Monday, November 18, 2013

Financial Planning 101: Budget Basics

In two weeks I'll be moving into my new apartment in NYC, and 4 weeks after that, I'll be kicking off my career in public accounting with a firm in Manhattan. After signing an agreement and writing out a check for my security deposit last week, I spent an absurd amount of time in excel building a comprehensive budget in annual, monthly, and weekly versions. Yes, this was mainly due to the fact that I am a big nerd, and found it to be really fun and somewhat therapeutic; however, creating a budget is also just a really simple and legitimate way to organize your finances, and learn to live within your means. After my experiences with my own budget, I decided to write this blog post to help you all to do the same. 

Creating a budget/plan can be really helpful for a lot of different reasons. One reason is that a budget will help you to stretch your paychecks to best meet your own personal needs. Another big reason is that a budget can help you to create savings goals (ex: money to buy a new car), as well as track your spending. This last point is a big one -- by tracking your spending over time, you will be able to notice where all of your money is actually going and make any necessary adjustment, such as cutting down on the number of grande iced caramel lattes you purchase each week. 

To help you all get started, I broke the budgeting process into 5 steps:

1. Estimate your actual income!
In order to create a budget that will be accurate and helpful, you first need to figure out about how much money you will have to spend over the given period. There are a couple of ways to do this, but the easiest would probably be to take a look at your pay stubs to figure out approximately how much money you take home each week, AFTER TAX. 

When I created my budget, I started with my annual salary. I reduced the salary by my expected 401k contributions for the year (see this post for more information about 401k and IRA plans!), and then took out a percentage from the remainder for estimated annual taxes. This left me with the estimated after tax dollars that I will have to spend on all of my other expenses for the year.

2. Fixed Expenses
The next step is to figure out all of your fixed expenses, which are those periodic expenses that do not change very much from month to month, for example: rent, student loan payments, insurance, etc. Reduce the after tax income that you figured out in the first step by all of these foreseeable and fixed expenses, You will want to be as detailed as possible, including any and all expenses you can think of, to provide a more accurate picture of your finances. 

3. Variable Expenses
This step is very similar to step 2. I broke them up to emphasize the difference between those expenses that are very predictable and regular (fixed), and those that can vary and change from period to period (variable); however, the premise is the same. You will want to include any expenses that you can think of to ensure your budget will be accurate. For your variable expenses, you will often have to do a bit of estimating; however, this is not difficult. Take a look at your payment history for things like your phone, electric, and water bills to come up with a periodic estimate based off of your past history. When in doubt, do yourself a favor and lean towards the more conservative (higher) estimates.

To emphasize my point about being as detailed as possible, I will share that in my own budget, I went so far as to do a little bit of research to estimate the costs that I will be faced with when I move to NYC. I have lines in my budget for groceries, eating out, dry cleaning, an unlimited monthly metro pass, and transportation expenses to visit my boyfriend in DC. All of these estimates were based on actual data found online (ex: the line in my budget for groceries and eating out is based on data collected for single males around my age and living in NYC).  

4. Prioritize your "wants"
 Here is where you can do a little bit of goal setting. After reducing your after tax income by all of your fixed and variable expenses, you will see how much money is left over for everything else. It is at this point in your budget that you can set some savings goals or reserve some money in your budget for some "wants" such as an iPad Air, Beats by Dre headphones, and/or a brand new 15" Macbook Pro w/Retina display (in full disclosure, all three of these items are currently reserving some space in my budget). 
With the money left over in my own budget, I put in some placeholders for my own wants and needs, but I also reserved some cash for incidentals that might crop up over the course of the year. You never know when you might need to buy an "emergency" round-trip plane ticket to Cancun!

5. Track Spending and Make Adjustments
After your budget is created, be sure to make the most of it by tracking your spending as time goes by. Identify any areas in which you are overspending, and either adjust your budget to make it more accurate, or work towards minimizing your expenses (ex: eat out less, drop the unlimited text plans, and stop paying $145/month for Equinox and join the local YMCA).

I hope that this post was helpful for you. If you're feeling a bit lost, check out this post for more information about how can help your create a simple and interactive budget for free. As always, let me know your thoughts! Happy budgeting!

Sunday, November 10, 2013

Trick yourself into learning about investing and building wealth with Cashflow 101!

This week, I wanted to write about a really fun and unique alternative for learning some of the basic principles of investing and personal finance. The game (yes, I said it...GAME) is called "Cashflow 101: How to Get Out of the Rat Race," and it was created by Robert Kiyosaki, the New York Times and Wall Street Journal bestselling author of Rich Dad, Poor Dad.

