Tag Archives: 2009

Investing

Lending Club: My 2009 Money Challenge

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Each year, I like to try something new in personal finance. I don’t want to waste money, but I don’t mind testing the waters a bit with a small percentage of my income. Last year, my big test was on Sharebuilder… and my stocks obviously have not performed well (except Mickey D’s (MCD) that’s at least not losing money).

This year, I’ve decided it’s Lending Club’s turn for a little game time. I finally figured out how to use the site (phew) as last I was on I thought I had bid on two loans and apparently never made a final order. Oops. So I’ve now made a final bid/order on two loans for $25 each and I transferred in $200 from my paypal account.

While I don’t think Lending Club will make me rich (and I have little faith I’ll do better than break even given my luck on Prosper), I do like that you can lend just $25 per person. So you have a little more room for less costly defaults. Of course, then you also have more loans to default. I’m not mathematician, so I’m not sure which is better.

Regardless, I’ll start out with this $250 and see where it gets me. I’m also going to up my investing on Sharebuilder this year. I can’t resist a good sale. Thinking about purchasing some Proctor & Gamble stock, but not sure. Any stock I buy now will lose money over the coming year or two, it’s just a matter of how it looks in 3, 4, 5 years down the line.

At least with Lending Club I’ll either get my money back in 3 years or lose it in 3 years. With the stock market… I could make money and it could be gone in 10 years… as we’ve seen in the last 10 years. And I don’t really have much faith in banks or the ability of anyone – even Obama – to stimulate the economy. Of course, without such stimulation, even P2P lending is at risk – big risk. If jobs get cut people can’t pay their bills, even if they really want to. That’s just how it goes. So I don’t want to put too much money into P2P… just enough to see if Lending Club is better/worse than Prosper.

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Roth IRA: Just Maxed Out 2008, down $5000

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Today, I put the last $300 into my Roth IRA for 2008. It feels rewarding to know that I’m saving for my future, yet the $5000 in losses to my Vanguard Portfolio due to current economic conditions isn’t exactly a fun “reward” to look at in my accounts.

Still, I’m investing with the hope… and faith… that the economy will recover again. I think it will, eventually, but it’s going to take a while. Had I followed my faith a year ago that the stock market was going to keep tanking, I would have possibly shorted some stocks and cold have been much better off now… but I don’t have time, or the heart, to deal with such “high risk” behavior. Instead, I put my money in the stock market, knowing it’s going to tank now, hoping it will rise in the future.

The question I have now is when do I invest in my Roth for 2009? Usually I put a large chunk of money in up front (money left over from taxes). By “usually” I mean over the last two years, since that’s how long the account has been open. I like to just get it out-of-sight, out-of-mind before I start thinking of myself as wealthy enough for luxuries. The stock market seems pretty bad right now, so I’m not too worried about adding another few thousand once I get my tax return back. Still, this all begs the question whether I should spread out my investments ($440 a month) or put a bunch in up front and finish up over the later half of the year (like I’ve been doing.) Dollar cost averaging is always the recommended way to go… but, eh, when the market is this down, maybe it doesn’t matter as much?

Also, as far as retirement savings go, I decided to do the HSA for my healthcare. In addition to my company putting $100 in the account per month, I’ll be putting $100 in. So that’ll be $2400/year for healthcare *or* retirement. I’m just worried my frugal save-for-retirement self will avoid doctors in order to save for my retirement, and I’ll end up killing myself slowly in the meantime. (Not that I ever go to doctors, even when I have full insurance, I’m too lazy and busy). In any case, the savings rate for the HSA is so sucky – 2.1 or something – and w/ the taxes in California taken out of that it isn’t a huge savings. But I’m going to look at it as a traditional IRA that’s being overtaxed by my bankrupt state. One that I can dip into if I need to go to the doctor for antibiotics every once in a while.

The HSA does have the option to invest with Ameritrade, so I’m probably going to look into setting that up soon. I won’t put all the money in stocks, but I’d like to diversify my retirement portfolio outside of Vanguard and I do want to get some Gold/Silver ETFs in it… since they don’t get taxed at the ridiculous collection tax rate if they’re in an IRA. Well, I don’t know how that works in an HSA… esp since it doesn’t get taxed federally but it does get taxed in CA. Hmm.

