Retire, who me?
A 401K, is a retirement plan your employer can offer you if they so desire. Yes, I know retirement is a long, long way off but as a fashion fashionista you know how good it is to start saving early. You can only get a 401K through your employer. A 401K automatically takes money out of your paycheck—you decide how much, up to the federal limit—and deposits it into a retirement savings account set up for you. You then decide, based on the options the employer provides how your retirement account will invest your money. Usually your employer will offer a range of choices, ranging in risk from preppie conservative to cutting-edge fashionista.
The money you allow your company to deduct from your paycheck and put in your 401K is deducted pre-tax, meaning before you pay taxes on it. In other words, you do not have to pay any taxes on the money you put in. You get to invest this part of your paycheck, earn money on the government’s share of its taxes, and keep the money you earned on that share when you eventually withdraw the money from your account and pay the taxes on the amount you withdraw. So you have the use of the government’s money to earn interest until you are sixty-five or older and can withdraw the money.
If your employer offers a 401K plan you should take full advantage of it. It will force you to save because it takes money out of your paycheck before you ever see it. Plus, it will lower your tax rate, since it is money you won’t be taxed on, and, even better, some employers offer you an incentive to invest in a 401K by contributing to your account as well, which should make participating irresistible.
The amount your employer contributes is called a matching contribution and usually consists of a percentage of your paycheck up to a defined maximum. For example, an employer might offer to match you fifty cents for every dollar you contribute up to some specific percentage of your salary, usually three or four percent. So over the course of a year, if you invested one thousand dollars, your employer would deposit five hundred dollars into your account. This is like getting an instant raise with no extra duties required.
If you leave the company, you can take the 401K account with you and roll it over into an Individual Retirement Account (IRA), a kind of stand-alone 401K, or leave it with your former employer to administer even after you leave. Sometimes they charge you a fee for doing this so I suggest rolling it over into an IRA. (Also, if you plan to have more than one employer before you are sixty-five, it is nice to keep your accounts together in one place that you control.) IRAs are more flexible than a 401K; your money can be invested in whatever you want, not just what your employer has chosen—from stocks and mutual funds to bonds and real estate. There are lots of different kinds of IRAs so you need to check them all out. The downside of IRAs is there is a limit on the amount you can invest in them each year, although 401K rollovers are exempt from this limitation. The limit changes so you need to look up the limit for a particular year. You can Google “IRA” to learn more.
June 2nd, 2009
Consumer confidence is up – and most likely your urge to shop. There is a school of thought that suggests as follows: If you see an expensive item which immediately becomes a need – a burning passion you just can’t live without – walk away. If the desire continues unabated for at least five days and you can afford it, go back to the store. If the item is still there, your lust increases on seeing it again, and they have it in your size, congratulations. If it’s not there, or they are out of your size, consider yourself saved by karma. That way, you avoid acting on impulse and can know with certainty that you really want it.
May 26th, 2009
With the current trends towards austerity – how do you maintain your fabulous self? To save money while still looking chic:
- Stretch your manicure/pedicure from two to three weeks (or at least your pedicure)
- Stretch your hair cut to eight weeks
- Go brunette
- Try half a head of highlights instead of a full head (or color instead of bleach)
- Re-learn how to park and skip valet when at restaurants or clubs
- Figure out how to look fabulous at H&M instead of Saks Fifth Avenue
- Skip your facial
- Try a self tanner (tanning salons are bad for you anyway)
- Try a new cheaper cosmetics line
- Try well drinks
- Hit the gym (a monthly membership is usually cheaper than separate Pilates or yoga classes)
- Skip waxing and try shaving
These are just some of the many ways you can cut back and still look great.
May 22nd, 2009
If you want to learn about personal finance, Suze Orman can be terrific. She is knowledgeable and helpful. But she can also be intimidating, patronizing, and borderline mean. Her approach is to treat folks like their nagging mother when they’ve been bad. Regardless of what you think is best for you Suze usually thinks it is a lousy idea. To prove her point, she nags, cajoles, occasionally bullies, and otherwise makes people feel like they are letting her, and more importantly themselves, down.
That said, often she’s right. But there is a healthier way to help folks who want to do a better job managing their money – which doesn’t require scolding. Chances are you already know you should learn more about managing your own money. You often already know the right answer to whatever question you have and, equally as often, you either don’t trust yourself or find managing your money a drag, boring or just plain anxiety producing. (For some, the mere thought of money management drives them to straight to the bar.)
Here’s a dirty little secret that Suze doesn’t want you to know about – finance does not have to always invoke your mother! You don’t have to feel like a “bad” girl every time you want to buy something. On the contrary, finance is a valuable tool you don’t have to dread learning about and understanding. And it can actually be fun – after all the better you understand your finances, what you have and what you don’t, the more you know what can an can’t do. Hello, shopping!
