Money In The 20s Finances For Millenials Fri, 19 Aug 2016 09:39:51 +0000 en-US hourly 1 Why Micro Investments Aren’t All They’re Cracked Up To Be Wed, 03 Aug 2016 08:47:09 +0000 Why Micro Investments Aren't All They're Cracked Up To Be

Once you make the decision to start investing, one question that usually pops up is: how to get started.

Exploring different investment options might lead you to the relatively new concept of micro investments. While investing for your future is a wise choice to make, micro investments might not necessarily take you where you want to go. They sound cool, but they aren’t all they’re cracked up to be.

Alone, They’re Not Enough

Retirement investing is a good thing. However, micro investments alone may not give you enough of an investment to have a substantial impact on your future expenses.

The idea behind micro investments is that by investing small amounts of money on a regular basis, such as spare change with Acorns, you can still invest for the future. You simply link your debit or credit card to an app that rounds your purchase to the nearest dollar and then invests the spare change into a pre-determined diversified portfolio of funds.

Investing in small amounts sounds like a good thing when you don’t have a lot of money to start investing, but if you only end up with $10.00 or so invested each month, you aren’t going to have a large enough investment portfolio to cover your retirement expenses.

Taxable Now or Later?

Acorns is a micro investment company that has become popular amount the younger population. But one drawback to using Acorns is that the investments you make with Acorns are taxable where other investment options, such as 401K’s, are tax-deferred.

The Fees can be High

On the surface, a $1 flat rate monthly fee seems fairly reasonable. However, if your monthly investment is only $10, that’s a 10% fee, which is pretty steep. Of course, as you make more purchases your investment grows and your fee percentage drops, but since the whole idea is to invest in small amounts, those fees are actually quite high.

Fees with robo advisors, like Betterment, are quite a bit lower percentage wise than the fees with micro investments companies. But the best way to save on fees is to take a DIY investing approach.

Limited Investment Choices

The investment portfolios are preset and there are only a few options to choose from with micro investing companies. This limits your flexibility in choosing which funds your investment money is applied to. So, if you wanted to choose the investment funds for yourself, you will be disappointed because that is not an option.

You Can Incur Loses

There is no guarantee your micro investments will grow, and in fact, you might even lose money. The funds your money is invested in can increase and make you money, but sometimes they have losses. On top of that, the money is not usually FDIC insured. Of course, this is a drawback that applies to almost all types of investing.

Before tossing out your piggy bank and throwing all of your loose change into micro investments, research all of your investment options and find out the good points and the bad. Remember, investing is not a get rich quick scheme.

What do you think of micro investments? Are they worth it?

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From Wing Man to Santa: 7 Creative Ways to Earn a Buck Sat, 14 May 2016 14:00:48 +0000 From Wing Man to Santa: 7 Creative Ways to Earn a Buck

Making a living isn’t easy, and as the cost of living continues to rise, so does the need for extra income. Finding opportunities to make extra cash is easier than it looks if you’re willing to step outside your personal comfort zone and offer up your services, talents, and possessions.  Just take a look at these unique money making opportunities!

The Wing Man

If you have the social skills to pull it off, you can get paid to be someone’s buddy. Standing in as a single guys’ ‘Wing Man’ and running interference while he chats up the ladies can be an easy way to earn some fast cash. From another perspective… what man doesn’t become more appealing to women when he walks in with a beautiful girl on his arm? One word of warning: offer your services as a “consultant” to avoid being labeled as a paid escort!  And yes, this is a paid job!

Sell Yourself

Plasma, Hair, Sperm and Egg Donors make decent money, simply by donating to worthy causes. Plasma donors are always needed at local blood banks or hospitals, and giving blood on a regular basis can bring in anywhere from $20 to $275 weekly. Acting as a sperm or egg donor at a reproductive clinic can bring top dollar if you fit the criteria. Supplying human hair for wigs, hair extensions, or hairpieces can be a lucrative way to make money while helping others.

Be the Santa. The Pirate. Or Smokey Bear.

