Syed, Author at The Broke Professional

Easy Ways to Winterize Your Home and Save Money

This is another guest post from my friend Anum Yoon who blogs over at Current on Currency.

Today’s practical post will discuss ways to save money by making your home more efficient in the cold weather.  Floridians and Texans, find another article!

The winter chill has set in. There aren’t too many parts of the country that have escaped the bitter cold and snow. You don’t want to go outside unless you absolutely have to — maybe a quick run to and from the car.

If you’re not a fan of winter, this is going to be a long three months or so. You’ll be inside more, and the only good news is that you’ll have more time to do some the things around the house you may have been putting off.

Also, winter isn’t a booming season for construction, so you might be able to get some discounted prices on materials or projects. Take a look around the house and see which rooms need your attention most.

Winter is a good time of year to attend to your DIY projects or hire out the ones that require professional help. Here are a few investments you can make in your home this winter to improve your living space and add value to your home.

Have Your Furnace Serviced

If your furnace is going to die, it’s probably going to happen on a weekend in the middle of the coldest part of winter. That’s just the way it goes. Better to pay to have it checked now than to pay a lot more later.

Hire a reliable, trusted professional to service your furnace and hot water tank yearly or as recommended. They will make sure both are in good working order and that the filters have been changed for optimum performance.

A professional service can identify any potential problems or maintenance issue before they cause you problems in the winter. If they recommend replacement, feel free to seek a second opinion, but don’t delay too long.

You don’t want to risk being without heat and all the problems that can cause. A new furnace will increase your home’s value and may generate some return on your investment at the time of sale.

Update or Replace Insulation

Your furnace is working hard to heat your home. What a waste of energy and money if the heat is escaping through your roof, wall spaces, or cracks and crevices throughout your home.

If you are confident in your abilities, it might be simple enough to add a few rolls of insulation in places where there is an apparent need. Another idea is to have a professional come out and inspect your insulation.

They may discover leaks you weren’t aware of. Some companies use tiny pieces of insulation that they can spray into your attic. These pieces fill in all the open cracks and areas where leaks can occur.

Other spots you can attend to yourself include the electrical outlets, hot water tank and hot water pipes. You can purchase DIY insulation kits for these areas and accomplish your goals with minimal effort. You can also caulk windows and doors and add weather stripping to stop cold drafts and leaks. The less cold air coming in, the less money going out.

Buy an Energy-Efficient Garage Door

While you are insulating the rest of your house, you might want to consider your garage as well, particularly the door. When that garage door comes open, it’s the biggest open space into your home. All that cold air comes rushing in and hits the outside walls of the interior.

While you have to open and close your garage door, you can cut down on energy costs by purchasing an insulated, energy-efficient garage door. You can keep the inside of your garage at a more consistent, comfortable temperature. It will make any garage projects more tolerable, even in the winter. Your furnace won’t have to work as hard to compensate for the cold air seeping in. It makes sense to have an insulated garage door even if it isn’t attached to your house.

Purchase Energy-Efficient Windows

You know if you have good windows or not. If your rooms stay relatively warm in the winter, they are quality windows. If it feels like the wind is blowing through your living room, your windows are either in poor condition or you left one open.

Investing in Energy Star rated windows will cost a lot of money, but it will save you an average of 12 percent on energy costs. You also may qualify for an energy rebate from your local utility company or state government for making the investment and saving energy. In time, they will pay for themselves. Rotting, drafty single pane windows will continue to deteriorate and, at some point, you will be forced to replace them.

If you think you might be selling your house soon, consider new windows a wise investment and selling point. There is no guarantee you will recoup your money, but your house will be more saleable than your similar neighbor’s house with old windows. Regardless of your intentions, it’s money well spent. It would just be nice if all that money could buy you a better view, too.

Hook up to Smart Thermostat

Instead of wasting money and energy heating your house while you’re at work, hook it up to a smart thermostat you can control online. You can set up a schedule so your thermostat lowers the temperature while you’re gone but starts heating back up before you come home. If you encounter a change in your schedule, you can just log in and make adjustments from your desk at work.

A smart thermostat potentially will save you money, but more importantly, it will give you the ability to control your energy use. You need to look no further than a family member to realize we all have a different idea of what a comfortable temperature is. You’ll still fight over the thermostat.

Improve Your Home This Winter

Things break down, and they don’t always work the way you want them to. But generally speaking, money invested in your house will make it more appealing, more comfortable and more valuable. Plus it’s your home. What better place is there to spend your hard-earned money? Winter will pass before you know it. Wouldn’t it be nice to go into spring already having accomplished some household projects for the year?

Share

Big Tax Changes You Need to Know About

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law.  This was one of his pet projects and something he has promising since his campaign.  He also promised that this law would give middle class families a huge tax break.  That remains to be seen.

The TCJA went into effect on January 1, 2018 and it comes with many big changes.  For some people, the effect will be large and there will be lots of planning that needs to get done.  For others, there might be a small change here and there but nothing that would require any real behavior change.

The TCJA provides the first sweeping tax change since the Reagan era.  So it’s important to know how it will effect you.  In this post, I’m going to go over some of the biggest changes in the tax law and what changes you need to make, if any.

If you want to read the bill in its entirety, be my guest.  Otherwise, here are the biggest changes you need to know about.