The game revolves around this concept of the "rat race," which represents the typical 9-5 day job. The main objective of the game is to get out of this "rat race" by accumulating enough passive income (ex: side income from a limited partnership or rental properties that you own) to cover 100% of your periodic expenses. You are able to do this by taking the money that you earn from your day job (careers and salaries are randomly assigned) and investing it in real estate, stocks, and businesses. You move from deal to deal, building your wealth and reinvesting until you are able to earn enough passive income to get out of the rat race of your 9-5 job and retire early. With each deal that you make, the game teaches you to classify and record each transaction on your own personal balance sheet and income statement. Cashflow can be extremely fun and competitive, and allows you to play with up to 6 people at a time.

Cashflow 101 is a board game, and can be purchased on Amazon via this link; however, there is a new way to play this awesome game. Here is a link to the RichDad website where you can now sign up for a free account and play the Cashflow game online, either against the computer, or with other people just like you:

I hope that you will all take a moment to check out this awesome game. For anyone who is looking to hone their skills, or develop a deeper understanding of basic accounting and finance concepts, this game provides a fun and lighthearted avenue to do so. For the first time investor, the game allows you to experiment with different investment strategies and make those much needed mistakes to learn from, without losing actual money!

As always, leave me a comment with any thoughts or suggestions. Have fun!

Thursday, October 31, 2013

Planning for your retirement: Traditional IRA vs Roth IRA vs 401k

Hi all,

I have been meaning to write this post for a couple of weeks now, but just haven't had the time. The idea came from a friend of mine (shout out to Mike!) who thought it would be helpful to learn a little bit more about the differences between Traditional and Roth IRA accounts. I'm going to do you one better and throw 401k's into the mix!

I want to try and keep this as simple as possible, so I'm going to start by describing the Traditional IRA account, and then use that as a basis for comparison to explain the differences with the other types of retirement accounts.

Traditional IRA:
The idea behind the Traditional IRA account is that a person can contribute money on a deferred tax basis each year. A deferred tax basis means that, although you will eventually have to pay taxes on this money, you won't have to pay them now. The money stays in the account until your retirement, during which time it has hopefully been growing. When it is time, the money is taxed as it is withdrawn from the IRA account. Here are some KEY bullets to help further explain:

  • You can only contribute a maximum of some specified amount each year. This number is constantly changing but, in 2013, it was a maximum of $5500 ($6500 for people over the age of 50).
  • Once money is contributed to the account, it cannot be cashed out until age 59.5, or else you will be charged a 10% penalty fee plus taxes. 
  • While you cannot cash out before 59.5, you can use the contributed funds to buy and sell investments (stocks, bonds, mutual funds, etc.) within the IRA. This is how you can potentially grow your retirement savings!
  • While in the IRA account, you will not need to pay any capital gains taxes on investment gains
  • At age 59.5, you will be eligible to withdraw your savings from the IRA without paying any penalties. The money withdrawn will be taxed based on your current tax bracket. Typically, you will be in a lower tax bracket after retirement due to a decrease in income. This is so important!!!! It means that you could potentially be paying taxes on your savings at a lower rate than you would have at the time when you contributed those funds during the peak of your career. 
Phew! Okay so that is the gist of the Traditional IRA. Now lets use this basic understanding to help shed some light on the other options out there.

Roth IRA:
The Roth IRA account is very similar to the Traditional IRA. Here are the key differences:
  • Roth contributions (same maximum of $5500 in 2013) are made AFTER tax, and are thus NOT tax deferred.
  • Once contributed, you can withdraw money from a Roth IRA without paying any penalty fees like you would under a Traditional plan. 
  • Money generated within the plan (such as interest or stock growth) is NEVER TAXED. With a traditional IRA, money is contributed before taxes, grows throughout your career, and then both the amount you contributed, plus any growth, is taxed when withdrawn. With a Roth IRA, money is taxed when earned, then contributed, and then never taxed again. 
And that's pretty much it! Biggest difference is the timing of when taxes are paid. 

