Our Trip to Italy and Greece – Part 3

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At long last we boarded our plane. We climbed into our seats, which held a pair of headphones and a blanket to ease our overnight flight. Each seat had its own small TV and a surprisingly impressive selection of new movies to choose from, free of charge. After the plane lifted off the ground and the turbulence turned to a slow hum, we chose our unmemorable movies and settled in for the long flight.

Emirates’ drink varieties were as impressive as their movie selection, with a wide variety of alcoholic beverages available alongside the typical soft drinks and juices. Again, even the alcoholic drinks were free of charge (or more accurately, rolled into the price of our tickets). Unlike the budget airlines I was accustomed to, there were no hidden charges or unexpected costs thrown at us. Quite the opposite, in fact. I did not expect quite the level of luxury that awaited us. Even the food was more than tolerable, verging on tasty.

The only uncomfortable experience I had with the flight was being unable to recline my seat. The man next to me showed me how he reclined his, but mine refused to cooperate. As a result, I probably only slept for about an hour for the entire flight, but excitement and adrenaline for the adventure ahead sustained me well enough.

Because of the time difference (6 hours), we arrived at Malpensa Airport in Milan, Italy around noon. Oddly enough, there were no customs checks other than simply showing our passport to an agent in a booth. Not a single baggage check. While this was convenient, we kept doubting ourselves whether we missed a turn, questioning whether it was supposed to be so simple for foreigners like us to leave the airport.

Our plan was to ride the Malpensa Express train from the airport to Milano Centrale, the main train station in Milan about 50 minutes away. However, we found the airport confusing and could not find our way to the Malpensa Express. After wandering around for over a half an hour, we changed our plans and paid for the first bus we found featuring a sign for Milano Centrale. Fortunately, tickets were 10 euros each, so the price was comparable to the train and probably more comfortable. We were just happy to be heading in the right direction.

When we arrived at Milano Centrale, we found a ticket booth (biglietteria) and explained that we were looking for the next available, cheapest tickets to Venezia. Thankfully, almost all the ticket salesmen in Italy spoke English, so the language barrier was no big problem yet. We paid our 81 euros for two tickets and walked into the train station. While we had read about and seen video of Milano Centrale, we weren’t quite prepared for the chaos that is finding and boarding your train. Compounding the stress of the fast-approaching departure time were the labyrinthine levels and stairs required to climb before finding the boarding area.

Upon arriving at the main gate, there was a crowd of people looking up at an electronic board listing all the upcoming departures. Everybody was waiting and watching so eagerly because the platform number for your particular train does not get listed until shortly before boarding starts. We saw that our train was 5 or 10 minutes delayed, but when we saw our platform number come up and everybody made a dash to that platform, we followed the crowd and boarded. We were a little early, but we figured the train would just wait until the departure time to take off. The train left a little before the time printed on our ticket, but we didn’t think much of it. Sleep deprived and physically fatigued, we were happy just to be able to sit and relax, fading in and out of sleep. Only three more hours were left until we’d arrive in Venice.

An hour later, the train stopped and everybody got off, far ahead of schedule. We didn’t see any signs saying Venice and it certainly didn’t appear to be a busy enough train station to be Venice. Panicking, we talked to the first people we could find just outside of the train, an older Italian couple who didn’t speak a word of English. After asking as clearly as we could whether we were in Venice, it was clear we were not and that we should get off the train. A few minutes had already passed and it was becoming obvious it was not going any further. This was the last stop.

We had arrived in a train station in what looked to be a working-class, lower-income area called Bergamo. We talked to everybody we could find at the train station, including a woman at the ticket booth, and nobody spoke English. As time was passing quickly, we kept fearing this was a connecting stop, and that we were missing the next train to Venice. It was an incredibly unsettling feeling being in a completely unfamiliar city where your cellular data is so slow as to be almost unusable and you are unable to communicate with anyone, no matter how hard you try.

Thankfully, we finally found a friendly and helpful young Pakistani guy, perhaps 20 years old, who spoke a little English. He said he had time before his train was going to arrive and he graciously walked with us to the ticket office. With the help of his interpretation, we explained our situation to the man at the ticket booth, and he informed us that we had boarded the wrong train and that our current tickets were no longer valid. No matter how much we tried to plead with him, it was to no avail. We had to buy brand new tickets and eat the cost of the previous tickets as a painful learning experience. 75 additional euros and another hour or more later, we were back on our way to Venice again. This time, though, we were aboard the slow train.

There are two types of train tickets in Italy. The first is a general use ticket. These don’t have a particular date or time printed on them, but are good for one ride to a particular location, redeemable within 30 days of purchase. If you get this type of ticket, you’ll have to validate it before you get on your train. Otherwise, you could face a hefty fine. To validate your ticket, you stick it in one of the green machines that can be found on just about any train platform. The machine will print a date and time onto your ticket. The other type of ticket is only good for the specific date and time printed on the ticket. If you get this kind of ticket and you miss your train’s departure, you’re out of luck. But, you don’t need to worry about validating this type because it is only good once, anyway.

