New IRA Brokerage

A couple of days ago, I opened a new IRA Brokerage account. I picked Charles Schwab out of all the discount online brokerages because of the following factors:

1. Great website (TD Ameritrade was a contender, but I heard that sometimes the website is unavailable and that's not acceptable even as a rumor, especially if you want to do some trading on the spot)
2. Easy search for mutual funds
3. Largest amount of no-load funds available (I like no-load mutual funds for the IRA account as overall they are less risky than individual stocks)
4. Funds available from multiple families (important as I want the greatest diversity to find a fund that is highly ranked)
5. Great customer service (I received a welcome call, unlike when I opened ShareBuilder)
6. Low start-up costs (Fidelity and Vanguard are great companies, however, they require initial deposits of $2,500 and $3,000 respectively)
7. Overall highly ranked and reviewed online

Rule of 72

If you need to quickly figure out how long it will take you to double your money at a certain percentage rate, you can divide 72/percentage rate. For example, you found a mutual fund with an average return rate of 8% and you invested $1,000. You'll have to wait 9 years (72/8) for the investment to become $2,000.

Personal Finance iPhone Apps

After reviewing the apps for a months or so, here is my list of the useful personal finance iPhone apps:

1. Mint.com - see what happens to all of your money
2. All your banks such as Chase, which even allows you to take a picture of your check to deposit instead of visiting an actual branch or an atm
3. PayPal - Monitor your account and send money to friends easily
4. Investment accounts such as ShareBuilder to monitor your holdings
5. Zillow.com - useful if you are looking to rent or buy or are just interested in the prices of the houses around your location
6. LoanCalc - See how much sooner you will payoff any loan if you increase your minimum payment
7. Pay Off Debt Lite - See what percentage of your debt you have paid so far since the beginning to motivate you to pay more
8. Credit Card accounts such as Amex to allow yourself to pay your bills from your phone
9. ScoreAdvice - See what you can do with your credit score to improve it
10. Ask Dave - Although I don't always agree with what he says, he does have some good advice, this is an app with clips of his radio show
11. NPR News - the Money Matters radio program releases some great shows on personal finances
12. Local stores such as Walgreen's app to see what's on sale this week
13. Daily deal apps such as Groupon to see the deals of the day
14. News websites such as CNN money to keep up with the current personal finance news
15. Coupon Sherpa - coupons for retail stores near you, although coupons seem to be available for only a few stores
16. GasBuddy - will help you find the cheapest gas near you
17. Kayak - to find the best travel deals
18. Around me deal apps such as AAA Discounts (must have AAA membership) state discounts available using your current location
19. Bar code scanners such as ShopSavvy will help you find the best deal online or in stores
20. Key Ring - if you forget your loyalty card, you can scan the card on your Key Ring app instead
21. Check-in apps like Yelp that allow you to check in to a restaurant or a shop and  receive a discount or a freebie

If you have other personal favorites, let us know in the comments.

Retirement vs. Emergency Fund

If you do not have a full (whatever that means according to you) emergency fund saved up, you might want to dedicate all of your funds towards the emergency fund and not save anything for retirement. However, I think there is another option that most people do not realize. Your Roth IRA can serve as a temporary emergency fund while you do not have the emergency fund build up all the way.

Most people do not say that all Roth IRA contributions are available for withdrawal anytime without taxes or penalties. Only the earnings on those contributions will incur penalties if withdrawn early. However, this is true.

Therefore, If you have an excess of $500 a month after fulfilling all your expenses and the 401(k) contribution (if it has a match). You have no emergency fund and you require an additional $300/month in retirement savings to be able to save the suggested 15% of your gross income. Instead of putting the entire $500 towards the emergency fund, put $300 in a Roth IRA and $200 in the emergency fund.

If you have a serious emergency such as a job loss or a medical accident you cannot cover, remember that you can withdraw the $300/month you have been putting in to the Roth IRA. The danger in this is that your holdings can go down. Therefore, you can hold all of your Roth IRA investments in cash until you have build up your emergency fund. The more real danger is that you will now always see your Roth IRA as an emergency fund and will empty it if an "emergency," such as a friend's wedding, arises. Don't ever take money out unless it's a real emergency. Remember that you can never replace it.

