Money

Tales from the Wallet: Tax-Savvy Investments

by Kat on 01/25/2012 · 124 comments

in Home Ownership, Investing, Money, Tales from the Wallet

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?

[click to continue…]

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Under Pressure: Charitable Giving at the Office

by Kat on 12/13/2011 · 108 comments

in Business Etiquette, CoWorker Problems, Holidays, Money

Reader D wonders charitable giving at the office:

Around this time every year, non-profits make a big fundraising push. Do you (and your readers) think it’s appropriate for employees to solicit donations from other employees for non-profits they support? Relatedly, I have found that in many offices, there is some pressure to donate to causes or nonprofits that the company supports. While the causes may be worthy, compelled charitable giving is a little uncomfortable. Any thoughts on how to gracefully decline donating to the firm’s non-profit(s) of choice?

Yeouch. This should be an interesting thread. For my own $.02, I think the senior people should really do their best to “protect” the office from this kind of compulsion (including employees pressuring employees). Anything beyond a sign-up sheet for Girl Scout cookies posted discreetly in someone’s office or in a communal place — or a single email about how X is running Y race, and won’t you consider donating — is, to my mind, pushy, annoying, and unprofessional. Of course, half the time the pressure is coming from the higher-ups — I have one girlfriend whose boss puts tangible pressure on everyone to give lots of money to the charity for which he sits on the board. Classy! (Pictured: Pressure Gauge, originally uploaded to Flickr by wwarby.)

In terms of deflecting such requests… I think this comes back to “know your own office.” For some offices, the culture there may be where everyone gives to everyone else’s causes, but it’s some nominal amount. Other times (like my poor girlfriend) you may just have to view the charity push from the boss as a “tax” on working there, and keep that in mind when considering other job opportunities. If there is no office culture associated with giving, though, and it’s one person making strident efforts to get you to donate, I would be polite but firm: “Thanks, but I already gave at __.” or even just “Thanks, but I can’t contribute right now.” And change the subject. Don’t ask for more information, don’t challenge the worth of the charity… just don’t let him or her continue the sale tactic.

On the other hand, if this is a colder sell — i.e., the pressure is coming from someone you don’t see regularly or have to work with — an easy way to deflect most requests for charity is to say that you only give to charities after you’ve studied their audited annual returns (and that you prefer to give directly to the charity rather than the local branch).

Readers, how do you deal with charitable giving in the office?

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Tales from the Wallet: Year-End Housekeeping

by Kat on 12/07/2011 · 143 comments

in Investing, Money, The Personal Shopper (TPS)

What sort of year-end financial housekeeping do you do? What should you do?

I have fond memories of a trip home for Christmas one year, perhaps a year or two after I’d started working as a lawyer. I always used to sleep late and my parents would each poke their heads in to check on me and try to rouse me. Anyway, one morning around December 27th or 28th my father burst into the room at some ungodly hour (or so I thought then) to remind me that I needed to review my stocks and sell off some losers so I could have capital losses to offset against capital gains. Uh: thanks, Dad. (Pictured: Magic wallet in fresh strawberry, available at J.Crew for $22.50.)

He was right, though — as the year draws to a close now is a great time to think about a number of different aspects of your finances. For example:

Use the money you put into your flexible savings accounts — think eyeglasses, over the counter medicines, and more.
Max your contributions to retirement accounts if you can.
If you’re saving to go back to school, or saving for your child’s education: consider maxing your contributions to your 529 plan (if you can) if your state has a deduction for contributions.
Get your free credit reports if you haven’t already gotten them for the year. (And according to that article you can also get a free credit score, which is news to me — I’ll have to check it out after holiday shopping, as the article advises.)
Give to qualified non-profit charities (and lower your taxable income).
Assess your stocks and other holdings. As my father noted, if you’ve had capital gains, selling loser stocks and funds can be a great way to offset those gains.

Readers, what sort of things do you do for your finances at the end of the year? What sort of regular housekeeping do you do for your finances in general?

What To Do When You Make More Than Your Colleague (And He Knows It)

by Kat on 12/01/2011 · 109 comments

in Business Etiquette, CoWorker Problems, Money, Professionalism, Transitions

Reader G wonders how to deal with a coworker who has become angry and nasty after discovering a salary difference…

After months of looking for a job and interviews, I finally found another job as an attorney at a small firm. Previously I had worked in another small law firm where I gained substantial litigation experience. On my first day at the new firm I learned that the firm had hired another associate who graduated the same year as myself. I learned that this associate had less substantive experience than me, was making less than me (he asked for less during interviews) and his billing requirement is less than mine. Once he learned that I made more, billed more and was treated as a more “senior” attorney this associate began making disparaging statements to me, where on several occasions the associate has mentioned that it is ridiculous that I am making more than him etc and the firm’s decision makes no sense. This associate also attempts to undermine my opinion and knowledge in every chance he gets. It has become very unpleasant and he reminds me of the super-competitive people in law school who just did not know how to have a normal conversation. Every time I try to work with him on a project, he uses it as a way to tell me that he is smarter and more knowledgeable than me.