Because of all our delays, we did not arrive in Venice until almost 7:00 p.m., much later than our anticipated 3:00. While the city was absolutely beautiful, we were too worn out and hungry by this time to fully appreciate the scenery. We had barely slept at all in the past 30 hours, and due to the train fiasco we hadn’t eaten since our breakfast on the plane. Using our free T-Mobile international data, we pulled up Google Maps directions from our itinerary and followed the phone down a series of dark, yet peaceful alley-ways to our hotel.

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We were immensely relieved to find that the concierge was at the front desk and that he spoke English. 24-hour English-speaking reception was a luxury we would soon find should never be assumed in a low-cost Italian hotel.

As soon as we arrived in our tiny room, we dropped our 20-25 pound backpacks from our shoulders and enjoyed a moment of relief. We didn’t stop for more than a few minutes, though, before we showered up, brushed our teeth, and went back out to the streets to find the nearest restaurant. Because of our extreme hunger, we didn’t spend time to look up restaurant reviews and costs ahead of time as we should. Instead, we opted for a nearby pizzeria. While we were excited to fill our famished stomachs with authentic Italian pizza, our excitement dissipated when the mediocre pizza, beer, and water arrived, followed by a 40-euro check. Ouch. Another expensive lesson learned on our first day in Italy.

With our stomachs fuller and our wallets emptier, we could finally appreciate the charm and beauty of Venice. Vaporettos (water taxis) and gondolas glided down the Grand Canal, the main waterway that weaved through the city instead of streets. Lining the canal were rustic houses, cafes, shops, and restaurants, filled with honeymooners and romantics enjoying each other’s company as much as my wife and I were.

For the next hour or so we wandered the city without any particular destination in mind, enjoying the cool breeze off the canal and the relaxed atmosphere before returning to the hotel for some long-overdue sleep.

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The next day, the real fun was to begin. Our first full day in Italy…

 

 

 

Our Trip to Italy and Greece – Part 2

It was the day we had been anticipating for the last two months. Friday, March 27th had finally arrived. On this beautiful, sunny day which barely required a fleece, I couldn’t help but reflect on how perfectly everything had seemed to fall into place leading up to this point. The weather bolstered our optimism and bode well for our next two weeks. It was as if Baltimore was gifting us with a going-away present before reverting back to its wintery, sub-freezing ways after our departure.

Our bags were packed with all the necessities, and only the necessities. In order to avoid delays, baggage fees, risk of lost luggage, and risk of damage during handling, we both decided to pack everything in our own carry-on backpacks, along with a camera bag in the form of a large purse. After we finished packing and weighed our bags, we were nervous because both of our bags were over some of our airlines’ weight limits for carry-ons. However, we decided to take the risk and we would check in if we were weighed. Thankfully, none of the airlines weighed or even measured our bags. Since our carry-ons were backpacks, the check-in agents didn’t seem to worry one bit about them being too large or heavy at any of the airlines (Emirates, Aegean, or Vueling). A couple of the agents even remarked that we were traveling light for an international trip.

In order to conserve space, we packed only enough clothes for about a week, along with a small travel laundry kit and clothesline. We planned to use the kit for washing our laundry in a hotel sink or bathtub halfway through our trip, and to dry our clothes outside our window. For organizing and tightly packing our clothes, we used eBags Packing Cubes ($29.99), which served us extremely well. With these cubes, we were able to keep our shirts, pants, and underwear separated and organized. When you’re packing and unpacking every couple of days at multiple hotels, this saves a lot of time and frustration.

For the backpacks themselves, my wife bought the eBags Mother Lode TLS Weekender Convertible ($79 with a discount at the time) in the “Tropical Turquoise” color and I bought the Cabin Max Metz Backpack (Black) ($45). While my backpack got the job done, my wife’s backpack had a much better build quality, more space, more compartments and organization, and was all-around better designed. Looking back, I wish I’d spent the extra money to get the eBags backpack, but the Cabin Max bag is by no means a bad pack for the low price.

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In Italy and Greece, pickpocketing is a major problem. Gypsies and career pickpockets roam the streets, particularly in the more congested areas, looking for unsuspecting victims. Knowing this, Ambrey and I took a money belt she already owned from a previous trip to Zambia, and I bought a Lewis N. Clark Neck Stash ($12). These are wallets that hang under your clothes to prevent pickpockets from stealing your money, credit cards, and passports as you walk down the street. It’s best to keep your valuables in your hotel room once you’re there, but when traveling between hotels and airports, your money belt is the safest place to keep those items. Always try to be discrete and check your surroundings when accessing your money belt, too. You don’t want a pickpocket seeing your stash and following you.

We picked up the Rick Steves Italy and Greece guidebooks from the library before we left. These were popular, so we had to put them on hold a few weeks in advance. His books are extremely helpful and have great insights both for preparing and for reference while you’re there. Out of all the research we did, these books were by far the most helpful resources.

We also packed a couple of Type C Plug Adapters ($7). You need these in order to connect any of your electric plugs in Italy, Greece, and many other European countries. Just be sure that any devices you plug in are compatible with 240 volt outlets, as that is the standard in Europe. Here in the states, we use 120 volts. Most electronic devices these days can handle either one, but it’s a good idea to check the labels on your chargers or batteries/devices so you don’t fry them, anyway.

Lastly, in addition to all the typical toiletries, we packed rain jackets. You never know what kind of weather you’re going to get.