Birthday parties, corporate functions, sporting events and fund raisers are prime spots to have fun while earning money. People will pay to have a dedicated person wearing their costume or acting as their mascot – because after all, a paid performer is more apt to show up and stick with it… as opposed to making cousin Bob wear the outfit against his will. Another fun way to make money is to appear as a movie star look-alike.  Check out ‘Event Planners’ in the local business listings and offer your services as an on-call performer.

Lead, Don’t Follow  

Do you know a lot about your neighborhood, area recreation areas or hiking trails? Set yourself up to give tours! Walking tours are the easiest to pull off, with low overhead and low liability risk.  If you’re into hiking, take a group along on a (paid) nature hike in the back country.  Do you hunt or fish?  Offer your services as an outfitter and share your skill with others.

Make a Buck… Or Five is the go-to spot on the Internet to find someone who is willing to complete a task for just $5. Some people offer wacky gigs – like singing Happy Birthday to the person of your choice in a funny voice, or writing your name on their chest and sending you the photo (really!) From social media marketing to cartooning, it’s easy to offer up your talents to the world on by posting whatever it is you’re willing to do for $5.

Back yard Money-Maker

Renting your back yard out may sound odd at first… but to the people who own boats, RV’s or sports cars and have no affordable place to store them , your back yard is like an oasis in the desert. If your back yard or property is particularly scenic and large enough, rent it out for weddings, barbecues, or family reunions.

Closet Timeshare

If you maintain a sizable wardrobe of designer clothing or specialty items, consider renting them out.  From business suits for the suit-less, to sports equipment, to wedding gowns, thrifty people have come to recognize the value in pay-per-use.

In the grand scheme of things, being creative is your best bet for making extra income. Utilizing your skills and talents can go a long way toward generating cash – and helping others in the process.

Do you have a unique way to earn money? Share it with us here!

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5 Ways to Make Extra Money Fri, 29 Apr 2016 21:28:10 +0000 5 Ways to Make Extra Money

A lot of people don’t make enough money at their full-time jobs. If you’re in that category, there is one of two things that you can do.

The 1st option is to complain about your situation and do nothing. If you’re reading this, I don’t believe that you’re the type of person.

The second thing that you can do is to find a way to make some extra money. In today’s post, I will share with you five possible ways to make extra money.

Get a Part Time Job

The 1st and probably most conventional way to make extra money is to get a part-time job. Retail and restaurants are usually good places to start. They should be flexible enough to let you work after you get off your full-time job or on the weekends.


One of my favorite ways to make extra money is to sell items on eBay. You can make decent money on eBay depending on what you’re selling. People will buy almost anything. If you’ve never sold anything on there before, I’d suggest that you take a look at their site. You can find a niche you love, find great deals at garage sales, and resale on Ebay for 50%+ profits!

Wash Cars

People can be lazy at times. I had a friend who used people’s laziness to his advantage a few years ago by washing their cars. It was a pretty good side hustle for a college student. He was charging people $15 -$20 per car and averaging about 8-10 cars per weekend. That was pretty good money for a college student. I think anyone can do this hustle, though. You just need a few supplies and some decent promo skills (signs in your area and free ads on Craigslist).


I figured I’d stay with cars. The fourth way to make extra money is to drive with Uber. Uber is a company that allows people to use their own vehicle to take people places. The more you drive, the more money you can make. I had a friend who used to make $600 a week driving people place to place. Look into your area’s insurance laws before starting just in case though.

Yard Work

Another great side hustle is to do yard work. People are always looking for someone to cut the grass or trim the hedges for them. A lot of people are busy or just physically able to do this type of work anymore. That’s where you come in. If you have some tools and a truck, you should be able to get started in no time. You can advertise on Craigslist or let your neighbors know about you through free sites like

Those were just five ways to make extra money. There are much more out there. You just have to find one way that works for you.

Do you need to make any extra money? Have you thought about trying any of these ways? Please share some more ideas too!

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How To Save Money On College Tuition Sat, 23 Apr 2016 17:30:27 +0000 How to Save Money on College Tuition

Every summer the Internet is flooded with students looking to save money on college tuition. This can likely be your greatest expense in your 20s. Actually, most college graduates can be stuck with student debt for even decades after college. Pretty scary, huh?