401k Plans:
401k plans are also very similar to Traditional IRA accounts. Money is contributed on a deferred tax basis, it grows throughout your career untaxed (no capital gains taxes), and then it can be withdrawn after age 59.5 at which time it will be taxed based on your current tax bracket during retirement. Here are the big differences (there are a number of big ones so stick with me here!):
  • 401k's have a higher maximum contribution (in 2013, the max was $17,500 per year, as opposed to the $5500 max for IRA's). This means that you have the potential to save even more money for your retirement.
  • These plans are organized BY YOUR EMPLOYER, which has a couple of different ramifications:
    • The employer will often match a percentage of the employee's contribution. Meaning, if you contribute $17,500 in 2013, your company may also contribute an additional percentage of that $17,500. 
    • The employer can specify (read: limit) the investments available to the employee to build and grow their savings. For some people, this could be a really positive thing. For those of you that are really confident in your trading abilities, it may feel a little invasive.
    • Contributions come directly from your paycheck. With an IRA account, you are taxed on your income. Then you deposit a portion of that money into the IRA, and you subsequently receive a tax credit on the amount contributed (thus "tax deferred"). With the 401k, you are saved the trouble, as the contributions come out of your paycheck before income is taxed. 
  • Finally, you have the ability to BORROW MONEY from your 401k prior to age 59.5. You will still be charged a fee on the money withdrawn; however you will pay this fee in interest TO YOURSELF. You essentially borrow the money from your own retirement plan, and then pay it back with interest. 
Okay, so that is pretty much it. Couple quick notes: 401k's also come in the "Roth" variety. They are less common (a relatively new option), and are different from Traditional 401k's in the same ways that Roth IRA's are different from Traditional IRA's. In general, the 401k tends to be the more attractive option (higher contribution maximums, employee matching, ability to borrow); however, some people would prefer the IRA options simply for the freedom to invest in whatever they choose (as opposed to the limited options of an employer organized 401k).

Now, I think that was a pretty decent description of some of the key differences between the big retirement plan options out there, if I do say so myself. Having said that, simple descriptions will not (or at least, should not) be sufficient to make an investment decision. To help those of you faced with this issue, I have included several fantastic videos below, compliments of the Khan Academy. They really break down the nuances between the three big options, and demonstrate how they would affect your savings in practice. When I first signed my job offer and began taking a look at the big boy decisions I would soon need to make, I turned to Khan Academy to help clarify my options.

I hope you have all found this helpful! Let me know your thoughts.

Traditional IRA:

Roth IRA:


Wednesday, October 16, 2013

Making the most out of your debt: Credit card reward points!

For many people, relying on credit is just a fact of life. I wish I could sit here and tell you that I have the luxury of only using my credit cards in order to build up my credit profile; however, that is simply not the case. Every once in awhile an expense (whether big or small) will unexpectedly pop up into my life, and I will be caught without any free cash flow to cover it at that moment. It is times like these that I am so thankful to have my credit cards to get me out of a bind. In some of these situations paying a little bit of interest is by far preferable to foregoing payment on that unexpected expense, or missing out on a great opportunity (ie: your car breaks down and if you do not pay to fix it you will have no way to get to work; or, you win free concert tickets but need to pay for transportation). 

One of the best ways to make myself feel better after a big credit card purchase is by taking a look at my statement, and seeing all of the great rewards points that I have accrued. It can really help to take away the sting of an upcoming interest expense! If you are able to get your score into the good and excellent ranges (see my post on credit scores), you will be eligible for some of the top credit cards available, and it's these cards that will provide the best rewards packages to cardholders. 

To demonstrate this concept, I will share a personal story: At the end of the Spring 2013 semester, I realized that, because the accounting department completely screwed me, I would have to pay for an online class that, had things worked out as originally planned, would have been paid for by my graduate assistantship at Lehigh. There was no good time in the upcoming Fall semester to take the class, so I absolutely had to enroll over the summer, and with such short notice, I didn't have the $2000 in cash to fork over for tuition. 

After taking a good look at my finances I decided that I could reasonably (and responsibly!) open up a new credit card to use to pay my tuition. I did a lot of research, and in the end settled on a card that I had been pre-approved for. It was the Citi Thank You Preferred card which, at the time, was offering 20,000 bonus "ThankYou Points" after $1500 in card purchases within 3 months of account opening. 

Here's where the story gets really awesome: 20,000 bonus points translated into a value of $200 worth of gift cards. By paying my tuition with the card (and thus spending more than $1500 in the first three months), I received my 20k bonus points. And due to the point structure on the card, I also received an additional point for every dollar spent on the card. When all was said and done, I paid for my tuition (an expense that I absolutely had to incur. I needed to take that class!) without accruing any interest because of a 0% intro apr feature, and I was rewarded with approximately $250 in gift cards (to stores that I got to chose amongst many options such as: Bloomingdales, Nordstrom, Brooks Bros, iTunes, etc). It was a total win-win!!!