I know I should not let his issues bother me, and I am very confident in my work. However I think I need to address this with him somehow. Do you have any advice on what to say to him exactly? I don’t want to create a hostile environment since this is a small firm, but I cannot let this continue any further.

I’m afraid you’ve discovered one of the cardinal rules of life: DO NOT TALK ABOUT MONEY. True, some firms are lockstep, and there is a sort of freedom when everyone knows what everyone’s making. But every other job in the world? Make like The Go-Go’s and keep your lips sealed. (Pictured above: Old Coins, originally uploaded to Flickr by underactive.)

Now that the cat’s out of the bag, though, I think you’ve got a few options.

1) Distance yourself / lay low until this blows over. Avoid working with him where you can, avoid talking to him at coffee breaks, et cetera. Be friendly, but stay away as much as possible.

2) Pick your battles — and know how to fight them. For example: if you have to work with him and he makes repeatedly snide comments to you (and only you), just let those go. Maybe arch an eyebrow or give him a pained expression, but for the most part, let him boast all he wants to in private. On the other hand, if he questions your work product in front of your boss or client, you need to shut him down very quickly — and the best way to do that is by knowing your work product inside and out so you can defend it adequately (and, if this makes sense, as casually as possible: defend your work without getting defensive). Ultimately, he looks bad in doing this, and you want to make sure that you correct any misconception he might create while also staying “above it” — the last thing you want to do is look like two squabbling children. I would also suggest you keep your guard raised. For example, if you’re both working on the same project, make sure that you’re CC:ed on everything and invited to every meeting he is.

3) Talk to HR or your boss. Let them know why the working relationship is strained, and ask them for advice on how you should handle the situation.

4) Talk to him. This guy does not sound like the kind who can be reasoned with, but if you want to try: put yourself in his shoes. How would you feel? What would dull your anger? Whether it’s looking for a new job, asking for more money at review time, or just enjoying the smaller billable hour requirement, perhaps you can give him helpful suggestions or at least some sympathy.

Readers, how have you handled awkward work situations like this — particularly when a salary disparity has been discovered?

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Tales from the Wallet: The Easy Way to Save $10k

by GuestPoster on 10/12/2011 · 151 comments

in Investing, Money, Motherhood, Tales from the Wallet

When it comes to money, the true savings are never in the tiny things — they’re in the big things like your healthcare plan and your investments. My old friend Sue is a master at all of this hard personal finance stuff — I’ve asked her to share some of her knowledge with us today. You can follow her on Twitter at @suziedonuts if you want more great tips! – Kat. (Pictured: Boje Designs Paradise Lace Essential Wallet, available at Endless for $34.)

Yes yes, you know how to clip coupons and shop sales. But there are two problems with this approach: First, it takes too much time for not enough payout, so you’re practically doomed to failure before you begin; and second, you’ve heard it all before, so if you’re not doing it by now, you’re not going to do it tomorrow. Plus, being frugal requires constant vigilance. I’m not saying it’s not worthwhile, because it is; but especially when you’ve got a healthy cash flow coming in, you have to put dollars before cents.

First you need to make sure you are fully maximizing your savings the big stuff, and not necessarily the stuff you read about. The big savings can be found in your workplace benefits and your investment accounts. The tips below will help you shave up to $10,000 off your expenses.

(Note: For simplicity’s sake, we’ll assume in these examples that you are making $150,000, are married filing jointly with one dependent, and are living in New York state.)

Saving at Your Work: $3,576+

Whenever you start a new job, HR gives you a giant info packet. Grab a cup of coffee and dig in. A good benefits package is worth its weight in gold. At a large company, the benefits might include perks such as:

- Free admission to major museums in your city

- Discounted rates on mobile phone service, banking, childcare, and insurance

- Health Advocate services (I can’t say enough good things about these guys)

- Flex spending accounts

Sure, the museum and gym perks are nice, and I’ve used them. A lot. But the real savings for me has been in the boring stuff.

Let’s say you are spending $500/month on groceries, and you cut your food spending by 50% by shopping sales and using coupons. That’s $3,000 a year. And it’s a pain in the neck to do. Believe me, I’ve done it. I’ve got the coupon organizer and the deep freezer and the stacks of sales circulars. I even wrote up a grocery price book, although that’s a whole other post. Suffice it to say, there’s a reason that most of the women on Extreme Couponing are stay-at-home moms.

