Saving | Well Heeled Blog

No More Money Worries

Written by WellHeeled on April 26, 2013 · 15 Comments

Many personal finance bloggers are broadly split into two camps: one side focuses on the perks of ”earning more,” and the other side emphasize the freedom of ”spending less.” I’ve been thinking about how these philosophies apply to my personal finances, and how I can calibrate my goals and efforts to achieve what I want out of money.

Well, what DO I want out of money?

For someone who thinks a lot about her personal finances, the reason why I think about my finances is because I don’t want to worry about money. That’s my biggest personal finance driver – to be able to just not worry about money. I can’t quite articulate what exactly “not worrying about money” means, but I do know I am happiest when I can enjoy most of the splurges I want and still be putting away over 50% of gross income. That will satisfy both the shopper and the saver in me!

Control wants + increase income = no more money worries.

There are two methods that I am employing, in tandem, to achieving my goal of “not worrying about money”:

to control/moderate “wants”, and
to increase resources

Both are important because I like beautiful things and delicious things and convenient things and enjoyable things, and those things, on the whole, cost more. So then it becomes a matter of setting an internal benchmark, if you will, on my definition of “luxury” or “beautiful” or “convenient.” This means that I know I will be much more easily satisfied (and at lower cost to my finances) if the handbag I want is a $300 tote from J.Crew instead of a $2,000 bag from Celine, or if my dream house is a 3-bedroom bungalow instead of a stately mansion. In short, I am careful to control not only my lifestyle inflation (what I buy) but also my aspirational inflation (what I want to buy).

On the second part, is that I want to be able to enjoy these nice things and still save and invest for my financial security. And the only way to do that is to increase my resources. Hence, coming back to school. Hence, working hard to find a job that I enjoy and learn, but that provides a good compensation.

Do you have a “no more money worries” goal? How do you intend to achieve it?

Your Longest or Proudest Streak in Personal Finance

Written by WellHeeled on January 15, 2013 · 24 Comments

One of my biggest goals for my summer internship (in addition to doing good work, getting a full-time offer, learning a lot, of course) is to contribute the maximum $5,500 to my Roth IRA for 2013. Aside from just the “it’s nice to resume retirement saving” factor, there’s also something of a pride/challenge to myself going on: I have maxed out my Roth IRA every single year since 2006, and I am definitely going to try my best to keep that streak going.

What is the personal finance streak you are most proud of?

It could be that:

you have held a full-time job since college graduation
you’ve gotten a raise at every review
you contributed up to the employer match for your 401(K) every year since your first job
you have saved 10%, 15%, 30% or more of your income since you’ve started working
you have increased or held steady your net worth every year
or, perhaps like me, you have maxed out your Roth IRA for several years in a row

Whatever it is, share in the comments!

What to do with a Windfall or Bonus

Written by WellHeeled on May 2, 2012 · 24 Comments

Thanks to a quarterly bonus, my bank account will be getting some extra love in the next paycheck. After 401K deduction and withholding for taxes, I should be seeing a $3,000 windfall. I am really happy about this boost, as I look into the future months and see only cash out without the corresponding cash in.

What to do with windfall money?

Save some

Check to see if you can have 401K / 403b taken out of your bonus checks. Or, you can always use a windfall to contribute to a Roth IRA, put into a down payment fund, or save for a shorter-term goal. 401K is taken out of my bonus check as well as regular paychecks, and although that makes my bonus look punier, it’s a good way to make sure I am “paying myself first.”

Spend some

Taking some of the windfall (5%? 10%? 20%?) to treat yourself is perfectly acceptable. And what do you know, there is NO shortage of ideas of where I can spend this money. In fact, I might use $50 or $100 to buy a bridal headband. If we were still planning on going to the Galapagos instead of raiding the kitty for graduate school, I would probably have put the whole thing into the Galapagos Fund.

Pay off debt

If you owe people / companies money, a windfall can go a long way in helping you out of indebtedness. Paying off high interest rate debt is probably the BEST return on your money in this environment (and can do wonders for your state of mind).

Here is where the bulk of my bonus check will go: directly into my MBA fund, which then will be spend down on the MBA experience. I am trying to motivate myself to minimize student loans by telling myself that every dollar I can put towards school is another dollar I wouldn’t have to repay, is another dollar that I can help CB with HIS tuition in two years is another dollar that we’d enjoy as a “free” dollar after we graduate.

How do you save/spend a windfall or bonus?

What Losing Weight Taught Me About Saving Money

Written by WellHeeled on March 5, 2012 · 22 Comments

There is a natural parallel between losing weight and saving money.

For the past several months, CB has been on a weight loss journey. In the middle of January, I joined him. True, we want to look good for the wedding (because there’s nothing like having your appearance captured by pictures that will last forever to give you a kick in the pants), but more importantly we want to establish good eating habits and exercise habits to carry us far beyond the Big Day. CB lost 50 pounds in eight months, going from a 38-inch waist to a 32-inch waist. I had a modest-sounding-but-still-signficant-to-me 6 pound weight loss, trimming an inch around my waist.

Watching CB lose weight and then working at it myself, I realized that there are so many lessons that losing weight have taught me about saving money.

1. It’s about understanding the numbers AND taking action.

Losing weight and saving money are math problems. To lose weight, you need to create a calorie deficit – eat fewer calories than what your body needs to maintain its current weight. To save money, you need to spend fewer dollars than you earn. Both cases can be boiled down to a case of simple arithmatic: dollars in vs. dollars out, calories in vs. calories out.