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Driving up the highway from work around noon, I was headed to meet my wife at her parents’ house. Exhibiting the selflessness and graciousness that is characteristic of them, they were ready to give us a ride up from Baltimore to JFK airport in New York. We performed our last-minute checks to make sure we had all our critical belongings and then took off.

After a few hours of typical New York traffic, we arrived at the airport, thanked our parents, said farewell, checked in, and boarded our flight. We were off to Milan!

 

Our Trip to Italy and Greece – Part 1

My wife and I dreamed about the possibility of traveling to Europe since we were dating, but it always seemed so far out of reach. It remained a bucket list item for “one day” after we had a house and kids, a vague idea for an undetermined time in the future.

Then, one night I was browsing my favorite deal site, slickdeals.com, and on the front page was an unbelievable find: round trip tickets for two from New York to Milan, Italy. The price? $900. That’s right, $450 a person for round trip tickets. That’s cheaper than a lot of domestic flights! We’re talking about upwards of a 50% discount off normal airfare rates.

We knew this kind of deal probably wouldn’t come around for a long time, and we knew that the window of opportunity for this kind of trip was realistically only a short number of years until we had kids. We talked about how it wouldn’t be the same if we took the trip with kids, how we’ve wanted this adventure for a long time.

Then, we talked about the more practical details. How much will it all cost? When would we go? How long would we go for? Could we get off work for that long? How far would this set us back on our goal of saving for a house?

We decided to go for it.

Thankfully, we had the cash on hand from saving toward a house and we decided that we would prioritize this trip even if it meant pushing back our house buying goal a bit.

Since my wife is working as a full time substitute teacher this year, getting off work was not a problem like it would have been for a regular employee. We planned for the first week of our trip to be over her Spring Break, so it was technically only a week off. I had carried over 5 vacation days from last year in case the opportunity for a big trip like this should arise.

We got our approval from work the day after we saw the deal, bought the tickets that night, and celebrated the fact that our dream was finally going to be realized. I’m glad we bought them that night, because if we had waited another day, the discounted tickets would have been sold out, leaving only the regularly priced tickets at over $1,900!

That was on January 20th, and our flight was booked for March 27th. This left us with only two months to plan out a two week trip covering Italy and Greece, both of which we knew almost nothing about, other than what we had seen in movies.

Now, it was time to let the preparation and planning commence!

We started off with renewing my wife’s passport because it hadn’t been updated with her new last name since we got married. In case you’re in a similar situation, you have to submit the DS-82 form for passport renewal along with a certified copy of your marriage certificate. The government will happily take $110 for the trouble, too. (If you’re traveling internationally for your honeymoon, however, you’re best off leaving your passport as it is until after you return home from your trip. The important thing is that your passport, driver’s license, and your ticket all match your last name).

After doing a bit of research, we wrote out a barebones itinerary including just the cities we wanted to visit, the days we wanted to stay in each city, and when we’d travel between each one. Packaged tours and down-to-the-minute planned days don’t appeal to us, so we decided to plan the whole trip ourselves. We wanted the freedom to hang out at cafes eating pastries or simply wandering the streets if we wanted, while being able to see the main attractions at our own pace.

With our basic itinerary in hand, we decided the next logical step was to book our major transportation: flights between Italy and Greece, and a ferry ride between islands in Greece and our lodging. The toughest part was organizing everything so that we would end up back in Milan to catch our flight back out to the States!

After several months, we had bulked up our itinerary with sites we wanted to see, restaurants we wanted to visit, hotels we’d stay in, and more. Side note: Google Maps can be used to create a detailed itinerary. You can see each hotel, restaurant, airport, and attraction on your map with each one listed in a panel. This allows you to visualize everything and also to be able to access them easily when you are overseas. Clicking a location from our saved itinerary and getting directions was a breeze while we were there!

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In Part 2, I’ll fast forward to the exciting part – the trip itself – and fill in the details and numbers along the way. For our entire trip, we kept track of everything we spent to the best of our ability, so we hope it will be helpful to share for those of you who are looking to plan a similar trip of your own. We couldn’t find anything like this online when we were preparing, so we had to make our best guesses at the smaller expense details. Hopefully, by listing out our expenditures as we go, you’ll be able to better estimate a realistic cost of your own trip. Hang on for Part 2!

My Kiva Microlending Experience

Around the world, there are countless people for whom a small loan of $50 to $1,000 can make a life-changing difference. In many cases, these loans allow them to grow their business exponentially or to complete their education. The problem in many developing countries is that poor people lack access to capital which would help them to improve their situation because it is not profitable for traditional banks to lend such small amounts. By the time the banks factor in the cost of screening, the cost of underwriting and paperwork, and the cost of sending collectors into villages and farms, they would simply lose money. This is where microfinance organizations like Kiva come in.

I first learned about Kiva just a few days ago and have been researching it with some intensity since then to make sure I understand the nuances of how it works. Essentially, you get to choose an individual from the website to loan to after reading their story and their goal. This allows you to support those efforts which are in line with your own priorities, whether they be business efforts, education, building projects, or something else. You get a little background profile on the borrower as well, such as whether they are married, how may kids they have, and what their past work experience is. All of this serves to make the process feel very personal and meaningful. You can even keep tabs on that status of their goals via updates as they work to repay the loan.

