Something I’ve been thinking a lot about since I read it is this Mint article on “The Value of Tax-Deferred Savings.” According to the article, “[u]nless you make enough money to max out all of your tax-advantaged accounts (401(k), IRA, 529, HSA, and the like), it rarely makes sense to do any investing outside them.”  (Please note, I am not a financial adviser — this is all just my personal knowledge, so take it with a grain of salt.) (Pictured: Marc by Marc Jacobs – Turnlock Shine Long Tri-fold (Electric Teal) – Bags and Luggage, on sale at Zappos from $198 down to $150 today. Lots of great sales on Marc by Marc Jacobs stuff on Zappos today, actually.)

To be honest, the value of tax-deferred investing isn’t something I understood until really, really recently. So I thought we’d review some of the main vehicles for tax-savvy savings here, answering — for each, the main questions on everyone’s mind:

• What’s the advantage?
• How much can you put into it?
• Who can use it?
• Can you use it to put a downpayment on a house, or pay for something else big (wedding, car, schooling, etc)?
• When can you take it out?

Oh, and all of these vehicles aren’t the “end” of the story; you still have to figure out what fund or bond or stock you want your money to go into once it’s into that tax-deferred account.  If you don’t have time to research the different options, here’s my tip:  look for a “lifecycle” fund, such as a “Retire in 2040″ or “Retire in 2050″ fund — the idea is that the fund manager reallocates the fund over time, so right now it’ll be heavy in aggressive investments like stocks, whereas when you’re closer to retirement they’re in safer investments like bonds.  (N.B., though: I have heard that you have to really pay attention to these when you get closer to retirement to make sure they’re conservative enough for your blood.)  Where possible, I’ve linked to different articles written in plain English to back up my assertions; I’ve also linked to the non-fun IRS pages.  Oh, and note that all of these deal with earned income only — so, for example, you can’t open an IRA in your child’s name and gift him $5K to put into it every year (unless s/he has somehow earned the money — child modeling, anyone?).  And one other note: can I just say I am stunned at how hard it was to “source” this article — for example, MyMoney.gov has a whole page on “saving for retirement” with “helpful” advice such as “don’t eat out a lot,” but next to no information on IRAs.  Thanks, government!

401K

• What’s the tax advantage? Money goes in before it is taxed, and grows tax-free.  Even though the money will be taxed when you take it out, the idea is that your tax rate will be much lower when you are at retirement age.  Furthermore, because it grows tax-free, you’ll save thousands of dollars over the long run.  Very noteworthy bonus:  many employers “match” — if you put in $3,000, they put in $3,000.  Everyone agrees that if you don’t at least contribute up to the match, you are throwing away free money. That said, I have never had the pleasure of working for an employer who matched.
• How much? If you’re under 50, as of 2012 the maximum you can contribute every year is $17,000.
• Who?  You have to contribute to your 401K through your employer — so if you aren’t a permanent employee, you’re out of luck.
• Can you use it to put a downpayment on a house? No.  This is the big drawback to 401Ks — instead of being able to use the money for something right now (house, wedding, car, school), it is Retirement Money.  Sometimes you can take a 401k loan out, but that can be tricky.
• When can you take it out? Age 59 and a half.  If you take it out before age 59.5, you will pay income tax as well as an additional 10% early distribution penalty tax (although there are some fun exceptions, such as disability or death).

Roth IRA

• What’s the tax advantage? The money you put into a Roth IRA comes after it’s already been taxed — but you don’t pay taxes on it once you withdraw it.  Furthermore, the money grows tax-free over the years. Technically, this is tax-exempt saving rather than tax-deferred saving.
  
• How much? You can put $5,000 into a Roth IRA and/or a traditional IRA every year.
• Who? You can only contribute to a Roth IRA if your adjusted gross income is below $125,000 (for singletons) or $183,000 if you’re married and filing jointly. (See also.)  Note that unlike other vehicles, there are no mandatory withdrawals at age 70.5 — and you can continue contributing to it for as long as you are working.
  
• Can you use it to put a downpayment on a house? After you’ve held the account for 5 years, you can withdraw up to $10K in earnings without penalty or tax for the purchase, repair, or remodel of a first home. (See also.)
• When can you take it out? While there are some exceptions (such as first time home buyer, significant unreimbursed medical expenses, etc), the normal age at which you can take it out is at 59.5.

Traditional IRA

• What’s the tax advantage? Like a 401K, money placed in these accounts grow tax-deferred.
  
• How much? For 2012, you can contribute up to $5K annually.
  