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2009 Budget Plan

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As I wrote in my last post, my 2008 savings plan was a success. But in 2009, a lot of variables are a changin’, and I can’t save 50% of my income for taxes anymore. Being a full-time employee means regular tax withdrawals from my paycheck. No more saving for taxes in a nice 3% interest ING account. So what does that mean for my spending and saving in 2009?

First of all, I recognize that at 25, my medium-term goals (buying a house, grad school, having kids) are suddenly becoming more-or-less short term goals. I won’t go into how much that’s freaking me out at the moment, and instead will concentrate on how I can best save for them while my fixed monthly out-of-pocket expenses are low.

Even though I use Mint to track my spending, I find it most useful to have a Google Doc spreadsheet set up for my monthly budget.

First, I make a row of “Budget Headers” — which includes everything from “income” to “travel.” For now, I’m not too picky on my breakdown. I have a few columns left for income – my base paycheck, some small additional freelance income I earn monthly, and other revenue streams that may pop up throughout the year. Then, using my strategy from last year, I deduct 50% of my income from spending power.

The next columns are set up for fixed expenses: Rent, Bills, Insurance, Gas, Food, Gym, etc. After I got all those in, I made a column for remaining liquid cash called “LEFTOVER.” My LEFTOVER money in 2009, assuming I can take in $2650 after taxes, is $1178.

$1178 seems like a lot, but it’s not extravagant.

After the “LEFTOVER” column I added a “REMAINDER” column, which basically tracks the difference between my extra spending/saving and the LEFTOVER amount. The goal would be to get this as close to 0 each both as possible, without going under.

On the right side of the REMAINDER column I made columns for all of my un-fixed expenses: clothing, travel, Roth, downpayment account (currently at $0), gift, entertainment.

I’m sure I’m forgetting something but I’ll add it once my January totals come in.

The cool thing about this spreadsheet setup is that I can adjust it for income. My favorite thing about 2009 is that I have a few easy income streams for a couple of extra bucks a month if I can get myself out of bed early. My main job is going to really take up most, if not all of my time to “work,” but if I really want the extra cash I can write a blog post once a day for $25, up to $500 a month. Last month, I earned $250 doing that… which was a good thing since my other generally stable freelance income stream of $400 a month payed out only $100.

At the end of each month, I’ll post my budget chart here.

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10 Tax Rules Changes for 2009

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2009 is right around the corner. Even though you’ll be spending the first few months of ’09 figuring out your 2008 taxes, make sure you know what’s going on for taxes in 2009.
[via:: diazconsulting]

1. Roth IRAs: Income caps for high-income earners rise in 2009. If your Adjusted Gross Income is in the six digits, this effects you. The pay in limit for Roths increases for singles from $105,000 to $120,000, and for couples from $166,000 to $176,000.

2. Estate tax leaps to $3.5 million, up from $2 million in 2008.

3. Annual gift tax exclusion will rise to $13k per donee, up from $1,000.

4. The standard mileage rate for business driving is 55¢ a mile for 2009…a drop of 3½¢ per mile from the rate in effect for the final six months of 2008. For medical travel and moving its 24¢ per mile. When driving for charity its 14¢ a mile.

5. Standard deductions rise in 2009. Married couples can claim $11,400. If one spouse is 65 or older, $12,500. If both are, $13,600. Single taxpayers get $5,700. Those 65 and older can take $7,100. Household heads get $8,350 plus $1,400 once they reach age 65. Taxpayers who are legally blind are allowed to add $1,100 to these amounts. Also, married tax filers who do not itemize can augment their standard deduction by up to $1,000 of property taxes paid. Singles filers can add in up to $500 of taxes paid.

6. If you are 70½ or older you can skip minimum required payouts from retirement plans and IRAs for 2009 without a penalty.

7. In 2009 the maximum 401(k) contribution increases to $16,500, up by $1,000.Individuals born before 1960 can contribute an extra $5,500, for a total of $22,000.

8. Contribution payin limit for defined contribution plans such as SEP IRA accounts and Keogh plans increases to $49,000.

9. Personal exemptions are $3,650 for each filer and their dependents.

10. Annual caps on deductible contribution payins to health savings accounts rise in 2009. The maximums increase to $5,950 for account holders with family coverage and as much as $3,000 for single coverage.

What isn’t changing…

Contribution limits for IRAs and Roth IRAs. They’re still $5,000 a year, plus $1,000 more for anyone born before 1959.