Buying Quality

I am a cheap person.

I hate admitting it like that because it sounds so much better if you label it “frugal” but really what is the difference? Being “cheap” just means you factor in money when making a decision and weigh whether or not you want that item/experience as much as you do the money.

Because I am a cheap person it pains me (really, it is almost physically painful) to spend a bunch of money on something, especially a material item. But I have learned over the last few years that saving a buck or two by buying a cheaper option or overspending on something because it looks cool can come back to bite you. When I was younger I bought things that I needed based almost exclusively on the price. If I was getting food, clothing or anything else the price tag was something I paid heavy attention to. While I still am very aware of the price of things I buy it is no longer the only driver.

We all have some bad spending habits. This just comes with the fact that you have money  + stores have items = sometimes we will slip up. But if you can focus your spending money on larger items and things that are important to you, you can afford almost anything you want. But you can never afford everything you want. I love sports, I played basketball, baseball and football throughout my childhood and high school and then played football at the collegiate level for a couple of seasons. Sports can be expensive if you try to keep up with all the gear and equipment that is being advertised to you. When playing basketball recently I noticed that my shoes have lost all grip and do not seem to support my ankles anymore. Yesterday I decided it was time to get a new pair and headed to the mall (I do not like malls but that is the closest place to buy shoes). I tried on a few different pair of shoes, one pair cost $89, one cost $99 and the third cost $139. I had not asked for the $139 pair but the salesman brought them out anyways, I tried them on first and they were awesome. I then tried on the 89 and 99 dollar pair and they felt the same so I ruled out the $99 pair. Why pay the extra $10 for no added comfort/support? My decision was now between a $89 and a $139 pair, the more expensive pair was obviously nicer and provided superior comfort and support. I did not want to spend the extra money but I knew that the cheaper pair simply was not as nice as the $139 pair and they would not offer me the same performance or last as long. I splurged and paid nearly $150 for a pair of basketball shoes.

While spending $150 on a pair of shoes is not behavior that you would expect from a self proclaimed “cheap person”  it was necessary to obtain the best quality for an activity that I love doing. The last time I bought a pair of basketball shoes I bought was about 5 years ago and I think I paid $65 for them. Because I went so long without buying a new pair I do not feel bad about spending so much money. I plan to use these new shoes for the next 5 years and I they can keep me from rolling my ankles or getting hurt in some way then they are more then worth it.

By eliminating spending on small items like $3 for gas station food here, or $24 for a T shirt that you think is funny the first time you see it but then never wear it again you can save money for items you love. I buy expensive camping and fishing gear but typically once I buy it I will never have to do it again because that gear will last me forever. REI even has a lifetime warranty on anything you buy there and you can take it back no matter the condition if it is broken!

I grew up in a lower income home and my parents were forced to buy items that were cheaper and of less quality at times. It always seemed that our washer or dryer or something along those lines was broken and they would have to replace it. If they would have gotten a more expensive dryer (not really an option while raising 5 children) then maybe it would have saved them money in the long run. Like I said, in this example my parents had no choice when buying items because of the size of our family and the mouths to feed constantly. However since you are young and probably only looking after yourself I strongly recommend cutting back spending on small items and saving that money for quality items that will last.

You work hard for your money and you should get the best value for it, most of the time that is buying the item of the highest quality.

 

Moving to a new place

Mize Well

One challenge that many young people are faced with is moving to a new place. There are many reasons that we are faced with the decision to move, usually it involves a job, a relationship or simply a desire to explore while you ‘re young. In some cases it could be a combination of more than one.

Moving to a new place has the potential to provide personal and professional growth at a more rapid pace then if you stay in the your current area. You can move upward in your career (monetarily and position-ally)  very quickly jumping to a new exciting position and you will become more mature and find out more about yourself by being forced to explore new activities and friends in a new place.

Moving can also be very scary. Some people have lived and studied in the same place their entire lives and even though they may have no desire to move have been forced to make the decision for one reason or another.

I will write a series of posts regarding moving to a new country, state or city because there is just too much to cover in a single post. I want to get this post up for a couple reasons

1.  I have slacked and have not posted for a few days.
2. To get people thinking about moving around a little at a young age, possibly exploring new areas of the world or country.