• Who? You can contribute to a traditional IRA even if you participate in an employer-sponsored 401k. Note, however, that if you or your spouse is covered by an employer retirement plan such as a 401K, that will affect how much of your contribution is tax-deductible.  Depending on your income, you may only be able to take a partial deduction (if you make between $56-$66K and you’re single, or $90K-$110K if you’re married filing jointly), or no deduction at all if you make more than those amounts.
  
• Can you use it to put a downpayment on a house?  You can withdraw $10K for the purchase of a first home without paying the 10% penalty tax.
  
• When can you take it out? 59.5, generally.  If you are under age 59.5, you must pay a 10% additional tax on the distribution of any assets (in addition to any regular income tax) unless you meet some of the exceptions, such as for higher education or the purchase of a first home ($10K limit, though).
  

I’ll take a look at other investment vehicles (such as 529s and HSAs) in a later post.  Oh, and Forbes just had an interesting article on a “back-door Roth” strategy, noting that if you make too much for a Roth IRA but have the cash to save, you can open a traditional IRA and then go to the trouble of converting it to a Roth IRA, where it can grow tax-free.

Readers, how much are you saving for retirement each year (versus saving for specific events such as a wedding or the purchase of your first home) — and which of these vehicles are your favorites?

When should you consider buying an apartment or house to call your own? What should you know before you start the process?

When I asked the readers last week what sort of financial topics they wanted to talk about, a number of people chimed in asking that we talk about buying an apartment or house. All finance topics are fairly huge ones, but this one is particularly huge — books! classes! blogs! — not to mention very regional-specific. I’ve looked to buy an apartment in the New York City area twice, so I’ll share my experiences there, but let’s just keep in mind from the get-go that this post will be written in very broad strokes.  This has kind of turned into a runaway post, so I’ll put some reader Qs up front — ladies, what have your experiences been with buying property?  Have any of you decided that, despite having the money to buy, that you would rather rent?  What factors would you advise a younger woman to look into?  What resources did you find most helpful when researching? (Pictured: FOR SALE BY OWNER (if you can find it), originally uploaded to Flickr by The-Tim.)

Some Basic Considerations

Risk Factor: As far as investments go, this can be a pretty risky one, even though there’s an attitude (at least in NYC) that you will always make money on an apartment. I’ve seen some friends sell their apartments for nearly a 50% profit a few years ago — I have some other friends right now who need to move for their jobs and realize that not only are they losing their down payment, but that they’ll have to pay an additional five figure sum just to walk away from their homes. Ouch.  It should be noted that right now, prices are generally the lowest they’ve been in a long while — that is by no means an assurance that they won’t go lower, though.  Keep in mind that if the economy continues to tank, rents will probably self-correct pretty quickly — but a mortgage will not.

Renting versus Buying: There are a number of online calculators that can tell you if renting or buying is better, such as the one at The New York Times. For my own $.02, I’d suggest taking these with a grain of salt, but that’s me. I just fooled around with the numbers, putting in the rent my husband and I were paying at our last apartment as well as the purchase price for our condo, and the initial number said we’d be better off buying after 15 years — but after I went to the advanced tab and jiggered around with more numbers (such as adding in the broker’s fee I’d paid to find the rental, deducting the closing costs for our condo which were paid by the seller, etc), it said we’d be better off buying after 4 years.  Meanwhile, the Yahoo calculator tells me I’m saving $70K after only 3 years by buying my apartment rather than renting.  So: grain of salt.

How much you can afford? This is always a tricky question.  Things to consider:

