STYLETHREAD -- LET'S TALK SHOP!

esquiress · Marc Jacobs

budget/finances question

lsubatgirl · Gucci

Ok I'm not an expert but the general consensus is save 10% of each paycheck. I usually save 20-30% just because I'm a student and don't have any real expenses.

IRAs are good and the quicker you start saving the more money you will accumulate. There are 2 types: Roth IRAs and i think just regular IRAs. The difference is when you get taxed on them. They are also tax deductible up to $3000 a year that you contribute (this is a deduction for AGI not a deduction from AGI (the standard deduction) so it lowers your taxes.) I can look in my tax book to see the exact difference and which on is taxed when and the penalties associated with cashing them in early (you are penalized a pretty penny).

Now the credit card issue: To improve your credit card score I would not close your current credit card. It will kill your score. Also having too many cards open will kill your score. How many do you have open now (including store cards)? If its not more than 5 then open the AMEX if you like the rewards and payment plan and pay it off every month but make at least one charge a month or every 2 months on the VISA even if its 1 tank of gas to keep it active and keep your score high.

My suggestion is to look into the IRA accounts and open a savings account and just divide the money accordingly. If you can swing $3000 in an IRA this year (can be spread out) the definetly open it. If you want to save more and get to use the money now then open a savings account with ING (I'm not saying it for the referral money) because you'd be saving money there you could get to in an emergency situation without getting penalized and earn a higher return than any bank can offer. You could also do automatic savings plans where they take out money for you every so often and build up some christmas or vacation money.

Ok that's all I know about finance. I am taking a personal tax planning class this upcoming semester so by may I should know more

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esquiress · Marc Jacobs

seriously, lsu, thank you so much. i really appreciate you breaking it down for me.

ok, so i think i'm going to open up whatever kind of ira gets you the tax break and put in enough to hit the 3000 mark. but i will also open up an ing and have them take out 15% a month automatically. do you think that sounds good?

and as for cc's--this is what i have:

BofA visa (no balance, think i actually have a $10 credit).

MBNA visa (what i use all the time, has about a thousand on it but i pay it off every month)

Neimans (no balance, just paid it off)

and i think that's it. so maybe opening up an amex would be ok. also, how do you know what your credit score is? do you have to pay to find out?

on another note, lsu maybe you should consider counseling people on their finances as a career? because i think you have a real talent for it. like our conversation reminded me of that commercial that starts off w/ a couple on the beach talking about their retirement and then you find out the guy isn't the husband, but their financial planner? that's such a cool commercial.

Elle · Hermes

My suggestion would be to spreadsheet your current expenses. Do constants first (bills, loan pmts, etc). Then play around with the numbers - figure out how much 10%, 15%, 20% of your income would be. Find a number you're comfortable with that still leaves you room for shopping and incidental expenses. Then, take your money to a financial adivsor - I've had the best luck finding a good one through word of mouth. They can help you open the best retirement account for you, and may also suggest a seperate investment account aimed at higher returns. Getting your money into an account so it can grow as early as possible is the key to a comfortable retirement. I'll post some stats when I get back from lunch. HTH!

Farrah · Marc Jacobs

Well esquiress, you are in luck! The Fair Credit Reporting Act allows people to get one free credit report a year from all three major credit bureaus starting 2005. Because it began January 1 it is broken down by sections of the country of who can get thier report at what time. California is eligible now though! Here is some very good info about it along with links of where to go to get your free report.

http://www.ftc.gov/bcp/conline/pubs/credit/freereports.htm

I get a copy of my credit report and score every 6 months. The report and score cost a total of $15 which doesn't bother me at all. I go through www.truecredit.com . It is really easy to use if you want to try that out to get your score. HTH!!

lsubatgirl · Gucci

Hey girl. There are 3 major credit reporting companies: Equifax, Experian, and Trans Union. Each one is sorta different but not sure how. They are starting something national this year where you can get a free credit report.

Here is the website for free credit reports: http://www.dosmundos.com/editions/%20Vol24-01-12/business/bz-Beng.htm
All of the western states can get it now. They are rolling it out at certain times to different states to keep from getting overloaded.

Let me check my book for IRA info because both will get you the tax break. The difference I think is with an IRA you aren't taxed now but later and a Roth is tax now but not later but I'm not sure. I'll check my book for you when I get home.