Alternately, you can save almost $3,500 a year just by finding tax-advantaged ways to do the same stuff you’d do anyway – namely, by using the flex-spending accounts that your company may already be offering. In our example, you’ll save 34% by using flex accounts:
- $1,700 savings: Flex Spending Account for medical out-of-pocket ($2,500/year per worker @ 34%) – just be sure to “use it or lose it” each year
- $1,876 savings: Commuter Spending Account for mass-transit passes or parking ($2,760/year per worker @ 34%)
- BONUS ROUND: $1,700 savings: Dependent Care Spending Account for daycare or preschool ($5,000/year per household @ 34%)
Source: Bankrate.com 125 Cafeteria Plan Calculator

During Benefits Season in November, set up your flex accounts for 2012. Then take the afternoon off and visit your local museum on the company’s dime; you deserve it.

Saving with Your Investments: $6,721

With all that extra cash, you can front-load a 529 plan, which can be used for educational spending for yourself and then handed off to your children when the time comes. In New York, you can deposit up to $10,000 a year state-tax-free into the New York 529 College Savings Program Direct Plan, which is administered by Vanguard. In this example, maxing out the 529 will save you another $738 in taxes this year. Not to mention, the money grows tax-free. If that $10k sat in the 529 for 18 years, growing at 7%, you’d save $5,497 in taxes versus using your regular brokerage account.

Source: Bankrate.com 529 College-Savings-Plan Estimator

There have been countless books written on investing. I’m not going to tell you how to invest, but please, make sure you pay as few fees as possible. I’m a Boglehead myself. I make a regular contribution to an index fund every month; if the market tanks, I increase my contribution as much as I can stand it. Since I put in relatively small amounts each time, I want to minimize my commission fees (the price you pay per trade) and my expense ratios (the % the fund charges annually for maintenance). So I stick to index funds from discount brokerages like Vanguard or Schwab, which have very low expense ratios. You can open a brokerage account at Schwab with as little as $100. (Vanguard’s minimum is $3,000.) You also should never have to pay a commission fee when buying an index fund.

Schwab’s expense ratio for its Total Stock Market Index Fund (SWTSX) is 0.09% as of this writing. The Morningstar industry average is 0.38%. If you invest $500 a month with Schwab, you save $174 a year in fees.

You can also link your Schwab brokerage account to its High Yield Investor Checking account, which is truly free checking – Schwab even reimburses all ATM fees. At two, $3 trips a week, that’s $312 a year in fees.

The Long View: Break a Million Without Breaking a Sweat

Based on the above examples, a married couple with children could save as much as $6,500 a year. What does that get you in the long run?

Let’s say you’re 30 now. If you invest that $6,500 in an index fund making just 7% annually (because that 10% figure you always see thrown around is so 2007), you’ll be a millionaire by age 65. All without clipping a single coupon.

Source: Bankrate Simple Savings Calculator

Readers, are you maximizing your money with all of these big picture items? What are your best tips with the big picture items?

(L-2)

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Tales from the Wallet: From A Lawyer’s Salary to Paying Tuition – Six Ways to Deal

by GuestPoster on 08/17/2011 · 195 comments

in Money, Tales from the Wallet, Transitions

Ah, golden handcuffs — long after some people know they should quit their high-paying jobs, they stay on because their lifestyle costs too much (usually due to a combination of rent or mortgage, plus debt). How do you break free from the golden handcuffs, and adjust your finances to your new lifestyle? Today’s guest poster, Ying Ying Li, has some tips for just that. I’ve known of Ying’s hilarious first blog, Last Day at the Office Emails, since I linked to it here during a Weekly Roundup. She’s also recently started sharing more of her reflections on her life as a recovering lawyer at her newer blog, The Ying-a-Ling — check her out! (Pictured below: Pochi coin purses, available at Kitson for $12 each.)

A couple of years ago, I quit my job as a litigation associate at a large law firm in midtown Manhattan in order to attend a conservatory of theatre arts (acting school) full-time. I’d always wanted to do something creative and watching TV had made me think that law was the perfect choice for me. By the time I found out that I didn’t really want to be a lawyer, just an actor that played one on TV, I was already living in an expensive high-rise rental in Manhattan and encumbered with a hefty debt from student loans. Fortunately, after five years of accidental lawyering, I was able to save up enough money to quit and pursue my dreams.

