A question I get a LOT from my friends and peers: How much of my income should go towards rent/mortgage?
My rule of thumb is 25% but I read a Washington Post article that says 30% of your gross income. Gross is your income before taxes and deductions are removed. This means the following affordabale rents if you make $3,000/mo gross income:
25% - $750/mo
30% - $900/mo
This percentage is not supposed to include utilities or other household expenses.Only your home payment.
Of course you need to adjust your percentage for your other monthly committments (i.e., car note, loan payments, child support, etc). If you're looking into buying, 30-33% is a decent estimate od affordability because your income will increase yearly and your mortgage payments will not.
Hopefully this adds to your roladex of financially savvy information! Happy apartment/house hunting!
Sunday, May 22, 2011
Friday, May 20, 2011
Well I'm movin on upppp...to the East side...
Greetings!
Sooooo.
First things first, I'm moving into my OWN PLACE. Gahhhh! I'm so excited. In Hyde Park, on a cute little cul-de-sac'd (did I make that tense up) street, one block from the lake, where birds chirp and lawns are pristine and I will have one of my very on line sisters living right across the street. I. AM. TOO. GEEKED.
With all of the excitement, I haven't really thought about the fact that paying the entire rent and all utilities (y'all cable is so expensive when you're the only one paying it!!!) solo will put me on a tighter budget than ever. Well I mean I did the financial analysis that informed me I could technically handle it. But, the reality that I won't be able to soothe my work woes with massive amounts of online shopping and weekend getaways as much, hasn't kicked in. But after month one, I'm sure that reality will kick in. Prayerfully. lol
So I went on a blogging hiatus (by the way, who does that after like 2 months of blogging???) because I'm incredibly busy with work and life. I don't think I've worked less than 12-15 hours a day for the past few weeks and therefore sleep is very limited. Additionally, I'm coming into my promotion year at work...which is a big deal anddddd seems to be really emotional (as for me, EVERYTHING is).
But I'm coming back because I need this blog to keep my sanity...and most of all I need it to keep my pockets safe after my big move!
So I'm back and I'm still...
25andretiring.
Sooooo.
First things first, I'm moving into my OWN PLACE. Gahhhh! I'm so excited. In Hyde Park, on a cute little cul-de-sac'd (did I make that tense up) street, one block from the lake, where birds chirp and lawns are pristine and I will have one of my very on line sisters living right across the street. I. AM. TOO. GEEKED.
With all of the excitement, I haven't really thought about the fact that paying the entire rent and all utilities (y'all cable is so expensive when you're the only one paying it!!!) solo will put me on a tighter budget than ever. Well I mean I did the financial analysis that informed me I could technically handle it. But, the reality that I won't be able to soothe my work woes with massive amounts of online shopping and weekend getaways as much, hasn't kicked in. But after month one, I'm sure that reality will kick in. Prayerfully. lol
So I went on a blogging hiatus (by the way, who does that after like 2 months of blogging???) because I'm incredibly busy with work and life. I don't think I've worked less than 12-15 hours a day for the past few weeks and therefore sleep is very limited. Additionally, I'm coming into my promotion year at work...which is a big deal anddddd seems to be really emotional (as for me, EVERYTHING is).
But I'm coming back because I need this blog to keep my sanity...and most of all I need it to keep my pockets safe after my big move!
So I'm back and I'm still...
25andretiring.
Tuesday, March 1, 2011
Excuse me for the Inconvenience
I am not in a bloggy place right now. I have a lot going on and I need to make sure I handle it all the best way possible. With that being said, I'm on some kind of blog hiatus. I will be back sooner than later but I just thought I'd let yall know.
Peace and love.
Peace and love.
