Most of you should have received your last pay-stub for the year by now. My coworker sent me this link from the IRS website that you can use to estimate the amount of taxes you overpaid/underpaid in 2014. A lot of the information you need for the calculator is on your last pay-stub so have it handy!
The goal is to get as close to zero as possible (no taxes owed or due). A lot of people get excited when they get a large tax refund. But that excitement is actually misplaced because when you overpay in taxes, you’ve given the government an interest free loan. In other words, the government got to borrow your money for free. If you had put that extra money in a CD at your local bank, the bank would have at least paid you interest when they gave you your money back, even if it is only 1%. And if you had put that extra money in an IRA or 401k, you could have taken advantage of compounding interest and probably would have gotten an even higher return, much much higher (the S&P is up 8.5% YTD as of 12-17-14).
Of course, you also don’t want to withhold too little and end up owing a lot in taxes come April. At best, it’ll take a chunk out of your savings account. At worse, you won’t have the money set aside to pay for it. Then you’re really in trouble.
Breaking perfectly even in the amount taxes owed/due is nearly impossible, so just try to keep the difference less than a few hundred dollars. Using the calculator linked above helps a lot. Of course you could also talk to a CPA to get even more accurate estimates. If you see that the amount owed/due is over a couple hundred dollars, talk to your HR department about adjusting your withholding accordingly.
A few years back, I tried selling a top on eBay. The process was so complicated that I gave up after only a few minutes. It wasn’t until I met my coworker, an eBay pro, that I decided to try again. Since my second attempt, I’ve sold about 20 items of clothing and made over $200! I know $200 isn’t enough to quit my day job or anything, but it’s still pretty awesome considering the fact that all the items I’ve sold would’ve gone to Goodwill anyway. Plus, the best part of selling on eBay for me is getting rid of so much unworn clothes.
The time it takes me to photograph, upload and post an item is less than 5 minutes now. Even though it’s so easy, I know a lot of people still think it’s too complicated to try so here are my tips for an eBay beginner:
When you sell, use the quick listing tool. As soon as you click the “Sell” button on top, it should automatically take you to the quick listing tool. But just in case it doesn’t or you accidentally click on the advanced tool, you’ll know to switch it to the quick listing tool.
The instructions for title, condition, photos and item specifics are all pretty self-explanatory.
Once you get down to the Details section, write a few things that the buyer may want to know about the item like if there are any stains or missing buttons. Sometimes if there is nothing particularly worth mentioning, I write something like, “only worn once!” or “great with leggings!”
I like to list my items for Auction with a starting price of at least $3. I’ve sold items for $0.99 before and believe it or not, those are the items that I never get paid for. This has happened to me 2 out of 2 times. I feel like with a $3 minimum starting price, people who bid on the item are much more committed and likely to pay up. After setting the Auction starting price, I select the Buy It Now option and put an amount typically 2 or 3 times the starting Auction price.
For the Listing Duration, I like putting 3 days so the turn-around is quicker. After the Listing Duration, you can schedule your listing’s start time. If you don’t check that box, your listing will be live as soon as you click “List it” at the bottom. I like to schedule my start time for 7:30am because that means the auction will end at 7:30am 3 days from now. I can check eBay that morning and if there was a bid on the item, I’ll bring that item to work with me for shipping.
Shipping is, for me, the tricky part. From my experience, eBay does a good job 90% of the time estimating how much postage costs to ship your item. But when they’re wrong, it can be costly… for YOU. For instance, there was one top I sold that eBay thought weighed 6 oz or something like that, which means the buyer paid $2 for shipping. Once I tried to ship it, I found out the top actually weighed 14 oz. This was a problem not only because it was much heavier, but also because it surpassed the weight limit for First Class shipping (13 oz). So then I had to ship it Priority Mail, which cost me over $7. My net profit for that sale was less than $1, which was disappointing but at least I didn’t lose money! From then on, I try to estimate the weight myself and probably even over estimate by an ounce or two just to be on the safe side.
