2010 November | Budgeting In the Fun Stuff

5 Reasons to Avoid a Roth IRA

November 4, 2010, at 6:00 am

The following is a guest post from Robert at The College Investor, one of the newer members of the Yakezie Challenge. Welcome to the group Robert!

Hopefully everyone knows at this point in time that saving for retirement is key. One of those amazing tools is a Roth IRA. However, many people that qualify are still not investing in one! So, here are five possible reasons why someone would avoid investing in a Roth IRA. Maybe they apply to you:

1. You Plan to be Poorer in Retirement:

One of the biggest benefits of a Roth IRA is that you contribute money to it that has already been taxed. So, if you plan on being in a higher tax rate at retirement, a Roth IRA is a great vehicle. However, there may be some College Investors out there that plan on having less income in retirement, then a Roth isn’t for you since your tax rate may be lower. Keep in mind, however, that tax rates today are at historical lows. For most investors coming out of college, we will most certainly face higher tax rates in retirement, even at the same income levels.

2. You Want to Lock Your Principal In:

Another great aspect of the Roth IRA is that you always have access to your contributions penalty free (you just can’t touch your earning without an early withdrawal penalty before 59 1/2) . However, this may give some investors an incentive to touch their IRAs. If you fall into this area, keep to your 401(k)s, and face the high penalties for trying to get at your money!

3. You Want Your Future Children To Pay Large Tax Bills:

With a Roth IRA, if you leave your children or grandchildren as your beneficiary, they are able to have tax-free distributions from the account, just as you would have been able to. However, maybe you are angry at them and want them to pay taxes. If that is the case, keep to your standard brokerage account and smile from the afterlife as they cut Uncle Sam a check in April!

4. You Hate Investment Options:

For some people, choices are overwhelming. With a 401(k), you usually only get a defined set of choices to invest in. However, with a Roth IRA, you can invest in hundreds of different vehicles. This allows for great flexibility. If this isn’t your thing, stay away from a Roth IRA.

5. You Plan on Giving it all Away:

If you plan on donating your IRA to charity, then a Roth IRA isn’t for you, as the charity will have to pay taxes. The best way to go is to have a traditional IRA for charity. If you fall into the category, The College Investor is starting a personal charity, and I urge you to contact me using the link at the top of the page!

Crystal’s Question: Do you invest in a Roth IRA? Why or why not?

What’s In Your Wallet?

November 3, 2010, at 6:00 am

I saw this post over at My Dollar Plan that grabbed my attention. It was a breakdown (with picture) of what was in Madison’s wallet right then. It made me think two things:

1) I am totally doing this at BFS!
2) Her wallet is cleaner than mine.

Here’s what’s in my wallet right now:

Discover More Card – 5% cash back on rotating categories, 1% on everything else after spending $3000.
PenFed Visa – 5% cash back on gas, 2% on groceries, and 1% on everything else with no minimums.
Citiforward Visa – 5xpoints on dining and entertainment (it’s about 3-4% cash back).
Chase ATM Card
License
Medical Plan Card
Dental Plan Card
Stamps
$46 in cash. (I’m surprised since I usually have about $4 in ones)
Less than $1 in coins. (I just used most of them on a vending machine the week before)
Organ Donation Card
ING ATM Card
Sam’s Club Membership Card (with a really crappy picture…)
Like a million membership rewards cards.
Another million business cards.
A bunch of coupons.
2 CVS gift cards that I need to use…
Random Receipts.
A few stray strands of my hair and my dogs’ hair.
Lent.

This tells me that I need to cull the receipts, some coupons, business cards, and some of the membership rewards cards. I also shouldn’t have looked because now I know I have $46 in cash I can spend…

What’s in your wallet?

How Not to Get Burned by Credit Cards

November 2, 2010, at 6:00 am

The following is a guest post from Phil Taylor, the creator of PT Money: Personal Finance. Phil enjoys writing about making extra money, saving more money, and learning to use techniques like the best 0% balance transfer credit cards to help pay off debt quicker.

If you’ve followed this blog for some time, you know that Crystal uses credit cards to earn cash back rewards. Part of the “next financial step” is the ability to use a credit card wisely, without experiencing any of the negative consequences (late fees, interest charges, etc).

Some people in this phase of their financial life decide against using credit cards completely. That’s a perfectly acceptible approach as well. But as you’ve seen from Crystal’s posts, you can really rack up some nice rewards and build up your credit score just by using your card in place of cash.

To ensure you get the most value from your credit card rewards system, you need to play by the rules of the credit card issuers and use your cards in a smart way. Here are some tips for using credit card effectively.

Ensure You Have Control of Your Spending

It’s important to be honest about your spending habits before you start using a credit card. Are you still in the spending phase of your life? Do you still want “stuff?” Only you can answer that question. If you aren’t satisfied with your current accumulation, then you might just use your new credit card limit to fill the need and create a lifestyle that you currently cannot afford. This will likely leave you in a situation where you are spending more each month just because you are using a card. Or worse, leave you with high levels of debt you can’t pay off.

If, on the other hard, you are comfortable with the things that you have in your life, then you could probably start using your credit card for monthly expenses. Only you know where you are at in life, and if you’ll be disciplined enough to use the card properly.