• The down payment. In New York City, you almost always have to put at least 20% down in cash; some places require more like 30%.  For example, if the apartment you’re buying costs $500,000 and requires you to put down 20%, that’s $100,000 down, and you’ll be borrowing $400,000 from the bank.  Note that loans over $417,000 are generally considered “jumbo loans” and will be at a higher interest rate.
• The monthly mortgage payment. Most home buyers end up borrowing a massive amount of money in order to buy a home, and your monthly mortgage payment will massively affect your lifestyle.  Consider your debt to income ratio. Before you get the loan, your bank will check your credit score and will assess how much debt you have to pay every month (student loans, credit card bills, the proposed mortgage payment, any condo/co-op/HOA fees, etc) compared with how much income you make.  Most banks like to see your debt be no more than 28-36% of your income — many co-op boards may be a bit stricter than that and want no more than 28% debt to income.
• Additional monthly fees. In addition to your bank loan, many home purchases come with built-in fees, either as “maintenance” fees from the co-op or condo, or HOA fees for the house.  I always looked at these as the equivalent of “rent” — even assuming I owned my home outright, I would still be paying X to live in the space — and I always looked for places with a fairly low maintenance fee.
• Taxes. This is where things get complicated.  Back when I was first looking for an apartment (in 2005), all of the “sale sheets” in NYC told you what your estimated tax savings were — because of the way most mortgages are structured you primarily are paying interest, NOT principal, for the first 3-5 years you own.  Interest is tax deductible, so a lot of sellers would do this math on the sales sheet to the extent of “This is what your mortgage is each month, but when you factor in tax savings, THIS is the real number!”  Which always seemed like a ridiculously low number about equivalent or less than the cost of renting a comparable space.  They weren’t doing this when we were looking again in 2009 — perhaps because there’s been so much talk of having that particular tax deduction repealed.  Either way, remember that really only makes an impact in the first 3-5 years of owning, and then the tax savings taper off.  Real estate taxes are usually deductible also.
• Closing costs. I’m sure this varies widely from state to state.  Just here in New York, it depends what kind of property you’re buying (is it a building that is newly going condo or co-op?  Is the purchase price more than $1M?  is it a condo or a co-op?).  The big money for closing costs is usually the broker’s fee, which in New York is about 6% of the purchase price — but most of the time the seller pays that fee, not the buyer.  Buyers are responsible for a number of other little costs that do add up, though — when we bought our place, we wound up paying things such as title insurance (it can be .5-.8% of the purchase price), mortgage tax (1.8% of the purchase price, but it only applied because our mortgage was less than $500K), legal fees to our lawyer, as well as smaller bills such as a “managing agent” fee, the bank attorney’s fee, a credit report fee, an application fee, an appraisal fee, and then money for title searches.  At the end of the day, we paid nearly a third of what the sellers paid, and neither were what I would call insubstantial amounts.
• What else you could be doing with the money that’s tied up in the down payment? Traveling?  Cushioning yourself if you got laid off?  Helping an ill parent?  Making money in the stock market?
• How much cash will you have left in case you get laid off, have huge medical bills, etc?  See our prior discussion on emergency funds.

Kat’s Adventures in Purchasing Property

Like I mentioned above, I’ve looked to buy an apartment twice.  The first time was in the spring of 2005.  I was single but making good money, and thought perhaps I should consider buying a studio or one-bedroom.  I was only interested in the Union Square/Gramercy Park area of Manhattan.  I looked for about 4 months — every weekend I’d head out with my broker, and we’d look at places.   In 2005, the market was fantastically different than it is now, though – bidding wars were common.  I’d see a place listed for $X, and the seller would ask everyone interested in making an offer to make your “best offer” on a specific day.  I’d submit an offer (usually of $X, the asking price) and find that I’d been outbid, sometimes by as much as $50K.  I put in four offers, if I remember correctly.  I vividly remember the first place I offered, and would have been happy with that purchase — but by the fourth offer (which I don’t even remember — I think it was an extremely small studio that someone had tried to convert to a “two bedroom” around 9th Street) I was pretty disillusioned.  After I put in my offer for $X, the seller came back and said “just $5K more will get you the apartment.”  I made one of the hardest decisions I’d made at that point in my life and walked away from the deal — I just wasn’t psyched enough about the apartment and I was tired of the whole experience.  The hardest part about it was my poor broker — he had literally come out with me most Sunday afternoons to go looking at apartments, and I considered him a friend by this point.  He was getting a fantastically short stick out of all of this — four months of work and no commission or payment of any kind! — but I did what I had to do.

(On the renting side of things, I had been in a studio on Fifth Ave. and decided that, for my next apartment, I should rent in Brooklyn to see if I liked the area and perhaps consider buying there if I did.  As it turned out, I hated living in Brooklyn with a fiery passion — I was single, all of my friends were in Manhattan, the subways never seemed to be running, and cabs could never be found, so invariably I was teetering around Brooklyn Heights on 3-4″ heels searching desperately for a cab.  I found that it made dating difficult also — Manhattan guys didn’t want to date a girl who lived in Brooklyn, and it was a royal pain trying to meet up with guys who lived in other parts of the city, such as Williamsburg, Hoboken, or Queens.  So I stayed until my lease expired, and then rented a bigger, nicer one-bedroom back near Union Square — where after about a year I met a nice Brooklyn boy, who is now my husband.)

