California’s New Tax Withholding Scheme

November 1, 2009

The Governator

Effective right after Halloween, November 1st, the citizens of California will be subject to a higher income tax withholding. This will last, at least, until the end of the year. Assuming we all file our taxes correctly (ha!) this will effectively serve as an interest-free loan to the state for the rest of the year. I suppose this is the state government’s alternative to raising taxes, knowing full well that they stand to rake in some money here if/when people get confused about how to file their taxes and subsequently receive less money back. Is that too cynical?

California is raising the withholding rate by 10% on your paycheck. What does this mean for you? The truth is you’ll hardly notice it. But let’s give an example just for fun!

Let’s say you’re single (or dual income married, or married with multiple employers) with zero withholding allowances and your biweekly salary is $1000. That’s equivalent to $52,000 per year. From January 1, 2009 to October 31, 2009 your biweekly paycheck would reflect the state withholding $20.63. From November 1, 2009 through December 31, 2009 your biweekly paychecks will now show the state gouging you out of $22.69!

I guess that’s relatively harmless, right? I guess things could be worse, but let’s just hope that the tax returns we’re expecting don’t come back in the form of IOUs. More food for thought: after three months, you’re out one footlong sandwich from Subway. Think about that…

The government site has a moderately useful FAQ and general 2009 Rates and Withholding details for you to peruse including PDFs of the actual withholding rates.

I think it was a John F. Kennedy that once said: Ask not what your country can do for you, but what you can do for The Terminator.

-RT

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How The G1 Can Save You Money

June 28, 2009
T-Mobile G1

T-Mobile G1

I am in need of a new car, so I spent my Saturday out and about test driving different cars. Now this is the first time I’ve had to shop for a car myself, so I was a little naive at first, to say the least. One thing I picked up on really quickly was how the car salesmen try to categorize you from the moment they see you. The way you dress is the first indicator they get, and just the tip of the iceberg. Then they proceed to the small talk and seemingly garbage chit chat that you take for granted at social functions you desperately do not want to be a part of.

You may or may not notice, but the salesmen will start slipping small, unobtrusive questions into the conversation that seem to be in line with standard “How do you do?” etiquette. But questions along the lines of, “So, RT, I see your area code differs from mine. Where are you living now?” and “Do you want some water? How was work this week?” The answer to the latter question is usually negative, because for some reason or another there appears to me to be an unspoken social construct that all people shall say work sucks, maybe because no one wants to be that one jerk who talks about how awesome his job is. But that’s a conversation for another time.

Back to the story: At this point the salesperson has just heard you had a terrible/great/ok/baffling/ weekend, so the person replies, “Oh that sucks/is interesting/sounds about right/whatever. What exactly do you do?” That last question is one everyone asks you, so it’s pretty trivial right? Maybe… and maybe not. That salesperson is not just trying to make a new friend with small talk. He/she wants to know if you can afford to pay for the car you’re eyeing. Finding out where you live is another indicator of what you might be able to afford (or your priorities in life, I suppose). So is seeing if you’re married, if you have kids, what you currently drive, whether you rent or own, and a million other questions really. It’s not that hard for them to peg you, nor should you really try to hide it.

I feel like I’m straying off topic again. Maybe I’ll save the rest of the car-purchasing experiences for future posts and just get to the point now.

So I’m talking to a salesman (let’s call him Bobby) and his phone goes off, which he promptly answers, and I see that he’s got the new(ish) T-Mobile G1. Out of curiosity I ask him if he likes it. FYI, Bobby has been cold to me since he saw me. I can tell he wants to get me the hell out of the way (I do not dress up or appear wealthy for this stuff). But all of a sudden, he goes off! “Oh MY GOD I love this phone! This is the best phone ever! I used to have a PDA before this and… yea… well, this thing is great, it even saves me money!” [italics mine]

Here are the thoughts that run through my head immediately:
-Hmm, he seems receptive to this question. Maybe he’ll be nicer now and we can have an enjoyable test drive.
-Does he know anything about phones? Because I know a fair amount.
-Last time I checked, this phone still cost at least a few hundred dollars. How does he save money with this phone??

