Money - The Financial Issues Thread

[xita]

No, I am not asking for money but feel free Kidding.

I started this thread for people who know about financial issues. I thought some of us dumb kittens could ask questions.

As a teacher in California, I don't put in to Social Security. We have our own retirement plan. I am told is not enough and I should get something else on the side. Recently, I've had this push to get a 403 B. I don't really don't know too much about all the stuff available to you. Is this a good choice? Anyone?? Are there any real drawbacks to it? I understand it's tax deferred and that you can borrow against it but not withdraw it. I also understand about the different options of delivery once you retire. It's a long way away for me but I am trying to be forward looking. Anyway, are there better choices? Should I stuff in my pillow instead Mind you, I don't want to be really involved with the money, I am just not like that. I don't want to go build my own stock portfolio or something.

[tybee317]

I am not familiar with the 403B. My little bit of change is in a traditional IRA which I am switching over to a Roth IRA soon. With the Roth you pay a small tax now, but nothing later whenever you withdraw the money. With a traditional IRA you pay the taxes whenever you make the withdrawal, which could be substantial if everything goes according to plan. My sisters and I have a small farm where we grow Pine trees for timber, which will be part of my retirement portfolio. Next year I will begin contributing to the plan at work.

As an aside, my aunt has made a freaking fortune by buying building lots in subdivisions, sitting on them and selling them later. Some places still allow you to do this, but we live on the East Coast.

I am interested in learning more about my options, calling all Finance and investor kittens.

[WebWarlock]

A 403b is like a 401k for educational types. I have both and the problem is that a 403b is often the most conservative of the retirement options, barely getting back much of a return. Your best bet is to have the 403b as a backup and then a more aggressive 401k or IRA that you can put more money in. But make sure it is "safe". I had most of my retirement in '403b's and company matched funds. Well when my company tanked in the dot.com crash I lost nearly all my retirement money. My 403b kept chuging along at it slow but steady pace.

Don't borrow against them! The penalties for taking that cash out (in your taxes) are often greater than the need to take the cash out. You are better off find other sources of cash (loan, refinancing your mortgage).

Find out if your school district has a financial consultant for retirement. Usually whomever they took the plan out with, and they can help you.

Forget Social Security and only one retirement plan is never enough.

And for the young ones out there. There is no such thing as "too early" to plan. The compound interest alone could end up costing you tens of thousands of dollars in the long run.

Warlock

[FineyMcFine]

I must chime in here and say a couple of things because retirement savings is so important. If your workplace offers a 401k or a 403b or some similar retirement package, and especially if they offer a matching contribution or some sort of fixed contribution, you should totally take advantage of it. It's like free money.

And even if they don't offer any contribution, it's usually a good idea in my opinion for a couple of reasons - first, it automatically is deducted from your paycheck, so you grow used to it and don't miss it as much. I'm not that disciplined with my money - I doubt I would regularly transfer money to an account, so having it taken out of my paycheck is perfect. And second, since the amount of your contribution is not taxable income, it can reduce the total amount of taxes that you pay. Maybe even enough to bump you down into a lower tax bracket if you contribute enough - and you're really just giving the money to yourself (your older self - sounds like a time warp kinda fanfic).

The other thing is, if you qualify to start a Roth IRA, that's a GREAT option as well. If you make less than $95-110,000/year, then you're eligible to contribute. The great thing about a Roth IRA is that while the money you put in is post-tax (i.e., not automatically withdrawn from your paycheck pre-tax), all withdrawls from a Roth IRA are tax-free after you reach a certain age (I can't remember if it's 70 1/2 or 59 1/2).

But the other great option for a Roth is for people in same-sex relationships - you can leave your Roth IRA to your same-sex partner and as long as you designate everything correctly, it's still tax-free disbursements. Consult a lawyer on this if you're actually going to do it because one mistake and it's a pain in the butt and taxes up the wazoo. Traditional IRAs and some other retirement vehicles make your same-sex partner incur a tax burden and take immediate disbursements, but not the Roth. You can contribute up to $4000/year in 2005, up to $5000/year in 2008, and then it adjusts according to inflation every year after in $500 increments.

I get all my personal finance and retirement advice from http://www.fool.com which has very helpful, easy-to-read-and-understand articles on their site.

