401 k and IRA

Ask any of your friends how much they’ve invested and they’ll say things like, “Huh?” or “I don’t earn enough to invest.” Most of them will say, “I don’t know how to pick stocks,” which is crazy because INVESTING ISN’T ABOUT PICKING STOCKS. Although it’s true that some of them might participate in a 401(k)—a type of retirement account—that’s probably the extent of their investments.

401(k): 

A 401(k) is just a type of investment/retirement account—one that offers huge benefits which include:
1) Money isn't taxed for many years (tax-deferred until the age of 59 1/2)

2) Free money with employee match

3)Automatic Investing

Out of employees age 25 and under:

1) Less than 1/3 participate in a 401(k);
2) Less than 4 % max out their contributions;
3) Only 16 % contribute enough to get the full company match. The company match is literally free money, so 84 % of young employees are losing thousands of dollars per year because they haven’t spent a few hours to learn how this stuff works.

The Ladder of Personal Finance


Track 1: If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100 percent of the match. A “401(k) match” means that for every dollar you contribute to your 401(k), your company will “match” your contribution up to a certain amount. For example, for easy math, let’s assume you make $100,000. A “100 percent match up to 5 percent of your contribution” means that you’ll contribute $5,000 and your company will match it with $5,000. This is free money and there is, quite simply, no better deal.

Track 2: Pay off your credit card and any other debt. The average credit card APR is 14 percent, and many APRs are higher.

Track 3: Open up a Roth IRA and contribute as much money as possible to it. (As long as your income is $101,000 or less, you’re allowed to contribute up to $5,000 a year.)

Track 4: If you have money left over, go back to your 401(k) and contribute as much as possible to it (this time above and beyond your employer match).
The current limit is $15,500.

Track 5: If you still have money left to invest, open a regular nonretirement account and put as much as possible there.


401 k facts: 
1) If you need the money you can be penalized around 10% for early withdrawal but there are certain exceptions: medical expenses, buying a home, education.
2) Tax deferred not tax free
3) If company offers 401 k but no match, open anyway. Pay off debt with extra money and max out Roth IRA.

If you switch jobs:
1) Roll over 401 k into an IRA (preferred).
2) Roll old 401 k into new 401 k

Roth IRA: 


A Roth IRA is another type of retirement account with significant tax advantages. It’s not employer sponsored—you contribute money on your own. Every person in their twenties should have a Roth IRA, even if you’re also contributing to a 401(k). It’s simply the best deal I’ve found for long-term investing.

One of the benefits is that it lets you invest in whatever you want. Whereas a 401(k) has an array of funds that you must choose among, a Roth IRA lets you invest in anything you want: index funds, individual stocks, anything. A second difference has to do with taxes: Remember how your 401(k) uses pretax dollars and you pay taxes only when you withdraw money at retirement? Well, a Roth IRA uses after-tax dollars to give you an even better deal. With a Roth, you invest already-taxed income and you don’t pay any tax when you withdraw it.

Roth IRA facts:
1)You contribute your own money, no match.
2)Invest in what you want.
3) No taxes after you withdraw
4)You do not pay taxes on  the earnings.
5)Penalty if you withdraw early..some exceptions
6) You can withdraw the principal (amount you contribute) after 5 years.
7) If you make more than 100,000/yr there are restricitions on how much you can contribute..see traditional IRA
8)Over a certain income you aren't eligible for a roth IRA....see traditional IRA.
9)Start with at least $50-$100/month. I know Fidelity requires at least $100/month.

To start a Roth IRA, you’re first going to open an investment brokerage account with a trusted investment company. I use Fidelity, but companies include Scott-trade, t.rowe price, Vanguard, Schwab, etc.



Tiger Tracks Week 3:

1) Open your 401(k). Get the paperwork from your HR manager and fill it out.

2) Come up with a plan to pay off your debt. I can't stress this enough.

3) Open a Roth IRA and set up automatic payment. Send as much as you can, but even $50/month is fine

Credit Score, Credit Report, and Credit Cards

Credit is one of the most vital factors in your life from 18-60, but because it’s hard to wrap our minds around it, we often overlook it entirely. Think about it: Our largest purchases are almost always made on credit, and people with good credit save tens of thousands of dollars on these purchases. 

There are two main components to credit (also known as your credit history): the credit score and the credit report. 

