Living life from cover to cover
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Today’s post comes from another BHB mentee, Pat Murphy, the publisher of Feeling Financial. Pat is a personal finance blogger who focuses on how we make important financial decisions. His website discusses personal finance topics while examining how our thoughts and personality affect our behavior.
It’s always nice to have options. I like being able to choose what I get, and I especially like having the ability to change my mind about something later. But in some areas (like planning for retirement), you just have to commit get started, because building up a nest egg is best done over the course of many years.
Fortunately, there is a way to save for retirement while keeping some of your options open. A Roth IRA lets you enjoy the tax benefits you get in a retirement account, while allowing you to use the money for something else (such as education funding or whatever else happens to come up).
What is a Roth IRA?
First, a few boring facts about Roth IRAs, which might help you figure out if the account makes sense for you. A Roth IRA is a type of individual retirement account (that’s where the “IRA” comes from). These accounts are “individual” because they’re not linked to your employer like a 401k is, and that means you have full control over what happens with the account. (Jana’s note: The Roth IRA is named for Delaware Senator Bill Roth. He also has a bridge named after him. You’re welcome).
Like most retirement accounts, you’re supposed to leave the money in your Roth IRA until “retirement age,” which the IRS likes to call age 59.5. But Roth IRAs make it easier to get to your money early without hefty tax penalties (we’ll talk about that in a minute). You also get the same tax benefit you get from almost any other retirement account: any money you earn in the account (from interest, dividends, or capital gains) is not reported to the IRS every year and taxed. Instead, you keep 100% of the earnings in your account and reinvest them for even more growth.
Roth IRAs are often called “after-tax” IRAs. The money you put in the account doesn’t help you on your tax return this year (on the other hand, if you use a Traditional IRA, you might be able to get a deduction and reduce this year’s tax bill). While that may seem like a drawback of Roth IRAs, the benefit is that you’ll be able to take money out of the account without paying taxes (with a Traditional IRA,you’ll have to pay income tax on all of the pre-tax money you pull out of the account – plus earnings – no matter how old you are). When you pull money out of your Roth account, assuming you follow all of the rules, you’ll get to spend all of that money – you won’t have to come up with any extra to pay taxes.
The Flexibility
We just went over some fairly complicated rules, so you may be thinking that a Roth IRA sounds anything but flexible. Here’s the gist of what the Roth IRA offers: you can take your contributions back out of the account at any time without taxes or penalties. The money you contributed was all after-tax money, so they can’t tax you again when you take it back out.
That’s a nice feature for an account with otherwise powerful tax benefits. You get to change your mind if you decide that you need that money elsewhere. Just keep good records of how much you’ve contributed to your Roth, and you’ll know how much you can get back out if you need to.
The tricky part is that you get to take your own contributions back,but you can’t get to the earnings on your contributions unless you follow a few rules (or unless you’re willing to pay taxes and penalties). Those rules require that you have had the money in your Roth for at least 5 years, and that you wait until you’re at least
59.5 years old. There are a few other details, but the important things to remember are age 59.5 and 5 years.
Ways to Use a Roth IRA
Of course, Roth IRAs are designed with retirement in mind. And that’s one great way to use them. Save some money each year (currently you can contribute up to $5,500 per year, plus an additional $1,000 if you’re over 50 years old), and you’ll have a nice chunk of tax-free money waiting for you in your golden years.
You can also use a Roth IRA for other goals. For example, you might use a Roth to save money that is earmarked for a child’s education. But if it turns out that you don’t need the money (because your child is smart, like her parents, and gets a scholarship) you can just leave it in the IRA and it’ll be there when you retire – growing tax free. Or, if your money is invested conservatively, you can even think of your Roth IRA as a “backup” emergency fund (but it’s really best to have your primary emergency fund in a bank account).
What happens if you spend all of the money in your Roth IRA, including the earnings? If you’re under the age of 59.5 or you haven’t had the money in your Roth for 5 years, you’ll have to pay income tax on the earnings portion of your withdrawal. You might also have to pay an additional penalty tax of 10% of your earnings. However, there are a few exceptions to the penalty tax (such as higher education expenses for you or a family member, or substantial medical expenses). Unfortunately, you can’t get around the income tax if you take an early distribution.
How to Open a Roth IRA
If you don’t have a Roth IRA, they’re easy to open. Any bank, credit union, online brokerage, or financial planner can help you open one. A Roth is just a type of account with certain tax characteristics, but it can hold almost any kind of investment you want. (Jana’s note: if you open one and are really bad about remember to actually set foot in the bank to make a deposit into the account like a certain unnamed personal finance blogger who I don’t want to embarrass, check to make sure you can do an automatic deposit. If you can, sign up for that).
Keep an eye on the income rules if you’re thinking of contributing to a Roth IRA. You have to earn enough to contribute, but if you make too much you aren’t allowed to contribute at all. In 2013, you must have a
modified Adjusted Gross Income (AGI) below $188,000 if you’re married and filing jointly (or $127,000 if you’re single). These things can be complicated when you’re doing it for the first time, so just use this post as a starting point. Talk to your tax preparer before you do anything, and read through all of your account opening paperwork carefully so that your Roth becomes a flexible and powerful tool – not a source of anguish.