[kisstheviolets]

yay! i was hoping there was some sort of kitten money thread, and lo and behold, here it is.

i'm a total clueless novice when it comes to financial matters. my family (excluding my stepdad) never owned stock or property and my grandma and great-grandma just lived off of social security when they got old. my mom would pull out her 401k savings whenever we needed something growing up and she'd depleted that.

as for me, the extent of my savings is what i throw in a change jar or save with my bank's "keep the change" program. and as soon as i save a nice chunk of change, i end up spending it on bills or a little something fun. during my last year of law school i worked for a state agency full time which required participation in the state retirement plan. it was a nice set up as they deducted the money pre-tax, and like ms. mcfine said, you get used to not having it. when i moved back home to study for the bar, however, i withdrew the money i'd contributed to the fund and man was the resulting tax and penalty harsh. if i'd had any other way to get the money i needed at the time i would have done it, but i just had to take my lumps on that one. at least it taught me valuable lessons about retirement and early withdrawals.

anyway, now i'm really starting to ponder my financial future and looking into ways to break the cycle of debt and poor planning that seems to be my family legacy. i started reading up on www.fool.com and www.investopedia.com. i'm not in a position to invest a lot of money (i'm taking the bar exam in massachusetts this month and working part-time as a paralegal while i look for an attorney position back east) but everything i read basically said there was no reason i couldn't start now with small amounts.

so, long story less long, i signed up yesterday on sharebuilder.com and am going to put a few hundred dollars of my tax return in and then add $50-100 a month thereafter. when i finally get a big-girl job, i can reassess the plan. but i'm really excited to finally be learning about all of this stuff and taking a step in the right direction.

i thought it might be cool to see what kinds of investing the rest of you were into and what sorts of results you're having. if you have any pearls of wisdom, or hot picks, please feel free to share (disclaiming all liability for recommendations, of course).

[SySnootles]

Have any kittens attempted and/or had any success in negotiating a lower minimum monthy payment with a credit card company? I'm in a position where I could really benefit from a smaller monthly payment, at least for the next few months. Is this even possible?

[JustSkipIt]

I'm going to make my answers general because quite honestly, I could go on for hours and hours about money. I was just about to update the hobbies thread to say that I am totally interested in personal finance. But...

Sally said some really great things about having the $ deducted from your paycheck for the 401K or 403b. You lower your tax burden and if you get a match, then that's totally free money. Also, she made the point about leaving your Roth to your same-sex partner.

I'll say a few generals tips.
1. Doing anything is better than doing nothing! Even if you feel like you don't know how to invest or don't want to learn, just start with $250 and then add $50 a month. If you get a raise (yes, I know you're a teacher), put some of it into increasing your monthly contribution.

2. Look for "index based" mutual funds. Ok, here's the deal. Mutual funds mean that a fund manager (or managers) actively buy and trade a set of stocks or bonds (or both). Guess who pays the mutual fund manager as well as the overhead and publications, etc.? You do. A mutual fund may have a 1.5 - 4.0% "load." That's a fee you pay. So if you have $10,000 in the fund and it earns 11% you only really see 7% because they charge you a bunch of fees for their work. An index based fund is based on an index (an indicator of how the market is doing) such as the S&P 500 index. Rather than being "actively" traded, the manager uses a computer algorythm to keep the fund in balance to the index it tracks. Your cost is very low. Vanguard has an Index 500 fund that I think has maybe a .86% fee and other companies have ones under 1.5%.

3. If even that sounds too complex, some companies have portfolios that are basically indexed to when you will need the money (generally you take a higher risk with money you don't need for as long (retirement) than what you need soon (a new car)). So there are companies that have a "2040" portfolio meaning you will need your money in 2040 or whatever. It allocates the funds to a reasonable risk level depending on the year you need the money.

Ok, that was quite a bit. I recommend the money.com site as well as quite a few of the investment company sites. I have accounts at Fidelity.com and Schwab.com and both have very good planning tools.

Good luck and remember: doing anything is better than doing nothing.

Sysnootles - I have never done it but I've read repeatedly how it's totally possible. My question is this: do you want a lower payment or a lower interest rate? If you just lower the payment, it will take you much longer to pay off the debt. Of course if it's high enough, you may want to do something drastic like go to a service like Consumer Credit Counseling Service. My mother did that and they did a really great job of helping her pay down her debt in 3.5 years and negotiating lower interest rates. The downside? They make you give up your cards! (or maybe that's an upside). Just make sure that you're dealing with a public or government service rather than an expensive for-profit company that will charge you a bunch to consolidate your loans and set up a plan.

ETA - According to my latest issue of Money, to prepare for retirement you wnat to have 4.1 times your current annual salary saved for retirement at 45, 6.1 at 50, 8.5 at 55, 11.4 at 60, 15 at 65.

[Boschi]

ETA - According to my latest issue of Money, to prepare for retirement you wnat to have 4.1 times your current annual salary saved for retirement at 45, 6.1 at 50, 8.5 at 55, 11.4 at 60, 15 at 65.

