Tax Thought

In honor of Tax Day, April 15th, being last week I want to share an interesting tidbit on one of the wealthiest men in America:

Warren Buffett pays less tax percentage-wise than you do and he knows it. How is this possible, you ask? Because he earns a massive amount of money on dividends that are taxed as long-term capital gains, at the fire sale rate of 15%. Short-term capital gains on the other hand, which are profits you make on stocks, options, etc., that you hold for less than a year, are taxed as normal income on top of whatever you earn at your job. Your marginal tax rate is probably in the 20% range, which can easily put you in the category of people who pay a higher average tax rate on their income. Hell, even Buffett’s secretary gets taxed more than he does (again, by percentage).

-RT

Further Enrich Your Life Through Podcasts

It is pretty common these days for people to try and broaden their knowledge in different topics through Googling, looking at Youtube how-to videos, Wikipedia, blogs, etc.  But another resource I’ve tapped into is subscribing to podcasts.  It is amazing how many people regularly podcast content for free for your listening pleasure.  And there are a lot of really good ones that are guaranteed to enlighten you in any topic you may be interested in.  Here are a few thoughts on how to get started and how to make subscribing to podcasts useful for you.

First, some of you may still be asking, what’s a podcast? According to wikipedia, a Podcast is “series of digital media files, usually digital audio or video, that is made available for download via Web syndication.”  Someone who runs a podcast will typically record and broadcast an episode regularly, and thanks to many free programs out there these days, these episodes can be made available to us as soon as they are broadcasted.  It is common for people to download these podcasts, load them into a media player (such as an iPod) so they can conveniently listen to these podcasts anywhere.

There are many ways that people manage and discover podcasts.  There are different “podcast catchers” out there, as well as websites with lists of different podcasts to subscribe to.  Usually these podcasts are in the form of an “.xml” feed.. it works similarly to an RSS feed.  The address for that feed is what you want to enter when asked what feed you would like to subscribe to.  When a new episode is available, the podcast catcher will see it in the Podcast feed and download it.  I personally manage my podcasts through iTunes because I find it very easy to search for podcasts in the iTunes store, subscribe to them right away inside iTunes, and then listen to them.  Another customizable setting that is worth noting is the “auto delete” setting.  By default, a podcast program will usually auto-delete podcasts after a certain number of days, or after they are played.  I like to have control over which podcasts I keep and which podcasts I delete, so I usually select whatever option it is that never deletes podcasts episodes.

Whatever you’re interested in, there is probably a podcast for you to subscribe to.  For me, I’ve listened to and watched podcasts about topics ranging from personal finance, the stock market, the economy… to food, fitness, health… to discussions about the environment and living an eco-friendly lifestyle, to free music lesson series, free “personal trainer,” workout music… I even subscribe to my favorite morning show so I don’t miss out on the fun topics they discuss at 6am when I’m still sleeping.  The possibilities are endless.  Just search for a topic you’re interested in and start subscribing!

-debs.

Baby steps

I’ve found that the newly employed are often on the fringe, stuck between devoting themselves to their newfound careers or deciding to go back to school. This period, which I will arbitrarily define as RTSS (Roaring TwentySomething Syndrome) is the byproduct of 1) the reality that you may be doing this for the next 30 years and 2) the hope that you can do something more challenging/inspiring/lucrative. For people with symptoms of RTSS, continued education is often seen as the cure, often in the form of graduate school.

For those who have worked for a few years already, the task seems daunting. Open a book, without pictures of electronics/fashion/cars? And study it? The idea of going back to school is intimidating. Especially since the monotony of easy tasks (see: bitch work) often given to new hires has killed off many brain cells, rendering the brain less effective. Plus the alcohol hasn’t helped either. But there’s a solution for this: go back to school. Like, now.

I don’t mean that you should run to your nearest bookstore and buy a stack of GRE/GMAT/LSAT books. That would be terribly boring. Instead, excite the brain by studying what you want to do, preferably in a field as far away from your current occupation as possible. The best place to do this is at a community college. In addition to the benefits of studying what you enjoy, you can also meet new people, which I’ve found is a challenge as I get older. For instance, a coworker of mine is studying accounting, while a good friend of mine is studying Korean and Vietnamese. Another took a photography class. The cost? At De Anza Community College in San Jose, a measly $13 a unit, and classes are typically 3 units! So in addition to doing what you like, meeting new people, and challenging your brain, you also save money by not doing something more expensive somewhere else (i.e. drinking, eating out, shopping, etc).

But the act of going back to a classroom and listening to a lecture is the most beneficial. Perhaps I don’t know that many gung-ho people, but taking baby steps seems to be the best approach to most things. And this is one way to train and determine if you are ready for the next step.

-Vince

Savings, Investments, Retirement… Where Do I Start?

We here at the Roaring twentySomethings unite strongly under the simple goal of enjoying life.  We don’t lose sight of the importance of maintaining a high quality of life, and therefore do not let work manipulate the qualities of our lives solely based on the fact that our jobs fund the fun in our lives.  This does not mean we lack motivation when it comes to our careers and achieving a successful future- it is true that sometimes sacrifices need to be made and extra hours need to be put into work in order to stay on top of your game – but it does mean that we are driven by the desire to live life rather than the notion of working hard and earning money so that maybe we can live life.