The main reason for this maneuver would be that if your emergency fund needs 8 months of expenses, then you will need a year or two to build this up. You can only contribute $5K in a Roth IRA per year and if you do not contribute one year, you miss out on that amount.

2011 Withholding Calculator

Now that taxes for 2010 are done, it is time to look into what is being withheld from your paycheck. If you received a large refund for your 2010 taxes, or had to pay a lot to the IRS, this is for you. However, everyone should have a go and make sure that their W4 form is correct with the HR.

Fill out the IRS 2011 Withholding Calculator and see the amount of allowances you should claim. Once you know the number, check with your HR office or your online pay system to see how many are currently listed on your W4.

Goals

To all who are struggling achieving financial goals:

1. Don't plan for an emergency fund of 8 months of expenses if you don't have anything in the bank. Start small, say $1,000 and go from there.
2. Break your goals down to bite size achievable ones.
3. If you push yourself too hard, your saving system can break.
4. Use a system to track your goals for motivation. Mint.com is great for that.
5. Make your goals public to motivate you. You can do that by sharing your goals with family or friends, or publicize them in a place such as NetWorth IQ.

Net Worth - The Millionaire Next Door

Some of you might have heard about the formula presented in the book - Millionaire Next Door by Stanley and Danko that determines your target net worth.

The formula looks like this: Target Net Worth = Your Age X Annual Pre-Tax Income / 10

However, everyone knows that after college, you most likely have a negative net worth. Therefore, many people have come up with their own formulas to compensate for that. Here is one I like by the author of the Simple Dollar Blog:

Target Net Worth = (Your Age – 27) X Annual Pre-Tax Income / 10

The second formula gets me a lot closer to my current net worth. It's off by $3K. The top formula places me about $90K off. 

Lower Your Credit Utilization Ratio

Credit utilization ratios look at how much credit you use opposed to how much credit you have available to you on all credit cards. If you are using too much of your available credit limit, your credit score can be negatively affected. Ideally, the credit utilization ratio should be below 10%. However, many financial advisers will say below 30% is fine. Therefore, if you have a $3,000 credit limit on all your credit cards, you cannot spend more than $1,000 per month if you want the credit utilization ratio to be below 30% and no more that $300 if you want the credit utilization ratio to be below 10%.

Opening more cards could be a solution as your available credit would go up and, therefore, your credit utilization ratio would go down. If you do not want to open any more cards as having the inquiry for the application for credit will appear on your credit report for 2 years and will also negatively affect your credit score, there are other solutions. It's simple. Pay your credit card twice a month to lower this ratio. If you have a total credit limit of $3,000, but constantly make around $600 in purchases per month, pay $300 of your credit card charges before a statement is created to lower the statement balance to $300, making your credit utilization ratio 10%. Credit Karma has an estimator to see what your score would be if you made any changes. See what happens when you lower your credit card balance. Remember that your statement amount is your credit card balance weather you pay it off each month or not.

Suze Orman Expense Sheet - Budget and Emergency Fund Planner

Another great budgeting tool is on the Suze Orman's website, Suze Orman's Expense Sheet. You enter your emergency fund amount and break down how much you spend each month by category. Then, Suze lets you know what your essential expenses are and based on that how large your 8 months emergency fund should be.

If a budgeting category is off from the national average, the cell will highlight yellow and by hovering over the cell, you can see what the national average is. If you are spending less, that's great. However, if you are spending more than the national average on a category, you should reconsider that expense even if you have an above average income.

At the end of the process that takes 2 minutes, Suze will tell you to beef up your emergency fund if you do not have 8 months of essential expenses. If your emergency fund fits the bill, she'll say that you should aggressively pay down any debt.

NetWorth IQ

There are several ways to track your net worth. The most convenient for me, has thus far been Mint.com because it does everything automatically. However, another way to track your net worth is through NetWorth IQ. Here are it's advantages and disadvantages.

