my yearly take home pay), I can itemize (because $6,000 is greater than $5,700). Believe me, that seemed obvious but to someone it wasn't. This allows me to take advantage of other fun itemized deductions that may result in even more tax savings but since I'm getting a little long winded with this one...I'll save those fun tax facts for another Tax Tantrum Tuesday...

What's your credit grade?

Don't you hate checking your credit score? It is seriously the most nerve wrecking thing in the world to me....Well aside from my yearly performance reviews at work when I think my reviewer is going to tell me they've been keeping a log of all the cumulative hours I've spent g-chatting or web surfing at work. I've already got my rebuttal ready in my head. hahaha.

Back to credit...What if someone has stolen my identity, I don't know it yet, and I'm about to find out and lose my mind when I check my score? What if there's some bill in a faraway land that I TOTALLY didn't know (or forgot) about and they've sent me to collections because they have no idea where I am and think I'm just not paying on purpose? What if everything I think I've been doing right isn't as right as I thought and my credit score has tanked?

I think of everything that could possibly go wrong to ruin my credit and I subsequently run scared, thinking "maybe I just don't want to know"...I pay my bills on time and I have never had a problem being extended credit so I'm cool.

Well in the spirit of the new year, I checked today...anddddd....everything was great. haha yall didn't think I was going to actually TELL you my personal business now did you?!

But I found something fun that I decided to share with the group today: this idea of a credit grade. Of course you know (or you should!) that FICO (which is the one that matters) credit scores range from 300-850, of course with 300 being the absolute worst and 850 meaning you're a straight A student.

For an overachiever like myself (lol) grades mean MUCH more than scores. Wouldn't you agree? I think all of us have asked a teacher more than once..."okay but what grade is that?" I mean shoot, give me a 60...if that means an A, I'm cool.

I was reading the Young Black Professional Guide and they recommended Quizzle. Quizzle is a site that offers credit scores, reports and some other debt related information for free (and some at a cost). Quizzle gave me a grade for my credit score (made me feel some kinda way) so here is their grade breakdown:

Credit Score	Quizzle Score	Grade
720 to 850	90% to 100%	A
680 to 719	80% to 89%	B
620 to 679	70% to 79%	C
580 to 619	60% to 69%	D
350 to 579	0% to 59%	F

sidenote: in case you decide to use Quizzle you should know they give you a CM credit score which is NOT the same as the FICO credit score. They're computed similarly, however, when you credit is computed by Experian, TransUnion or Equifax, FICO is used most (if not all) of the time.

Just as a quick point of information, the National Score Index reports the national average FICO score is 692. The averages are also given by state:

For my Illinois residents, our average is 699.
For my Michigan friends, your average is 695.

I have a problem with the average being in the B range but then again it reminds me a lot of the curve at Ross so I guess I'm used to the days when a B- was basically as if you failed and the majority of the class earned a B+ (or A- if it was an elective). *rolls eyes* I digress.

Needless to say, anything below an A leaves room for improvement...And I actually find myself more motivated to work on my credit score when I convert it to a grade. Who woulda thunk it!

Check out your credit "grade"...see if it's representative of your A-game :-)

New Years Resolution: The 50/30/20 budget

I read an interesting article on MSN Money discussing "how much you should spend on..."

The writer discusses a very simple question I'm sure we all ask ourselves everyday: "How much should I be spending?"

She then suggests the 50/30/20 budget:

• 50% of your take home (after tax but before insurance and 401k deductions) should cover your "must have" expenses which include, rent, utilities, transportation, food, insurance, minimum loan payments, etc. Any purchase that can be delayed for a few months with no serious consequences is not a "must have" expense. Anything you're contractually required to pay is a "must have" expense.
• 30% of your take home pay goes towards your "wants." Vacays, clothes, eating out. The trick here is that some bills may overlap in the "must haves" and "wants" categories. Internet and television is technically a want but if you have a contractual obligation it would go into the "must have" category.
  
• 20% of your take home pay should go towards savings. Remember minimum loan payments go into the "must have" section but any payments you make on loans above the required payment would fit here. Additionally all retirement savings including 401k, IRA and stock investments are included here. Last but not least, your emergency savings fund fits here as well.
  

The writer adds that it takes time to get to these percentages. Starting out she was at about 60% for must haves. It took a year for her to get to 50/30/20.

I quickly computed my ratio as of now and came up with 60/20/20. I'm sure if I take a more in depth look those ratios would become a little less pretty.

Take a look at your ratio starting out 2011. Where can you shift things around? Are you spending more in places you should be spending less? What goals have you set for long term spending and saving? Challenge yourself to achieve a new ratio by 2012.

easier said than done - the intro

How many of us know what it takes to be financially savvy but still struggle with saving enough, investing enough (if anything at all), and spending wisely, all while maximizing the financial freedom and fun of the "roaring 20s".

Luckily there are so many personal finance enthusiasts, financial self-help books, and relevant methods of saving, that conceptually, being a single 25 year old earning enough money to make financially savvy decisions and have enough disposable income left over to actually enjoy the roaring 20s, seems super, duper, simple. (sorry I know that sentence was long...read it one more time) But that's easier said than done.

I found myself surprised at this revelation...mostly because all throughout college I considered myself pretty financially savvy. I very rarely spent frivolously. I knew how to make and follow a college student budget. I even saved some of the millions I earned during my summer internships.

But during college my budget was so tight that I had very few options for spending. Disposable income back then meant some extra money to spend on a new dress or good eating for a little bit. There was no option (as financially irresponsible as it would've been anyway) to use my "bonus" for an extra vacation or a David Yurman ring I'd been slobbing over. I mean that kind of waste wasn't even POSSIBLE.

Almost two years into a career...I'm working with a much larger salary, more bills, more [expensive] desires, and more disposable income to actually spend on those [expensive] desires. Oh and DON'T forget about those taxes and gratuities. They'll get you every time.

I'm thankful for the extra financial cushion but it definitely leaves much more room for trouble. Saving has become increasingly harder and spending...sooooo much easier.

Needless to say...[the shit] is easier said than done. Part of my reason for starting this blog is to tap into what I like to call "my financial being":

• really think about the financial choices I am making right now. At 25. Before retirement.
• determine how my current decisions are contributing to (and/or hindering me from) my long term financial goals
• enhance my knowledge (and yours) around what it means to be financially savvy...read more, learn more, know more

The end goal is quite simple: to maximize revenue and decrease costs.
After all, I'm trying to build a brand here and in order for that to happen successfully, the business must be in order.