Tuesday, February 22, 2011
Tax Tantrum Tuesdays: Stay Out of Trouble
Another finance guru I absolutely love, Mellody Hobson, President of Ariel Investments in Chicago, talks about personal finances on Good Morning America from time to time. Specifically, I was reading an article discussing the IRS's increase in tax audits. Every person I know, including myself, should be very, very afraid of the IRS. Not afraid to the point that you are scared to try to do your own taxes, but afraid to the point that you don't ever want to purposefully lie to them. Ever.
When I hear of people lying to the IRS about small, insignificant things like filing single when you're actually married, claiming kids who aren't yours, claiming your kids when you know your 'baby momma' already claimed them, I send up a quick prayer...because if the IRS finds out, they're cleaning you OUT. Believe me, you don't want it. Most of the time, actually, ALL of the time, it's just not worth it.
With that being said, there are some obvious red flags that the IRS looks for when they're determining who to audit. Statistically, only about 1% of Americans with annual incomes under $100k get audited. The more money you make, the higher the probability that they will want to audit your return. Additionally, your return is more likely to get audited if you have big changes from one year to the next. It sends up a red flag. So if you start making a ton more money, claiming three children as dependents when last year you only claimed one, or claiming a large deduction/credit that you don't normally claim, BE SURE to keep those records.
Other more specific red flags for the IRS are:
When I hear of people lying to the IRS about small, insignificant things like filing single when you're actually married, claiming kids who aren't yours, claiming your kids when you know your 'baby momma' already claimed them, I send up a quick prayer...because if the IRS finds out, they're cleaning you OUT. Believe me, you don't want it. Most of the time, actually, ALL of the time, it's just not worth it.
With that being said, there are some obvious red flags that the IRS looks for when they're determining who to audit. Statistically, only about 1% of Americans with annual incomes under $100k get audited. The more money you make, the higher the probability that they will want to audit your return. Additionally, your return is more likely to get audited if you have big changes from one year to the next. It sends up a red flag. So if you start making a ton more money, claiming three children as dependents when last year you only claimed one, or claiming a large deduction/credit that you don't normally claim, BE SURE to keep those records.
Other more specific red flags for the IRS are:
- High expenses. A lot of expenses are deductible as itemized deductions. If any of these are abnormally high, like $60,000 in medical expenses, or $10,000 in work related expenses, you should make sure you have some great documentation to prove you're not lying.
- High charitable deductions. People use charitable deductions ALL the time to beef up their itemized deductions. Be careful. Make sure you have check stubs, receipts, letters from non-profits detailing how much money you gave them. Mellody says that the average charitable donation is around 2% of one's income...so if you're donating around 10%, that may be cause for concern.
- Errors. This is easily avoidable because of all of ability to e-file. But if you're still using a paper return, make sure to double check your math, make everything nice and neat as to not arouse any questions from the IRS.
Wednesday, February 16, 2011
Debit Diet: "Where da, where da cash at?"
I'm in complete reform mode. Last night I did my federal tax return, started on my FIVE state returns (traveling all of the time has it's cons), and put together my debt snowball budget! I'm happy to say that my snowball has me paying off all of my debt (with the inclusion of my private school loans and the exclusion of my federal school loans) by the time I'm 30. I will see my first major payoff (credit cards) by May 2011 and I will have paid off a small school loan by the beginning of 2012. My car loan and larger school loans take a little longer but either way it goes...I'm stoked!
In addition to implementing the snowball, I came across another one of Dave Ramsey's amazing ideas that I am very excited to share! Dave Ramsey's....
Cash Envelope System
The way it works:
1. Label envelopes with different budget categories such as, food, miscellaneous, entertainment, gas, etc. Dave says you can do this for all of your budget categories but for me, I'd probably only want to do it for the ones I actually spend money on throughout the month. I have no need for a bills envelope because I pay all of my bills via automatic debit, which many of you may do as well.
2. Once you get your paycheck, you cash the amount of money you are to spend on these categories, and put each respective amount in its envelope.
3. As the month goes on, whenever you make a purchase, you take the money for that purchase out of its rightful envelope and you record the purchase on the envelope. Once all of the money in an envelope is gone, you can no longer spend money from that category.