Also, as most loans are several hundred dollars or more, you can pool your resources with other lenders in order to fund the full amount. You have the option to join teams with similar goals and priorities as yourself, which can allow you to have more of an impact than you could on your own. For example, I joined the Kiva Christians team in order to band together with other others who share my faith. Regularly, people will post profiles of lending opportunities that the team may be interested in combining resources on, which adds a component of social and community involvement to the mix.

Kiva teams up with a large number of Field Partners, lenders who do the groundwork of screening requests, dispersing loans, keeping track of loans, and collecting payments. According to Kiva, about 80% of these Field Partners are non-profit organizations, and the 20% that are for-profit have a strong social mission. These Field Partners charge an interest rate to cover the cost of processing the loan.*

After doing my research, I talked with my wife and she was on board with making our first loan. She wanted to start out small since we were new to the whole thing, so we decided on $50. After looking around the site for awhile, we found the profile for Lawrence from Kenya. Lawrence is a father of two and is a small-scale farmer who was looking to buy a high-quality dairy cow. According to his profile, he has been farming for six years. The demand for milk is high in his village, which should allow him to easily repay his loan and make some profit as well. In addition to the dairy produced by the cow, Lawrence will benefit from the cow’s manure on his farm. Awesome!

The Field Partner providing this loan is also giving Lawrence training in saving money and in business. This helps to equip him with lifelong financial skills and to ensure he will get the maximum benefit from the money. All in all, Lawrence was looking to raise $350. With our contribution and eight others chipping in, we were able to fund his loan and get him the money he needed for his dairy cow. Now, we get to watch for the next year as Lawrence grows his farming business. When you are repaid over time, you can elect to have this money either returned to you or lent back out again. By electing to re-lend the money, you can multiply the effect by loaning the same money to a number of people.

Lawrence from Kenya

You can access your portfolio of loans in your dashboard at any time. This dashboard is really fun because you can see how much you’ve lent over time, all the people you have helped, the countries you have lent in, the teams you’ve contributed with, and more, all with slick graphs and charts. The geek in me really appreciate all of this.

 

I’ll be sure to keep you posted as I learn more about the site and as I use it more. Head on over to www.kiva.org to check it out and see what you think. Please leave a comment or question; I’d love to hear your thoughts!

My Kiva Dashboard and Portfolio
My Kiva Dashboard and Portfolio (updated 5/8/2015)

*One of the concerns some people have with Kiva is the high interest rates charged by the Field Partners in these loans. However, it is important to keep everything in perspective economically. While the average interest rate is a surprising 34%, you must remember that the inflation rate in developing countries is often enormous in comparison to those we’re used to here in the West today. Even here in the states just 30 years ago, it was not uncommon to see mortgages and car loans at interest rates of 18%+ because of inflation. Next, you should keep in mind that the small amounts of these loans makes it more expensive to process in proportion to the principle amount. When you add to all of this the fact that the Field Partners have to pay collectors to travel many miles just to collect small payments, you’ll see that most of the Field Partners are barely covering their costs. In fact, most of them have a negative profit rate.

 

Dollar Shave Club – Deal or Gimmick?

After seeing Dollar Shave Club’s hilarious YouTube commercial and periodic Facebook ads, I decided to give them a shot. I have a bad habit of waiting way too long to replace blades, leaving me with a patchy shave at best and an occasional nicked chin at worst. When I did replace my razor, I usually ended up replacing the whole thing, which would cost $7+ and only came with 2 cartridges.

If you haven’t heard of the Dollar Shave Club, their model is refreshingly simple: pay a few bucks a month to get a quality razor up front and replacement cartridges delivered to your mailbox every month.

Their plans start at $3 per month ($1 + $2 s/h) for the twin blade razor, $6 per month (s/h included) for their 4-blade model, and $9 (s/h included) for the “Executive” 5-blade version.

When I first signed up, I figured I would give the cheapest version a try and upgrade if they were too cheaply made. The first package came a few days after signing up and included a plastic razor and 5 replacement blades. At first, they seemed to work reasonably well, but after a couple of uses I found that I wasn’t getting a very close shave and even nicked myself once or twice.

I wasn’t terribly surprised by the results. I expected that two blades probably weren’t going to suffice in the first place, but I was still a little disappointed. However, I decided to upgrade to the $6 4-blade model.

When the new razor arrived earlier this month, I was pleasantly surprised by the high quality. It was made of a sleek metal that felt sturdy and manly. I felt the difference immediately with the first shave, much smoother than the previous. Honestly, I think this is one of the best razors I have ever used, ranking right up there with some of the more expensive Gillette models.

The $6 model comes with 4 replacement blades. Because my facial hair doesn’t grow very fast, I don’t need to replace my blade every week. As you can imagine, then, I was excited to see that DSC offers an every-other-month plan for guys like me. As long as I can make my blades last at least 2 weeks, this equates to $3 a month for a great razor and fresh blades in my mailbox every month without any effort required. At this point, I am about a week and a half into my first blade with the new model and it’s still going strong. I don’t think I’ll have any problems with the every-other-month plan.

