This post comes from Stephanie Koske at our partner site Zing.
I find myself face to face with all sorts of life-changing decisions these days.
Hit the snooze button? Or rise early for a morning workout?
Hop in the elevator? Or take the stairs?
Binge-watch “Breaking Bad” on Netflix until the crack of dawn? Or hit the hay before 10:00 p.m.?
Order the beer-battered fish tacos? Or opt for the grilled salmon with vegetables?
You’re right: these aren’t life-changing decisions, per se. (Though I have had some fish tacos I’d consider COMPLETELY life changing.) But when you consider that making healthier and smarter choices truly can make a difference in your well-being – and even add years to your life – picking the stairs over the elevator seems much more sensible.
It’s not always that easy, though, especially when it comes to putting the remote – and an overflowing bowl of Fritos – down in the middle of a particularly RIVETING episode. Making smart choices and building healthy habits both take serious commitment, and it can be difficult to stay on track without someone to keep you motivated and accountable. But maybe it’s not someone we need to keep us on the straight and narrow. It’s something, like the wearable, smartphone-compatible fitness trackers currently on the market, and on the wrists of everybody and their mother (including my own … now I really feel behind the times).
That’s where my next tough choice comes in: Which fitness tracker bracelet would benefit me most? If you, too, are in search of one of these popular gadgets, check out these overviews of the Nike+ FuelBand SE, Fitbit Flex and Jawbone UP to figure out which one is right for you.
Nike+ FuelBand SE
Band color options: Black/black, black/lime green, black/red, black/hot pink
Battery life: 1–4 days
Here’s how it works…
Nike+ FuelBand SE measures movement for nearly any activity – from cycling to raking leaves – and converts it to FuelPoints (Nike’s universal metric) based on the intensity of your workout. With its sleek display, you can view your steps, calories burned, hourly “move” reminders and time right on the band. Nike+ FuelBand SE syncs wirelessly via Bluetooth to its namesake app for Apple devices only (not currently compatible with Android), which also allows you to share your accomplishments on social media and connect with your friends by challenging them to daily FuelPoints competitions.
The Nike+ Sessions feature helps you understand which activities earn you the most points (say, mowing the lawn vs. walking the dog) and helps you monitor harder-to-track, non-step based actions. When you want FuelBand to differentiate between your regular movement and specific workouts or activities (like yoga), you can press a button on the band to begin a session. Each session gives you a more detailed look at the FuelPoints earned each minute.
Band color options: Black, teal, lime green, hot pink
Battery life: 3–5 days
Here’s how it works…
You’ll wear your Fitbit Flex all day – even in the shower – while it tracks your steps, distance and calories burned. By night, the band monitors your sleep patterns and wakes you silently in the morning. All the stats are synced wirelessly with your computer and Fitbit smartphone app for Apple and Android devices (along with MyFitnessPal to enter your daily food choices and RunKeeper to log your workouts), and you’ll have access to graphs, charts and other tools that help you monitor your improvement.
With the Flex, you’ll know if you’re meeting your goals, and you’ll see how your stats stack up against family and friends! LED lights on the band indicate your progress toward your goals throughout the day, and you also have the ability to share your stats and compete with others on Fitbit’s leaderboard.
Band color options: Black, blue, light gray
Battery life: 10 days
Here’s how it works…
Jawbone UP’s motion sensors track your steps, calories burned and sleep quality, along with your active and idle time. Unlike the FitBit Flex and Nike FuelBand’s wireless technology, this band plugs into your smartphone’s headphone jack and syncs with the UP App for Apple and Android devices. Despite the lack of a digital display, Jawbone UP still keeps the pep in your step with its built-in idle alert that gently pulsates on your arm when you’ve been inactive too long and its smart alarm that wakes you at the optimal moment in your sleep cycle.
The UP App’s Insight Engine analyzes your stats to help you discover connections and patterns in your activities. Along with its easy-to-use meal log feature and mood tracker, it also celebrates your milestones and suggests daily goals based on your habits.
Decisions, decisions. All three fitness trackers will help you measure your progress and manage your stats and, when used correctly, can keep you motivated to make healthy changes and build lasting habits. But while they’re alike in that respect, many of their key features differ and make my choice a tough one. Nike+ FuelBand SE doesn’t have a sleep feature like the Fitbit Flex and Jawbone UP. Fitbit Flex lacks a built-in alert to remind me to move like the Nike+ FuelBand SE and Jawbone UP. And the Jawbone UP doesn’t accurately track non-step based activities (say, Pilates) like the Nike+ FuelBand SE and Fitbit Flex. It’s a toss-up!
Do you use a fitness tracker? Tell us which one works best for your lifestyle!
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Social media has changed our lives in many ways, but here’s one nobody probably foresaw: criminals brazenly boasting about their deeds on Facebook. Some misdeeds are probably more humorous than deadly, like Michael Baker, who siphoned gas from a Jenkins, KY police cruiser, and then posted a video on the site with many eyes, complete with a bird salute to Kentucky’s finest. Then he boasted about spending time in jail for that.