Your credit report gives potential lenders—the people who are considering lending you money for a car or home—basic info about you, your accounts, and your payment history. In general, it tracks all credit-related activities, although recent activities are given higher weight.

Your credit score is a single, easy-to-read number between 300 and 850 that represents your credit risk to lenders. It’s like a Cliff’s Notes for the credit industry. (Best range is 760-850)

It’s easy to check your credit score and credit report—and you should do it right now. Once a year, by law, you’re allowed to obtain your credit report for free at www.annualcreditreport.com. To get your credit score, on the other hand, you’ll have to pay. You’ll get the option to pick any of the three major reporting agencies. Just pick any one—it doesn’t really matter.

A good credit score can save you hundreds of thousands of dollars in interest charges. You might say naively, “I don’t care about this. I don’t need to borrow money.” Maybe you don’t today. But in three or four years, you might need to start thinking about a wedding or a house. What about cars? Vacations? Etc.

If you doubt that a loan’s interest rate really makes that much of a difference, check out the following table. Assuming you borrowed $200,000 for a 30- year mortgage, look at the differences in what you’d pay based on your credit score.

As you can see, a high credit score can save you hundreds of thousands of dollars over your lifetime—and that’s just on a mortgage. Its fine to be frugal, but you should focus on spending time on the things that matter, the big wins. So, let’s look at some tactics for improving your credit, which is worth much more than any advice about frugality.

Building Credit with Credit Cards

One of the biggest problems with credit cards is the hidden cost of using them. It may be incredibly convenient to swipe your card at every retailer, but if you don’t pay your bill the same month, you’ll end up owing way more than you realize. Take, for instance, an iPod.

It looks like it costs $250, but if you buy it using a credit card with the average 14% APR and a 4% minimum payment, and then only pay the minimum each month, you’ll be out almost 20 percent more in total.

If you paid only the minimum monthly balance on your $10,000 purchase, it would take you more than 13 years and cost you more than $4,000 in interest alone. Instead of paying off a $10,000 furniture set for 13 years, if you’d invested the same amount and earned 8%, it would’ve turned into about $27,000! Try calculating how much your own purchases really cost at www.bankrate.com/brm/calc/minpayment.asp 

This isn’t meant to scare you away from using credit cards. In fact, I encourage you to use credit cards RESPONSIBLY. If you don’t have good credit, it may be difficult to get an affordable home loan—even if you have a high income.

Getting a New Card

Whether you’ve never had a credit card before or you’re thinking about getting an additional card, there are a few things to think about.

1)  Avoid those credit card offers you receive in the mail. If you hate those credit card offers in the mail as much as I do, visit www.optoutprescreen.com to get off their lists. Out of every thousand students who are mailed offers, 150 accept them, a CRAZY high number. Students—and young people in general— are especially susceptible to these offers because they don’t know any better. For something as important as your credit, make the effort and pick a good card.

 2) Avoid cash-back cards, which don’t actually pay you much cash. Get 1 percent back on all your spending!” Wow, if I spend $2,000 per month on my credit card, I’ll get back $20. Smdh 

3) Compare cards online. The best way to find a card that is right for you is by researching different offers online (try www.bankrate.com).

4)  Rewards are important.

5)  Don’t go card crazy.

The less information in your credit report, the higher the prominence of each new report. For example, if you’re in college and you only have one credit card in your name, when you open another account, the weight of that action is more than it would be ten years down the line. If you limit yourself to opening one card a year, you’ll be doing yourself a favor.”

The Six Commandments of Credit Cards:

1)      Pay off your credit card regularly.

a.       Consequences of missing one payment

                                                              i.      Credit Score can drop more than 100 points

                                                            ii.      APR or interest rate on other purchases can go up around 30%

                                                          iii.      Late Fee

                                                          iv.      APR or interest rate on other cards you weren’t even late on.

2)            Get all fees waived on your card

a.       Give the company a call if you are late the first time and explain to them why you were late and how it will not happen again. Do not take no for an answer.

3)            Negotiate a lower APR

a.       The average is 14%

4)            Keep your cards for a long time and keep them active

a.       Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score. Don’t get suckered by introductory offers and low APRs

b.      Play it safe: If you have a credit card, keep it active using an automatic payment

5)            Get more credit (only if you have no debt!!!)