Sigh.
That sounds completely correct. Somewhat out of reach, but completely correct. Well, maybe not, given that my annual salary is currently so low. Hey! There's an upside to poverty! Makes you seem like you're on top of retirement planning.

A friend of mine has been talking about starting a lesbian investment club. Participants would likely all be newbies to investment. Any advice, warnings or thoughts on this from anyone?

- Boschi

[writerfreak]

I can't say as I know all that much about money or the legal stuff, but I'm going to add my two cents here. I actually got a Roth IRA, as soon as I took over the business. I remembered learning about it in Econ class and decided it was the best way to go. When I got it I learned about the ability to leave it to your same-sex partner and hadn't ever designated it until recently. For me I would definitely say it was the best way to go. The younger you start putting in for retirement the better. I might not have everything I'll need in it but I have plenty of time to put it there. Being only 21. My best advice is start planning early. And personally the Roth IRA is the best way to go. It gives the best options.

writerfreak

[JustSkipIt]

Definitely starting earlier is the way to go. This week we got this sort of psuedo-magazine from Charles Schwab "On investing" or something like that. Some very basic stuff. It had an article about the power of compounding interest and the example was "Sue" who contributes 3% of her $75,000 salary starting at age 25 vs. "Bob" (I don't remember his name really) who contributes 15% of his $75,000 salary starting at age 45 and how she would have more, etc. Don't you think that part of what's important also is that she has way more earning potential than him if she's making $75,000 at age 25?

[tiredsoul]

Okay, so I came up with this idea from xita's original thread and three years later, I finally came through so I thought this would be the place to mention it. I created a web site to help find deals, give some guidance for money and so on. http://www.moneycents.net. Again, I have to credit xita for this initial idea but if she remembers, I was working on gotlicky.com at the time and simply had no time to devote

[dynigirl]

Have any kittens attempted and/or had any success in negotiating a lower minimum monthly payment with a credit card company? I'm in a position where I could really benefit from a smaller monthly payment, at least for the next few months. Is this even possible?

Ok so it might be vastly different than in the us, than to here in the uk, but alot of companies do interest free balance transfers for 6-9 months. It doesn't reduce your debt but it does mean your payments go straight towards paying off your debt not the interest building on it. When one card runs out of its interest free offer, transfer it to another one. It takes work and there might be a transfer fee, but it is much much less than the original interest.

[tiredsoul]

I have to agree with the interest-free approach. If you can find a card that will allow that. The first thing you want to do is either stop charging anything on a card with a balance. You're paying interest on it the moment you spend it if you do. If you have to charge items to maintain a cash flow, might I suggest clearing one card completely and using that for monthly expenses but make sure you pay it off each and every month. It will allow you to continue to use credit, increase your credit worthiness and give you a chance to pay down other cards.

If you do not have an interest free option, you can call your credit card company and ask if they'll reduce the rate. Couldn't hurt to ask.

Celia http://www.moneycents.net

[JustSkipIt]

Tiredsoul - do you have an RSS feed? I am pretty avid at reading blogs, particularly personal finance and parenting but I'm not good at keeping up with regular blog pages. I'm going to try to just put your address into my Greader but if that doesn't work, you might want to set up RSS.

I also posted at my blog yesterday about the cost of the new Texas Tuition Promise fund that has just reopened. It's terrifying

[JustSkipIt]

I did my and the wife's taxes last night (separate returns, obviously). We're actually the only people I know who benefit from not being married tax-wise (believe me, we pay for it other ways). Her income was incredibly low last year because of the economy (she does contract work while a stay-at-home mom). So it was very nice to complete her taxes and she's getting back $1815. Woo hoo. I'm getting back a little over $6000 but most of that ($4900) is money that I paid out for the baby's adoption this year. Still that's almost $8000 that will be direct deposited into our accounts in the next few weeks.

I used Turbo Tax. I was going to buy it from Turbo Tax but it was $59.99 from Turbo Tax and only $37.99 from Amazon. I did the download which took a while but the program comes with 5 free e-files so the returns are already sent off.

In other "news" I was going to refinance my mortgage from a 30 year at 6.0% to a 15 year at 4.375% but there's been a hitch in the process (a question we forgot to ask/answer) that has basically fouled the entire deal. At this point, the re-fi is probably off. I'll see what happens.

[Zooeys_Bridge]

Deb, congrats on the tax returns! I just wanted to poke in to say that I like the new Turbo Tax commercials on tv with Franklin, Jackson, and Grant(I think?). Good make-up.