But THEN you throw in human behavior, and it just all goes out the window! Plenty of people understand that eating unhealthily and sitting all day will encourage weight gain, just as plenty of people understand that if you spend more than you make, you will run into debt. But as anyone as ever tried to lose weight or save money (*raises hand*) would tell you, it’s one thing to know the math. It’s another thing to make the not-so-fun decisions (choosing an apple over a chocolate muffin, trading a loft apartment for room in someone else’s house) that will allow you to achieve the desired results.

2. You can’t out-train a bad diet, and you can’t out-earn bad spending.

Watch this video on why you CANNOT out-train a bad diet <—- one guys runs at a pace of 11 miles per hour and burns 40 calories in a few minutes. In the same amount of time, his buddy consumes almost 1,000 calories in pizza and soda. In the same way, I’d say that you can’t out-earn bad spending. Of course, if you are rich like Bill Gates is, it is quite difficult to imagine how you can ever spend all that money if you just kept a portion of your wealth in income-producing investments. On the other hand, we’ve all heard stories of some very wealthy people – professional athletes, Hollywood stars, famous photographers, etc. – who have to live in reduced circumstances because they spent beyond their means.

Making a high income is important, it’s one side of the equation. But it’d be pretty darn difficult to earn enough money to support a life of indiscriminate spending. Focusing on earning without examining your expenses is akin to trying to lose weight while filling your diet with sugary drinks and fried foods. When I saw that video, I felt a lightbulb switch on…. which brings me to the 3rd lesson I’ve learned.

3. You can’t manage what you don’t measure.

If you want to lose weight, you need to measure what you are eating. If you want to save money, you need to measure how much you are spending. Trying to lose weight and save money means that you are by definition changing the status quo – so you HAVE to do something differently in order to see results. Your current diet isn’t working. Your current spending isn’t working. Otherwise, you would have already gotten the results that you wanted.

CB and I both track our calories. He does it on a piece of paper, I do it with the app MyFitnessPal. Once I started seeing results with MyFitnessPal, I realized that I needed to do the same thing with my finances. I’ve tried out several expense tracking applications recommended by readers, and for now I’ve been entering my data into iXpenseIt – but I’m open to other suggestions! Measuring my progress allows me to 1. stop deluding myself on how much I am really eating or spending, and 2. show me where I am going overboard. Incidentally, it’s the same with both expenses & calories: eating out… coincidence? I think not!

4. Know what’s worth it, and what isn’t.

We all have limited resources – calorie-wise or dollar-wise – so it’s important to figure out what purchases or meals are “worth it.” After almost two months of paying attention to my diet, I have developed a repetoire of meals that I know are worth the giant caloric intake: fried chicken over oily sticky rice from my favorite Thai takeout (800-1,000 calories), flourless chocolate tort from the Capital Grille (734 calories), curry ramen at the local noodle house (650-700 calories), scones that CB’s sister makes (300 calories per scone, but I always eat 2-3 in a sitting!), etc. I also know what ISN’T worth the extra calories, so I don’t eat those foods.

When it comes to spending, I am working on the same mentality. Tango lessons for $15 a pop is worth it to me, buying 2 e-books for that same price is not. I have enough lotions to keep me moisturized for a year, so even though the new bottle is on sale, I am not going to buy it. All that money I’ve saved can go towards something that I really want, that is really worth my dollars – things like travel, retirement accounts, facials, etc. By spend money on what is important to you, and ruthlessly cutting expenses on all the rest, you’ll be able to gain more enjoyment from your dollars AND prepare for a financially sound future.

5. Plan ahead and build in a cushion (and when you slip up, get back on track).

We won’t eat perfectly 100% of the time and we won’t spend perfectly 100% of the time. By planning ahead and building a cushion, however, I can mitigate the impact of a bad diet decision or unexpected expense. So when I know I am going to spend Friday night with a giant bowl of the delicious chicken mentioned above, I try to shave a hundred calories off every day in the beginning of the week. When I know I have to pay for tuition deposits in a few months, I try harder to squirrel some more nickels so that when the day comes, the bill wouldn’t be such a shocker. (But I think it still will be).

Despite our best plans, though, we make mistakes and veer off track… because life happens. The important thing is to not let a bad day turn into a bad week, and a bad week turn into a bad month, and so on. When I was in Las Vegas, all my discipline went out the window and I enjoyed far more culinary delights than I should have. But when I came back from that trip, I told myself, “OK, now you have to get back on track!” And I did. When I was visiting all these business schools during interview season, I didn’t always choose the cheapest flights or car rentals. I chose convenience, and that was OK. But now that I have more time to look for flights for my honeymoon and other trips, I take longer to search for deals and make my purchases.

6. It’s not a quick fix, it’s a way of life.

One night, CB came to me with a mournful look on his face and said, “you know, I’ll have to eat like this for the rest of my life.” I looked at him and said, “me too. But that’s OK. We have to make healthy eating a lifestyle. It’s GOOD for us!” (the truth is at that moment I was really, really craving a giant piece of chocolate fudge). When I think back to how and what we used to eat, I realized that that’s not a sustainable way of eating. We had no concept of moderation, we underestimated the calories in our foods and overestimated the calories burned through exercise, we ate whatever we wanted, whenever we wanted, and usually what we wanted were NOT salads or grilled veggies. This new phase in our life isn’t a short-term fix. It has to be for life.

The truth is we can’t eat whatever we want – unless you are one of those rare souls who truly prefer tofu over fried chicken – and we can’t buy whatever we want. Nothing you do will change those facts. If you try to deny it, you are only going to dig a deeper hole for yourself, in terms of bad debt or bad health, or both.