He’s not alone. All you need to do is a Google search with something like “criminals caught after boasting” to see hundreds of cases. More seriously, pedophiles, rapists and even murderers have been arrested after boasting about their crimes on various social media. One guy even put his wanted poster on Facebook after moving, along with his new place of work and his hours. It was just a matter of time before the authorities took advantage of this and arrested him with minimal fuss.
The first time I stumbled across such a story, I just shook my head and smirked at the stupidity of these criminals. We know most criminals are not the brightest bulbs on the Christmas tree, but actually advertising your misdeeds when arrest could put you in jail for many years? How smart is that?
Then I flipped to my little racing game app. Suddenly, I noticed I’m not that different. Two of the games I play when I hit writer’s block have various levels of difficulty — as you win at a certain level, the speed of your competition goes up and you have a harder time winning next time. Call me cheap (or boastful) but I pride myself on not spending a nickel on these games which constantly entice you to buy upgrades so you can go faster (and beat the competition). Logic says I should always aim to come in second because that still gives me good “prize money” to use on upgrades. But I find myself constantly trying to win, when all that does is up the ante, making it more difficult to get that prize money because the competition gets better at every level. Nobody sees me, not even my wife, but I still drive to win even though it costs me.
That’s what unites me and those criminals with, shall we say, a common sense deficit: the price of our ego. They would rather go to jail than pass up the opportunity for people to envy or respect them. Well, I tell myself I’m not quite that bad, but my choices reflect the same tendency to pursue my ego, even if it gains me nothing, while costing me. We aren’t the only ones, those criminals and I. Just look around you, and don’t skip over the mirror so fast. It doesn’t take long to notice how many people do things that cost them in one way or another, all to look or feel better.
Logic often falters in the face of ego
An ex-colleague and his wife went through a patch of financial hardship a few years ago and the day came when they needed to replace her car. She could have gotten a good used Corolla for something like $8,000, but she demurred. Her job, she said, required her to get an SUV. There were times, she said, that she needed to cart cases of eats and drinks around for her employer, and a humble Corolla (like my wife’s) or reasonable facsimile would simply not do. She “needed” that $15,000 SUV. That hauling capacity was required maybe six times a year, and a truck or minivan could be rented for those occasions for less than $500 a year. Compare that to the $7,000 price difference. That logic simply cut no ice with her. It didn’t take long to figure out the “employer” thing was simply a smokescreen. She wanted that SUV, and nothing would stand in her way, logic least of all. The price on that little SUV was “such a terrific deal,” they simply couldn’t pass it up. (As an aside, have you ever met someone who didn’t think their car was “a terrific deal” when they bought it?) They’re still in a hardship situation… but she has that SUV.
Lest we be too hard on our ex-friend, there are many areas of our lives where shrewd marketers have succeeded in convincing us that we simply have to hand them more money so we can feel good about ourselves. Is Starbucks coffee really that much better than the brew offered next door? Maybe not, but no self-respecting worker wants to be be seen entering the office with a paper cup from a cheap coffee place in their hands. Same with purses, sunglasses, sneakers (anybody still wear those?) and phones. If you really have to be part of the iPhone revolution, why not buy a perfectly good iPhone 4 on eBay for $200, rather than (effectively) $700 for a new 5? The newer one is not more than three times better, no matter what criteria you use (coolness, of course, excepted).
Many of our parents and grandparents were perfectly happy in a Levittown house with about 900 square feet, one bathroom and no garage. Those things were so hot in the ’50s that their developer made the front page of Time magazine. When was the last time that happened? Today, things are different. Now it’s McMansions or their (only slightly) smaller cousins. Do we really need more space for our smaller families, or can it be that we simply would feel embarrassed to invite folks over to a Levittown house?
Employers know this too. How many excellent salespeople have accepted a promotion to sales manager, which actually pays less?
Ego is a choice
As we’re riding the tail end of this economic cycle, are you utilizing that little bit of extra income to boost the emergency fund or get caught up with the IRA, or are you finally getting that thing you’ve been wanting for the past few years but couldn’t quite afford until now? A friend who really “felt” the last recession recently bought a new Buick Enclave, the poor man’s Escalade (poor being a decidedly relative term here). He looks good in it, gotta tell ya. And it is a peach. U.S. News even ranks it the #1 affordable midsize SUV today. For $40,000 (terrific deal, of course). Could he have gotten a perfectly nice vehicle, similar, for half the price? Of course he could.
How about you? How expensive is your ego? What are you driving or wearing, compared to what your geeky left brain says you could have done if nobody ever saw you? How do you rationalize the (always terrific) deal?
In writing about household debt, as I often do, I sometimes feel a bit like Tom Wolfe writing the Electric Kool-Aid Acid Test: I’m trying to capture the character of a strange phenomenon while not myself taking part in it.
Throughout my adult life, I have avoided taking on debt as much as possible and have always repaid it on or ahead of schedule. This does not come from any sort of financial virtuousness, but just from observing at a fairly early age what a misery debt can make of people’s lives.
