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Why I Picked a Roth over a Traditional 401(k)

It seems like Roths are all the rage these days. I have a Roth 401(k), which has similar rules to a Roth IRA. While I wouldn't say a Roth is always the best choice, here are my reasons for picking Roth over Traditional.

First are the taxes. In a Roth the taxes come out on the front-end, so taxes come out of my paycheck and then the money is put into my Roth 401(k) account. A Traditional IRA works the opposite way- I would put in money from my paycheck before the taxes are taken out, and then pay taxes on my withdrawals in retirement.

I prefer having taxes taken out on the front-end for two reasons-

I plan to increase my earnings throughout my life, so I'm in the lowest tax bracket now than I will be later in life. Thus my taxes are lower now than they will be later. Who knows what tax policy will be like in several decades when I start making withdrawals? I don't like that uncertainty, so I chose to pay taxes now instead of risking that rates will be higher later.

Roths also have more flexibility than a Traditional IRA. Traditional IRAs have required minimum distributions starting in your early 70s because the government doesn't want to let you defer taxes on your money growth forever. Since taxes are taken out on the front-end of Roths, there are no required minimum distributions, giving flexibility on when and how much I can withdraw.

I prefer a Roth, but the most important thing is to start saving in a retirement account early.

#401(k) IRA retirement roth taxes

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Why I Spend $4 on Lunch

Figuring out what to do for lunch at work has always been stressful for me. Getting lunch from a restaurant (or even a food truck) can costs about $10. That’s $50 a week and about $200 a month. Bringing my lunch to work is an obvious way to save money, but I am not good about waking up early to pack a lunch. Plus I don’t like planning out lunches ahead of time, and I despise carrying tupperware back and forth each day. For several months I brought some sort of frozen meal for lunch. At first it was Lean Cuisine and then I discovered some delicious frozen Indian meals at Trader Joe’s that each cost $3.99. This is when I created my lunch budget: I can go out for lunch if I don’t spend more than what it would cost to bring it. It’s not a hard and fast rule but helps keep me in line most days from overspending. So how do I do it? It’s been a fun challenge, and I’ve had to be creative. I check receipts from chain restaurants because they often have surveys that only take 2 minutes and will give free food in return. Hint: Subway receipts have a survey that will get you a free cookie. An easy go-to is pretty much anywhere that sells pizza by the slice. Sometimes I’ll get a large sandwich and save half for dinner (thus cutting in half the cost-per-meal). For now my $4 lunch plan gives me a good amount of options of places to eat. Although $4 for lunch might not work perfectly for everybody, I think it’s important to pick a lunch price limit to keep a handle on your monthly budget. If I spend $4 a day, that’s $20 a week or $80 a month. That leaves me with about $120 extra each month that I can put toward something else like an extra student loan payment. I do have a big exception to this rule- I’ll spend more on lunch if it will help me build relationships or network. About once a week I have lunch with a friend or go out with people from my office because I think of these lunches as long-term investments.

#overspending #network #monthly budget #investment #free #food #lunch

Keeping Under Budget with Cheap Rent

I live in Washington, DC, which is one of the most expensive metropolitan areas in the US. When I first moved here I worked in the public sector and had read that housing should cost 30% of your monthly income or LESS. I focused on keeping it less. By keeping my rent well below 30% of my monthly (after-tax) income, I have a lot more breathing room in my budget. This is what enables me to pay down my student loans, save for retirement, travel, and still go out and have fun with friends. Instead of worrying about every dollar I spend on coffee or at happy hour, I found it a lot easier to just cut down my biggest single expense - rent. It took a lot of hustling on Craigslist, and I definitely looked at some places that were really affordable but awful. I knew I needed to be happy in my new home, so I had to figure out how much weight to put on each of my priorities: price, location, size, privacy, fanciness. The least important for me was fanciness. There are tons of new construction apartments with awesome amenities in DC, but for me it's jus not worth it. Most of those one-bedroom apartments had rents that were close to my monthly salary! I had a great time living like a student in college, and I'm still young and adaptable, so why get used to living such a luxurious lifestyle now when I'll be just as happy day-to-day in a low-key row house. Picking to live in a row house meant I would be giving up some privacy. I was NOT willing to share a room. Other than that, I'm fine sharing bathrooms and living spaces. In retrospect, this decision was fantastic. Some of the best friends I've made are from the two houses I've lived in since moving here. Similar to fanciness, size just didn't mean much to me. I moved to DC with two suitcases of clothes. Really, that's it. So I needed a house that came furnished, which most row houses on craigslist are from years of past roommates. With so little stuff and the desire to keep purchases of furniture to a minimum, a small space would actually be great. I live in the smallest room in my house, which has five bedrooms (yes, I have four roommates). When a larger bedroom opened up, I stayed in my room since it has the cheapest rent. Paying over $100 more a month for a little extra floor space just doesn't make sense to me.

