WHAT DOES BEN DO?

(July 8, 2006)

I completed my undergraduate degree in the spring of 1998 and had the joy of entering the real world without knowing much of anything about how financial things worked. If you have read my other pages, you saw me mention my bank account, which mutated from a free student checking account to an “economy” account, which basically meant they were going to charge me for just about anything that I did.

At the end of November 2005, I purchased my first home. Boy, I thought everyday life was expensive! Homes have a lot of up-front costs, and the mortgage payment each month can be quite a shock to your finances.

I am going to now take some time and review the financial practices that I have. Based on your personality and organizational skills, you may do some of these things and not do others. Just make sure you have a plan.

· I keep up with my finances using Quicken Premier 2004. I am sure MS Money will do a similarly good job. Through this program, I keep up with my checking, savings, credit card, and investing accounts all in one place. I can also categorize my transactions and work out a budget if necessary. Also, I can set reminders for purchases I have every month or every few months or whatever. If there is a problem with the mail, then I do not forget that I have bills due at certain times during the year.

· Checking Account: I think almost everyone has one of these now. Mine is through a Credit Union. It has no maintenance fee, but it is also non-interest bearing. I use this account to pay for major bills (credit cards, mortgage, Church tithing); however, I write very few checks because of Online Bill Pay. I also have a basic ATM card that I use to get cash at an ATM only (no debit purchases).

· Savings Account: I have a basic savings account through this Credit Union and a 2^nd savings account I joined through my father’s work. The account does draw some interest but not much. This is where my just-in-case money is stored. Also, if I am anticipating a major purchase, I will transfer money from one of these accounts.

· CD’s: I do not currently have any Certificates of Deposit; however, I have had 6-month and 1-year CD’s in the past. If I was not going to need an amount of money for at least a year, I put ½ into a 6-month CD and ½ into a 1-year CD. After 6-months, I renewed the 6-month CD. By doing it this way, I had access to some of that money after 6 months just in case.

· Credit Cards: I currently carry two credit cards: a Discover Card and a MasterCard. I use my credit cards for almost all purchases, and I pay them off at the end of every month. By using the Discover Card, I earn cash back on all of my purchases, and my Discover Card had a special 5% cash back for restaurant purchases. If I cannot use the Discover Card (because I prefer to get cash back), I use my M/C (which has some kind of point reward system). By using these cards, I can protect the money in my checking account and have the security of a credit card backing up all of my purchases. I keep all of my receipts in my wallet, and when the credit card bills come each month, I use the “reconcile” feature in Quicken to quickly balance my account and check all of my purchases. Instead of mailing in my credit card payments, I use the Online Bill Pay option through my bank. Plus, Discover Card will send me an email when my payment has been posted to my account.

· 403(b): I do have a 403(b) retirement account through my school system using Fidelity Investments. A small amount of my pretax pay goes to this account each month. I would be in all index funds if possible; however, Fidelity does not have index funds for everything I want. I currently have the following funds and percentages that are purchased each month:

30% -- International Stocks (Fidelity Diversified International Fund)

25% -- Large Cap Stocks (Fidelity Spartan S&P 500 Index Fund)

15% -- Mid Cap Stocks (Fidelity Spartan Extended Market Index Fund)

15% -- Small Cap Stocks (Fidelity Small Cap Independence Fund)

15% -- Bonds (Fidelity U.S. Bond Index)

Currently, I am trying to decide if I want to keep contributing to my 403(b). The school system does not match any of the funds that I contribute. Generally, if this is the case, it makes more sense to maximize my contributions to my ROTH IRA. In the past, I could max out my ROTH and still makes contributions to my 403(b); however, with the house payments and costs, I cannot save as much as I used to.

· ROTH IRA: I also have a ROTH IRA through Vanguard. This retirement option is available to anyone who has earned income and meets the income requirements. I used to “max-out” the ROTH every year because (assuming the tax system does not change), all money in this account can come out tax free after age 59 ½. I currently invest in a Life Strategy fund called the Vanguard Target Retirement 2035 fund, which will automatically re-diversify itself as I get closer and closer to retirement. Also, if you are just starting in a ROTH, you may not be able to pay all of the minimum initial investments to get into all of the funds you want. When I buy a share of this fund (as of 7/7/06), it automatically includes the following:

70.4% -- Vanguard Total Stock Market Index Fund

12.5% -- Vanguard Total Bond Market Index Fund

10.1% -- Vanguard European Stock Index Fund

4.8% -- Vanguard Pacific Stock Index Fund

2.2% -- Vanguard Emerging Markets Stock Index Fund

Recently, Vanguard changed the allocation in this fund to include only about 10% bonds instead of about 20%, which is a great change. Currently, about 87.5% of the fund is in stocks, which is much better than before. I now like this fund more than before, especially since I get 5 funds for only a 0.21% expense ratio!