Which is why, while not participating in America’s debt culture, I think it is an important subject. While the phrase “addicted to debt” is often used broadly to describe the economy’s dependence on borrowing, I’ve come to think addiction might be the most accurate way to describe the relationship between some people and borrowing. It is an unhealthy habit that people often can’t shake until it steadily ruins them.
Perhaps if we thought about excessive borrowing as a form of addiction and treated it like a mental illness, we could make more progress in preventing it. So, the following is a discussion of borrowing as an addiction.
Evidence and anecdotes
Between mortgages and other forms of debt, American households currently carry a little over $14 trillion in debt. Spread among the nation’s 117 million households, this comes to an average of about $120,000 in debt per household. While over $93,000 of that is offset by an asset in the form of a mortgaged home, that $120,000 still represents an amount that Americans are faced with repaying month after month, year after year.
Of course, that average figure does not tell the real story of how crushing a debt burden can be. Since some families have little or no debt, the burden falls even more heavily on others.
Beyond the numbers, debt may be best understood as an addiction by looking at some anecdotes of the irrational way people get into and handle debt. Here are four examples that came to my mind almost immediately; I’m guessing most readers can think of similar examples from their own circles of friends and family:
- Selling a car to raise money. When I heard that someone’s son had done this to meet some debts, it made me think of burning the furniture for fuel — it is an expensive solution, and a short-lived one at that.
- An obsession with this year’s model. Speaking about cars, I had a co-worker who was so dazzled whenever anything new came out that he bought a car every six to nine months. He was making $200,000 a year back in the 1980s, but was steadily going further and further into debt.
- Long-term debt for short-term pleasure. I know one person who feels entitled to a vacation trip twice a year, even when he can’t afford it. Given that he spends more than a year paying off a week’s pleasure, no wonder he always thinks he needs another vacation.
- The future is always now. One sign of this problem is the refusal to think ahead. It starts by skimping on saving for retirement, and then it progresses to dipping into retirement funds ahead of schedule — even at the cost of a tax penalty. Junkies generally cannot see beyond their next fix.
If addiction to debt is a disease inflicting so many American households, what’s the cure? Here are some possibilities, moving from the societal to the individual:
- Effective regulations — dream on! If excessive borrowing is thought of as a disease, a case could be made for government regulation to prevent it, such as a hard cap on how much debt any family could take on as a percentage of assets or income. Realistically though, given the profits the financial sector makes off debt, this kind of strict limit on debt has no chance of happening.
- Tough love. When one person in a family has a problem with over-spending, it affects everybody else in the family. Husbands and wives need to take a stricter line when a spouse has this problem. People who cannot control their own spending need to have access to family savings and investment accounts limited, and if they need credit cards, then they should be given only pre-paid cards with strictly budgeted limits on them. Will this kind of strict treatment cause arguments? Probably, but so will driving the family to bankruptcy.
- Cold turkey. The only substance abusers I have known who have successfully gotten their problems under control have not tapered back a little; they’ve gone 100 percent cold turkey. People who recognize their own problems with excessive spending may want to swear off debt altogether.
These certainly are not universal or easy answers. I’m writing this mostly to try to open a discussion: Based on your experience with people who compulsively take on too much debt, what do you think the answer is?
This post comes from Chloe Paglia at our partner site Zing.
Dealing with the frigid winter months usually means fantasizing about heading somewhere else for a few days. For college kids particularly, it means dreaming of putting down our books, gathering up our friends and leaving for spring break. Unfortunately, the typical spring break getaway involves paying for expensive airfare and lodging in popular spots like Cancun or Daytona Beach. Not every student has the means to pay for a trip like that every year, especially with all of the other infamous expenses associated with higher education.
So what do the broke kids do? Sit home and sulk about seeing all of their friends’ sunny beach photos on Facebook? No! There are plenty of opportunities to go on a just as good (dare I say better?) trip for a very small fraction of the cost. Here’s a guide to doing spring break on the bare minimum budget.
RAISING THE FUNDS
You and your pals can certainly take a vacation for only a few hundred dollars per person. Is that still too much of a stretch for your current finances? Fear not! There are quite a few ways for a college kid to make a quick buck before springtime.
Odds are that people will be sympathetic to your cause, remembering the days they tried to scrounge up enough money for a trip. You can host a bottle drive in your neighborhood, passing out flyers ahead of time to give your neighbors time to save their disposables. Or, if you have an ideal location in mind, you can host a bake sale!
Most states pay money in exchange for plasma donation. It’s a lot like blood donation, but they separate the plasma from the red and white blood cells, which are then returned to the donor. Because of that, you can donate up to twice a week, earning up to $50 per visit!
Cleaning out your closet
Do you have clothes, media or electronics you aren’t using anymore? Get organized! Pack up everything you haven’t used recently and sell it to a pawn or consignment shop. While you’re at it, if you have any old textbooks lying around, sell those back to your school as well. You’ll reduce your clutter and put money toward spring break all at once. Thumbs up for multi-tasking!
