Effective Tax Rate

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.

Annual Credit Report

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 annualcreditreport.com 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.

Vacation Budgeting

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 last post, 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.

Vacation Credit Card

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.

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.

How Much Fruits/Veggies Cost

Here is a really interesting chart about how much Americans pay for fruits and vegetables.  I found this article on National Geographic 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.

Merchant Credit Card Fees

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.

Free Pizza

For all you pizza lovers, sign up for Papa John's Super Bowl Coin Toss.  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.

2012 Expense Analysis

2012 Income Analysis

The Fiscal Cliff Deal

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%.

Buffett Quote Series #2

Here is the second part to my Buffett Quote series.

"I buy expensive suits.  They just look cheap on me."

"Someone is sitting in the shade today because someone planted a tree a long time ago."

American Express Small Business Saturday

Forget Black Friday!  If you have an American Express card, I urge you to take advantage of their Small Business Saturday promotion.  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!

Buffett Quote Series #1

So 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.

To Itemize Or Not

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. 

Internet Safety

I found a very interesting video online that matched the theme of my last post on password security.  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 Microsoft Security Essentials but just make sure that whatever software protection you use  is up to date.

Protecting Your Passwords and PINs

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.

International Access to Money

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.

Rising Income Tax Rates

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.

Retirement Planning Excel Sheet

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.

What's Your Allocation?

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.