There are a number of considerations when choosing a rewards card. Check out the video below, or this blog post, to learn about the three big categories of rewards programs: points, miles, and cash back. Another awesome resource when trying to pick a new credit card is Here you will be able to search through available cards in a number of ways, such as: by type of card (low interest, balance transfers, 0% apr, rewards program, etc.), or by credit quality (excellent, good, fair, bad, or no credit at all). 

Now that I have opened your eyes to the intoxicating world of credit rewards, I want to leave you with a few words of caution. Credit card rewards can legitimately be addicting. It is not uncommon for people to get so wrapped up in the introductory deals that they begin to haphazardly open new accounts, reap the benefits of the introductory points, and then close them before moving on to the next rewards program venture. This can and will have a negative effect on your credit score. Do yourself a favor and pick two or three rewards cards that work the best with your lifestyle and shopping habits, and then stick with them. 

Good luck and happy card hunting!!

Tuesday, October 8, 2013

"Loans, Loans, Loans #womp," by Guest Blogger Ashley Sciora

If you’re reading this blog because you have some student loans weighing you down, welcome to the same boat that Anthony and I are in. Grab an oar, start paddling, and let’s talk about some ways to shed the debt!

Before you leave the safe space of your college or university, if you took out loans to pay for your education, you’ll have to sit through an exit interview to make sure you know the terms of loan repayment. If you’re me, this consists of frantically looking up your odds of winning the lottery and calculating how long a person can survive on pasta.  Had I paid a little more attention, I probably could have breathed a little easier knowing that there are options available.

Identify your loan holder
While the Department of Education may have a corner on the market, there are plenty of other entities who are willing to lend you money for school.  You can’t find out what options are available to you without figuring out who you have to pay back. Other common sources of loans: private banks and state departments of education.  Your school’s financial aid office should be able to help you with this.

When the grace period’s over…
Most, if not all, loans come with some sort of grace period; breathing room to figure out what your strategy is when the first payment request comes.  The federal government gives you six months, while other loan servicers may give you a shorter stretch of time.  The grace period is usually determined by the amount of time needed for the servicer to determine that you have graduated, won’t be re-enrolling in school and should be making payments.  A quick call to your loan servicer or a visit to their website’s FAQ section should help you make a timeline before repayment.

To Consolidate or Not Consolidate?
Most of us have multiple loans to our names when we graduate – whether your servicer granted a loan for a semester or a year or if you’re juggling multiple servicers, you’ll have multiple balances owed.  Consolidation will be the first option most of us consider.  The process of consolidation, if you’re eligible and the specifics of your arrangement will vary, but who cares about all that if you don’t know what consolidation means?  Consolidating your loans means that you’re essentially taking out another loan, equivalent to the balances on all of your eligible loans (you can only consolidate loans with the same servicer).  Consolidation is a much-talked about option, but may not be best for everyone.

Things to Consider:
  • Decrease in monthly payment. It may be a marginal decrease, but in this economy, any little bit helps!
  • Convenience. If you’re like me, you may get some piece of mind from only having to look at one balance and one statement per month (assuming you only have one servicer.)
  • Change in interest rate. If I were to consolidate my student loans from my home state, the interest rate on the consolidated loan would be an average of my existing loans.  (Some of my loans had lower rates than others, that all gets factored into a new rate for the new loan.)
  • Length of repayment. You’ll have longer to payback the consolidated loan, but that means more that you’ll end up paying in interest.
  • Effect on deferment/forbearance options. Depending on your servicer, consolidating existing loans can have make you eligible for or disqualify you from some deferment or forbearance options.
Well, that's enough of that for now. The bottom line is not to panic! Educate yourself about your options and work out an appropriate repayment plan. Also, look out for a follow up post about loan discharge, forgiveness programs, and deferment/forbearance. Let us know about your thoughts and experiences with student loans in the comments!

Wednesday, October 2, 2013

Tools for Success in Financial Planning

For many people, managing their finances does not come so naturally; creating a spreadsheet on excel and trying to work through each of the separate mobile banking sites for their individual accounts may not always cut it! Luckily for all of you broke college students, there is another way! 