If you’ve read my blog before, you know that most people get into trouble with their money because they don’t create a budget or worse, do, but promptly ignore it. Contrary to what Suze might tell you, this is not a personal failing. The reasons most budgets fail is not because of how you budget – it’s how you use your budget. Attitude is everything. Most budgets fail because they seem to stop you from doing what you want: “It’s not in my budget.” But a good budget really tells you what you can spend. “It’s in my budget.” Start thinking of a budget as a way to help you achieve your life’s goals and dreams. A budget doesn’t tell you what you can’t do, it tells you what you can do. There, isn’t that more fun. No putting you down for your shoe habit. No pointing out what you are doing wrong. Just a reminder that making and using a budget helps you manage your money.
So even if you blow it (or are about too) you can get beat up by Suze or remember,on rare occasions, being bad is good!
http://www.nytimes.com/2009/05/17/magazine/17orman-t.html?hp
May 19th, 2009
Warning: this is a very sad story about a pair of knee high, tan, go-with-everything Jimmy Choo boots. If you truly adore shoes you might want to stop reading. However, I should point out there is a good finance lesson at the end.
I rounded the corner unaware of the tragedy currently unfolding in my closet. There, in the corner, sat my cat with a determined look on his face. (Yes, cats can look determined.) On the floor next to him lay my gorgeous Jimmy Choo boots. These were not ordinary run-of-the-mill boots. These were not even ordinary Jimmy Choo boots – if there is such a thing. These were the perfect height, perfect color, perfect everything boots – the ones that looked fantastic with EVERYTHING – skirts, dresses, nice pants, casual pants, jeans, you name it and that I wore everywhere. These were the Jimmy Choo boots I had purchased on sale at 50% off!
Then, the boot wiggled. I kid you not. So, I did what any respectable woman does when faced with moving footwear – I screamed. My husband ran in. I pointed and shrieked, “my boot moved, grab it!” Peering intently inside he soothingly murmured, “it’s a field mouse, it’s fine. I’ll take it outside for you.” This was, in fact, good news but sadly not the end of my story.
With the mouse now safely free I inspected my boot. Was there blood? I peered inside, no, it was clean. Then my heart stopped. The inside was fine, but the outside….teeth and worse, claw marks. Game over. Cat =1 Boots = 0.
And, so it ends, my tragic tale of woe.
I will try to get them repaired (much cheaper than new boots) however, I do not hold out much hope. So now I am faced with a dilemma: Do I wait to see if I can find them on sale again? Do I bite the bullet and replace them? Do I find a cheaper alternative? Can I justify paying full price by dividing the purchase price by the number of times I plan to wear them? (It’s okay it’s a time honored practice.)
It is these daily decisions, the ones we are faced with constantly that affect our finances. How much we end up spending or saving in a given week, month, or year is the direct result of the decisions we make when faced with the unexpected.
May 11th, 2009
Since you have a finite amount of money with which to make decisions, every decision has consequences. Opportunity cost is what you might be giving up with each decision you make. So consider what something is really costing you – today and in the future. The good news is that opportunity cost is not really a number so, no math. Rather, it is a set of alternatives. For example, if you stay in a less-than-fulfilling relationship, you may be giving up the opportunity to meet a new, more compatible person. And, obviously, if you purchase an outfit at Juicy Couture, unless you have an unlimited shopping budget, you give up the opportunity to purchase something even cuter at Urban Outfitters. In finance, opportunity cost refers to the price you may pay in lost opportunities by choosing one alternative over another. So it behooves you to think about the opportunity cost as you weigh decisions.
As a Fashionista you think about this every day. If I skip dinner for a week or two to pay for those boots, will I be too wiped-out to enjoy wearing them? If I skip on cosmetics to support my Starbucks habit, will I drink my coffee alone? If I use my rent money to buy a whole new wardrobe, will I have a closet to put it in? Opportunity costs loom large in such decisions.
May 5th, 2009
What do you do if you find yourself with a lot of unstylish debt you know you can’t pay back?
First, stop, absolutely stop, using your credit cards. Find a way to live within your means.
Second, pay off your credit card debt. If your credit card debt is the debt you can’t pay, you can often work with the credit card company to set up a payment plan or to reduce your interest rates. If your credit card company won’t help you, you can call a reputable credit counselor for assistance. Often, they will work with your credit card company and other companies you owe money to and can help reduce what you owe. Log onto www.consumercredit.com for assistance finding a credit counselor who can help you.
Third, if you have many types of the same kind of loans, consolidate. Consolidation means you group all of your similar loans together with just one company. For example, you can get a student consolidation loan where you combine multiple student loans and pay a fixed interest rate to just one company. Or you can combine all of your credit card balances onto one single card (with a lower rate than those you have) that you pay off on a regular basis.
Fourth, beware of scams. There are a lot of con artists who prey on people desperate to solve their credit problems. They may offer to get your debt “suspended” or “canceled” if you pay their fees in advance, sell you supposed credit protection, or offer to help you re-build your credit. These kinds of offers can be very tempting, especially when you are vulnerable. Remember, if it sounds too good to be true, it probably is. Keep in mind that saying about free lunches, as in, there’s no such thing.
The most crucial thing to learn about debt—after the number one rule, which is don’t incur it—is that you should always take it seriously. Wasting it on something frivolous does not become a true Fashionista. A true Fashionista searches out the highest style, but only at a price she can afford.