Disadvantages:

1. You must manually enter all your data
2. All other people's data is manually entered as well and might not be accurate for comparison
3. You must enter your data every month to see the progress

Advantages:

1. You can track your net worth with a graph
2. You can see the percentage change in each category
3. You can make your net worth public so other people can comment on your progress
4. Making your net worth public might motivate you to get that number up
5. You do not need to give out personal login information
6. You can compare your net worth to others your age, or in your occupation, for example
7. You can also compare each category such as student loan debt, credit card debt, or retirement assets to others in your demographic groups

E-File Your Taxes

Monday is the last day to file your 2010 taxes. The quickest way to file is to e-file. You can do it for free is your AGI is lower than $58,000. Many people automatically assume that they cannot e-file even if their AGI is below $58K because they have a Schedule C, royalties, or some irregular circumstance. However, this is not true. Each company has it's own restrictions and limitation and many companies allow all sorts of forms to be filed and they are just as easy as Turbo Tax.

Go to the IRS website to see a list of companies that you can use to e-file.

If you are receiving a return, elect to have it deposited directly into your bank account and receive your refund in around 14 days. And, next year remember to file early to eliminate the stress of filing at the last minute and get your refund earlier. Of course, if you owe to the IRS, it would be beneficial to you to file on the last day possible.

Student Loan Capitalized Interest

I recently noticed that for tax purposes, the student loan interest that is deductible is anything above the principle. Therefore, since my loan right now is higher than the original amount due to capitalized interest, the entire monthly payment is deductible for tax purposes. Something to keep in mind as you start to prepare for the 2011 taxes.

Bookfinder

Do you read a lot of books? You should be renting these from the local library as they are free. However, often times I find it easier to buy a book and keep it for however long I want and then when I no longer want it, resell it. If you like to buy books, you should try to find the cheapest that you can find, it's not always Amazon. One website that compares books and always gives me the cheapest choice is Bookfinder. Try it out for your next book purchase.

Discounted Gift Cards

If you don't have to pay full price for something, why do it? If you spend money at AMC, Walmart, Baja Fresh, The Home Depot, Kohl's, Borders, well you get the idea, then you can purchase discounted gift cards to make your purchases. Here are three sites where you can get a gift card of your choice at a discounted price.

Gift Card Granny
GiftCard.com
Plastic Jungle

You could also try eBay to see what gift cards are available.

The sites above are also great if you received some gift cards and no longer need them. Let's say you have an AutoZone gift card and no car, you can sell the gift card on one of these 3 sites or have people bid for it on eBay.

ING Compare Me

Ever wonder how you are doing compared to others your age that earn approximately the same income? There is a way to compare debts, savings, retirement options, etc. Go to ING Compare Me and fill out some questions.

Couponing

One way to save money on your grocery bill is to use coupons. You can sign up for the Sunday newspaper only and most likely you can sign up through Groupon or a similar site. Today, for example, there is a Groupon in LA for one year of the LA times Sunday newspaper for $10. You can recuperate your $10 pretty quickly if you look at the coupon section.

The trick to couponing is to clip the coupons that you think you could use. Then, you should look through the weekly store flyer and make a shopping list of the items that you need and preferably that will include the items on sale that week. Then, you should look through your stack of coupons and see if you can use any of them. If you base your grocery list on the coupons, you might end up buying something that you do not need.

To be more organized, create a couple of envelopes. One for the coupons expiring this month and one for the ones expiring after that. You can also further divide them by food items and household items. This way, you can flip through only the coupons that are expiring the soonest when you go shopping as sometimes you know that you will need to buy mayonnaise next week and even though it is not on sale, your coupon is expiring so why not get the mayo at a discount.

Other than getting your coupons from the Sunday newspaper, you can also look at the coupon websites such as Coupons.com and other sites. You can try the manufacturer's site for coupons that they post directly and lastly you can contact the manufacturer themselves complimenting them on the products you like. This will usually mean that you will receive some coupons directly from the manufacturer in the mail. Sometimes, the manufacturers send out coupons for the full value of the item.

For motivation, you can watch the new Extreme Couponing show by TLC. You can download the first episode free on iTunes.