Last but not least, do some odd jobs for neighbors, family and friends. Offer your services for baby/pet/housesitting. If “sitting” isn’t your thing, offer to shovel snow or clean gutters. Profit from odd jobs can add up quickly, making them a perfect source of last-minute cash.
PICKING A DESTINATION
All right, so you have your money saved up; the next step is picking a destination. The best way to do this is to pick an uncommon location for spring breakers and travelers alike. The lower demand the area has, the better deals you’ll get. I also suggest picking somewhere you and your friends have never been before to make the whole trip that much more adventurous. In terms of actual distance, the closer, the better. You’ll pay way less for travel that way.
If that doesn’t narrow your search enough, consider your interests. Do you love to ski or snowboard? Head to the closest resort! If you’re a big music fan, Nashville, Austin or Seattle might be your best bet. And if you’re just looking for a big city with a lot of history and culture to explore, you can find one in virtually any one of the fifty states. The main thing I’m trying to convey is to think broad and really explore your options.
When it comes to saving money, taking a road trip is almost always better than splurging on airfare. If you can pack a car full of people, you’ll be splitting the total cost of gas five or six ways. Personally, I think driving adds to the trip. You can make an awesome playlist, play cheesy car games and pull over to check out the wackiest roadside attractions. Just make sure to check out your car before you leave and bring a reliable map or GPS with you.
If you only have a couple of people in your group or your car isn’t reliable, consider taking a bus or train to your destination. You can sit back and enjoy the scenery as you’re taken to your destination for a very reasonable price. Bonus: Using your student ID and booking your ticket ahead of time will save you even more money.
WHERE TO STAY
Far from being “hostile,” hostels are ideal for easy, convenient and cheap boarding. While you’re not likely to enjoy hotel amenities like private bathrooms, king-size beds or indoor pools, you will have a safe, clean spot to sleep. Check out hostels online before your trip to read reviews and compare rates.
If you have a big group, splitting the cost of a hotel room can end up being pretty affordable too. Make sure you look online at different travel sites to get the best deal, as prices often vary from site to site. Prices do go up as the dates get closer, so get the ball rolling now!
If the weather allows, consider camping! Packing up tents and paying for a spot in a nice campground creates a whole new kind of trip, full of s’mores and campfire songs. You can also check with your group to see if any of your relatives or friends have a place they’re willing to let you guys stay in, which would be a huge relief to your overall budget.
Eating out three meals a day will add up fast, and could end up becoming the biggest expense of your trip. Buy and pack food in bulk so you don’t have to rely on restaurants for every meal. In this case, hotel rooms with microwaves and refrigerators will serve you well.
Don’t let your tight budget keep you from having the time of your life this spring break! Use these resources and tips to get an ideal getaway for the least amount of money.
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Aside from the need to work, toil and slave to salt away one or two million bucks or more, there’s one thing that has long ticked me off about the whole topic of retirement planning — the single-minded focus on accumulation.
Entire libraries could be filled with the books, newspaper pieces, magazine articles, DVDs and CDs devoted to the why, how, when and where to stockpile assets for retirement. (And that’s just counting the stuff from Suze Orman!)
But almost no one focuses on the spending of those assets. There’s no overlooking that oversight, no selling short the impact of that shortcoming. Assuming retirees’ cash reserves will be finite when they saunter off into the sunset, and for most of us they will, wouldn’t it really be kind of nice if we actually knew how much we could safely spend in each of our glittering golden years?
The lack of guidance about how much to “decumulate” does quite a number on many older adults. Having spent a lifetime accumulating a nest egg, in part through high interest savings accounts and zero percent APR credit cards, they now fuss and fret about how much of that nest egg they can nibble away at yearly, without seeing their savings expire before they do.
The result is a ludicrous scenario in which otherwise responsible, level-headed older adults with hundreds of thousands of dollars in assets wring their hands with worry about spending their own savings. Imagine the questions they ask.
Should we buy a new Ford or Toyota, or conserve cash by acquiring a pre-owned 1988 Yugo? Should we replace that old sofa by visiting a nice furniture store, or by launching a midnight raid on a municipal dump? Should we re-use dental floss, whittle toothpicks out of downed tree limbs?
Do we have enough in the summer vacation kitty to exit the county for the first time?
The spending down lowdown
Anthony Webb, a researcher at the Boston-based Center for Retirement Research, decided he would launch a study to determine whether there might be a fairly simple formula to guide people in spending-down decisions.
Webb examined five different approaches, the first being the once-popular “four-percent rule.” That rule of thumb holds that it’s okay for retirees to spend about four percent of the amount they have at the time of their retirement in each year of retirement.
Another strategy tested was one of spending interest and dividends, but not principal. A third concept tied retirees’ withdrawals to their life expectancy. A fourth focused on the strategy of purchasing an annuity to provide guaranteed proceeds on a yearly basis over the course of retirees’ lifetimes.
It was the fifth strategy that delivered a real departure from the been-there, done-that routine. “I said what would happen if instead of following the four-percent rule, the household draws out amounts equal to the Internal Revenue Service Required Minimum Distribution rules?” Webb explained.