2009:  After my husband and I were married in May 2009, we started the search for an apartment in earnest.  The market was totally different this time — prices had fallen drastically in recent years, and mortgage rates had also taken a dive.  If a place was listed at $X, it was common to see numerous price reductions — sometimes by as much as six figures.  This time, there was none of the tomfoolery I’d experienced in 2005.  Bidding wars?  Bidding at “ask”?  Are you kidding?  It was a commonly accepted practice to bid at least 10% less than the asking price, sometimes even more than that.  Places that were initially outside our budget either eventually came down to our budget, or else we would later see that they had gone into contract with a reported purchase price that was well within our budget.  This was a season for bargains, clearly — much more my speed.  We kept telling each other that it didn’t matter if we bought at the BOTTOM of the market, so long as we didn’t buy at the top.  This search was also different from the first in that while I no longer needed a doorman-building, like I’d insisted upon in 2005, I now refused to consider places that were walk-ups (hoping that babies and strollers would be in the future).  With my husband by my side, I also was far more open to renovation projects than I would have been as a single girl — he’s in the construction/design industry and, in addition to knowing a number of contractors and suppliers and more, he also is much handier with a power tool than I am.  We wound up making two offers this time.  The first was on an apartment that we called the “time warp” — it was if it had been designed with Miami Vice in mind.  We didn’t get the place — our offer matched the offer submitted by a pair of empty-nesters who, the seller thought, the co-op board would like much better.  The second was on our current apartment, which has really weird angles and needed a kitchen renovation (which we thankfully finished already) but more than enough space for us to grow into it.  Funnily enough, the condo is just a few blocks from the rental apartment that I hated back in 2005-2006.  It was about a four month process from when we made the offer to when we took possession of the apartment, if memory serves.  In addition to the closing costs, we had the entire place repainted before we moved in, and we also paid an electrician to put an overhead fan in our bedroom.  Oh, and yes, we went back and used my old broker from 2005 — he got a bigger commission than he would have in 2005, and he only had to show up at a few different meetings because my husband and I preferred to do most of the looking ourselves.

Kat’s Takeaway

I really, really lucked out in that I walked away from that deal in 2005 — if I had held it until I got married (2009) there would have been absolutely no way I could have sold it then for any sort of a profit, and we’d be trapped.  All of the places that were in my price range then would have been way too small for my now-growing family, and honestly I’m glad that once my husband and I got married that we had the freedom to create a home together, rather than have him just move into a place that I’d already established as my own.  But then, hindsight is 20/20…

This isn’t to say that I’d advise all single women to not buy property, but in my case I really lucked out.  I have no idea how my current apartment purchase will shake out — but like I said we have more than enough room to grow, most of the renovation costs are behind us, and if worst comes to worst we could hold this apartment for a long time.  At this point in time, I feel like we got a great deal, I’m glad we did it, and I feel like it was a smart financial decision for us and a good use of our money.

Further Resources

- I got a number of books out of the library about buying a place.  I wouldn’t say that any of them were particularly helpful, but they all contributed to my general knowledge.

- I loved using StreetEasy when we were looking — I could set up alerts, do price comparisons, and more.  I had to slowly wean myself off it — I think I hung onto the “premium subscription” for a full six months after we were already in the apartment.

- TV shows.  Honestly, my husband and I both got addicted to shows like “My First Place,” “House Hunters,” and “Property Virgins.”  It was fun to follow the buying process for another person/couple/family (even if the show was outdated and they were buying in a totally different economy, or if they were buying in a completely different area of the country), and it was fun to see the kinds of issues that came up.

Like I said: this post is written in huge, broad strokes, but hopefully this gives people a basis for discussion.  To repeat my questions above: what have your experiences been with buying property?  Have any of you decided, despite having the money to buy, that you would rather rent?  What factors would you advise a younger woman considering her first property purchase to look into?  What resources did you find most helpful when researching?

I’ve moved far too many times, particularly in my early 20s when I was interning a lot. (My record is 8 different addresses between April 1997 and April 1999, not even counting 2-week “pitstops” at my parents’ house to unpack everything I needed while interning and repack everything I needed for college.) Things have settled down a lot in the past decade or so, fortunately, but I still have some tips that might be helpful if anyone is moving in the next few weeks.  So, here are my top 10 tips for the Type A Guide to Moving:

Some Notes on Packing Prep:

1) Go to Office Max and buy printable address label sheets. Print sheets of them with the following information: Your name (as well as the names of any roommates or your significant other), the new address, and one cell phone / email address. Affix one to every box you pack, as well as to the back of every picture/mirror/unpackable item. (I learned this lesson the hard way — one of my favorite prints, a framed Miro, went missing after my last move, and we had not affixed a label to the back of it.)

2) Using the same address labels, print sheets that say things like: KITCHEN. BEDROOM. LIVING ROOM. You may want to affix these in numerous places on the box. This will help you get set up when the movers are coming in — they can just drop stuff off in the correct room. I also find it helpful to print up a sheet of labels that say “FRAGILE” as well as “HEAVY” — it helps you realize what shouldn’t be stacked, who can carry what, etc.

3) For extra-double bonus points, NUMBER your boxes as you pack them. (I like to use a colored Sharpie and circle the numbers, but that’s me.  You can see some random numbers on the boxes in the pic above (from our December 2009 move).) Keep a spare pad of paper around and do a really rough description of what’s in the box, like “1 – Kitchen pots,” or “75 – Humor books” or whatever. This list should be enough to help you figure out a) how angry you are if that box is lost in transit, and b) which box you can leave unpacked for 3 months. In fact, you might want to put a star next to the really important boxes. On moving day, draw up a list of all of the numbers — and as your movers come into the room, have someone cross off each box as it comes in the door. (My most recent movers were really great and would just shout out the numbers without any prompting.)

Advice for Actually Packing:

4) Figure out what can be packed first. You should look for things that won’t be missed (say, your reference books from college), as well as things that can be packed neatly away so you don’t feel like the walls are closing in.  For example, I have two big Ikea Expedit bookcases filled with stuff, and they’re my favorite place to start. Not only can I usually live without my books for a few weeks, but I can also stuff 3 or 4 shelves worth of books into one box. As luck would have it, banker’s boxes fit perfectly on the shelves — they slide right in.  It makes for an ugly apartment, for sure, but it keeps the floor space free for other packing.

5) Create boxes to UNPACK first. With kitchen stuff, particularly, I find that it’s helpful to have one box of things that are really helpful on a day to day basis. My box usually contains things such as a big pot, an Everyday pan, and perhaps a smaller saute pan, as well as hard-to-break dishes such as Corelle. Include other important tools in here <cough, wine opener, cough>.

6) Use garment bags for clothes that are already hanging. I prefer to do this because they’re so much easier to unpack, but it can cost a bit more with the movers (they may make you use special garment rack boxes). I stuff as many as will fit into one bag, and then buy long twist-ties (or loop several smaller ones together) to tie the top of the hangers together.  This helps them be rehung easily, and keeps them from shifting around too much in the garment bag (which in turn helps the clothes stay on the hangers).

7) If you’re using a moving company, figure out their rules regarding supplies and time. I once had a mover’s bill be almost double what they had quoted me because of “supplies” — they would decide that, say, a $10 lamp from Bed Bath & Beyond needed a special box with lots of tape around it — as I watched they would use half the roll of tape on one box and then discard the tape roll by throwing it over their shoulders. Amusingly (I can laugh about it now), each tape roll was like $10, and that “special box” was like $30. On the flip side, the moving company I’ve used for my last two moves let me use big bins with wheels to throw a bunch of random things into, which helped save time.  (One bin might have been filled with 4-6 banker’s boxes, my step aerobics equipment, my yoga mat, and 4-6 garment bags.)

Some last notes:

8) Once your old apartment is empty, take a video of it. Just do a simple walk through of every room and show the state of the walls, the floors, as well as any damage that you know about already.  It’s just a good way to insure yourself against any fights with your former landlord.  (On the flip side, before you move into your new apartment, take a walk-through of it, to record whatever damage is already there.)

9) Cook ahead. If you know the next few weeks will be hectic and you’ll still be unpacking, try to prepare your diet for it.  Either make a lot of freezable/microwavable meals (hello, lasagna!) or purchase a bunch of frozen entrees once you move — it will ultimately be better for your diet than ordering pizza every night for 3 weeks.

10) Make it easy to redirect mail. Once you’ve moved, use the address label sheets to print out labels that say MOVED on them (or if you’re really nice, include the former resident’s new address) so when you get the former resident’s mail, all you have to do is affix a sticker to it and throw it back in the mail.  Similarly, you can change your mailing address with the post office online.

Readers, what are your tips for moving?  Any fun adventures or misadventures to share?

One of the biggest money choices you make is where you live. When you’re renting, the kind of rent you pay can hugely affect your savings and your cash flow. If you’ve bought, your mortgage payment may now be the biggest factor in what kind of job you can take.  (Pictured: Lodis Accessories – Audrey Continental Wallet (Aqua/Orchid) – Bags and Luggage, available at Zappos for $84 (in this color combination as well as a few others).)

Experts generally say that your rent should be no more than 25-30% of your salary. When I first started working right out of college, that was laughable — even with a roommate, I couldn’t find a place that I felt safe living in for less than $X, which wound up being 50% of my salary. Yeouch. On the flip side, when I got out of law school, that math (25-30%) meant I could have spent as much as 3X on an apartment — which a lot of my friends did. For some people, I think they thought they “deserved” to come home to a swanky apartment; for others I think they thought, “I will never see this kind of paycheck again! I’m going to enjoy it!”  But cut to three or four years later, and they suddenly didn’t want to leave that nice apartment or that lifestyle, and it had an affect on which jobs they looked for.  Hello, golden handcuffs.

My advice to people who are just starting demanding jobs: realistically gauge how much time you’re actually going to spend in your apartment.  My thought when I got out of law school was that I would not see my apartment, because I expected to be working long hours (and I did).  Furthermore, those crazy hours don’t really “break” for the first 2-3 years, which meant I stayed in my first apartment out of law school for about that amount of time simply because I had no time to search for another apartment.  So the rent you willingly pay, right out of law school, will have a huge impact on your savings, your cash flow, and it can even influence what kind of job you can take. Let’s take a look at the number differences between two hypothetical renters, each making $100K:

- Person A pays 25% of her salary for rent, or $2083. Over 3 years she spends $75,000 on rent.
- Person B pays 30% of her salary for rent, or $2500. Over 3 years, she spends $90,000 on rent.

Note that with the difference in money, Person A could have saved an extra $15,000, using it for an emergency fund, investments, or to pay down debt. (With interest or good investment returns, that could be even more.)  But really — depending on your city and your salary, even 25% can be a huge splurge.  How low can you go?  For example, someone paying 18% of her salary still has $1500 to spend on rent, but has $36,000 more than Person B at the end of three years.

So how do you decide where to live? Some factors to consider:
– Where are you coming from? In law school I lived with 3-4 roommates in the top few floors of a townhouse on Capitol Hill that was in such a state of disrepair that we seriously worried that the “picture window” would fall off the building. We had a mixture of “we found it when we moved in” furniture (a broken, funky arm chair stands out in my memory), “it was super cheap at the store” (a $.98 plastic tablecloth that we used in the kitchen), and “I’ve had it since college” (or even “my parents have had it since college”) furniture. So to me, it was a HUGE splurge to live by myself and get a studio apartment with a loft bed in a nice area of town (Fifth Avenue, between 15th and 16th Street.) (I believe it was 13% of my salary.)
- Safety. I had always lived in doormen buildings before in NYC, but I knew that a) I could get packages delivered to my office, and b) the company I worked for paid for you take a car or cab home if you worked past 8 pm. Keep in mind that many cab drivers will be kind enough to wait until you get inside the building if you ask them. If you’re in similar shoes, take a look at the surroundings of your apartment — are there businesses that are open and bring foot traffic? Restaurants are great, but even a bodega will do. Bars or “all night ATMs” might make me think twice, but it’s still better than an isolated spot. I once spent a summer internship living on a block that had a parking garage and some residential, non-doormen buildings on the street — I worried every time I stepped foot outside the apartment, no matter what time of day it was.  Similarly, take a look at your building’s security — while my studio didn’t have a doorman, it did have a video intercom and several doors that required keys.
- Amenities. A gym in your building is amazing, but weigh how much you’re really going to use it.  Laundry drop off/pick-up is one of the big things that I know a lot of friends made use of in doormen buildings.
- Other factors that will affect your budget and time. For example: is the apartment located so far from public transportation that you’re going to want to take cabs everywhere? If you have a car, are you going to end up a) paying through the nose for a private spot, or b) spend half your weekends hunting for a spot on the street, moving it for street cleaners, or worse?

(A note on buying:  I had some single friends who bought apartments when they came out of grad school, either on their own or with the help of their family.  It was the early 2000s, and so it turned out very, very well for a lot of them — after three or four years living in the space they sold it for crazy profits.  (One friend made a 65% profit on her apartment, I kid you not.)  Other friends found themselves stuck with a huge mortgage that restricted their lives as well as what future jobs they looked for.  Had any of my friends who owned been laid off or fired, I suspect they would have been absolutely panic-stricken.)

Finally, for my $.02, I would advise decorating your apartment with the theory in mind that if you see it, it will be at night. I’m a fan of dark wood furniture, jewel tones, and black accents — but when I got my first apartment after law school I decided to go with white furniture and a “mod” color scheme (inspired by one of my grandmother’s scarves) of navy, hot pink, and yellow. It made me happy when I came home at night, and it looked cohesive.  (Pictures after the jump if you care to see.)

