Category Archives for Invest & Retire

Should You Invest or Pay Off Debt First?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $60 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is November 30th, 2012.

The following post is by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has a background in both accounting and the mortgage industry.

This is one of the most common – and complicated – questions in personal finance. If you have debt, should you pay it off before you begin investing? Or, should you concentrate your efforts on investing while gradually paying off your debts in the normal course?

There are compelling reasons in both directions, and which you choose may have more to do with personal circumstances and preferences than anything else. Let’s take a look at both.

Investing first and paying off debt gradually or later

There are solid reasons to favor investing as early in your life as possible–even if you have substantial debt.

Investing early leads to a larger portfolio. It is a fact that the earlier you begin investing, the faster you will build a large investment portfolio. The best way to demonstrate this is by example:

Investor #1 begins investing $5,000 each year beginning at age 25. With an average annual rate of investment return of 8%, by the time he turns 45, he’ll have accumulated $238,610.

Investor #2 begins investing $10,000 each year beginning at age 35. Also having an average annual rate of investment return of 8%, by the time he turns 4,5 he’ll have $151,069.

The two investors have each saved $100,000, and achieved an investment rate of return of 8%, but Investor #1 has $87,541 more in his portfolio – which is about 58% more. So, why the big difference in portfolio size by age 45? The time value of money! Investor #1 had an extra ten years of that 8% rate of return, and it made all the difference.

That’s what you get going in your favor when you begin investing early.

An investment portfolio creates a sense of financial stability. One of the biggest benefits of having an investment portfolio early in life is that it provides a cushion that gives a sense of financial stability. You will face different challenges in life, and all will be easier to deal with when you have some money behind you. An investment portfolio gives you financial strength and that can get carry through into nearly everything else you do.

Even if you have debts to pay, those debts will seem smaller and easier to pay if you have an investment portfolio already established and growing. You’ll be shrinking your debts, while you are growing your investments. And, by the time your debts are finally paid off, you will have an investment portfolio to build on – you won’t have to start from scratch.

Grow your way out of debt. There is a way of paying off debt that’s easier than making extra principal payments. If you at least make the minimum payments on your debts, and slowly reduce them, while you’re building your investment portfolio, you will eventually be in a position where your investment pile will be bigger than your debt pile. Rather than paying your debts off little by little, you can then pay them off simply by writing a check.

Let’s say for example, that you have $20,000 worth of debt and zero investments. Five years later you still have $15,000 in debt, but you also have $40,000 in investments. At that point, you can pay off your debts and still have $25,000 in your investment portfolio.

In this scenario, you have two financial goals: to invest money and to payoff your debts.

But, you chose to focus on only one of them – investing money. But, along the way, you accumulated enough money that you were not only building your investment portfolio, but you are also building up enough money to payoff your debts too. In a way, you ignored your debts in favor of your investments, but ended up achieving both goals anyway.

Paying off debt first and investing later

There are also compelling reasons for paying off debt first, then investing later.

Guaranteed rate of return. The rate of return on investments doesn’t stay in one place. One year, you can earn 5% on your money, the next you can earn 10%, and the following year you could take a loss of 7%. But with debt, if you’re paying 10%, that rate will generally be the same no matter what. By paying off the debt, you’ll be locking in a rate of return of 10% – that’s 10% that you won’t be paying on the money you owe. That’s a guaranteed rate of return that you could never find in the investment markets.

Even if you invest your money in fixed income vehicles, you can never match the rate that you will be paying on your debts. That’s because debt carries an interest rate that’s always higher than what the banks will pay you on money you invest with them (it it wasn’t, the financial companies wouldn’t be making any money!).

Investment markets fluctuate – debt doesn‘t. When you invest money in the financial markets, whether it’s in stocks, mutual funds, ETFs, commodities or even real estate – the value of those investments will always fluctuate. Sometimes they’re higher, sometimes they’re lower, but they seldom stay in one place. In the event of a prolonged decline in a financial market you could lose a significant portion of your investment value for several years.

This is not true when it comes to debt. The amount of money you owe on a debt is fixed, except for that portion which you have paid down. If you put your extra money into investments, rather than into debt payment, you could see the value of those investments drop while your debts owed would still be the same. If that were to happen, then paying off your debts would be the better investment.

Paying off debt leads to more money to invest. Perhaps the biggest advantage of paying off debt is that it will leave you with more money to invest. If you try to invest money while you are still paying off debts, it may be difficult to save a significant amount of money. There may even be times when you have very little money to save and invest at all. But once your debts are paid all of your extra money can be poured into your investment portfolio.

This allows you to concentrate all of your efforts on one goal at a time. Initially, you’re putting all of your money into debt repayment, and that should allow you to payoff your debts much quicker. Once that goal is achieved, 100% of your money can then go into your investment portfolio to build that quickly. Divide and conquer at it’s best!

What about your mortgage?

If you decide that you want to payoff your debts before you begin investing, should that include paying off your mortgage? Probably not.

Mortgage debt is different from other types of debt in two important ways. First, it is secured by a major asset – your house. That’s also an investment; in a real way this is a debt that you maintain in order to own a major investment.

The second factor is the length of the loan. Mortgage loans typically run from 15 to 30 years in length. If you have to wait that long in order to begin investing money, most of the advantages of investing will be lost. Even if you were to pay off your mortgage in only 10 to 20 years, too much time will have been lost to make up for the benefit gained. Once again, it’s the time value of money at work.

A couple of other factors to consider in connection with a mortgage are that 1) interest rates on mortgages are usually the lowest loan rates possible, and 2) mortgage interest is tax-deductible. Both remove much of the urgency normally attached to paying off debt.

Which do you think you should do first, pay off your debt or invest?

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6793832171/sizes/l/in/photostream/

Carnival of Financial Simplicity # 14 – November 18th, 2012 Edition

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Click here to enter my free $60 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is November 30th, 2012.

Welcome one and all to the 14th (November 18th, 2012 edition) Carnival of Financial Simplicity, a weekly roundup of the top 20 posts demonstrating how simple financial success can be. This is My Personal Finance Journey’s first time hosting the Carnival, so a big thanks to Nick for letting us host!

To most of us, simple and finance are two words that do not often seem like they belong in the same sentence together. After all, the financial media has made it seem like we have to use incredibly sophisticated individual stock selection analysis techniques in order to achieve financial success and ‘beat the market.’ Furthermore, after you open a checking, savings, or credit card account these days, it seems like another competitor comes out with a better deal or product that makes us want to continually adjust our holdings to greater lengths of complexities.

However, my belief is that this is simply not the case. Your finances do not have to be complex in order to achieve success. In fact, I would argue that the simpler and more boring your finances are, the more success you will likely obtain. This is definitely my belief when it comes to investing (i.e. passive investing beating 70% of professional stock pickers).

So, without further ado, let’s get on to the top 20 articles demonstrating some awesome ideas on how to keep your finances simple!  

Spending and Budgeting

Average Joe presents 3 Steps to Better Homeowners Insurance posted at Average Joe’s Money Blog. In this article, Joe shows how one of his clients was able to add an additional $40 a paycheck to their 401K plan by shopping for new homeowners insurance.

John presents Easy Car Maintenance Tips to Make Your Car Go the Distance posted at Modest Money. If you’ve ever owned a car, then you have probably spent money repairing it. My cars always seem to break down at the most inopportune moments. By implementing some easy car maintenance tips, you can help further the life of your car and save yourself thousands of dollars in future car repairs.

Jeff Rose presents Parents: Avoid the #1 Mistake When Saving For Your Kids College posted at Good Financial Cents. Every parent wants to provide for their children; to give them a better life than they had. This often carries over into helping them pay for college.

David Leonhardt presents My best financial tip posted at Self-help Happiness Blog. This blog post is part of the Blog for Financial Literacy campaign, where each participant offers up their best financial tip. Most people who are miserable about money are miserable because they have ignored this one simple tip: don’t spend more money than you have.

Glen presents Credit Card vs. Charge Card: What’s the Difference? posted at Credit Card Smarts. We tend to forget that credit cards and charge cards are different animals. Even though they are similar you need to know what makes each different.

Young presents Using Groupon, Living Social and Other Sites Like Them To Check Out a New City posted at Young And Thrifty. One of our most popular articles on this blog is the one Young wrote concerning sites like Groupon and Living Social, as well as lesser-known sites that offer similar discounts. We expand on it.

Darwin presents How Much is Too Much to Leave Your Kids? posted at Darwin’s Money. How Much is Too Much to Leave Your Kids? This article delves into estate taxes and personal responsibility to understand.

Bob presents How to find the lowest price for holiday flights posted at ChristianPF. If you don’t yet have plane tickets for your upcoming holiday travel, then this would be a perfect time to start researching fares. In order to help you get the best price on your plane tickets, you should learn how to use the ITA Matrix website.

Ted Jenkin presents Do You Eat Out To Much? posted at Your Smart Money Moves. If you’ve noticed that your disposable income may be sneaking out the back door of your family finances, one of the causes could be between the lunches and dinners that you eat out every week. So, how can you fix this hole in your budget?

Savvy Scot presents The Saver: In Which Category Do You Belong? posted at The Savvy Scot. WARNING: This post may cause a realisation! The Savvy Scot broadly categorises the 3 different types of saver – Disciplined, Occasional and Horrendous – the question is; are you really the type you think you are? Oh and there is $50 to be won by reading here too…

Making Money

FMF presents Our Trip to DC (And a Few Ways to Save) posted at Free Money Finance. From October 12 to October 17 our family took a trip to Washington, DC. I thought I’d share with you what we did, the financial impact of the trip, and a few savings tips we picked up along the way.

Vanessa presents Myth! Working overtime isn’t worth it because the government takes more than I earn posted at Vanessa’s Money. For five years I worked for a group of people who argued that working more than 35h a week meant that you’d earn less money after taxes were deducted. I did the math to prove them wrong.

Danny Kofke presents Is Time More Important Than Money? posted at One Money Design. A recent online survey done by Mom Corps, a staffing firm, shows that 42% of working adults are willing to give up a portion of their salary to have more flexibility at work. Would you do the same?

Suba presents Early retirement strategy on one income : Can we still retire early with our income cut in half? posted at Wealth Informatics. We want to retire by 40. The goal just got more challenging with me quitting my job, thus cutting our household income in half. Is it still possible for us to achieve this dream?

Miranda @ Financial Highway presents How To Make Money posted at Financial Highway. Even the best of times, one of the most common questions asked is, “How to make money fast?” While an increase in income can ease the way things work in your personal economy, it won’t necessarily solve all your problems. You will still need a plan for the wise management of your financial resources.

Investing

Infinite Banker presents How to get the Highest Rate of Return from your Qualified Plan posted at Becoming Your Own Bank. Learn how you can get the highest rate of return out of your qualified plan.

Michael presents Why Rebalance Your Portfolio? posted at Financial Ramblings. Simply stated, rebalancing your portfolio helps you to reduce tracking error and keep your risk in check. Nothing more, nothing less. Sure, you can “let your winners run” in hopes of capturing higher returns, but that comes with increased risk.

Emily presents The Great Debate: 15-Year vs. 30-Year Mortgages posted at Evolving Personal Finance. I lay out all the figures that show that a 30-year mortgage has an advantage over a 15-year mortgage in terms of net worth outcomes and then list all the mitigating factors that make those numbers less relevant. Which do you prefer, numbers or psychology?

Debt Reduction

Glen Craig presents Are You Ready to Fall Off the Fiscal Cliff? What You Need to Know if the Bush Tax Cuts Expire posted at Free From Broke . The fiscal cliff is coming, the fiscal cliff is coming! Is the so called tax cliff the impending doom many think it is? See what the fiscal tax cliff is all about.

Nick presents Anti-Snowball Method to Payoff Debt and Save More Money posted at My Dollar Plan. There is a method that has been around for a while now called the “Snowball” method of paying down, and eventually paying off, credit card debt. If you’re familiar with it, you know it gives you a boost psychologically by getting smaller debts paid off quicker, then allowing more money to be used for larger debts. However, if you’re more interested in saving on interest payments, there’s another way.

***Photo courtesy of http://www.flickr.com/photos/bjornmeansbear/4773836932/sizes/l/in/photostream/

5 Ways to Raise Money-Smart Kids

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $60 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is November 30th, 2012.

The following post is by MPFJ staff writer, Shondell of Call Me What You Want, Even Cheap. She blogs about her recent car loan and mortgage pay off and a whole bunch more. Check out her blog right here.

In a national survey by Ipsos America Inc., a top-notch research company in the field of finances and marketing, it was found that 89% of the parents in the United States consider themselves important contributors in the financial management skills of their children and in raising money-smart kids.

Jessica Cecere, regional president of the South Florida branch of the nonprofit credit counseling and education organization called CredAbility, supports this. Every time the counselors assist their clients in managing their finances, they would always say something along the lines of “I wish somebody had taught me this when I was younger.” Brad Smith, president of BMO Harris Bank in Kansas City, says “it’s never too early to start talking to your kids about money and the world of finance.” He adds further that “financial learning should start at home. Even very young children can learn basic money skills, while older children can be taught about the stock market and the importance of setting financial goals.”

Though financial responsibility can be learned in school (but it is not often, if ever, taught in US schools), it is important for parents to instill the value of money themselves. This way, the children can develop good financial habits as they grow up and avoid getting into financial trouble as an adult when the economy becomes tougher and when the unemployment rate goes up.

Raising money-smart kids should start as early as possible, with the simplest yet most effective steps like the following:

1. Save with Piggy Banks

Piggy banks may seem trivial, but these toys provide the first lessons in saving and learning the value of money. Cecere of CredAbility says “when children are 5, 6, and 7, they can’t really understand the idea that one day something may happen, and you may need to rely on your savings. But, if somebody has a habit of saving and they always have, they will get that when they need it.”

It is also advised to teach them how to separate and compartmentalize their savings to effectively budget what money they have on hand. Three separate piggy banks labeled “give”, “save”, and “spend” not only budget their coins but also teach the lessons behind each term—giving, saving, and spending.

On a larger scale, these lessons can be helpful once they are taught the importance of contributing financially to the household. The parent`s occupations can be used as a jump-off point for this discussion. Aside from learning the value of saving their own money, the children will understand the hardships behind earning and this will, in effect, teach them not to ask their parents to spend money on unimportant material things.

2. Open a Bank Account

After the simple lessons of piggy bank savings, the child may be ready to have his/her bank account. As parents, you can open a savings account on their behalf and teach them how they can earn interest. After they have regularly set aside their money for saving, tag them along to the bank and deposit the money in their account. It is important that they be familiar and comfortable inside a bank even at an early age.

3. Have an End Goal

Saving money can be easier if the kids have specific items to save for. For example, if they ask you to buy a bike, you could say that they can save for it themselves from the cash gifts that they get for their birthdays. These goals can even push them to get a summer job and earn their own money for something they want.

4. Take them Shopping

No, not for toys, but to buy groceries for the whole family. This will give them a picture of how much money is spent on everyday necessities. This will also show them how much they need to spend for day-to-day living and how much they need to save to purchase luxuries if they want to.

Cyndi Finkle, mother and blogger of “Practical and Meaningful,” shares a tip: “Send your kids to one section of the market with a list of fruits and vegetables that you want and give them $20 to spend. They will ask questions and figure out how much of each thing they can get and start to understand the principles of money.”

5. Talk investments.

After learning the ropes of saving and banking, a young adult should be ready to learn about investing.

Educate him/her with the concepts of buying stocks and a balanced investment portfolio. Teach him/her that the newspaper’s business pages should not be ignored as it contains the stock prices that he/she needs to learn how to read. Give him/her tips on risk-taking when it comes to investments, making informed decisions based on previous stock prices, and observing price changes over a span of a week. It is best to cite companies he/she is familiar with as examples, like McDonald’s or Disney.

After tracking a company’s stocks for some time and with a small sum of money in the bank, a young adult can now consider an actual investment. Lay down the various investing instruments that are available. Encourage them that investing at an early age can result to more money in the long run and that this can help them pay for college or even a car after graduation.

How about you all? What are you doing to teach your kids about money?

***Photo courtesy of http://www.callmewhatyouwantevencheap.com/wp-content/uploads/2012/11/money-smart-kids.jpg

I Don’t Need to Save for Retirement Yet, Right?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $60 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is November 30th, 2012.

The following article is by MPFJ staff writer, Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

You hear this question a lot – twenty and thirty year olds often cannot see the need for retirement saving. Having finished their education and just started in their first real job, young people think that retirement is such a long way off. 

Surely there’s plenty of time for all that later on, right? The trouble is, it’s this kind of thinking that leaves millions of people without adequate retirement funds. I don’t know about you, but scrimping and going without in my older years isn’t my idea of a fun retirment.

Why Start Saving at an Early Age? 

When you first start work, you want to go out and have fun after all the long years of getting your education and training. I get that – I felt exactly the same way. Unfortunately, I didn’t have a very good idea about financial management either, so I wasted heaps of my hard-earned cash. I came to my senses when an accident put me off work for a few months, and I realized that living from pay check to pay check had left me without any reserves or savings. This was when I took a hard look at my situation and tried to educate myself about personal finances. This was how I came to understand the importance of starting early with saving for retirement.

Surveys conducted in different countries in America and Europe show an alarming world-wide trend. One third of workers admitted to having no retirement savings fund at all; another third said they were saving only between one and five percent of their wages. In the US, over 40% of workers admitted to having less than $10,000 in retirement savings; I hope they don’t plan on retiring any time soon! Financial planners recommend saving around 10 to 20% of your salary, depending on your age. As you get older, additional retirement saving is advisable.

The simple truth is, the sooner you start retirement savings, the more you will have when you finish working. Even small amounts, put aside regularly, can grow to a size able retirement fund. In fact, this is the key to success with saving for retirement; regular amounts saved into a specialized account will give the best results as far as financial security in old age is concerned.

Just how do the figures stack up? As an example, saving $100 each month from your mid twenties would yield about $380,000 when you are 60. If you didn’t start retirement saving until your mid thirties, this scenario would yield you a bit over $130,000. Now, do you see how starting early is the best strategy?

The Importance of Budgeting

Before you can decide how much you can save, you need to know where you stand financially, right now. The best way to do this, and be able to track your income and expenditure, is with a personal budget. Yes, I know; you’ve heard it all before, but there’s a really good reason for that – it is important! Trying to manage without a budget is like driving a car without brakes – you have little control and will probably crash.

So, take the time to sit down and work out a budget that works for you. Make sure everything is included in income and expenditure; leave nothing out. If you find you are spending more than you are earning, it’s time to make some cuts in spending to bring that into line. You must spend less than you earn, and you must make allowances for an emergency fund and savings. Using your budget as a guide, decide on a figure that you can put aside every pay period; increase this figure when you get a pay raise. The best arrangement is an automatic transfer into a specially designated account in order to take human error out of the equation.

Where to Put Your Retirement Savings?

When you first start work, this may be the simplest form of retirement saving for you. However, many companies offer a retirement account called a 401k to employees. Your contributions are taken directly from your salary, so you don’t have to remember to transfer the money and you don’t miss it because you never see it. The great thing about a 401k is that your employer will also contribute to your retirement account as part of your employment package. This is basically free money, so you would be silly to pass it up. There is often a qualifying or waiting period before these extra contributions start, but check with your own employer as to what is available and what rules apply.

Figure Out a Quick Estimate for How Much You Need for Retirement

Try this exercise – calculate how much money you think you’ll need in retirement. You’ll need to know how long you expect to be retired. Calculate the total dollars needed at a rate of about 75% of your current living expenses. Take this grand total and divide it by the number of months left in your working life.

That’s how much you need to be putting aside each month to fund your retirement. Sobering, isn’t it?

How about you all? At what age did you start saving for retirement? What stopped you from starting sooner? 

What percentage of your salary are you currently saving for retirement?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6869770873/sizes/l/in/photostream/

From Bankrupt to Building Wealth Within 3 Years – A Personal Account

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following post is by MPFJ staff writer Kristina. Kristina has over a decade of experience working in personal finance at a bank branch. She helps people plan their financial lives from college to retirement.  You can follow her on Twitter @TKBlogs.

From Six Figures to Almost Bankrupt

Rebuilding Wealth One Step at a Time

How about you all? Has the economy from 2008 until now caused any drastic changes to your personal finances?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/59937401@N07/5929474535/

Easy Tax Breaks That Are Often Overlooked

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Click here to enter my free $60 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is November 30th, 2012.

The following post is by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has a background in both accounting and the mortgage industry.

There are more than a few tax breaks that most people are not aware of, but using just one or a combination of several could reduce your income tax bill considerably. If any of these apply to you, you may be getting more money back from the IRS than you think.

Medicare insurance premiums

If you receive Social Security income, you will get a Form 1099G that reports your income to the IRS. That form will also include the amount of Medicare premiums you paid for the year. That premium is deductible as a medical expense on Form 1040 Schedule A.

Medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income (AGI), which means you’ll want to make the medical total as large as possible. Medicare premiums paid will help you get there.

Even better, if you’re self-employed, you can deduct a portion of them from your gross income even if you don’t itemize.

Overlooked medical deductions

Remember that 7.5% of AGI threshold you have to exceed in order to be able to get the benefit of the medical expense deduction? Fortunately, there’s a lot that goes into medical, including insurance premiums paid (and not already deducted on your W2), hospital stays, doctor visits, medical tests and prescriptions—you probably know all about those already.

But, did you also know that you can deduct dental and vision expenses? In addition, you can deduct the cost of transportation to and from medical facilities, including medical mileage at 23 cents per mile. It will take a lot to get to 7.5% of your AGI, so consider all of these expenses to help you get there.

Job hunting expenses

The IRS allows you to deduct job hunting expenses to the extent they exceed 2% of your AGI. The threshold may not be much of a problem if the expenses are incurred in a year when you were unemployed for much of the year. A low AGI will mean that the 2% limit is also low.

You can deduct the cost of printing, postage, job agency fees, and travel expenses for interviews (only if you paid). If that travel involved driving your own car, you can deduct the IRS per mile expense allowance.

Tax preparation fees

Any expenses paid in connection with the preparation of your income tax returns is deductible, also subject to 2% of AGI. You can also include any legal or professional fees incurred in connection with research specifically related to your income tax return, as well as postage fees.

Investment expenses

Investment management fees, account maintenance fees, and the costs of books, manuals, and periodicals related to your investment activities can be deducted. This deduction is also subject to the 2% of AGI limitation, but as you can see, if you have enough of these various deductions, you can clear the threshold and get a decent additional deduction, just by reporting expenses you already pay.

Volunteer expenses

A lot of people do volunteer work, but did you know that you can also deduct expenses incurred in connection with that effort? The IRS allows a 14 cents per mile deduction on volunteer related driving, and you can also deduct the cost of donated items. This may come about as a result of you purchasing supplies or various sundry items used in connection with the volunteer effort. Keep your receipts—you’ll need to use them at tax time.

Energy efficient upgrades

This credit applied through 2011, and allows for a tax credit of up to 30% of the purchase price of certain energy efficient equipment installed in your home, up to a maximum of credit of $1,500. Included are energy efficient equipment like furnaces, air conditioners and water heaters, and even attic insulation, energy efficient windows and doors, and certain new roofs. The credit is only for new equipment installed on an existing owner occupied home.

This credit was scheduled to expire at the end of 2011. However, save any receipts and documentation for such upgrades purchased and installed in 2012 and 2013. This was established as a temporary credit, but such credits have a history of being resurrected retroactively well after the fact, and even after the tax year to which they apply.

Additional state income tax assessments

Have you ever gotten a notice from the state income tax agency informing you that you owe additional tax for a previous year? That notice isn’t good news, but you can recover some of it by deducting it in the year you pay it.

Non-cash charitable deductions

Most of us are aware that cash contributions to charities are deductible, but you can also deduct non-cash contributions of used clothing and household goods. You’re probably familiar with these from the pick-up services from the various charities that call looking for donations of goods. Keep a record of what you contribute and who it was you gave them to. The pick up service usually provides a card to confirm the pick up and you can enter the contents and estimated value when you get it.

Don’t overlook this deduction. Several pick-ups per year can provide you with hundreds of dollars of extra charitable deductions. Just be aware that any single donation valued at over $500 will require additional documentation.

Mortgage points

If you pay mortgage points (one point is one percent of the mortgage loan amount) when you buy a house, you can deduct the full amount in the year you bought the home. The rules are more involved for refinances.

When you pay points in connection with the refinance of an existing mortgage, you can amortize the cost of the points over the life of the loan. For example, if you paid points to refinance your old mortgage into a new 30 year mortgage, you can deduct 1/30th of the amount of the points paid for each year.

If you pay the loan off at any time during the term of the mortgage, you can deduct the full amount of the remaining, amortized refinance points in the year of the payoff.

Please note that any of the above deductions and credits may change by tax filing time. Some are the result of “Bush-era tax cuts” that may or not apply in 2012 or 2013, and are currently subject to review. Please check with your tax advisor for the rules specific to your circumstances.

How about you all? What tax deductions do you take advantage of the most and which do you often find yourself overlooking?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6355404323/sizes/l/in/photostream/

5 Tips for Business Success

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The following is a guest post. Enjoy! 

1. Monitor your cash flow

2. Reliable Accounts Management

3. Pay your employees

4. Budgeting

5. Seek Advice

How about you all? What are one or two of the best tips you’ve ever received for how to succeed in your business life?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/dirtyhacker/2171524811/sizes/l/in/photostream/

Are Men or Women Better Investors?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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• Men never admit when they are wrong (read – overconfident).

• Men never ask others for directions/advice when they need it.

• Men don’t listen to other people that well. 

• Women let their emotions guide them too much. 

• Women take forever to make a decision.

• Women tend to leave the household finances up to men.

• Value Walk  recently reported that between 2000-2009, hedge funds run by women returned 9% on average, compared to only 5.82% for hedge funds run by men. This was despite the fact that 97% of hedge funds are run by men.

• Side note: During this same time, the S&P500 index returned -26%. Yikes!! 

• The Wall Street Journal recently reported that several finance professors performed a study which found that women’s risk-adjusted annual returns were 1% higher than that of men. 

• Vanguard (my personal favorite for low cost investing) reported in 2011 a large number of comparative facts between men and women investors:

• Women are 10% more likely to join their employer’s retirement plan – a definite benefit for tax-sheltered investing. 

• Women save 10% more of their income than men. 

• Women are about 10% more likely to be better diversified with fixed income investments than men (which protects their nest egg in the event of a market decline). 

• From 2007-2009 (during the market decline), men were 10% more likely to abandon stocks than women. This enabled women to take advantage of the huge increase in stock prices that followed from March 2009-present. 

• In 2001, a study found that men were 45% more likely to make frequent trades than women. As passive investing knowledge dictates, frequent trading decreases returns, more often than not. 

***Photo courtesy of http://www.flickr.com/photos/johnthescone/2541001551/sizes/l/in/photostream/

Easy Like Sunday Morning Recap and Roundup – # 10 – October 28th, 2012

Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Each time, the purpose of the Easy Like Sunday Morning Recap and Roundup series is the same – for me to be able to connect with you, the readers, on a more personal (non personal finance informational transmission only) level, encourage community, and also to give back to the other bloggers around the blogosphere who have mentioned My Personal Finance Journey throughout the past few weeks or so. It’s been about a month since the last roundup, so we definitely have some catching up to do! 

As far as the theme goes, the title of the roundup gives it away. The roundup theme is named after the Lionel Richie song, Easy Like Sunday Morning (which I play once each time I put this together), to remind us of the importance of slowing down at least every once in a while to take appreciation for that which transpired over the past few days.

So, without further ado, let’s get started with this edition’s roundup!

UPDATES FROM JACOB’S PERSONAL FINANCE JOURNEY AND LIFE 

• As far as my life in general, the months of September and October have been very enjoyable and productive at the same time. Below are some of the highlights:
• In my graduate school research, we were finally able to finish up the follow-up experiments required to respond to the manuscript reviewer’s comments. Currently, my advisor and I are putting the finishing touches on the revised manuscript to submit to the ACS Journal of Biomacromolecules. Let’s cross our fingers and hope that it gets accepted this time! 🙂
• I’m now 2 months in serving as a Teaching Assistant for a Transport Processes / Fluid Dynamics 3rd year undergraduate chemical engineering class. I’ve really enjoyed the role so far, as it’s given me a chance to teach problem sets for the homework each week. 
• Another thing that I’m very proud to report is that my sister has just recently gone under contract to purchase her first ever condo! Due to the severely-depressed real estate market these days, she was able to get a killer deal/value! Congrats to her for making this big leap! 
• Normally, this time of the fall is a big time for me to do running races. However, two weeks ago, I went for a short trail run near my house and very badly twisted my ankle. Because of this, I haven’t been able to exercise very much on the weekends. Instead, I’ve been filling up the void by visiting some of the many gorgeous local wineries near our area of the country here in central Virginia. A picture of me at one of these wineries (The Trump Winery) is shown below. If you look really hard, you can see the grape vines growing in the background!

• As far as my personal finances, I would characterize the months of September and October as “busy.” 
• First, the good news:
• At the beginning of August, I was able to max out my Roth IRA contributions for the 2012 tax year. 
• Since then, I have started contributing any leftover money (after blog investments) I have had to my Individual Self-Employed 401(k) with Vanguard. So far, I have made some good progress, with about $3,400 contributed thus far for 2012, on top of the $5,000 invested in my Roth IRA. 
• In addition, I have now met my short term net worth goal for this year! Great news! 
• On the other hand, the past month or so, one of our greyhounds, Charlie, has had a significant amount of health problems. As a result, we incurred $1,300 in vet bills and health expenses for him during the past month alone. The total we’ve spent on doggie-related things since June 2012 has been $2,300 (not counting an $800 tooth cleaning for Charlie in late May 2012). However, because of some well-timed financial planning, these expenses did not throw me off of my financial goals too much. 
• As far as my blog goes, October has been the first month for My Personal Finance Journey to feature posts by our staff writing team!
• As I mentioned in the September roundup, I added several new staff writers to contribute articles for the site on a regular basis to prevent having one to two week breaks between my regular posts while I am busy in graduate school and leaving you all out to dry. Listed below are the awesome staff writers for My Personal Finance Journey! They are all doing a great job so far.
• Miss T from Prairie Eco-Thrifter.
• ADP from American Debt Project.
• Travis Pizel, a writer for Care One and Enemy of Debt.
• Kelly from Cordelia Calls it Quits.
• Melissa from Mom’s Plans.
• Kevin from Out of Your Rut.
• Jeff from Sustainable Life Blog.
• Tahyna from DinksFinances.
• Toi Williams from Fine Tuned Finances.
• Greg from Club Thrifty
• Shondell from Call me What You Want Even Cheap.

GUEST POSTS FROM PERSONAL FINANCE BLOGGERS ON MY PERSONAL FINANCE JOURNEY

Since the last roundup, there was one guest post here at My Personal Finance Journey.

Considerations for Expanding Globally

The following is a guest post. Enjoy! 

Transportation

Meetings

Trade

How about you all? What other things do companies that are just starting to expanding their realm of operations abroad need to plan for?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/bdointernational/5120341421/sizes/l/in/photostream/