Much Bigger Standard Deduction

When you file your taxes at the beginning of the year, you have the option of taking the standard deduction or itemizing your deductions.  I’ve written about this before here, but the most common itemized deductions are mortgage interest, property taxes and charitable contributions.  If you have a high amount of these types of payments during the year, chances are you will save more on taxes by itemizing.

This will change for a lot of people this year.  For 2017, the standard deduction amount for single filers was $6,500 ($13,000 married).  The new standard deduction for 2018 will be $12,000 ($24,000 married).  Meaning there will be many more people choosing to take the standard deduction.  This simplifies the tax code in general, but it comes at the expense of other favorable tax treatment as I will explain below.

Behavior change: Most homeowners choose to itemize based on their mortgage interest deduction.  If you won’t be able to do that for 2018 because of the new standard deduction amounts, then the popular mortgage interest deduction doesn’t really provide any benefit.  Depending on your financial plan, it might be time to consider paying your mortgage off early.

State Income and Property Tax Limits Imposed

In 2017, you could itemize your deductions by writing off your state income tax and property tax.  This was an unlimited deduction for the most part.  Helpful for everyone, but especially for those with high state and property taxes.  But change is afoot.

For 2018, you can only deduct a maximum of $10,000 combined state income and property tax.  This is a huge change and will hit those who live in big coastal cities the hardest.  Homeowners in high tax states can easily pay $20K in state income tax and property tax combined.  This rule puts them in a real bind.

Behavior change:  Move or start renting.  For those who live in states like California or New York and have been contemplating a move to a cheaper part of the country, this will give you a little more motivation.

Elimination of Personal Exemptions

This is a key change that will hurt many working professionals with kids.  In 2017, for every member of your family (including yourself), you could take a tax deduction just for being alive.  The value was $4,050 for each family member.

So a family of 4 could take a deduction of $16,200.  This deduction is completely eliminated for 2018.  This is one reason the standard deduction for 2018 will be higher.  It will make the tax code simpler, but will hit couples with children the hardest.  It is slightly offset by the next change I will discuss.

Behavior change:  Not really much you can do here.

New and Improved Child Tax Credit

Tax credits are much better than deductions.  They provide a dollar for dollar reduction in the tax you owe, while a deduction simply adjusts your income a little lower.  The Child Tax Credit has been a nice one that has been around for about 20 years.  It provided families a $1,000 credit for each eligible child.

The problem was, the income phaseout limits were pretty restrictive for many professionals.  For married couples, once their income hit $110,000 the credit was reduced.  For high income professionals, the Child Tax Credit was a pipe dream.

But it is getting a big face lift for 2018.  The Child Tax Credit will now be worth $2,000 per eligible child.  Also, the income limit increases from $110,000 for married couples to $400,000.  

This will make the Child Tax Credit a reality for many couples.  It will also lessen the sting of the personal exemption elimination.  This change is a nice win for all.

Behavior change:  Have more kids!

Tax Bracket Adjustments

The tax bracket changes are another big one.  Essentially all the tax brackets (except the 10%) will be reduced.  And the 35% bracket is widened considerably, which will help high income couples.  Here is the old 2017 bracket:

Here is the new 2018 bracket:

So most people will see a slight decrease in their taxable income.  Not too bad.  This will be the way most people will see some tax savings.

Behavior change:  Employers should be adjusting paychecks to reflect the new tax changes by February.  Just take any extra money you find and add it to your savings and investment plan.  There is no use to have savings if you don’t use the money right?

Student Loan Interest Deduction

Just kidding!  No changes here thankfully.  The deduction maximum of $2,500 remains the same.  Though it would be nice if it was a little higher since tuition rates, and thus student loan balances, are constantly increasing.

Conclusion

The big winners of this tax reform seem to be large corporations, who saw their maximum tax rate changed from 35% to 21%.  Whether this will translate into more cash for employees and a healthier economy, only time will tell.  Families who can take advantage of the Child Tax Credit will also win.

The big losers are high income single filers who own homes in a high cost of living area.  They get hit on so many levels, but especially the state and property tax limit.  Another thing to consider is that these changes are not permanent for the most part.  Many of the big changes will “sunset” in 2027, which will then revert back to the old tax laws.  Nothing in politics is permanent after all.

These changes will affect our returns we do in 2019, so we still have some time to see what the effect on the country as a whole will be.  But it’s important to know the big changes and how you will have to change the way you approach money.  Stay tuned!

(Micheal Kitces CFP provides a great and detailed overview of the tax changes here.  If you want to dig in a little more, this is a great resource.)

Share

Start Tracking Your Net Worth in the New Year

This post contains affiliate links

Everyone has heard the stat about the high failure rate of New Year’s resolutions:

8% of New Year’s resolutions fail

80% fail by February

Greater than 90% failure rate

So if you’ve made a New Year’s resolution for 2018, your chances of achieving it look grim.

The two most common New Year’s resolution goals are health and money.  Which means that there are a lot of failed financial New Year’s resolutions year after year.

My thought is that many people make very vague resolutions.  Goals like “I need to save more” and “We need to spend less on eating out” sound very nice in theory.  But are very hard to put into practice.

Along with being too vague, many resolutions fail because we don’t have an understanding of where we are.  It’s a cliched example, but you need a destination and a starting point in order to have accurate directions.

