Sunday, February 26, 2017

What I'm Reading: February 2017



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Shoe Dog: A Memoir by the Creator of Nike by [Knight, Phil]

This is Phil Knight's memoir, the creator of Nike. It tells the story of Nike's early beginnings (before it was even called Nike) through 1980 or so. In reading this, I realized I didn't know much about Nike's story at all. It's an honest account of what it's really like to start a big business - and an important reminder about the sacrifices involved.

BONUS: There is a new show on Netflix called Abstract (about design). The second episode is about one of Nike's shoe designers, which might be a nice way to follow up your read of Shoe Dog.

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Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers by [Ferriss, Timothy]

This book is a massive 700 pages, turning hundreds of podcast interviews into one book. It's more of a reference book than something you'll read in order, from cover to cover.

Tim Ferriss takes the best "tactics, routines, and habits" from many of his podcast guests (Jamie Foxx, Seth Godin, and Shaun White - to name three) and condenses each interview into a digestible section of this book. Tim also adds his own thoughts, commentary, and experiences in relation to the advice given.

Note: Tim interviews some amazing guests, but I don't prefer his podcast (just my opinion). Still, the information is valuable, and I have found this book to be a great way to take it all in (where you can jump around, mark it up, take notes, etc.). So, if you don't love his podcast I would still give this book a chance.

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Monday, February 13, 2017

How Much Is A Movie?



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A couple weeks ago, I had a few friends over to watch a movie. After hearing high praise for Hell or High Water, and noticing it was available at Redbox, I decided to pick it up and invite a some friends over to watch it. (Note: This film is one of the Oscar-nominated films for best picture this year and received four total Oscar nominations. I recommend it.)

Four of us ended up watching the film - cuddled up on couches and under blankets in the comfort on my living room, where we controlled the volume and the room temperature. Because we watched it at my house - and not a movie theater - we could comfortably linger after the movie ended to both discuss the film and generally catch up. Bonus: I also made homemade chocolate chip cookies and had other drinks and snacks, which I already had on hand.

The cost of the Redbox rental was $1.59. Let's call it $0.40 per person. I had everything I needed for the cookies and other snacks, except the chocolate chips. And flour is cheap. Let's call this another $1.00 per person. 

So, for the price of $1.40 per person, four friends watched a movie and had a lovely evening.

Had we instead gone to the movie theater closest to my house, we would have each spent $13.50 on a ticket and $0 - $10 on snacks, depending on whether we felt like springing for expensive popcorn and soda. Let's be conservative with the snacks (as I was maybe was above) and call this $16.00 per person. (That's equivalent to watching 11 movies at home, given the $1.40 number from above!)

It's a lot more expensive to go to the movie theater than it is to watch something from home. And with the unbelievable amount of content available via streaming services, there is most definitely something everyone could enjoy without going to the movies. You're paying a premium to see what is new and on the big screen. Wait a year or so, and the cost drops dramatically.

Now, I am not saying you should stop going to the movies. You should spend money on what you value and can afford. If that's seeing a movie on the big screen, do it! BUT, I do think a reminder about trade-offs is important. Before you spend money on something that feels routine and normal, ask yourself if you REALLY REALLY REALLY want it. And if you do, go for it, but if what you want is a movie night with friends, think about the best way to have just that (costs, snacks, and comfort included).

Until next time,

Lucy

Monday, January 30, 2017

What I'm Reading: January 2017


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This month, I would like to recommend two books, which were recommended to me. I think they're both worth reading.

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Between the World and Me by [Coates, Ta-Nehisi]


This is a powerful read. Written as a letter to his son, Coates examines the history of America and the role race ("his black body") plays. It was eye-opening and emotional and humbling. Here is a favorite line:

"The fear lived on in their practiced bop, their slouching denim, their big T-shirts, the calculated angle of their baseball caps, a catalog of behaviors and garments enlisted to inspire the belief that these boys were in firm possession of everything they desired."

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Written by two Washington Post reporters, this tells their own story of working to uncover Watergate - and how the story just got bigger and bigger. I found it to be fascinating.

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Monday, January 23, 2017

Okay, But How EXACTLY Do I Invest?


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My last post was A Q&A About Saving For Retirement, which seemed to successfully answer several questions - so thank you for asking and then providing feedback! I did receive a follow-up question (one I have heard in one way or another many times before) that I feel is worth addressing in its own post. Here is that question:

"HOW exactly do I invest and HOW do I know which mutual funds to pick? Where do I go to open accounts and HOW can I make sure I'm choosing a diversified portfolio with low expense ratios?"

This of course depends on each person's specific situation, personal financial goals, and risk tolerance, among other things, but I think I can help answer this more generally and hopefully give you the foundation you need to get started.

If you're investing in a 401(k) or other employer sponsored retirement plan where you are limited to the list of available investment options within your plan, look for Vanguard and Dimensional (DFA) funds. For many of you, putting 100% of your current balance and 100% of your future contributions in a target date fund is probably your best option.

For example, the Vanguard Target Retirement 2035 Fund is made up of:

  • 48% US Stocks
  • 32% International Stocks
  • 14% US Bonds
  • 6% International Bonds

This is a well balanced and diversified portfolio that exposes you to the global market (you're owning thousands of companies) within an 80% stock and 20% bond mix. And, the expense ratio is an amazingly low 0.15%!

If you don't have access to Vanguard or DFA funds within your 401(k), 403(b), or other retirement plan, look for another target date fund with a low expense ratio.

If you want to save into a Roth IRA or taxable account*, I would consider opening the account with Vanguard and using a target date fund there as well. Simplicity is your friend!

While the Vanguard website can certainly be confusing (I have heard this from many friends), they have a 1-800 number where you can talk to a specialist, which I have found to be helpful. While the initial set-up may be somewhat painful (or at least annoying), Vanguard funds are the least expensive option available and I think they're worth it. Plus, after the initial set-up, things should largely be on auto-pilot.

Keep in mind that just because you add money to a newly opened account, it does not mean that the money is invested. It will sit there, as cash, earning next to nothing, until you tell it how you want it invested. Be sure you make an investment election - and a simple balanced fund will do!

Also note that you don't necessarily have to open a new account. If you already have an account somewhere else, it is likely that you can buy Vanguard funds within that account. If not, they may have other low-cost options. I would look into both the fees you're paying to have the account and the funds available first - because opening more and more accounts can only complicate things. Be sure you're not paying too much just to have the account in the first place. (While Vanguard is not the ONLY solution, it ranks highest on my list of the best available investment options. You can also read Mr. Money Mustache's post on How To Make Money In The Stock Market and see his investing recommendations here, just so you know I'm not the only one.)

As one more suggestion, you may want to consider Betterment. Betterment utilizes technology to take the hassle out of investing. They pick the funds and then rebalance as necessary. This is what is called a robo-advisor. You can read about their pricing structure here.

As one final reminder, getting started is better than doing nothing. Don't let the multitude of options keep you from taking any action. And of course, you can certainly send me an email with your questions!

In summary:
  • Open accounts with Vanguard and pick a target date fund, which does the rebalancing for you (or use an existing account and buy Vanguard or other low cost funds within that account).
  • Try a robo-advisor such as Betterment and let the computer algorithm go to work for you.
  • Don't let all the options keep you from trying any of them.

I hope this is helpful!

Until next time,

Lucy

*Note: A taxable account is often called a brokerage account. This means you are saving after-tax dollars and aren't restricted by a specific age as to when you can take the money out without penalty, as you are with retirement accounts like 401(k)s and IRAs. As an example, this is where you would invest money after saving for retirement (such as maxing out your 401(k) contribution) and when you still have more money to save and invest.

Sunday, January 8, 2017

A Q&A About Saving For Retirement


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You asked, and I answered!

Here are the common questions I've received about saving into retirement accounts, complete with answers. I hope you find this helpful.