I know moving to new places is not something that everyone has interest in doing but throw out your preconceived ideas of moving and make a list of the positives and benefits of your current location. If the results are close you should at least consider trying a new area for a couple years. I think the possibilities of a positive outcome are much greater than that of a negative.

I have personally lived in quite a few different cities. I grew up in the suburbs of Detroit and went to school at Michigan State. Going to MSU was a pretty easy move because it is only about an hour away and I even roomed with a high school friend. However while I was at MSU I took a summer internship in Chicago, IL a semester long Co-op in Cincinnati, OH and since graduation have lived in Evansville, IN and Indianapolis, IN. I expect to move again in the relatively near future as well.

Each one of these cities has given me a chance to experience life in a place, with new friends, and from a different perspective. Each group of friends was radically different, in Chicago all of my friends were city folks and they dressed and acted accordingly. In Cincinnati I was in a group of college co-op’s who had all gained employment with a good company and were very smart. In Evansville I didn’t make many friends at work but became great friends with my neighbor (a small diabetic, cigarette smokin insurance salesman) and his group of friends. From each of these groups I have made lifelong friends and I keep in contact with many of them more than I do with most of my high school or even some college friends. While each group was very different they were all great people and I am happy that I have met them.

Go out there and explore, don’t be afraid to see new things and try to say yes to new opportunities even if there are unknowns.

All in all moving is a thing that helps you grow and is not a permanent thing, try it, see if you like it and if not move back home.

I bet you you’ll like it

Don’t be a fool. Get an IRA

You should absolutely open an IRA.

Does your employer offer a 401k match? If they do you’d be a knucklehead not to take full advantage of contributing at least the amount needed to maximize the employer contributions.

401(k)’s are a pretty common practice for most employers and you should participate in them as much as you can. That being said they are typically not your best retirement option because of limited investment choices and potentially high account fees. This is not always the case but usually you can find better options outside of your 401k

This brings me to the importance of investing in the retirement account which is my personal favorite, the IRA, more specifically the Roth IRA.

IRA’s are easy to set up. However because our employers do not necessary offer them on a platter to us and force us to chose whether to participate or not many people tend to ignore them altogether.  I read recently that saving for retirement is not as important as building wealth in general. While I don’t disagree with this, “building wealth” can be very complicated and we need somewhere to start. Until I have a better understanding of how I want to build wealth I will take full advantage of the options available to me starting with a Roth IRA. I will explain what an IRA is and the fundamental differences between a Traditional and Roth IRA in this post.

What the heck is an IRA and why should I care?

IRA’s (Individual Retirement Accounts) are accounts that you put money into and then allocate that money to various investments.  Chart 1 shows this in the very basic idea that the IRA is the boarder and everything within that makes up your IRA. It is empty to begin with but you slowly fill it up

Chart 1: IRA Allocation

The facts you need to know about IRA’s:

• They compound Interest
• You can only contribute $5,000 annually to the account (Contribution Limits)
• The deadline for contribution is April 15^th (Tax Time) 2013 for the year 2012
• IRA’s are awesome

The definition of compounding interest is: income from interest that is earned by the amount you invested plus the interest already earned from prior periods.

Essentially what this means is that you gain interest on your interest. Let’s say I put $100 into an account and that year I gain 10% on my investments. So I now have my original $100 plus 10% of $100 or $10 and my total in the account is now $110. If I gain another 10% in the second year of the account I have $110 plus 10% of $110 or $11. I would then have a total of $121 and this growth would continue as long as I left that money in the account. This is a super simple example but is essentially how it works.

Check out this IRA calculator to get a better feel for the huge amount of money you can create by simply putting a few thousand bucks in the account each year. IRA Calculator

Because compound interest greatly favors the young you need to start your IRA ASAP!!! You most likely have already cost yourself thousands of dollars by waiting this long.

Like 401k’s they have a minimum age at which you can withdraw money from them without getting hit with any fees.  These ages minimums and constraints are different for the Traditional and Roth IRA.

Traditional IRA vs Roth IRA

Traditional IRA

When you put money into a Traditional IRA the money is tax deductable, meaning you can put money into the account tax free. The money is taxed when you withdraw it during retirement.

The disadvantage to this is the fact that as you get older you are typically worth much more money and will therefore be moved into a higher tax bracket.  If you increase your earnings and move into the 33% tax bracket (compared to the 25% bracket you are probably in now) by the time you are ready to withdraw your money then your money is going to be taxed at a higher rate. (Federal Tax Brackets)

Roth IRA

When you put money into a Roth IRA it is done so after it is taxed. When you withdraw the money during retirement it is tax free and what you have in your account is what you get.