I, of course, ask Bobby how exactly he manages to save money with a very expensive piece of equipment like that. You know what he tels me? The G1 has an application (either pre-loaded or downloadable) that lets you scan the bar codes of products and then compare its price to the price listed at other stores. I’d heard of it before from the Android Developer Challenge 1. So he went to Home Depot to buy a lock and decided, “Hey let’s see what this thing costs at Ace Hardware or Lowe’s.” Lo and behold, Ace Hardware was selling it for $4 cheaper. At this point a store employee comes by and asks Bobby why he’s taking pictures of a barcode, so Bobby shows the guy and says, “So I’m going to go to Ace Hardware now.” Not wanting to lose business, the employee counters by saying he’ll take 10% off the listed price. Winner!

To make a long post short: If you have a G1 go get that app, and the next time you’re shopping at a big chain store go see how much that store’s competitors sell whatever you’re buying for. If it’s cheaper, go tell someone. They might make you a deal. That was not Bobby’s first deal.


Budgeting for a Ferrari (and smaller goals too)

May 5, 2009

Earlier in my budgeting endeavor, I had a problem determining how much money I needed to save each month in order to meet my goals. Instead, I would deposit as much money in my savings account as I could, and hope that I would have enough when it came time to spend money for my goal. After several missed and delayed goals, I realized that this system was terribly ineffective.

So I crafted an Excel spreadsheet to solve this problem, which I’d like to share with you – an Excel spreadsheet which will automatically tell you how much you need to save each month, and how close you are to your goals.

To use it, first enter in the amount in your savings accounts and CDs. Then specify the amount that you’d like to be set aside for emergencies. Then for each goal, enter a name, deadline, and total amount needed. The spreadsheet will then break down the amount needed per month to reach a goal’s deadline, as well as the total amount you need to save to meet all your goals. Each time you save or spend an amount toward your goal, you can enter it into the spreadsheet and categorize it as “Paid” or Saved” and the spreadsheet will automatically update the amounts needed.

Budget Excel
Click to enlarge.

I tested the spreadsheet out under a number of conditions. In this example, I have five goals set up: a new flatscreen TV, trip to Hawaii, Roth IRA, snowboarding, and a Ferrari. For the flatscreen TV, I want to save $100 a month for a $1200 flatscreen in time for Christmas, which it accurately calculates. For my Roth IRA deposits, I’m depositing the $5000 maximum this year every month (in order to practice dollar cost averaging – more on that later). I’ve also added an ambitious goal of saving up for a Ferrari for my anticipated midlife crisis – in order to meet this goal, I need a little over $2000 a month!

I’ve included a version for Excel 2007 and another for older versions of Excel. Download it and have fun playing around!


Invest in Your Life… Spend Less, Be Happier.

April 22, 2009

twentySomething #1: “Hey looks like there’s still a lot of good snow, but it probably won’t last much longer so we’re thinking of going on one last snowboarding trip for a weekend before the season ends.  You in?  The snow will be great, and so will the weather.”
twentySomething #2: “That sounds great! Count me in!”

twentySomething #2 is a typical present-day young professional, nervous about his financial security due to the current economic situation.  He has seen his portfolio plummet in the past year and is unsure about the stability of his current job.  All of his fears and insecurities come to a head one week before the snowboarding trip and although snowboarding is one of his favorite hobbies, he decides, regretfully, that he absolutely must back out of this trip and save the money he would have spent.  Snowboarding weekend rolls around, and he finds himself sitting at home thinking about how much he wishes he was having fun in the snow with his friends.

Then, a casual friend of his calls him up and asks him to go bar hopping that night.  “I haven’t seen him in a month since the last time we had some drinks… I should go,” twentySomething #2 thinks to himself.  Feeling down that he isn’t out snowboarding, he agrees to go out and ends up spending $100 on drinks and greasy late night food, resulting in a wasted weekend recovering from the throbbing hangover the morning after…. realizing he probably should have just gone snowboarding.   Though he had fun during his night out, he probably wouldn’t have spent that much more money snowboarding  (if at all), and he would have ended with a much happier weekend doing something he loves much more with close friends.

Does this situation sound familiar to you? From my observations, this type of situation is not uncommon.