The IRS has a table that shows how much older Americans must withdraw each year from their 401ks and IRAs. That schedule of withdrawals is known as the Required Minimum Distribution, better known as RMD. The amounts are mandated because the IRS wants to get its eager hands on tax revenue it didn’t collect when moneys were deposited into the 401ks and IRAs tax free.
The dictated withdrawal percentages increase with age, reflecting that the individuals have fewer years before they will pass away and can, therefore, grab more. For instance, at 65, the percentage is 3.13 percent of year-before assets. That percentage grows to a minimum of 3.65 percent of assets at 70, 4.37 percent at 75, 5.35 percent at 80 and so on.
The envelope, please
In testing these scenarios on real-world households occupied by fretting, nervous retirees, Webb quickly eliminated from consideration the four-percent rule, which saw the last of its champions fall by the wayside during the Great Recession. Why so? Taking four percent or $40,000 of $1 million in retirement assets in the first year is fine. But what if a market meltdown shrinks that $1 million to $550,000 in Year Three? Continuing to take $40,000 a year will soon deplete the nest egg, quickly transforming the leisure-loving retiree into a blue-shirted, 25-hour-a-week Wal-Mart greeter.
Other approaches also fell short, and were too complex to follow. You guessed it. The strategy that proved A-OK, and that many retirees should consider pursuing PDQ, was the RMD. The strategy benefits from its simplicity, in that the IRS RMD tables are easily accessible. It was also a more real-world strategy, because the percentages are applied to the year-earlier principal, not as with the four-percent rule of the principal at time of retirement.
“We tested it for households more or less concerned about the risk of outliving their wealth,” Webb recalls. “And the strategy that came out best was a strategy of spending the interest and dividends and at the same time drawing out an amount of principal equal to the RMD tables.”
Webb agrees with this blogger that too much attention is devoted to building up nest eggs. “Thrifty, careful types do accumulate money,” he says. “It really is okay to spend it. That’s what it’s there for. The only question is how rapidly” to draw it down.
The year 2013 was a milestone for me with lots of life changes. As I step deep into my 30s now, I thought it might be interesting to take a look back at my 20s. If I could go back and give my 22-year-old self some sage money advice (I was just out of college and starting graduate school in a new country), what would it be? Over the years, I have made several statements that started with “I wish I had…” I have tried to recover from them, but I still wish I had never done them in the first place.
If you are in your 20s (or even 30s), here are some money mistakes to avoid.
Money mistakes to avoid in your 20s
- Not contributing to your retirement: This was the most damaging mistake for me. I still haven’t recovered from it. I was earning minimum wage while in graduate school and could have socked my savings away in a Roth IRA. At the very least, I could have started saving for retirement when I started my first job. I thought retirement was too far away and I should be saving for some immediate needs like getting a car. The end result — I didn’t save for retirement or a car or anything else. I just spent my entire salary. This mistake alone cost me more than $100,000.
- Buying more car than you can afford: My husband and I bought over $50,000 worth of cars. We both bought new cars. (We were afraid we would end up with a lemon.) Adding in the insurance for new cars and the interest rate for the car loan, it was over $70,000 down the drain. The only consolation is, we sold one of those and are planning to drive the other one into the ground.
- Not starting an emergency fund: This was the excuse I used not to start contributing to my retirement, but I never ended up starting an emergency fund either. Every single month, I would always end up with one big expense or another and I told myself I would definitely start the next month. I didn’t actually do it until my late 20s.
- Living on credit cards: Thankfully, I never got deep into debt, but I was always playing a dangerous game by living high on credit cards and emptying any savings I had the previous month to pay for it. Credit cards taught me to live paycheck to paycheck which I continued to do until my late 20s.
- Not setting financial goals: I never stopped to think about what I would like to do in five or ten years. Only when we got married and everyone around us began buying a home did we realize that we didn’t have any savings to show for our working years. This mistake cost us more than money. We were not saving anything — even after we started working with a budget — simply because we never set any financial goals for ourselves. Early in our early marriage, we would fight at least once every month about our lack of savings.
- Trying to keep up with the Joneses: This one was not terribly damaging to us personally because we wised up on this issue pretty quickly. But what I didn’t realize was that I was trying to keep up with my parents. Yes, parents. Somehow I missed the logic that it took them over 30 years to accumulate what they have and I can’t have it all at once. I tried hard and paid the price.
- Not starting the habit of paying myself first: Thanks to my choice of career, I was well paid. If I had only learned to save first instead of waiting to pay all the bills and then save the rest, I would be well ahead of the curve now.
There are some money mistakes I saw my friends do. I am thankful I didn’t make them. But this list would be incomplete if I didn’t include them here.
- Owing too much in student loans without learning about career prospects: In India, where I grew up, parents play a major part in picking the career for their children. While I don’t agree with that idea in general, it definitely encourages the discussion about the career prospects after graduation long before starting college. One of my friends who went to grad school with me had over $100,000 of student loans and he majored in English literature with absolutely no idea of what he was going to do with that degree.
