Archive for February, 2012

How Much Do You Need To Retire?

By: Green Panda | Date posted: February 29, 2012 (5:00 am)

I mentioned last week that prioritizing your financial goals and working only on one or two at a time will help you reach them. One common goal that young workers have is early retirement. When I use retirement I define it as having your necessary living expenses covered by investments and having the option to work. Many people also use the term financial independence, which I think is a good one too.

Retirement Fund: Look at What You Need to Survive

Let’s start at your monthly expenses and examine them. Pretend that you’ve lost your job. What expenses do you need to cover just to stay afloat? I’ll use our current family expenses as an example. Here’s what we have planned:

retirement nest egg

How much do you need to retire?

  • Mortgage: $850
  • Extra Mortgage Payment: $175
  • Groceries: $350
  • Home Association Fees $100
  • Electricity $100
  • Cellphone $150
  • Internet/Basic Cable $75
  • Car Insurance: $85
  • Dining Out: $100
  • Student Loan: $150
  • Entertainment: $35
  • Shopping (Personal Care/Household/Baby Stuff) $165
  • Irregular Bills: $60

Looking at these expenses we see that can trim it down a tad to get the basic expenses. If we both lost our jobs, the extra mortgage payment would be gone. You better believe the cable would be cut (not the internet – we use that for projects), dining out would be gone, and shopping would be for essentials only. (Note: We’re still under contract on our phones.)

Now considering that scenario, here’s what our basic budget would look like:

  • Mortgage: $850
  • Extra Mortgage Payment: $175
  • Groceries: $350
  • Home Association Fees $100
  • Electricity: $100
  • Cellphone: $150
  • Internet/Basic Cable:$50
  • Car Insurance: $85
  • Student Loan: $150
  • Entertainment: $35
  • Shopping:$100
  • Irregular Bills: $60

That would bring the monthly total to $1,930/month or $23,160/year. From there you can figure out how much you need to cover these bills and ‘retire’. How do you determine your target amount? Using Jacob’s formula, it comes down to:

Annual Expenses < 3% of Your Invested Savings

So to cover your expenses, you’d need about $750,000 in invested savings. Not a small amount by any means, but much lower than people expect for retirement.

If you know how much you need to have invested you can use that as motivation to be more aggressive about saving and investing for a finite period of time. Perhaps you’ll work hard to contribute to the maximum you can to your 401(k) and IRA. You can also look at dividend investing to increase your nest egg faster.

On the other side of the equation you can see where you can reduce expenses.  You may decide to go ahead and wait on buying a new car and instead find a reliable used car for sale or use another mode of transportation.

Decide How You Want to Work When Retired

With free time on your hands, there are many ways you may want to spend it. If you want to travel and you want to ‘upgrade your lifestyle’ you can. One route is to work, but the difference here is that you’re working for luxuries; if you have to or want to quit you can. Your essentials are covered. If you want to live a simplified life and don’t need to add to your monthly expenses you can focus on other activities, perhaps volunteering.

If you’re looking for more ideas on investing for an early retirement you may want to check out Your Life or Your Money. It’s a fantastic resource. You may also want to check out some of the following posts:

These posts can give you some ideas on investing as you find a strategy that works for your circumstances and goals.

Thoughts on Retiring

How many of you want to ‘retire’ early? Have you calculated what you need to make it? Do you plan on generating income?

Photo Credit

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Making Plans for the Summer

By: Kristina | Date posted: February 28, 2012 (7:30 am)

Good Morning Green Panda Readers. Today is the last Tuesday of February and in 2 days March will begin.  I know it’s only still the beginning of 2012 but it feels like it is passing by very quickly.  Soon March will begin and before we know it April will be here, our semester will be over, and then we will have to start making plans for the summer.  When we are young adults how we chose to spend our summer can have a big impact on our lives, our education, as well as our professional career.

Choosing to Work During The Summer

Whether we work full time, accept an internship, or work only part time during the summer choosing to enter the workforce can be very valuable for students.  Working full time can help us save money and pay for our living expenses, tuition, and other personal costs during the school year.

Accepting an internship in our field of study can help us gain valuable experience in the workforce.  This will be very impressive on our resume for potential employers when we are searching for a job after graduation.  Working part time is the best of both worlds, it allows us to earn some extra income during the summer and it also gives us the freedom of some personal time.

Wanting to Travel During The Summer

Many students love to travel during the summer. I agree that our college years are the best time to travel because after graduation we may enter the workforce full time and then we may be limited to only two weeks of vacation.

Travelling during the summer allows us to gain independence, learn social skills, and experience new things.  Learning to live life on our own can be a very valuable experience because it will help us adjust to life without our parents if we decide to move out after graduation.  If we can afford to do so I definitely think that travelling is a good way to spend the summer.

