November 14, 2007

Money money money

Hi Quench!

Soo, today is the day before payday. And I have 21 cents in my bank account. The thing is, I'm really tired of this.

I need to learn about money.

I think we all have emotional issues around money, but I think in my case, it's also a lack of information. I've never had much money, and neither has my family, so I just don't know much about what I should be doing now. And I've always had this avoidance to learning about it, because I don't want money to be "what's important" in my life. But I'm also tired of being broke, so I think I need to try to take an active role.

I make around $2000 a month, and pay about $1000 in rent, plus utilities. My other big expenses are transportation and food.

But I feel like I should learn about things like investing, or savings, or 401k's (honestly, all I know is something about retirement). What's a good way to maximize the money I have?

Some questions for all of you:

  • How much do you know about options available to you (in terms of different banks, account, stocks, investing)?
  • Who has taught you about money?
  • What are your biggest fears or anxieties about money?
  • Do you think you have a healthy attitude towards money?
  • If you could learn something about money, what would it be?
  • What piece of advice would you give to other young people who might not be earning much?
I'd really love to hear your input. Thanks!

18 comments:

spork said...

Thanks for making this post! I've been thinking about making a similar one for a while.

My parents taught me about saving when I was pretty young, and my grandma bought me a few shares of stock when I was about 10 so I could see how it worked. They laid a good foundation for me in terms of thinking about money and what it meant in my life.

I decided I wanted to learn more about money - specifically investing - about a year and a half ago, when I was working full time and living in free (dorm) housing over the summer, and had a lot of disposable income that I wanted to make sure I didn't dispose of right away. I'm satisfied with the progress I've made.

I've taught myself a lot using the wonderful fantabulous personal finance blogs on the internet. My favorite is iwillteachyoutoberich.com - snarky name, snarkier commentary on money. It's written for young people, and it's got a lot of good info. I recommend starting here and reading the next few posts chronologically to get started: http://www.iwillteachyoutoberich.com/blog/i-am-going-to-kick-some-personal-finance-ass-yours

Quench readers might also enjoy queercents.com

My biggest fears about money have to do with not being able to provide for people I love or not being financially prepared for bad things to happen. These are pretty small worries, in the grand scheme of money worries.

I would like to learn more about mortgages, and when it makes sense to buy rather than rent a home. I also want to know what my credit score is.

For advice, I'd say educate yourself! Don't panic, take deep breaths, etc.
- Figure out exactly where your money goes each month. Tools like wesabe.com and mint.com can make this easy and (relatively) fun. Once you know where your money goes, it's easier to see where you might be able to save some.
- Get a high-interest savings account at ingdirect.com or hsbcdirect.com or similar, and put a portion of your paycheck into it each month as soon as you get it. Some call this "paying yourself first".
- Switch to a checking account that doesn't charge a lot of fees. Credit unions are great for this!

Good luck!

spork said...

Bah, blogger has cut off my link to the starting point i wanted to recommend at iwillteachyoutoberich.com. Here's the link again, tinyurl'd: http://tinyurl.com/yvpp34

bat dor said...

Great points, all, Spork.

Icarus, you mentioned retirement.

My grandfather passed away not too long ago, and left a (fairly modest) inheritance for all the grandkids. My dad told me to put it into a Roth IRA. I said, "What's that?" He said, "Look it up."

So a few months of muddled research later, here's what I know of retirement accounts in the USA.

1. When should you start one? As soon as possible. Why? Two words: compound interest. The longer money is sitting in your retirement account, the more your account will appreciate in value.

2. There are two types of retirement accounts: employer-sponsored and individual.

An employer-sponsored retirement account is called a "401(k)" if you work for a for-profit org, or "403(b)" if you work for a nonprofit. They're the same thing.

Individual retirement accounts ("IRA") come in all kinds of different types, but the one most people know about is the "Roth IRA".

2. What's the difference? If you have a 401(k), you put money into it NOW and pay taxes on that money LATER -- when you withdraw the money at age 60. If you have a Roth IRA, you put money in NOW and pay taxes on it NOW -- but you DON'T pay taxes when you withdraw the money at age 60.