Making vague resolutions is like picking out a destination without knowing where the starting point is.  So you have no way of knowing if the direction you’re taking is going towards your goal or completely away from it.

You need to know where you stand financially before you can make an effective goal, let alone reach that goal.  I feel the best way to find your financial starting point is not by seeing how much you have in your checking or savings account.  It’s not the equity you have in your home.  And it’s definitely not how flashy your car is.

The best way is finding your net worth.  With the technology available today, calculating your net worth is very simple.  If this is the only financial resolution you make this year, you will be much better off than you were last year.

Why Net Worth Matters

The net worth calculation is very simple:

Assets-Liabilities=Net Worth

There is always discussion about what is considered a liability or an asset.  Some people consider home value an asset.  Some people don’t consider home value since it takes a lot of work to get money out of a home.  The details are endless.

But in general, as asset is something that adds to your wealth while a liability is something that takes away from it.  Common assets include your checking and savings accounts and retirement accounts.  Liabilities include credit card debt and student loans.

So net worth is basically a snapshot of your financial health.  But just like any snapshot, one picture doesn’t tell the story.

A new medical school graduate has little in savings and hundreds of thousands in student loan debt.  That will give him a large negative net worth.  A high school student probably has some spending money but very few liabilities since he lives with his parents.  So he would have a slightly positive net worth.

Does that mean the high school student is more wealthy than the new doctor?  The answer is no because net worth should be used to measure your financial GROWTH rather than a static number that looks at your wealth.  In 10 years time, the new doctor will likely have a net worth light years ahead of the high school kid.

So the key to wealth creation is to grow your net worth over time and grow it quickly.

My Net Worth Tracking Strategy

There are so many different opinions about how often you should track your net worth.  Some say every month (some people even track it every day!).  While others say once a year is enough.  The key is to find a pace you’re comfortable with and keep it consistent.

Personally, I check my net worth every quarter.  I actually enjoy checking up on my accounts and seeing how they’ve changed.  It also allow me to make sure there’s no fraud or any funny business going on in any of my accounts.

And doing it quarterly is enough time to see if new strategies I’ve implemented are actually making a difference.  Plus, most companies operate in quarterly statements so there must be some wisdom in it.

As far as what high tech tools I use, an Excel spreadsheet and a Word document are my weapons of choice.  I use the Excel document to help me calculate my net worth and I record the values over time in my Word document.  Easy peasy.

But one piece of technology that helps check my work and give me more insight into my net worth and retirement is Personal Capital.  I’ve been using it for years to view my net worth and they have been getting better over time.

All you need to do is connect your various accounts and Personal Capital will monitor them.  They can’t make any transactions so there is no need to worry about security.  They simply monitor your account value and have your net worth displayed nicely in graph form.

Which is great since net worth growth is the true measure of financial wellness.  Physically seeing it as a graph really drives it home.

Other cool features of Personal Capital are the Investment Checkup and Retirement Fee analyzer tools.  They can analyze the holdings in your investment accounts and tell you where you may be over or underweight.  And they will also check the fees in your accounts so you can make sure you’re not paying too much.

And it’s all free.  There is an option to talk to a real financial adviser for a fee but that’s completely up to you.  Most of the powerful features of the program are no cost.

Conclusion

Deciding to grow your net worth is the best thing you can do to turn your financial life around.  Thinking in terms of net worth rather than just making and spending more money will allow you to see your finances in a whole new way.

Suddenly, paying a huge monthly bill for that fancy luxury car when a regular old Toyota will do just fine doesn’t seem that enticing.  A decision like that can keep your net worth from growing the way you would like.  Thinking in terms of net worth rather than just focusing on your checking account is the real way to get wealthy.

Tracking your net worth consistently with Personal Capital is an excellent way to start the journey towards real wealth.

Share

Do Some Charity Before It’s Too Late

For most people, the end of the year is usually a time to take it slow and spend your days with family and friends.  Work takes a backseat until the start of the new year.

Working in the optical world is the complete opposite.  It’s a madhouse!  Appointment books are full and patience is thin as everyone and their mother (literally) is scrambling to get eye exams, glasses and contacts before their insurance benefits and flex spending dollars reset.

(This is one reason I favor Health Savings Accounts over FSA money.  HSA accounts are portable and never expires.)

But there is one other thing people should be rushing to do during the last week of the year…GIVE!  Give away to charity that is.

Giving to charity is something we should do anyways if we have the means.  The rich hoarding wealth is one of the main problems in the world today.  But if you’re eligible for a tax deduction, it can save you some money come tax time along with that warm and fuzzy feeling.

And with the next tax law coming into effect in 2018, many people should be looking to maximize charitable contributions this year.

Standard or Itemize?

Here is the official IRS statement on charitable contributions:

You can only deduct charitable contributions if you itemize deductions on Form 1040, Schedule A (PDF)Itemized Deductions.

To be deductible, you must make charitable contributions to qualified organizations. Contributions to individuals are never deductible. To determine if the organization that you contributed to qualifies as a charitable organization for income tax deduction purposes, refer to our Exempt Organizations Select Check tool. For more information, see Publication 526Charitable Contributions and Can I Deduct My Charitable Contributions?