The transition from making a mid-level lawyer’s salary to not making any money and paying tuition was a dramatically humbling one. I like to tell people that I am my own trust fund baby, except that the trust is very, very, very, very, very, small. Although there were some second-career students in my small theatre class, most of them were in their early twenties or even teens. I showed up for my first ballet class with a leotard that was extremely high-cut and bright red underwear that was extremely not; suffice to say, I looked like a baboon. I remember sticking my head out of the sweaty dance studio during that embarrassing class and seeing the bustling highrises across town where I used to have my own office and administrative assistant… an entirely different life!

Financially-speaking, breaking free of the “golden handcuffs” also had its own set of ramifications — some fun, others, less so. But I am happy to report that although “less money, less problems” isn’t exactly the corollary of “‘mo money, ‘mo problems,” I have been able to make do with less in one of the most expensive cities in the world. Predictably, I stopped taking cabs and bought a monthly subway pass, I learned to cook and ate out less, I drank more beer and less martinis, I said good-bye to my nail salon and hello to Sally Hansen. As someone who loves clothes, and living in a city like New York where there is a constant barrage of women wearing the latest designs, I realized that I had to figure out some innovative ways to keep my wardrobe budget in line without giving up on my style horse hobby.

1. Heighten your standards.

It may sound counterintuitive, but when I was making ~~more~~ any money, I had lower standards for purchasing clothes and accessories. If I looked good in two out of three angled mirrors in the changing room, I’d probably buy it. If the arch of the shoes didn’t perfectly follow my natural arch, but was otherwise what I had been searching for, I’d get it. As a result, I ended up with a lot of mediocre pieces in my closet, and a never completely satisfied shopping list. Now, I am much more firm about my “standards to buy”, and I’ve finally accepted that scouting for the perfect black leather handbag can take a very long time. I regularly reject items for not fitting perfectly, for having an unruly fabric, for not having all the features that I was looking for. This has cut down on a lot of unnecessary purchases.

2. Reduce your online shopping.

Visiting sites such as Gilt, Yoox, Rue La La, and the myriad shoe sites out there were a daily indulgence for me, and I didn’t really scrutinize my purchases because I often felt the adrenaline of these “flash sale” sites where, if you hesitate on an item for even an extra second, it will get sold out from under you. In order to resist the temptation of online shopping, I removed myself from daily email lists from these sites, and when possible, subscribed to their weekly mailings. This way, I naturally forgot about checking on these sites, and now might go on them on a monthly, instead of daily, basis. Online shopping is fun and you can often score really amazing deals –but at my current budget, it is too expensive to maintain as a habit. If I do make an online purchase, it is much more deliberate and more of a special occasion.

3. Recognize quality over labels.

After ditching the online shopping habit, I reaquainted myself with brick and mortar stores such as Uniqlo and H&M. Some might argue that these stores skew a little younger, but there’s such high turnover, and so many different pieces, that I have not been reduced to dressing like a teenager. I have also been able to find great summer tops at Target and well-made underwear at Marshall’s and Century 21. The main cost here is probably time, and you do kind of feel like you’re helping a hoarder sort her clutter, but well-fitting, durable pieces do exist at these establishments. In terms of quality, although I don’t quite understand the economics of it, I have been able to find a lot of durable, well-fitting, well-made pieces at H&M that are on par with, or even better than the fancier labels I was courting as a lawyer.

4. Transcend trends.

I used to be a sucker for trends. Studs? I’ll try ‘em. Platforms? Give me five pair! But being on a student budget, I no longer respond to every craving for the latest garb. Just like how you’re suppose to wait twenty minutes before you can tell if you’re full or not, I make myself sit back and evaluate whether I even like this trend or not.

5. DIY.

If I like really like a new trend, I try to see if I have anything that I can do to follow it. For example, last fall all the stores and fashionable people were wearing those 1990s Elaine pants –wide on top, cinched by the ankle. I saw them at Zara and really wanted to get a pair, but then I realized that all I had to do was roll up my pants in a special way to make them narrow at the ankles. If I can’t DIY a trend, I tell myself to wait a few months. If I still like the trend at that time, then maybe I’ll buy it.

6. Approximation.

Even if you decide to buy something on trend, there is no reason you need to buy it from the most expensive store carrying that trend! For instance, I really liked the loose satin tank tops that I saw girls wearing in the city. Instead of buying them at JCrew or Club Monaco, I found them at Target for under $20 each. With trial and error, I’ve learned that there are certain things that you can spend less on and still look great, such as jeans, t-shirts, willowy drapey tops, shorts, summer dresses. (Pictured: Ying’s own tank, at left, which she bought as an approximation of this Alicia tank from Joie, available at CUSP by Neiman Marcus for $128.)