- Going into debt for a wedding: With wedding costs skyrocketing, it makes sense to manage this even carefully. You don’t have to elope to cut costs; there are plenty of ways to have an awesome day for a fraction of the price.
- Not carrying health insurance: The young feel invincible, but all it takes is one small accident to start the downward spiral of medical bills. A close friend of mine thought she didn’t need insurance, got pregnant and due to some complications now has $89,000 of medical bills that I hear about every time I talk to her.
Now that I am in my early 30s, I hope not to write a list like this one ten years from now. I would like to think I am much more financially savvy now and will think twice before making any big financial decisions. Only time will tell.
What were your biggest money mistakes?
This post comes from Keith Guyot at our partner site Zing.
Gold prices fell more than 25% from January 2013 to January 2014, according to Goldprices.org. Silver was down nearly 36% in that same time period. Meanwhile the Federal Reserve’s balance sheet ballooned from $3 trillion to $4 trillion in 2013, and has grown nearly fivefold since the beginning of the recession in 2008.
Myriad Federal Reserve policies have come and gone in the past decade. A vast majority of them either had no effect on precious metal prices or positively influenced them. It was late May 2013 when the Federal Open Market Committee began hinting it would taper QE3. The precious metal market reacted to the news accordingly, with gold rising from about $1,192 per ounce in June to nearly $1,400 by July.
The FOMC quickly scuppered its QE tapering plans based on disappointing summer unemployment numbers. By December, gold subsequently lost all it had gained in those two summer months. But gold is now up again by $48, or 4%, as of January 20, as the FOMC officially announced a $10 billion per month reduction in QE starting in January 2014. And it appears this trend will continue throughout 2014 as long as QE tapering continues.
Good Job Numbers Golden for Precious Metals
Some economists believe the Fed’s plan to taper QE3 may have to be cut short at some point in 2014. Peter Schiff, CEO of Euro-Pacific Capital, said via CNBC that the Fed must keep “spiking the punch bowl” because it cannot remove it completely without “ending the party.” But as long as the unemployment rate continues to fall, the Fed is comfortable with tapering.
Unemployment dipped to 6.7% by December 2013, the lowest reading since October of 2008, according to the Bureau of Labor Statistics. Steven Cochrane, managing director of bank stress testing and economic forecasting firm Moody’s Analytics, told Pew Charitable Trusts that jobless rates across the four main regions of the U.S. are as low as they’ve been since before 2008. The Fed expects unemployment to hit the magic 6.5% mark well before summer.
Gold A Commodities Exception
The prices of several commodities, including soy beans, sugar and copper, have hit all-time record highs at some point since QE1 commenced in November of 2008. Gold is no exception, peeking at $1,889.70 in the second half of 2011. QE has increased the money supply substantially and has also artificially inflated commodities prices along with it.
Gold has always been viewed as an inflation hedge for investors. As the housing bubble blew up in the mid-2000s, so did the price of gold. The difference today is that several other large banking institutions (Bank of England, People’s Bank of China, Bank of Japan et al.) have also adopted quantitative easing policies. The U.K. plans to continue its QE unchanged, while Japanese Prime Minister Shinzo Abe plans to expand his country’s initiatives.
A global correction cannot happen with gold until all asset purchase programs are ceased. Regardless, the $1252 per ounce price on January 20 will likely look like a bargain by summer.
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In his State of the Union address, President Obama introduced the myRA account. It stands for “My Retirement Account.”
WHAT IS IT?
The myRA is a new variant of the Roth IRA, with the following features:
1. Contributions are after-tax, like a regular Roth IRA, not pretax like a regular IRA or 401(k) fund.
2. All gains accumulate tax-free.
3. The annual limit remains $5,500 (or $6,500 if you’re 50 or older) for all IRAs including myRA.
4. Your myRA account can only invest in Treasury bonds (current return just under 1.5 percent according to the Wall Street Journal, with a ten-year average of 3.6 percent).
5. All money contributed is guaranteed by the U.S. government, so you can’t lose.
6. It will have no fees. Uncle Sam will pick up whatever administrative fees there are, for employee or employer.
7. Withdrawal of the principal is tax-free at any time.
8. Withdrawal of the interest is tax-free if done after age 59 and a half.
9. The minimum to start is $25, with a minimum contribution of $5/month.
10. Once your myRA balance reaches $15,000, you must transfer it to a regular Roth IRA.
11. You may switch to a Roth IRA earlier. The myRA plan is intended as a feeder, not a competitor, to traditional Roth IRA accounts.
12. The plan is not administered by an employer, but by an outside private firm (still to be nominated).
13. MyRA accounts will be offered through employers via payroll deductions. (Employer participation is not required.)
14. Workers can contribute from multiple part-time jobs.
15. According to the Treasury Department, it looks like the myRA program will only be open only to those who have direct deposit.
16. There will be an income limit. Only households earning up to $191,000 a year will be eligible for the account ($129,000 if you are single).