To demonstrate the difference, let's pick some numbers.

Say that at age 20 you're making next to nothing, so you pay 15% income tax.

When you retire at age 60, you're making way more money a year, and so you have to pay 30% income tax.

401(k) SCENARIO:
At age 20, you put $100 into your 401(k). You don't owe Uncle Sam a thing on that $100 this year, which is great, because you're broke and every $15 helps.

At age 60, you withdraw that $100, which thanks to the joys of compound interest, has ballooned to just over $4500. Woohoo! But you now owe Uncle Sam 30% of that in taxes -- about $1350. It's cool, though, you're 60 and doing well. You can afford it.

ROTH IRA SCENARIO:
At age 20, you put $100 into your Roth IRA. Though it's tough, you scrape up an additional $15 to pay taxes to Uncle Sam.

At age 60, you withdraw that $100, which thanks to the joys of compound interest, has ballooned to just over $4500. Woohoo! And since 20-year-old you already paid taxes on that money, all $4500 is yours, free and clear.

Of course, that's just scratching the surface. Here's my advice in a nutshell: (1) Having a retirement account is better than not having one. (2) 401(k)'s and Roth IRA's each have advantages and disadvantages, and there's no one-size-fits-all solution. To pick the option that makes the most sense for you, (3) Talk to a financial planner.

bat dor said...

And now to actually answer your questions, Icarus:

I had a credit card long before I knew how it worked. True story: I thought you HAD to pay off the balance every month, which I did religiously for about two years before someone told me how they ACTUALLY work. My ignorance has probably helped my credit rating :)

I think I have a pretty healthy attitude toward money. I consider money a tool that can help me get the things I need to live -- housing, food, and healthcare for me and mine -- plus the things I need to feel alive -- hey, I've gotta finance the wanderlust somehow.

My chosen career path has the potential to be very lucrative, and odds are that I will be bringing more home each month than my future spouse. I fear any potential awkwardness surrounding that.

If I could learn something about money, I'd want to learn more about the stock market and how it works.

My one piece of advice is to start building up an emergency fund. What happens when the a/c unit dies, or you lose your monthly T/Metro/whatever pass on the 5th of the month, or you catch pinkeye while uninsured, or you get laid off?

Things like this can really derail whatever other financial planning you're doing, so it's important to have a bit of money stashed away under a mattress -- or preferably in a high-yield savings account; I have an account with ETrade, but HSBC and INGDirect are great too.

Set up an automatic transfer of $100 a month, or $50, or whatever you can afford, into the emergency fund account, and then DON'T TOUCH IT except in case of, well, emergency. The automatic transfer is key; otherwise I'd forget to do it.

And Icarus, if you want to continue this conversation offline sometime, I'd be happy to.

Anonymous said...

I learned from my parents a lot but mostly in broad generalizations like "save" and "invest." My dad once gave me a book about investing when I asked about it as a kid.

They knew I loved math problems and would often give me problems about both earning interest and paying interest. I definitely learned that paying interest sucks.

I was also taught to always have an emergency fund (even in college) - for emergencies and also so that you never overdraw as that is a huge waste of money. The size of an emergency fund has grown as my expenses have (eg. now that I have to pay for rent, food). When it's fully grown, it should be able to last a few months and should not be spent. It can be put somewhere high-interest.

I was taught never to put something on a credit card unless I already had the money to pay it back within the same month or you'll pay for the item over and over in interest.

I've read some of the financial blogs that spork mentioned but I'm not really ready to trust blogs to tell me what I need to know about my options. However, I haven't yet done the outside research necessary to figure everything out. I did read an interesting post on iwillteachyoutoberich about owning a condo vs paying rent.

I can't put a finger on where but I also learned to have different feelings about "capital" vs "income." Income, I learned, can be spent, but some should be saved and should also be given away. Capital, however, is money that you have already saved or that you receive in some other way. That you only get one chance to decide what to do with. (Another example of being careful with one's emergency fund.)

I like the idea of finding a financial planner to ask but I haven't found one or figured out who to ask. I want to be sure that I take social justice issues into account whenever I deal with money. Whether it's using a bank that at least does good community work like wainwright, or it's looking at worker issues when buying stock, or budgeting to be sure that when I make financial decisions, I take into account that I need to donate a significant portion of my earnings to creating change.