Last thing, don’t be surprised if after a month after your first sale you get an email from eBay saying you have a balance. Ebay charges a seller’s fee but it’s not too bad considering you won’t get charged a seller’s fee unless you’ve made money from a sale.
And that’s it! You’re ready to list your first item!
For those of you who are eBay veterans, I’d love to hear some of YOUR selling tips!
My friend took her CFP® exam a few weeks ago and told me her preliminary results that day. When she told me her results, it really brought me back to when I found out my results. My experience was completely different from my friend’s because I took the exam before the change. When I took it, the exam was 2 days, 10 hours total. Everyone took it with a good old fashion #2 pencil and paper (the thin, grey, newspaper-y kind). Our results got posted online FIVE weeks later. The wait was painful and liberating at the same time. Ignorance is bliss, right? Nowadays, the exam is taken online and you’re done in 6 hours. Immediately after, you get your preliminary results followed by your final results a few weeks later.
A coworker and I both took the March exam this year. It was a second attempt for both of us. Taking the exam with your coworker could be the best thing ever or the worst thing ever, for obvious reasons. If you both pass, it’s double the celebration! If you both fail, well, misery loves company. The worst, of course, would be if one of you passed and the other one failed. Our results were scheduled to come out on a Friday morning. My coworker and I agreed in advance that we wouldn’t check it that morning and we would, instead, wait until the weekend. (Both of us have experienced, on separate occasions, the pain of finding out we didn’t pass and having total breakdowns in front of our colleagues. For me, it was the first and only time most of my coworkers have seen me cry.)
The Thursday before our results were supposed to come out, we woke up to an email saying that the results have already been posted. We texted one another and confirmed that we still weren’t going to check until the weekend. Thirty minutes later, I walk into the office and as I pass by her desk, I see she has this smirk on her face. I was like, “what?!” She squealed, “I PASSED!!!” Apparently, her roommate knew her account login and password and checked it for her. And when her roommate saw that my coworker had passed, she called to give her the good news. Suddenly, all eyes were on me. Literally. I had maybe 5 or 6 colleagues staring at me wide-eyed asking, “Are you going to check?!” No pressure.
I went back and forth between checking it right away and waiting till the weekend. But finally I was like, “Screw it! Everyone at the office already knows the results are out and that my coworker passed. Might as well put everyone (including myself) out of their misery.” So my coworker grabbed a laptop and we went into a bathroom stall. (It was the only way we could get some privacy.)
I logged into my CFP account and got to the last button standing in between me and my results. A sudden wave of panic washed over me and I couldn’t bring myself to click the button. What if I didn’t pass? WHAT IF I DIDN’T PASS?! was all I kept saying to my coworker over and over again. Finally, I handed the laptop to my coworker and asked her to click the last button for me while I sat across from her with my eyes closed, knees pulled up to my chest and hands covering my face. Yes, it was THAT dramatic for me.
I heard a click. Then silence. Then, “AHHHHHHHHHH!!!!! YOU PASSED!!!!!”
We hugged; we cried; we laughed. It was glorious. The entire office celebrated with us over ice cream.
I think that day will go down as not only one of the best days of 2014, but also one of the best days of my life. Because honestly, passing was a huge struggle for me. And it was so rewarding to finally see all that hard work pay off.
Today we have a guest post from my friend Aaron! Or A-A-Ron as our group of friends like to call him. Aaron is another one of my friends who is so passionate and knowledgeable about personal finance that he could easily pass as an expert! For his first post, he decided to share less about the tips, tricks and hacks that he uses and instead, shares about how he views money in relation to happiness.
I love putting things in a different frame of reference.
It’s Thanksgiving week so before I get into how to view/save/earn money, let’s take a minute to see what riches we already have.
- Every time I take out the trash I think to myself “This is awesome. I have an ‘inside’ where I live. Many people live on the streets or in makeshift housing. I have trash, which in many places people might be scavenging through to find useful bits.”