The whole goal of this site is to help you manage your money in your 20s. We want to help you save money on the largest expenses there is. This is why today we’re going to tackle college tuition. The money you can save here will save you in the future. If you can cut back spending even by a dollar, that’s one extra dollar that you’ll have in your pocket when you’re down with college.

How can you save money on your college tuition?

Look into the funding options.

You should never let money hold you back from attending the school of your dreams. The truth is that the most prestigious schools usually have the most funding available. They want the best students. They won’t let money hold you back.

My first recommendation is to always apply to the best schools possible. Then once you get in, you can look into funding options to see if it’s even financially feasible for you to enroll. Please don’t let money get in the way of a quality education.

You could also look into a custodial account.

Attend a community college first.

Have you thought about attending a community college first?

To be upfront, this is what I did. I spent three years at community college and then I transferred my credits over to a larger university in town. I enjoyed many benefits from attending community college first. Some of these benefits were:

  1. Had more time to mature and grow up.
  2. Was able to work more to save more money.
  3. Had time to figure out what I wanted to do next.
  4. Less money invested into tuition meant less money wasted in case it didn’t work out for me.

I was happy with my decision to attend a community college first. It’s not the best option for everyone, but it could be right for you.

Apply for every single grant, bursary, and award possible.

There are so many sources of funding available. You just need to apply for them. I didn’t know about this until I ran into a buddy in the cafeteria one time. He told me to come with him for a walk. We picked up some forms and went to work on them. I didn’t know why we had these random forms. I did my best to fill out the application.

A few months later I received an email to my school account informing me that I had a $300 check waiting for me. I had received my first bursary. From that point forward, I applied for every form of funding possible.

If you don’t ask the answer is always no, right? Give it a shot. You have absolutely nothing to lose.

Work at your school.

Most colleges post jobs frequently for work around campus. I found that I wasn’t on campus enough so I applied for some random gigs that I saw posted. A few weeks later I was an Exam Invigilator. In other words, I made sure you didn’t cheat on exams (but you wouldn’t cheat).

Working at school allowed me to make some additional money that I could save and use towards my tuition. Plus , the job was pretty easy. Oh and you got to meet more students. I’ll stop there.

Avoid school for a year.

Why rush to attend college? You can take a year off to figure out what do next. College isn’t the next logical step in your life. You can have a year off to work, save, travel, or just decide what you really want out of life. My friend took a year off and realized that he didn’t want to live in this world without an education. He ended up going after his Master’s Degree because he saw how difficult life could be without credentials.

That’s how you can save money on college tuition and even possibly graduate debt free. I was fortunate enough to graduate debt free. The result was that I’ve been traveling and doing cool things ever since I finished up with school.

Are you ready to slap that expensive college tuition bill in the face?

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My Kids’ Stagnant 529 Plans Mon, 28 Mar 2016 11:00:14 +0000 529 College Savings Plan

When I went to college (too many years ago to count now), my parents didn’t have a college savings plan. But my parents had more than just a wing and a prayer when it came to financing my college education… and it didn’t involve a 529 plan.

529 plans became a “thing” in 1996 – by which time I was already in high school. For a while, they were very trendy – when I was pregnant with my daughter, our financial adviser at the time asked if I wanted to set something up for her before she was even born (before she had a social security number! I politely declined). But eventually, I did succumb to 529 madness – and I’ve regretted it ever since.

If you don’t know how a 529 plan works, here’s a quick blurb from the IRS:

“[A 529 plan is] A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild. Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible.”

In other words, a 529 college savings plan is basically akin to a Roth IRA when it comes to tax-free growth.

But the real question here is, does your child need a 529 plan? Is it worth YOUR time, energy, and – most importantly – investment?

For my family, the answer is increasingly no. Here’s why:

1) When you invest in your child’s 529 plan, that money can ONLY go towards education expenses. While that doesn’t simply mean tuition, it does tie your hands, especially if you ultimately have a child who eschews college for the military, the workforce, etc.

