What is an IRA? (Carole)

You probably already know that IRA stands for Individual Retirement Account.

It is the U.S. Government's way to encourage each citizen to save up to $5,000/year (or $6,000/year if you are 50 years old and older) with some pretty nice tax benefits.  This means a married couple can save up to $10,000/year (or $12,000 if you're both 50 or older).

There are two types of IRAs.  Traditional and Roth.  They are quite different.  Here are the basic concepts of each.

Roth IRA

*  If you file your taxes singly, you have to earn $120,000 or less that year to invest in a Roth IRA.  If you are married and filing jointly, you have to have a combined income of $177,000 or less for the year.  These amounts change nearly every year, so check with your investor for the current limits.  In fact, I found various $ limits mentioned for 2010, but the above amounts seemed to be the most accurate.  Investing through a government plan is a bit confusing!  A good banker or broker will easily navigate you through it all.

*  Your contribution is NOT tax deductible, but ALL the principal and interest earnings are tax free when you withdraw them after age 59-1/2.

*  You can withdraw your principal (the money you actually invested in the Roth IRA) at any age with no penalty.  But you will pay penalties if you withdraw any of your interest earnings before age 59-1/2

* Your Roth IRA money can be invested in almost anything:  stocks, bonds, CDs, investment property. . . through a bank or brokerage.

Traditional IRA

*  There is not an income requirement to invest in a Traditional IRA.

*  Contributions ARE tax deductible.  However, taxes (on principal and interest earned) will be charged when you begin to withdraw your money.

*  You cannot withdraw any of your contribution or interest earned until age 59-1/2.  You do not have to withdraw at that age, but MUST begin withdrawing by age 70-1/2.  If you withdraw your money before you are 59-1/2 there is at least a 10% penalty.  Ouch.

*  Again, your Traditional IRA can be invested in almost anything:  stocks, bonds, CDs, investment property. . . through a bank or brokerage.

To max out your yearly contribution would be a monthly investment of $416.67 per person (or $500 per person/month age 50 and older).  However, your contributions can be made in any increment at any time, and you do not have to reach the $5,000 limit.

$10,000/year savings might not sound like it will ever amount to much, but if you can consistently put that away in either kind of IRA from age 40 until you retire at age 65, you'll have over $1,000,000.  Just think how much you'll have if you start investing in your 20's!!!  The earlier you start saving any amount in an IRA, the more money you'll have at retirement -- remember, compound interest is your very best friend over the long haul.

Frugal Shopping (Merrick)

If you're anything like me, sale racks lure you in. I often find myself in Old Navy and being tempted to buy items only because they're $5.

Because I know myself and know that I will do this, and then end up with items that I don't love, I have come up with a few shopping guidelines. Now every time I take an item off the rack, I ask myself these three questions:

1. Do I love it?
2. Will I wear it?
3. Does it fit in with the style of my current wardrobe?

Now, I still occasionally buy things that I don't end up loving, but with these guidelines I buy more things that I really love and will wear. Being frugal is not just about buying a $5 skirt; being frugal is spending your money on something that you'll actually wear. Think about it as price per wearing. A five dollar skirt that you never wear will remain five dollars. The price per wearing for a twenty dollar skirt that you wear once a week will soon cost only a few cents.

So the next time a sale rack lures you in, think about these three questions and make sure you're spending your money on something that you actually want and really love. Your wallet and closet space will thank you.

Saving Money on the Nursery- Crib Bedding (Guest Post by Kayla)

This post is written by Kayla, who had the good sense to have two babies before Janssen had any so that she could pass along all her wisdom. She is also the queen of the homemade gift and her blog is full of pictures of darling items that will make you wish you lived next door. 

What I have to say will either be rather upsetting or a huge relief to all the first time expectant mothers out there:

You do not need that darling fancy pants $300 crib bedding.

Picking out the crib bedding is like a motherhood rite of passage, something many of us spend hours agonizing over. I came thisclose to spending $250 on seriously awesome pirate bedding for my first son before I did some research and realized my money would be better spent elsewhere.

Crib bedding usually consists of the following:

• Quilt
• Crib Skirt
• Bumper
• Fitted sheet

It may also come with a few extras but those four items are the basic package. Now:

• You should not use the quilt in the crib. Period. It is a suffocation hazard. You could get creative and hang it on the wall or something, but you are not supposed to put it over your baby (if you're concerned about keeping your baby warm this article from Baby Center has some good suggestions).
• Crib skirts are generally of the proper length to be used while the crib mattress is in the upper position but are too long to be used when you have to drop the mattress, around 5-8 months (although some skirts work in both positions).
  
• There is some debate over the necessity of crib bumpers but the new AAP recommendation is that soft, pillowy bumpers not be used. There is the possibility of the bumper covering a child's nose and mouth and causing suffocation, but there is also the possibility of something called "rebreathing," which is when soft bedding or other items in the baby's sleeping area trap carbon dioxide around the baby's face. It is speculated that this phenomenon is the cause behind a fair number of SIDS deaths. Plus, those fancy bumpers tend to be sturdier and thus become very handy step stools when your little Precious decides his crib is boring and he'd rather get down to the floor and play with an electrical outlet.
  