For those of us who don't want to carry a lot of cash on us, or fumble around with 5 or 6 cash filled envelopes, we can do the same thing with our debit card. Instead of putting cash in the envelopes, we can make a debit card purchase, then record the purchase on the respective envelope and insert the purchase receipt in the envelope. Once we've reached our monthly max in any category, we can't use our debit card for those purchases anymore until the next month.
I'd like to add a component to this that I don't think Dave came up with. Once putting this into practice for maybe three months or so, I'd like to challenge us to deposit any excess money unused at the end of the month into our savings account. Of course that money could rollover to the next month but in order to help with discipline I think it would be more beneficial to get used to being limited to a specified amount of money each month. If you don't use it, you save it. Just a nice way to beef up the savings over time as well.
I'm going to implement this spending system in March. I shall let you all know how it goes! And for those who would like to take the journey with me, let me know!
P.S. I wanted to name this post...Don't be surprised when she ask...."Where da cash at?"...and I would've, but it was too long.
Ta ta!
In addition to implementing the snowball, I came across another one of Dave Ramsey's amazing ideas that I am very excited to share! Dave Ramsey's....
Cash Envelope System
The way it works:
1. Label envelopes with different budget categories such as, food, miscellaneous, entertainment, gas, etc. Dave says you can do this for all of your budget categories but for me, I'd probably only want to do it for the ones I actually spend money on throughout the month. I have no need for a bills envelope because I pay all of my bills via automatic debit, which many of you may do as well.
2. Once you get your paycheck, you cash the amount of money you are to spend on these categories, and put each respective amount in its envelope.
3. As the month goes on, whenever you make a purchase, you take the money for that purchase out of its rightful envelope and you record the purchase on the envelope. Once all of the money in an envelope is gone, you can no longer spend money from that category.
For those of us who don't want to carry a lot of cash on us, or fumble around with 5 or 6 cash filled envelopes, we can do the same thing with our debit card. Instead of putting cash in the envelopes, we can make a debit card purchase, then record the purchase on the respective envelope and insert the purchase receipt in the envelope. Once we've reached our monthly max in any category, we can't use our debit card for those purchases anymore until the next month.
I'd like to add a component to this that I don't think Dave came up with. Once putting this into practice for maybe three months or so, I'd like to challenge us to deposit any excess money unused at the end of the month into our savings account. Of course that money could rollover to the next month but in order to help with discipline I think it would be more beneficial to get used to being limited to a specified amount of money each month. If you don't use it, you save it. Just a nice way to beef up the savings over time as well.
I'm going to implement this spending system in March. I shall let you all know how it goes! And for those who would like to take the journey with me, let me know!
P.S. I wanted to name this post...Don't be surprised when she ask...."Where da cash at?"...and I would've, but it was too long.
Ta ta!
Tuesday, February 15, 2011
Tax Tantrum Tuesday: You Can Do It!
Tax Season is in full swing. And as of Monday, all of you itemizers can file. I'm a huge advocate for doing your own taxes, especially if you don't itemize. Paying any type of service or person to do them is a complete and total waste of money. In fact, a lot of my friends/family in the past have asked me to do their taxes...and while I've done some, I always tell them I'd much prefer to teach them how to complete their taxes themselves, instead of just doing it for them.
One of my friends actually took me up on that offer last year. I went up to her house after work and we sat down for an hour or so. I explained everything she needed to know about personal income taxes. She was a very excited learner which made me a super excited teacher :-)
I got a wonderful instant message today from her letting me know that I would be so proud of her because she completed her own 2010 tax return today in 30 minutes! I am in fact proud and it goes to show that you should not be afraid to touch your tax return. If you're nervous about getting it right on the first try, have a friend or tax professional look them over before you submit. As long as you complete everything in good faith, the IRS will not truck you off to jail. You'd be amazed at how much mone you can save...
...doing it yourself!