401(k), 403(b), and TSP Accounts

Note: These accounts work similarly, and I've used the names interchangeably below.

Q: How much can I contribute to my 401(k), 403(b), or TSP in 2017?
A: $18,000.

Q: Don't I get to contribute a little more if I'm older?
A: Yes. If you are 50 or older (as of December 31, 2017), you can contribute an additional $6,000 in 2017, for a total employee contribution of $24,000.

Q: How much should I contribute? 
A: At least enough to get your employer match, more if you can.

Q: Should I contribute pre-tax dollars or utilize the Roth 401(k) my employer offers?
A: This depends on your tax situation and thoughts on both what the tax brackets will be in the future and where you fall within those tax brackets.

Q: That sounds complicated. Does anyone know what the future tax brackets will look like? 
A: No one can say for sure what future tax brackets will look like, and most people don't have a clear picture yet of what their individual situation will look like in retirement.

Q: Alright, so how can I simplify this and make a good decision right now?
A: I prefer a combined strategy, contributing pre-tax dollars to a 401(k) and post-tax dollars to a Roth IRA. This ensures you are utilizing the benefits of both, but your situation may mean something else makes more sense. Either way, saving money is a good idea. Don't become paralyzed by the details.

Q: What are the tax savings from contributing pre-tax dollars to a 401(k)?
A: Let's say you're in the 25% tax bracket and contribute $10,000, pre-tax, in 2017 to a 401(k). This means you will save approximately $10,000 x 25% = $2,500 in taxes in 2017.

Q: When I can start using money saved in my 401(k), 403(b), or TSP without incurring penalties?
A: Age 59 1/2.

Roth IRAs and Traditional IRAs

Q: Can I contribute to an IRA in addition to contributing to a 401(k), 403(b), or TSP?
A: Yes, you can.

Q: How much?
A: In 2017, you can contribute $5,500 TOTAL to IRAs. This is a combined total among all Traditional and Roth IRAs. This means, for example, if you contribute $3,000 to a Roth IRA you can contribute $2,500 to a Traditional IRA. Your combined contribution to all IRAs is limited to $5,500.

Q: Again, what if I'm older?
A: Similar to a 401(k), you can contribute an additional amount, called a "catch-up" contribution, to IRAs if you are 50 or older as of December 31, 2017. The catch-up limit is $1,000, meaning you can contribute $6,500 total to all IRAs.

Q: Aren't there income limits for being eligible to contribute to a Roth IRA, too?
A: Yes, if you make enough money, you are no longer eligible to contribute to a Roth IRA. Those rules can be found here.

Q: Do these income limits apply to Traditional IRAs?
A: No, anyone can contribute to a Traditional IRA; however, there are income limits that determine how much you can deduct on your taxes. Those details are here

Q: What's the difference between Traditional and Roth IRAs?
A: Roth IRA contributions are always made with post-tax dollars. Your contributions and all the investment growth are tax free. You never pay taxes on this money again! Traditional IRAs can be made up of pre-tax dollars or post-tax dollars. Often, a Traditional IRA contains pre-tax 401(k) contributions from an old employer, which is then rolled over to a Traditional IRA after leaving that job. You can find more details on the differences between Traditional and Roth IRAs here.

Q: Alright, can you make it simple for me again?
A: If you are young - and eligible, contributing to a Roth IRA is a great idea. You use your net income (post-tax) to make contributions now, let them grow for a long time, and then take the money out tax-free in retirement. It's pretty amazing.

Q: If I have a Roth IRA but didn't contribute in 2016, is it too late?
A: No. You have until your tax deadline (April 18th, 2017, for most of us this year) to contribute. Just be sure to indicate that it is a 2016 contribution.

Q: When I can start using money saved in my IRAs without incurring penalties?
A: Age 59 1/2.

Other Resources and Notes
  • It's important to consider your individual situation to make the right decisions for you (which accounts, how much, if eligible, etc.). Be sure to do some research and seek help when needed.
  • You can find more information on these topics by clicking here and reviewing the posts under "Retirement Accounts."