So, by the time your baby is about 7 months old you're left with...the fitted sheet.

A quick search at Target.com reveals that a standard fitted crib sheet can be had for $8-$10. When my first son was born I bought two white fitted sheets from Target for less than $20 and 2.5 years later they are still going strong. If you're the DIY type or want to use a funner (my Google spell check says "funner" is totally a word) fabric, here is a tutorial for making your own.

If you still need bumpers (and we did), there are a lot of safe, affordable options out there. While I was pregnant I really wanted these breathable bumpers but at the time they only had yellow gingham and I have my standards. Now there are a whole bunch more colors available and, at $23, they are quite affordable.

We ended up with the Kompisar crib bumper pad from Ikea. It fits the AAP recommendation of "thin, firm, well secured, and not 'pillow-like'" and, at $12.99, the price couldn't be beat. We put them on when Wes started scootching in his sleep and catching his legs in the bars and we took them off as soon as he was old enough to extricate himself.

So my crib bedding cost all of $33, leaving me lots of room left in my budget left for fun things like art, books and a bookcase, and fabric for re-covering my glider (a piece of furniture which, incidentally, I shouldn't have bothered spending money on, but that's another post altogether. Live and learn!).

June Savings Winner

You may remember that waaaaay back at the end of May, when we announced we were going to do a weekly round up of savings, we said there would be a prize for one of the people who participated all four weeks. We have another copy of Dave Ramsey's book The Total Money Makeover to give away.

And the winner is. . . . .Preethi!!!

Here were her contributions each week:

Week 1

• Bought food at the grocery store for our beach vacation instead of eating out. Because we were the last ones to leave, we ended up bringing home nearly as much in leftover supplies.
• Recalculated budget for the summer, including putting all of my summer internship salary toward student loans.
• Researched and found a great deal to replace our carpeting.
• Found my husband two all-wool suits from Macy's (he wears suits every day to work) for $60 each, marked down from an original of $450 each.
• Asked for and received a price adjustment for a purchase several days prior, saving $15. 

Week 2

• Made meal plan for two weeks and did most of grocery shopping, leaving a few produce items to be purchased next week. Stuck to list and found ways to use up extra veggies.
• Made dinner every night this week (except Monday... see next item). Made enough each night to pack both lunches for the next day.
• Used Restaurant.com gift certificate (purchased at 90% off) for a fantastic French meal for my birthday. 

Week 3

• Made dinner each night and packed lunches with leftovers. Used up produce before leaving for vacation.
• Didn't purchase a bag of cherries that would have ended up being $8.
• Used ready-to-expire birthday gift certificate for free meal.
• Piggybacked on husband's business trip. Stayed with friends for weekend days and used business stipend for lodging/travel/meals on business days.
• Stalked Southwest Rapid Rewards until a flight opened up on the way there. Continued to stalk and was ecstatic when one opened up for the way back. Canceled originally booked flight to keep in money as Southwest credit, and instead used Rapid Rewards (free) flight.
• Found rental car for $40 for two days including taxes and fees on Travelocity. Husband refrained from upgrading to a convertible even though it was only $25 more. :)
• Packed lunch for the travel day so we wouldn't need to buy stuff on the plane or in the airport.
• Had enough food that we were able to pack lunch to Disneyland. Delicious, healthy, and decidedly cheaper than buying the $8.99 veggie burger.

Week 4

•  Again, on the travel note - we chose to use our travel stipend to stay at a B&B with a really outstanding breakfast + free parking instead of a fancy schmancy hotel with no breakfast + paid parking. That way, we could use our daily stipend for other food during the day instead of using it for breakfast. Added bonus = the aforementioned really awesome breakfast.
• Contacted a company about a major customer service faux pas, and was offered $60 in credit. Awesome.
• Had several meals planned for our arrival home so we didn't have to eat out. 
• Oh, and went to Disneyland for free (!!) because friend works for Disney. 

Impressive, don't you think? 

Preethi, email us with your address and we'll get your prize in the mail! Thanks to everyone who participated!

The Burden of Student Loans (Carole)

I ran across this video a few weeks ago on CNN.  Go ahead and watch it, and then I'll comment.



I've mentioned before on this blog, that my husband (and I, although the debts were not for my schooling) came out of graduate school with $60,000 in student loans.  This was back in 1986.  We lived extremely cheaply and only paid for tuition out of our student loans.  We were able to earn enough money during the summers and through my job (as a lowly secretary at the university -- so nothing amazing) to pay for our actual living expenses.  And, I might add, we never went on food stamps.  I'm troubled by this growing trend.  But that is another subject for another post.

It is easy to forget while buried in school and taking out student loans, that the day will come when all that money (with interest) has to be paid back.  Typically your re-payment begins 6 months after graduation.   This date arrives faster than you can imagine.   Most loan repayment amounts are several hundred dollars per month, but if you've got debt for graduate school they are often well over $1,000 per month.  That is a hefty portion of your brand new salary.  Can you really make enough money to live on after your student loan payments??  And most student loans stretch over at least 15 years.  That is a long time to be paying back this money.