Location was the toughest decision. I don't have a car and don't want one, which means I rely on public transportation. Living close to the metro would be ideal, but it would also increase my rent. I chose to live about a mile from a metro but just two blocks from major bus routes. My neighborhood is awesome and totally walkable, and I can still get around to other parts of the city pretty easily. It's not as convenient as living right next to a metro, but I've become comfortable with my way of getting around. All in all I was really lucky to find a house in good shape and in a good neighborhood with a small room open and a small monthly rent to match it (currently $610). Having a few extra hundred dollars in my budget each month really does give me more flexibility. It is possible to find a truly affordable place to live, you just have to be willing to look.

#transportation #roommates #rent #monthly budget #housing #apartment

Paying off My Student Loans by Age 26

On May 20, 2012 I graduated from college with about $35,000 in student loans. Considering I paid for college on my own and went to a top private school, I don't think this is an outrageous amount to owe. But then again, it is a lot of money. So I have been making (much) more than the minimum payments and am focusing my resources on paying off the loan with a higher interest rate first. I am still contributing a good amount of money to my 401(k) account and will write another post about why I'm prioritizing retirement and getting out of debt. My loans originate from two sources: an unsubsidized loan from the federal government with an interest rate of 6.8% and a subsidized loan directly from my college with an interest rate of 5%. Both entities outsource repayment to loan servicers, so the worst part was trying to figure out who I owed money to. I know that sounds crazy, here I was trying to hunt down a company so I could give them money. I waited for my six month grace period to end, thinking when the time came, they would want their money. I was right. I'm sure lots of other recent grads follow this same plan. The downside was interest kept accruing on my federal loan. I wouldn't recommend anybody purposefully take this route. Especially if your loans are unsubsidized, don't wait. Start paying them as soon as you get your first paycheck. The minimum on my subsidized loan cost $98 a month. About a year ago I increased my automatic payment on that loan to $150 a month. I know that I could use that extra $52 to pay my loan with a higher interest rate, but my thoughts are (1) I probably spend less on other things than if I had this $52, (2) the interest rates on the loans are pretty close at 5% and 6.8% so I'm not losing much in the interest difference, and (3) this will help drop my subsidized loan much more quickly. Plus $150 is totally affordable. Then I turned my attention to my unsubsidized federal loan with a rate of 6.8%. The minimum monthly payment was about $280. Since I want to be out of debt as soon as possible, I'm putting every extra dollar I have to paying off this loan first. I make it a priority to pay at least $800 a month and try to scrap together as much more as possible. I make multiple payments a month, pretty much with every paycheck and when I realize I have a little extra in my checking account. That means some months I pay about $800, but my best month I paid $1,450. I love paying my student loans. That's right, I love it. I like checking to see when my last payment hits my account and how much my total has dropped, even if it's just a hundred dollars. Making payments a few times a month not only helps me constantly scrap together payments but also rewards me with seeing the frequent drop in total debt owed. At this rate I will be done with my federal loans by the end of 2015. Then I'll turn my attention to my smaller, subsidized loan, which should take about 4 months after that point to pay off completely. That means by age 26 I will be debt-free.

#unsubsidized #subsidized #student loans #interest rate #debt #automatic payment

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Welcome to Yuppie Money

Welcome to my blog, Yuppie Money. Who am I? My name is Christina, and I am a young professional living in Washington, DC. I started researching financial planning when I first moved to DC in the spring of 2013. It was my first time working and living on my own, and I managed to happily live in DC even on a less than stellar salary. Since then I've increased my knowledge on personal finances and thankfully my income as well. I focus on information relevant to myself and other young professionals, especially those in larger metropolitan areas. My advice is all about the basics. Over the last few years I've devoured books, newspaper journals, and websites about financial planning. I've tweaked all of that information for young professionals. Here are what I consider my own personal credentials: an excellent credit score that's comfortably above 800, a solid emergency fund, a retirement account that I regularly contribute about 10% of my income to, and a plan to pay off my student loans by the time I turn 26 (I graduated with about $35,000 of debt). Although I don't have any official credentials just yet, I'm doing a solid job running my finances in one of the most expensive cities in the US and still have money left over to enjoy life. So why do I care so much that I want to spend my time reading and writing about financial planning? Well I'm pumped for retirement. I want to live in a retirement community and drive a golf cart and travel. It will be just like college except I'll have money to enjoy life a little more. I'm hoping to have lots of happily retired friends by my side, so I want to inspire more millennials to get their financial life in order now. I hope this helps! Christina

Building Credit - Credit Cards

Here's the easiest way to start- get a credit card. But credit cards are evil, debt-shoveling tools that hook you in and then charge you lots of interest forever, right? Wrong. My mom always warned me against using credit cards and getting into debt. You can't spend what you don't have, and you can keep that in check by only using cash and debit cards. The problem with that is you miss out on building credit and getting rewards.