Opt-Out of Junk Mail and Unsolited Phone Calls

Most everyone has received a letter from a credit card company stating that they have been pre-approved for a certain credit limit at a certain low APR. If you want to stop receiving those pre-screened letters, you can opt-out. Go to OptOutPrescreen.com and submit an electronic request, which will opt you out for 5 years or a request by mail, which will opt you out permanently. You can always opt back in through the website.


Opting out will reduce the junk mail, save paper, help prevent identity theft, and will disallow credit scoring agencies from giving out your name, address, and credit score to any credit card company that pays to ask.

If you receive unsolicited calls from telemarketers, you can put yourself on the Do Not Call Registry. This will not prevent companies that you have given your phone number to from calling, but it should stop any new solicitations. Also, when anyone from an unwanted company calls, tell them that you are on the Do Not Call Registry and that should ward some of them off as well.

If you receive a lot of magazine offers, donation requests, catalogs for local businesses that you have not asked for, or bank offers, the Direct Mail Association might be responsible. To opt out of their mailing list, go to the DMAchoice website. You have to register first and then you can 'manage' what type of mail you want to receive.

MorningStar X-Ray of Your Portfolio

If you hold several stocks or mutual funds, chances are you are not aware of the percentage of your portfolio that is in US stocks or in utilities. A great way to know the exact breakdown of what you hold by percentage is to do the MorningStar X-Ray. You can also do this before you buy an additional stock or mutual fund to make sure that you are saturating your portfolio in one type of area (unless that's what you are looking for). It's always best though - to go for diversification.

AAA

Depending on where you live, AAA can be a great investment. In CA, AAA costs $48 a year. If someone in your household has AAA, then adding you on would only cost $25. However, in FL it's $66 for the first person and $30 for the second. The benefits differ by area as well. For example, the CA one also offers free Credit Monitoring, but the FL one has a vehicle theft reward of $1,000. However, the main benefits are the same. You can have 3-4 free tows/unlocking services a year and you have access to the AAA discounts.

AAA discounts are given at a lot of places such as Denny's (FL, GA, TN), Amtrak, Courtyard by Marriot, Barnes&Nobles.com, FTD, the Walmart Pharmacy, Target.com, Payless, and many more. You can download the AAA discounts app and see what locations near you accept AAA discounts. If you use the card right, then it can save you more money than you are spending on the membership and you have the protection of the tow service.

Other benefits include appreciation days. For example, last year in Miami AAA offered free admission to the Seaquarium. Regular admission price is $30-$40. Also, in most states you do not need to go to the DMV/BMV to register your car or turn in a smog check. That can be done at the AAA offices. The local offices can also provide you with maps, personalized travel 'trip-tiks,' and discounts on such things as movie tickets.

It's something to look into.

Unemployment and Emergency Funds

Everyone knows that they should have an emergency fund. However, everyone seems to struggle with how much they should have. Dave Ramsey says $1,000 until you pay off all debt but the mortgage, then 3-6 months of expenses. Suze Orman likes the full 8 months of expenses (and currently of take home pay) in the emergency fund. Liz Weston wants you to have at least $500 in the bank so you don't bounce anything. She says that having a large emergency fund is great, but does not specify the amount. The amount, is really whatever you are comfortable with.

However, if you are like me and you want to have more information before you know what you are comfortable with, one way to establish your emergency fund is to base it on the unemployment rate. Therefore, you can look at the general current unemployment rate (March 2011) and see that you need 9.2 months in an emergency fund. You can tailor this to your location as well by selecting the city or state on the left hand side. You could also look at the raw national statistics and determine your current unemployment rate by sex, age, ethnicity, educational attainment, etc.

Easy Conversion for Hourly Wage to Salary

Quick tip: If you quickly need to know how much your wage per hour equals in yearly salary, you could do it in two seconds. Multiply an hourly wage by 2,000 and the result will be the actual salary with two weeks of unpaid vacation. For example, $25/hour is $50,000 a year per this rule. Actually, it is $52,000. However, most hourly positions do not have paid holidays, so take away two weeks for vacations and you will get $50,000.