2) If you invest $50,000 into your child’s 529 plan, you can rest assured that every dime of that $50,000 will go to the school they ultimately attend. However, if you put that same $50,000 into one of your retirement accounts, FAFSA can’t touch it, and your family’s estimated financial contribution will be dependent upon your family’s income, not the assets in the 529. More on this later.

3) For most investors, the typical lead time on a 529 plan is maxed out at 18 years (ie, you start contributing at birth, and start withdrawing at age 18, when the child goes to college). On the flip side, retirement investing is typically longer-term (ie, you start investing at, say, 25, but don’t plan to make withdraws until your 60s). That gives you significantly more time for your investment to grow.

4) Because of points #2 and #3 above, it makes far more sense to invest in your 401k or Roth IRA retirement accounts before sinking a dime of your money into a 529 plan. If you still have extra money left over after maxing out these retirement vehicles, then by all means, invest in the 529!

So how did my parents pay for my school without any type of college savings plan? And how does that differ from someone whose parents used a 529 plan? Let’s take a look at 2 examples from within my own family:

My scenario

My dad – who, full disclosure, is a CPA – chose not to save a lick of money for my college years. I always found this to be an interesting choice, since from a very young age, I became transfixed by the idea of attending a prestigious (re: expensive) East Coast school. I often wondered how my parents would pay for it. I needn’t have worried.

When I got into my dream school and my parents filled out FAFSA, our estimated family contribution was about $25k/year. However, my school of choice gave me a small scholarship and a few grants, which brought it down to closer to $18k/year. My parents were able to pay – on average – $14k/year, and we took out a loan (back when student loans were slightly more affordable – interest rates have since skyrocketed) for the remaining $4k/year. I graduated with just shy of $17k in debt.

My cousin’s scenario:

On the flip side, there’s one of my cousin’s, whose parents started stocking away for her education when she entered kindergarten. When 529 plans became available in the late 90s, they transferred that money into a 529 account, where it continued to grow for about 10 more years. (I’m about 8 years older than my cousin, so part of the financial differences in our situations are caused by age and fluctuating college costs). By the time she went to college, her parents had saved about $75k – but they failed to max out their individual retirement accounts first.

They filled out the FAFSA forms, and by the time my cousin graduated four (and a half) years later, the entire $75k was gone, and she still had roughly $5k in student loans. Oh – and her parents were years behind in their retirement planning, because they had put her college ahead of their retirement.

This all goes back to the tried and true saying that while you can borrow money to pay for college, you can’t borrow money to pay for your retirement. So while a 529 plan may be a great option for you and your family, make sure you do the math, run the scenarios, and ensure that you aren’t robbing Peter (yourself) to pay Paul (your child’s college education).

And as for my kids?

Yes, they have 529 accounts, but I haven’t put a lick into them in 2 years. Once you open an account and put money in it, you can’t really do anything with it (ie, I can’t transfer it to my Roth) – although my new adviser and I continue to look for loopholes to make that happen legally and without paying a penalty! I plan to help put my kids through college, but I’m doing it the way my parents did it. After all, sometimes father really does know best.

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The Best Financial Advice for Every Year: Age 22 Wed, 09 Mar 2016 12:00:27 +0000 The Best Financial Advice for Every Year: Age 22

This is the third in a monthly series about specific age-by-age financial advice for 20-somethings. You can find the rest of the series here:

Advice for 20-year-olds

Advice for 21-year-olds

If you’re 22 right now, chances are either your parents or grandparents are “Baby Boomers” – members of the generation born between 1946-1964. These Post-WWII babies came of age during the 60s and 70s, years of turbulence and change. One of those changes happened in 1978, when Congress passed a revenue tax that, among other things, created what we now know as 401(k) plans. That means the oldest members of this generation were 32 when this revolutionary retirement-savings tool was introduced; the youngest members were still young teens.

So maybe it isn’t surprising that the Boomers – who didn’t grow up hearing about 401(k) plans and other retirement savings options on a regular basis – are now facing a major retirement crisis. According to many reports, the average Boomer on the verge of retirement has between $25,000-$100,000 in their 401(k), a paltry sum when you consider that retirees are living longer than ever.