What this means is that if you want your charitable contributions to be tax deductible, you need to be able to itemize your deductions.  Common itemized deduction expenses include mortgage interest, state and local income taxes, property taxes, medical expenses and, of course, charitable contributions.

If the total of these expenses is greater than the standard deduction, than you would save more money on taxes by choosing to itemize your deductions.  If itemized deductions don’t exceed the standard deduction amount, you should go with the standard deduction.

For tax year 2017, the standard deduction for single filers is $6,350 and for married filers it is $12,700.  With the new tax plan that takes into effect in 2018 (thanks Trump), single filers will see a standard deduction of $12,000 and married filers will jump up to $24,000.

Contribute to Charity…Now!

Meaning that those people who normally take the standard deduction and don’t come close to meeting the necessary expenses in order to itemize…rejoice!  Your deduction will almost double with no effort on your part.  For these filers, the charitable contribution deduction never applied anyway.

But there will be many people who can itemize deductions in 2017 but won’t be able to in 2018.  For these people charitable contributions will be deductible for 2017 but not 2018.  That means they can deduct charity to their heart’s content for the last week of the year since they won’t be able to next year.

There are many things that can count as charitable contributions.  Cash is the easiest thing to donate, but you can also donate clothing, furniture, stocks and even your time.  Make a list of a few charities that resonate with you and contact them to see what is deductible.

All charitable contributions must be made in 2017 to be considered deductible when you do your taxes in April.  So take advantage of this last week to get that charity money in.  Just like FSA dollars, this time it’s use it or lose it!

Share

In-Credible Student Loan Refinancing

Everybody with student loans should consider refinancing.  It might not be the right choice for everybody, but you’ll never know unless you take a look.

At worst, you get some quotes and realize it’s not worth the effort or you don’t want to give up Federal loan perks.  But at best, you can potentially save tens of thousands of dollars worth of interest payments and pay your loans off years earlier.

When you look at it that way, it doesn’t hurt to try now does it?

I’ve written before that my two favorite refinance companies are SoFi and Earnest.  That still stands.  I’ve personally refinanced loans with these companies and had a great experience.  People I’ve referred for refinancing have had great experiences as well.

But as with any industry, new players continue to pop up.  It would be a disservice not to mention quality companies in the student loan refinance arena.

One such company is Credible.  We used them to refinance my wife’s student loans and had a great customer service experience along with a great interest rate.  Plus they gave us a nice little sign up bonus.

If you’re already convinced, sign up here to get some quotes.  If you end up applying for a loan before December 31, you get a sweet $200 bonus sent your way.

Need a little more convincing?  Read on about how Credible provides a fantastic student loan refinance experience.

Choices.  So Many Choices

The thing I like about Credible is that they give you so many more loan choices than other companies.  You can essentially find any combination of interest rate, loan payoff time in a fixed or variable loan product.

This flexibility is amazing because not everyone wants or is able to go with the lowest possible interest rate with the shortest payoff term.  Many people have other goals such as investing for retirement, buying a house or funding a business.

These goals take money, so it’s a good idea to find the most manageable payment you can without sacrificing your other goals.

The dashboard neatly lays out all the different offers available to you.  After checking your credit and asking for some pieces of information, you will quickly be able to see what offers are available and find the best one for you.

Since Credible is more of a clearinghouse than a bank, you will see multiple offers from different institutions.  Most refinance companies will just give you their own rates.  So it’s nice to be able to compare rates from a number of companies.

Once you find the offer that works for you, Credible will do a little more background work and in a week or two the process should be complete.

Potentially huge interest savings and a nice $200 bonus to boot.

The Offer

If you sign up with this link and are approved for a loan by December 31, you will get a $200 bonus.  The normal bonus is $100, so it’s a great opportunity to look into refinancing if you’ve been on the fence.

Like I said before, there is no downside in looking into refinancing your student loans.  You can even get your quotes before your actual credit report is pulled.  So no need to worry about your credit score being dinged.

So check out your rates before the year is up.  There could be huge savings and a $200 bonus waiting for you.

Share

Dollar Cost Averaging is the Best Way to Invest

Ask the average American or young professional what things SHOULD be doing with their finances.  You’ll get the usual answers like budgeting and saving.  They will also talk about how they need to spend less on things like eating out and clothes.

One other thing you’ll almost always hear about is the desire to invest.  Most people know they need to invest for things like retirement or a future house down payment.

The problem isn’t that we aren’t interested in investing.  Or that we don’t want to invest.

The main problem is that people don’t know HOW to invest their money.  They want to know which types of accounts to open and how to transfer money to keep investments growing.

This post will outline what I think is the most efficient and effective way to invest: Dollar Cost Averaging.

Dollar Cost Averaging: Slow and Steady Wins

There are essentially three ways to invest your hard earned money:

1.  Invest a lump sum all at once:  Mathematically, this is the most efficient way to invest.  Having a large amount of money invested in things like stocks or mutual funds will give your investment growth a turbo boost.

And studies have shown this.  Lump sum investing will give you the highest return over any other method of deploying your money.    And I would agree if you have a large sum of money, put it to work all at once if you intend to invest it.  No need having cash on the sidelines not working for you.

While this is the best way to invest, it’s only applicable a few times in life.  If you get a large sum from an inheritance, selling a business or a large bonus, then you should employ this strategy.