The real advantage of a Roth IRA is the assumption that you are making less money now then you will in the future and are therefore in a lower tax bracket.

You can contribute money right now to a Roth IRA while in the 25% tax bracket (Federal Tax Brackets) and then withdraw it at a later date when you would potentially be in the 28% or higher bracket but that money would already be taxed at 25% so you gain 3% in this example.

 

Where to open an IRA and how to do it:

I was thinking about writing this section but I do not think I could do a better job explaining how and where to open an IRA than they do in the website Getrichslowly.org so follow this link and get started!

How and Where to Open an IRA

My personal recommendation would be Vanguard, I have an account through them and it has been extremely easy and the funds are straight forward. You can even buy shares of Target Retirement funds that allocate your funds in a conservative or aggressive manner depending on how far you are from retirement.

The other companies probably offer the same thing or something very similar but my experience with vanguard has been very positive.

This was a long post and I tried to make it pretty simple and left out quite a few details. If you have any questions please comment on the post and I will respond.

Now get out there and open an IRA!

As Mr. T always says “I pity the fool who doesn’t open an IRA”

If I was any better I’d be you

During my last semester of college I had mentally checked out, I was ready to graduate and had no interest in school. At that point my GPA was basically locked in and as long as I didn’t fail any courses I was home free. I was on my way to a great career, great family life, and an early retirement.

I accepted a job within a couple weeks of graduation and hit the ground running.  I drove my ’94 Cutlass to Evansville, IN to start working for a small engineering firm. I was excited, motivated and ready to take on any challenge.  Then about 5 months into my short “career” something changed.

This is it? For the next 35 years this is really it? This will be all that I do? I no longer had any time to do anything in my life. I woke up, drove a half hour to work, completed my tasks and would hopefully make it home by about 5:45pm which gave me exactly enough time to do one thing that I was interested in before I had to go back to bed. If I had to do laundry and go to the grocery store that night, well that was basically all I could do. Seriously? I thought, for the next 35 stinkin years?

The young managerial position I assumed would be mine in only a few short years was going to 35 year old “Young Professionals”.  35 yrs old I thought to myself, I’m only 22! Wait that means I won’t be to that point for 13 years!? I began to believe that all the promises of a college degree and quick career advancement were just a bunch of BS. I began to feel like a smaller and smaller piece of the world. I started internally asking myself questions that I had no real answer for. What value was I really adding to anything or anyone? What should I do about my long distance relationship? If I am not going to be a manager until I am 35 what was the point of getting a technical degree? I should have done something that I absolutely loved to do, but what the hell did I love to do? Heck, my student loans are due!  I felt jealous of peers who had taken more time off before getting a job, but also jealous of peers who had gotten a better job right away. I felt helpless and purposeless, like my future wasn’t as bright as I had thought, I had no control over anything, and that there was no way I was going to be rich and retire early like I had planned. I became more and more frustrated with everything as time slipped by.  However this began to change one Friday morning at work when someone told me something that made me look at things differently.

It was almost the weekend so naturally I was in good spirits. While walking down the hallway to my lonesome cubicle I ran into one of the engineers that I work with; An older guy nearing retirement who is insanely smart, helpful and well respected by everyone in my company including myself. He asked me how I was and I responded with some overused trite saying like “I’m good”, or “I’m fine how are you?” When I asked him how he was doing he happily looked at me and enthusiastically said “I’m GREAT! If I was doing any better I’d be you!” I laughed and asked him what exactly he meant. He told me “Kid, you’re in your young 20’s, have a college degree, a decent paying job and your whole future ahead of you. You have no idea what I’d trade for that.”  I laughed again and told him to have a good weekend as we walked away.

I started to think about what he said, why would a highly respected, smart guy who is nearing retirement want to change places with me? I didn’t even know what direction my life was going to go so why would he want to change places when he has been so successful?

But I also began to think the opposite thing, maybe he is right, maybe I do really have a lot going for me? I decided that I would take his opinion on this one, he was right, especially on the fact that I have my whole future ahead of me.