Why does this matter to you, as a 22-year-old? Because, and I’m taking a shot in the dark here, you probably don’t want to end up broke in what are supposed to be your “Golden Years.”

Retirement Savings

The path to a financially stable retirement starts young – in fact, the younger the better. Play around with this investment calculator (there are many like this out there on the Internet, but this is my favorite), and you’ll see that starting to invest in your early 20s as opposed to early 30s can have a monumental impact on your savings down the road.

Why is 22 the perfect age to start a 401(k) account? Because many Americans – particularly the increasingly large college-educated cohort – will start their first full-time job upon graduation at, roughly, age 22. And when you’re negotiating that first job, you should do it with your future investments in mind.

Here’s what I mean by that:

Say you’re offered a job paying $35,000 a year and health benefits. Now another company offers you $32,500 a year plus health benefits AND a 401(k) employer match.

On first glance, you might take the higher salary and be happy with it. But depending on your employer match – and how much money your budget allows you to put into that 401(k) account – you might be leaving money on the table. An employer match can be a very lucrative option that, because of a whole bunch of complicated tax policies that at age 22 I’m pretty sure you don’t care about (but if you do, click here), doesn’t cost the company all that much money but still has a large benefit for you.

So my advice to all you 22-year-olds (or anyone who just starting their first full-time “adult” job): if you have the option to start a 401(k) plan through your employer, do it. Save early, save often. And if you don’t have the option to start a 401(k) plan at work, be sure to set aside money on your own – whether by funding an emergency account or starting a Roth IRA – so you don’t fall behind.

Trust me, your 65-year-old self will thank you for it.

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The Best Financial Advice for Every Year: Age 21 Wed, 24 Feb 2016 12:00:06 +0000 Advice For Millenials

This is the second in a monthly series about specific age-by-age financial advice for 20-somethings. To check out my advice for 20-year-olds, click here.

Age 21 is full of major milestones: you can legally drink, you can legally gamble, and any vestiges of “childhood” – like parental consent for marriage or having a provisional driver’s license – are officially a thing of the past. But with all of these new freedoms comes new responsibility as well; that applies to managing your finances as well.

My financial advice for 21-year-olds is simple: have a plan. When I was 21, I was heading into my senior year of college; my husband was 21 when he graduated. For many of us, 21 is a pivotal age – it marks not only the official, legal end of childhood, but for many, it marks the end of your formal education.

So at age 21, it’s crucial that you take stock of where you’re at financially, and where you want to go. By age 21, you should know:

  • The exact amount of your student loan debt. American student loan debt now tops $1 trillion, and the majority of students will leave college (note I didn’t say “graduate from college” – if you took out loans, you’ll have to repay that debt whether you graduate or not) owing money. If you don’t know exactly how much you owe and the terms under which you’re expected to repay it, you’re already one step behind;
  • Any other debt obligations you’re facing, whether that be credit card debt, a car loan, or something else;
  • Approximately how much money you can expect to earn once you’re out of school. There are a lot of great websites out there that will give you estimated incomes for jobs based on location, education, and a variety of other factors. It’s critical that you know how much money is coming in, otherwise you won’t know how much money can go back out to pay bills, fund an emergency savings account, or just have fun;
  • How to construct a budget. This includes everything from your rent and debt repayment obligations to expenses for gas, food, utilities, telecom, clothing, etc.

Once you’ve figured out the four steps above, you’ll have the knowledge to enter adulthood with both eyes open. I knew far too many 21-year-olds (my husband among them) who entered adulthood with no idea how to manage their finances; his parents had always done it for him, and when he graduated, he found himself completely clueless how to do it himself.

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The Best Financial Advice for Every Year: Age 20 Mon, 08 Feb 2016 13:00:03 +0000 Financial Advice For 20 Yr Olds

This is going to be the first post in a new series I’m writing about the most important financial moves you need to make year by year throughout your 20s. So naturally, what better place to start than with age 20 itself?

