Thursday, May 17, 2007

Saving for a rainy day... (Part II - Medium-term savings)

In Part I of my Saving for a Rainy Day series, I went over some thoughts and ideas about long-term savings, primarily saving for retirement. In this post we will review medium-term saving. I would define medium-term saving as anything that will take longer than 18 months to save for. So, this could be saving for a car, house, your children's education (even if you don't have children yet), etc. (Oh, if you are currently making car payments and you plan to buy another car at some point in the future, I thought this was a great tip.)

The most important part about medium-term savings is making sure that you follow through and actually save. I mention this because unlike with a 401k, no one is going to pull your medium-term savings out of your paycheck for you. However, you do have some options to make saving a little more automatic than you might think. Below I will suggest some companies that can help you save for the medium-term.

As I mentioned in Part I, you want to make sure your medium-term savings comes out of your budget after your long-term savings, but before most other expenses. This would require you to have a budget. When I say you need a budget, I don't mean a general idea of how much you spend each month, I mean a real, written budget. The simplest solution to the "I don't have a budget" quandary is Pear Budget it needs a program such as Excel to run, but if you don't have Microsoft Office, OpenOffice is a good (free) alternative.

Now that you have a budget, figure out ways to trim money from it. Some examples include:
  • Reduce your cable plan to basic or cancel it all together. Then, when you need to be entertained, check out a book or DVD from the library (no commercials).
  • Make coffee at home instead of going to Starbucks.
  • If you can't cut Starbucks out completely, go to the gift card approach. If you typically spend $40 a month at Starbucks, buy a gift card for $25 and force yourself to make that last for the entire month.
  • When you are about to buy something use Google Product Search or Frucall to make sure you are getting the best deal.
  • Cancel your home phone, you are already paying for your cell phone and I don't think I am going to talk you into giving that up.
  • There are plenty more examples of ways to save money, and once you start reviewing your budget and where you spend your money, you will start to realize ways to put more money towards savings.
OK, now that you have discovered ways to save a few more dollars each month, I would encourage you to consider investing them. Yes, investing money is a bit riskier than simply putting it in a savings account with a guaranteed interest rate. But, accordingly the returns from investing are quite a bit higher than the average savings account's interest rate. You can always be conservative, investing in a fund that tracks that S&P 500 or the Dow Jones has, over time, been a safe bet. If you want to invest in a selection of stocks, a mutual fund, or an index fund take a look at ShareBuilder. I think this is a great medium to long-term investing service. Basically you agree to invest a certain amount weekly or monthly and in exchange they give you great rates on their investment fees. In addition they don't care how little you invest, so if you are just getting started on the investment wagon, this is a great tool.

If stocks, index funds, and traditional mutual funds are too risky for your blood you can look into things such as corporate or municipal bonds. Another lower risk option would be putting your savings into a Money Market account. I hold one at TD Ameritrade and I have been relatively happy with their service and product offerings. If all these financial terms and savings and investment options are freaking you out I would suggest that rather than hiding in a hole and never saving or investing anything that you consider talking to a financial adviser. If you want to stick with a good ol' savings account for your medium-term savings, stay tuned for Part III of the Saving for a Rainy Day series, Short-term savings.

To be continued...
Part III - Short term savings (coming soon)

Previously:
Part I - Saving for a rainy day... (Part I - Retirement)

Saturday, May 12, 2007

Saving for a rainy day... (Part I - Retirement)

Most of my friends are now gainfully employed. Even the friends who are still in school are right on the verge of finishing their medical, law, fashion degrees. One of the things about actually earning a living is that most of us have been (rightfully so) taught to save some of our hard earned cash for things like vacations, homes, rainy days, and the big R: retirement.

The thing I have noticed is even though our generation knows that we should save, very few of us know the basics of saving. Now I hardly claim to be a financial expert, but I do have a few tips.

The first thing you want to do is to figure out exactly how much of your salary you can contribute each month to savings. Even if you are not in a financial position to save that much, you should still put something aside, it will get you into a good habit for the future. Plus, you can increase your savings as your income increases. (I have a rule that every time I get a raise I increase the percentage of my salary that I put into my 401k -- it works great because I don't notice the extra amount coming out of my paycheck because the pay just increased.)