7. Don’t just rely on sheer willpower, figure out a system instead.

Willpower is a limited resource, in fact, studies have shown that when we expand willpower on certain things, other goals fall by the wayside. That means if you are trying hard to save money, you may be lackadaisical with eating healthy. That’s why it’s helpful to figure out a system that will help you make the right decisions, WITHOUT using your limited reservoir of self-discipline. When it comes to finances, it’s paying yourself first. When it comes to losing weight, it might be putting gym clothes in your car (check), stocking your fridge with low-calorie treats for when you get a sugar craving (and by you, I mean me), and making the decision NOT to go out to eat instead of relying on your self-discipline to order the lite dishes.

8. When you see results, all the hard work will be worth it.

This one’s self-explanatory. When we look at our retirement accounts or reminisce about the trips we have taken, I don’t think about the clothes I didn’t buy or the restaurants I didn’t go to, and I don’t miss the luxury apartment that I visited but never leased. I bet CB doesn’t mind that he got an old Honda for $4,000 instead of a new Acura for $24,000. And when we see how we look, and feel, now, we don’t miss the fact that we can only eat my beloved Thai fried chicken once a month instead of twice a week. The results are worth it.

Have you found similiarities between losing weight and saving money? Which one is harder? (and if there’s anything you learned from this post… it’s that I have an addiction to fried chicken).

This post has been featured as an Editor’s Pick in Carnival of Personal Finance

Financially Ready To Have Kids?

Written by WellHeeled on February 23, 2012 · 38 Comments

CNN Money asked its readers to give their answers to a question one reader submitted:

When is a person financially ready to have kids?

My husband and I make decent money, but it all seems to go to student loans and the mortgage. How does anyone decide the time is “right” to have children? What steps should we take before starting our family to make sure we are financially secure enough to provide a safe and happy home for our children?

This is one of those questions that have no right answer, because it’s so different for everyone. But I believe it’s a useful question to ask, even if you don’t know the right answer. I know that a baby is a great deal of responsibility and costs a great deal of money. According to a USDA report, it now costs an average middle-income American family $222,360 to raise a child from birth to 18. That’s almost a quarter of million dollars! Furthermore, that number DOESN’T include college costs, which could range from a few thousand dollars a year at community colleges to $50,000 a year for a private university education.

I’ve read a lot of personal finance posts that say something along these lines: kids don’t have to cost all that much money! All they need is love and attention! They just want time with you! I don’t disagree with that, because it’s true, kids don’t really care if they wear Target or Tommy Hilfinger (just wait until they become teenagers!). But having kids also impose some very real costs - impact on your career (and thus income) trajectory, impact on your personal freedom, impact on your relationships. Achieving a certain level of financial security can mitigate some of these impacts – having enough money to pay for a night nurse so that the new mom can get enough sleep after the delivery, having enough money to hire babysitters so the mom & dad can go on a romantic date, having enough money so you don’t worry (too) much about health insurance or paying for school supplies.

So money isn’t everything when it comes to children, but not having money also causes a lot of problems for new parents and puts further strain on a marriage. CB is probably a little less enthusiastic about kids than I am… and I am about a 5 on a scale of 1 – 10, 1 being Childfree Forever! and 10 being Must Have Baby NOW! One of his reasons for CB’s reluctance that he is very worried about the impact a baby would have on our finances and our freedom. Which are legitimate concerns that I share. I take this to mean.. we are definitely not ready now.

We might be ready one day, however. I am finding babies cuter and cuter, much more so than I have in my early 20s. I see a pretty biracial toddler with straight black bangs and a bowl haircut, and I start wondering… well, maybe it wouldn’t be so bad to have one of those. Perhaps the biological imperative cannot be denied. If so, here is what I’d like to have accomplished financially before CB and I bring a baby into this world.

Save up an adequate retirement fund. I am not sure what “adequate” means just yet… but $250,000 sounds like a good number.
Achieve an income and a level in our careers that would allow us to continue to save for retirement, give the kid a leg-up, provide childcare, and buy a modicum of balance.
Live in the same city. This may seem like a no-brainer, but given that we will likely move to different states a month after the wedding, I’d like to ensure that we will not be in a long-distance relationship WITH a kid.
Pay off our student loans because baring a mortgage, I really would like to be debt-free by the time we have a kid.

On the one hand, I can chalk these goals up to my Type A personality and my desire to really, truly, prepare financially before we are responsible for another human being. On the other hand, setting these very high financial goals may just be a way for us to delay becoming parents without shutting the door on parenthood. I don’t know what is the “right” level of financial security before you have a child. Obviously, people have become parents under less-than-ideal circumstances and still have raised great children. And obviously there are very wealthy parents who are horrible parents. But most of the time, parents are just trying to do the best they can with the resources they’ve got. The truth is, I am not confident in my ability to be a good mother, but I’d like to have as many ducks in a row as I can to mitigate that uncertainty. Having more resources have to be better than having fewer, right?

When do you think you would be financially ready to have kids?

Weird Saving Tricks I Use

Written by WellHeeled on December 20, 2011 · 21 Comments

Do you use weird saving tricks? We’ve heard of all the normal ones: automatic deduction from your paychecks, setting aside 10% of your income for retirement, putting your tax refund into your savings account, blah blah blah. I’m not talking about those. I’m talking about the idiosyncratic and really strange little mental tricks you play on yourself so you can squeeze out a few extra dollars of savings here and there. In fact, I have a specially named sub-account for savings from these weird tricks - I call it my Funny Money account.