It wasn't until after I graduated from college that I really started looking into how to manage my life and money. Most of the articles I read led me back to the importance of building and maintaining credit. Besides my student loans, I didn't have much else to my name. Getting a credit card was the perfect place to start. Here are the things you should do to help your credit score and get a few rewards in the process:

Pay off your entire balance early every month

Spend less than 30% of your credit limit

Keep card accounts open even when you don't use it anymore

Here they are in detail- 1. Pay your bill. Duh, if only it were that simple. So here's what you need to do: pay your bill in full early every month.

Set up an automatic payment to pay the full balance. My account sends an AutoPay Reminder email a few days before so I can double check there's enough money in my checking account. You can also set it up to occur the day after you are paid each month to make sure you have money in your bank account.

2. Spending more than 30% of your credit limit damages your credit. That's right, it's not just going over your credit limit that can hurt you. Here are some ways to make sure you don't do it:

Increase your limit. You can do this online or by calling. I'm not saying spend more money. I'm saying if you put everything on your credit card (and I'm an advocate of doing so), then this could hurt you if your limit is too low.

Pay your bill more often than just once a month. You don't have to wait util your bill is due to pay it. If you make some big purchases, you can pay off your card right after so a big purchase doesn't use too much of your 30% credit limit.

3. The length of your credit history is a factor in your credit score, and closing old cards reduces your credit history. Keep accounts open even if you cut up the card and never use it.

Hint: If your card has an annual fee you don't want to pay anymore, call the company and switch to a basic card with no annual fee.

4. Credit rewards are great, so make sure you find a card that maximizes points where you spend the most money. You can use different cards for different rewards. My Miles by Discover card earns double points on travel and restaurants, so I always pay with this card when I eat out or buy flights. My Bank of America credit card gives me 2% cash back at grocery stores, so I always pay for my groceries with that card. Hint: It considers Walmart a grocery store too. Bottom line: use credit cards responsibly to create and improve your credit. Rewards are just an added benefit.

#debt #credit rewards #credit limit #credit history #credit cards #credit card #building credit #automatic payment #annual fee

Yes, You Do Need an Emergency Fund

My first year out of college I lived with my mom, found a full-time job that paid about $2,000 a month, and saved no money. None. And I was living at home for free and eating for free and driving my car for free. Luckily I've stopped kicking myself long enough to start this blog about why your early 20s is the best and easiest time to get your financial life figured out. The beginning may seem obvious: save money. But why and how and for what? Let's begin with your "emergency fund." You need three to six months of expenses saved in cash to cover an emergency like losing your job. Retirement accounts, investments, bonds, and certificates of deposit (CDs) don't count, but I'll come back to why those are important in a later post. Back to the emergency fund- even if you have no expectations of being unemployed, this will come in handy for other emergencies like car repairs, medical bills, or a last minute flight to see a dying relative. Just because we don't want these things to happen doesn't mean we shouldn't be prepared.

What expenses should you have covered? Factor in your monthly bills and expenses such as rent/mortgage, car payments, insurances, groceries, utilities, transportation costs, and loan payments. I add a little extra to that amount so I have some wiggle room for a night out with friends and other things that don't fall under the monthly expense category but I know I'll end up doing. If you don't already have and emergency fund, a great time to start building one up is right after college while you're still in your grace period for your student loans if you have any. Has that ship sailed? Well you're not alone, mine did too. Start with $100 a month. Put it in a savings account. Add more a month if you can. Automate the savings if that makes it easier for you to part with the money. And yes, you can afford it. Cut out $10 lunches, a night out on the town, buying a new pair of boots, or something else that you know you don't absolutely need.

It can be tough to see thousands of dollars sit in an account going unused. I wanted to make the most out of my money, so I did a quick internet search to find an online savings account with the highest interest rate. Although the highest I found at Barclays Online Saving is still below inflation at a measly 1.0%, it is much higher than the 0.1% I was getting at my original bank. Now my emergency fund makes a few extra dollars each month. These rates change, so do your own internet search to find the best current rate. I linked my Barclays Online Savings account to my checking account at Bank of America. Now I can transfer money online between the two when needed, but I can't just stop by an ATM to pull money out of the savings account. This makes me think twice before using my emergency fund to cover something that is not actually an emergency. Full disclosure: I plan on using half of my emergency fund to pay off the last part of my student loans. Once I get my debt down to the last few thousand dollars, I will use money from my emergency fund to pay off my loan completely. This will still leave me with enough money in my fund to cover a few months of expenses plus I won't have a student loan bill to factor in anymore. Of course my next goal will be to rebuild my emergency fund and then turn my focus to beefing up my retirement account. I'll do a separate post about why it's important to contribute to a retirement account even while you're paying off debt. For now the bottom line is don't overlook the need for an emergency fund. It's the first step toward financial freedom.

#unemployment #unemployed #student loans #savings #emergency fund

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