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.