Here are some of my weird saving tricks:

When I make brunch at home, I put away $15-20 (what it would have cost us to go out to eat). Last weekend, we somehow managed to cook at home not once but twice, so $40 went from my bank account to the Funny Money Fund on Monday. We eat out at brunch way too often, and the funny thing is that brunch is my favorite meal to make, at a time -weekends- when I have time to make it.
When I make a return (a dress that I just couldn’t make work, or shoes that don’t fit right), I take the money I get back and I put it in a savings account. Impulse buys, thou shalt not get the best of me!
When I get a gift card as a present or as a bonus from credit cards, I try to put 1/2 of the face value into my savings account.
When I stay at a hotel for free because of points redemption, I save $10-$40 depending on how expensive the hotel was.
When I window-shop and I make the (frankly very difficult) decision to NOT buy that perfect pair of stacked suede heels or mirrored jewelry box with velvet lined interior, I put the money I would have spent into the Funny Money Account.

I use these little tricks because saving is just as much mental and emotional as it is mathematical. I know I am a spender trapped in a saver’s body – it’d be way too easy for me to overspend if I don’t put a few safeguards in place. So I have the big ones such as 401K deductions, but I also try to make it a fun game for myself and make sure that when I DO overcome those impulse buys or get lucky with gift cards or free stays, I put away a little something too. If the money is just swimming around in the checking account, I know I’m going to spend it.

Do you have any weird saving mind tricks you use?

What Percentage of Income Do You Save for Retirement?

Written by WellHeeled on December 7, 2011 · 28 Comments

Retirement. The 800-pound gorilla in the personal finance room. You can’t talk about personal finance without talking about retirement. And you can’t talk about retirement without talking about how much you are saving for it.

I was reading on Bruce Bucks when this note caught my eye: according to personal finance expert Liz Weston’s financial rules of thumb, you should:

Save 10% for BASICS, 15% for COMFORT, 20% to ESCAPE. This rule of thumb works pretty well if you start to save for retirement by your early 30s. Saving at least 10% of your income ensures you won’t be eating pet food. Fifteen percent should get you a more comfortable living, while 20% gives you a shot at an early retirement (and yes, you get to count employer contributions as part of your percentage). Wait just a decade to start, though, and you’ll need 15% for basics and 20% for comfort; an early retirement may not be in the cards.

Wow! Those are some pretty big figures… We Americans aren’t exactly known as big savers, and I’d bet that most of us are not anywhere saving near the level necessary to escape into comfort. Recently, some experts are telling folks that they are saving too much money for retirement – after all, we might downsize our homes, we don’t need to buy business wear, maybe we can become a one-car or even no-car household. But I might argue that even 20% is not enough. Even though all these arguments make sense, I never feel that I am saving too much for retirement.

Thanks to my mother’s medical background and her penchant for sharing stories of folks in long-term care or suffering from catastrophic illnesses, I can imagine any NUMBER of ways to go. And it’s never pretty. Or cheap. (Well, if you die instantly it’s not too expensive. But most of us don’t get to choose). With the disappearance of pensions, diminishing Social Security payments, and increasing cost of health care, I wonder if fairly soon the new rule will be “15% for basics, 20% for comfort, and 30% to escape.”

In related news, I just maxed out my 2011 Roth IRA. Which makes this the first (and last, at least for a few years) year I have contributed the maximum to my 401K and IRA. Looking back at my past retirement saving history…

In 2006, I saved…. 39%
In 2007, I saved…. 42%
In 2008, I saved…. 8%
In 2009, I saved…. 17%
In 2010, I saved…. 39%
In 2011, I saved…. 24%

I maxed out a Roth IRA in 2006 with my first “real” paycheck. Since then, my savings rate has bounced up and down – in 2008, I wasn’t able to contribute to a 401K, and in 2009, I was laid off, but retirement saving has always been a top priority of mine. Last year I saved the most money I have to date, and this year I will be able to save around $2,500 more. If you count employer contributions, CB and I are both saving around 24% of our gross salary this year. Here’s hoping that we will have the option to escape to San Diego with mai tai’s when we are retired! For 2012, I have already submitted my paperwork for open-enrollment period at work. I’ll be saving 25% of my gross salary and CB will be putting down 10%, with an additional 10% employer contribution. Then we will max out our Roth IRAs.

On a side note, I like to evaluate my savings progress based on our total, unadjusted gross income. 401Ks are pre-tax, Roth IRAs and Roth 401Ks are post-tax, SEP IRAs are pre-tax but it’s based on 1099 income, etc., so I find it much easier to just calculate everything on the gross income. Otherwise it gets a little messy when you have to adjust for tax deductions. Every country has its own retirement system, for example Australians have the chance to setup a self managed super fund (SMSF), which gives people the freedom to own & control their retirement (superannuation) investments. There are multiple financial institutions, such as AMP who will not only set you up but give advice when you please.

What percentage of your gross income are you saving for retirement? (Tell us your age, location, etc. to give some context).

Adults Living At Home: My Change of Mind

Written by WellHeeled on November 16, 2011 · 52 Comments

When I was in college, my biggest goal was to make enough money at my job so that I wouldn’t have to move back in with Mom and Dad after graduation. Now that I am 4+ years out of school, though, I’ve realized it would have been nice to live at home for a few years. My workplace was too far to make it realistic, but even if I worked closer, I don’t think I was at a place where I would have wanted to live at home then.

What brought about this change of heart? I was reminded of this topic when Bridget at Hi That’s My Bike wrote a somewhat controversial post about adults living with their parents.

I don’t think anyone should live at home after the age of 20. I don’t care if you’re a student or saving up for a house, or whatever other ridiculous excuse you think justifies leeching off your parents. Everyone needs the experience of being independent in order to become self-sufficient. If you do not have enough money to pay rent, you have to find a way to make more money — this is called problem solving, and it’s an essential skill for coping with that scary thing called “real life” so it’s better to learn it sooner rather than later.

There are some aspects of the post that I agreed with. To have a successful stay at home, young adults should have a goal and a plan (getting a job, paying off credit card loan, etc.) and they should pitch in some way or another, such as chipping in for rent, doing some housework, buying groceries, etc. I wrote about “boomerang” kids back in 2007, but given the economic downturn and the dearth of jobs for many new graduates, adults who live at home are more common than ever.