Overall, I’ve been extremely happy with my Dollar Shave Club experience and I look forward to staying with them for a long time to come. If you found this short review helpful and would like to sign up, I would really appreciate it if you would use the referral link below. If you do, they’ll give me a few bucks for recommending them, and they’ll do the same for you if you spread the word.

http://shaved.by/by6AB

 

3 Great Tools to Track Your Net Worth – And Why You Should!

Have you ever filed taxes at the end of the year and, when looking at your income, wondered, “Where did all that money go?” Maybe you’ve been working a job for 5-10+ years and have little to show for it. Maybe you’re even in the hole, owing more than you own.

If this sounds familiar, or if you’re just having trouble sticking to your goals of saving a certain amount of money over time, you may find tracking your net worth to be a tremendous motivator.

Your net worth can be calculated using this simple formula: Assets – Liabilities = Net Worth. Assets are things you own that have a positive value, such as cash, your house, retirement investments, and so on. Liabilities are things that you owe, such as credit card debt, student loans, car loans, mortgage, etc..

Let’s look at a very basic example to make sure we’re clear. Assume John has $5,000 in cash, $10,000 in various investments, and his house is worth $150,000. That brings his assets to $165,000. Let’s say he has a mortgage of $120,000 on his house, owes $3,000 on his car, and has $15,000 in student loans.

To calculate John’s net worth, we plug the numbers into our formula:

$165,000 (Assets) – $138,000 (Liabilities) =  $27,000 (Net Worth)

Tracking your net worth over a period of time, such as months or years, gives you a look at the progress you’re making. Sometimes it’s tempting to lose focus on your goals if you have unexpected setbacks such as medical payments, car repairs, or just blow your budget for a bit. Taking a longer-term view of your situation helps provide the motivation you need to keep going.

There are a number of ways you can keep track of your net worth. First, you can use Mint.com. If you’re not familiar with Mint, it’s an excellent website for keeping track of your finances and budgeting. All you do is plug in your information for your different financial accounts such as your checking, savings, retirement accounts, auto/mortgage loans, credit cards, and the like. All of this information is sent with heavy encryption, so nobody can see your your passwords or private information. As a computer scientist by training, I feel comfortable knowing it’s all very secure. Once you’ve plugged in your accounts, Mint keeps track of them over time, so you can always look back and see your net worth over any period. One nice feature about Mint is that it even allows you to add your house and will track your home value using Zillow’s “Zestimate.”

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An Example Net Worth Chart from Mint.com

 

Another website that I use almost exclusively for net worth tracking is called Personal Capital. It’s all a matter of preference, but I like the detailed graphs and ability to explore more on Personal Capital than Mint when it comes to net worth. Mint is much better at budgeting and tracking transactions, however, which is why I still use both.

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I couldn’t find a good net worth graph example online, so I figured I’d just use our own and exclude the numbers. I only started using Personal Capital in March of this year, so I don’t have as large a range as I do in Mint, but I like the ability to see our story in the peaks and valleys of this net worth graph. I can quickly see how our income compared to our expenses each month based on the paycheck peaks, I can see the valley where we put a downpayment on my car (wish I’d paid cash for a less expensive car, but that’s for another time), where we paused our retirement investing for a short time, where we transferred retirement accounts, and so on. This is fun to look at in Mint as well since I have a longer timespan with them and can see where we were financially leading up to and going into marriage, as well as how far we’ve come since then. Every thousand dollar milestone gets me excited and solidifies the conviction that we’re doing the right things, which helps us stay on track. If I didn’t track our net worth, it would also be easier to make large purchases as long as we could “afford” them without realizing the impact they make to our bigger picture.

If you don’t like the idea of connecting outside websites to your financial accounts or if you prefer the flexibility of running your own numbers, you can also use an Excel spreadsheet to track your net worth. In fact, this is probably the best option which allows the most customization. However, as it will require a lot of manual input each month, it’s not the most convenient.

So there you have it: three great options for keeping track of your net worth and staying motivated. Hope this has been helpful!

If you have any questions about Net Worth, Mint, Personal Capital, or anything else, please let me know in the comments!

 

 

Difference Between a 401k and a Roth IRA

By this point, you’ve heard me rave about the benefits of investing in retirement. Perhaps you’ve been won over and are excited about  the idea of getting started, but you feel like you don’t know where to begin. You’re not alone. Let’s look first at the basics of how a 401k and a Roth IRA work in order to lay the groundwork for beginning your journey to investing. In a future post, we’ll go step-by-step through how to actually start a retirement account, but it’s important to have this understanding first.

There are two main types of retirement accounts that we’ll focus on: a 401k and an IRA (Individual Retirement Arrangement).

Before we look at why these are valuable, consider why you wouldn’t want to just open up a regular account and start investing money for retirement on your own without them. You can absolutely do this, but the problem is that you will pay loads of taxes on the money you put in. You’ll be paying income tax on the money when you earn it from your job via Income Tax. On top of that you’ll be taxed on all of the great earnings that your investments made when you withdraw money, which is known as Capital Gains tax. This is a huge amount of taxes and money down the drain for you.

You can think of a 401k or a Roth IRA like a bucket that you can put your investments in to shield them against taxes. The main difference between them is the point in life at which you choose to pay the taxes.