But most people get paid their salary in small intervals throughout the year.  So lump sum investing is not really in the discussion.

2.  Dollar Cost Average (DCA):  We live in a monthly payment kind of world.  Almost all of our bills including mortgage, auto loans and cell phones are debited once a month.  We’re used to being dinged monthly for the services we use.  Why not use that same mindset when it comes to investing our money?

This is why I love DCA and why it is my own preferred investing strategy.  Instead of investing haphazardly or when we hear a hot stock tip from a co-worker, DCA takes the emotion out of investing and lets you stick to your investing plan for the long term.

How does it work?  Let’s use a Roth IRA for example.  You know you need to save a little more for retirement beyond your company 401k, so you would like to set up a Roth IRA to be invested in the stock market.

Once you set up the account and select your investments (my favorite is VTSAX but that’s a story for another post), you will be asked to link your checking account.  Then you select how much you want taken out monthly and set your withdrawal date.  And that’s all there is to it!

You will be dinged monthly just like you would for any other bill.  But this is a good ding since that money will be invested for you retirement instead of being spent on the latest iPhone insurance.

3.  Don’t invest at all:  This is not recommended.  But it seems like it’s the American way since 1 in 3 Americans have no money at all saved for retirement.

Buy Low and Sell High

The best way to make money selling things is buying at a low price and selling at a high price.  That’s the logic behind dumpster diving and being a garage sale vulture.  And that’s also the logic behind making money as an investor.

Being invested in the stock market can literally be a roller coaster ride.  There are going to be ups and downs.  Sometimes really big ups and downs.  But as long as the price of your investments is more than what you paid for it initially, you will make more money.

Buying your investments at a low price and selling at a higher price is what makes investors money.  Many people get spooked and sell their investments when the stock market takes a sharp dive, like it did in 2008.  As a result, they lose a lot of money by buying high and selling low.  This is bad.

The beauty of investing via DCA is that it FORCES you to buy low.  If you decide to invest $100 a month into a mutual fund that costs $10 a share, that $100 investment will get you 10 shares.  If the mutual fund doubles to $20 a share next month, you will end up with only 5 shares.

While that is still more expensive than last month’s investment, DCA allows you to scoop up more investments while the shares are cheap.  Most people will actually do the opposite.  They will put a large amount of money into a “hot” stock or mutual fund while it is expensive.  This is not the way to invest.

DCA keeps the emotion out of investing.  By investing in regular intervals, you will keep your accounts growing while ensuring you are not buying too many shares at inflated prices.  This will set you up for nice investment gains when it comes time to sell.

Conclusion

DCA is the preferred way to invest for young professionals.  Early in your career, you will probably not have a lump sum to invest immediately in the stock market.  So investing as you get your paycheck is the most efficient way to deploy your capital.

DCA can come in many forms.  It can be an automatic deduction from your paycheck into your 401k account every 2 weeks.  Or a monthly withdrawal from your checking account into an IRA.

No matter what form it takes, DCA will keep your investment accounts growing steadily and will allow you to get the most shares at the lowest price.  No need for market timing since it doesn’t work anyway!

Share

Ways to Decrease Your Utility Bill

This is a guest post from Anum Yoon, who is a prolific and excellent writer in the personal finance sphere.  You can find out more about her at her blog Current on Currency.

Today’s post will feature ideas on how to keep your utility bills low.  With winter around the corner, these tips could save you a lot of money.  Enjoy!

Temperatures are starting to drop. We are closing our windows now and thinking about turning on the heat. Whether you love winter or hate it, you are going to pay more to keep warm when the snow starts to fall and the temperatures drop.

The same is true for those in warm-weather climates. When the heat rises, so do the air conditioning bills. We have no choice but to heat and cool our homes to maintain our comfort, but there are a few things you can do to keep your utility bills from burdening your budget.

Check Your Settings

Are you scalding your hands when you wash them? Are your vegetables freezing in the refrigerator drawer? Check the settings of your appliances to make sure you aren’t overworking them and wasting energy, which results in higher bills.

Your hot water tank doesn’t need to be set any higher than 120 degrees. This is hot enough for dishes and laundry and certainly hot enough to wash your hands. Manufacturers and installers typical set them higher, and you may not have looked at or paid attention to the settings. Consult your manuals for more information.

Your refrigerator should be set around 37 to 40 degrees and your freezer at 5 degrees. Anything colder than that is unnecessary, and you will be wasting energy and potentially freezing your food in the refrigerator. Some refrigerators have known cold spots, but many people just set them too low.

Replace Incandescent Lightbulbs

Old lightbulbs use a lot more energy than new halogen, CFLs and LEDs. Depending on the specific type, these bulbs use anywhere from 25-80 percent less energy. These bulbs are more expensive than their predecessors, but last many years longer and will save you money over the long term.

Purchase Energy-Efficient Appliances

When it is time to get a new refrigerator, freezer, washer or dishwasher, look for those marked Energy Star compliant. These appliances can use up to 75 percent less energy than older models, which can add up to hundreds of dollars in annual savings. Even if your old refrigerator still works well, it might not be a bad idea to consider replacing it for overall savings.