Readers, what percent of your salary do you pay for rent or mortgage?  What things do you love about your apartment, and what regrets do you have?

(Above: my studio apartment with a loft bed (behind the bookshelf), where I lived from 2003-2006.  Pictures taken by my friend T when she came to visit in 2005 — it was a huge mess then, obviously!)

This started out as a post about how to pay off debt, and I realized as writing it that the huge question is thus:  When should you pay off debt? So let’s talk about it.

As I’ve mentioned before, I generally led a charmed life (as far as debt is concerned) in my 20s — my parents paid for my education (thank you!) and I never had any credit card debt. In the past few years, though, I’ve gotten better acquainted with debt. First, my husband and I got married — when we met, he was finishing his master’s degree at NYU, and he took out some loans to pay for the education; they are now my responsibility as well. Then, we bought an apartment in NYC — we kept our loan in the “non-jumbo” category, but we still now owe six figures to dear old Wells Fargo.  (Pictured above: Lodis ‘Cairo Diva’ Clutch Wallet, available at Nordstrom for $68.90 (was $138).)

I think there are three cardinal rules for debt.
1. Do what you can to avoid accumulating it.
2. REALLY do your best to avoid credit card debt. Live within your means, and spend less than you earn. Pay off what your balance every month.
3. For all your other loans, pay at least the minimum every month, on time — your credit card report will be severely affected if you don’t.

Easy peasy, right? Questions still remain — how much should you be saving versus trying to pay down debt? If you’re paying down debt, which ones should you pay off first?

Save For Your Emergency Fund. Life has a funny way of taking you by surprise, and you need to protect yourself — you could get laid off, or get in a car accident, or your roof could start leaking.  The emergency fund is for all of this. In general, keep your emergency fund in a “you can get the money tomorrow” kind of account, not an investment vehicle like a CD (even the shortest are 6 months). As I’ve mentioned before, I use Mint to keep track of finances — one of the fun things about it is that it can tell you which banks are currently offering the highest interest rates.  (We keep the majority of our emergency fund in a Capital One account.  It takes a few days to transfer the money, but we also keep a small amount in our checking and savings account.)

Contribute to your 401K. I didn’t start until I was around 27, and I kick myself for that — the effects of compound interest are so great that those first few years are crucial.  There are some important, basic things to know about a 401K: Your 401K is a retirement savings fund — the money is taken out of your paycheck before you’re taxed on it, meaning that if you think you’re contributing $100 to your 401K each month, it would be more like trying to save $140 in after-tax money (or whatever rate your income is taxed at).  (Um, don’t quote me on those numbers.)  Your employer may match your contribution, up to a certain point — figure out what that is and contribute at least that amount, because it’s basically free money.  (You contribute $100, your employer contributes another $100.)  A few other fun points about the 401K: You can’t touch the money until you’re 59.5 65 (you can, but you’ll be taxed on it and pay a 10% penalty before then), and you’re only allowed to contribute a certain amount every year — right now the maximum is $16,500 (unless you’re over 50, when you’re allowed to contribute a bit more in “catch-up” money).

Next, automate debt payment. I read a great article on Simple Dollar a few months ago about how one of the easiest ways to pay down debt is to simply round up the minimum each month that you pay.  Say your student loans are $754.85 per month.  Pay $800 instead, and have the extra go to the principal.  You won’t miss the extra money, and it can make a big difference in the long run, as illustrated in the Simple Dollar examples.  Do what you can here — for example, if you can round up that payment to $1000 every month, do it.  We do this with our mortgage and the student loan payments.  (I also like it because I frequently schedule payments a few weeks in advance, and I can easily remember how much money will be taken out.)

If after all that, you still have money left, then you have a few big questions:

1. Should I contribute more to my 401K?
2. Should I pay down more debt?
3. Should I be saving even more money?
4. Should I be investing my money in the stock market?