I don’t have a very clear memory of my 20th birthday. I remember 19 (my dormmates took me to dinner at a fun tapas restaurant just off campus); I remember 21 (I danced with a member of our college basketball team who is now an NBA star while the band serenaded me with “Happy Birthday” at my favorite frat’s annual spring party); but 20 must have been rather unmemorable, because for the life of me, I can’t remember a thing about it.

But what I do remember about those early years in college is a message my dad literally repeated about a dozen times each August as we made the 8-hour drive from my hometown to campus: No matter what free stuff they offer you, do NOT GET A CREDIT CARD.

Now, that seemed very unfair, coming from a man who had several credit cards to his name. I thought it was very hypocritical of him to tell me I couldn’t have a credit card when I saw him use one on a regular basis. But I heard him loud and clear; what he was really saying was, “If you get a credit card, I will not pay for it.” So, being the rule follower that I was (and still am), I said no to the free t-shirt, the free ballcap, the free frisbee, and the $50 credit on my first month’s statement.

For you see, although I graduated from college with modest student loan debt, I entered the adult world with absolutely no credit card debt. Not only that, but by the time I finally did get my first credit card – about a month after graduation – I was so paranoid about racking up huge bills that I only used it when I knew I had enough cash in my checking account to cover my purchases.

In other words, I learned how to handle credit with maturity. I never used my credit card to book a flight to Cancun over spring break with some of my sorority sister (though I know many who did); I never used my credit card to buy hundreds of dollars in clothes and shoes (though I know many who did). My dad put the fear of God into me, and the ultimate lesson was one of responsibility.

So the most important money move you need to make as a 20-year-old? It’s the same advice my dad offered me years ago:

No matter what free stuff they offer you, do NOT GET A CREDIT CARD!

Note from Crystal:  I have slightly different advice – get a credit card with no annual fees and good rewards as soon as you can, BUT never charge anything you wouldn’t have bought with cash you have AND never carry a balance.  Then you can build your credit without falling into astounding consumer debt.  Willpower is crucial – if you think you’ll be a big spender, no credit card!!!

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The “Baby Recession” Is Over Wed, 27 Jan 2016 13:00:15 +0000 The "Baby Recession" Is Over

It was September 14, 2008. Lehman Brothers was still – technically – in business. And I was in labor.

The signs of economic collapse had been plentiful: gas prices had been on a crazy roller coaster, up one week, down the next; Bear Sterns had already collapsed months prior; homes in my neighborhood – which once sold in a matter of days – remained up for sale in an increasingly stagnant market; my employer had already been through its first round of layoffs, and unemployment across the country was climbing towards double digits.

But unbeknownst to me, the subsequent economic recession wasn’t the only recession in America at the time. Apparently, there was an overlapping “baby recession.” Starting in 2007, America’s birth rate entered a prolonged drop, which we’re only now pulling out of. According to the latest government data, 2014 was the first time since 2007 that the birth rate went up (though it’s still below pre-recession levels).

Why is a high birth rate important? Just ask Japan. The nation is in the midst of a decades-long drop in birth rate, which has put it on the verge of economic ruin. It’s meant a population that is disproportionately older, putting a strain on social and economic systems. The Japanese birth rate has stagnated at just 1.4 (that means 1.4 live births per woman of child-bearing age); by comparison, a healthy birth rate is closer to 2.1 – just enough to keep a country’s population gradually on the upswing. The US birth rate, at 1.9, is far from Japan’s catastrophic levels, but after nearly a decade of declines, it’s nice to see it moving in the right direction.

Last year, I wrote a post about whether or not anybody is ever really ready to have a baby. At the time, I said that my family’s decision came down to 3 main points: health of our relationship, professional concerns, and financial situation. For so many people, the Great Recession of 2008 (and beyond) absolutely crushed their professional and financial security – and anyone who’s ever battled through tough financial times knows that all that stress can put a strain on your marriage or romantic relationship.

So in hindsight, I guess it’s not surprising that a baby recession overlapped the actual recession; what is surprising is that I had two children during that period, and somehow failed to realize what was going on beyond my own front door. Yet the proof is all around me: my daughter’s class at school – the first group of children born during the Great Recession to head off to kindergarten and first grade – is significantly smaller than the older grades in our district.