17. Employers won’t face any fees, fiduciary liability or reporting requirements — yet.
18. Your myRA is totally portable from one job to the next.
19. There’s no provision for employer matching.
This new vehicle is aimed at the following kinds of people:
- Those without money to open regular accounts
- Those without the discipline to save or invest (automatic payroll deduction takes care of that)
- Those without the knowledge of how to invest
- Those who are fearful of losing their money
- Those who are intimidated by brokers, company retirement plan experts or financial planners
- Those who work multiple part-time jobs
It always takes a few weeks to digest all the nuances of a new program, and myRA is no exception. Here are some of the most obvious benefits and drawbacks of the new program so far:
1. Safety: Warren Buffett’s famous first rule of investing is: Don’t lose it. With a myRA, you can’t lose the money you put in.
2. No fees: This is not a trivial benefit. More and more, traditional 401(k) funds are being criticized because their fees eat up most of their returns, which are often lower than the S&P 500 to begin with. Also, many employers refuse to offer retirement programs, because they get stuck with a bill for that. With myRA, nobody pays any fees.
3. Portability: The myRA program could be a first step in separating people’s retirement funds from their employers. This is not only valuable for people who change jobs, but also the increasing number of people who hold down multiple part-time jobs.
4. Administrative freedom: Freeing employers from administration and liability may bring more employers into the fold to help their employees with their retirement funding.
5. Automatic deductions: Psychologically, it helps participants by taking the money out through a payroll deduction — the principle of automating your savings (out of sight is out of mind).
6. Encouraging saving: The habit of saving, if created through this program, will succeed where others have failed. It’s not to create millionaires, but it can help create that saving habit.
7. Simplicity: It avoids the intimidation workers face when they’re presented with having to make investment choices between a bewildering array of funds with names that all sound the same.
8. Emergency fund: Something not envisaged by the creators, the myRA might end up being the perfect way to start an emergency fund: principal withdrawals are tax-free and unrestricted, and the interest rate is almost double that of a regular savings account. Not to mention the deductions are automatic.
9. Cash return: A myRA will be a perfect place in which to store the cash portion of your investment portfolio, because of the low risk, and the return: higher than money market funds and savings accounts.
No government program is perfect, and critics wasted no time pouncing on the proposal. One even went as far as to suggest this is all a communist plot by the government to unload all those bonds it has been buying from the Fed as part of the Quantitative Easing program. Please. A quick calculation, based on maxing out at $15,000, exposes that criticism as nothing more than the old notion that “haters will hate.”
Others pointed out that myRA will not solve the retirement crisis, but it wasn’t designed to do that in the first place.
It was designed to get more un-involved people into the mindset of saving, by making the entrance into the system easier and risk-free.
Nevertheless, there are some real drawbacks:
1. A low return is the quid pro quo for no risk. (However, when you consider the after-fee return of 401(k) or IRA funds, it doesn’t look quite as bad.)
2. Employers are not required to sign up. One of the big elements of America’s retirement crisis nobody talks about is the fact that many people are shut out of the current system by employers who simply refuse to participate. The myRA program doesn’t address that problem, so many (if not most) of the workers this is aimed at will still be shut out of a tax-advantaged retirement savings plan.
3. The only means of contributing is by direct deposit. Those who are paid by cash, debit card or check are excluded. That’s unfortunate because I suspect there’s a big overlap between this group of workers and the group the Administration is trying to help.
4. It doesn’t address the main problem behind retirement — under-funding. Lance Roberts, chief executive of STA Wealth Management, a Houston-based money manager, was quoted in the Washington Post as saying, “If you look at all the options out there — IRAs, Roth IRAs, savings bonds — the reality is that there are plenty of savings vehicles out there. Having vehicles to save money is not the problem. The problem is having money to save.” And, of course, the willingness to make sacrifices to save.
In terms of the overall problem — not enough Americans are saving enough to fund their retirement — the program can best be described as good, but modest.
The myRA is aimed at filling a gap in the current array of retirement savings vehicles, and it succeeds to a great degree.
It will draw in more savers if more employers can be enticed to participate (it’s free to them) and if it can be done without requiring direct deposit.
I’m retired, so I don’t have direct deposit (because I don’t have a job, happily). But if I was able to, I’d definitely use a myRA for at least my emergency fund.
How about you? Can you see a myRA in your future?
To my way of thinking, putting your money behind the Bitcoin represents a bet rather than an investment. Of course, the distinction can be confusing — outside of sports pages, the place you might most often see people referring to bets is in the financial news. Any large or prominent financial stake in something is likely to be referred to as a bet.
I believe there is an important difference between a reasoned assumption of risk (i.e., an investment) and an all-out win-or-lose gamble (i.e., a bet). With each passing year, I appreciate that distinction more and more because I’ve seen people put their money at undue risk when they mistake a bet for an investment.
There is no hard-and-fast definition that captures the distinction between the two, but below are some thoughts on how to tell the difference.
It’s a bet rather than an investment when:
- It’s an all-or-nothing type of proposition. Relatively few publicly-traded companies suddenly go completely out of business, so in most cases when you invest in the wrong stock, your downside might be 10, 20, or 30 percent. Bets, on the other hand, are all-or-nothing — you win or you lose. This doesn’t just apply to cases like betting on the Broncos in the Super Bowl. Certain financial transactions, such as uncovered options, can also mean your entire investment is riding on whether you are right or wrong.