April 30th, 2009
Shopping for big ticket items is no different than shopping for smaller stuff – except of course for the stress, price and worry that you are about to make a HUGE mistake. Seriously, there are a lot of things you will want to buy (a car, a house, an education, designer clothes, shoes and bags) which are a big investment and require a lot of money and/or a lot of debt. Making the right decision involves four things (plus courage):
- Sorting your wants versus your needs (you want Chanel you need a purse)
- Doing your homework (research)
- Timing your purchase correctly (believe it or not, many big ticket items like cars have times during the year when they are cheaper than other times)
- Determining your financing (how you pay has a big effect on the total price)
Just think of big purchases as ultimate shopping. First, you must sort your wants versus your needs. Before you invest your hard earned money on anything that is expensive, you need to know why you want it, if it is the right thing for you, and if there is a more affordable substitute that will satisfy you.
Second, you must do your homework. I know it is hard work, but it is important to know what you are doing before you do it. You must do research. Every big ticket item you buy has these kinds of questions and more. You wouldn’t let someone buy you diamonds without knowing the four C’s would you? You must research the questions and figure out your answers. Do your homework by researching on the internet, asking your friends and family and by talking to professionals.
Third, you need to time your purchase. You need to know if it is the right time for you personally (why now and can you afford it) and if it is the right time to buy the item. Some big ticket items have times during the year when you will get a better deal. I know you know all about sales!
Finally, how you pay for what you buy has an effect on the total cost and whether this is the right decision for you. This is true for any big purchase. The more of your own money you pay the less money you will need to borrow and the cheaper the money you borrow will be. In addition, the less you need to borrow, the better your net worth and the better your credit score and the lower the interest rate. You need to save as much money as you can before you make you make your purchase so you will have to borrow less money to get it.
April 25th, 2009
A credit score, also known as a FICO® score, is a particular calculation of your credit history that measures your trustworthiness to lenders. It is a number that credit-givers, such as credit card companies and car dealers, use to help them decide if they want to loan you money, by answering the following questions: Can they expect you to be able to pay them back as agreed and what are the odds you won’t pay them back at all? What amount do they feel comfortable loaning you? How much do they want to charge you? The less confidence they have that they will be paid back, the more interest they will charge you.
In Fashionista terms, a credit score can be the difference between being granted VIP status or being shown the door at your favorite store or club. A credit score tracks whether you are more likely to be a good customer or a bad customer.
Think of your favorite store. If you visit it frequently, are nice to the staff, are enthusiastic about their merchandise, and avoid bad behavior such as shoplifting or always trying to pay less than retail, they will love you. They’ll put you on their VIP list, you’ll get first dibs on new selection, sales and discounts, they’ll call you ahead of time to let you know your favorites are in stock, and in many other ways, they will take extra special care of you. On the other hand, if you’re a complainer who’s rude to the staff, reluctant to pay retail, and constantly return items for no good reason, you’re unlikely to be welcome, and in fact, will probably be discouraged from coming at all. The golden rule works here: Treat the stores the way you want to be treated, and the good karma will come back to you.
You can guess where I’m going with this. The more you respect your credit score, the more lenders respect you in return. This becomes really important when you suddenly have some big ticket items you’re thinking about buying.
Your credit score is a number that is assigned to you by a credit agency; it is a snapshot of the credit risk they judge you to be at a particular point in time. Credit scores range from 300, indicating you’re a poor risk, to 850, indicating you’re a great risk and will be offered the best deals.
When you borrow money or apply for a credit card, you typically go to a bank or credit card company, which will immediately look at your credit score. How much money did you earn, and how much did you spend? How responsible were you? Did you honor your commitments and pay your bills on time? What is your current net worth? The more responsible you have been financially, the higher your score. And a high credit score means that you will be allowed to borrow more money at a lower interest rate than a person who has a lower credit score.
So if you’ve got a great credit score, you can buy your car or your house more cheaply than can someone whose credit score is lower. Why? Because, you will pay less interest. Less interest is your reward for having built up such a respectable credit score. (With the money you save on interest you’ll have more left over… for other things, such as designer clothes and footwear).
To find out your score, call any one of the three credit agencies listed below and ask for your credit report. By law, you are entitled to one free credit report per year. If you want to check it more than once a year, like when you are purchasing something big, then you’ll pay a low fee to get a second report.
Equifax: www.equifax.com (800-685-1111)
Experian: www.experian.com (888-EXPERIAN)
Trans Union: www.transunion.com (800-916-8800)
So how do you maintain VIP status with your credit score? Review the five factors the credit agencies use to score you and try to maximize your points in each category. Pay your bills on time. Have at least one credit card, buy a little with it every month, and then pay the bill in full. If you have debts, pay them down or off. It might take effort and time to improve your score, but it can be done.
April 23rd, 2009
“Buy less, wear it more” is a great mantra for the season. When faced with an impulse to excessively shop, just repeat over and over while backing out of the shoe department.
Fashionista Fact:
Even Michelle Obama is repeating outfits: http://www.huffingtonpost.com/2009/04/14/michelle-obama-repeats-an_n_186783.html
April 16th, 2009
Next Posts
Previous Posts