June 2008

This upcoming Friday is July 4th, or Independence Day, the day the United State declared independence from British rule and basically the “beginning” of our country. Hope everyone has a happy and safe 4th of July holiday.

I had a guest post over at Prime Time Money this past week entitled 10 Ways to Simplify Your Finances. PT has a great blog with many though-provoking and informative articles, so head on over and explore his blog.

The winner of the Tightwad Gazette book giveaway was Jane J. I will be emailing her to get her address so I can send the books over. Congratulations! I will have more giveaways coming up in the near future, so stay tuned.

I participated in 3 carnivals last week:

Rich Credit Debt Loan hosted the Carnival of Careers #4- Longest Day of the Year Edition, and included my article “10 Tips for Going the Extra Mile at Work Without Putting in More Time” as an Editor’s Pick.

My favorite articles from the carnival of careers were:

The Financial Blogger presented Dealing with People You Don’t Want to Deal With (part 1, you can check out part 2 as well.) A difficult part of being in the workforce is dealing with people without losing your cool, and these tips can help you do just that.

Bripblap presented “Does Innovation Require Desperation“. I find that I perform better when I am under the gun myself, but if I had to start my own business or work from home to support my family, could I do it? I am not sure if I could.

Mrs. Micah presented a very creative Carnival of Personal Finance No. 158-Vampire Slaying Edition, and included my article “The Two Simplest Ways for Graduates to Achieve Retirement Success”.

My favorite articles from the COPF were:

GBlogger from Can I Get Rich on a Salary presents the Cost of Your Favorite Color. I have noticed certain colors costing more for some items, but unless it is a bright yellow or some other color I don’t care for, I try to go with the cheapest.

The Silicon Valley Blogger presents suggestions to protect your job and career during an economic slump at the Digerati Life. These tips are good to apply at any time, but are especially pertinent during weak economic times or a recession.

Hank from My Investing Blog hosted the Money Hacker’s Carnival # 18-The History of Money, and put a very interesting and informative carnival theme together. He included my post “7 Reasons You May Not Have Received Your Economic Stimulus Check Yet.”

My favorite articles from the carnival were:

The Chief Family Officer presented Lesson: Always track Amazon’s prices. Good tips on how to track prices and request a refund if the price drops on Amazon after you make a purchase.

Nickel from Five Cent Nickel presented Four Financial Tips for Recent Graduates. Good financial advice for graduates as well as anyone trying to get on the right track.

According to recent congressional testimony, some experts believe changes (i.e., controls and restrictions) to the oil futures trading market could result in up to a 50% decrease in the price of a barrel of oil, with gas prices also dropping as much as 50%, or to around $2.00 per gallon as soon as 1 month after. I do not really believe it would have that much of an effect, as I am sure there are other factors involved, such as global demand and the loss of value of the U.S. dollar vs. global currency, etc. However, it got me thinking about whether, were gas prices to drop that significantly that quickly, would people stop trying to drive more efficiently, stop looking for the cheapest gas stations, and generally just stop worrying about the price of a gallon of gas?

I have been trying to drive more efficiently, plan my trips and errands, and be conscious about my driving habits due to the recent spike in gas prices over the last 6 months to a year. Would I continue to do so, if gas was only $2.00 gallon? I think so, and I would certainly try. By driving more consciously, I would continue to save the same percentage per mile driven, and those savings over a month to a year would continue to add up.

Frugal habits developed when you have to save money should be carried forward even if the necessity of saving is no longer present. Keeping your costs and expenses to a minimum is an important component in building wealth.

Image by PhilipsPhotos

Reminder, the giveaway for a copy of both the Tightwad Gazette I & II ends this Saturday, so make sure to enter!
To enter, subscribe to my RSS feed or via email to get the secret entry phrase. Email the phrase to me at:

rc {at} thinkyourwaytowealth.com or use the contact form above.

Each email received will be one entry into the drawing.

Bonus! If you mention this contest in a post or roundup, you will receive five (5) entries into the drawing!

Also, the $10 Bonus for opening an account with Upromise ends June 30th, so if you have not signed up yet do so now and start earning money for college (or just for yourself- you can receive a check as well) right away!

Protecting your home computer is essential in this day and age. There are new viruses being created everyday with the intent of damaging your computer’s operating systems or files, and hackers are always looking to access your personal computer to get access to personal information, including financial info, passwords, etc. The two key pieces of software every computer user that connects to the internet should have are a good antivirus program and a good firewall. Fortunately, instead of spending up to $50 or more on each one, and paying a yearly renewal fee, there are two great programs out there that can provide this protection for free. Not too many things can be had for free these days. I know there are other free antivirus and firewall programs out there, but I have been using both the free version of the AVG antivirus and the Zonealarm firewall for over 3 years now, and have not had one problem. I am not a computer expert, so you may need something more robust. But if you are a fairly careful web user, I think these two programs probably provide all of the protection you will need.

AVG Antivirus

- The free version of AVG antivirus program is rated highly by many PC magazines and hardcore computer users. I have not had any problems with it slowing down my computer, which is a complaint of some of the popular antivirus programs out there. It provides protection against viruses, spyware, adware and identity-theft, and updates on a regular basis. Make sure you allow the option of the program to download the updates when they are available so you have up-to-date protection.