Stay in School During The Summer

Taking classes and staying in school during the summer can help us graduate sooner.  I absolutely loved taking classes during the summer because the summer semester is a lot shorter than the fall or winter semester.  The sooner we graduate, the sooner we can search for a job and the sooner we can start working full time.

If we don’t feel like sitting in a classroom all summer long we can take online courses.  The class sizes of courses in the summer semester are usually smaller than the class sizes during the regular school year.  Therefore we can have more one on one time with our professors to get guidance and assistance.

Just Taking The Summer Off

As we grow older and start to have more responsibilities in our young adult lives we may long for the days when summer meant time off from everything.  Our hot summer days were spent at the beach and spending time with our friends.  We didn’t have to wake up to an alarm clock and we didn’t have a fixed schedule.

I know that I definitely wish that I turn back the clock to those good old days.  But now that I am a young professional unfortunately that is not an option.  If you are a college student this may still be an option for you.  It is definitely not the most productive way to spend our summer, but it may be the most exciting way to spend our summer months.

What are your plans for the summer?

Photo by Paalia

An Update on My 6 Month No Spending Spree

By: Kristina | Date posted: February 27, 2012 (7:30 am)

Good Morning Green Panda Friends and welcome to the last week of February.  Hopefully soon the snow will start to melt, the grass will start to show, and the flowers will begin to bloom.  Soon we will come out of hibernation from the cold winter and we will start going out more often as the weather gets warmer.  I don’t feel that winter is a physical hibernation because I hate the cold; I also think that winter is 3 month hibernation for my money.

I don’t like to go out (other than for necessities) in the cold winter months and therefore I spend less money as both my body and my budget go into hibernation.  I don’t know about you but I spent a lot less money in the winter months than I do in the months during spring and summer.  During the warm months I like to go on vacation, I like to go out for dinner with my friends, and in general I like to be out of the house more often, but all of this costs money.

No Spending Spree

You may remember from a previous post that in January I decided to start a 6 month No Spending Spree  so that I can save money for my upcoming trip to Italy in May.  I am proud to say that January was a very successful month for my No Spending Spree.  However, I cannot say the same for the month of February.  In early February I received the devastating news that one of the girls who was planned to go on the trip to Italy can no longer afford to go on vacation.

As soon as I heard the news that our trip to Italy will be postponed for one year I almost immediately started to ease up on my No Spending Spree and I started spending more money. I definitely feel bad for my friend, she had an unexpected financial emergency that is expected to cost over $15,000 and therefore she cannot afford to live up to her financial obligations as well as spend another $2000 on a trip to Italy.

As I started to slowly spend more money in February than I was spending in January I started to wonder…why do people love spending money?

Spending Less Money

I am happy to say that the first 30 days of my strict No Spending Spree has definitely changed my personal views about saving money because I was spending less money. I began to realize how carelessly I used to (sometimes) spend money.  I took little things like buying sweets, splurging on snacks, and renting movies on a weekly basis for granted.  I don’t actually need these items to live; I just like spending money on them.

Now as March approaches I am definitely spending less money.  I think that it was a little bit unrealistic to want to stop spending money altogether cold turkey.  Trying not to spend any money is like trying to quit smoking or trying to eat healthier…it’s a progress because our life style cannot change overnight.

I don’t think that I will ever go back to spending money on things that I don’t need because I have now adjusted to my lifestyle of spending less money. I have increased my biweekly savings and I am also maintaining a rolling monthly balance in my bank account.

Have You Changed Your Spending Habits during the New Year?

 

Photo by Images of Money

Yakezie Challenge Time

By: MD | Date posted: February 24, 2012 (6:00 am)

The other day we wrote about Getting The Most Out of Your Entry Level Salary in a Big City. Are you a new college grad that’s trying to make it on an entry level salary? This is the post for you. We show you how to thrive and have a great time.

Time to look at the best links from the Yakezie members:

1. You don’t quit because you are a quitter @ Wealth Informatics.

2. Big Things Come in Small Packages – Guest Post from my Mother-in-Law @ BITFS.

3. Amazing February Blog Giveaways! @ KNS Financial.

4. Is It Time To Sell Stocks? @ Buy Like Buffett.

5. The Importance of Buffering Your Life @ Invest it Wisely.

6. Major Blog Acquisition – Would You Buy a Blog for 50K? @ TFB.

7. Does Where You Live Matter? @ Canadian Finance Blog.

8. How Time is 100 Times More Important Than Money @ FMW.

9. Untemplate And Go Against The Grain @ Untemplater.

10. What Recession? The Economy is Awesome @ Narrow Bridge Finance.

11. Our Plans for Our Tax Refund This Year @ Couple Money.

12. You’ve Got an Emergency Fund — Now What? @ Money Crush.

13. CROIC is My Best Friend @ Money Mamba.

14. Financially Ready To Have Kids? @ Well Heeled Blog.

15. Domain Name Parking – Income Update @ Investor Junkie.

Getting The Most Out of Your Entry Level Salary in a Big City

By: MD | Date posted: February 23, 2012 (6:00 am)

Many of the readers of this blog have graduated from college and have gone on to find work in their respective fields. Now that you’re working you’re likely wondering what’s next? You want to know what to do with your money now that you’re working full time?