Now that you know the basics, think of some of your goals and whether or not a Roth IRA can help you reach them. If you’re not really sure what your goals are yet, maybe the flexibility of Roth will come in especially handy.
Pinch hitting for me today is BHB mentee Anton Ivanov, an aspiring financial writer, a successful investor and a zealous entrepreneur. He is extremely passionate about helping others become financially independent and shares his financial knowledge at Dreams Cash True. You can follow his updates on Twitter, RSS or Facebook.
Chances are you came to this blog in hopes of learning how to better manage your finances (and to have some fun along the way!)(Jana’s note: emphasis on fun. Fun comes first. Learning is tucked inside the fun. I’m clever like that). Many of us understand the importance of money and the need to get financially educated. Unfortunately, finance is barely taught in public schools. It’s possible to graduate high school and even college without learning much about making smart financial decisions.
A lack of a financial education can be a recipe for disaster because money management skills are essential for a successful life. At the same time, pursing a college education in business or finance can be expensive! Fortunately, there are 4 great ways to get a financial education without running your wallet dry: the internet, television, books and free classes.
The Internet
Believe it or not, but the internet is not just for checking Facebook 20 times a day and watching funny cat videos (Jana’s note: It’s not. Seriously. Reading Buzz Feed comes way before Facebook and cat videos). It’s a wonderful place to get financial knowledge for free (not counting your Internet bill, which you already pay anyway).
Finance blogs are a great start – they offer many personal finance and investing tips from people just like you. With so many blogs out there, you are sure to find an author who writes about the exact same financial problems you are facing. Plus, they can be both entertaining and educational to read.
There are many other websites that offer tons of free finance knowledge. Huge knowledge databases, such as Investopedia, offer free articles, dictionaries, various calculators and tools. Or you may want to check out some financial forums if you prefer to interact and discuss things with others.
Good Ol’ TV
Yes, it may be hard to change the channel when your favorite TV show is on. But since many of us spend so much time in front of the TV anyway, why not make that time at least a little productive?
There are many TV programs and channels that will teach you about money. They are likely already included in your cable plan and won’t cost you a penny. Check your TV guide for Mad Money and Squawk Box on CNBC, Taking Stock on Bloomberg TV or watch CNN and Fox for regular business and finance news (Jana’s note: I prefer quality programming like any show hosted by Gail Vaz-Oxlade or Extreme Couponing on TLC. Only high brow stuff for this chick).
Books
I like to take a break from staring at computer and television screens once in a while, and maybe you do as well. A great pastime is reading books – not only can it relieve stress, but it can teach you everything you ever wanted to know about money and finance.
There are many awesome finance books that cover a wide range of topics. It doesn’t matter if you a financial expert or a complete beginner – you are guaranteed to find a book that will be useful to you. You can buy most paperback editions for less than $20, get them even cheaper for e-book readers, or get them free from your local library. You can find a great list of finance books to start with here.
Free Classes
While it’s not common, some colleges, unemployment centers and non-profit organizations offer free finance classes. They can be a perfect opportunity if you prefer a traditional classroom setting and like to interact with other students (Jana’s note: some offer online classes as well. We have a nonprofit in my state that has both traditional classes and online ones but the online classes aren’t as heavily advertised. You have to carefully read the booklet and, ironically enough, the website, to find that out).
Check the websites of your local colleges, universities, unemployment centers or other non-profit organizations for any upcoming classes. They tend to fill up quickly, so register early! Even though you won’t be paying tuition, you may have to buy the textbooks, so be sure to read the details in the course description.
And there you have it! Forget expensive college degrees – next time you are looking for some financial wisdom, you know where to find it.
Since I’m off in Nashville this week, some of my incredible Bloggers Helping Bloggers participants have agreed to fill in for me. Today’s post is from one of our mentors, Jeff Rose who is a certified financial planner and an Iraqi combat veteran. He runs the blogs GoodFinancialCents.com and LifeInsurancebyJeff.com.
The job of a stay at home mother is one that no salary amount could compensate for. From parenting to cooking, the duties are endless and determining the right amount of insurance coverage in the event that something happens to this person is key.
If you came to my house, it would be no different. Aside from the duties listed above, my wife is also a resident nurse, tutor, sports equipment manager, UFC referee (we do have have 3 boys 🙂 ), and much, much more.
Quick math shows that the typical $25,000-$50,000 policy would not be enough to even cover the lost wages of the breadwinner of the family. Heck, even a $250k-$500k policy might not be enough.
Adding the monetary value of some of the tasks that a mom performs on a daily basis brings us even further away from the range of a standard policy. With this in mind, it comes as no surprise that most Americans to not have enough life insurance coverage.
A 2010 LIMRA study shows that 30% of American household have no life insurance at all and another 58 million are not insured enough.
Most that don’t have life insurance claim that it “cost too much”.
Really? Do these people not realize how cheap life insurance really is?