As roaring twenty-somethings, we are not yet overflowing with the extra cash, so we’ve had to look beyond relying on unnecessary extra overtime work just to ensure our financial security in the present and future.  I’d like to share a few basic things I first learned when I became interested in saving and the only account I had was a checking account.  Just because you are a “poor college student,” or were one not too long ago, doesn’t mean you are incapable of being financially well off.  A little known secret is that becoming wealthy has just as much, or even more, to do with how you manage your money as it does how much you have or make.

Open a high yield savings account or CD – even though these high yield accounts aren’t as “high yield” nowadays as they once were, it is still much better than letting your money sit in a checking account and not getting anything from it at all.  A CD generally has a higher interest rate – but the money you put in a CD cannot be withdrawn penalty free for a period of time until it matures.  MyMoneyBlog has a great list of the best savings accounts that is constantly kept up to date.

Start saving for retirement – Open an individual retirement account.  There are two options here – a Traditional IRA and a Roth IRA.  I generally think that a Roth IRA is more beneficial and  “Why You Need a Roth IRA” on Kiplinger’s is a must read article that highlights all the benefits of having a Roth IRA.  Just the fact that it is tax free growth alone is reason enough to look into it.  The article includes some rough calculations to show how you will come out with more money in a Roth IRA, and how a Roth IRA also doubles as a great emergency fund because you will not be penalized for withdrawing money you put into a Roth IRA account (just the interest). It is also a great account to have when saving up for your first house because a Roth has special exceptions set aside for that. The last thing I want to highlight regarding the Roth IRA is to start early. I assume that those who are reading this are highly motivated and will one day earn a respectable salary.  There is a salary cap on those who qualify for a Roth IRA and when you’ve reached that salary- you’ll be glad you have some money put in a Roth IRA come retirement.  A 401(k) is also another great way to save up for retirement – and sometimes this includes free money from your company. We will expand on this in a future discussion on workplace benefits.

Investments – Once you have a solid foundation that your savings are built upon, looking into investing is a great step to take.  There are ways to invest conservatively – your money will grow at a slower pace but there is less risk. And there are ways to be aggressive and accept the larger risk for a chance at a greater return.  However, a few basic points to start you out here is to know that: 1) the younger you are, the better it is a time to invest in stocks (given that you’ve got the money to do this) 2) Bonds are good for short term investments 3) Mutual/Index funds are generally good for long term investments.  Exchange Traded Funds (ETFs) are somewhere in between stocks and mutual funds.  To learn more, I highly recommend checking out the Morningstar Classroom.  “Morningstar” may become more familiar to you as you research investment options – and that is because Morningstar has created a system for rating mutual funds that is typically widely taken into consideration when choosing a fund to invest in.

If you have dug yourself in bit of a ditch when it comes to managing your money, I recommend first paying off your debt, opening up a Roth IRA if you’re working, start putting some money into a savings account, and when that is all stabilized – look further into investing.  No matter where you are, start early. Do not use the fact that you’re still young and all young people have the same money woes as you as an excuse to be lazy.  If I haven’t convinced you enough yet, maybe the power of Compound Interest will.  Take a look at the following excerpt from another Kiplinger article that illustrates this point:

Consider this: Amy, a 22-year-old college graduate, saves $300 per month into an account earning 10% per year for six years. (That’s the average annual return of the stock market over time.) Then at age 28, she starts a family and decides to stay home with the children full time. By then, Amy had kicked in $21,600 of her own money. But even if she doesn’t contribute another cent ever, her money would grow to a million bucks by the time she turned 65.

Compare that to Jason, who put off saving until he was 31. He’s still young enough that becoming a millionaire is within reach, but it will be tougher. Jason would have to contribute the same $300 a month for the next 34 years to earn $1 million by age 65. Although Amy invested less money out-of-pocket — $21,600 over six years vs. Jason’s $126,000 over 34 years — her money had more time to grow, or compound.

Another little equation that you might find useful is the “Rule of 72”:

72/interest rate = number of years it will take
for your money to double
Example:
You have money in an account earning roughly
8% a year.
72/8 = 9
It will take 9 years for that money to double.

Lastly make use of wonderful, FREE money management resources that are readily available to you nowadays.  Services such as Mint.com and Yodlee automatically link up to all your accounts and update them automatically for you so you can log into your account and quickly get a quick snapshot of how you’re doing.  They have tools built in to set goals and alerts; charts to let you see what you’re spending money on and how your investments are doing.  Kiplingers has a lot of useful tools and calculators too.  Best of all, these resources are FREE!  Take advantage of them!

I know times are tough money-wise these days, and it is always wise to proceed with caution.  However, with a little patience and careful planning you will be ahead of the game when the market bounces back.  It is always unpredictable so I understand that things like the concept of Compound Interest may seem a bit inapplicable right now.  However, there are still savings account out there that will earn you interest.  There are countless numbers of resources for you to turn to in your research, and I really encourage you to start now.  Happy saving!

– debs.