WTTO

emily2 said...

i was never taught anything about money as a kid, because my parents expected me to study 24-7 to get into an ivy. i wasn't allowed to take a job ("waste of time"), and everything i needed was just provided for me (so i wouldn't waste precious energy being distracted from getting into harvard), so i was pretty clueless about money until i ran up a ridiculous credit card debt in college. it was BAD. then i learned.

anyway, here are my suggestions:

one quick thing i saw was that you're paying $1000 for rent + utilities. paying half your take home income on rent is way too much. that number can be slashed by living with roommates or by living in a less expensive neighborhood. believe me, it's worth it. paying rent is like flushing money down the toilet. you're not building equity. you're just padding someone else's pockets. so one way to start saving is to minimize your rent.

ain't no shame in living with a lot of people. i'm ten years older than you and i live with 2 other people in a 2 bedroom apartment. i pay $775, (which includes rent, utilities, premium cable, unlimited long distance, renters' insurance, and wireless internet). and this is in the nyc area. so i know that $1000 that you're paying can be totally slashed. my friends who "MUST" live in manhattan (notice the sarcasm) pay two to three times as much as i do, and after law school loans, they're pretty much living paycheck to paycheck. the sad irony is that, although they're living in a "cool" neighborhood, they don't have any money to enjoy it!

anyway, if you're living in the bay area, don't live in s.f. - live in oakland. if you're living in d.c., consider maryland or NoVa or a d.c. neighborhood that isn't $$georgetown$$ or $$dupont circle$$. if you're living in nyc, consider jersey city, queens or brooklyn.

if you don't have savings, open an online high yield savings account with HSBC. a good rule of thumb is having six months of living expenses saved up in the event that you get laid off, get into an accident, etc. most of my friends have been laid off at one point or another, and if begging your parents for money is not an option, the emergency fund is key.

once you have the emergency fund, start investing in a ROTH IRA.

icarus said...

hi everyone!

wow, i just logged onto Quench and saw alllll these posts! i am going to read them all carefully in a little bit.

in response to Em2 - i actually *do* have a roommate, so i'm actually paying half the rent for the apartment...it's just expensive, because it's in a nice area, and i only had 3 days to find an apartment before moving.

again, thank you all, and keep the comments coming!

Mark D. Snyder said...

Icarus, this was a great idea for a post! So many of us young people, particularly queer people, have a bad relationship with money and are feeling lost or confused.

It's taken me a while but I've figured some things out. For one thing, your rent situation is scary to me - but I've been there. Sometimes it is necessary to pay half your salary in rent. I used to do that until my boyfriend moved in with myself and my roommate. What I did after he moved in was I lived the same, but put the money towards paying off my high interest credit card. Now I am down to a few hundred dollars in debt on a 0% card. Watch your fico/credit score. You can request it for free once per year from the credit score companies, and some credit cards have a little online feature that shows it to you for free.
The higher your credit score the more likely you will qualify for lower interest loans, credit cards, and mortgages etc.

I'm lucky enough now that my job matches 5percent of my salary and automatically puts it into a 401k. It is a good idea to start saving as young as possible for your retirement, or home downpayment, etc. However, what sucks is that when you invest you are investing in EVIL big corporations. I'm still trying to find a good socially responsible way to invest my own money. So if anyone has any ideas let us know!

Also, way to go bat dor, you're like suzy orman up in here! ;)

aurora said...

I've learned most of what I know about money from my dad. (Starting from age six or so when I wanted to know how banks worked to today when I ask him harder questions :p) I was taught a lot about money when I was little. For as long as I can remember, all my birthday checks went straight into my savings account. (My parents would then give me the cash to use, if I wanted it, and as it was needed.) I kept a checkbook to keep track of my "account" with my parents. So, instead of a regular allowance, I would just write in a "deposit" every week. I was an anal, mathy kid, so I loved this. I'm really hoping when I have kids that they enjoy that kind of stuff, too. I think it was a good method.