(Note from TBP: Check with your local utility company to see if they provide credits for upgrading your old appliances to Energy Star models.  Many will also haul away the old appliance for you.)

When you use your appliances, make sure they are full before you run them. They will use just as much electricity washing a few items as they will a full load. Be wise and economical with your energy use and save money doing so.

Use Your Garbage Disposal Properly

The garbage disposal is a modern convenience that many take for granted. It’s not a magic hole through which anything can pass. The garbage disposal uses a lot of electricity to grind up wasted food items into tiny bits small enough to pass through the drain. Sometimes they clog, and through misuse, break. You can save money on electric bills and expensive repairs by observing some of these do’s and don’ts

Do

  • Turn on a heavy flow of water before flicking the switch. The garbage disposal needs water to do its work and will overheat without it. Continue to run the water after the grinding stops in order to thoroughly clean out the drain.

 

  • Every few months, put ice cubes down the drain and grind those up. This will help clean out the inner workings of the disposal. You can also add a lemon peel to help freshen the scent. Disposals often smell bad because they have rotting food stuck inside them.

 

  • Have your kitchen drain snaked out every few years. This will prevent clogs and possible repairs.

 

Don’t

 

  • Put grease down the drain. The grease will harden in the water and create clogs throughout the drain. Just save grease and fat and discard it in the trash can.

 

  • Grind up big food items that can be thrown in the trash. It’s a waste of energy and it puts unneeded stress on your disposal.

 

  • Put rinds, potato peels, rice or pasta in your disposal. These items should be thrown in the garbage and never put into your drain. The garbage disposal doesn’t do well with these items and will usually clog from them.

Add or Replace Insulation

Is the air you are heating or cooling escaping outside through cracks and gaps in your windows or attic? Proper insulation will keep that air inside and prevent your home from feeling drafty. This will save you money, as your furnace or air conditioner won’t have to work as hard to maintain your desired temperature.

Add weather stripping to doors and windows. Caulk up holes and cracks you can reach. If you are comfortable doing so, add another layer of insulation in your attic, or hire a professional to inspect and assess what your house needs.

Check for Leaks

Leaky pipes, toilets which run nonstop and sinks that drip constantly all waste water and cost you money. Fix these leaks yourself or hire a professional if you are uncomfortable doing so. If you aren’t sure you have a leak, you can check your water meter. If all the water is off, there should be no change in the meter after two hours or so. But if there is, you may a have a leak somewhere in the house.

Invest in a Smart Thermostat

If you are going to be gone all day, don’t waste money keeping your home at an ideal temperature when you can’t enjoy it. You can program a smart thermostat to have your home at the temperature you desire by the time you get home and give the furnace a break when you aren’t there. Some can be programmed and accessed online, in case your plans change.

There are lots of little things we can do to save on our energy costs. They don’t have to be major projects like replacing all the windows or installing a new roof — although these will help, too. You just have to properly maintain your appliances and be conscious of the energy you are using. Even making a minimal effort will lower your bills during extreme weather months and keep more of your money in your pocket.

Share

Avoid Stupid Bank Fees

                                                                They’re making a killing off of us.

My first checking account was at the same local bank that my dad used and he helped me sign up for it.  Banks LOVE this since they are hoping to get your business for life and then I will do the same thing with my son.  They’re hoping people don’t catch on that there are great checking and savings options available and you aren’t beholden to your local bank.

Depositing your money into a checking account is the safest way to store your cash.  If you’re not careful, however, the fees can really stack up.  ATM fees, overdraft fees, insufficient balance fees, and even fees for talking to a human.  Navigating around these is essential to your finances, as these fees can really eat up your money and are easily avoidable.

While little account fees have always been there, they have been even more prevalent since the Great Recession of 2008.  Since banks can’t make as much of a killing (they still make a killing though) off of mortgages, they turned to ticky tack fees to make up the difference.

And make up the difference they did.  Chase, Bank of America and Wells Fargo, the three biggest banks in the country, made over $6 billion in 2016 from ATM and overdraft fees.  That’s pure profit for the big banks without providing any service.

And the banks will keep on charging fees since most of the country doesn’t know any better.  But these fees are easy to avoid.

Everything is Negotiable

If a bank tells you that there is now a monthly maintenance fee with your account, find a way to get around it or just ask to have it waived if you have been a long time customer.    Many banks will waive the fee if you sign up for direct deposit of your paycheck, for example.  Also, they will be more likely to change things if you talk with a branch manager.

If negotiating is getting nowhere, tell them you will take your business elsewhere.  And if they still don’t budge, close the account and just go elsewhere.  There are tons of options for bank accounts out there and if the bank you have stuck with for years doesn’t think it’s important to keep you as a customer, then find a bank that does.

One fee that is usually not negotiable is ATM fees.  Either you use your bank’s ATM or you don’t.  But nowadays you don’t have to use cash for pretty much anything.  Even going to the coffee shop is as simple as loading some money from your credit card to your smartphone app.  And you can pay bills and your friends easily through Bill Pay services with your bank or apps like PayPal or Venmo.

But the best way to avoid ATM fees is to switch to a different account altogether.

Consider an Online Bank

Internet only accounts have exploded in the last few years.  If you’re getting a raw deal from your current big bank, switching to a vastly superior online bank has never been easier.