My “Investment” Portfolio

I’d say that my investment portfolio is up. My financial portfolio? A massacre. My Roth IRA bleeds. My taxable account has been laid to waste. My bonds and CDs provide the only sustainable lifeline, ensuring that my portfolio doesn’t fade into oblivion. But aside from my financial portfolio, there’s the other side of my investments – myself.

“Why don’t you play the bass for me?” she asked. I was practicing with my headphones on in the corner of the room.  My girlfriend’s textbook sat neglected on the pillow of my bed. Apparently she had been watching me for awhile.  My friends and I had a band, but it wasn’t really a band since we only played cover songs and we didn’t have a singer. At the moment I was practicing a Cake song. I tried to explain that the bass isn’t like the guitar, that it would sound like a random melody since it was a support instrument and not a leading instrument. Plus I was terrible, but I omitted this from my explanation. She bit her lower lip and slowly placed her hands in her lap. “Please?” she asked. I was rendered powerless. My eyes focused on the frets as I placed my fingers on the strings. I imagined my friend on the drums and when my queue came up, I played. The melody for the verse and pre-chorus flowed out effortlessly – my two days of practice had paid off. But an incomplete third day and likely fourth day led to a broken chorus and ending. After I finished, I raised my eyes to look at her. She squirmed. “I see,” she said.

I’ve had many hobbies over the years – bass guitar was one of them. The instrument currently rests at the corner of my bedroom, an expensive decoration. My alarm clock and my cellphone sit on the top of the amplifier, now an end table. This was one of my failed investments. The same year I quit playing bass, my girlfriend and I broke up. I guess it was a down year for me. Other investments sit around my room. On a table at the far end of the room in front of the bed, a vintage record player and collection of vinyls entertain me once a week. I’m still holding onto this one. My snowboard helmet lays awkwardly at the bottom of my closet. I think it fell when I was looking for a thicker blanket when it got colder a few days ago. My doctor told me that I can’t snowboard this season because I broke my foot late last year, even though it seems to be healed. A stack of books grew out of my nightstand as a result, a winner in my portfolio. And a used DSLR full of pictures from a recent trip to New Orleans with a close friend rests on the floor next to my bed – due a bout of nostalgia the night before for times away from school and work – a combination of a new hobby and a favorite pastime.

Saving money is important. But lost in the sea of posts like “$3 daily lattes will cost you more than you think!”, “Clothes at outlets: same or different?” and “How the Rule of 72 will change your life!” (all good topics which may someday be covered by this site) there is also another kind of capital that should be monitored as carefully as any bank statement: personal capital. And even though there’s no indexes or numbers which detail the gains and losses, you will know when an investment pays off big.My portfolio isn’t aimed at getting the most money. So I probably won’t be partying with Diddy on a yacht off the coast of Monte Carlo with empty bottles of Cristal at our feet. But I don’t want that (except the yacht). I’d rather be eating grilled mystery meat from a street vendor in Asia with a friend. And I want to security of knowing that I can do what I want this year and for the next 80 years (maybe). Money is important. But why live a money-driven lifestyle? Instead, let’s try something else. Let’s aim for the lifestyle-driven-lifestyle.

– Vince

Vive La Bibliothèque!

I love to read. Depending on how much I have going on outside of work, the density of the book and the amount of sleep I’m willing to lose, I can go cover-to-cover in two weeks or less. But even using old cheapo Amazon.com, I could easily shell out $30 for a new release. What’s a young literati to do!? The answer: Explore my local library! When I was growing up my local library was not within walking distance and was not particularly well stocked. It was a small branch. As a result, I didn’t figure out the genius of this public service until I got to college.

Ironically, I’m strongly advocating the use of the library despite the fact that the best aspects about libraries is that they’re so vastly underutilized. I can get pretty much any book I want at any time, excluding new or newly popular books (like Barack Obama’s last work).

The short of it is that I’ve been able to read classic works of literature, science fiction, travel books and generic non-fiction books alike just by using the public service my taxes already pay for. Not to mention they sometimes have great books for sale for CHEAP! I bought a hardcover book written by a Nobel laureate in chemistry for $2. Two freakin’ dollars! It was a whimsical purchase, but I figured a (sort of) autobiography about a Nobel laureate that had a picture of the guy holding a surfboard was worth a shot. And it was. I read it shortly after getting through a pair of Richard Feynman (sort of) autobiographies so it was right up my alley. I’m thoroughly entertained by stories of eccentric geniuses.

I understand some people just want to start “building their libraries,” but if a book is personal library-worthy then it should be worth reading more than once. That means you can take every book that might be personal library-worthy for a test drive by checking each one out of the library and then purchasing it if it passes your tests. What’s funny is that libraries are the only way to legally do this with any media except TV shows. You can’t test-run a band’s CD through iTunes. There are no public movie theaters to check out if it’s worth the $10 (or so) to see the latest blockbuster hit. It’s such an amazing scam in the public’s favor that it sparked this thread on the Freakonomics blog. If you like reading or would like to start reading more, the library is definitely the best way to start. It’s like pasta to a starving college student: cheap, easy, and readily available.

-RT