Repaying student loans is no different than any other debt repayment.  Set up a debt snowball and pay it off as fast as possible!  But it is best to have a plan before getting into the student loan quagmire.  Here are a few ideas to contemplate:

*  Go to a local college or university.  As a state resident, your tuition is usually about half of what it would be if you are from out-of-state.

*  Become a state resident before you attend the school of your choice.  A friend of ours who was planning to attend the dental school in Las Vegas moved here a year early, got a job and established residency.  He saved himself $15,000/year or $60,000 total.

*  Get a bachelor's degree at a college that will not require you to live away from home or pay high tuition.  Save student loans for graduate degrees, not a basic college education.

* Apply for any and all scholarships possible.  Keep on top of these year to year so you don't lose them.  Many students lose these only because they didn't renew them on time.

*  Are any grants available for your program?  You never have to pay back grant or scholarship money.

* Do everything necessary to be at the top of your class.  Top students are often given research or teaching jobs that pay most or all of your tuition.

*  Choose your school wisely.  Do you really have to have your degree from Harvard??  Think about the debt you will incur (as this fellow in the CNN video  didn't).  Ask a mature adult who is good with money if this seems like too much money for your educatiaon.

* Determine if your chosen career path is worth the tuition money you will spend.  Last fall I heard a caller on the Dave Ramsey Show tell how she and her husband had over $200,000 in student loans for chiropractic school, and now he hadn't been able to find a decent job and they were getting very very frightened for their future.  Dave Ramsey informed her that (despite claims from chiropractic schools) these types of doctors do not make the same amount of money typically that an MD does.  He felt this couple had way too much debt for the earning potential of a chiropractor.  Do your research and make sure it is accurate.  Talk to people who are in your field to find out accurate salaries.

*Consider the location of your school.  Is it an expensive place to live?  Will your school debt be much, much greater because you have to live in New York City or Boston?  The mid-west is typically pretty inexpensive as are parts of the south.

I'm certainly not against education in any way!  In fact we tell our children that a bachelor's degree is a minimum and that a masters degree (at least) in their field will probably be necessary to compete in today's job market.  But don't fool yourself or "blue sky" these kinds of important decisions.  Student loans can add a significant financial burden that will follow you for half of your working life if you're not careful.

Like always, plan ahead and live frugally.  You'll always be glad you did.

DIY Gifts: Part 2 (Merrick)

Though I might feel like a good gift giver most of the time, my confidence was definitely shaken when I got married and threw in-laws into the mix.

For my mother-in-law in particular, I spend a lot of time stressing over gifts for her. That's why when I stumbled upon an embellished serving tray on a crafting blog (it's been so long I have no idea what the source is -- sorry), I thought it would make a great gift for her so I immediately saved the link and began my preparations to make the gift.

(pre-grouting)

Materials:
- black serving tray from IKEA - $7
- mini tiles from home depot - $5 (you could also buy a few large tiles and smash them up)
- dry grout - $5 (I only used a tiny bit, so I used this for future projects)
- grout sealer - $5 (same thing -- I only used a tiny bit)

Approximate cost to make this tray: $13

This was a pretty easy project, and when all was said and done it looked awesome. And my mother-in-law really liked it.

Now stop stressing about in-law gifts and go make one of these. It's sure to be a pleaser.

Baby Announcements (Janssen)

I am not the crafty type. At all.

But, long before we were expecting our first baby, I knew my husband really wanted us to send out announcements after our child was born.

I also knew that if we were going to send them out I wanted them to be 1) inexpensive and 2) good looking.

If you've ever looked at baby announcements online, you know that you can spend an absolute fortune on them. We had no fortune, absolute or otherwise, so this wasn't really a good option for us.

Instead, I figured out what components I needed and how little I could spend on each part:

1. I needed a photograph. We have a nice camera, so we could have taken it ourselves, but happily, a friend of ours is professional photographer and she offered to come take some newborn pictures for free. That's my favorite price. If you don't have a nice camera, I bet you know someone who does and might let you use it for a few hours - it seems like everyone I know owns an SLR now. 
2. I needed an announcement design. I spent quite a lot of time (and forced my husband to also) browsing the announcements on Minted so I could get some ideas and see what kind of things we both liked. Then we mocked up a few of our own in Photoshop. Also free!
3. We need to actually print the announcements. I made our mockups to be a 4x6 (standard picture size) and then plan to upload them to Snapfish (Shutterfly and other online photography places also would work). When you sign up for an account, you get some number of free prints (depends on what current deal is going on - sometimes it's 20, sometimes it is 50) and you can usually print them right to your local drugstore or Walmart. Freeeeeee (depending on how many you need, of course).
4. Envelopes. I hoarded all my Staples rewards dollars and waited until invitation envelopes (which fit a 4x6 perfectly) went on sale and then I bought those. Free again!
5. Stamps. Sadly, I haven't yet figured out a great way to get discount postage, although I know it is possible. But when stamps are the only thing you're paying for, I figure that's pretty good. 

Ta-da - practically free baby announcements! How happy am I? More importantly, how happy is my husband?