For this post, I wanted to talk a little bit about a neat tool that can help you to manage your finances effectively through a number of awesome features. The site is called and it will:
  • Compile all of your accounts in one place (checking, savings, credit, loan, etc.)
  • Help you to create and stick to a budget that can be as basic or meticulous as you would like
  • Send you email/mobile alerts for things like upcoming payments, nearing a credit limit, suspicious activity, and more
  • Categorize your expenses in a pie chart to show you how much money you spend on things like gas, food, clothes, transportation, bills, etc.
  • Make some personal recommendations based off of your spending history and financial position to help you save money
  • Help you set legitimate goals, and track your progress from start to finish. Examples: paying off your credit card debt or saving money for a new car 
The bottom line is that will help you to organize your finances in a way that you can understand, and then provide you with the tools to get on the right track, make smarter financial decisions, and plan for your future. The site is very user-friendly, clean, and customizable. Mint also offers a super convenient mobile app available on apple and android devices! For more information about how the website works, check out this link:

If you happen to be one of those people that just can't seem to get on top of your spending, or you are chronically late on your credit card or student loan payments, this is a really simple way to take control of your life and avoid damaging your credit score. Also....did I mention that the service is COMPLETELY FREE?

Here is a quick video to explain some of the basic functions of the site -- if you like what you hear, I definitely encourage you all to sign up on the main site, and connect all of your accounts (have no fear! Mint uses bank-grade security on it's website).

As always, let me know your thoughts!

Tuesday, September 24, 2013

Bouncing back: the not-so-short road toward credit score repair

I could sit here and try to think of some clever and original way to put this, but I really think that the guys and gals over at had it right when they said that, "repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score." While this can surely be upsetting and disconcerting, it is a fact of life, and if anything, it should only serve to further emphasize the point of my last post, which was that establishing credit, and doing it responsibly, is OH SO important.

If, like many Americans across the nation, you happen to find yourself with a less-than desirable score, there are definitely some ways to (slowly but surely) rebuild your profile, and demonstrate to potential lenders that you are a creditworthy and responsible young adult. Luckily for all of you broke college students out there, you proooobably have another couple of years left living within the collegiate bubble to set some positive changes into motion before it's time to do fun big boy and girl things like, say, support yourself and like...I don't know...sign a mortgage?

Anyways, the first step to improving your credit score is, obviously, to pull a copy of your credit report and gain an understanding of the factors that have contributed to your particular score (Duh!). Due to the fact that you have already read through my last post, I am confident that the areas for improvement will be relatively apparent once you start taking a look.

Here are just a few tips that can really help to set you on the right track toward credit score repair:

  • If you don't already have a credit card, get one! If you're truly broke, you shouldn't open a card with the intent of going on a really exciting and over the top shopping spree. Instead, do yourself a favor and  do something responsible like buy your groceries each week with the credit card and then pay it off in full when you get your bill using the cash you would have otherwise spent in the first place. A good rule when you're starting out is to try to never charge more than the cash you have in your bank account.
  • The older a card is on your credit profile, the more of a positive impact that card can have on your score -- don't think that closing all of your old credit cards will help to improve your situation. I know from my own experience, my oldest card (and thus most valuable to my credit score), is also the card with the most egregious interest rate. I NEVER carry a balance on this card, but I keep it active by throwing small charges on every once in awhile (and then paying them off in full). This leads into the next tip...
  • Unused credit cards on your profile will have a negative impact on your score: While you don't want to go and close out all of your accounts, you also don't want to have cards that are just sitting stagnant for long periods of time. If you have 2 or 3 credit cards, make sure you show them ALL a little bit of love. I have two cards with fan-freakin-tastic interest rates, so if I am going to carry a balance on any card, it will be one of those two; however, even my nastiest card deserves a charge from time to time.
  • Pay your bills ON TIME!!!! This one should go without saying, but payment history can make or break you. Lenders want to see that you are capable of making regular payments on your debt, and that they will be on time. If you struggle with time commitments, do yourself the abso greatest favor and set some google calendar reminders, or sign up for auto-pay with your credit card company. So worth it!
  • Finally, don't over do it: having 2-4 credit cards, each with a different type of rewards program, is pretty normal. Having 5..6...7+ credit cards is definitely not okay, and if you find yourself with that many than I would suggest seeking out a legitimate credit counselor because you may have a serious problemo on your hands. Also, you never want to be maxing out these cards. If you have a total credit limit of $5,000, this does not mean that you are in the clear to go buy $5,000 worth of nonsense. You want to keep your debt around 20-30% of your total limit (and never more than 50%).
So anyways, sorry for the lengthy post. What can I say? I just get so excited about credit scores!!!!! As always, please leave me a comment or drop me a message via the contact box in the right sidebar. Next week I'll be reviewing slash promoting a really cool online tool to help you build a budget, and keep track of your finances. 

I leave you with this: