tag:blogger.com,1999:blog-40319242322114195322024-03-05T01:30:22.366-05:00The Smart NickelA personal finance blog by a college student for college students and young adults. Learn how to create a nickel on every dollar and have your habits earn you money.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.comBlogger110125tag:blogger.com,1999:blog-4031924232211419532.post-45183112495159913962013-05-05T19:59:00.000-04:002013-05-05T19:59:36.947-04:00Effective Tax Rate<div class="separator" style="clear: both; text-align: center;">
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Now that taxes have been turned in (unless you filed for the 6-month extension) you can calculate what your effective tax rate was for the following year. I am only going to look at Form 1040 which is probably the most commonly used form for federal taxes. Calculating this percentage is quite simple: you take line 61 which is your total tax and divide it by line 22 which is your total income for the previous year. For 2012, mine came out to around 5%, mostly because I didn't make a lot of money so deductions and credits had a large impact on the overall percentage.<br />
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For most students, you can see the importance of <a href="http://thesmartnickel.blogspot.com/2012/06/waiting4-pay-with-w4.html">claiming extra allowances on your W4 forms during your summer internship</a> now. For my summer internship, even though I tried to claim as many allowances as I could, my average federal tax rate was at 10%. That is double what I should have been paying out! My total loss from not claiming enough allowances to get a more accurate amount of tax withheld would be the extra amount that was withheld times whatever I could have expected to earn on that money over the time period until I get the refund. Usually as a conservative measure, I would use the interest rate on my savings account as what I would have earned, and in this low interest environment, it means it isn't much of a loss. In times of higher interest, it is more important to make sure you claim lots of allowances as a summer intern to not get too much tax withheld. Another circumstance is when you need cash early to make certain purchases. You don't want to have to wait until next April to get your money back from the government.<br />
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Especially if you file your own taxes year after year, it is important to keep an eye on your effective tax rate and how it changes over time. You should try to pinpoint what changes each year that changes your effective tax rate: maybe you earned higher income which pushed you into a higher tax bracket or you had a tax credit last year that expired this year. And if your effective tax rate keeps rising year after year, don't be too sad about it. The most likely reason is that you are earning more money.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-73827909585981977462013-04-28T21:40:00.001-04:002013-04-28T21:40:25.907-04:00Annual Credit Report<div class="separator" style="clear: both; text-align: center;">
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If you haven't already, you should take advantage of the free annual credit report you are eligible to get each year. Make sure you get it at <a href="http://annualcreditreport.com/">annualcreditreport.com</a> which is the official site. While you don't get to see your FICO score, you do get to look through all the accounts you have currently open. The accounts will show the status for each month it has been opened. Hopefully, you will only see green OKs which means that each month you either fully paid off your account or you didn't draw a balance. Yellow and red symbols usually indicate late payments and will have a negative impact on your credit score. If you see an unfamiliar credit card or loan taken out under your name, you may be the victim of identity fraud.<br />
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There are 3 major credit bureaus (aka consumer reporting agencies): Experian, Equifax, and Transunion. When you ask for your free credit report, you can get one from each of these at the same time or stagger your requests and ask for your free credit report from a different bureau at 3 different times of the year. One reason why you might want all three at once since the bureaus collect information slightly differently and are located in different regions. They all also calculate FICO scores slightly differently, but that is for another post. I would recommend staggering when you ask for your credit reports evenly throughout the year to better monitor your accounts. This way, you can get a report every four months and limit any damage from potential identity theft.<br />
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Also, remember to save your reports on a file if you like to keep your own records. That way, you can also look back to see how your credit report has changed over the year. You can also identify anything that seems odd or strange over time. Make sure that you hide your social security number on these documents if you do save them, just in case they somehow get into the wrong hands.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-84767157472587495152013-04-21T19:29:00.000-04:002013-04-21T19:29:37.796-04:00Vacation Budgeting<div class="separator" style="clear: both; text-align: center;">
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Some prefer approaching vacations like the open road. You start driving and see where it takes you. However, financially this can cause lots of issues making your vacation activities more expensive or, even worse, impossible. For example, in my <a href="http://thesmartnickel.blogspot.com/2013/04/vacation-credit-card.html">last post</a>, if you plan ahead and carry enough cash, you may end up paying some extra fees whether by using your credit card or from merchants who only accept cash. We only encountered one such situation on our vacation: one of the holiday parks we were planning on staying at only accepted cash so we were forced to try another place with a higher rate. While these may be minor annoyances, they can add up over the course of your vacation and can be avoided with a bit of forethought.<br />
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I'm going to focus on budgeting in this post which serves a couple purposes. First, budgeting can help you get an idea of how much you want to spend on your vacation. Like all budgets, it helps you avoid overspending or spending in the heat of the moment. Of course, you could arrive to your vacation spot and then consciously decide to spend more because you enjoy the place and want to consume more goods and services there, but at least then you won't have any regrets later. Secondly, budgets can be a good way to identify where you are spending too much and help you correct certain unwanted behaviors before the end of the trip.<br />
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When budgeting for our New Zealand trip, we first planned out our route and activities we wanted to do. This gave us a pretty good idea about how much we were spending on activities. We also bought our tickets for the plane and ferry between both islands early. The main costs we had to estimate were food, gas, and housing. To calculate food, we came up with a daily estimate and multiplied it with the days we would stay there. We also looked up the average cost for holiday parks and campsites and did the same thing for housing. For gas, we took the fuel efficiency of our campervan and multiplied it by an estimated price of gas and estimated distance traveled (we just used google maps for different routes and added it up). Of course, none of these estimates were probably going to be correct and they didn't come out correct either. We had a couple plan changes which resulted in some more driving and we originally overestimated how much we would spend on food.<br />
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After we got a good idea about how much we were supposed to spend, we were able to see how well we followed it. Halfway through the trip, we realized that we were well under budget for food so we ate out a lot more often during the second half. We also noticed our estimates for gas were not as conservative as they should have been (we should have priced in a higher price for gas and a lower fuel efficiency) which offset some of the savings on food. In the end however, we managed to stay on track and not go over budget.<br />
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Below, I have posted the percentage of our total vacation spending for each of several different categories.<br />
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It is important to remember that this is for a group of two people. For one person, the campervan rental would be a larger portion since it is a high fixed cost just to rent it and for more than 2 people, it should be a smaller proportion since you are dividing that fixed cost among more people. It is also interesting how close the costs were for food, housing, and gas. Our other category included some of the souvenirs we bought as well as some gear we prepared for the trip like our backpacks and rain jackets. Also, our vacation was focused much more on the activities rather than the dining which makes sense looking back. For another couple going to New Zealand on vacation, their proportions could be extremely different. But these budgets give great insights into your own spending habits and how to plan future vacations.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-20471779527233365212013-04-03T01:17:00.000-04:002013-04-03T01:20:58.761-04:00Vacation Credit Card<br />
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Just coming back from a month long trip in New Zealand, I thought it would be a good opportunity to talk about vacation. I'll probably split this topic over the next few posts with this one focusing on how to get access to foreign money.<br />
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Vacations are important for any balanced lifestyle. It offers the opportunity to relax and rejuvenate as well as seeing new places and exploring new cultures. If taken at home, you are able to rest your body and mind to better prepare yourself for work when it resumes. Taken abroad, vacations offer the chance to break out of your comfort zone and enrich yourself with new experiences. Of course, you can always also explore new activities and areas in your hometown and you can relax abroad, but I find that most often that travelling to some place new invokes a greater sense of adventure.<br />
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Obviously, my vacation to New Zealand was taken abroad. Originally, I had planned on going backpack western Europe but changed since I could still catch the end of summer in New Zealand. There would also be a little bit less culture shock since English is the primary language and the country is absolutely beautiful, famous for many scenes in the Lord of the Rings trilogy. The photo above is one we took of Milford Sound while kayaking. Finally, the country is known for attracting adrenaline junkies seeking opportunities to bungee jump and skydive and foodies seeking the high quality lamb and beef.<br />
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As many of my readers can probably guess, I wanted to plan a bit about what I would do when I got to New Zealand. Some people may prefer to just buy their ticket, arrive, and then figure out what to do but it may cost them. While planning ahead can help save you money and stress, it is a bit tedious to do. However, especially with regard to finances, planning is important to make sure you don't have any issues with paying for your vacation.<br />
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I would like to strongly recommend Capital One as the credit card and method of payment to use for anyone looking to go abroad. In New Zealand, I didn't have much problems with places accepting my credit card which is on the Visa network. There was definitely much lower acceptance of American Express and no one even mentions Discover and I would venture to say this is similar to many other foreign countries. The main reason for recommending Capital One is that it has no foreign transaction fee. It is extremely important to be aware of these fees with your credit cards. I had an issue with booking my plane tickets with my Citi card which charged about a 3% fee since I booked with Virgin Australia which is considered an international company, even though the transaction was made in U.S. dollars. Luckily, I emailed customer service twice and politely asked them to forgive this transaction for the first time and they did. Citi has been fairly reasonable with giving a second chance but now I will make sure to use Capital One if there is any ambiguity about getting classified as a foreign transaction.<br />
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However, cash is always king. Even though most places accepted Visa, there were a couple places which charged an extra 2% or so for using a credit card and a couple places only accepted cash. It is important to have some emergency cash or access to cash in a foreign country. But even though cash is king, it is often the pricier choice. Credit cards seem to be much better priced for exchanging your domestic currency into the foreign one. Without any foreign transaction fees, Capital One charged an exchange rate ranging from NZD 1.19 to 1.215 throughout our vacation and I believe the free market rate was around 1.20 the entire time. This rate was no doubt much better than the currency exchange desks at the airports and in the cities as well as banks.<br />
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If you don't plan on spending vacation abroad, I wouldn't recommend Capital One as much since the rewards program is poor compared to other cards like the Chase Freedom. But if you are going to need access to difference currencies, no other card can top it.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-29511608790978594332013-02-11T12:11:00.000-05:002013-02-11T12:11:01.055-05:00How Much Fruits/Veggies Cost<div class="separator" style="clear: both; text-align: center;">
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Here is a really interesting chart about how much Americans pay for fruits and vegetables. I found this article on <a href="http://newswatch.nationalgeographic.com/2013/02/06/how-much-do-americans-pay-for-fruits-and-vegetables/">National Geographic</a> and they used research from the USDA in this colorful chart. They looked at the differences in cost per serving vs cost per pound and fresh fruits/veggies vs frozen vs canned vs dried vs juice. These obviously seem cheap since they are on a serving level and I'm sure we all have different expectations of how many servings we actually eat for a given meal. But it shows that fruits and vegetables are not that pricey. Apparently, the most bang for your buck lies in green beans and watermelons. What would be even more interesting if they had a chart for costs per nutritional value if there was some metric to use for that.</div>
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<br />Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-47157712238046995112013-02-03T06:11:00.001-05:002013-02-03T06:13:23.614-05:00Merchant Credit Card Fees<div class="separator" style="clear: both; text-align: center;">
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I have several posts lauding the benefits of credit cards for consumers, especially those with no annual fees and reward programs. Assuming that you treat your card like cash and only spend enough to pay off your monthly bill when it comes out, there is only positive benefits: you get a 1-5% cash reward on all your spending, you delay your payment for a month which allows you to earn interest (albeit small in the current environment), you decrease the risks with carry cash like losing it or getting it stolen, and you establish/improve a credit history for future use with other loans. However, credit card companies still need to make money. Thankfully (in some aspects), not all of us are as careful with our spending and those who miss their payments or spend more than they can afford will be paying these banks and credit card companies high interest rates. However, if in some magical world the majority of people were to become more responsible with their credit cards and paid all their bills on time, the only source of revenue for companies on these cards will be from fees merchants pay to accept them. And even that is slowly going away.<br />
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This past July, Visa and Mastercard announced a settlement with millions of merchants to settle charges that they were fixing credit card processing fees in a non-competitive market. They would reduce these fees for 8 months and allow retailers to charge consumers an extra surcharge for using a credit card to cover the processing cost (usually 1.5%-3% of the purchase amount). Debit cards are unaffected and certain states forbid this extra charge regardless, including: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.<br />
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Does this mean we will all see higher prices for using our credit cards in the near future? This may still be unlikely given the competitive businesses of many restaurants and retail stores. To be fair, many places do derive a greater benefit from increased consumer spending by accepting credit cards than the cost of these fees and most merchants would not want to risk driving away business. Many small merchants already only accept credit cards if purchases are in excess of a certain threshold (like $15) but this may become even more prevalent over the next few years.<br />
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The merchants who know a bit more about consumer psychology will probably come with unique ways to frame this increase in price for using a credit card. There are a few merchants I know of who already offer a discount for consumers using cash. Given that this discount is usually larger than the cash back rewards I get from my credit card, I am inclined to use cash as well and it puts me in a positive mindset. Merchants who start tacking on extra fees for using credit cards risk angering consumers since they are framed with paying extra, even though the two effects are the same.<br />
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There is some debate about whether the costs of credit cards are already priced into the products we purchase already. Since businesses determine their price and take into account their costs each year, the cost of processing credit cards should already be factored in to what we are paying. Of course, even if this is true, in some ways there is more of a reason to use credit cards since people paying with cash pay the same price and in some sense will be subsidizing credit card users.<br />
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In the end, I still believe credit cards are very beneficial for society and consumers if used correctly. It is important to be wary of fees that are charged for using credit cards by merchants and by your card provider in order to prevent unnecessary charges. Merchants are going to try to avoid paying too much for accepting credit cards and credit card companies are going to need to find ways to keep the business profitable.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-24700224374374258102013-01-29T22:10:00.002-05:002013-01-29T22:10:14.963-05:00Free PizzaFor all you pizza lovers, sign up for Papa John's <a href="http://www.papajohnscointoss.com/">Super Bowl Coin Toss</a>. You pick whether the coin toss at the Super Bowl will be heads or tails and if you get it correct, you will get a code for a free pizza. You also fill in your address and email so Papa John's will have a large database of contacts for future promotions, but you don't have to sign up for their listserv to participate in this. Last year, they had a similar promotion but gave everyone who signed up a free pizza if the collective majority of voters was right on the toss. In last year's case, it was so regardless of what you voted, since the majority got it right, everyone got a free pizza. This year is a bit different (probably to lower the risk of having to give everyone a free pizza) where only those who vote correctly will get the code. So if you get all 10 of your friends to vote and sign up and split your votes 50-50 for heads or tails, you should be able to get around 5 pizzas for your group.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-47044058015058737052013-01-21T07:40:00.000-05:002013-01-21T07:40:15.853-05:002012 Expense Analysis<div class="separator" style="clear: both; text-align: center;">
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<a name='more'></a>My chart for expenses year to date is not very pretty. Consistently higher throughout the year is not a very nice looking chart on the cost side. I break down my expenses the same way as last year, mainly between food, transportation, and other expenses (which I call personal and includes stuff like clothes, gifts, amenities, etc). This gives a little more insight into where my money goes each month and lets me think about where I should cut back or where I can afford to spend more.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDk5xBwJBsEUTlLDbtqzV89spUZcVIL0-bUpsU2krD06oOML-osl_gaa0ecKkCQrZLa7my1yxDP8NbvUyvyz5ke51Bit7Pk5OCUI9FMoh8PE-mVuXnvo10MnCNm4zAF6OmPpC34oN6hVIM/s1600/2012+Food.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDk5xBwJBsEUTlLDbtqzV89spUZcVIL0-bUpsU2krD06oOML-osl_gaa0ecKkCQrZLa7my1yxDP8NbvUyvyz5ke51Bit7Pk5OCUI9FMoh8PE-mVuXnvo10MnCNm4zAF6OmPpC34oN6hVIM/s400/2012+Food.png" width="400" /></a></div>
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This is probably the most important expense item for me. I try to avoid spending too much money on luxurious activities. The most I do is usually go out to each once in a while. If this chart increases steadily year to year, then I know I should probably cut back on the restaurants and try to eat more at home. For the most part, I was in line with the previous year. I went out a bit more than I did last year in August before going back to school in the fall which is the reason for that spike. But I did spend less in December when I came back home compared to last year.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaP6-q-d3dSqLAIfV9G8VHX-Os2uEj-cYM3dLX4gaIkN1zLosWvHamht-0YiF3dk8JHTJA2C0FYCei1s-DetvbuYnNX1f_haYfsY7EY8Ww_Z8gLpKeZgJzmZYKPjqigWNKuCzRalu2Cgn8/s1600/2012+Transportation.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaP6-q-d3dSqLAIfV9G8VHX-Os2uEj-cYM3dLX4gaIkN1zLosWvHamht-0YiF3dk8JHTJA2C0FYCei1s-DetvbuYnNX1f_haYfsY7EY8Ww_Z8gLpKeZgJzmZYKPjqigWNKuCzRalu2Cgn8/s400/2012+Transportation.png" width="400" /></a></div>
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For most of the months, my transportation expenses have been in line with 2011. The big spike in March was from a plane ticket to Hong Kong for the summer and in December it was for another trip out of the country. Other than that, it is good to keep an eye out for overall rising costs. For example, if I all of a sudden have a higher level of expenses each month, it may indicate that I am spending too much on transportation. Then I can see if taking so many taxis is affordable or not compared to my other categories.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5T2G6N78NEVW0ALcWvqaQEkyabISlw31MVT5nnAswR73vmSexnx30mz9KH9hIVmU0xU2T0So1MB_VRZ4j2DU8hhG-pecyrLQ4psZuttTRxzk8wCjG4Gsyvh4Dy4bkGgic0KPP_AF3FlHz/s1600/2012+Personal.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5T2G6N78NEVW0ALcWvqaQEkyabISlw31MVT5nnAswR73vmSexnx30mz9KH9hIVmU0xU2T0So1MB_VRZ4j2DU8hhG-pecyrLQ4psZuttTRxzk8wCjG4Gsyvh4Dy4bkGgic0KPP_AF3FlHz/s400/2012+Personal.png" width="400" /></a></div>
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I generally keep personal expenses to a minimum (meaning anything outside of my bare necessities which is in food and transportation). The few spikes were mainly due to some gifts I bought and other miscellaneous expenses. Other than the charts below, my chart for bills (which wasn't very interesting) was essentially the same, spiking in the summer with my internship rent and higher this past year than the year before.</div>
Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-23721046739909528332013-01-14T03:03:00.002-05:002013-01-14T03:03:38.044-05:002012 Income Analysis<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTERfXnjo0s6hkodKAS_3MCYlwBfg-JbUjuGDThqJSJAdWCIq_Idj_Zh_ln0rg9I809bQ4un8BsMIU2i-TprN9QRmkBnWRh9q7IE_SyPJt1azQ9HvHVPLF5SK4fb3fKXsudkUkszNuwPqO/s1600/2012+Net+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTERfXnjo0s6hkodKAS_3MCYlwBfg-JbUjuGDThqJSJAdWCIq_Idj_Zh_ln0rg9I809bQ4un8BsMIU2i-TprN9QRmkBnWRh9q7IE_SyPJt1azQ9HvHVPLF5SK4fb3fKXsudkUkszNuwPqO/s400/2012+Net+Income.png" width="400" /></a></div>
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<a name='more'></a>It is kind of a pain to update my budgeting at the end of the year for some of the small stuff that I don't normally input into my little app like dividends I receive throughout the year but I do learn more about what happens to my money. I have a DRIP (dividend reinvestment plan) set up so that dividends are automatically reinvested in that stock. Some of the companies I own stock in are overseas and there are some ADR fees charged when it is reinvested. I will have to look into it more, but I probably wouldn't have noticed had I not told myself to update my budget to get this post up. Again we will have a lot of charts to look at. This post will focus on my overall budget and the income side. I should have the expenses up by next week.<br />
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The main takeaway from the top chart was that 2012 was a much more volatile year for my net income compared to 2011. This was due to increased volatility in both my earnings and expenses. The standard deviation of my monthly income and expenses were roughly equal to the average (and net income had a standard deviation twice as large as the average, and I did have a few months in the red). My income had a much bigger effect however since I both earned more money during the summer from my internship and less money during the school year because I dropped a job I had all of 2011. This had a pretty large effect in early 2012 and you can see it in the following year-to-date chart of my net income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVRagcL90R1MvjRALKxyHnsVMQlRu8sIgBsiu7lMLjybYxKOPxA1bcnL5P1ieg69NmTqGKOiLJ54f1k7FMjKx2K5UZtNtLo6kA_UXeMNUuS7mJ0ngJA832oWogCno4AvepwF8_9h7ycjAn/s1600/2012+YTD+Net+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVRagcL90R1MvjRALKxyHnsVMQlRu8sIgBsiu7lMLjybYxKOPxA1bcnL5P1ieg69NmTqGKOiLJ54f1k7FMjKx2K5UZtNtLo6kA_UXeMNUuS7mJ0ngJA832oWogCno4AvepwF8_9h7ycjAn/s400/2012+YTD+Net+Income.png" width="400" /></a></div>
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I was in the red for a while until April when I began to break even for the year by earning more than I spent. Then came the summer when I was able to come back and make some more progress on increasing that gap. I can identify some points of interest already with this chart even though it is more prominent the deeper you look into it. For example, I have the deposit on my summer housing made in March which makes that little dip for the month. Now let's take a look at the income side alone.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9s5vP72Xeo_qTJ6BSemqR8hInEUzdy5fnlUPp7KOvtpv8D6xh6naalJu5BePo7KQLPJaxxzv-E3NngdQRm7N36PctDdvYYkJmTvOIFyS4CXCqSJmqJjj9PY4HiM2c9SV39iOfP51z9TvE/s1600/2012+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9s5vP72Xeo_qTJ6BSemqR8hInEUzdy5fnlUPp7KOvtpv8D6xh6naalJu5BePo7KQLPJaxxzv-E3NngdQRm7N36PctDdvYYkJmTvOIFyS4CXCqSJmqJjj9PY4HiM2c9SV39iOfP51z9TvE/s400/2012+Income.png" width="400" /></a></div>
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From this chart, you can see that my income for 2012 actually tracks 2011 pretty closely. This means that the big discrepancy in net income comes from spending much more than before early in the year. The slope becomes much steeper in the summer when I have my internship before leveling off to my normal earning schedule during the school year. On the income side, I kept my split between work income, lab income, and dividend/interest income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiqNPBcAEgI8R6CR8x1DsKdl2Iolh2mF1HCSkxww1R5OBZhBKj7iBvSFXG9Z2DnFBGOWLHTf6m3Wct_Q6AOuEGddXFo1xAJhGtqIO91w5pyRDj9lPoGSYtS_E482mGGxHcynuCrTHj0_TR/s1600/2012+Work+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiqNPBcAEgI8R6CR8x1DsKdl2Iolh2mF1HCSkxww1R5OBZhBKj7iBvSFXG9Z2DnFBGOWLHTf6m3Wct_Q6AOuEGddXFo1xAJhGtqIO91w5pyRDj9lPoGSYtS_E482mGGxHcynuCrTHj0_TR/s400/2012+Work+Income.png" width="400" /></a></div>
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I didn't bother to make just a monthly income chart since it mirrors my monthly work income chart pretty closely. I've already mentioned most of the effects which you can see from the chart such as my higher summer income and lower school year income. You can also see how large the spikes are month to month since my internship isn't very long. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmX-1DgJ4mlqG5atxpKm5Q_aaNOGiKWSp3LcoTKpRu4Hbk4cVu8TJCLkd7nq9ITSSE-5hoH0eCJM6U4DgrUuOgDrgV6AEjT_275YmZVvZJpz-JQBVHZB5VWsGs3vngI1u3YCvMNyO8_bqe/s1600/2012+Lab+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmX-1DgJ4mlqG5atxpKm5Q_aaNOGiKWSp3LcoTKpRu4Hbk4cVu8TJCLkd7nq9ITSSE-5hoH0eCJM6U4DgrUuOgDrgV6AEjT_275YmZVvZJpz-JQBVHZB5VWsGs3vngI1u3YCvMNyO8_bqe/s400/2012+Lab+Income.png" width="400" /></a></div>
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I found this chart quite amusing since 2012 tracked 2011 pretty closely. You can see that I had no labs during the summer since I wasn't on campus for both years. The only other notable discrepancy is in December which is mainly due to a 3 month long experiment I participated in which paid off completely at the end of the year. This category is going to drop to 0 starting this year since I won't have the opportunities to participate in them anymore (at least the ones at my school).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0BAi1PPYZB2Ovz3PzPMyRUJfn8yXJq1IUIIQJtJfvJSyLiVW1kUFhCZYcIcaJGK2cBiaCNb7ZhP91ZiK9q2Jz7W6ep9s1Jf_UDjZUYi0Tn-5OoxAhRYwvUa_FC1oypPkIarYSQwFE3o-E/s1600/2012+DivInt+Income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="252" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0BAi1PPYZB2Ovz3PzPMyRUJfn8yXJq1IUIIQJtJfvJSyLiVW1kUFhCZYcIcaJGK2cBiaCNb7ZhP91ZiK9q2Jz7W6ep9s1Jf_UDjZUYi0Tn-5OoxAhRYwvUa_FC1oypPkIarYSQwFE3o-E/s400/2012+DivInt+Income.png" width="400" /></a></div>
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Finally, the dividends and interest I received in 2012 were consistently higher than in 2011. This shows how I have put the net income to work. The spikes in June and December are due to some index funds that I own which pay out dividends semi-annually (rather than quarterly like most dividend paying stocks).<br />
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Overall, these charts can help me think through how my financial situation looks for the coming year and how well I was able to keep the money I earned in 2012 compared to 2011. I can spot interesting trends and ask myself questions about why the numbers come out the way they do. Of course, I think the expense side is probably much more interesting which will be coming out in the next post.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-9003091514320431522013-01-05T07:49:00.002-05:002013-01-05T07:49:54.324-05:00The Fiscal Cliff Deal<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8XHodfhWa-k_B4gsktAPb1Ml9GP2ZEHMwg6DrQVlOQZYrRKYcX4sCjAbCK2EYnqjYujkpmkcPBfbfGKT1NiBo-qiQ22Z54sskxsf6Fu4sZyxdn7F2zLJcJMgYAG_kkW50aE6_ZMQOfd5y/s1600/Fiscal-Cliff-Deficit.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="208" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8XHodfhWa-k_B4gsktAPb1Ml9GP2ZEHMwg6DrQVlOQZYrRKYcX4sCjAbCK2EYnqjYujkpmkcPBfbfGKT1NiBo-qiQ22Z54sskxsf6Fu4sZyxdn7F2zLJcJMgYAG_kkW50aE6_ZMQOfd5y/s320/Fiscal-Cliff-Deficit.jpg" width="320" /></a></div>
With the new year, the much anticipated fiscal cliff was partially averted, partially delayed as U.S. leaders reach some sort of compromise. It makes permanent the Bush administration's tax rates for those earning less than $400k per year ($450k for couples) but raises rates on those earning more than those thresholds. Above that, the income tax rate increases from 35% to 39.6%, bringing back the top bracket from the Clinton era. Dividends and capital gains will also be taxed for people in that bracket at a new 20% level instead of the normal 15%. Obama is now able to say that he succeeded in raising income rates on the wealthiest of Americans but not his initial target of those earning more than $200k annually. Also, the temporary lower payroll tax rate implemented in 2011 (lowered to 4.2% from 6.2%) has also expired which will cost $50 a month for those making $30k a year and about $190 a month for those making around $114k. Itemized deductions will also be capped for those making more than $250k ($300k for couples). Taxes on inherited estates over $5 million will also increase to 40% from 35%.<br />
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There was also some amusing news the last few months about the consequences of going over the fiscal cliff. A small part of the bill would have ended U.S. farm support programs and many articles warned about milk prices doubling as a result. This new "dairy cliff" was another concern brought up by the media. The new compromise only postpones the issue for a year. The most recent farm law expired in September and the failure to pass another five year proposal resulted in the law reverting back to the rules enacted back in 1949 where the government would buy milk until prices reached "parity" with its cost immediately before WWI. After adjusting for inflation, the milk-support price would be roughly double what it costs today to $7 per gallon.<br />
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Aside from the looming dairy cliff, the threat of $110 billion in automatic spending cuts was only postponed for two months, not directly addressed this time. There is a very large issue at hand with increasing the debt ceiling limit as the government deficit pushes up to $16.4 trillion. Even though the markets rallied year-end as the government reached a compromise on the fiscal cliff, there are still plenty of big decisions to be made in 2013. Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-34590930324991366562012-12-02T22:46:00.000-05:002012-12-02T22:46:30.849-05:00Buffett Quote Series #2Here is the second part to my Buffett Quote series.<br />
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"I buy expensive suits. They just look cheap on me."<br />
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"Someone is sitting in the shade today because someone planted a tree a long time ago."<br />
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<a name='more'></a>I really like the first quote about expensive suits. This quote shows how Buffett doesn't spend money like most other rich people. He focuses on necessities first and foremost. He is probably quite famous for living in the same house in Omaha which he purchased for a little more than $30,000 in 1958. Of course, he doesn't refrain from all luxuries and mentions that he is quite fond of his private jet, but aside from that he lives his life quite frugally. I believe it is quite admirable to not get caught up in material things if you do come into wealth and Buffett is an excellent role model for this type of behavior. This quote also subtly reminds me about the difference in perceived value and real value. Clothing and fashion is one particular luxury where a brand name or not can be a difference of thousands of dollars. I am fairly inexperienced in fashion so I can't say too much about it, but I can't tell the difference between brand name suits and generic ones so I don't see the logic in spending so much more for the name. And there are certain circumstances where you can argue that it is important to have a wealthy image and justify buying expensive clothes, but if I ever become wealthy I would hope to have the same perspective as Buffett.<br />
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The second quote is a bit more practical with regards to investing and teaches a life lesson in patience. Often, many of our actions and decisions will not have an impact until much later in our lives. It is often much more difficult to invest time and energy into something that won't bear fruit for years, especially when many of us are focused on short-term goals and immediate satisfaction. Another great side to this quote is the respect for the past. It is important to be grateful for everything that has brought you to where you are today. I certainly wasn't able to come to a great school on my own. My family, friends, teachers and mentors all had an impact on helping me achieve what I have today and it is important to realize that. In one sense, I am putting in a lot of work to achieve my own goals but in another, I am sitting in the shade of the trees that my family and friends have planted long ago. A lot of the great relationships we build and choices we make have lasting impact so it is important to always be aware of the long-term perspective.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-26733670606157765802012-11-24T02:43:00.001-05:002012-11-24T02:43:22.544-05:00American Express Small Business SaturdayForget Black Friday! If you have an American Express card, I urge you to take advantage of their <a href="https://www.americanexpress.com/us/small-business/Shop-Small/">Small Business Saturday promotion</a>. Sign up on their website and you can get a $25 credit for buying something at a small business. Most local restaurants and stores count so treat yourself to a nice meal while helping your local businesses. Just make sure you spend at least $25 in one transaction after registering to get the credit. It is too good a deal to pass up!Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-24158330015067440842012-11-13T23:57:00.001-05:002012-11-13T23:59:13.467-05:00Buffett Quote Series #1So I haven't posted in almost a month now mainly because I've been pretty busy with school work. I thought I'd try to do a series of posts on something I've been wanting to do for a while which is talk about some of the great quotes from one person I admire greatly (along with many others), Warren Buffett. Here is the first part of my series with two quotes I pulled.<br />
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<a name='more'></a>"The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch."<br />
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There are often many comparisons made between investing and American baseball. And for anyone who has played baseball, I think Buffett's quote is quite provoking. Many people may not realize it at first, but when I started investing, I often was worried about the cash I had on hand. As days past by and the markets went up, it felt like I was missing all the opportunities. Somewhere in my subconscious, I probably was counting the strikes as I missed entering into a market because I thought it was too expensive and only getting more so. However, patience really is one of the ultimate virtues when it comes to investing. Sometimes the hardest thing to do is nothing and wait. But it is important to put your money into an investment idea only after you have done your due diligence and built up your conviction to stay with a particular asset for a long period of time.<br />
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"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."<br />
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Another great comparison is between the stock market and consumables. Let's say you were going to buy a steak at the grocery store. For whatever reason, you wait a day and the next day it is on sale, 50% off. 'What a great deal! I'll probably take 2.' is something you might be thinking. However, let's take that same situation with a stock. Let's say you were going to buy a company XYZ's stock one day but, again for whatever reason, you wait a day and the next day the price of the stock is down 50%. 'Holy crap! What is wrong with XYZ? Maybe I won't buy it at all' is something most investors would think. Are the two exactly the same? No, investing in companies and buying food are fairly different but not so different to mistakenly confuse the price of something with its value. Steaks are steaks; you know how happy you will be when you eat one so if the price goes down, you can get a lot more value with your money. Theoretically, if you have researched enough and determined the value of XYZ's stock, you should approach decreases in the stock price the same way you would approach a grocery store sale. Again, it is important to have conviction going into your investment ideas and not equate the price of something with its value. If you really think about it, the value of a company does not fluctuate 1-5% day to day, but the price usually does.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-58719247093892318702012-10-20T08:57:00.004-04:002012-10-20T08:58:36.428-04:00To Itemize Or Not<div class="separator" style="clear: both; text-align: center;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjb-vybdjhbwC63wtXUyNCJ5i4zlvI4fwlepwHiXDB0QpXI4tAAEXQndXp1NUDP7ahdDFqtbdnvj2BgHlLjVswmuBoTWYasjXIcnm8kfbFLxwXwMXiWtnVfHLatnZMjKPXq8dUvXESTahA_/s1600/tax-itemized-deduction.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjb-vybdjhbwC63wtXUyNCJ5i4zlvI4fwlepwHiXDB0QpXI4tAAEXQndXp1NUDP7ahdDFqtbdnvj2BgHlLjVswmuBoTWYasjXIcnm8kfbFLxwXwMXiWtnVfHLatnZMjKPXq8dUvXESTahA_/s1600/tax-itemized-deduction.jpg" /></a></div>
It is a big relief to be finished with my hell week. I had 5 midterms in 4 days this past week so I've been extremely busy the past couple weekends studying. I thought I'd talk this week about itemizing deductions on an individual tax return and when you should do it over taking the standard deduction. of course, this means you stay organized throughout the year and keep track of all your expenses. <br />
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As a quick refresher, a deduction reduces the amount of taxable income you report. Itemizing means that you take specific expenses that were paid throughout the year that theoretically should not have been taxed and mention them specifically to the IRS to reduce your taxable income. I'm going to focus on the filing single numbers, but the concept behind married filing jointly and the other categories is the same (just different limits). For the current year, the standard deduction is $5,950. This means when you look at the total deduction you would get if you itemize, it should be higher than $5,950. Otherwise, you can just take the standard deduction and be better off.<br />
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How do you calculate your deduction if you were to itemize? You would fill out a 1040 Schedule A form. Here is an <a href="http://www.irs.gov/pub/irs-pdf/f1040sa.pdf">example</a> for 2011. You can quickly see the categories of expenses that are deductible if you itemize on the left hand side. These include medical and dental expenses, taxes you've already paid, interest you've already paid, gifts to charity, casualty and theft losses, job expenses and miscellaneous deductions. Now before you automatically assume that all your expenses throughout the year that fall into these categories can just be written off your taxable income, there are certain rules that apply to each one. I won't go over everything but I hope to hit the most common buckets.<br />
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First on the list is medical expenses. These include visits to the doctor, drugs, and insurance. In order to use these, however, your total expenses for the year must add up to more than 7.5% of your adjusted gross income (AGI). AGI is your income minus some automatic deductions on the first page of the 1040. These deductions are taken whether or not you itemize or take the standard deduction. If your AGI is $50,000, you would need to spend $3,750 ($50,000 * 7.5%) before any deduction is allowed and only the expenses after the $3,750 limit are deductible. This means that you should make sure you keep a good record of all your medical expenses throughout the year (keep those receipts!). Most of the time, this 7.5% floor makes it difficult to claim this deduction because most people have insurance which keeps the expenses below this hurdle. More specific details can be found on this <a href="http://www.irs.gov/taxtopics/tc502.html">IRS page</a>.<br />
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The other taxes paid section allows you to deduct state and local taxes from your federal tax return. You can choose between deducting your income taxes or deducting your sales taxes (some states have low income tax rates but earn revenue by having a higher sales tax rate such as Tennessee and Arizona). Pick whichever bucket of taxes is higher for you. You can also deduct real estate taxes. If you are in a high state tax area, such as New York, this section alone may make it worth it to itemize your deductions since you can go above the $5,950 limit pretty quickly. <br />
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I am going to skip the section on interest because the rules with this are fairly complicated. However, I will return to it in another post. In general, you can deduct most forms of mortgage interest and business interest. However, you cannot deduct interest on personal expenses (such as for a car loan or credit cards).<br />
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Next we have charitable contributions. Many wealthy individuals who donate a lot to charity often reduce their effective tax rate through this method. The news which often highlight how low the tax rates are for the top 1% are often attributable partly to the wealthy donating money to charity and taking full advantage of this itemized deduction. This also means that you can donate to charity as well and not need to pay tax on that amount. If you donate more than $250 at a time, make sure you keep a copy of the letter or receipt which you should receive from the institution. Most charitable institutions qualify for this deduction and we use an easy up to 30% of AGI limit on these deductions but the full rules are pretty lengthy. You can find out more information on the <a href="http://www.irs.gov/pub/irs-pdf/p526.pdf">IRS page</a> if you are interested.<br />
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I am also going to skip casualty and theft partially because I didn't learn much about it in class so I am assuming it isn't a big part of itemizing your deductions.<br />
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The final section is job expenses and miscellaneous deductions. Unreimbursed job expenses can also be itemized and deducted. These include job travel (such as traveling to a client, does not include commuting), union dues, education for your job, etc. 50% of meals and entertainment expenses are also deductible from your work. Also, any expenses incurred in the production of income are included such as a Wall Street Journal subscription, tax preparation fees, investment fees, safety deposit box fees. With miscellaneous deductions, there is a 2% of AGI floor that has to be hit before any deduction can be taken. With the same $50,000 AGI example, miscellaneous deductions would have to be greater than $1,000 ($50,000 * 2%) before you can start taking a deduction.<br />
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So try itemizing your deductions for the year, see if it is greater than $5,950 or whichever limit if you aren't filing single, and choose whether to itemize or not when filing your tax return.<br />
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<br />Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-33438413287977912052012-10-06T23:31:00.002-04:002012-10-06T23:32:09.501-04:00Internet Safety<div style="text-align: center;">
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I found a very interesting video online that matched the theme of my last post on <a href="http://thesmartnickel.blogspot.com/2012/09/protecting-your-passwords-and-pins.html">password security</a>. We all access information online nowadays and it is important to keep vigilant when connecting to important financial accounts. Always be on the safe side when browsing the internet and make sure you have up to date security. I use <a href="http://windows.microsoft.com/en-US/windows/products/security-essentials">Microsoft Security Essentials</a> but just make sure that whatever software protection you use is up to date. Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-57677119987422509712012-09-29T10:08:00.000-04:002012-09-29T10:08:39.753-04:00Protecting Your Passwords and PINs<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJSuhFJkIQFATJW9iMhbQXoAwWIspBV1c42CerzAeYd4YORGVGqCepF9LcVnFqQoXTvlglbTf6kCgvIOZHF6-gYPW06MZq05ZdAPH47bMAvF87f4cN1cBMuUcHdzR51UOsafC7JYit0Pe2/s1600/Passwords.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJSuhFJkIQFATJW9iMhbQXoAwWIspBV1c42CerzAeYd4YORGVGqCepF9LcVnFqQoXTvlglbTf6kCgvIOZHF6-gYPW06MZq05ZdAPH47bMAvF87f4cN1cBMuUcHdzR51UOsafC7JYit0Pe2/s1600/Passwords.jpg" /></a></div>
There is a surprising (or perhaps unsurprising) lack of sophistication with how many people set PINs and passwords. A study done by Data Genetics analyzed passwords from released or exposed password tables and found that the most common 4 digit password was "1234." "1111," "0000," and other strings of the same number were also very common. A list of most common passwords published by SplashData include "password" and "123456." Others on the list that might be slightly more sophisticated include "qwerty" and "qazwsx" for passwords and "2580" for PINs. You can easily see that these just have to deal with the placement of the characters on the keypad or keyboard to help people remember them easily. However, this makes it extremely easy for someone to just guess what your secret code is if you lose your ATM or credit card.<br />
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It is extremely important to make your passwords personal to you. They should be fairly easy for you to remember while making it very difficult for someone who doesn't know you or doesn't know you well to guess correctly. Something like a year of birth is quite commonly used but puts you at risk if you lose your entire wallet and whoever finds it has access to your driver's license along with your credit and debit cards. Try to take it a step further by using a parent's year of birth and reversing it. <br />
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For passwords, it may be difficult to remember them if you have random capitalizations and number replacements for letters (0 for O, 1 for I, 3 for E, 4 for A, etc.). It is much easier to come up with a favorite phrase or quote and use the first letter in that sentence. For example, if you really liked the quote "You can do anything, but not everything," your password could be "Ycdabne" and add some numbers at the end (preferably something other than 123). "Ycdabne" is not a legitimate word but it is fairly easy to remember if you just repeat your favorite quote. <br />
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For PINs, you can try to think of converting words to numbers. For example, if you assign the letters to digits alphabetically (A = 1, B = 2, C = 3, ... J = 0, K = 1, etc.) you can change a word into your PIN. "Wise" would become 3995 or "Cash" would become 3198. You can always take the reverse of these numbers for your PIN as well. Although it wouldn't be extremely easy to remember if you forgot them, it shouldn't take more than 2 minutes to recreate your table and figure out what the number is.<br />
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It is also important to make sure you don't use the same password or PIN for every card or account you have. Try to have a few of each so that on the off chance that someone guesses your very secure code, they won't be able to just copy that to your other cards and accounts.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-26275523461301975732012-09-22T10:01:00.001-04:002012-09-22T10:01:51.357-04:00International Access to Money<div class="separator" style="clear: both; text-align: center;">
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Roughly 60% of Americans do not have a passport according to the State Department as of January 2012. If you belong in that majority and plan on staying in it, this post will probably not be very relevant. However, for those of us who do have a passport and plan on using it, we have to prepare before going abroad. Especially within my age group, many students study abroad, backpack across a different continent over the summer, or even attend college in a different country. For those of us who haven't, learning how to get access to money is the first step.<br />
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Bringing cash is the simplest way, but if you plan on staying abroad for an extended period, holding a few thousand dollars in bills may not be the smartest thing to do. However, you usually need to exchange your domestic currency for the foreign currency abroad. There are often exchange counters at the airports and train stations but these rates are not as favorable as if you exchanged your money at a bank or ATM. They effectively charge you for the convenience, and it may be worth it for exchanging small amounts of money but try to stay away most of the time.<br />
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The preferred method to access cash internationally would be to use a credit card. With a credit card, making large purchases become relatively simple and the exchange rate is generally very fair. The exchange rates used by the large credit networks (such as Visa and Mastercard) are based on wholesale rates traded between banking institutions rather than retail rates offered to customers. It is very important, however, to watch out for fees. Most cards have a 1-3% foreign transaction fee which can be fairly expensive. Interestingly enough, Capital One is well known to not charge any foreign transaction fees on their credit cards. Going through my own portfolio of credit cards, I also would recommend Capital One over any other for international use, although there are <a href="http://thesmartnickel.blogspot.com/2011/05/credit-card-recommendations.html">better cards to maximize your rewards in the U.S.</a><br />
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If you do use a credit card, avoid cash advances. The exchange rate wouldn't be an issue like I mentioned above, but you would immediately begin to accrue an incredibly high interest rate (usually higher than 20%). If you need to get cash on the ground, use an ATM with a debit card. With debit cards, however, it is extremely important to pay attention to all the fees. Your bank will probably charge a couple percent in currency fees on debit purchases made internationally and a similar percent on ATM withdrawals. There may be an additional flat fee of a few dollars for ATMs not on the same network as your card.<br />
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A prepaid card can also be useful to access cash outside of your home country. They offer more security than your normal credit or debit card because they are not linked to your identity in case you lose them. It can also be quickly replaced by whatever institution issues them. If you do get a prepaid card, pay attention to the fees that you might incur for ATM withdrawals, closing out the card, or exchanging the remaining balance for a different currency (for example, if you want to change back the euros you put on it back into your home currency).<br />
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Another option is using a traveler's check but these are usually reserved for emergencies. A traveler's check is a fixed-amount check which you could use to pay someone else. In the past, traveler's checks were widely accepted by many businesses but have become unpopular after credit cards, debit cards, and ATMs.<br />
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Whatever method you choose to access funds internationally, make sure to always have a back-up plan. While the fees charged for some of these services may be exorbitant, the cost of being unprepared is even greater.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-2819801003436439832012-09-09T20:50:00.000-04:002012-09-09T20:50:16.936-04:00Rising Income Tax Rates<div class="separator" style="clear: both; text-align: center;">
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There is a lot of talk about an upcoming "fiscal cliff" in the U.S. where current policy has a lot of tax increases and spending cuts going into effect in the beginning of 2013. If a different solution cannot be agreed upon by both parties, it is said that the economy will go off this "fiscal cliff" into another recession and have the U.S. face a similar crisis in Europe. It seems like higher taxes will be a certainty in the future; it is only to what extent. A lot of it will also depend on the results of this year's election as well.<br />
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Looking at income taxes, the government has essentially been on sale with borrowed money because of lower than historical tax rates and higher government spending. We are getting much more in government services as government spending has ballooned over the past few decades, with a lot of funding going toward defense and helping the elderly, poor, and disabled. However, this borrowed money will have to be paid back somehow. Because the federal tax burden has been falling at every income tax level, taxes are sure to rise. There is a lot of debate going on in Washington, and although it has been thrown around that we have to raise taxes on the rich, I doubt tax reform would be effective with taxes rising for everyone. This discount we are getting on the government nowadays is not free; someone at some point in time will have to pay for it.<br />
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Will income taxes rise back to historical levels? It seems unlikely but however much taxes don't increase will have to be compensated by spending cuts. There may be other taxes to make up for the resistance in raising income taxes, but these increases definitely make the <a href="http://thesmartnickel.blogspot.com/2012/07/how-to-effectively-save-for-retirement.html">Roth IRA and Roth 401(k)</a> very attractive accounts to fund. It gives you the certainty of how much you'll be paying for taxes since you fund them with after-tax income and leaves out the uncertain future tax rate in retirement. It may be better to bite the tax bullet now and pay income taxes at these lower rates than at whatever future rate it is bound to rise to. Unless you are going to be in a very different tax bracket when you retire, the Roth seems to trump the normal IRA and 401(k).<br />
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This year's presidential election will be extremely important for how taxes will be reformed. On one hand, Obama's campaign seems to focus more on raising taxes for higher income individuals and closing many loopholes that millionaires take advantage of every year. The two highest income tax brackets would be raised from the current 33% and 35% to 36% and 39.6% respectively. Capital gains would be taxed at 20% for high earners as well and dividends would be taxed at ordinary income levels for individuals with income above $200k. The alternative minimum tax would also be replaced with the "Buffett rule" which would require people making more than $1 million each year to pay at least 30% of investment income in taxes. <br />
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On the other hand, Romney's plan focuses reducing income tax rates while holding taxes on dividends and capital gains where they currently are. He would reduce each tax bracket's income tax rate by 20%. Investment income taxes for people making less than $200k would be cut altogether while all other tax payers keep the same 15% tax rate. The alternative minimum tax would be repealed altogether as well.<br />
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As you can quickly see, the tax environment will look very different depending on who wins this year's election, and while you should not solely decide on your vote on their tax proposals, it should be a major consideration. Also, even though Romney's plan does decrease income taxes, taxes in general should rise in the long-run. As long as taxes do remain close to current levels, it would be beneficial to try to pay taxes upfront with Roth accounts to avoid taxes in the futureAlexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-80425334160358822412012-08-20T14:05:00.000-04:002012-08-28T23:54:22.217-04:00Retirement Planning Excel Sheet<div class="separator" style="clear: both; text-align: center;">
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I apologize for the small image and the late post but I have a small treat today. I've uploaded a link in this post below if you are interested in downloading it and playing around with the spreadsheet. This is a simple little excel model I created to project one way of how to plan for retirement. I'll quickly talk about how to think about this tool and how to use it.</div>
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<a href="http://www.megafileupload.com/en/file/364944/RetirementPlan-xlsx.html">Retirement planning excel spreadsheet</a></div>
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First of all, this tool is not meant to accurately represent your income and expenses every year until and after retirement. It is only used as a guideline to see how some assumptions you might have about your income and expenses will play out over the long run. I view this thing as more of a little toy that you can use to test different assumptions and how much you need to plan on saving to meet your potential needs. Plug some numbers, look at the results, and make the adjustments that you would think better represent the future. Then, plan accordingly and make sure you don't overspend year to year. You can even keep the general budget plan this thing pops up and try to follow it yourself after making your tweaks.</div>
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So what does this tool do and how do you use it? It essentially takes in numbers you feed it and shows you what those numbers will look like over time. You give it the starting values for pre-tax income, a bonus, investment balance, and expenses and some assumed constant growth rates for each of these over time. You also give an average tax rate to apply over the course of the model. You can already see lots of problems with how this model becomes disjointed from what will really happen. Will your food expenses really inflate year after year at 5% or whatever percent you plug in for the next 50 years? Probably not. But that is what the model will do. You will also give a retirement year which will set all income and bonus numbers to 0 for that year and afterward as well as a maximum limit to your income and bonus. This is because if you increase your income year after year at 5% or 8% or 10%, you will be making millions when you are 40 or 50 which is unlikely. By setting a cap, if the amount reaches above the cap, the next year will just be flat until the retirement year. You can see in the numbers that I have already, with an income cap of $200,000 that after 2028, income flat lines at $188,427 because it would go over the limit.</div>