Keep in mind how much you can potentially save and we will break that into three savings categories: short-term, medium-term, and long-term.

Let's start by looking at the most important category, long-term savings. This is likely the money you are putting away for retirement. A lot of people have stuck to the rule that 10% of their income should be saved for retirement, but this can vary quite a bit depending on your situation, so I suggest checking out this very simple calculator from CNN. It will give you an idea of what percentage of your salary should go to retirement savings.

There are a number of options on how to save for retirement, you have probably heard of the 401k, the Roth IRA, and a traditional IRA (factoid: IRA stands for Individual Retirement Arrangement, however many mistakenly attribute the A to account) but very few know what the difference is... well here is an incomplete, but still handy, table:

401k Roth
IRA
Traditional IRA
Tax Exposure
Money invested in a 401k is taken out of your paycheck and it is tax deferred. This means that you do not pay taxes on the savings until you take distributions during your retirement.
Money is invested in a Roth IRA after you have paid taxes on those earnings. The money is not tax deductible, but you don't have to pay taxes when you take distributions during your retirement.
Money invested in a Traditional IRA is taxed with the rest of your earnings. However, investments are tax deductible, meaning you get the taxes back at tax time. You will have to pay taxes on your distributions during your retirement.
2007 Max Investment Under 50: $15,500
50 and over: $20,500
Under 50: $4,000
50 and over: $5,000
(values are total for Roth and Traditional IRAs)
There are income limits that could prevent you from saving with a Roth IRA, check the IRS website for more information.
Under 50: $4,000
50 and over: $5,000
(values are total for Roth and Traditional IRAs)
Employer Involvement The 401k plan is set up by your employer. Often an employer will offer matching contributions for a certain percentage of what you invest. The Roth IRA must be set up by the individual at a financial institution. There is no employer involvement and no matching contributions.The Traditional IRA must be set up by the individual at a financial institution. There is no employer involvement and no matching contributions.
Planned Distributions You can begin taking money out of a 401k at age 59 1/2. You must start making withdrawals by age 70 1/2 unless you're still employed. You can begin taking money out of a Roth IRA at age 59 1/2. Withdrawals must be money that has been invested more than 5 years ago.You can begin taking money out of a Traditional IRA at age 59 1/2. You must start making withdrawals by age 70 1/2 unless you're still employed.
Early Distributions If you make an early withdrawal (before age 59 1/2) that does not fit into the exceptions, such as disability, the penalty is 10% of the withdrawal plus taxes. If you make an early withdrawal (before age 59 1/2) that does not fit into the exceptions, such as disability, the penalty is 10% of the withdrawal plus taxes.If you make an early withdrawal (before age 59 1/2) that does not fit into the exceptions, such as disability, the penalty is 10% of the withdrawal plus taxes.
Changing Jobs/Accounts If you change jobs you can roll your 401k into your new employer's 401k plan or you can convert it to an IRA.Funds can be transferred to another Roth IRA at another financial institution.Funds can be transferred to another Traditional IRA at another financial institution.

Financial advice for people varies based on their specific situation. However, one thing is a given: If you company offers matching contributions on 401k investments, then you need to invest at least the amount required to get the maximum match. For example, my employer matches 50 cents on the dollar for the first 6% of my salary that I save. It would be foolish not to save at least 6% of my salary, they are offering free money. If your employer offers something similar make sure you are getting the maximum matching amount. As an added bonus every $1,000 you put into your 401k saves you approximately $300 on taxes.

Now let's assume that the CNN calculator mentioned above told you to save 11% of your income and you have already invested 6% in your companies 401k to get the maximum free matching money. For most of my peers I would advise just increasing the investment amount to the full 11%. However, another option that some financial analysts advise is to put the remaining amount you need to save into a Roth IRA until that maxes out at $4,000 per year.

Speaking of Roth IRAs, if your company does not offer a 401k (or a 403b which is very similar), then you need to take the initiative at set up an IRA. For most younger people a Roth IRA is superior to a Traditional IRA. There are a few reasons for this and you can use this calculator to review your individual situation, however, you will likely be in a higher tax bracket when you retire, so if you can pay taxes on your earnings now, you will be able to take your disbursements tax free when you retire. Tax free earnings are a rare thing in the United Sates... if you can find a way to make it happen, such as Roth IRA, then make sure you take advantage of it.