What about you – did you realize there was a “Baby Recession” going on? Did you alter you or your family’s plans because of the tough economic times?

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Budgeting After A Raise Mon, 11 Jan 2016 23:45:45 +0000 Budgeting After A Raise

If the Great Recession taught Americans anything about personal finance, it taught us how to be unapologetic pessimists. Case in point? Although GDP, unemployment, and stock market averages have climbed back (or, in some cases, beyond) pre-recession levels, you’ll still routinely see the talking heads on TV lamenting on the sorry state of our economy. Sure, there’s still progress to be made – too many people working part-time who’d rather be working full-time, depressed wages for the middle class, etc. – but to hear these folks talk, you’d think it was still 2010.

When you surf the web, you see plenty of articles talking about how to manage your family’s budget through a crisis: job loss, medical bills, sky-high debt. But what you don’t see is a lot of financial advice for how to manage your money when something good happens. How does budgeting change when you’ve received a raise, a bonus, an inheritance?

Plan After a Raise

That’s the situation my family found itself in a few months ago. My husband and I were both fortunate enough to earn substantial raises which increased our household income by about 20%. And we didn’t know what to do with it.

For a few pay cycles, we let that extra money just sit in our bank accounts. We had the gratification of knowing it was there, but the money wasn’t doing anything for us. So we started to toss around some ideas:

  • Paying down our mortgage. Paying down debt is usually a good thing; however, we’d bought our house when interest rates were at historic lows (we’re locked in at 3.67%). We knew our money could do more elsewhere;
  • Adding more money to our retirement accounts. These raises meant that for the first time in our adult lives, we could max out the annual contributions to both of our Roths and one of our 401(k) accounts. But we knew that once the money was diverted to those retirement accounts, we’d be unable to touch it (well, for another 30 years, at least!);
  • SPEND IT! I think this is the complete opposite reaction to letting it just sit untouched in our checking account, but it’s another knee-jerk reaction that many people experience after getting an influx of cash. My husband bought an expensive new phone that he’d been pining after, and I splurged a little on my wardrobe. In a way, I think it was helpful to get it out of our system. We came, we spent, we felt a little guilty – and probably won’t make a habit of it in the future;
  • Engage in lifestyle inflation. This is similar to simply spending the money, but it’s a little bit more insidious. Lifestyle inflation tends to creep up on you; maybe you start dining out a few more times each month, add in a Hulu Plus subscription, and get addicted to $15/class Pure Barre workouts, and voila! You’ve succumbed to lifestyle creep. You may even figure out a way to work those items into your monthly budget, at which point they start to feel completely valid.

Ultimately, my husband and I sat down and discussed what we wanted to do with this extra money from a big picture perspective. We don’t carry debt beyond our mortgage (but if you have personal, student, or credit card debt with a high interest rate, this should be your starting point), so we saw this as an opportunity to really shore up our budget and investments. Here’s how the money has been allocated:

1) 30% of it is going directly to our retirement accounts; we don’t even see the money in our checking account, because it’s funneled off right from the get-go;

2) 20% is going to a newly created “vacation” account. We’ve really slacked on traveling over the past few years as we climbed the corporate ladder (I hate that phrase, but it applies here), and want to use this money to ensure that we’re seeing the country and experiencing new places and things with our children;

3) 40% is going to our renovation budget. We’re in the middle of renovating our home, and have done much of the work ourselves. But there are certain things – like taking out walls, running complicated electric cables, or moving plumbing fixtures – that are beyond our area of comfort, let alone expertise. At least over the next year or so, we’ll use this money to ensure we can hire professionals when the need arises to make sure a project is done right. Eventually, once the major reno projects are finished, we’ll siphon a large chunk of this money off into our retirement accounts;

4) 10% is our “discretionary” fund – in other words, our fun money. We knew that lifestyle creep was inevitable, but we felt that by setting aside a certain amount of money in this way, we’d at least be able to keep it in check.

Have you ever experienced an influx of money? How did you learn how to manage that money, so that it worked in your favor?

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