With a 401k, all of the contributions you make are tax-free,  meaning that if you contribute $10,000 to your 401k in a year, you don’t have to give Uncle Sam any of that money like you normally would when you get money in a paycheck. Essentially, the money gets filtered into your 401k before the government has a chance to grab any of it from you. If you were in the 25% tax bracket, this would save you $2,500 in taxes right off the bat. Also, you won’t have to pay taxes on any of the growth of that money (capital gains). The downside with the 401k, however, is that you will have to pay your taxes in retirement when you take the money out. If you’re rich in retirement and are “earning” more income by withdrawing from your investments than you were when you put the money into your account, you’ll be paying a higher percentage in taxes at that point.

With a Roth IRA, you pay your taxes up front and never have to worry about paying any taxes on your investments in the future.  So, if you had that same $10,000 to invest in a Roth IRA and were in the 25% tax bracket now, you would pay the $2,500 in taxes up front and the other $7,500 would go into your Roth IRA. These taxes just get taken out of your paycheck like they normally do with any paycheck. Then, you invest that money in your Roth IRA. This may seem like a worse option than the 401k at first glance, but when you look at the long-term effect of not having to pay taxes in retirement, it’s pretty awesome. The Roth IRA is generally best if you expect to be making more in retirement than you’re earning now from your career. The reason is that you can pay the lighter tax load now and your money can grow to enormous numbers without you having to worry about paying steep taxes later.

The general rule of thumb is that if you’re fairly young (under, say, 35) and early in your career, you probably want to put your money in a Roth IRA. This is because your income tax bracket is significantly lower than it likely will be after you’re retired.

For both the 401k and the Roth IRA, there are limits to how much you can put in each year. For a 401k, the limit is currently $17,500, while you can only put $5,500 into a Roth IRA each year. A good strategy that I personally use is to start out putting whatever percentage your company will match, if any, into a 401k. Then, put the rest into a Roth IRA to get yourself up to 15% altogether. If you hit the maximum on your Roth IRA in a year, then go ahead and start maxing out your 401k.

To put this into a practical example, assume you make $50,000 per year. 15% of your salary would be $7500. If your company matched 2%, you would put 2% of your salary each month into your 401k and 13% into your Roth IRA.  After about 10 months, you would reach the $5,500 maximum in your Roth IRA and would then contribute the full 15% to your 401k until the end of the year.

If you’re married, the contribution limits are on a per-individual basis. This means you and your spouse can each have your own accounts with $17,500 for your 401k and $5,500 for your Roth IRA. As a result, if you’re married, your limits are really $35,000 and $11,000. Not too shabby!

Hope this was helpful to you. These tax concepts can be pretty confusing at first, so as always, feel free to leave any questions you have in the comments and I’ll do my best to answer them.

Gradual Millionaire Retirement Exploration Tool

I’ve played around with a number of retirement calculators out there online, but I haven’t been completely satisfied with any of them. The main problem I’ve found with most is that they don’t offer much in the way of visualization. If they do have a graph, it’s usually just a bar chart or something that doesn’t provide an effective way of seeing how your money grows over time.

So, over the past couple of weeks, I decided to develop my own tool so I could play around with the numbers and visualize what small changes in contributions to retirement plans would amount to over the long run.

Feel free to head on over to the Gradual Millionaire Retirement Calculator to check it out!

When you go to the page, you’ll simply need to enter a few details about your situation. By the way, I have programmed the tool in such a way that all of the calculations are done in your browser, so I have no way of seeing your numbers even if I had any interest whatsoever in doing so.  All you have to do is enter:

  • Your current age
  • Your annual income
  • How much you already have stocked away in retirement accounts (if you don’t have any money invested yet, you can just enter zero here. We’ll cover how to start investing in your retirement in a future post).
  • Annual contribution percentage. This is the percentage of your salary you plan to contribute toward retirement. By default, this is set to 15 since that is generally a good rule of thumb, but it depends a lot on your age and your specific goals. If you’re on a tablet, you’ll have to press the point you want rather than sliding.
  • The age at which you want to retire. This is set to 65 as that’s the standard for Americans. I personally never plan to work anywhere close to that long, but feel free to put whatever number you like here just to see.
  • The interest rate at which you assume your investments will grow. Most investors say that somewhere between 7-10% is reasonable when investing over the long haul in mutual funds, so go ahead and see how your numbers change when you slide this percentage around. It’s amazing to see what a huge difference a percentage point makes over decades of compounding interest.

Last, but not least, go ahead and press “Calculate!”

A graph will magically appear on the page. You can slide your mouse over the graph to see how much money you’ll have in investments at any specific age you like. Tip: slide your mouse between two consecutive years in the later part of your life, such as in your late 50’s or your 60’s. It’s pretty awesome to see just how much money you’ll be raking in every year for doing absolutely nothing! This is why I think having an interactive visualization is powerful. You can more easily see the power of compound interest working in your favor! If you’re viewing the page on a tablet, you can see any point on the graph by simply pressing on the graph.

I hope this proves both fun and inspiring to you! Take advantage of the tool by seeing how much more you’ll have in retirement if you contribute a couple extra percent from your salary, if the interest you earn is a little higher or lower than average, or if you retired later/earlier.

Please let me know if you have any comments or suggestions on the tool that you think would make it even more useful. I’d also love to hear if there was anything surprising you found using it!

 

Car Insurance Simplified

I recently bought a car, and a few days after adding the “new” vehicle to my car insurance, I noticed Geico automatically tacked on a few unwanted charges.