My biggest fears are mostly...social? I feel very financially secure, and I guess that's part of the problem. I get uncomfortable in a lot of social situations that involve money.

I do think I have a healthy attitude toward money. When I get it, I put it away. When I want it, I think about whether I really need it, and then I might take it out.

I want to learn more about taxes. They confuse me so much. I don't really understand how withholding works and why people get tax refunds and what sorts of things you have to declare and etc.

As for advice:
- Don't get a credit card unless you have the funds to back it up. Along the lines of what bat_dor said, paying it off in full every month isn't necessary. But if you can do it, it's a really good idea. I don't like feeling like I'm indebted to anyone...it makes me nervous. I think that credit cards should just be seen as a convenience. There's no free money.

- Echoing everyone else, "save!" Even if it's only $20 a month, if you can consistently put aside some money somewhere where it will earn interest, this is a good thing. Emergency funds are good. Being able to save up for big things like cars and houses that you'll want to buy at some point down the line is a good thing.

- Keep track of your money. Check your balances regularly. Save your receipts. This will help you not overdraw your account, you'll notice quickly if your account is compromised, and you can keep tabs on what you're spending money on and see where to cut back. (Seconding spork's recommendation of mint.com here.)

That's all I have for now. I'm totally open to questions, though :)

Ily said...

Again, really good post idea. I suck at money, but there are a few things that have helped me.
It helps me to have financial goals, such as, I want to buy a house before I'm 30. So, I think about that when I spend my money. I also automatically put money into a savings account every month.
I joined a group of other young women who also wanted to learn about money, and it was really cool to see that other people were interested in it, too. My job doesn't give me a (401)K, so I signed up for a Roth IRA on Etrade.com.
I'm not able to put much money in it, but I guess it's a good habit to get into. I also think that choosing the mutual funds that go into the IRA is fun. Also watching them is fun for me too :-)
I also have a CD from my bank, which is a good way to make a little bit of money with absolutely no effort.
Sometimes, my ego gets in the way when it comes to money. I don't want to say, "Sorry I can't go out, I can't afford it", but then I'm left feeling all bitter because I'm even broker than before. So being honest about my poorness is what I'm working on. "There's no shame in being poor...there's no great honor, either" ;-)

emily2 said...

lol yeah i understand the apartment situation. i had like 2 days when i first moved to the nyc region to find something, and i ended up sharing a 1 bedroom in manhattan. still ended up paying over $1000 a month in rent though.

but when my lease ran out, i hightailed it out to brooklyn and due to a twist of fate, landed a tiny bedroom in a 3 bedroom apartment, and my rent was only $300 a month. best decision ever.

then the landlord decided she didn't want to rent to people anymore. still, my current deal is pretty sweet.

when your lease runs out, i highly suggest finding the cheapest room possible in your region.

Mark D. Snyder said...

A few more tips:

1. Definately save by putting money in a cd like the ing orange accounts online so your money gains interest.

2. Use wainwright for your banking so that you don't put your money towards the war and destroying the enviornment.

Here is a link to socially responsible banking and investing information:
http://moneyandvalues.blogspot.com/2007/10/guide-to-socially-conscious-banking.html

Other smart ways to spend:

credo cell phone company (no spying, donates to progressive non profits)

BostonCommunityChange.org (shop locally, benefit local non profits)

Anonymous said...

Hey Icarus, I cant answer your questions, because honestly i dont know much and even talking about money kind of stresses me out. So that said, I also didnt read what the 12 comments said. I saw horrifying words like "interest" and "credit card percentage" and "401K" and panicked.

What i do have to say is that maybe for people who were born into poverty, maybe they´ve (Me) developed the same type of approach to money as their parents. My parents always struggled for it. Naturally, they began to fear it. What i learned from money early on was that it was pretty important, and that we never had any, and that it was better to ignore a problem.

The idea of saving money sounds something too responsible. Whenever my parents or I had any money we treated it like a precious thing that would soon be gone. So what we did was the least effective thing possible....we spent it on immediate things to make us happy, to tide us over and prepare ourselves for the next stint of misery that was poverty.

If youre not taught to think money is something that can dictate who you are and control your environment directly, then naturally you have less anxiety about it. You dont splurge because youre trying to overcompensate, you see it as a flowing resources that floats in and out but never stops in a sense.