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You should treat the investment balance as your savings year after year. It takes your starting investment balance which you input and add to it your net income (total income - total expenses) year after year. It also assumes you grow this income at whatever growth rate you input. You should put a rate reflective of your investments which will depend on your <a href="http://thesmartnickel.blogspot.com/2012/08/whats-your-allocation.html">asset allocation</a>. If you put most of this in cash, you will want to expect a rate of around 2-4%. If you have a substantial portion in stocks, you can probably expect something around 8-10% year after year. A blend of stocks, bonds, and cash will probably result in some rate in between those ranges.</div>
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For the expense growth rates, part of it should be how much you expect inflation to affect those subgroups. Overall, inflation has been about 3% from 1900 to 2000. The other part of your expense growth rates should be how much more you will be spending year over year. If you know that you spend most of your money on food and that you will continue to use marginal increase in income on food, you may want to add a percent to your food growth. If you know your raise will be going to movies and parties, you may want to add a percent to personal. I would put your expense growth rates somewhere between 1-5% depending on how much you think prices will increase over time and how much you think you will be spending extra on that subgroup. However, even growing modestly at 1% can result in the model spitting out a $200,000 expense on rent each year in retirement so look over the numbers and change them where necessary.</div>
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Unfortunately, this tool does not model in some life cycle events like purchasing a home or going to graduate school or having kids. If you have student debt, you can model that in through a negative starting investment balance. Make the necessary changes to the years where you expect something unusual to happen.</div>
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After getting the final numbers, you can see when you will go in the red. Look at what year your investment balance turns negative. That is the year you will run out of money and will need to cut back more on expenses or find some other means of earning income. You can try to change the retirement year to see how much of an effect that has by retiring earlier or later on your savings.</div>
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Will this model give you all the answers to how you should think about retirement and budgeting, probably not. But use it as a guideline to frame how you think about your spending and earnings. You have much more control over your expenses in the short term to manage if prices get too high. If you are a college student like me and think about how much you should budget each year for these categories, you will be a step ahead of everyone else.</div>
Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-73546828398923720622012-08-05T12:11:00.003-04:002012-08-05T12:11:39.943-04:00What's Your Allocation?<div class="separator" style="clear: both; text-align: center;">
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Studies have shown that a very large driver of variation in returns for portfolios is derived from different asset allocations. Focusing on having the right asset allocation can help improve your returns on investment over time and is a more reliable driver of returns than either stock picking or market timing. There is often much debate over any "ideal" asset allocation as it differs among individuals. I'll just go over some of the general themes and rules of thumb on how to think about asset allocation.<br />
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The biggest factor in asset allocation most financial advisers will tell you is your age. The younger you are (or more accurately, the farther you are from <a href="http://thesmartnickel.blogspot.com/2012/03/retirement-investment-strategies.html">retirement</a>), the more assets you should have in higher yielding stocks and equities. As you move closer to your desired retirement age, you will want to shift some of those equity assets into safer fixed income securities like bonds. You want to try to avoid having too much cash and fixed income assets in the long-term because those returns will get eaten up by <a href="http://thesmartnickel.blogspot.com/2011/11/all-about-inflation.html">inflation</a>. However, you do want to make sure you have enough cash to fund your <a href="http://thesmartnickel.blogspot.com/2011/09/creating-emergency-fund.html">emergency fund</a> for short-term liquidity.<br />
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The second largest factor is your <a href="http://thesmartnickel.blogspot.com/2011/05/risk-versus-reward_10.html">risk tolerance</a>. If you can stomach more volatility in your returns, you will want to take advantage of the higher long-term returns of equities as well and put a higher weight on it. If seeing your investments drop 10% makes you lose sleep, you may want to have a higher allocation to fixed income assets. You never want to sacrifice your comfort for some extra percentage points of return on your portfolio since you may be more likely to panic and do something harmful to your investments during a downturn. Make sure you are comfortable with the level of risk you are taking on at all times.<br />
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Most other factors you want to take a look at when deciding your asset allocation play a smaller role. If you have a more positive economic outlook, you will want a higher weight in equities. If you want a higher income stream in the years to come before retirement, you may want to have a higher weight in fixed income or dividend paying stocks. If you are in a high tax bracket, you may want to have a higher weight in municipals.<br />
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As you drill down to subgroups of asset classes, you can get a better idea of which subgroups are better for your specific outlook and goals. You want to always maintain an appropriate <a href="http://thesmartnickel.blogspot.com/2011/05/diversifying-your-risk_11.html">level of diversification</a> unless you are truly convinced that you know what securities will outperform during your holding period. You can separate stocks into large-cap, mid-cap, and small-cap with large-cap stocks being relatively safer than small-cap stocks. You can also separate between domestic and international stocks. For the U.S., international stocks are probably a bit more volatile and offer a higher rate of growth than domestic names. Fixed income can be split among normal bonds, TIPS (inflation protected), and municipals (tax-advantaged).<br />
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The most important thing is probably to make a goal and take the steps to reach that goal. If you only need 5% growth in your portfolio to reach whatever goal you have, you probably shouldn't take on a lot of additional risk to get a 10% return. After each year, you should also look at how your allocation has changed and rebalance your portfolio to fit your desired asset allocation. For example, let's say your current allocation is 70% stocks, 20% bonds, and 10% cash. After a really great year in the stock market, your equities slice of the pie has risen to 80% of your portfolio. If you want to keep your old asset allocation, you will want to sell some of those equities and buy some more bonds and leave some in cash. There can be tax-advantaged ways to pick the stocks that you sell and other minute details, but you should make sure that you asset allocation doesn't deviate too far from your initial allocation before rebalancing.<br />
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Is there some magic set of numbers that tells you exactly how much you should have in each asset? No, but there are fairly good rules of thumb on when you should have a higher weight in equities and when you should stick with safer fixed income assets. Make a goal and a plan to reach it. Don't take on additional risk for returns that you don't need. Follow these guidelines, and your investments should serve you well.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-13518366876823530772012-07-29T11:00:00.000-04:002012-07-29T11:03:29.759-04:00How to Effectively Save for Retirement<div class="separator" style="clear: both; text-align: center;">
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I've talked about the <a href="http://thesmartnickel.blogspot.com/2011/06/411-on-401k.html">401(k)</a> and the <a href="http://thesmartnickel.blogspot.com/2011/11/individual-retirement-account.html">IRA</a> separately before, but I thought I'd do a more consolidated post comparing the two. There are two main types of accounts that you can use to get tax advantages to save for retirement and they each come in two forms. The two main types of accounts are 401(k)s and IRAs and the two forms are traditional and Roth.<br />
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<b>401(k) vs IRA</b><br />
The difference between an IRA and a 401(k) is that an IRA, or individual retirement account, is an account that you set up and contribute money to on your own whereas a 401(k) is a plan set up with your employer. While there is a specific set of funds to select from for your 401(k) depending on what your employer offers, you can put securities you choose in your IRA. You have a a $5,000 per year contribution limit for the IRA and a $17,000 contribution limit for your 401(k). Also, usually your 401(k) comes with contribution matching from your employer up to a certain percentage.<br />
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<b>401(k) Matching and Vesting</b><br />
I was never really sure about what matching was when I first started looking into the 401(k) and it sounded a little unbelievable at first. I mean, apparently, when you deposit money into this account, you double it because your employer contributes the same amount. And it is exactly what it sounds like. Matching is essentially free money to you for your retirement. Contributing to your 401(k) up to your employer's matching limit is one of the few things no one argues about doing since it seems like common sense. For example, let's use easy numbers and assume you make $100k every year and your employer matches 5%, everything you contribute to your 401(k) up to $5k will be doubled because your employer will contribute a matching amount. This means if you put $5k into your 401(k), your total pay would increase to $105k: $95k income and $10k in your 401(k).<br />
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There is something known as vesting in regards to matching, however. Without vesting, once you make your contribution and your employer matches, you could just quit the company and rollover everything into your own IRA. Instead, you generally have to continue work for the company for a few more years in order to get claim to those contributions form your employer. For example, if your company has its contributions vest evenly over 5 years, each additional year of work after that contribution will give you access to an additional 20% of the amount your company contributed. In our example above, if this scenario applied then after the first year, a total of $1k of the $5k your employer contributed would be available after the first year, a total of $2k the second, etc.<br />
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<b>Traditional vs Roth</b><br />
The main difference in traditional vs Roth is when you want to take the tax hit of realizing income. With a traditional account, you defer the tax hit until you withdraw your money from your account and any contribution into a traditional account will lower your taxable income for that year. Let's continue with our earlier example and say that the 401(k) you contribute to is a traditional one. After contributing $5k, you would only pay taxes on the $95k you realize that year. When you withdraw your money out of your account in retirement, you will pay taxes on that amount.<br />
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For a Roth, you contribute after-tax income, meaning you still pay taxes on any contributions upfront, but when you withdraw money from your account in the future, you won't have to pay any taxes. So in the example above, if you contribute the $5k to a Roth 401(k), you will still have to pay taxes on $100k of income but you don't pay any taxes when you withdraw the money from retirement.<br />