Happy Filing!
One of my friends actually took me up on that offer last year. I went up to her house after work and we sat down for an hour or so. I explained everything she needed to know about personal income taxes. She was a very excited learner which made me a super excited teacher :-)
I got a wonderful instant message today from her letting me know that I would be so proud of her because she completed her own 2010 tax return today in 30 minutes! I am in fact proud and it goes to show that you should not be afraid to touch your tax return. If you're nervous about getting it right on the first try, have a friend or tax professional look them over before you submit. As long as you complete everything in good faith, the IRS will not truck you off to jail. You'd be amazed at how much mone you can save...
...doing it yourself!
Happy Filing!
Monday, February 14, 2011
Trick AND Treat
Yeah, yeah, I know it's Valentine's Day and not Halloween but the title just fit better. Additionally, while I don't consider myself to be a bitter single woman, I don't think of Valentine's Day as some super fantastic addition to my world....mostly because I believe we should be spreading love every single day...not just once a year. But I guess that goes for most holidays...
I digress. Recently, as you all may know, I've been really focused on managing my money correctly since becoming a full time working woman. Since July 2010, I've reduced a lot of my monthly costs in order to allow me to save more money and reduce debt. However, most recently, as in the past few weeks...I've been on this spending frenzy. Well...I'm not sure that's what you'd call it but whatever it is, it ain't good. It hasn't really hurt anything too badly, it has just forced me to slow down on my massive savings revolution...which makes me sad.
I think I'm starting to realize that I have these financial roller coaster rides....where for a few months I'll be doing spectacular (and sometimes I'm not even sure what I'm doing to make the money flow like it does) and then for another few months, I will need to watch what I'm spending like a hawk, as to not overextend myself because I'm thisssss close. I hate those months. They make me nervous. Does anyone else have this problem?
My financial personality, as I'd like to call it, makes me the type of person who always thinks the worst is going to happen..I think they call this pessimistIC. So if I feel like my emergency cushion isn't all there, I'm freaking out when I don't have a really big threshhold for error, which is usually the case in the down months. Sometimes...I just need to check myself.
So while I stumbled upon this video on CNN Money, I was excited to share with you all. Some guy (he didn't say anything about himself) was advising ways to "Trick Yourself Into Saving More." I thought maybe we could all try to implement these and see how it helps or hinders our progress:
1) Put Savings on Autopilot - this includes automatic deposits into your 401k, IRAs and your savings account. I definitely do this now...I cannot count on myself to manually transfer money every month from one account to another. Automatic transfers have become my best friend.
2) Dangle a Carrot - now this was interesting to me because I kind of do this...but I think I need to do it a lot better. hahaha. Dangling a carrot involves setting a savings (or debt payment) plan with a reward once you've achieved the goal. For instance:
Goal: if I can increase my savings by $5,000 by June,
Reward: I'm allowed to purchase a new really expensive bag I've been eying.
I think usually I start here...but at some point, when I'm on my way to the reward, I convince myself I've done well enough to get the reward now...lol. Not to mention, if I want something now (say a new bag, shoes, etc), why would I still want the same thing in June...there will be something new for me to want and it could be completely out of season. So maybe I should try smaller rewards along the way that lead up to a large one? It's like eating 6 small meals a day to effectively diet instead of starving yourself all day and then binging on one huge meal. *just had an a-ha moment*
3) Use a Stick - so this is the opposite of dangling a carrot and I'm not sure would ever work for me but maybe some of you respond better to punishment rather than reward. The idea behind this is to make yourself a commitment contract. If you don't hold up to your end of the bargain, you have to pay a fine (I guess to your savings???) or punish yourself in some sort of way. Yeah...punishment de-motivates me so I'm going to stick with the carrot.
4) Focus on the Big Stuff - in general, when looking for ways to cut costs and save money focus on the big stuff...get a smaller apartment instead of the larger one, buy a used car instead of a new one, etc etc.