6)            Use your rewards

Mistakes to Avoid:

       1)                  Avoid closing your accounts (usually).

a.       For example, having $2,000 in debt and $8,000 in available credit is better than having the same debt with only $4,000 in credit.

b.      People with zero debt get a free pass. If you have no debt, close as many accounts as you want. It won’t affect your credit utilization score.

    

       2)                  Manage debt to avoid damaging your credit score.

 For example, if you carry $1,000 debt on two credit cards with $2,500 credit limits each, your credit utilization rate is 20 percent ($1,000 debt ÷ $5,000 total credit available). If you close one of the cards, suddenly your credit utilization rate jumps to 40 percent ($1,000 ÷ $2,500). But if you paid off $500 in debt, your utilization rate would be 20 percent ($500 ÷ $2,500) and your score would not change.

       3)                  Think ahead before closing accounts. If you’re applying for a major loan—for a car, home, or education—don’t close any accounts within six months of filing the loan application. You want as much credit as possible when you apply.

       4)                  Avoid getting sucked in by “Apply Now and Save 10 Percent in Just Five Minutes!” offers. Stay away from the cards issued by every single retail store. These cards might as well have “You Are A Dumbass”. Written across. 

Tiger Tracks Week 2:


1)  Get your credit report and credit score. Check them to make sure there are no errors and to get familiar with your credit. You can access your report and score at www.my fico.com. If you don’t want to pay the $15 fee at www.myfico.com, at least get your free credit report from www.annualcreditreport.com.

2)  Set up your credit card. If you already have one, call and make sure it’s a no-fee card. If you want to get a new credit card, check out www.bankrate.com.

3)  Make sure you’re handling your credit cards effectively. Set up an automatic payment so your credit card bill is paid off in full every month. (Even if you’re in debt, set up an automatic payment for the largest amount you can afford.) Apply for more credit if you’re debt-free. Make sure you’re getting the most out of your cards.

4)  If you have debt, start paying it off.

Debt

Debt, Debt, Debt


First off, I just want to say that if you don't have any debt let me give you a round of applause.

I myself was fortunate enough to graduate college without any loans or debt thanks to scholarships and another program in Louisiana called TOPS. Well, except my car which I'm trying to pay off now.

Some people differentiate between debt by saying “good debt” and “bad debt,” depending on whether the debt appreciates (education) or depreciates (car) over time. Others despise debt altogether. Whatever the case, most people have it and in the words of my boy Rack em Willie (RIP), "It Ain't no fun!"


I was listening to 102.5 on my commute to work and the broadcaster was speaking on how the interest rate for the Stafford loan for college education plans to more than double up to 6.8% by July. 

Did you know that the average student graduates with about $20,000 in student loan debt? 

So let's do some quick numbers:

Average Student loan: $20,000

1) @ 3%

Balance: $20,000
Min Payment/ Month: $200
Time it will take you to pay it off: 9 years, 8 months
Total Interest they make off you: $3,043
Total you pay at the end: $23,043

2) @ 6.8%

Balance: $20,000
Min Payment/ Month: $200
Time it will take you to pay it off: 12 years, 4 months
Total Interest they make off you: $9,597
Total you pay at the end: $29,597

So basically with this new increase in interest rate for the Stafford loan, the average student will have to pay about $6,500 more and will have 3 extra years with that debit monkey on their back with having to pay it off. (Even if you file bankruptcy, you have to pay back student loans)

I want you to pay attention to how much money you’re putting toward monthly payments because the loan amounts are so large that even an extra $100/month can save you years of payments.

First, to inspire you to take action on paying off your student debt, play with the financial calculators at www.dinkytown.net. or at www.calculatorweb.com . You’ll be able to see how paying different amounts can change the total amount you’ll owe.

Second, I want to encourage you to put AT least $50 more each month toward any debt you have. (Draw up a monthly budget to see where your money is going!!) Not only is this a psychological victory to know that you’re consciously working towards paying off your debt, but you’ll also be able to focus on investing sooner, either in yourself or a 401(k) /IRA, which I will touch on in the future. 

Make sure this is automatic, drawing right out of your checking account, so you don’t even see the money.

PAY YOUR DEBT OFF AGGRESSIVELY

If you've found yourself in debt—whether it’s a lot or a little—you are basically in a fight against 3 different entities:

First, you’re paying tons of high interest on the balance you’re carrying.