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This makes the difference in tax brackets between making contributions and taking distributions the critical part of the decision between Roth vs traditional. If you expect the U.S. government to raise income taxes to finance our deficit in the future, a Roth may be the better choice. However, most people expect to be a lower tax bracket when they retire than when they are working which favors the traditional accounts. There is also some risk of Congress changing the laws around regarding the tax exemptions of Roths, however small they are.<br />
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<b>Which should you ultimately pick?</b><br />
There are specific restrictions on whether or not you can contribute to a specific account depending on your income, but the tax implications tend to favor Roth over traditional. Wikipedia has a <a href="http://en.wikipedia.org/wiki/401(k)_IRA_matrix">nice matrix comparing the four accounts</a> which you can take a look at to get more details. Since the contribution limits don't change whether the account is traditional or Roth and Roth contributions are after-tax, you have a higher after-tax contribution limit for Roths. If you are maxing your contributions, you will benefit more from contributing to a Roth than traditional because you are able effectively to shore away more money. You generally also want to contribute to your 401(k) because of your employer matching before contributing to your own IRA but after you hit the matching limit, an IRA may be a better choice because of the flexibility of what assets you can hold in it. When it comes down to it, it may be better to diversify and have several accounts. It may be a bit of a hassle to keep track of, but you can minimize the impact of the risks regarding tax legislation. If you do make a decision on a specific set of accounts to have, make sure you do enough research to support your decision because the savings you can generate for yourself in retirement through these vehicles is no small change.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-10871150426743298852012-07-22T10:56:00.001-04:002012-07-22T10:56:30.016-04:00Online Savings Accounts<div class="separator" style="clear: both; text-align: center;">
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I haven't blogged about one critical tool almost everyone has for their personal finances: the savings account. I've <a href="http://thesmartnickel.blogspot.com/2011/05/introduction-to-bank-accounts.html">introduced bank accounts</a> before and analyzed <a href="http://thesmartnickel.blogspot.com/2011/05/what-to-look-for-in-bank-account.html">what are the important features</a> to look for in a bank account, but I don't think I've specifically addressed which are the best bank accounts to have. In a savings account, you really only care about 3 things: convenience, security, and returns. You want it to be easy to use when checking your balance or making transfers, you want to make sure that your money is safe, and you want to make sure that you are earning as much as you can on your savings.<br />
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Most online savings banks are fairly similar in terms of convenience and security. Any large bank should have maximum FDIC insurance coverage and the offerings in terms of tools should be the same. You want to double check the insurance coverage for any bank account you sign up for just in case, however, and make sure you are comfortable with how to use the account. For my generation, we are probably more comfortable with managing everything online so make sure you take a look at the website layout for any bank you are considering. Of course, if you have some other accounts with a bank already, it may be more convenient to open your savings account at that bank.<br />
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This leaves returns as the main point of differentiation among banks. When I think about savings accounts, they generally fall into two categories: brick-and-mortar and online. When I mean brick-and-mortar, that means the bank generally has a physical location where you can make transactions with your account. You can generally also make those transactions online, whichever you prefer. However, these banks have a high fixed cost of maintaining their offices and generally have lower interest rates available. Online savings accounts, on the other hand, generally cost the company less to manage since they don't have to pay for rent and other costs that are associated with a building. These accounts generally feature a higher interest rate.<br />
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Currently, some of the more common online savings accounts include Discover Bank, American Express, ING Direct, and Ally. All of these banks don't have a minimum balance requirement. Discover Bank's online savings account yields 0.80% with a $500 opening deposit. American Express seems to be slightly better right now with an online savings account yield of 0.85%. ING's online savings is similar to Discover's with a 0.80% APY. And Ally has a 0.84% interest rate. These are commonly the main banks I look at and recently I found an even better account. Apparently, there is a Barclays online savings than yields 1.00% without any minimum balance requirements as well.<br />
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I haven't been extensively looking, so there may be online savings accounts with higher rates than Barclays, but it looks like right now that Barclays is on top. You may want to consider which bank will have a generally higher interest rate in the long run since whoever has the highest will change from time to time. Before when interest rates were slightly higher around 1.20-1.40%, Discover was usually on top.<br />
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In contrast to these online savings, you can look at a brick-and-mortar bank like Bank of America, Citi, or J.P. Morgan Chase. These banks usually have minimums and fees and lower interest rates. The benefit is that you can actually walk into the bank to get assistance if you have any issues and you are more likely to already have an account at one of these places (such as a checking account, which you would need with an online savings account anyway). Bank of America's savings account charges $5 a month if you go below $300 a month unless you have a automatic $25 or greater transfer from a checking account. The interest rate is also a measly 0.05%. <br />
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Citi is similar with a 0.05% interest rate for its basic account and higher rates for a savings plus account depending on your balance but it also starts at 0.05% if you don't have at least $10,000. They say that the fees vary depending on the package you pick and you can avoid them by maintaining a $500 minimum for the basic and linking your account for the plus.<br />
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Chase has an even smaller 0.01% APY for their normal savings account and a savings plus account that earns higher rates depending on how much you keep with the bank and whether or not you have another account with them that starts at 0.05%. The first account has a $4 monthly fee unless you maintain a $300 minimum or fulfill other requirements and the plus account has a $20 monthly fee unless you have a $15,000 minimum or link it with another account.<br />
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You can tell very quickly the benefits of online savings with the higher interest rate and the lack of a minimum requirement and potential fees. Brick-and-mortar banks have so many different types of accounts and rates that depend on your balance that it makes it complicated to figure out what is the best option. The people I've spoken with who avoid online savings say that they are just not comfortable with sending money to some unknown location since they don't have a physical building. Ask yourself if it is a really big issue since transferring money between an online savings account and checking account is fairly simple. One downside is that the transfer could take 3-5 days, but if you plan ahead, you can easily reap the higher returns of an online savings account.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-36801708124137539062012-07-15T10:00:00.002-04:002012-07-15T10:00:14.910-04:00Income Analysis 2012 YTD<div class="separator" style="clear: both; text-align: center;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKJp7_7hGYBhZxT4_8mKTuXSbuRysDbyYzcaTwuKkQmbLKOzStbKSRcKMKBY8dKbF86_oR3aYbFguYg1LdJRrH9zHCUhQttaVIjzPhaYQYJbLIe-8w3YLhP9DSkBoICf6nzM09329M7gFY/s1600/YTD+Income+2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKJp7_7hGYBhZxT4_8mKTuXSbuRysDbyYzcaTwuKkQmbLKOzStbKSRcKMKBY8dKbF86_oR3aYbFguYg1LdJRrH9zHCUhQttaVIjzPhaYQYJbLIe-8w3YLhP9DSkBoICf6nzM09329M7gFY/s400/YTD+Income+2012.png" width="400" /></a></div>
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There are always two sides to the financial health equation. The past couple weeks I have been taking a closer look at the expense side of things, analyzing how much I spend on food, transportation, and bills this year compared to last year. Why do we automatically think that budgeting means controlling our spending? There is the income side that you need to look at as well. The thing is that controlling expenses is relatively easy while increasing your income can be difficult to do, at least in the short-term. However, arguably there is much more potential to improve your financial health by increasing your income.<br />
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I've attached a chart showing my year-to-date income, similar to my <a href="http://thesmartnickel.blogspot.com/2012/07/expense-analysis-2012-ytd.html">year-to-date expenses chart</a>. Unfortunately, it looks like some large key purchases put my 2012 expenses a couple steps above by 2011 expenses while my 2012 income just tracks or even falls under my 2011 income until the jump in June. Like my expenses break-down, I also break down my income into Income (which is what I classify as work income), Lab Income (I participate in frequent research studies), and Div/Int Income (income from dividends and interest). First, let's take a look at my work income.<br />
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Funny enough, I actually was really confused as to why my income for the first three months and May was lower this year than last year. I actually finished a part-time job in December of 2011 so the gap between last year's income and this year's income is mostly due to the loss of income from that job. The reason for the spike in April is a <a href="http://thesmartnickel.blogspot.com/2012/02/tax-strategies.html">tax refund</a> I received after <a href="http://thesmartnickel.blogspot.com/2012/02/should-you-file.html">filing my taxes for 2011</a>. Since I didn't have much reason to file last year, there isn't that spike in 2011 but I would expect this to be a seasonal effect. If I am able to plan correctly, however, I should be able to avoid getting a tax refund by having the minimal amount withdrawn from my paychecks by <a href="http://thesmartnickel.blogspot.com/2012/06/waiting4-pay-with-w4.html">declaring a correct number of allowances on my W4</a>. If not for my tax refund, I would have seen a larger gap to the downside in this year's income compared to last year. And the large jump in June is mainly from working more for my summer internship. I put in a lot more hours and part of my pay is front-loaded with a housing stipend to offset some of my summer housing costs.<br />
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You can easily see that Work Income can be very variable as a college student. When working full-time, however, I would expect to see year over year increases in general and perhaps some (hopefully very few) steep cliffs if I lose my job or something similar. Obviously the summer spike would also disappear since I'll be working year-round rather than part-time during the school year and full-time during the summer. Next, let's take a quick look at Lab Income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSLv5mWJpHhQN3X5xPgZBbf3BtyTtwbxy9IaIoDovoB9bI7e8n7zSNop0lKzKFbluFqQjd56AbsBkulH_vfwdFLnfm3-1WOIfSLb-2VuxVW0LbJgPCEzDkX0WGNPQsNT-jhdlpZerQgsBJ/s1600/Lab+Income+2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSLv5mWJpHhQN3X5xPgZBbf3BtyTtwbxy9IaIoDovoB9bI7e8n7zSNop0lKzKFbluFqQjd56AbsBkulH_vfwdFLnfm3-1WOIfSLb-2VuxVW0LbJgPCEzDkX0WGNPQsNT-jhdlpZerQgsBJ/s400/Lab+Income+2012.png" width="400" /></a></div>