The first thing I noticed was an added service for Rental Reimbursement at $21.12 PER CAR per 6 months. That’s $42.24 of our hard earned dollars spent every half-year just so that we can still continue to drive two cars for a few days on the off chance that one of us gets in an accident. And that’s only if the accident happened to be our fault. Sure, it would be convenient to have an extra set of wheels, but I think we can manage to work out some transportation for a few days in the event of a car repair or replacement. Ambrey could drop me off at the bus stop for work or we could find some other creative solutions. I’d much rather have $42 in my pocket for a dinner date or to put toward a downpayment on a house.

Now, I’m not dissing Geico. Last year I set aside a few hours to make phone calls to several car insurance companies and get quotes on the best prices for the coverage we needed. As it turns out, Geico, who we were already with, was cheaper than the rest by a long shot.

But, no matter who you choose, you need to take a close look at each piece of coverage you’re paying for in order to get the best value. You don’t want to be bankrupted by a car wreck, but at the same time, you certainly don’t want to be wasting precious money on coverage you don’t need. Plus, you may be able to score some discounts on the prices you’re already paying just for being a long-time customer, getting good grades, or having multiple policies with that provider. Let’s go through the basics step by step:

The first and most important coverage is “liability.” Liability is the amount of money that you’re responsible for paying if you cause damage to another person or vehicle with your vehicle.

The first type of liability is called “bodily injury liability.” Just as the name suggests, this insurance covers any costs associated with injury or death of others caused by you in an accident. It also pays for your legal defense. You really want this coverage to be much higher than whatever the legal minimum is. Just imagine if, God forbid, you happened to strike a pedestrian or got in a severe enough accident that you caused brain damage, paralysis, or even death of somebody else. These costs can really add up, and if your bodily injury liability coverage limits aren’t high enough, the injured party can sue you for your assets, potentially garnishing your wages, wiping out your retirement, and otherwise bankrupting you.

You will see two different limits associated with your bodily injury insurance. The first is the “per person” coverage. This is the maximum the insurance provider will cover per individual in an accident. The next number is the “per occurrence” coverage, which is the maximum your insurance will cover in a single accident. So, for example, let’s say you had $100,000 per person/$300,000 per occurrence coverage and you caused a collision with a minivan on the highway. Let’s assume there were 7 people in their van with significant injuries. The insurance company will cover up to $100,000 per person for injuries, but will cover no more than $300,000 altogether.

The other type of liability coverage is property damage. This one is pretty straightforward. This is the maximum that the insurance company will cover in damage to other vehicles or property. Keep in mind that you could cause an accident with an expensive new car or cause an accident that involves several vehicles, so this limit should also be considerably high.

The good news with liability insurance is that it really does not cost much more to bump up your limits, so it’s probably worth jacking those up substantially to protect your assets from lawsuits.

Now that we’ve covered insurance that covers the cost of damage to others, let’s look at coverage that protects you in the event of an accident.

Uninsured motorist coverage is absolutely essential and protects you against stupid drivers without insurance. Unfortunately, we all pay a cost to protect ourselves from people who choose to ignore the law and carelessly put others in danger. It’s entirely unfair, but it’s just the way it is. This insurance comes in the same forms as liability insurance (“bodily injury” and “property damage”), with “per person” and “per occurrence” limits just like liability. You may think you’re unlikely to be hit by an uninsured motorist, but they’re more common that you might imagine, particularly in low-income areas. Both my dad and brother have been the victims of hit-and-runs while driving in the city. Not cool!

There’s one item on my coverage that I admit I need to do some more research on, and that is Personal Injury Protection (PIP). According to Geico, PIP “pays for necessary medical, dental, hospital and funeral expenses, 85% loss of income and loss of services incurred within three years of a motor vehicle accident. PIP covers you, household relatives, passengers and pedestrians regardless of fault.” Considering that we have other types of insurance for these other expenses such as health, dental, and disability insurance, this seems unnecessary. I’m going to plan to do some more research on this and see if this is duplicate coverage that I could get waived for a reduction in cost. I’ll get back to you on this once I find out.

Collision insurance covers damage to your vehicle caused by hitting another vehicle or object. One thing to keep in mind here is that damage caused by hitting an animal is not covered under collision insurance. Where I live, deer are everywhere and it is definitely not unlikely that you could hit one and total your car. If you’re expecting your collision insurance to cover this, you’ll be out of luck.

Comprehensive insurance basically covers damage to your car caused by situations other than collisions, such as hitting a deer or other animal, theft, vandalism, flooding, hail, lightning, explosions, and a bunch of other cases.

If you drive an older car that’s not worth much anymore and you can afford to replace the car if you needed to, it is worth considering dropping the collision insurance coverage. The coverage may be costing you more than it’s worth. I didn’t carry collision on my old ’97 Jeep Grand Cherokee because it was only worth $1500 on Kelly Blue Book. It wasn’t worth the hundred or more dollars per month for collision coverage when it would be cheaper overall just to replace it if it was totaled. However, now that I have a newer, more expensive car, it is absolutely necessary and worth it for me to have collision and comprehensive to protect against several thousand dollars in damages.