Zonealarm Firewall

-The free version of the zonealarm firewall provides basic firewall protection, blocking attempts to access your computer, and making your computer basically invisible to those online. You will get a pop-up when a new program tries to access the internet, which some people find annoying, but if it is a program you want to allow, you can click a box so it does not ask you again in the future. I don’t really find this to be a problem.

The Roth IRA gets talked about quite frequently these days, as a great tool for reaching your retirement goals and building wealth. While many people are well-versed and may be experts on the Roth, for those of us just beginning our saving and investing journey, I thought it would be a good idea to touch on the basics and a few details of the Roth IRA.

What is a Roth IRA and how does it work ?

A Roth IRA (individual retirement account) is a retirement savings account which allows a person to save money for retirement which can be withdrawn tax -free during retirement, after reaching a minimum age of 59 1/2. Investments are normally made in stocks, mutual funds, index funds, or bonds, although other vehicles can be used as well. Investments are made with after-tax contributions, and as stated above all of the principal and interest can be withdrawn tax-free upon reaching an age of 59 1/2.

Roth IRA vs. Traditional IRA

In a Roth IRA, contributions are made with after-tax money, while traditional IRA contributions are tax deductible. Contributions to a traditional IRA are made with pre-tax money, but the withdrawals during retirement are taxed (both principle and interest) at you ordinary income tax rate at that time. Therefore, a Roth IRA can benefit someone who anticipates being in a higher tax bracket at retirement age. However, because contributions are made after tax, a tax-deferred option such as the traditional IRA can allow someone with a lower income the opportunity to put money away with a lower decrease in their take home income. There are no rule on the age of required minimum distributions of a Roth IRA, which is currently 70 1/2 for a traditional IRA and a 401k. (This means in a traditional IRA or a 401k, you are required to start taking out money when you reach age 70 1/2.) There are certain situations when money earned (in the form of interest) can be withdrawn as well, while the traditional IRA is far more restrictive on withdrawals. As long as the Roth has been open five years, earnings can be withdrawn if the participant becomes disabled. Contributions can be withdrawn from a Roth IRA at any time, since they have already been taxed. In some cases, up to $10,000 in earnings can also be withdrawn to acquire a principal residence.

Roth IRA Income Eligibility Rules

Income Limits for 2008

Single - Up to $101,000 (modified adjusted gross income)

Married filing jointly- Up to $159,000 for full contribution, partial between $159k and $169k

Roth IRA Contribution Limits-2008

For 2008, the maximum contribution to a Roth IRA is $5000 for those age 49 and below, and $6000 for those 50 and above. This limit is slated to increase $500 per year starting in 2009 to account for the effects of inflation. The $5000(or $6000) limit applies to all IRA contributions, so that is the max. that can be contributed to either a traditional IRA or a Roth IRA.

Roth IRA Conversion

If you have saved money in a traditional IRA, and wish to now pay tax on that money and convert it to a Roth IRA, you are able to do so if you meet the income limitation. A conversion is good for someone who has an existing traditional IRA, and has the money available to pay taxes on it now in order to eliminate future tax liability. This is especially attractive if the person anticipates being in a higher tax bracket in the future. However, only taxpayers with a modified AGI of $100,000 or less are currently eligible to convert a traditional IRA to a Roth IRA. This limitation is slated to be removed starting in 2010, so already many people are planning to do a conversion then. The tax liability will be able to be spread over 2 years (2011 and 2012), as well, which is an added bonus for many.

We came back today from a trip to the beach; the weather was good and it was very relaxing. Getting away from the daily grind is a great way to recharge yourself mentally and physically, and I am ready to get back at it!

I participated in four carnivals/festivals last week:

Flexo at Consumerism Commentary hosted the Carnival of Personal Finance # 157 Third Anniversary Edition . Flexo is also the founder of the COPF as well as pfblogs.org, a great personal finance blog aggregator. Congratulations on 3 years!

My favorite articles from the carnival:

Too much debt can ruin your health @ Taking Charge

One of the Many “Lemonade” Moments of My Life by Hank @ My Investing Blog

David at Moneyning hosted the Carnival of Money Stories #64- Time to Listen to Others Edition

My favorites from the carnival were:

Some Advice to A Friend @ Not the Jet Set

Debt Drains Cash Flow @ Money Monk

Mrs. Accountability from Out of Debt Again hosted the Festival of Frugality # 130- The Eight Little Pigs and included my article “Watch for Companies Adding New Fees When Changing or Upgrading Service Plans”

My Favorite Articles from the Festival:

Free Workout Program- 100 Push-up Challenge @ The Happy Rock - I am going to start this later this week!