- When my past roommates were messy and I found myself cleaning after them, I would tell myself “Man, I’m lucky to have this opportunity to practice perseverance, patience, and humility. My future wife will be happier and if that means a few less arguments, great!”
- Traffic irks me, but when it happens, I remind myself “Many people probably don’t get to experience traffic, let alone drive their own car. I’m chillaxing and listening to music or an audiobook.” If it’s the summer and I’m really feeling mentally ambitious I’ll push it and realize that some crazy people PAY to sit in this free sauna I’m getting right now! (Ok that’s maybe a bit of a stretch)
Basically, think positive. Think different. Count the blessings you already have. Reframe your current situation. After all, Happiness = Reality divided by Expectations, but more on that in a sec.
Today I’m actually not even going to talk about saving or earning money. If Annie invites me to write a follow-up post(s) I’ll touch on those, but for now, I’d like to simply start with how we should view money; how it should play into our happiness, and how much we’re actually earning/spending.
Are we working for money, or are we working for happiness? I won’t go so far as to explore what the purpose of life is, but I’m pretty sure we can all agree happiness is more of an end goal for us than to simply accumulate wealth. Some studies have shown that higher income does bring happiness, but only up to a salary of about $75,000. Additionally, experiences bring more happiness than possessions. Here’s even a story of a guy who realized he worked half his life away for money, finally realizing he really screwed up. Ultimately, money is not the goal. It’s a tool for us to reach the goal in our proverbial pursuit of happiness.
Money should be seen as a security blanket, a way for us to not need to worry if we’ll have a roof over our heads or food on the table. Money can’t buy things like time, relationships, health, generosity, youth, and character. How much is peace of mind worth to you? I envision having and raising a family to be one of the best experiences life can bring. Is it more important to provide in excess for your family, or to be part of your family? No one on their deathbeds ever muttered “I wish I made more money.”
These notes are all very quintessential, but when talking about money we can’t ignore the numbers. One good equation I’ve come across is the following:
There are two ways to increase happiness. Either lower your expectations, or enhance your reality. Or do both! Enhancing reality in a fiscal sense can be working towards that next raise, beginning a healthier lifestyle, or finding ways to improve your character. When I say “lower your expectations” I don’t mean in a lowly downtrodden sense. (Tie-in to intro here!) I mean to reframe your outlook on the way you expect things to be in life. Instead of being happy when the trashcan is finally emptied, only to be disappointed when reality reveals a full trashcan, lower expectations until happiness happens even when the trash can is full. If every day you rush out the door and hope for less traffic during your commute to work, you only leave room for disappointment when there is traffic as usual. If however, you leave for work five minutes earlier, expecting there to be traffic, on the off chance you arrive at work early, all is good.
Let’s tie this into some hard numbers. Here’s how I like to see how much I’m really spending/earning. This isn’t a rule of thumb or anything, just a point of view I find useful when putting earnings and expenses into perspective, and being more realistic about finances. Assuming one has a salary of $50,000 a year. After taxes, it’s looking closer to about $40,000 a year. If you tithe, it’s probably closer to $35,000. That’s 30% of your income right off the top. In effect, every $10 meal at a restaurant, including tax and tip, is actually closer to $15 of pre-tax income. (A multiplier of 1.5 of what you’re actually spending!) When you signed on to that $50,000 job, you expected to have $50,000 to spend. Right off the bat, you can see how very quickly the reality is that it’s actually closer to $33,000 ($50,000/1.5). Isn’t that so disappointing?! With our earnings getting taxed and our spending also getting taxed, the reality of our spending power quickly diminishes.
If we reframe how we see our level of income and calibrate it to be lower (lowering our expected spending power), our reality stays the same, resulting in a higher level of happiness. “For some reason, even making $50,000 I can only afford this much?!” sounds very different from “$33,000 of effective income totally makes sense for where I am right now!”