It is difficult to plan for an unfortunate event to happen but it should be looked at as a means to protect your family in the event that you cannot anymore. Of the women in the workforce, their life insurance coverage is far exceeded by their male counterparts. For stay at home moms, the amount is even less.
According to a study performed by Salary.com of 8,000 stay at home moms, it was determined that their value is equivalent to a salary of $112,962. Dave Ramsey came in with an estimate closer to $300,000-$400,000. I’m pretty sure why wife’s estimate is 3-4 times of what Dave’s is. 😉 (Jana’s note: trying to put a salary on the job of “mom” is one of my pet peeves, but I like Jeff so I’ll let this slide).
Regardless of where you value yourself as a stay at home mom, it is important to consider every task you perform as well as other considerations such as the cost of child care. The tasks that a stay at home mom performs have real economic value which is why life insurance for stay at home mom is so crucial.
In addition to the various duties of a stay at home mom, the duty of watching after children is by far one of the most expensive to pay someone else to do. Child care costs are extraordinarily high as is, but depending on where you live, they can eat a large portion of your paycheck each month.
In 2010, the average cost of care for an infant in Mississippi was $4,650. In the District of Columbia this cost was $18,200. We have 3 boys with an adoption pending. Imagine the cost for our family. <gulp> (Jana’s note: Where I live, it costs roughly $800/month for an infant. By the time my daughter stopped attending daycare last year, we paid $660. And, now that she’s in school, before and after care, we’d need to pay about $300/month. And let’s not even discuss the wallet abuse that is summer camp. When I talk about going back to “normal” employment, we often come back to this point).
It is important to take location into account when determining just how much life insurance you will need.
Not only does life insurance help to pay for some of the duties that a stay at home mom performs, but it is also essential for funeral arrangements as well as children’s college tuition. Losing a loved is emotionally tough. It doesn’t have to be financially tough, too.
Even though I’m the bread winner in our household, having to raise my boys without my wife is something I don’t even want to ponder. She does so much for our family and if I had to replace her, I would spare no expense to make sure they had the best care until they were old enough to attend school.
In years past, the common thing to do was to call your local life insurance agent, have them come to your kitchen table, and buy your policy that way. While that still occurs, it’s much more convenient nowadays to hop onto Google and do your life insurance shopping that way. By Googling “term life insurance quotes“, you’ll find over 41 million results! Granted there not all good; but it’s a good indication on easy it is to shop online.
If you do buy life insurance online, be sure to identify a true independent agent that can work with dozens of different carriers. Many local independent agents and online sites claim to be independent, which they kinda are, BUT they may only work with 10 different carriers. In comparison, my agency works with over 60 different carriers which increases the likelihood of you truly getting the lowest rate. There are many other independent agents that do the same.
How do you find out? Just ask. If you get an agent on the phone, ask them how many different carriers they work with.
With all of this in mind, it is difficult to argue that stay at home moms do not need life insurance. Knowing that your family will be well provided for in the event that something unfortunate happens gives you peace of mind which to many is considered invaluable.
This article was written by Gary, a personal finance blogger and freelance writer who focuses on investing, budgeting, credit and debt, education and career advice, real estate and mortgages, saving, and car and life insurance at Gajizmo.com.
In today’s highly competitive job market, it is vital that you stand out. While a good resume is necessary, a prospective employer may not even look at the resume if the accompanying cover letter is not perfect. A succinct, well written cover letter can grab an employer’s attention and give you the best chance at getting an interview for the job you want.
I’ll be honest – anytime I used to receive an email, resume, cover letter, presentation, or any type of document, and the grammar and spelling wasn’t at least near perfect, I would just assume the person probably wasn’t well-educated. It is unfortunate, but when I worked in private equity and would interview candidates for positions on my team, subpar cover letters got thrown to the bottom of the deck, regardless of qualifications. Simply put, if you can’t write, don’t take the time to make sure your application is perfect, or won’t find someone to proofread your work, how can I trust you to produce quality work without errors. After all, I have to be able to trust my own colleagues, their abilities, and judgment.
Write A New Cover Letter For Each Job
Some people use a form letter that only requires they change the company name and address, but this type of letter will not get your resume noticed, especially if you are applying within a range of industries. While it is okay to use a formula when writing cover letters, each letter should have information that is specific to the particular job, internship or employer. Try to find out the name of the person who will be receiving your resume and send the letter to that person’s attention and use their name in the salutation. Avoid using “To Whom it May Concern” as a salutation if possible, and if you are not sure of the gender based on the name, look it up online to find if “Mr.” or “Ms.” is most appropriate.
If you are applying to an internship, the process of writing a new letter will give you the chance to tweak and send different combinations of cover letters and resumes to see which gets you the best response rate. This way, when you are ready to apply for actual jobs, you won’t miss out on opportunities.
Keep It Brief
A cover letter should be no more than three or four paragraphs written in a standard business letter format. In the first paragraph, you should talk about the position you are applying for and where you heard about the position. The next one or two paragraphs should discuss your education, experience and accomplishments and how they will benefit a new employer. In the last paragraph, tell the employer you look forward to discussing the job opportunity with them and the best way to get in contact with you. Close the letter by thanking the employer for their time and consideration. [Read more…]