I love doing tax info but there aren't any jobs out there for CPAs doing personal tax stuff because of H&R Block and Jackson Hewlitt taking over

so I'll just have to do it for free on here

e_doli · Dooney & Bourke

if you can be responsible with a credit card, you should get one with rewards and use it for everything you can. then pay it off at the end of the month. that way you're racking up tons of miles (or whatever).

bumblebee · Dooney & Bourke

hey--just thought i would add to the IRA discussion to clarify a little bit. the difference between a Roth IRA and a regular one is actually how you put the money in. the regular IRA is before-tax money, which means that it gets put in before you pay taxes on it (like a direct deposit from your paycheck) and then you declare it on your tax return at the end of the year. i THINK that you don't pay taxes up front on this money, but you do pay a huge amount of taxes when you eventually take out the money--it's a very high percentage.

the Roth IRA is after-tax money, which means that you write a check to put the amount away after you have already paid taxes on it. you have to declare it on your return, but you don't get taxed again on it. the penalties for early withdrawal are similar, i think, but with the Roth, once you hit retirement you can cash it out completely tax-free because you have already paid the taxes on that money. it's just a matter of whether you want to pay the taxes now or later.

Farrah · Marc Jacobs

FYI, my financial goddess Suze Orman always says that a Roth IRA is a better option. I love that woman! If you have never read any of her books or watched her show on MSNBC you should check them out. She knows everything there is to know about personal finance and she is a motivator. She is the reason I got out of credit card debt:).

lsubatgirl · Gucci

IRA info from the IRS

It explains all the differences, how to set them up, how to fund them, tax consequenes and benefits, etc. Hope it helps.

Ok for tax purposes you can't deduct Roth IRA contributions. Only traditional IRA contributions.

-- Edited by lsubatgirl at 16:08, 2005-01-13

From my tax study guide:
Individual Retirement Accounts (IRA)
Contribution ceiling is lesser of $3,000 ($6,000 for spousal IRAs) for years 2002-2004 or 100% of earned income. Person age 50 or over by year end may make catch-up contributions. (Max contribution limit is increased by
$500 in years 2002-2005 & by $1,000 for 2006 & thereafter). Deductible IRA contribution (Ded for AGI) may be reduced if taxpayer is an active participant in another qualified plan. To extent individual is ineligible to make
deductible contributions, a nondeductible IRA contribution may be made. (Income accrues on account tax deferred). Taxed when you take out.

Roth IRA:
Contributions are nondeductible. Qualified distributions are tax-free if: 1. Made on or after age 59 1/2, 2. Made to beneficiary on or after participants death, 3. Participant becomes disabled, 4. Used to pay for
qualified first-time home buyer's expenses ($10,000 limit). Other distributions may be taxable: Distributions first treated as nontaxable return of capital to extent of contributions. Remaining distribution treated as taxable payout of earnings.

-- Edited by lsubatgirl at 16:22, 2005-01-13

esquiress · Marc Jacobs

ok sorry i got totally confused. how do you put money into an ira before taxes? my pay stub already has taxes taken out?

lsubatgirl · Gucci

I think you have to go through your payroll department to get them to take it out before you are charged taxes on the earnings.

esquiress · Marc Jacobs

i think i'll just do a roth then. what do i do just walk into a bank and ask to open up a roth ira?

also, farrah thanks for the link, i just requested a credit report!

lsubatgirl · Gucci

That is the only thing I don't know. You might want to check around on the internet to see who offers them and who gives the better deals.

bumblebee · Dooney & Bourke

my dad is my suze orman, and he says the same thing--the roth IRA is the better choice. i don't understand fully why, but he's really good at this type of thing (he is a financial planner).

my roth IRA is in a mutual fund. you can do it through a bank or you can do it through your broker in almost any type of mutual or bond fund. it doesn't really matter that much what it is, it just has to be an investment account that is designated specifically for your roth IRA and you obviously can't mix your funds around with any other accounts.

Farrah · Marc Jacobs

I was just checking out the Suze website and she has a new book coming out that I think would be perfect for a lot of us. I am definitely going to pick up a copy!

http://www.suzeorman.com/books_young.asp