I hope you found this insightful and an impetus to your happiness. Next time I’ll talk about some fun stuff like making at minimum $7,500 from spending money like you normally do, what credit cards I keep in my wallet, and why I withdraw money from an ATM only once a year.
Aaron has agreed to write more so expect to see another post from him in December!
Rebound! Stocks erase much of October losses (CNN Money) – This is why you shouldn’t pay too much attention to what’s going on in the stock market on a day to day basis.
Young tech millionaires keeping 1-bedroom lifestyle (Seattle Times) – This is an old article but I stumbled upon it only recently.
New 2015 Contribution Limits: Advisors Take Heed (Investopedia) – The maximum amount you can put into your 401ks and IRAs will change in 2015. This site has all the new limits for your reference.
Ways to Increase Your Wealth When Your Income Is Flat (NY Times) – Great resources for making side income, getting out of debt and investing are provided in this article.
Because everyone’s personal finance story is different, I thought it might be nice to start featuring some guest posts on this blog so we can all take a peek at how other milliennials manage their finances and maybe pick up a tip or two. I’m so excited that my friend Michelle from Millennial Career has agreed to share her personal finance journey with us today! She’s so knowledgeable and on top of her finances that you’d think she does this for a living!
I was 17 when I got my first job at Coldstone Creamery, making $6.25/hour and singing embarrassing songs to earn tips. During college, I had a few jobs: $8/hour working at the student store, $10/hour as an online tutor, and $12/hour (trying) to sell Hoover vacuum cleaners at Walmart. Despite my side jobs, at one point in my undergrad career, I had less than $350 in my bank account. When I graduated from college 4 years ago, my starting salary was $30k.
Why am I sharing all of this? Because I come from a background where I understand how hard it is to make and manage money. Trust me, I’ve been there. Though I am in much better financial shape than I was 4 years ago, those horrible wages and sad jobs really encouraged me to be smart with my money. My motivation for studying personal finance was simple: 1) I never want to be in a situation again where I felt helpless or tied down because of my money. With $350 in my bank account, I had a taste of how that felt, and it wasn’t fun. 2) I work pretty damn hard to make money, so I should fix anything that is erroneously chipping it away. 3) True wealth is when your money works for you, not vice versa.
Over the past few years, I’ve been very disciplined with how I manage and budget my money. For those just starting out on their financial independence journey or need a kick of motivation, here are my general suggestions.
Take control of your money
You hear of surprising statistics where nearly half of Americans live paycheck to paycheck. I knew that I didn’t want to be part of the population that lacked financial preparation, nor do I want to be in a situation where my future spouse and I have a strained relationship because of money issues. That lifestyle is way too stressful for me; if I can prevent that from happening, then I will. I want to feel financially free of debt; I want to treat myself right to certain “luxuries,” take vacations when I want, and not feel guilty for my purchases. If I didn’t have a nest egg (meaning, at least 6 months of living expenses saved up), I knew that the short term materialistic things that I wanted would need to wait. If this sounds like you, be disciplined and pay off your debt; stick to a budget. Stop letting your loan interest grow and start saving for your emergency fund.
One of my favorite personal finance books is called “I Will Teach You To Be Rich” by Ramit Sethi. He has really powerful behavioral changing techniques, especially when it comes to managing your money. One of his suggestions was to keep separate checking and savings accounts; withdraw money only from your checking account. Transfer your income into a savings account even before you can touch or see the money, and keep your checking account numbers low. The psychology behind it is unbelievable.
For example, say my employer direct deposits $6000 every month into my checking account. Before I even get to touch (or see) this $6000, I immediately use that money to pay off my credit cards, pay for rent, contribute to my IRA’s, and transfer healthy amounts of money to my savings account. After paying everything off, let’s say the $6000 decreases to a mere $900 in my checking account. In my head, I freak out about having so little, (because I never touch my savings!) but I know on the backend, I’m taking control of my debt and growing my nest egg. It might sound silly, but try it.
