Wishing you a prosperous new year from the DINKs crew!
Cheers,
Miel, James, Michael, & David
Author Archives: Team Dinks
Financial Resolutions for the New Year
I suppose it’s that time again, when people everywhere promise to stop smoking, go back to school, get a new job, master a new hobby, lose weight, etc… etc.. etc… While there is no shortage of personal improvement projects I could undertake in 2010, I think I’m going to focus on my finances this year. My current system has been humming along just fine for the last year or two, but I think it’s time I refresh my goals and habits, with the hope of being in a better place come 2011 as far as my finances are concerned.
When I sat down to list the things I could be doing different, my list quickly grew to nearly 20 actionable items. If there’s one thing I’ve learned about undertaking a new task, it’s to keep it simple, and once you’ve mastered the basics, then add more components. So for the time being, I’m going to focus on three things that I can do to improve my financial situation.
1.) DO ONE THING TO BRING ME CLOSER TO ACHIEVING A LONG-TERM DREAM
I love being a software engineer. My work is both interesting and challenging, and although I sort of fell into this career, I feel as if in many ways it is the perfect one for me. However, my ultimate goal is to open up a bar with a friend of mine. This is obviously a huge undertaking, and many steps and challenges must be met and conquered before I can realize that dream. At the moment, the only thing I’m doing to advance myself towards that goal is saving money. While this is a significant part of the overall task, there are many other things that I need to learn and skills I must master before I move forward. In 2010, I’m going to focus on one of those skills, whether that be taking a business class or learning how to be a bartender, or even just familiarizing myself with the overall process of opening and operating a bar. I’ll spend the upcoming months deciding on which area I want to focus on, and then by the end of the year I will accomplish it, thus bringing me closer to fulfilling that dream.
2.) LIMIT EATING OUT TO ONCE PER WEEK; COOK ALL OTHER MEALS AT HOME
This is a goal that serves two purposes: curbing my discretionary spending and working towards a more active lifestyle. After I reviewed my finances for 2009, I found that I often went over my budget when it came to eating out. That overage was easily covered by a buffer that I’ve placed in my overall budget, but over a year, the amount of money I spent outside the home on food was staggering. While this of course will drive up my grocery bill, I think it’ll still save me some money and make me healthier. This might be the most difficult task out of the three, as it requires day-to-day monitoring, but I hope once I establish the habit it’ll take care of itself.
3.) FOCUS ON LONG-TERM GOALS IN ADDITION TO SHORT-TERM GOALS
As I’ve mentioned before in my posts, I’m much better at looking at the short term, while my wife is more focused on the future. My attitude in the past has always been to take care of today, and tomorrow will take care of itself. Well, that’s not exactly effective, and while I may still be a DINK in my 20’s, things like a house, kids and retirement loom on the horizon, and it’s best that I address those now. Time passes quickly, and the sooner I can get ahead of those major life events (along with other long-term goals and aspirations) the better off I’ll be. I understand that this is not as tangible a goal as my other two, but a shift is attitude is necessary and will benefit me more long-term.
While any time of the year is the right time to make a positive change, January 1st represents a cultural turning point, a fresh start and an incentive to make that positive change. Readers: What are your goals for 2010? Do you think you achieved your goals for 2009? What goals are you looking forward to achieving in order to bring about a positive change in your life?
Michael
Twitter: @michael_dink
Tax Breakdown
I found a great article on VisualEconomics about the tax breakdown in wealthy countries (“How Wealthy Countries TAX Their Citizens“). All percentages are expressed as a percent of GDP, and it was interesting to see how the United States stacks up to other wealthy nations. The most interesting fact was that the U.S. has one of the lowest tax revenues as a percent of GDP in the world.