Many online banks provide the same services as the big boys do.  You can direct deposit your check and pay bills easily.  But the most important difference is the lack of fees.

Many online banks will waive ATM fees.  Some are unlimited and some up to a certain amount.  Many of them also allow you to order checks for free, which is something that can cost $20 easily at most big banks.  There really is no reason not to consider an online bank if you’re being hit by fees from your current bank.

My favorite account has always been the checking account offered by Charles Schwab.  It has withstood the test of time and continues to offer unlimited ATM reimbursements, even internationally.  It truly is a no fee checking account that would serve anyone well.

Ally Bank also has a great online checking account that reimburses ATM fees up to a certain amount.  A nice website that will allow you to compare different online banks is Magnify Money.

The days of being beholden to the big banks are over.  While most of the country will probably never catch on to this, you need to.  There are lots of options out there and doing a little bit of research will lead you to find the perfect bank for you.

Share

Sweat the Big Things. Part 3: Taxes

This is Part 3 of my three part series about housing, transportation and taxes.  These are the three things which I believe can make or break your finances.

Part 1 discussed housing and Part 2 talked about transportation.

In this Part 3 of this series, let’s save the best for last and talk about taxes!

In my experience talking with fellow doctors and professionals, the subject of taxes usually comes up.  But many people misunderstand taxes.  It is most likely the single biggest expense you will face every single year.

You need to get it right!

Depending on which state you live in (California *cough cough*), your entire income can be taxed at 50% if you’re not careful.

Everyone has to pay taxes.  There is just no way around it.  So it really pays to find out ways to keep your tax rate as low as possible.

While the tax code is pretty complex, there are two main things that most working professionals need to understand to avoid paying too much tax.

PROGRESSIVE Tax Brackets

If you understand this chart, you are far ahead of most Americans when it comes to understanding the tax code.

We all pay federal income tax.  Most of us pay state tax too, but that can vary between states.  So I will just focus on the federal brackets for now.

This chart is important and understanding it will give you a good idea about how much tax you will pay.  More importantly, it will drive some financial decisions throughout the year that will help you minimize your taxes.

The first thing to realize is that the tax brackets are progressive.  Meaning that the more income you have, the higher your tax rate will be.  But our entire income is NOT taxed at the highest rate.  Just the limits spelled out by the tax brackets.

As an example, a new doctor makes $200,000 the the first year out of residency.  Looking at this chart, he might be horrified to learn that he will fall in the 33% tax bracket.  That means he will owe $66,000 on his $200K income!

This is actually incorrect and it is how many people think the tax system works.  The doctor’s income does put him in the 33% bracket, but the entire income is not taxed at 33%, just the portion above the lower limit.

So according to the chart, our doctor would pay 33% on the part of his income above $191,650, which is $8,350.  His total tax would be 33% of $8,350 + $46,643.75 from the previous brackets.  The amount of tax owed is $49,399.25.  That’s a lot of tax but still sounds a lot better that $66,000.  In reality his tax would be even lower with the standard deduction and other deductions available, but there isn’t enough space in this post to get into that.

So with the progressive tax brackets, our entire income is not taxed at our highest bracket only the last dollars we make are.  How can we use this to our advantage for tax planning?  Reduce the amount of last dollars we make!

And by far the best way to do this is by contributing to a tax advantaged account.  This could be a 401k, Traditional IRA or even an HSA.  Money contributed to these accounts are taken off the top of our income, so we are not taxed at our highest tax rates.

In the case of the doctor, if he contributed just $10,000 to a 401k that year, his highest tax bracket would become 28% instead of 33%.  That’s thousands of dollars saved in taxes right off the bat.  We should be saving for our retirement anyway, but it’s nice to be able to save on taxes every year in the process.

Know Your 1040

 

 

The tax code can be difficult to navigate, but the IRS gives you some clarity on the 1040 form.  That is the form we all have to file for our personal taxes, and having a basic understanding of it can really help reduce your taxes.

The 1040 form provides a summary of our taxes.  It lists your income as well as any credit and deductions you receive.  It is a great line by line playbook of how taxes are paid in this country.  Knowing the ins and outs of this form gives insight on why you pay the amount of tax you do.

It would be too involved to go into each line of the 1040, so I will just mention a few things about the place where you get the biggest bang for your buck: above the line deductions.

The higher income you have, the more tax you will pay in general.  So you want to get that income as “low” as possible.  That doesn’t mean you work less or start slacking off.

What we need to do is make as much money as we can, and then try to make it look a lot less on our taxes.  This sounds shady, but it’s totally legal.  And above the line deductions are the best way.

The “line” I’m referring to is line 37 of Form 1040, which lists our adjusted gross income (AGI).  We are taxed on our AGI and not our actual earned income, so making this number lower is key.  And lines 23-36 tell us how to do just that.

Not all these lines will apply to everyone.  But find what applies to you and work on that.  For most working professionals, deductions for IRA contributions and the student loan interest deduction are two easy ones.  Check with your tax professional to see where you can maximize your deductions.

Know thy taxes

The last thing I would recommend for everyone is to find your tax return from last year and take some time to sit down and go through it line by line.  It is an enlightening exercise to see how certain calculations for deductions and credits are made.

And if you don’t like looking through your tax return as much as I do, then sit down with your CPA before the year is up and see where you can find ways to minimize your taxes.