- It depends entirely on a single event. If you make an investment in a good company that happens to miss one quarter’s earnings, you will have plenty of chances to make up for it in subsequent quarters. Like bets on a sporting event, though, some financial propositions are based on one outcome or have short-term expiration dates, and so they don’t give long-term fundamentals a chance to come into play.
- You live or die depending on popular opinion. Shorting a stock is a good example of this. It is a risky proposition, because you might be right that a company is overpriced, but as long as people keep paying more for it, you lose. Shorting a stock is also a risky proposition because your downside is theoretically unlimited.
- Your interests are not aligned with those of the people in control of the enterprise. Gamblers are often frustrated when they have bet on the Wildcats to win by ten, only to see the Wildcats sit on a nine-point lead to run out the clock. This is a reminder that the Wildcats’ coach is interested in winning the game, not beating the point spread. These days, you have to look carefully at executive compensation packages before you invest in a company. Executives might have specific incentives which are not lined up with your goals for the company as a shareholder.
- You cannot obtain fundamental business information. For all the media coverage that precedes the Super Bowl, much of the game plans the teams have in store is kept top secret. You can bet on the game, but you don’t have all the information you need to understand how it will be played. Similarly, investment schemes like hedge funds with intentionally opaque investment strategies put you in a position of making a blind bet rather than an informed investment.
- You do not perform fundamental analysis. Then again, often the right fundamental information is available but people do not bother to do the analysis. There is more to a business plan than having a hot product, and an investor should have a good feel for a company’s business plan. Also, even a great company can be overpriced, so you need to know how the current price relates to projected earnings.
- It is driven by emotions. Part of the reason people bet is for the emotional rush — plus, having a different kind of stake in the game can make a blowout like the recent Super Bowl more entertaining. Investing, on the other hand, should be cold-blooded, with decisions driven by the head rather than the heart.
Don’t get me wrong — this distinction between a bet and an investment doesn’t determine whether or not something is a good idea or not. There can be bad investments just as there can be good bets. However, the distinction does relate to whether or not the decision is speculative by nature; and based on that, you should determine whether your financial future should be at stake or just a little pocket money.
This post comes from Halina Matt at our partner site Zing.
If you live in these United States, then you’re painfully aware that so far, this has been one of the coldest winters ever on record. Well, technically I’m not sure if it’s the coldest on record, but man, it sure feels that way, doesn’t it? Now, if you’re freezing when you step outside your house all bundled up in a warm coat, scarf, hat and gloves, can you imagine how your little furry friends must feel? That fur doesn’t provide as much protection from the elements as you may think. In fact, there’s an old saying: “If you’re cold, so is your pet.” It’s imperative that you keep their safety in mind as we feel the repeated effects of the aptly named polar vortex. Here are some tips to help you keep Fido and Mittens safe and warm.
Keep Them Indoors
The most obvious and logical precautionary step is to keep your animals indoors as much as possible. Just like their human companions, pets are subject to hypothermia if they’re left outside too long in the freezing cold. As the Humane Society points out, pets can suffer permanent damage due to this exposure. Remember how your face froze by the time you walked down your driveway to your car? Well, your dog is experiencing that same discomfort, and even outdoor cats should be kept indoors during the cold winter months.
If keeping your pets indoors all winter isn’t an option, AccuWeather.com notes that it’s imperative to your pet’s safety that you build a waterproof safe haven to protect them from bitter winds and dropping temperatures. Don’t forget to make sure it’s stocked up with clean and dry bedding, and provide plenty of food and water because keeping warm requires lots of energy. Be sure to check on the food and water periodically, though, to make sure it hasn’t frozen.
Who doesn’t love an excuse to buy cute little pet sweatshirts with matching booties? Well, according to the American Veterinary Medical Association (AVMA), those added accessories are not only fashionable, but they’re also functional. Short-haired dogs especially can benefit greatly from wearing a sweater or dog coat, so it’s a good idea to have a variety around the house to keep your dog warm when he ventures outside. Booties can also provide some added protection to cold-sensitive paws. Wipe down your pet when they venture back inside, removing any damp clothing that can make them cold, and avoid shaving your pets down to the skin until temperatures warm up.
Keep Them on a Leash
In cold and icy conditions, it’s very important to keep your dog on a leash. According to the ASPCA, in winter, dogs can easily lose their sense of smell and become lost. Keeping them leashed – better yet making sure they have their ID tags and microchips – will help ensure they stay safe by your side.
Other Safety Concerns
As with any time of the year, it’s extremely important to be aware of dangerous chemicals that can harm your pets. Antifreeze is of particular concern in the winter, along with salt and other ice-melting chemicals that are prevalent in cold weather.
Cats sometimes find shelter under the hoods of cars in the winter, so the ASPCA recommends banging loudly on the hood of your car before starting it to prevent any injuries.
Do you have any tips to share with pet owners? Let us know in the comments below!
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