At this point most of the money that you determined you could save in the first step should be eaten up by your long-term retirement savings. That is OK, that is the way it is supposed to be. If you are young, this is the best time to save, that money and all the interest it generates will double, on average, every 7 years. This is called compounding and it is powerful stuff. For example, if you were to invest $1,000 at age 20 and get an average return of 10% a year until age 65 you would have $73,000. Now, if you saved that same $1,000 when you are age 50, you will only have $4,200 at age 65. The more you can put in now, the more you will have when you are older. Saving for retirement today is especially important considering retirement programs such as pensions and Social Security are quickly disappearing . You can no longer count on your employer or the government to take care of your retirement... you have to do it!

There are many other investment vehicles for long-term savings, in fact the Roth 401k is a fairly new plan that some companies are implementing. However, this is supposed to be a quick guide to savings.... there are plenty of other resources out there for more in depth looks at long-term saving strategies and I encourage you to check them out.

Hopefully you do have a few more dollars left in each pay check to go towards medium and short-term savings. Those two topics will be covered in the upcoming posts.

Continued...
Part II - Medium-term savings
Part III - Short term savings (coming soon)

Monday, May 07, 2007

No one notices the horrible presentations...

Now that I have worked in Corporate America for a while I have come to notice that 99% of all business presentations are awful. They are dull and boring and normally consist of someone reading their PowerPoint slides to you. They have to read them to you because 1) they are poor presenters and 2) the font on the slide is too small that you wouldn't be able to read it yourself. However, unless you like the nostalgia of your Kindergarten teacher reading to you, this kind of presentation is not very effective.

Guy Kawasaki of the How to Change the World blog and Garage.com led me to this great presentation. I believe it illustrates that the inverse of a horrible presentation that no one notices or remembers is an awe inspiring show that your audience will go wild for, (a show that does not rely on a PowerPoint template).

Check it out!


(If you are using a feed reader it may be blocking the Flash slide show. Click through to my blog to view.)

Saturday, May 05, 2007

I, Roomba

My ol' college buddy (and one time RA) Scotty G. made a short film with his girlfriend Candice. And like any good short film producer he has uploaded it onto these here internets. It even stars two other UPS alumns Jeff Grimm and Nik Perleros.

It is in two parts, they are both short and they can be found below... enjoy!

Part I


Part II

Friday, May 04, 2007

Resume Resources

A number of my friends have recently been working on creating or revising their resumes. I don't know what makes me the de facto resume reader, but let me tell you, if I were to charge for resume reading services, I would have a few more bucks in my wallet.

Anyway, I thought I would put together a list of what I believe to be some pretty good resources for the resume writer.

Emurse is a great site dedicated to helping people create, share, and store resumes online. Even if you don't use their service, you have to check out their Complete List of English Power Words and their article on writing entry level resumes.

In addition to great words to use on resumes their are also some that could hinder your job search, check out this article on the 25 Words that Hurt Your Resume. Also you might want to look into a few of the other mistakes that can cause your resume to scream, "Don't hire me."

For a complete guide to resume writing, explore the guide put together by the Rockport Institute entitled, How To Write a Masterpiece of a Resume.

Once you have a draft of your new resume put together, you might want to check out this blog entry on how a hiring manager will likely look at and think about your resume. It offers some great insights and some helpful suggestions.

Getting all your content up to snuff is step one, getting your resume looking good is step two, check out this site for tips on how to give your resume a face lift.

Another resource that I have found to be incredibly helpful is my university's career center. Even if you have been out of school for a while it is probably worth checking out what kind of services your alma mater may offer their alumni.

Once you have gotten your resume all dolled up, it would be terrible if the individual you are emailing it to does not use the same word processor as you. Or, perhaps she does not have all the same fonts on their computer causing your resume to display differently on their screen. Once you have completed your resume, consider converting it to pdf for distribution. You can do this on the web using a service like this one. Or, if that doesn't work check out PrimoPDF which I wrote about here.

My resume could probably benefit from the advice found in the links above, but if you need an example to get you started, click on the picture below for a full size version of my own CV.Please feel free to leave comments below if you have some additional resume resources that others might find useful.