Ever since that day I have tried to appreciate the qualities I do have. I am young, intelligent (enough) and maybe with hard work and some luck over time I can create a decent life for myself. The internal pressure I had been feeling from all those unanswered questions has diminished (It’s not quite gone yet). I’ve realized that every mystery in life will not be solved within your twenties or even probably your thirties. But if you do what you can now to make good decisions and live a healthy lifestyle you’ll be alright.  I had been focusing on the negatives but what I needed to do was focus on the positives. I was slowly but surely acquiring some on the job skills, my student loan debt was coming down each month, I have a great girlfriend (even though she lives out of town) and I am experiencing things on

When you’re getting overwhelmed just remember

my own.

Expectations growing up led me to believe that as soon as I got a college degree everything would be easy, and that on a whim I would have no problems accomplishing any goal. As I’ve found out since college that’s not the case. Even though everything is not easy most things are still possible, especially at this point in my career. The great thing about being young is that we have plenty of time to create a life for ourselves. Every day, every job and every promotion are building blocks that we can use to climb closer to our goals. Even if we don’t know what those goals are yet.

 

Where does my money go!?

“I don’t know how I spent that much money”

or

“Where does all my money go?”

I hear my friends say these things all the time.

Not understanding how you are spending your income is one of the worst and easiest financial mistakes (habits?) to make these days. Even when the primary method of payment was cash it was easy to forget how and where you spent money. Now that we can buy things with cards or with a cell phone signal, never exchanging physical cash, it is super easy to spend more money than you are realizing. I am guilty of this myself, each month I sit down at a computer and look at my checking account statement which shows me where (and generally when) I spent money during that billing statement. Every single time I do this I see purchases that bother me. $17 for a Tuesday night dinner out with a friend, $25 at the bar on a Thursday night, $6 for a subway sandwich. These are relatively inexpensive individual purchases but add up to a significant amount over time.

The thing that bothers me about these purchases is that they brought no real value to my life. Eating out is not necessary because I like to cook and could have easily invited my friend over for dinner. Going out on Thursday nights is fun but could be done for $10 just as easily as $25. The subway sandwich was purchased out of laziness when I could have gone home to my apartment and eaten there. We work very hard for our money and to use it on something that doesn’t bring you joy or add to your net value is simply a waste. If I hadn’t done these three things over the course of the month I would have about $50 to put towards something of importance.

The solution:

Conscious spending.

Understanding the exchange of money for added value before you decide to make a purchase.

The best way to get a handle on your spending is obviously to monitor it very closely and only spend on things that you need. This is a hassle to do for an extended period of time and therefore many of us simply never do it.

I suggest monitoring all of your spending for 1 month. This is a short enough time frame that it makes it do-able but long enough to see trends in spending and the significance of small purchases over time. Track all purchases in two main categories; necessary and unnecessary. At the end of the month go through all the necessary items first and decide if you can move anything to the unnecessary group. Then go through the unnecessary list and think whether or not you would rather have had the material object, experience and memory of that item or the amount of money it cost you. If you value the experience, comfort or joy that the item brought you then remember that and budget for it in the future. If you realize as soon as you look at the item that you wasted your money on something then try hard to remember that realization and resist the temptation of purchasing it the next time you are faced with the decision.

I recently went on an awesome white water rafting trip in West Virginia. It was a weekend adventure with my girlfriend and a couple of our really good friends. It was an expensive weekend for everyone but we all enjoyed ourselves immensely. The thrilling ride down the Upper Gauley River and spending time with people that are important to me will be memories that I will not forget. Because of this I would gladly have that experience and memory over the $450 or so it cost me to obtain them and will plan for similar things in the future.

If you can avoid spending money on things that are not important to you, (Much harder than it sounds), then you have more money and time to spend on the things that you love.

In order to follow my own advice I am going to track all of my purchases during the month of October and report back with a list of necessary and unnecessary items at the end of the month.

Spend wisely!

 

First Post

Hello All,

My name is Forrest, I am a young professional and semi recent college graduate. After college I moved to a new city where I had no friends, began earning more money than I ever had, and had more questions than I had answers about what to do with myself and my money. In today’s world I naturally turned to Google and expected to find all the answers. I found a surprisingly limited number of websites focused on young adults and the unique problems that we face each and every day.

I hope to create a site that young adults can come to for answers to these problems. I will do my best to cover everything from personal finance to relationships and everything in between.

Thanks for the read!

 

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