Thoughts About [Money]

[tcepsa]

Money is something that I have almost always had a hard time talking about. I think my parents were probably more open with me about sex than they were about money management. For example, my dad tried to teach me how to use Quicken and balance my checkbook and create a budget, but I don't remember us ever sitting down and having "The Talk" about finances (whereas I can remember that we did have "The Talk" about sex). So I had some of the technical knowledge of how to balance a checkbook and keep track of money, and I understood that I wanted to keep it out of the red, but beyond that I didn't have much. And I didn't really have any classes on the subject, either, that I can remember. We might have touched on it a little bit back in Family and Consumer Sciences (about 10 or 11 years ago), and I had one Econ class in college that was just painful for me, and that's about it. To me, investing and things like that were something that I would learn about doing "once I grew up."

It's slowly dawning on me that it is time for me to grow up about money. It's time for me to get my head out of the sand and take a more active look at--and role in--my finances. Up until this point I've basically been focusing on staying out of the red. I think I've pretty much got that down now, and I'm looking to learn more about how I can put my hard-earned cash to work for me. I'm currently working my way through some of the Rich Dad books, which seem to be a very good starting place. Right now I'm focusing on absorbing as much of the material as possible, but soon, in a month or two, I will want to start actually doing things as well. For example, a message I'm seeing pretty consistently is "find a competent financial advisor." How does one do that?

I would be surprised if there aren't at least a few LJ communities out there that talk about money management, and I intend to search for them. And if there aren't, or if I don't find one, then I'll probably try to create one. I'm interested in joining, or opening, a dialogue about money. Getting it out of the closet and taking a good look at it. Dusting it off, oiling it up, tinkering with it, seeing whether I can get it to work for me instead of sitting in a bank working for someone else. I know that seems a little bit against the American way, where people talk about money in hushed tones, with shyness, embarassment, fear, or anger (either because they don't have as much as they want, or they have more than their neighbors, or--as I suspect is often the case--both). But I also know that some of the people reading this don't care as much about what other people think, and are more interested in taking beliefs (both their own and others') out and giving them a thorough examination, holding them up against as objective a perspective as they can get. That's all I'm really suggesting here, but instead of beliefs about God and the Universe, I'm going to start looking at beliefs about Money and the Economy. Just as I think it is important for me to have many perspectives when I am pondering the spiritual, I think it is also important for me to have many perspectives when I am pondering the financial.

To that end, I'd like to invite you to comment (anonymous is fine if you're more comfortable with that) on this and subsequent [Money] posts.

Comments

[coie.livejournal.com]

One of the most important things is to have a really realistic idea of your budget now, and what little bits you're willing to cut out. It's important not only to know rent or food, but also what you usually spend on entertainment. If you cut your entertainment budget (eating out, going to movies, etc) dramatically, you'll probably be miserable from cutting out so many things, and are more tempted to totally blow your budget. The point of money is to help you do fun things, not just in the future but also now.

From the money you're willing to save, you should divide it again... into money you'd need in an emergency and money you wouldn't. You need a certain amount of your savings to be basically risk free, like a money market account. These earn a respectable amount of interest (i think one of mine is like 3.5%) If you had an emergency, you could easily get to these funds, and spend them without incuring huge financial penalties. It's probably best to start out with most of your savings in a money market until you have some cash built up. Banks sometimes offer money market accounts, and I also had a money market at Vanguard for a while.

It's good to have a 401K but you're generally heavily penalized if you need to tap into those funds. So don't put anything into a 401K that you think you'd need in the next few years. That's long term savings.

My parents had all of my college savings in mutual funds from Vanguard and Franklin Templeton, so I know a decent amount about those. I still have a respectable amount of savings there, and I've been quite fortunate with them. Mutual funds are generally a lower risk then buying stocks individually yourself. Say you invest in an international fund. They spread your investment out into stocks from a number of different firms, minimizing your risk. They deal with which individual stocks to buy or sell, to help grow theaccount. My aunt is part of an investment club, which has the same general idea of banding together and spreading out capital to minimize risk. Buying stocks individually can make you a lot of money, but it takes a lot of research and such... I would stay away from this option until you have a decent safety net. Money in stocks or mutual funds can be accessed more easily then from a 401K. However, if you pull funds out too soon (like within a year I think) you'll be hit with short term capital gains taxes, which will take a big percentage of any profit you made. Long term capital gains are taxed at a much more favorable rate.

That's what I know off the top of my head about investing, although there is more rattling around in there somewhere if I were to think about it LOL

[elkor.livejournal.com]

It's good to have a 401K but you're generally heavily penalized if you need to tap into those funds.

An exception being for the first time purchase of a home. You can withdraw up to $10,000 without penalty (taxes still apply) if you are using it to buy a home.

So, as long as the closing costs of the home purchase + interest for the tax year is greater than $10,000 you can use the full amount without any additional tax liability.

[tcepsa.livejournal.com]

If you cut your entertainment budget (eating out, going to movies, etc) dramatically, you'll probably be miserable from cutting out so many things, and are more tempted to totally blow your budget. The point of money is to help you do fun things, not just in the future but also now.

Those are some really good things to keep in mind. I'm still working on focusing on what I feel would be a reasonable amount to spend on entertainment, because I keep fluctuating between ultra-frugal and splurging. It's like financial bulimia... when I'm holding back and not spending money on anything, I feel bad because I don't get to have/do the fun things that I see other people doing. When I splurge, I feel bad because part of me knows it's going to make things harder for me later on. So I'm working on getting a much better handle on my budget so that I can have enough money for the things I need, and so I can spend money on things I want to do or have and not have to worry about my bank statement later.

Thanks for the saving and investment tips as well. I'm finally getting to the point where I can build up a cushion a little bit, and start putting some money into a money market account so the next time my car's transmission breaks down I won't have to scramble to come up with money to fix it or buy a new car. From there I will probably look at putting some of it into a mutual fund or something like that (this is the part where I assume I've found a decent advisor or two by this point so I don't do something incredibly stupid :)

I can see that I've still got a lot to learn, though. For example, it's just starting to set in that you don't get hit nearly as hard for making money in a regular market investment as you do for dipping into a 401k. For some reason, I had thought that any money you put into the market had to stay in the market for like twenty years or you would get hit with some insanely huge tax (though the exact amount was something I didn't actually know). So finding out that there are things like the short-term gains and long-term gains taxes is really good for me to know ^_^ Now that I know they exist, I can start looking into what it means for something to be "short term" and "long term" and what the penalties actually are (which I suspect are based on the amount and the type of investment, etc., but at least I have a place to start :)

*grin* If you do decide to think about it, I'd love to hear more about the other stuff that's rattling around up there sometime ^_^