Make your money work for you
I don’t know about you, but I really don’t want to work forever (unless it’s at my own company). Ugh. The thought of having to work for someone from 9-6 for the next 40, 50 or even 60 years sounds absolutely miserable. When I retire, I want to be free to travel with my retirement money, not waiting to cash my next Social Security check. For this reason, I started my personal finance journey early so I can hopefully retire (early) and enjoy life with the money that I worked so hard to earn.
As you can probably tell, I’m anal about finding ways to keep the money I earn and grow it. What this means is:
- Being responsible with checking my mint.com and credit card statements for anything that looks out of the ordinary. Waive out of fees you don’t need to pay (like delinquent credit card payments when you forget)
- Finding high interest savings accounts where your money grows for just sitting there (ya, rly). I currently use Capital One 360 for ALL my savings (money that I need within the next 5 years) and it’s sits there untouched (because I only withdraw from my checking account, remember). Plus, I get an extra $XX in interest per month. Pretty sweet.
- Not having to pay more interest than you need, whether it be on credit cards, car payments, student loans, or personal loans. If I could save an extra $400 by paying off my loan a bit earlier, then hell yeah. Paying for interest on your interest sucks and digs you into a deeper hole.
- Making smart investments with your money. Find a brokerage with low trading fees or funds with low expense ratios. It’s all about dem fees. Plus smart people know to diversify their portfolio, so that it’s not just all in one place.
- Maxing out your 401K and IRAs, to reduce your taxable income, because you don’t want to owe more money than you need to the government, duh :)
- Understanding that low monthly installments with high interest rates means that you pay more in the long run. Don’t get shortsighted by shiny low monthly payments, and strive to pay off debt aggressively.
- Doing your research on what you can write off as a tax deduction. For me, this means taking my taxes to a professional who might know the loopholes better than me, and keeping clean track of what is deductible.
They say money doesn’t grow on trees, but you sure as hell can do your best to water it to make it grow.
Stop trying to keep up with the Joneses
This one is huge. Many people get caught up in this rat race about showing off their latest gadgets, purses, cars, houses, etc. It’s really easy to want to “one-up” others and buy into consumerism. It’s fine to splurge every once in a while, especially if you’ve been diligent about growing your nest egg and savings, maxing out your 401k, and paying off your debt — but if you are living paycheck to paycheck or have massive amounts of loans, then stop. Stop trying to impress other people because newsflash: they don’t care. If you’ve ever read “The Millionaire Next Door” by Thomas Stanley, you’ll understand that the wealthy don’t necessarily drive the fanciest cars or rep the most luxurious brands.
There are so many (free) resources out there on how to attain financial freedom, and it’s not impossible. Stay diligent and motivated, and of course, be patient — your future self will thank you.
Work lunches are probably one of the biggest money suckers out there for professional millennials. It’s definitely my biggest expense after major necessities (rent, gas, phone, etc.). Don’t get me wrong, I’m all for spending money on delicious food and the occasional fine dining experience. But work lunches aren’t something we really take the time to enjoy, especially if we’re just scarfing it down while multitasking at our desk. We tend to grab something that’s quick and easy without giving it much thought. But at $8-$12 a meal, before you know it, you’ve mindlessly spent $50+ a week just on work lunches!
I’ve tried to remedy this in the past by bringing lunch from home but I was never able to keep it up consistently. I didn’t always have the time to cook the night before and bringing something simple (like a cold sandwich) wasn’t very appealing. I realized that after a morning of work, I tend to crave something hot and hearty.
The best solution I’ve found so far is microwavable lunches. In particular, Lean Cuisines. They’re quick, easy AND affordable. My local grocery store sells them for $2.50 on sale. I don’t eat them every day. But for those days I’m not craving anything in particular (which is most days), they’re perfect. And since my work has a freezer, I always keep 2 or 3 of them in stock.
If you’ve been spending more than you’d like on work lunches, why not give this method a shot? I’ve already convinced a few of my colleagues to follow suit ;).