Moving back home isn’t all sunshine and roses, and it’s probably not a viable long-time strategy for many folks. But if you have a good relationship with your parents, living at home is a wonderful way to save up, accelerate student loan payments, and generally spend some more time with family.

I know several friends and friend-of-friends who have lived at home.

One girl lived at home for 5 years after college. She paid the market rate for her room. At the end of the five years, her parents gave her back all the money she had paid. That’s how she got a remarkable down payment and now is the proud owner of a 3-bedroom townhouse.
Another friend and his wife live with her parents while they are building up their small business and going to school.
One of my friends was a manager making $80K. She lived at home because it was 15 miles from her work, and there was no point in renting an apartment when she can save that money for something else.
CB lived at home for 2+ years after he graduated, and during that time he was able to squirrel money away (some of which to his retirement funds!). He was able to hang out with his brother and sister at night. He was able to eat his mom’s cooking – and bring me some when he visited!

Now I can say that if CB and I are ever working near my parents’ place, I would have no problem whatsoever moving in with them, setting on a very accelerated saving plan for a down payment, and enjoying my mom’s delicious dinners a few nights a week. I know my mom would love to have me back home. Maybe it’s a matter of culture (I come from one where it is more normal/expected for adult children to live with their parents – all my cousins currently live at home or in apartments purchased by their folks), but I don’t see anything inherently shameful in living with parents. It’s just a living situation.

So I guess my view on adults living at home is this: do what works for your situation, but don’t dismiss the possibility (and the potential savings) so quickly, and if you are living at home and working towards a goal, don’t be ashamed. It may not be as fun as living on your own, but what you gain in return – not just monetarily – could be well worth the inconveniences.

Would you live at home after college? Would you move back with your family as an adult to save more or pay down debt? Do you think living at home is shameful?

How soon should I start saving for a down payment?

Written by WellHeeled on November 1, 2011 · 33 Comments

Here’s a question for all the readers and PF bloggers out there: If you know you want to buy a house / condo with 20% down, but you won’t be able to buy for at least 5 years, would you start saving for a down payment right now? What if you have other goals in the mean time? How do you even begin the process of saving for a down payment if the total figure is so intimidating?

Given the rash of home purchases in the PF blogosphere lately (Krystal from Give Me Back My Five Bucks, Beantown Happy Homeower, Retire by Forty, Me in Millions, etc.), and my penchant for wandering into every IKEA within 50 miles of our apartment, I am getting the feeling that gee, I want to become a homeowner too!

In my corner of metropolitan Southern California, real estate prices show no signs of abating. Good homes, priced appropriately, get competitive bids and are sold within days. It would cost $250,000+ for a 2-bedroom condo and $400,000+ for a single family home unless I want to move very far from the city center. Assuming that we will eventually look at a home in the $300,000s, a 20% down payment would cost at least $60,000. Probably closer to $80,000.

In the mean time, we will be going to graduate school, paying off the related loans. Our incomes will likely – hopefully - increase, but most if not all of the increases will be eaten by loan payments (how poetic!) for at least several years. If we decide to have a child, the costs jump up again. We still want to continue to save for retirement. In fact, my goals would be for us to both max out our Roth IRA – what we are doing now- and contribute at least 15% of income to our 401Ks, ideally maxing those out too. Also, we have to maintain a healthy emergency fund and would like to fulfill our big travel dreams.

How do you get started? WHEN should you get started? Do you just keep saving and know in the back of your mind that money is for a future home? Or would you be more intentional about saving for a down payment (designating a special savings account, or CD ladder, for example)?

Real Simple’s Money Guidelines

Written by WellHeeled on October 7, 2011 · 8 Comments

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A recent issue of Real Simple magazine has an article titled 6 numbers for financial success. This is why Real Simple is one of my favorite magazines – it has fashion, organization, makeup, features, but sweetens with a dose of personal finance. Generally, I think these are good, basic guidelines.

28%: the share of your pretax monthly income that should go toward housing costs

Yes. Our housing cost (rent + utilities + internet) takes up 14%-15% of our pretax income. Rent’s an area that we are doing very well in… but I’m glad Real Simple doesn’t have a guideline for eating out. Because I’m sure we will exceed that!

120 – your age: the maximum percentage of your retirement savings that should be in stocks or stock mutual funds

No. I am 26, so according to the formula I should have more than 90% of my portfolio in stocks. I am not that risk-tolerant! Working has made me realize how much it hurts to watch my hard-earned retirement funds dwindle, so I have approximately 70% of my retirement funds in stocks and 30% in bonds.

5%: the maximum percentage of your take-home pay that you should owe to credit card companies

Yes. Neither CB nor I have credit card debt (unless you count the balance that we pay off each month). Instead, I use credit cards to get rewards such as gift cards or mileage bonuses.

10%: the minimum amount of your pretax income to save for retirement

Yes. Ever since college graduation I have saved 20%-35% of my gross income in retirement funds. If we include the 10% employer’s contribution that CB receives, we are contributing 27% or 28% of our combined income into retirement funds.

1: the number of times a year you should review your retirement portfolio

Yes and No. I look at my portfolio several times a month, but I don’t really make any changes to it other than add more money for Roth IRA or 401K.

10 x your gross income: the minimum amount of life insurance you should buy

No. I have a small life insurance through work. CB has something similar. Neither of us has purchased additional life insurance. After we get married, we probably will add a term life insurance so that if one of us dies, the other one will at least have some money come of it! (OK, that didn’t come out right, but imagine the pain of losing a spouse. It would be nice to have some money so that one can take time off work or school, handle funeral costs, travel to be with family, etc., if an unexpected tragedy occurs).