Have an Adequate Emergency Fund

Before you start using a credit card to earn points, you should establish an emergency savings fund. This will help you in the event that you lose your job, wreck your car, or suffer a major out-of-pocket medical expense. By having a stash of cash on hand, you won’t turn to your card to fund the emergency and create a situation where you are paying high-interest on a big balance you can’t pay off immediately.

Pay Your Card Off Each Month

This hardly needs to be mentioned, but you have to make sure you pay the card off in full each month. Anything less than this will leave you with credit card interest charges which we all know range from 10% to 20% or even more. Paying interest would negate any value you gain from using a reward credit card.

Know Your Card

It’s important to understand the terms and features of your credit card. Does your card have an annual fee? What is your credit card limit (because limit usage can affect your credit score)? How are payments applied to the balances? How long is your grace period? Are there any fees for a credit card cash advance, ATM use, etc.? Knowing the answer to these questions will ensure you don’t get burned by the fine print.

Create a Payment Reminder

To ensure you don’t miss your monthly payment, create a reminder to pay your bill. If you use a manual calendar at home, go ahead and jot down your due date for each month. This is super easy with an online or desktop calendar like Outlook which allow you to set recurring reminders. Your bank or credit card issuer will also likely have email alerts they can send you.

Better Yet, Create an Automatic Payment

I actually have my credit card monthly payment on auto-pilot. Chase automatically pulls the total amount due from my checking account each month. I monitor the payment to ensure that I have funds on hand and that everything processes correctly. Other than that, I don’t have to worry about missing a payment.

Scan Your Statement

Automation isn’t an excuse to turn off your brain. Be sure to at least review your monthly statements. Review for strange or incorrect charges, fees, etc. Just make sure you are being charged for what you spent. If you keep your receipts, spend a few minutes comparing your receipts with the statement.

Ask for Grace on Fees

If you do experience a late fee, don’t be afraid to ask forgiveness. If you are a faithful customer, most banks or card issuers will waive the fee at least once. It doesn’t hurt to ask.

Crystal’s Comments: As Phil stated, I love my rewards credit cards. I actually do almost everything listed above. I don’t pay the bills automatically just so I am forced to make sure everything is as it should be. If you want to know what cards I use, this post about my Discover, Citi Card, and PenFed Visa covers everything. We get about $400 cash back a year and the real key is to have set expenses so you know you aren’t spending just to spend.

What’s your take on credit cards?

October 2010 Blog Statistics and Income Update

November 1, 2010, at 6:01 am

As I’ve been saying at Crystal Clear, I want to blog full time by 2012. To reach that goal, I need a bunch of traffic on all of my blogs. Specifically, I want 25,000 unique visitors a month at BFS by August 2011 and need to be making $25,000 a year total by the end of 2011. I figured the best way to keep my eye on the prize is to hit monthly targets.

Between that and the fact there seems to be major interest in the subject, I’m starting a new update around the 1st of every month of blogging stats and income generated. I’ll also do a huge 1 year update at the end of every year and an anniversary update as well.

Here’s how we did in October 2010:

Alexa Ranking: 49,852

Visits: 4097

Unique Visitors: 2116

Pageviews: 7881

RSS subscribers: 177

Twitter followers: 140

Traffic breakdown: 60.91% Referring Sites, 22.67% Direct Traffic, 15.18% Search Engines, 1.24% Other

October Income from BFS: $1274.72

My goals for November:

Alexa Ranking: 49,000

Visits: 4150

Unique Visitors: 2150

Pageviews: 8000

RSS subscribers: 200

Twitter followers: 155

Traffic breakdown: 55% Referring Sites, 20% Direct Traffic, 24% Search Engines, 1% Other

November Income from BFS: $1000

Any questions, comments, or advice?

October 2010 Net Worth

November 1, 2010, at 5:59 am

For anyone new to BFS, I post a net worth update at the beginning of every month in order to keep myself motivated and to involve BFS readers. Please feel free to ask questions, make suggestions, or even post your net worths too. I am a participant-motivated blogger, so please jump on in.

I calculate our net worth as listed below. I don’t include the value of our possessions, I round down to the nearest hundred for assets, and I round up to the nearest hundred for liabilities. I also don’t include my husband’s pension account since I’m too lazy to keep up with it and it shouldn’t actually matter until he retires anyway.

Assets
1. Cash – $21,500 ($3800 up)
2. Stocks – $18,500 ($700 up)
3. Retirement – $40,800 ($2000 up)
4. Home – $130,000 (same)
5. Cars – $16,000 (same)

Liabilities
1. Home – $69,300 (down $500)

Total Net Worth = $157,500 instead of $150,500
Increase/Decrease = Up $7,000 from last month

The combination of an up market, incoming money from hubby’s reffing, and my blogging has led to the big increase! Yay!

I base the value of our home on two things: comparables selling in our neighborhood and the estimated appraisal by Chase Home Value Estimator. I will always estimate very low.

I base the value of our cars on Kelley Blue Book’s Private Party Value of our vehicles in “Good” condition truncated down to the nearest $1000. For example, if my car is valued at $4600, I’d calculate that as $4000.

Please feel free to visit the archive to see our past net worths. If you really want to see an impressive net worth, check out this High Net Worth Balance Sheet!

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