These are difficult questions, and I’m curious to see how you readers balance these questions and answer them yourselves. The answer for most people, I suspect, will be “all of the above” — if you have an extra $1000 a month, you may want to put another $250 towards your 401K, another $250 towards one particular loan, another $250 to your cash savings account, and another $250 to your investments.  Factors you may want to consider here include what your long-term goals are (retirement? savings for a child’s education? marriage? house?) as well as what your short-term goals are.  If you have a short-term goal — I’d define it as being 1-2 years away — like a downpayment, or a desire to quit your job to launch a business or have a baby, you may keep accessible money in a savings account and lower your monthly debt load while you can by paying off specific loans so your monthly minimum is reduced.  (In fact, many lenders will look at your debt-to-income ratio, and if it’s higher than 28%-36%, you may have problems borrowing money for a mortgage or loan.)  Taxes are also a consideration — you can take a tax deduction on some things (like the interest you pay on your mortgage and student loans) but not on others (credit card debt); meanwhile you don’t pay any taxes on what you contribute to your 401K until later. Another big factor is interest rates — what you’re paying on your various loans, as well as what you’re getting in interest on your various savings.

Readers, what factors do you consider when trying to determine whether to save or pay down debt with extra money?

337/365: The Big Money,originally
uploaded by DavidDMuir

Last week we asked:  How has the recession affected your spending and saving habits?  Although we’re all peeking through our fingers as we check on our 401Ks and various accounts, the good news is that it hasn’t affected us that much.

• 46% of voters said they weren’t doing anything differently
• 28% of voters are looking at these plunging prices as a great time to stock up (ha! ha) on stocks and other investments
• 13% noted that they’d moved money around so no more than $100K was in one spot at once
• 9% said they were carpe diem-ing it up and living for today
• 3% said they were taking money out of their bank and hiding it in pickle jars in their backyard.

Commenters noted that they were trying to take less cabs and eating out less… (same here!)  One commenter also noted that she was going to buy a house sooner than anticipated.  (You go, girl!)

As always, the poll is still open — if you haven’t voted yet, please go do so!  And, just for kicks, if you have a recession-favorite recipe, post it in the comments below…

Liking these posts? Follow Corporette on Twitter — this is the edited version of what we’re reading! (We also Tweet if we hear about a good sale.)

- Women aren’t necessarily leaving the work force for different reasons than men. [The Women's DISH] But they are fleeing legal careers faster than men! [Vancouver Sun via Ms. JD]

- Ooh, a profile on Carly Fiorina… and her support of McCain. [WSJ]

- What you eat affects your mood (we knew that) as well as your cognitive abilities (didn’t know that). Salmon and beets, anyone? [iVillage]

- If you’re thinking of getting a dog, you may want to consider a mutt rather than a designer dog like a puggle, which can have massive (and expensive) health problems. [ChiTrib]

- Investing idea: buy a foreclosed home. [WSJ]

- Amusing: an article from Law.com on the evolution of lunch from summer camp through to partnership. [Law.com]

- Randomly: A cool website we just found: a Yale-educated former lawyer is blogging (and writing a book) about a year spent making all efforts to be happy. [The Happiness Project]

- Interesting review of an Title VII case out of Pennsylvania wherein a receptionist was fired nine minutes after sending an e-mail telling her two male bosses she would not get them coffee every day at 3 p.m. The judges said that because there had never been a male receptionist, she couldn’t possibly prove she was being treated unequally. [Feminist Law Profs]

- There’s a great series over at The Glass Hammer profiling 35 Women Under 35.

- Ah! Advice on how to avoid making a poor investment in a franchise. [WSJ Independent Street]

- How to Kill Time at the Office (because you need suggestions, right?)

- This one’s for the New Yorkers: a review of a well-planned kitchen space that is also teensy. Handy article to read for renovations! [Apartment Therapy]

- In totally unrelated news, happy birthday to Go Fug Yourself! Four years, wow! To celebrate, they give their readers a gift we can only hope to one day match — a link to “one of the most awkward, poorly costumed and excruciatingly choreographed moments in television history.” Enjoy!

It is our sincere hope that most readers will be cutting out of the office by 3 PM today. Dare to dream, ladies! Accordingly, we’re taking Friday off. See you Monday.

- Fashionista declares it so it must be so: Black nailpolish is dead. (If it were ever appropriate in an office anyway, which is debatable.) [Fashionista]

- Oh, good, we like to laugh: “Report: Women Increasingly Choosing Dead-End Careers Over Dead-End Relationships.” [The Onion]

- 5 mini-laptops worth lugging around. [Smart Money]

- In case you’re in need of some mini-speakers for your office computer: MUG recommends this pair by Klipsch.

- Wot? A useful Facebook application that lets you add your friend’s birthdays to your Google calendar? No way. [Lifehacker]

- NYT has an interesting take on the age-old conundrum: rent versus buy. We like the advice: If you can rent something for $2100 per month ($25,200 per year) or buy it for $400,000, the “ratio” is about 1:16 — you should never buy if the ratio is over 1:20. [NYT]