As you can see, I qualify for most of these guidelines, but I missed a few that I don’t think applies in my situation. How did you do?

Savers (This One Included!) Frustrated By Low Interest Rates

Written by WellHeeled on September 21, 2011 · 13 Comments

Remember the good ol’ days of 2006 and 2007, when interest rates climbed to 5% and banks were falling over one another to provide the highest rates to savers? With every little effort, my cash were earning 4%+ in saving accounts, and I had a few CDs that earned 5%.

With interest rates barely at 1% now, today’s savers are facing a very different reality. According to the Los Angeles Times:

The Federal Reserve has dropped interest rates to historically low levels in hopes of resuscitating the ailing economy. That’s been a boon for borrowers taking out auto or home loans, and a salve for banks still trying to recover from the global financial crisis three years ago.

But for savers, the microscopic yields are the equivalent of a migraine. They’re especially hard on the elderly, many of whom rely on steady interest income to pay routine living expenses.

And the lack of interest income will ultimately take its toll on the sputtering economy: Americans will hold back spending because they aren’t making as much money off their low-rate accounts. Consumer spending accounts for about 70% of the U.S. economy.

So what’s a frustrated saver to do? The same LA Times article mentioned some folks who have cashed out to purchase gold, or to make other alternative investments in search of a higher yield. In my case, the answer is “what can I do?”

It’s too risky to put my short-term savings anywhere but money market funds and savings accounts. At this point, my first priority is capital preservation and liquidity. My non-retirement savings are in a prime money market fund, while the rest are with a big bank’s saving account, earning a paltry 0.95%. Even online banks’ rates aren’t much better. I believe ING is currently offering 1% on their Orange Saving Accounts.

Compared to the folks in retirement who depend on their saving accounts for living expenses, I’m lucky. A decrease from 5% to 1% interest rate didn’t affect my standard of living. It is still frustrating that my cash is losing value with every passing moment – after all, the inflation rate is almost 4% right now. But I have to hold on to the cash. So I suppose all I can do is to sit tight.

Savers, are you doing anything about the low interest rates? Has it affected your spending or retirement plans?

How Much Is That MBA In the Window?

Written by WellHeeled on September 1, 2011 · 32 Comments

How much is that MBA in the window?
That two-year three-lettered degree?
How much is that MBA in the window?
The loans will be the death of me!

The MBA application season has started (cue resume updates, essay writing, interview prep, cross-country campus visits, and lots and lots of $$$). Even though the application process and travel is costing a pretty penny, I know the REAL big expenses will come once I am accepted into the hallowed halls of graduate education.

The cost of a 2-year MBA program usually runs $160,000+ including tuition, books, and room and board. Wharton, in fact, suggests a $180,000 budget for two years for new incoming students. To say that number is intimidating would be putting it lightly. With 12 months until I hopefully start my MBA journey, I’ve decided to look at my finances and see how I can meet that cost. No Debt MBA is an MBA student who plans to graduate without any debt. I may not be as ambitious as she is, but I would like to keep my total debt under $50,000 and I’d like to pay off, not capitalize, accrued interest during my 2 years in school. Here is how I plan on paying for my business education while minimizing student loans.

$80,000.

That’s how much I have right now, around $40,000 in personal savings and $40,000 in promised family contributions. To stretch this money as far as possible, I plan on living with roommates, getting by without a car, and limiting my purchases. Baaaack to student living! The family contributions will come from the sale of my grandmother’s apartment. My grandmother, despite never having gone to college, was a great proponent of education. So, my mother has decided that this will be her gift to me. I think she would be happy I’m using the money to go to school.

The rest?

I am crossing my fingers that I get some grants (i.e., “free money”). If I could get the $30,000+ a year that No Debt MBA did, I would be over the moon. If I can get even $10,000 a year, that would help tremendously. My 401K and Roth IRA hover around ~$70,000 (give or take $5,000 depending on which way the Dow blows), but I’m leaving those funds alone. Aside from the penalties and fees, I’d like to think that that money isn’t even mine – they belong to a nice old lady 60 years from now who will be mighty glad I didn’t raid her retirement kitty.

After graduation, I’d like to go into a marketing or marketing consulting role. While I should be able to make a good living from these jobs, they are not the $200K+ salary and bonus figures that finance types boast of in their first year out of school. So I want to be very careful about how I take on student loans. (A new blogger I just found, No More Harvard Debt, is a 2009 Harvard MBA who is blogging about paying off $90K in debt in 8 months). In any case, I don’t want to make too rosy a projection of my post-MBA finances. You get in trouble that way. Making $100,000 when you thought you’d only get $80,000 = Wundebar! Making $200,000 when you planned for a $250,000 lifestyle? No bueno.

Furthermore, getting married means that I am no longer just concerned about “my” finances. CB is also going to a masters program. He will also take on loans, although I am hopeful that he will receive many more grants than I will. The more we minimize our educational debt, the more flexibility we will have down the road.

BCBG Sale: Wedding Dresses Under $300

Written by WellHeeled on July 30, 2011 · 5 Comments

During my hunt for a cheap and chic wedding gown, I stumbled on BCBG.com. The site is having a big sale right now, with an additional 20% off for sale items until August 2. There are several beautiful white dresses that will be wonderful for a wedding. If you are also looking to for a gown, check out this site! (As an aside, I don’t understand why white dresses are displayed against such a light background!)

BCBG Maggie

(A few more I like: Timona strapless silk gown, Cyrus tiered gown, Lexie v-neck gown)

Goodbye ING Direct?