I wanted to write about getting the most out of your entry level salary while living in a big city.

Entry level salaries aren’t the greatest paying. College graduates still need to survive and enjoy life in their 20s. This is why I really wanted to write about how college graduates can stretch their entry level salary as much as possible. Don’t worry because today I will refrain from typical advice that everyone else wants to give you like telling you to stay at home with your parents until you’re 40.

How can you push that entry level salary to the max in a big city?

Use public transportation.

I totally recommend that you use public transportation when you start working in a big city. Believe me I feel the same way most of you do about taking the bus. The bus can take too long and it’s filled with smelly people. However, the savings are just phenomenal. If you drive to work, you’re going to spend more on parking than you would on taking the bus both ways.

Enjoy entertainment on a budget.

You spent 4-5 years working hard and pulling all nighters, so obviously you’re going to want to enjoy your life a little more now. I’m not going to preach to you and give you judgmental advice. No matter what a personal finance blogger tells you, you will still drink on the weekends. This is why you need to enjoy entertainment on a budget.

The best way to still meet up with your friends on the weekends while trying to stretch your entry level paycheck is to apply some of the following tips:

  1. Pre-drink at a friend’s place.
  2. Stay in once in a while.
  3. Go out during week nights.
  4. Host a backyard party.

How will you save money on entertainment?

Save money on rent.

Once you graduate from college and starting working as a young professional, rent will probably become your largest monthly overhead expense. It’s critical that you figure out a way to save money on rent. I’ll give you my best tips on saving money on rent:

  • Find roomates.
  • Consider a smaller unit.
  • Move a bit further out of town.

Buy good clothing on a budget.

I always try to dress my best when I go out because you want to be taken seriously. The thing is that it’s difficult at times to be trendy while trying to live in a big city on a tight salary. This is why it’s fun to try to find ways to get good clothing on a budget. I personally prefer to buy clothing from respectable companies, but not over-priced brands. I also recommend taking advantage of seasonal sales. I try to buy my clothing in bulk. When I feel like changing my wardrobe I go out and buy new clothing in bulk so that I’m ready for the next season.

Those are my top personal picks for stretching an entry level salary while trying to live in a big city. How will you survive?

How Serious Are You About Your Financial Goals?

By: Green Panda | Date posted: February 22, 2012 (5:00 am)

It’s a strange question to ask on a personal finance blog for people in their 20s, but I bring this up because I see so many graduates getting pulled in different directions. They want to get out of debt, they want to have a down payment for a house, they want to have a nice wedding, they may want to start a business, and some want to become parents. On top of this they want to save for retirement, but not at the expense of having a good time now.

Oh, and they want this system pretty much set up and done by the time they’re 30. Whoa! Seriously?!

Financial Goals -Define What Important to You

stress about financial goals

Are stressed trying to do too much?

Before we can even create some sort of system to help you reach your financial goals we have to first talk about what’s important to you. By important, I mean ask yourself what goals have to happen (at the expense of the others)?

You can’t do everything at the same time. Get a piece of paper work and come up with your 3 biggest goals you have for your money. Now rank them from most important to least. If you’re stuck on ideas (perhaps you have so many), here are a few common financial goals:

Do any of these stand out? Don’t worry if none of them call out to you, just try to get an idea of what’s important to you.

Drop (or At Least Hold Off) What Doesn’t Matter Financially

While I’m not gazelle intense or think credit cards are evil, I do believe Dave Ramsey’s Baby Steps work because they give people a focus on their money. At each step there is one defined goal, you don’t move on to the next until you accomplish the step you’re on.

You don’t pay off debt until you have a small emergency fund ready. You don’t pay off your house until you’ve allocated an adequate amount for retirement. One thing at a time, so you’re not spinning your wheels trying to get everywhere at once. Having your dollar focused on a single goal can help it have a bigger impact. That means you need to hold (or at least slow down) off on your other goals until you accomplish your higher priorities.

Thoughts on Not Having It All Right Now

I’d love to hear your thoughts on reaching financial goals? What’s important to you? How have you been able to work towards or reach your goals?