What You Need to Know Before Going into Debt @ Rich Credit Debt Loan

Mrs. Nespy from Mrs. Nespy’s Frugal World hosted the Money Hackers Carnival # Music of the 80’s and included my article “How to Put Next Year’s Tax Refund to Work for You Right Now”

Passive Income-Look at Your Passive Expenses First @ Till Debt Do Us Part

The Five Essential Elements Of Automated Income Generators @ The Shark Investor

How frugal are you? Well, you can compare your frugal techniques with that of Amy Dacyczyn if you win this book giveaway! I will be giving away gently used copies (in the spirit of frugality after all) of both the Tightwad Gazette (paperback), and the Tightwad Gazette II (hardcover) to one winner.

To enter, subscribe to my RSS feed or via email to get the secret entry phrase. Email the phrase to me at:

rc {at} thinkyourwaytowealth.com or use the contact form above.

Each email received will be one entry into the drawing.

Bonus! If you mention this contest in a post or roundup, you will receive five (5) entries into the drawing!

The contest will end Saturday, June 28th at midnight. I will take all of the entries and use a random number generator (random.org) to pick the winner. If you are the winner, I will contact you via email to get your mailing address, so you must use a valid email address. If the winner does not respond, I will keep redrawing until I find a winner. Only readers in the U.S. are eligible. I am the final judge on any disputes, etc. relating to the contest. Good Luck!

Some goals are easy to define. Others are not so easy. After a bit of thought and number crunching, you can probably decide when you want to retire, and how much money you will need to live comfortably. Saving that much money might be harder, but once you decide how much money you will need, you now have a goal-a long term goal. But defining and saving for short or medium term goals, which I consider 0 to 5 years (short term) and especially 5 to 10 years (medium term) can be more difficult. Retirement saving has special savings vehicles you can use, such as a 401k or a Roth IRA. How do you save for short and intermediate length personal finance goals, and where do you invest the money? Some people give young(er) people the advice that they should only invest in the stock market, and CD’s or bonds should be avoided. But this is generally for retirement investing. What about saving for goals with a shorter time period?

Less than 5 years- You want to keep risk to a minimum, so a high interest savings account such as ING Direct or other very low risk savings or investment account is ideal. You may want to save up for a car, or a down payment on your house, or build up an emergency fund. Your goal here is to preserve principle, but to get the best interest rate available to you at a reputable bank or other investment company with very low risk.

5 to 10 years- Even at an intermediate length of time, consider a high interest savings account, or other low risk investment option. I bonds or CD’s can be an option, especially if your goal is education related, like saving for your kid’s college education (I bonds are tax free if used for education). Since the stock market can be quite volatile over 5 to 10 years (especially 5 years), the market is not necessarily the best option to preserve capital while still earning interest. When you get closer to the 10 year time horizon, the rewards of stock market investing can begin to outweigh the risks, so consider your time horizon and invest accordingly.

10 to 20 years-or longer- Once you hit the 10+ year range, it is really time to start “investing” your money, and investing in the stock market such as buying index or mutual funds and investing your money in stocks or bonds. You have plenty of time to ride out the fluctuations in the market, so take advantage of the benefits and return potential of the stock market.

I will be leaving this morning to join my wife and two small kids at the beach, they left on Monday but I couldn’t get away from work until today. Vacations can be a wonderful way to spend quality time with your wife and/or children and relax, but traveling costs have skyrocketed, so making the most of your money when going on vacation makes even more sense (or cents) than ever.

1. Make plans that require reservations far in advance to get good deals- The closer to your vacation you book your flights or hotels, etc., the higher you are likely to pay.You may find some last minute deals, but usually if you are planning a get-away you don’t want to risk not getting a flight or other reservation, so this strategy is not always attractive.

2. Save up the money to pay for the vacation ahead of time- This sounds like a no-brainer, and many people do it, but I would guess that just as many do not. I think that people are less likely to save up for shorter, “long-weekend” type trips because they don’t seem like such a big deal, but if you don’t save ahead of time you can spend a lot of money on a long weekend and end up putting it on your credit cards or getting into debt on your trip.

3. Stay with relatives or friends- A large portion of expenses for a lot of vacations can be lodging. By staying with someone, such as a friend or relative, you can eliminate that from your expenses. If you’re feeling really adventurous (and you are single), consider couch surfing.

4. Go at off peak times- Hotels and tourist destinations often slash their prices by 50% or more during off peak season. Plan you trip to the beach after labor day, and you may save a bundle.

5. If driving, drive when traffic is light- Avoid rush hour traffic when passing through cities, stop and go traffic can greatly reduce your fuel economy.

6. Stay somewhere you can cook your own meals- You can save a whole lot of money by cooking your meals and not eating out the whole duration of your trip. Find a hotel or condo with a kitchenette so you can do the cooking.

7. Get someone to watch your pets instead of boarding them- Boarding a cat or a dog can cost $15 to $20 a day. Asking a friend or relative to take care of your animals while you are gone can save you money.

8. Get someone to drop you off at the airport if possible- If you are flying, parking at the airport for a few days or a week can add up to a hefty sum in parking fees. Ask someone to drop you off and pick you up, you can return the favor to them when they travel as well.

9. If you are driving, prep your car with basic car maintenance and practice gas saving driving techniques for maximum fuel efficiency.

10. Also, when driving, map out your route to minimize the total miles you will be driving. Use online tools to find the cheapest gas prices anywhere in the country.

Image by rayced