Written by WellHeeled on June 17, 2011 · 22 Comments

Just heard that ING Direct will be bought by Capital One. I’ve been a member of ING Direct since 2006 and have always been very happy with their customer service. I love the sub-accounts feature, and as of right now I have 6 accounts with ING. I hope Capital One will respect the culture and customer base that ING Direct has created, but only time will tell. For now I plan to stay put and see what type of changes the acquisition will bring before I make a decision to stay or go.

Most folks on Consumerist are quite upset about the change – I have to admit I am a little, too!

Do you have ING Direct? Are you planning to switch banks because of this acquisition?

Hat tip to Debt Ninja.

Image credit via INGdirect.com

A Spender Trapped In a Saver’s Body

Written by WellHeeled on May 26, 2011 · 30 Comments

A Spender vs. Saver

Whenever articles come out that ask: Are you a natural-born Saver or Spender? I always think about which category I’d fall into.

On the surface, I’d probably be classified as a natural saver – I save for retirement, long-term goals, big trips, etc., and I don’t live beyond my means. And yet, I think I am a spender trapped inside a saver’s body – because I really, truly, hate the feeling of not being able to spend.

If you are like me, you wouldn’t be very good at depriving yourself / enforcing no-spend rules. For example, I thought about going to Paris one night, and bam, I am making plans for a $4,000 trip. I see a beautiful $300 dress, and I click “Buy” after just a few hours (the travesty is that I still have not worn that dress. Six months later. But I will in October for a wedding). I go through Starbucks like they are going out of style, and at $4 per latte it would be a very good thing for my wallet if they DO go out of style. I eat out much too much.I tried living without a budget and while that went OK for a while, I soon realized that, nope, I DO need an ~~budget~~ adult allowance. I get bitten by the shopping bug.

Can you become a saver if you are naturally inclined to spend?

I think so. Just like you can still get in shape if you hate exercise or you can still eat healthily even if you love sweets. It’s all about playing little tricks on yourself to help you along. How I’ve done that is to put away money before it gets into my hands. I do this with my 401K contributions – every month over $2,000 disappears before I get my paycheck. That way, my spending is constrained by the money that I actually have. I also try to minimize my BIG expenses (rent, car, etc.) so I don’t have to go through daily acts of deprivation (no Starbucks, no eating out).

Automatic savings, paying myself first, and forgetting about the money I have so I always feel less well-off than my bank ledger – these are the ways I try to keep my inner spender at bay!

Are you spender or a saver? Or are you, like me, a spender trapped in a saver’s body? Any savers trapped in a spender’s body here?

Living Well on Less Than $40K a Year: Lessons for Everyone

Written by WellHeeled on March 30, 2011 · 11 Comments

Can a family of four live well on less an income of less than $40,000 a year? Donna Freedman of MSN Money profiles two families who say “yes.”

Tracy and Danny Kofke, an at-home mom and a special-ed teacher, live near Atlanta with their daughters, ages 3 and 6. Adjusted gross income: just over $36,000.

Amy Halloran and Jack Magai, a freelance writer and an arborist/choreographer, live near Albany, N.Y., with sons ages 7 and 12. Adjusted gross income: about $30,000.

A lot of people live on less than that. In fact, both families are still well above the current federal poverty guideline of $22,350 per year for a four-member family. I chose them because they live in or near large cities, rather than in the deep (and cheap) countryside.

If you can own a home and raise kids in metro Atlanta on $36,000 a year, as the Kofkes do, you obviously have something to teach. And even though Halloran and Magai lucked out with cheap housing, their annual income is slightly less than the federal minimum wage for two people.

It’s nice to see stories of how this IS possible and how the two families made choices that work with their priorities. I make more than $40K a year but a whole lot less than some of the families usually featured in these money series. What’s great is that there is always something I can learn or some inspiration I can draw from all these stories, no matter how much more or how much less I earn than those profiled.

In Donna’s article, the two families offered five strategies for how to stretch an extra dollar, which can be implemented by people of all incomes to one degree or another.

Strategy 1: Know where every dollar is and where you want it to go.

Knowing where every dollar goes is important if you are either 1. on a limited income or 2. have big saving or debt pay-off plans. I cruised along without a budget for a while, and then I realized I needed to make some changes so I at least have an idea of where my money went.

Strategy 2: Start with cheaper housing.

One of the reasons why I can max out my retirement accounts this year is because I have very cheap housing. In fact, my rent is less than 15% of my gross income (most experts recommend your housing costs stay under 30%). There are a lot of ways to lower your housing costs, including sharing a space with roommates, buying multi-unit housing and renting out rooms, live in the not-so-trendy part of town, live in an older building, live in a building with few amenities, etc.

Strategy 3: Get creative about meeting needs.

I’m not so sure if I am “creative” about meeting needs. In fact, I’d say this is one of the areas where I can definitely improve on – starting with cooking at home more often. I do, however, get really cheap haircuts at a local beauty school.

Strategy 4: Get even more creative about meeting wants.

My level of “creativity” tops out at finding a really inexpensive Thai massage place ($40 an hour!), using restaurant.com coupons for eating out, and cashing in my credit card points for Sephora and Banana Republic gift cards. Oh, I also try to always buy quality clothes / shoes on sale or at off-price retailers such as TJ Maxx or Loehmann’s. Do those methods count?

Strategy 5: Stay true to your goals.

This is great advice, no matter if you make $40K or $400K. My goals are a sound financial retirement, future home ownership, a successful career, and meaningful personal relationships. One could argue that good money management skills play into all four.

How are you doing on these 5 strategies?

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Thanks to Money Beagle for hosting the Carnival of Personal Finance Opening Day Edition and for featuring my post Bag Lady Syndrome: Do You Have It?