I have definitely done this in the past year. I yearn so badly for my own one bedroom in Chicago...but I'm sticking with a roommate for the time being because my costs are greatly reduced and it allows me to save more and pay down more debt. Not to mention that most of the time I absolutely love my roommate. Even still, frequently I scour Craigslist and rental agencies looking at apartments. In the end I'm always forced to remember that I can have that, AFTER I reach my savings goals. I guess this encompasses a little carrot dangling too.
On the car aspect of this...I completely failed.
Next...
I digress. Recently, as you all may know, I've been really focused on managing my money correctly since becoming a full time working woman. Since July 2010, I've reduced a lot of my monthly costs in order to allow me to save more money and reduce debt. However, most recently, as in the past few weeks...I've been on this spending frenzy. Well...I'm not sure that's what you'd call it but whatever it is, it ain't good. It hasn't really hurt anything too badly, it has just forced me to slow down on my massive savings revolution...which makes me sad.
I think I'm starting to realize that I have these financial roller coaster rides....where for a few months I'll be doing spectacular (and sometimes I'm not even sure what I'm doing to make the money flow like it does) and then for another few months, I will need to watch what I'm spending like a hawk, as to not overextend myself because I'm thisssss close. I hate those months. They make me nervous. Does anyone else have this problem?
My financial personality, as I'd like to call it, makes me the type of person who always thinks the worst is going to happen..I think they call this pessimistIC. So if I feel like my emergency cushion isn't all there, I'm freaking out when I don't have a really big threshhold for error, which is usually the case in the down months. Sometimes...I just need to check myself.
So while I stumbled upon this video on CNN Money, I was excited to share with you all. Some guy (he didn't say anything about himself) was advising ways to "Trick Yourself Into Saving More." I thought maybe we could all try to implement these and see how it helps or hinders our progress:
1) Put Savings on Autopilot - this includes automatic deposits into your 401k, IRAs and your savings account. I definitely do this now...I cannot count on myself to manually transfer money every month from one account to another. Automatic transfers have become my best friend.
2) Dangle a Carrot - now this was interesting to me because I kind of do this...but I think I need to do it a lot better. hahaha. Dangling a carrot involves setting a savings (or debt payment) plan with a reward once you've achieved the goal. For instance:
Goal: if I can increase my savings by $5,000 by June,
Reward: I'm allowed to purchase a new really expensive bag I've been eying.
I think usually I start here...but at some point, when I'm on my way to the reward, I convince myself I've done well enough to get the reward now...lol. Not to mention, if I want something now (say a new bag, shoes, etc), why would I still want the same thing in June...there will be something new for me to want and it could be completely out of season. So maybe I should try smaller rewards along the way that lead up to a large one? It's like eating 6 small meals a day to effectively diet instead of starving yourself all day and then binging on one huge meal. *just had an a-ha moment*
3) Use a Stick - so this is the opposite of dangling a carrot and I'm not sure would ever work for me but maybe some of you respond better to punishment rather than reward. The idea behind this is to make yourself a commitment contract. If you don't hold up to your end of the bargain, you have to pay a fine (I guess to your savings???) or punish yourself in some sort of way. Yeah...punishment de-motivates me so I'm going to stick with the carrot.
4) Focus on the Big Stuff - in general, when looking for ways to cut costs and save money focus on the big stuff...get a smaller apartment instead of the larger one, buy a used car instead of a new one, etc etc.
I have definitely done this in the past year. I yearn so badly for my own one bedroom in Chicago...but I'm sticking with a roommate for the time being because my costs are greatly reduced and it allows me to save more and pay down more debt. Not to mention that most of the time I absolutely love my roommate. Even still, frequently I scour Craigslist and rental agencies looking at apartments. In the end I'm always forced to remember that I can have that, AFTER I reach my savings goals. I guess this encompasses a little carrot dangling too.
On the car aspect of this...I completely failed.
Next...
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