Taxes are definitely complex, especially if you have a business.  But if you sift through the complexity you will be able to find ways to reduce your taxes that many people don’t think about.  Just be careful not to reduce them TOO much so the IRS doesn’t come poking around!

Share

The Investing Book That Won My Heart

Reading books will make you a better investor.

This post may contain affiliate links

Life is a journey, but the beginning of that journey can have a profound effect on the rest.  Reading one book in particular completely changed the trajectory of my investing journey.

While you can learn to like new foods as an adult, most of our food preferences are formed when we are young.

Most sports fans, myself included, root for their hometown team.  I’m a born and raised New Yorker, so the Giants are my team.  If I was born anywhere else, I would most likely have rooted for that hometown team.  (Though never the Philadelphia Eagles.  NEVER.)

In the same way, while my views on investing have slightly evolved over time, my core investing philosophies came from a book I read years ago and immediately connected with.

That book is The Bogleheads Guide to Investing (hereafter referred to as The Guide).  I’ve read a few investment books before I read The Guide and they just didn’t connect with me.  I’ve read a bunch of investment books after I read The Guide and most of them were not as memorable.

The Guide was a life changing book for me because it presents an investing blueprint that made sense and was easy to implement.  The idea of technical analysis and digging through charts and graphs while following the comings and goings of companies doesn’t appeal to me.

(As a simple introduction, a Boglehead refers to a follower of the philosophy of John Bogle, the founder of The Vanguard Group.  This book as a comprehensive investing guide written by some big time Bogleheads.)

Here are the two reasons why this is my favorite investing book:

Investing Should Be Simple

If you want to make money off of the general public, keep them confused and helpless.  Electricians and plumbers want people to call them anytime they have a problem.  They can charge for materials and whatever they want for labor while we simply nod and hand over the check.

They DO NOT want you to go on YouTube and find out the solution to the problem on your own.  Contractors don’t want you to go online and get the materials you need at a cheaper price.  They will go out of business.

But the more you look up things on your own, the more knowledge you’ll gain and the simpler things will become.  You will also save a lot of money in the process.  And let’s face it, you don’t need to get a PhD in plumbing to become a good plumber.  You need to find solutions to various plumbing issues.  Doing this over time will make you an expert.

The investing industry is very similar.  Investment advisers and brokers have a (wait for it…) VESTED interest in keeping you confused.  They want you to think investing is a very complicated topic that requires decades of expertise to master.  That way, you will be forking over your hard earned money without question.

The Guide says otherwise.  It showed me that as long as you are aware of your financial goals and risk tolerance, knowing what to invest in becomes very simple.  The key is to stick to your plan despite the ups and downs along the way.

And there will be ups and downs.  That’s the nature of investing.  And this is where most investment companies will get you.  They will make you believe that only they know when the markets will go up or down and that’s why you need to keep paying them.

The simplicity of it all will shock you.  But it will also empower you to take control of your investments and focus your time and energy on everything else that matters in your life.

Investing Should Not Be Expensive

The aforementioned investment advisers and brokers who want to keep you confused and take your money?  They don’t come cheap.  Most financial advisers who manage your investments will take a cut of your assets every year, usually 1% or more.

Plus, they can potentially put you into investments that have high expense ratios while not offering you similar ones with lower expense ratios.  (An expense ratio is what you’re charged by the mutual fund company just to be invested in the fund.)  And advisers can receive a kickback from mutual fund companies for putting you in a certain investment.

This goes on top of the fee the adviser takes.  Not good.  The effect of high fees on your investment returns has been well documented.  Most mutual fund managers cannot beat the average market return in one year, let alone for decades.  So there is no way to justify high fees.

The worst part is that a lot of these fees are well hidden.  Most advisers and brokers just take the fee out of your returns rather than having you hand them over a physical check.  That way you don’t feel like you are paying anything.  It’s not illegal but it does seem slightly unethical.  So what’s an average investor to do?

The answer according to The Guide is to stick with mutual funds that have rock bottom fees and track the performance of the overall market you are looking to invest in.  In real terms, this means investing with index funds from Vanguard.  This will give you two major benefits:

1.  You will be paying very low fees

2.  Your investment portfolio will be very simple to manage

These two points will put you way ahead of the majority of investors.  Those investors are paying high fees and buy and sell at the whim of the market.  Investing with Vanguard index funds for the long term will allow you to fully take advantage of compound interest.

And you can do this all on your own without the help of an adviser.  Just sign up for an account with Vanguard and go from there.  No grubby hands trying to find their way into your wallet.

Conclusion

The Guide has taught me to focus exclusively on index funds from Vanguard, and that’s where the vast majority of my investments are.  The only exception is the 529 college plan for my son, which doesn’t contain any Vanguard funds.

Focusing on Vanguard index funds has provided a great return for my portfolio.  This can definitely be attributed to the recent near decade of growth for US stocks, which I’m primarily invested in.  But more importantly, The Guide has showed me that investing with in low cost index funds will give my money the best chance to grow over the long term because of low fees and simplicity.

If you can’t tell by now, I highly recommend this book.  It will set beginning investors on the right path while showing veteran investors that this is ultimately the best way to invest your money.  And it will turn you into a devoted Boglehead like me.

Share