Another way to save some money on your insurance is to raise the deductibles. The deductible is the amount that you owe out of pocket before the insurance will kick in to cover the rest. If you have a $250 deductible and you have $1,000 in damages from hitting a pole, you’ll be responsible for $250 and the insurance company will pay for the other $750. Raising your deductibles causes you to pay less in premiums. Premiums are simply the costs you pay each month for your coverage.

Be sure to look for any discounts that you can apply. If you’re a student, you can usually get discounts for good grades. If you have a good credit score, you’ll pay less. Get renter’s or homeowner’s insurance bundled with your car insurance and you’ll get a discount.

Lastly, opt to pay for your insurance every 6 months rather than on a monthly basis and you’ll save a nice chunk in administrative fees. For me, I can save about $30-$35 every 6 months by paying once. A great way to accomplish this is to set up an automatic transfer into your savings account each month for the amount you would be paying monthly for insurance. Then, when the 6 months are up and your insurance payment is due, you’ve already saved the amount you need plus interest, while avoiding the hefty fees on top of that.

Hope this was helpful to you! If you have any questions on any of this, let me know in the comments below and I’ll do my absolute best to answer them for you. Most importantly, I encourage you to take a few minutes to look through your coverage and find out what tweaks you need to make. Call around to different companies, as well, and you could save yourself a few hundred dollars. Good luck!

Whoever Loves Money Never has Enough

“Whoever loves money never has enough; whoever loves wealth is never satisfied with their income.” (Proverbs 5:10).

Have you ever noticed that however much money you make, your desires tend to fill up that level of income?

This observation has been titled by psychologists Brickman and Campbell as “Hedonic Adaptation.” According to their theory, “Hedonic adaptation…is the tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes. As a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness” (Wikipedia).

In other words, you could wake up tomorrow making $250,000 a year, and you would think, “This is awesome! Life is incredible!” Unless you have found your source of contentment outside of things, however, you will not be any happier after awhile.

I’ve been spending a significant amount of time in the past several weeks thinking about and studying the subject of contentment.

Among the greatest influences have been a financial blogger who goes by the pseudonym “Mr. Money Mustache.” This guy and his wife managed to minimize their lifestyles in their 20s to such an extent he was able to retire at age 30, living on only about $25,000 per year and investing the rest. Now he’s able to spend more time with his wife and family, work on projects he enjoys, volunteer to help others, and work on his writing as much as he wants. What’s the key to his success? He and his wife have taken inventory of their true sources of contentment and fulfillment, such as writing, renovating and building their house, spending time with their son, biking and exercising, and other inexpensive activities. In doing so, they chose also to eliminate the material excess which does not provide any real lasting happiness, such as luxury cars (they bike most places and only own one ten-year-old car), big houses, fancy gadgets, and so on.

One of the takeaways from reading his blog is the realization that he is not depriving himself of any happiness by declining more possessions. In fact, he is doing exactly the opposite. He realizes that more things require more time, time which often does not deliver an acceptable level of reward for the sacrifice. For example, being a former software developer and technology enthusiast like me, Mr. Money Mustache recently contemplated the purchase of a new iPad. However, after weighing the pros and cons of the purchase, he decided that an iPad would likely lead him to spend more time on mindless leisure, which would detract from his level of happiness rather than contribute to it.

In my own life, I have found hedonic adaptation to be alive and well. A couple of months ago, I upgraded from my old 165,000 mile 1997 Jeep Grand Cherokee, which had a smashed passenger side, no air conditioning for the 4+ summers I drove it, blown speakers that made listening to the radio unbearable, and leaked fluids all the time. I would have to explain to friends if they got in the back seat that they had to use the left side door, since the right wouldn’t open. When we went on dates, I would often have to open my wife’s (then girlfriend’s) door from the inside, creating quite the little dance of embarrassed “chivalry.” Red lights in the summertime were a dreaded evil, since the lack of air from the windows caused my body to quickly compensate with buckets of sweat. For about a year, I began researching various models of cars, drooling over sporty coupes like the Infiniti G35, while balancing them out with boring models like the Ford Taurus. After considering as many different models as I could, I finally decided to purchase a 2011 Mazda3, which has a sporty look, icy air conditioning, a premium BOSE sound system, bluetooth technology for taking phone calls and listening to music from my phone, and some other fancy features. But, do you know what I have found? As much as I enjoy driving my new car, as happy as I am with the deal I found, and as much as the drummer in me loves feeling the bass of the new sound system, the reality is that I am not significantly happier having purchased it, and I would not be significantly happier if I had a Lamborghini. This is because true happiness and contentment are not to be found in things. We adjust to the level of comfort we currently enjoy.

On the contrary, I still find myself happiest spending a day reading books from the library, hiking or picnicking with my wife, jamming out on the drums, being generous toward someone in need, grilling out with family, or working on a challenging programming project.

Now, this is not to say that consumption and entertainment are not to be enjoyed in moderation, but I have found that when overdone, the lethargic feeling of wasted time leads to discontentment and even depression.

Because of this recent discovery and mental processing, I am beginning to challenge every desire and purchase, looking not only at whether it would be convenient or fun to have, but considering how much time it would detract from other enjoyable activities in life to maintain and use it.

When your possessions and desires take away from your ultimate happiness, I have to quote that wise and great philosopher of YouTube: “Ain’t nobody got time fo’ dat.”