See Yourself with Wrinkles and White Hair, Save More for Retirement

Written by WellHeeled on March 28, 2011 · 9 Comments

One reason why people – especially people in their twenties and thirties – don’t save for retirement is because our future selves are so distant. But if what you can come face to face with your Future Self? What if, you will be able to see your own face, digitally aged to 68 or 70, with wrinkles, creases, and white hair? Well, you just might be encouraged to stash more cash for retirement, so says the Wall Street Journal article on behavioral economics.

Why is it so difficult for people to set aside money for the long-term future? Low earnings and high temptations are obvious reasons. But perhaps the most basic cause is a fundamental human frailty: We view our future selves as strangers.

Estimating with any precision what you will want 30 or 40 years from now is almost impossible. You don’t know your future desires, because you don’t know your future self. What will you want or need when you are 65 or 70 or 80 or older? Who knows?

Viewed this way, it isn’t surprising that the young typically don’t want to save for their retirement, since that stage of life feels as if it will be lived by someone else. And when you save money today on behalf of your remote future self, you deprive your immediate present self of cash you could use right now.

Of course, if you spend tomorrow’s savings today, you won’t have cash when you need it in the future—but that day of reckoning is decades off. That is true for those of all ages, but the lost opportunity is greatest for young people, because money set aside at an early age has more years to grow.

Yet it is highly unusual for people to think more vividly about their future selves than about their present selves, say psychologists.

Imagine yourself as “grandma” or “grandpa”

One way I reach a connection with my Future Self is to imagine the 70-year-old me as a close loved one, a grandparent or a doted aunt, perhaps. Her welfare and comfort rests on my shoulders. Grandma’s source of income comes from Social Security and whatever I have put aside for her. Grandma can’t work, because she is old. Her health might not be up to snuff. Employers might be more reluctant to hire older workers. If I put nothing away now, grandma gets nothing extra in her retirement.

She will have to subsist on ramen and rely on library books for entertainment when she might have loved to eat sushi and visit Latin America. Even worse, what if grandma gets sick? If I don’t have funds for her, she will only have first-generation drugs with heavy side effects. She will not be able to pay for a in-home aid or a private room at the hospital. Do I want grandma to be in such sad straits? Of course not!

Grandma’s friends might plan a big trip cruise to the Mediterranean but she can’t go because she doesn’t have the money. On the cold days, she might not have enough money for heat. Or she will have to choose between heat and food, or food and medicine. Or she lies awake at night worrying about her future. How will she live? Will her house be foreclosed on?

That doesn’t sound like a fun retirement for grandma, does it?

Now we don’t not know what we will be like, exactly, when we are old. But looking at my grandparents, I know what matters: a nest egg that will provide for them in their old age and prevent them from being financial burdens to their children, family who loves and takes care of them, trips and lunches with friends, and a dignified death when the time comes.

ALL of the above is made easier with sound financial resources.

I think it’s a great idea that scientists are figuring out ways for people to save. But I don’t understand how people don’t think they will be old. Everyone grows old – or dies young. But I don’t need a sophisticated facial progression software to encourage me to save. I just imagine the plight of sad, old, grandma, who is confined to a life of bare subsistence because I didn’t make her a priority.

Does the “grandma” (or “grandpa”) trick work for you? Would you be more likely to save if you saw a digitally aged photo of yourself?

The Bag Lady Syndrome: Do You Have It?

Written by WellHeeled on March 22, 2011 · 12 Comments

The Bag Lady Syndrome is the fear, usually held by women, that they will end up alone, destitute, and homeless. Talk about a trifecta of bad news. I read somewhere that a majority of women – even very successful and wealthy women – harbor this fear.

Are you afraid of becoming a Bag Lady?

I am.

I wrote about this fear in a BlogHer article, and I focused on three ways I can minimize the risk of becoming a Bag Lady: (1) saving, (2) investing in my career, and (3) buying a home and paying off the mortgage as soon as possible.

In fact, the entire genesis of this blog may be a result of the Bag Lady Syndrome. In my About Me page, I wrote that I “do not want to be old and poor.” The unspoken corollary there is that I do not want to be old and poor and homeless.

Mom has instilled many great characteristics in me, but she also put into my head (rightly or wrongly, and I am inclined to say rightly) that being old and poor is one of the most tragic fate that can befall a person. It’s probably what she can see in her work as a medical professional.

Avoiding The Bag Lady Fate

I don’t want to live a life based in fear, but I admit that fear of becoming a Bag Lady drives my decisions today and will likely drive them tomorrow. For example, I try to save as much as I can for retirement right now, I educate myself on investments and asset allocation, I plan to invest in and always maintain a career.

Most importantly, I plan to buy a single family home and pay off the mortgage so that I will own it free and clear by the time I turn 50. (I plan on having several houses in my lifetime, one to live in, and others to serve as rental properties. But one home will always be paid off.) In my opinion, the biggest safeguard against homelessness is to have a home that you own, and that no one else can take from you.

I read Funny About Money’s account of how she survived on $22,000 last year – most of it from unemployment insurance. She said she felt like she was in penury. What struck me the most about Funny About Money’s post, however, was the fact that she wasn’t out on the streets – she had a home, that she paid off years ago, and so she would not be homeless:

No matter what anyone says about the alleged tax advantages of carrying a mortgage, when you’re unemployed a paid-off roof over your head is your second-greatest asset.

I agree 100%. The truth is, if someone didn’t have housing costs, he/she can probably scramble by for a year or more even in the face of unemployment. There are other options: food stamps, local health clinics, buses, ways to take on odd jobs or freelance assignments and make a few hundred dollars a month. Take out the biggest source of expense – rent or a mortgage – and you can get by if you are in adequate health.