Photo Credit

How Debt Can Affect Your Budget

By: Kristina | Date posted: February 21, 2012 (7:30 am)

Good Morning Green Panda Readers.  It’s time to discuss how having debt can not only hurt our credit score but it can also break our budget.  I don’t know about you, but I can think of many other things that I would rather do with my biweekly pay check other than pay off debt.  The major problem with having debt is that it is very easy to accumulate, but it can take a very long time to pay off.

Debt Can Be Very Expensive

The longer it takes for us to pay off our debt, the more costly it can be in interest charges.  For many people their first debt is usually a Credit Card.  This means that we are probably paying 19.99% interest or more.  Even a Credit Card balance of $1000 can cost almost $200 in interest charges per year.

If we do accumulate debt in credit cards or payday loans, it is important to try and make regular payments and also try to make more than the required minimum monthly payment in order to save on monthly and annual interest charges.

Debt Payments Can Be Better Spent

If we are a student or a recent graduate we may not yet have the monthly budget to support the lifestyle of our dreams.  This means that we are probably just making ends meet every month and therefore we really cannot afford to add a debt payment not our monthly budget.

Very often people get into debt because we are only focusing on the short term.  We use our credit card to make a purchase and we tell ourselves that we will worry about paying it off later.  However the truth is that if we don’t have the money to pay for our items now, we probably won’t have the money to pay for them later either.

If we find our self short on cash flow one month we should try to make cuts in some of our monthly expenses rather than accumulating debt.

Debt Hurts Our Financial Well-Being

People who accumulate a lot of debt at a young age suffer the financial consequences for years to come. Having a large debt load can be very stressful and it can definitely harm our Credit Score.

Having a low Credit Score and being boggled down with debt can harm both our future as well as our financial lives.  When we apply for a new job our potential employer will check our credit history.  If our Credit Score shows that we are financially irresponsible we may not be offered a job.  When we are ready to move out of our parents home our potential landlord will also check our credit history.  If we have a past pattern of paying our monthly bills late then our rental application may not be approved.

If we want to buy a car, purchase a home, or even apply for insurance the companies will always check our credit history.  This is why it is important to pay our bills on time and try not to accumulate too much debt.

We may not realize it at the time, but being financially irresponsible and accumulating a lot of debt that we are unable to pay off can definitely harm our bright financial future.  Before you swipe your Credit Card think twice about if you can afford the monthly payment.

Photo by Images of Money

 

Budgeting for Financial Independence

By: Kristina | Date posted: February 20, 2012 (7:30 am)

Good Morning Green Panda Friends. I hope you all had a really great weekend.  Today we are continuing on with our budget themed posts with some helpful hints on how to achieve financial independence and financial responsibility.  We have previously discussed how to create our personal budget, how to manage our money so that our bills are paid on time, as well as how to budget in saving for retirement.

If we are young and still in school, living at home, or starting to enter into the workforce there is probably not a lot of room in our budget for extra activities.  If we are moving out of our parents house for the first time we are learning to live on our own and we are also learning to budget for the first time.  If we are starting our careers after college and entering the full time workforce we may be faced with financial independence for the first time in our lives.

Achieving Financial Independence

The key to financial independence is to enjoy life while maintaining our financial responsibilities.  Very often young people who make the transition from a budget loving student to a full time pay check mismanage their money.  It’s not (entirely) our fault, maybe we just never had the opportunity to learn about money.  It’s only normal that we are going to make mistakes but the true sign of financial independence is for us to learn from our mistakes.  I definitely made my share of financial mistakes in my early 20’s from racking up thousands of dollars in debt to spending everything I earned and living from pay check to pay check. These are common mistakes made by young twenty-something’s who are learning to manage our own money for the first time.

Creating and maintaining our monthly budget is about so much more than just paying our bills.  It’s also about making room in our budget for the things we love.  Here are some helpful tips to help us achieve financial independence while making the fewest mistakes possible as we learn to become financially responsible.

Have at least 3 months of rent saved before you move out. This covers our first month’s rent as well as any deposit that we have to make. If we can only afford to pay one of our monthly bills on time it should definitely be our rent.

Always Split Your Bills in Two. If we make payments onto our monthly bills with every biweekly pay check our bill balances will be more manageable.  It’s definitely easier to pay $75 biweekly rather than $150 one shot for our monthly bills.

Save in an Emergency Fund. This is also known as our financial reserve.  We can save cash money in a high interest savings account and then use it any time in case of a financial emergency.  Even saving $10 per pay check can add up to a lot in our emergency savings fund.  This can be used if we ever need to make a last minute trip home for a family emergency etc.

Keep Credit Card Limits Low. Our total available credit should not be more than 30% of our entire annual income (not including our mortgage).  This ensures that even if we max out all of our Credit Cards we can still afford to pay them off and void excessive interest charges.

Photo by Stew Dean

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