I found this other website created by a couple MIT grads that can show exactly how your tax money is allocated (“The Tax Breakdown Project“). You can enter the amount of federal taxes you paid last year (default amount: $7,554.50). For example, entering the default amount gets you the following results:
Your $7,554.50 made up 0.000000260332938% of the total federal budget of $2,901,861,001,000. Here’s how your government spent it:
- Department of Health and Human Services: $1820.35 (24.096%)
- Social Security Administration: $1703.79 (22.553%)
- Department of Defense–Military: $1518.48 (20.1%)
- Department of the Treasury: $1366.72 (18.091%)
- Others: $453.32 (6.001%)
- Department of Agriculture: $231.76 (3.068%)
- Department of Veterans Affairs: $216.83 (2.87%)
- Supplementals not Offset by Spending Reductions: $191.84 (2.539%)
- Department of Transportation: $174.51 (2.31%)
- Office of Personnel Management: $167.03 (2.211%)
- Department of Education: $152.56 (2.019%)
- Department of Labor: $136.14 (1.802%)
- Other Defense Civil Programs: $127.82 (1.692%)
- Department of Housing and Urban Development: $115.59 (1.53%)
- Department of Homeland Security: $112.46 (1.489%)
You can then drill down on each of those categories to see more detail about where that cash is actually going. I found the website incredibly interesting and spent a decent amount of time on their looking at the data.
-Michael
Twitter: @michael_dink
Recession Teens
I couldn’t help but follow up to Michael’s last post about the generational impacts of recessions. As personal finance bloggers we get a variety of emails that inspire with different topics. I just got one that linked quite appropriately by suggesting that teens are being impacted by the recession by downloading an extremely popular iPhone app that allows for unlimited free texting.
I personally find this ludicrous. I feel so sorry for teens that must concern themselves with limited texting.
I recall growing up with airtime of up to ten minutes once or twice a week from a rotary dial phone with a long cord next to the front door. I was could make only local calls up to ten minutes a day if I was on good behavior.
I think that kids growing up today with cell phones and non-stop texting will have a difficult time comprehending the finite resources that truly exist in this world, and how spoiled indeed they are to grow up in any American family.
Readers: How do you think gen-text will react to the recession?
Best,
Miel
How Recessions Shape You
Hello readers, I hope everyone had a nice holiday. I know I haven’t been around much; a combination of traveling and a nasty cold made sure of that. But I found this interesting article on boston.com about how living through a recession shapes our views towards money (“The Psychological Effects of Recession“).
A lot of ink has been spilt in the personal finance community about how the recession has forced people who were used to spending money however they pleased to alter their spending habits. Everyone – not only those over-leveraged – has been forced to make sacrifices in order to make ends meet. The only thing that isn’t clear is what that means going forward; after we’ve fully started our recovery (aside: some might argue that we’ve already started the recovery, but in my humble opinion, we need to get people back to work before we can really say that our economy is recovering) will those habits continue? Or will we fall back in to our previous spending habits? That is unclear, but we can look to the past for a possible indication.
Many of us have relatives who lived through the Great Depression, and although we can’t make a one-to-one comparison between the Great Depression and our current recession, we can look at how they responded. According to the research examined in the article (and anecdotal evidence from family), those in the impressionable age group – ages 18-25 – felt a significant impact on their life-long views towards money. To quote the article:
In each case, a recession during one’s impressionable years had a significant effect on political and economic attitudes. People with such an experience were more committed to redistribution, more inclined to attribute success to luck, and less likely to trust public institutions.
I look forward to seeing more studies on this topic, although it’ll be a while before any meaningful data can be extracted from our current situation. Readers, what are your thoughts on this issue?
-Michael
Twitter: @michael_dink
Hemorrhaging Money
I may not be alone in feeling like I’m hemorrhaging money these days. I don’t know about you, but for it often feels that spending ebbs and flows. At the holiday season, and particularly while traveling, it feels like money is draining into a black hole.
I try to be conscience of those times when spending tends to increase so I can try to limit the flow. Though other times I just need to suck it up and make sure I balance things out by spending a bit less than normal later.
For some reason this particularly happens around eating out. I’ll go on fits and spurts where sometimes I’ll end up going out often, and then not as much.
The key to all of this is balance, and doing your best to maintain equilibrium while not stressing about it too much either.
Best wishes in starting out the New Year on a frugal foot to make up for holiday excesses.
Cheers,
Miel
Holiday Compromises
So this year we’ve got a unique and busy holiday schedule. This was a result of compromise on both parts to share the holidays together in a way that gave us both what we were looking for out of the holidays.
This resulted in a very expensive and busy holiday schedule. It meant driving up to Pennsylvania to spend Christmas Eve and Christmas day with Miel’s twin sister, family and in-laws, and then leaving before the crack of dawn to fly to the west coast for time with family in Oregon. We’ll log about 50 hours in planes and automobiles in the ten day trip. Makes me ready for a nap just thinking about it.