It´s sort of the psychosis behind the poverty cycle. I think even with a higher education degree, I might always be broke. At the very least, always be terrible with money. I dread checking my bank statements, I avoid paying bills till the last minute, and even if I have the money, I stress over where Im going to GET the money. It´s a strange thing. This post was long........

Anonymous said...

I should clarify that "dictate who you are" means more like dictate who you can´t be and what you can´t accomplish. Being in serious poverty is a suffocating imprisoning feeling that can really kill the spirit.

Having money isnt very important, but not having any is a massive matter.

icarus said...

dear anonymous,

your comment really, really hit home with me. i'd really love to talk to you more. if you feel comfortable, shoot me an email at icarus.girl.icarus@gmail.com :-)

and to everyone else - i am reading and soaking in your comments. i started using mint.com, and i'm trying to open one of the high-interest savings account (although i think they're still verifying my social security number or something...) i will let you know how it goes with this paycheck, and if i feel like i've gained some control. keep posting away!

Anonymous said...

I would definitely be interested in continuing this conversation - both to learn more about money but also to think about class. I know that the feeling swe have about money are so tied in with class - eg. the hoarding/saving tendency vs the spend it while you got it tendency. Both are valid ways to look at it but one, along with a ton of other systemically imposed circumstances, allows a small group to remain in control of, well, everything.

I think an in-person conversation about this would also be good (perhaps a continuing online one is more practical). One interesting example of the different ways people think about money is that many of my class-privileged friends and sometimes myself have had about giving cash to poor people who ask for it, or poor people in general, which folks don't like to do because they (sometimes we) have this idea that poor people don't know how to manage money. (read Dean Spade's article about why food is not enough). We fail to look at the situation as one where both the cause and the effect are oppression.

On the other hand, the tendency to horde more than we need comes with the class privilege with which I was raised, and I will have to spend my life fighting it if I want to do the right thing. Still, I find myself needing to learn more about 401ks or roth iras or whatever else because capitalism is here to stay for a while.

The silence around money coming from those who have it is deafening. It's not like people share their knowledge of what to do with money (other than the relatively recent blog phenomenon - yay), but on the other hand I think that a cross-class conversation about money needs to be part of a justice-themed political framework. It can just be a hard conversation to have because those of us with class privilege need to fight the urge to stop being jackasses all the time and think we are always right, share what we do know in a humble way, but also stop and listen and learn what's going on. After all, if we've never truly lived paycheck to paycheck, how can we possibly know the way money really works?
We can listen and learn, but in the end, that's not the same as actually knowing from experience.

can we keep talking about this?

wtto

spork said...

Thanks anonymous and wtto. Like wtto I come from a background of class privilege, and I have never lived paycheck to paycheck. But many of my friends could have written what you wrote, anonymous, and i want to figure out what knowledge i can share that might help them break that cycle. and i want to learn how to do it without being an asshole.

one thing i've found is that people are usually very receptive to new information about money after they've asked for it, but not before. sometimes i've talked to people i knew very well about saving and budgeting without them first directly asking, but that's very hard to do without being an asshole. i've found that approaching the conversation with an attitude of humility, like wtto said, and acknowledging our different backgrounds that have created our feelings about money, can both help make the conversation easier.

emily2 said...

i find that the "spend it when you got it" attitude seems to describe my friends who are privileged. they seem confident that, even if they lost their job, they can get bailed out by their parents. i know of a couple of folks who have already quit their jobs, bum around their manhattan apartments and collect handouts from their parents. and then they go shopping.

there's one friend i have whose life was fully funded (like serious bling funded) until she got her top law firm job. then her dad cut her off, and within three months, her phone was cut off, because she didn't realize that she had to pay things like phone bills. lol!

there's also the "spend it when you don't got it" attitude as well, which is basically "living large on the plastic charge" attitude. i don't know what it is about manhattan, but people here are just dumb with money.

anyway, this is the first time i'm hearing about folks who grew up without money having the "spend it when you got it" attitude. i believed that the exact opposite was true, so i'm intrigued.