These days, with all the attention drawn towards the recession, and saving money, resisting splurges… people are scrambling to eliminate expenses left and right. During this process, it is easy to put aside what makes you happy for the sake of saving a little money before thinking these decisions through.  That means, it is also just as easy to end up spending some money for some instant (and probably short lived) gratification.  I’ve realized that it is beneficial to take a little time and come up with some guidelines/a plan for “investing” in myself and my happiness.    Therefore, in a tight money situation, I’d be able to think rationally about where to spend my money to maximize lasting gratification.  This is a good time to ask yourself, Are you skimping too much?

In the aforementioned article, Personal Finance columnist Liz Pulliam Weston writes about finding a balance so that you don’t find yourself spending money on things you’ll regret later but at the same time you don’t look back regretfully on missed opportunities. I’ll leave it up to you to read the article (it seems to generally be geared towards a slightly older crowd), but I did want to highlight the a few of the questions she suggests thinking about:

  • What would you do in a day, from the time you get up until the time you go to sleep? Account for every hour.
  • Whom would you spend time with?
  • What interests or passions would you explore?

After figuring out some answers to such questions, it’ll be easier to make commitments that maximize happiness and reduce guilt.  This is what I have realized.  At this age, we enjoy things like going out for drinks, for coffee, for meals.  A friend calls us up on a Friday night to go downtown, and we’ll end up going out and spending $50 before we really have a chance to realize how doing this weekend after weekend really adds up.  And really, how much happier are we after a month and -$200 later?    However, these small occasions are needed to maintain a healthy and happy twentySomething lifestyle.   We’ve all got to get out and let loose every once in awhile.  So I’ve learned to make to make these decisions more consciously.

I give myself a “budget” for these type of outings and keep a mental tab of how often I’ve been out recently and how much I’ve been spending. If a friend asks me out for drinks, and I haven’t been out in awhile/I haven’t spent much money out, then I’ll go out and enjoy myself.  Otherwise, I’ll politely decline… and feel okay about it because I had just gone out and enjoyed myself not too long ago.  It probably isn’t a decision I’ll look back on and regret.  As someone who naturally hates the thought of missing out on anything, I got to a point where I was stretching myself much too thin until I learned that nobody expects me to say yes all the time and that’s okay.  Additionally, when the chance to go on a well deserved luxurious vacation with close friends come up shortly after,  I’ll be able to commit wholeheartedly because it is within the guidelines I’ve set for myself.  I’ll know that it is an experience I truly want to take part in, with those that matter to me most.  And, I’ll have that much more money saved up towards it.

On a smaller scale, I’ve also learned to be conscious of smaller expenses that sneak up on you and add up such as going to the vending machine at work (guilty at least two/three times a month), getting Starbucks (3 coffees a week = $12 a week, or $48 a month or $576 a year!)… you get the idea.  These are things you don’t think twice about because it’s just a couple dollars at a time, but they sure do add up.  The main idea is to make money decisions more consciously so that you don’t make a mistake and find yourself eliminating random costs last minute because you’re freaking out.

Much like the way I maintain my financial portfolio, I also maintain a life portfolio. I figure out what’s important to me, what I want to do, what makes me happiest.  I try to diversify my time, money, effort into work, fun, personal enrichment, etc. similarly to the way I try to diversify my money in stocks, funds, and bonds.  I don’t hastily jump into one stock without thinking it through… and I accept small losses here and there when things don’t go the way I envision.  I make mistakes from time to time.  But I have faith that sticking with this strategy, I still come out stronger and happier than ever while wasting less time stressing out about things I don’t need to be.  I encourage you to take a little time to similarly evaluate your life and happiness too, especially if you find yourself in a bit of a bind when it comes to time and money. :)

– debs.

p.s.  If you have a lot of debt, or have little to no savings, I’m not in any way suggesting that you risk going broke.  In this case, you’ll probably want to make paying off debt and saving a high priority in your goals/guidelines and refer to “Savings, Investments, Retirement… Where Do I Start?”

Edit: Here is another related article I stumbled across right after I wrote this entire post: “Oversaving, a Burden for Our Times


Savings, Investments, Retirement… Where Do I Start?

April 15, 2009

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.


Vive La Bibliothèque!

April 13, 2009

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