The trip has been great so far, and it will be good to spend time with families. One of the lessons here is to communicate early about holiday expectations. This isn’t always easy, but it makes planning that much easier.
Readers: What compromises have you made for holiday planning?
Cheers,
Miel&James
Happy Holidays!
Hello DINKs Readers,
Wishing a very happy holiday season to you and your family. May the New Year bring prosperity and joy.
Best Wishes,
Miel&James
Investing In Detroit
I don’t know what to think about Detroit. The collapse of such a large city is pretty much unprecedented in U.S. history. It’s not uncommon for smaller cities to fall and become ghost towns – they’re scattered all over my home state – but this is a completely different scenario of course. I know that there was a push a bit ago to bring more technology companies to Detroit in an effort to revitalize the area, but I don’t think that worked.
I think people often discount the factor that weather plays in trying to get people to move to Detroit. I mean, it’s really cold there; why would a young person move there when there are many other options, especially if they have an advanced degree? It seems like a small, insignificant point but I think it’s actually a pretty big deal.
Having said that, there are a lot of reason to be positive. First of all, it is a big city. It’s close to Chicago and Indianapolis, two cities that are doing pretty well. Land is cheap, and eventually, businesses are going to realize that and will slowly move in.
The real wildcard in my opinion is the government. How are they going to right the ship? They have to address the rising crime rate, the failing schools, widespread government corruption, the brain drain, and the stagnant business situation. But again, there are a lot of top quality universities full of talented students nearby (Michigan, Michigan State, Illinois, Purdue, etc…) and you have to think with the right incentives, the local government can encourage businesses to invest in Detroit again.
I think there are many reasons to be positive, and ultimately, I think Detroit will turn it around. But I also think that we’re talking about a decade or two; not just a couple of years.
I’ve been putting a lot of thought into buying property in Detroit because it’s so cheap and I think it’ll eventually turn around. But I’m going to take my time (which I think I have plenty of). I’ll definitely be researching it though.
By the way, when I say cheap, I mean REALLY cheap! We’re talking $1,000 for a three bedroom house. You could buy 400 houses for equivalent of a one or two bedroom here in DC! You’d need a whole lot more for repairs and management costs, but with prices like that it is crazy.
Readers: Are you guys thinking about investing?
Michael
P.S. Check out another post by Writer’s Coin called, Detroit and the Recession: An Inside Look
ROTH 401(k) v. 401(k)
Since we are at the end of the year and considering various tax implications, I thought I would mention to our readers some of the reasons why I choose to starting funding a ROTH 401(k) instead of a traditional 401(k) when my employer offered a new retirement plan.
For those of your wondering about the differences between a traditional and a ROTH 401(k), let’s start there. In a nutshell, the biggest difference is that with a ROTH it means that you pay your taxes on your income before you invest it. This means that all of the earnings that you gain are later withdrawn tax free (since you’ve already been taxed on the initial earnings).
Advantages of a ROTH:
1) Paying taxes now might hurt a bit more, but this means that in my case, I’ll have about 30 years for that investment to grow without having to pay taxes on it again.
2) Most people fall into the category of making more money over time, and thus one is likely to pay higher taxes over time. While this part is a bit of a gamble in terms of what the tax environment will look like at the time of your retirement, generally it a pretty safe bet that taxes tend to maintain or increase over time.
3) As you make more money, you also phase out of being eligible for ROTH contributions. Given that James is still on a student salary, now is a good time for us to take advantage of making less money.
4) Overall both the ROTH and traditional investments have advantages, but the real lure is that they help to balance each other out and diversify the risk. It is like managing your stock portfolio to help ensure that it has a variety of different asset classes.
5) You likely may be less familiar with ROTH 401(k)s than you are with ROTH IRAs, as many employers don’t have plans that offer ROTH 401(k)s. I thought that since my employer does offer it, and we still earn under the threshold, that it would be good time to switch over.
6) The last reason is that I can still manage to max out and handle the additional cost of paying the tax on this up front. This will mean less of a deduction on our taxes, but since it was only for the second half of the year and our salary is still considerably lower than it will once James is out of school, now is a good time for us.
Each of you may be in a bit of a different tax or financial situation, but I hope that reading about my decision making process on why the ROTH 401(k) makes sense for us will be helpful.
Readers: I’d love to hear how many of you might have ROTH 401(k)s, or if you are eligible, why it may or may not work for you.
Cheers,
Miel