Second, your credit score suffers—30 percent of your credit score is based on how much debt you have—putting you into a downward spiral of trying to get credit to get a house, car, or apartment, and having to pay even more because of your poor credit.

Third, and potentially most damaging, debt can affect you emotionally. It can overwhelm you, leading you to avoid opening your bills, causing more late payments and more debt, in a downward spiral of doom.

Let's look at an example scenario:

DUMB DAN VS. SMART SALLY: PAYING OFF $5,000 DEBT AT 14% APR:

Five Steps to Ridding Yourself of Credit Card Debt:

1. Figure out how much debt you have
   .    

        2. Decide what to pay off first. (There are two strategies that are recommended to paying off debt.)  

•   Pay min on all debt, but pay more money towards bill with highest APR (interest rate). Most credit cards have an average APR of 14% so it might be wise to tackle those first. 

                  OR

•   Pay min on all debt, but pay more to the bill with the lowest total balance. 

       

       3. Decide where the money to pay off your debit will come from:

•       Check your regular cash flow and draw out your monthly budget
•       Prioritize your bills using the chart in step one. 
•       Pay min on all debt but attack at least one bill using methods in step two
•       Stop accumulating more debt!!!!

        4. Get started NOW! 

•        Eliminating your debt should have a positive effect on your credit score. Get your current score for free from Credit Karma and simulate scenarios to see how your future score might change with improved money habits. www.creditkarma.com.

Tiger Tracks Week One:

Step 1:  If you have debt, start paying it off. Give yourself one week to figure out how much you owe, call the lender to negotiate down the APR or restructure your payments (in the case of student loans), and set up your automatic payment with more money than you’re paying now.

Getting out of debt quickly will be the best financial decision you ever make.

Tools:

www.calculatorweb.com

www.dinkytown.net
www.mint.com 
www.creditkarma.com

Introduction

Introduction:

Did you know that if you start investing $100/month into a IRA (individual retirement account) from the age of 25 to 35 and then completely stop contributing, at the age of 65 you will have about $350,000 (given an 8% return and thanks to good ole compound interest) accumulated?

Imagine if you contributed more than $100/month or if you continued contributing $100+/month after the age of 35 until you reached 65!

The purpose of this blog is to give introduction into basic and intermediate money management skills. These are skills that I myself have learned through my various readings and practices. The time to start taking a hold of your financial life is now! I am not only trying to teach you to be rich but wealthy. These are not get rich quick schemes or magic but proven systems that require dedication and discipline. 

You do not have to be a financial expert to become rich!

There are common excuses for why we don’t manage our money. 

Most of them are complete B.S.:

1) “Our education system doesn't teach this,” people whine. It’s easy for people in their twenties to wish that their colleges had offered some personal finance training. Guess what? Most colleges do offer those classes. You just didn't attend!

2) I also often hear the cry that “credit-card companies and banks are out to profit off us.” Yes, they are. So stop bitching and moaning and learn how to game the companies instead of letting them game you.

3) “I’m afraid of losing money,” some of my friends say. That’s fair, especially after market losses during the global financial crisis, but you need to take a long-term view. Also, you can choose among many different investment options—some aggressive, some conservative—it depends on how much risk you’re willing to take. (Because of inflation, you’re actually losing money every day your money is sitting in a bank account.) Fear is no excuse to do nothing with your money. When others are scared, there are bargains to be found.

4) “What if I don’t know where to get an extra $100 per month?” It doesn't have to be $100. And you don’t need to earn another penny. I’ll show you how to streamline your existing spending to generate that money to invest. Remember, $1 saved per day is $30 saved per month.

Put the Excuses Aside

Throughout the coming weeks I plan to teach my readers intro level information regarding the following: 

1) Credit cards and learn how to improve your credit history (and why that’s so important).

2) Setting up the right bank accounts, including negotiating to get no-fee, high-interest accounts.

3) 401(k) and an investment accounts (even if you have just $50 to start).

4) How to figure out how much you’re spending. And then you’ll figure out how to make your money go where you want it to go.

5)  How to automate your new infrastructure to make your accounts play together nicely.

6) You’ll learn why investing isn't the same as picking stocks—and how you can get the most out of the market with very little work.

I'm honestly just trying to see myself and all of those around me go from be balling to wealthy as Curren$y would say. So tell your friends to stay tuned to my upcoming posts and feel free to leave comments and advice.