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The reason why I split Lab Income from Income is that it is can add up to a substantial percent of my overall income but I don't expect to earn much in that category after graduating college. This chart isn't extremely interesting since the money I get from those behavioral labs is fairly consistent. I sign up for as many as I can and a lot of the variation just depends on when the labs are available and whether the ones I manage to sign up for have a bonus or not. And you can see the trough during the summer months when I am not on campus to do those experiments. Finally, let's take a look at my Div/Int Income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2XWW3-279TIiYIxIUIxofb5x43QKuagUX4uJFTxwSyl9Lf_kOuDq8j7K4JlxY-F0EM24eDBWkHiuqSFT88HUrF5Lh2QfwM3RD8mpQfY3jlg0BbEOWtCIcleb3L5tNtAZURy_uMUOgFNrE/s1600/Div_Int+Income+2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="252" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2XWW3-279TIiYIxIUIxofb5x43QKuagUX4uJFTxwSyl9Lf_kOuDq8j7K4JlxY-F0EM24eDBWkHiuqSFT88HUrF5Lh2QfwM3RD8mpQfY3jlg0BbEOWtCIcleb3L5tNtAZURy_uMUOgFNrE/s400/Div_Int+Income+2012.png" width="400" /></a></div>
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Div/Int can also be just passive income. This is the money that my money makes rather than what I earn from my own blood, sweat and tears. Hopefully, this chart would show increases every year if I am able to budget correctly and keep my income greater than my expenses. This is because if I generate enough net income that goes into my savings and investments, I would expect a greater amount of interest to be paid on that greater principal.<br />
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The huge spike in June is just due to a dividend that my <a href="http://thesmartnickel.blogspot.com/2011/05/etf.html">ETFs</a> pay at the half-year mark. One thing I don't include in my budgeting is capital gains/losses. I personally think it is a bit controversial whether this falls under active or passive income since you decide how much gain or loss you want to take. However, for some people it can be a substantial percentage of your income.<br />
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Again, budgeting can help you identify a lot of interesting trends in your income and expenses. You should be able to explain all the weird bumps and twists if given a chart of your own income and expenses. Being aware of how you are doing financially is generally the first step towards developing better financial health, but it takes some time to build the data to develop that awareness.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-47129815802763342312012-07-08T09:46:00.000-04:002012-07-08T09:46:14.431-04:00Expense Analysis 2012 YTD<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-2DQVOWBYvtFlwjrTmxc3fZFKRixmfEuBdDlnfYGEIOQno13jmUYxgOigsUxygvneBjg2ryzBPgew_1FqWbysRFJJqbE0HKi44PUIjWNiC9nbGzKjnbOsotZu_38YilTLutzFkSo2KrUS/s1600/2012+YTD+Expenses.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-2DQVOWBYvtFlwjrTmxc3fZFKRixmfEuBdDlnfYGEIOQno13jmUYxgOigsUxygvneBjg2ryzBPgew_1FqWbysRFJJqbE0HKi44PUIjWNiC9nbGzKjnbOsotZu_38YilTLutzFkSo2KrUS/s400/2012+YTD+Expenses.png" width="400" /></a></div>
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Although it sounds extremely dorky, I actually enjoyed looking at the data and making the charts for my last post looking at my credit card rewards for the first half of this year. I took a slightly more in depth look at my expenses overall, especially with my <a href="http://thesmartnickel.blogspot.com/2011/05/budgeting-app-spendinglite.html">handy budgeting app</a>, and wanted to share the results.<br />
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You can easily tell that I already exceeded my last year's expenses and it's only halfway through the year. This is really bad right? Not necessarily. I mentioned in my credit card post that this year that I had some more plane ticket purchases. The huge jump in June is due to my having to prepay my summer housing which is also a lot more expensive than my housing last summer. Add to the fact that this year I had to account for my plane ticket to Hong Kong, it shouldn't make that much of a difference. But it might be a good idea to take a closer look at two specific categories.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxh7gjNnbC2FA8I5huiFlXxHS7XMC_HKM1I6jWB84CZ8wqw4VLpVULb8WvqBsLNErrtcpEMa81RO2YFwnSJNTm_bBJ8yBusAyiFyeAVRnMFR11Af4GccqUUkw55_YE4SG5AJxGDtNruqzu/s1600/Food+Expenses+2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxh7gjNnbC2FA8I5huiFlXxHS7XMC_HKM1I6jWB84CZ8wqw4VLpVULb8WvqBsLNErrtcpEMa81RO2YFwnSJNTm_bBJ8yBusAyiFyeAVRnMFR11Af4GccqUUkw55_YE4SG5AJxGDtNruqzu/s400/Food+Expenses+2012.png" width="400" /></a></div>
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First is food. This shouldn't change very much year to year so I would expect it to be similar unless I increase my standard of living and start eating out every day or something. Then you might see an elevated level of spending over the previous year. You can see in the chart below, however, that so far it's been a pretty good tracker. I spent a bit more money eating out over Winter Break and in March when my brother came to visit me for Spring Break, but it is partially offset by lower spending in the other months. This "seasonality" should even out after I get out of college but it gives a good measure of what I can expect to spend over a given year.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFOLkvG64rrVcp6SqiQQptUsLzoFFPJkr-eVrT4-QnLUOuRahnOLaffx5X9ODks76VQVRk93_0dsp_Cf__vSkyGfU0lPZMOOHyJrP-QUzs4i8w1mg6vlAcK76dMWPmsbFYRx_UnidAfsQ_/s1600/Transportation+Expenses+2012.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFOLkvG64rrVcp6SqiQQptUsLzoFFPJkr-eVrT4-QnLUOuRahnOLaffx5X9ODks76VQVRk93_0dsp_Cf__vSkyGfU0lPZMOOHyJrP-QUzs4i8w1mg6vlAcK76dMWPmsbFYRx_UnidAfsQ_/s400/Transportation+Expenses+2012.png" width="400" /></a></div>
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The other big expense item is transportation. You can see that last year was categorized by three major peaks when I bought plane tickets for summer, returning to school in the fall, and travel during winter. This year, I had a huge spike in buying my plane ticket for Hong Kong as I've mentioned before, and May and June have included plane tickets to New York, back to California, and then back to school in the fall. <br />
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Higher travel along with higher summer rent are definitely the main drivers of the overall increase in my expenses this year. Being able to look across and explain the jump is comforting since I know that I'm not doing anything outrageously different this year. One good thing I could use budgeting for is to see how large an effect inflation has for me personally. In case you aren't familiar with the CPI, the number that is published reflects prince changes in a basket of goods for the "average" consumer. What should go into this basket and who falls under the category of average? This is up to much debate and inflation affects us all differently. If I keep my spending habits roughly similar but my food expenses go up throughout the year, I can actually see how much food inflation is affecting my expenses. I may be able to project these increases into the future and better plan for inflation in the future.<br />
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Budgeting can show the story behind your spending habits and taking the time to review them can give you some insight on how prices change over time. I would highly recommend keeping track of what you purchase for your own information and reference.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com0tag:blogger.com,1999:blog-4031924232211419532.post-69306838814733433012012-07-01T22:17:00.003-04:002012-07-01T22:18:06.812-04:00Credit Card Expenses YTD 2012Some of the benefits of budgeting is that you can get a really good look at how your expenses shape up year after year. Are your consumer habits changing? Maybe you didn't realize that eating out every day rather than every week was having that big of an impact. Taking the time to check with a budget can be really helpful. I am going to take a look at my records for the first half of 2012.<br />
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At first glance, it looks I did a worse job at managing my reward optimization. For those of you have been following my blog for a while, you'll know that I love to optimize my cash back and have a portfolio of credit cards to get the maximum cash back by using the card which gives the highest return for an expense. For example, these next three months Chase has restaurants in their 5% cash back program so you can be sure that I will be using my Freedom card over my Citi Forward card which only returns 4.2%. It's a small difference in that instance, but most of the time the difference is more between 5% and 1% cash back. Anyway, for the first half of 2011, my rate of return on my credit cards was only 1.8% compared to last year's first half rate at 2.7%.<br />
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The effect was due to both lower reward dollars and higher expenses. I bought my plane ticket to Hong Kong in March this year to visit in May whereas last time I visited in December 2010. Also, looking more closely, I seemed to have been using my Discover card for fewer expenses in part due to higher utilization of a few newer cards. If you remember from my <a href="http://thesmartnickel.blogspot.com/2011/12/2011-spending-in-review.html">2011 spending in review</a> post, you would know that Discover had the highest cash back rate out of all my cards. Unfortunately, since Discover is a 5% rotating cash back program, the categories available probably did not fit my expenditure needs and this ultimately led to lower reward dollars.<br />
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How do my credit card expenses look over time? I've posted a chart below to show you.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPX27y2-MBXWXpm3S7XT5bUvtbZXVPqhGZr57H4e1w1iN4g1GCEt_5_ZQv7dYicThWALyIGokTwau1jorSFqcqYIH86j-PzjwUy46jXhtj9l1K9in0yOQ-rNRLKRz9WxiTladM0zPGJCGO/s1600/Credit_Card_Expenses.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="231" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPX27y2-MBXWXpm3S7XT5bUvtbZXVPqhGZr57H4e1w1iN4g1GCEt_5_ZQv7dYicThWALyIGokTwau1jorSFqcqYIH86j-PzjwUy46jXhtj9l1K9in0yOQ-rNRLKRz9WxiTladM0zPGJCGO/s400/Credit_Card_Expenses.png" width="400" /></a></div>
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This shows how my expenses this year compared to last. You can see that last year had a much smoother ramp up and that was partially due to a few different factors. My plane ticket in March certainly sticks out in this chart. January was exceptionally high this year because of a pricey gift I bought as well. Also last year in June, I was able to put my housing expenses on my credit card while this year, I have had to pay for it through an electronic bank transfer instead. So just how well do my credit card expenses track my overall expenses for this year? I made a chart for that too.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQhbwvghp8GUnEkpE2c5GO2EkxSUB37pIfKZWD68nmS0wbtDSx5q0WEL0c_w3Alx3A9VV3DATA9kjXgMILU5GBgcjlxQZygDCMYBYRbYHhv4vusadJND2ad9TAZqkQsuKc5UoH7-FGYR-v/s1600/Credit+vs+Total+Expenses.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="260" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQhbwvghp8GUnEkpE2c5GO2EkxSUB37pIfKZWD68nmS0wbtDSx5q0WEL0c_w3Alx3A9VV3DATA9kjXgMILU5GBgcjlxQZygDCMYBYRbYHhv4vusadJND2ad9TAZqkQsuKc5UoH7-FGYR-v/s400/Credit+vs+Total+Expenses.png" width="400" /></a></div>
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Overall it looks like a pretty good indicator. If I bought everything with a credit card, the lines should completely overlap. The discrepancy in March probably had to do with buying more food with cash at food trucks when my brother visited me for his spring break. I generally try to buy everything with my card which is why January, February, and May are pretty close to equal. The huge jump in June is what I mentioned earlier with my housing expenses paid directly out of my bank account rather than through a credit card and in April, I had to put down a deposit through a bank account transfer as well.<br />
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Looking at the first chart, it is pretty easy to identify what was different comparing this year to last year. Since I keep my expenses low, large purchases like plane tickets really stick out. Taking them out of the equation shows that I have been able to manage my expenses fairly well. Having a budget can help paint a comprehensive picture of your spending habits and make you aware of overall trends you might not notice day-to-day. I certainly realize that I forget a lot about where my money goes if I don't budget and take a look at the bigger picture every once in a while. Check out my posts under the Bugeting label if you are interested in reading more about it.Alexhttp://www.blogger.com/profile/16598328697451760861noreply@blogger.com2