· Taxes: I have a file cabinet drawer with file folders for each tax year (including the current one). If I make a tax-related purchase or receive a form having to do with my taxes, I put it in the current year’s tax folder. At tax time, I pull out that folder and enter the information into my tax forms. I will keep my tax records forever – I am not sure what the statute of limitations is for tax money owed, but I don’t want to take any chances.

· Health Insurance: I decided to add this one. In the past I would pay about $70/month pre-tax for single-coverage health insurance, which was basically an 80/20 plan. I had to pay most expenses up to my deductible, then insurance would cover 80% of all future expenses. Also, if my doctor was in the Preferred Provider network (PPO), I would usually only have to pay a co-pay. I did this for the first six years of my career. I can tell you, thank God, I never had any major thing go wrong. For this year, though, I have changed over to a High Deductible Health Plan and have started a Health Savings Account. Now I pay only $45/month pretax, and I contribute $30/month to my Health Savings Account instead of into a Flex Spending Account. I am going to create a new page about this experience and add it to my site. What an adventure!

From my experience (as a single guy in the workforce), here is what I suggest:

Use a financial computer program to keep up with everything. Obviously you should be careful with this information (I do not store any account numbers or PIN numbers in the program). I do not store any of my files online, though.
I use my credit cards for as many purchases as possible. I like not having to carry a lot of cash. If the cards are stolen, then I cancel the cards and the credit card company takes care of the rest. I get cash back for just spending money I would have normally spent. The most important thing: I pay off my bills at the end of every month so I will not be charged interest. If you cannot control your spending so that you can pay off the bill every month, then don’t follow this plan.
I balance my bank statements and credit card statements with the transactions in my computer account every month. If you enter your transactions every few days, then this end-of-the-month process takes only a few minutes. If you don’t it takes much longer. By doing this, I insure that I am not being fraudulently charged for anything.
If I cannot pay for a bill using a credit card, I use Online Bill Pay (for example, to pay my credit card bills or to tithe to my church). Although I cannot get cash back for these transactions, I at least can save a stamp! (By the way, stamps are expensive! For every three bills you mail with a stamp, you spend over a dollar!)
I tithe (give) 10% of my gross pay to my church. This one can be tough when your expenses are a little high, but for me, this decision has to do with having faith that God will take care of you. Also, if giving 10% will make you start moaning and complaining, then I would say don’t give that much. You should give an amount that you can give joyfully to God. Remember, He has plenty anyway.
I will also make other charitable contributions. Often, I can use my credit card for this, which allows me to get cash back on the contribution along with getting the tax break. Certainly my giving has been scaled back, but I find that I can still work it out to make most of the contributions I made before.
Every month, pre-tax money is deducted from my paycheck that goes into my 403(b) retirement account. I never miss the money because I never see it. (I have to write a check each month for my ROTH IRA payment because it is post-tax money, and I do not want Vanguard to have access to my checking account.) If you do not think you can save for retirement, set this system up, and you will have no choice but to be saving for retirement. Also, the stock market will go up and down (I started investing in late 1999 and was hit badly by the market correction of 2000), but remember, you are investing for the long-term. I may decide to discontinue contributing to my 403(b) because of reasons I listed above; however, the extra money will then go into my ROTH IRA.
I transfer a set amount of money electronically from my checking account to my savings account every month. I typically do this via an Online Transfer when I see if my check has been deposited. Right now 5% of my gross pay is for retirement savings and 5% is for general savings to pay for things like gifts, car insurance, vacations, car expenses (I allocate about $50/month), house maintenance expenses (about $50/month), etc.
I purchase Quicken’s TurboTax Federal & State programs for my income taxes. Typically this costs me about $40 a year, but the convenience and thoroughness of the programs is well worth it. I simply input all of my information through the Q & A session, and at the end, the program prints out the forms for me to sign. Also, if I want to play the what-if game for changes in my salary or other situations, it is very easy to do. If you figure in how much you would pay for an accountant for your taxes, or how many hours you would spend preparing your return, $30 is a great deal. Also, if you do your taxes early (mine are usually done within a week of receiving my W-2 from my employer), you can uninstall it and resell it to someone else for maybe half price. Then it costs you even less.
All of these things take discipline and practice. Don’t be discouraged if everything is overwhelming when you start – it was for me too. Just find a system that works for you that does not cost you money at the same time. You don’t need an accountant for 99% of what you do.

Finally, if you have not done so in the past, take some time to browse Clark Howard’s web site. He is a consumer-advocate and best-selling author based in the Atlanta area. Although his nationally syndicated radio show can become repetitive if you listen long enough, his web site has a basic summary of good consumer advice on most any financial topic you can think of.