I called my mother tonight, and she's stressed. She had a rough day at work, hasn't set up an IRA for 2007 yet and is overwhelmed by the options, hasn't figured her state taxes yet, and my grandmother's accountant's office called to say that they were getting started on her taxes today and ask how late tonight they could call my mother with questions. (Oy.)
There's a reason my grandparents' taxes go to a CPA: they're complicated, this year more than most. There were issues of making estimated payments on capital gains on stocks and mutual funds sold to pay for my grandfather's care, insane medical expenses, Medicaid kicking in partway through the year and paying my grandparents back for some of what they should have covered earlier if the bureaucracy hadn't gotten gummed up, and other assorted fun stuff. (Oh, and don't get me started on the "stimulus payment" and how that will affect my grandfather's Medicaid. Or, do get me started if you're genuinely interested.) We sorted through all of the relevant papers, filled out the worksheet from the accountant, delivered everything to her office, and trusted it would get done.
It looks like my mom may just tell them to file for an extension. That doesn't seem like a huge problem to me, but she seems perpetually overwhelmed by the amount of paperwork and bureaucracy she has to deal with for my grandfather's care so this may be the straw that breaks the camel's back. I want to do what I can to ease the burden, but she's the one with power of attorney so there aren't that many tasks I can take over.
Monday, April 14, 2008
I don't want to be my parents' financial planner.
I did my parents' federal taxes this weekend. I offered, and my mom accepted since she hates doing them. They fall into the super simple married filing jointly, two dependents, standard deduction, 1040A category so it was reasonably quick and easy even though my mother made me do them two different ways to determine how much they'd save if she contributes $5,000 to a traditional IRA.
Last year, she had completed her first full year at her second part-time job and hadn't set up withholding correctly so my parents were going to owe a bit when they filed her taxes unless she set up a traditional IRA and took a deduction for that. So, in late March of last year, she asked me to research investment options for her. I prepared a full slate of options for her, showed her what to look for when comparing the plan her insurance agent boss tried to sell her, and made a recommendation. She hemmed and hawed right up to the deadline and then decided to go along with my suggestion and invested in the Vanguard Target 2015 fund even though she was anxious about having any exposure to the stock market whatsoever. (My dad's 401(k) is entirely in something with guaranteed principal and meager interest rates.)
She spent the past year watching her balance go up and down as the stock market did its thing and fretted quite a lot. My mom doesn't think of this as a small fraction of a larger retirement portfolio, but as her money, money she doesn't want to lose. She has considered getting out of the fund and moving her IRA to an FDIC insured account at the bank, which probably isn't the best move for someone in her mid-fifties.
A couple of months ago, I asked her whether she planned to contribute to an IRA for 2007. Her answer was an unequivocal no, even when I suggested she could put this year's contribution in a cd if market volatility made her that uncomfortable. Then, of course, with two days before the deadline, she changed her mind and asked for guidance on where to put her money. My dad decided to jump on the bandwagon and fund a Roth for himself, something my mother has been urging him to do for months, even though she insists on investing in a traditional IRA herself. My dad has even less risk tolerance than my mother so he'll probably leave the money in a bank account for the next couple of decades, but he might as well avoid paying taxes on the interest.
I don't have time to hunt for the best rates right now. At this point, the best option seems to be an IRA of 30 day certificates of deposit that my bank offers. They can probably get better rates elsewhere, but the 30 day c.d. would give my folks the option to move their money in a month without penalty after they/I have time to do more research.
I'm not thrilled about being asked for investment advice. Based on the questions my mother asks, I do know a lot more about the rules for IRAs than she does and more about where to go for answers when I don't know myself so I guess it's understandable, but I worry that I'll end up talking her into things she isn't comfortable with, like the Vanguard target date fund, and she'll be upset with me if things turn out badly. I am not an expert.
Last year, she had completed her first full year at her second part-time job and hadn't set up withholding correctly so my parents were going to owe a bit when they filed her taxes unless she set up a traditional IRA and took a deduction for that. So, in late March of last year, she asked me to research investment options for her. I prepared a full slate of options for her, showed her what to look for when comparing the plan her insurance agent boss tried to sell her, and made a recommendation. She hemmed and hawed right up to the deadline and then decided to go along with my suggestion and invested in the Vanguard Target 2015 fund even though she was anxious about having any exposure to the stock market whatsoever. (My dad's 401(k) is entirely in something with guaranteed principal and meager interest rates.)
She spent the past year watching her balance go up and down as the stock market did its thing and fretted quite a lot. My mom doesn't think of this as a small fraction of a larger retirement portfolio, but as her money, money she doesn't want to lose. She has considered getting out of the fund and moving her IRA to an FDIC insured account at the bank, which probably isn't the best move for someone in her mid-fifties.
A couple of months ago, I asked her whether she planned to contribute to an IRA for 2007. Her answer was an unequivocal no, even when I suggested she could put this year's contribution in a cd if market volatility made her that uncomfortable. Then, of course, with two days before the deadline, she changed her mind and asked for guidance on where to put her money. My dad decided to jump on the bandwagon and fund a Roth for himself, something my mother has been urging him to do for months, even though she insists on investing in a traditional IRA herself. My dad has even less risk tolerance than my mother so he'll probably leave the money in a bank account for the next couple of decades, but he might as well avoid paying taxes on the interest.
I don't have time to hunt for the best rates right now. At this point, the best option seems to be an IRA of 30 day certificates of deposit that my bank offers. They can probably get better rates elsewhere, but the 30 day c.d. would give my folks the option to move their money in a month without penalty after they/I have time to do more research.
I'm not thrilled about being asked for investment advice. Based on the questions my mother asks, I do know a lot more about the rules for IRAs than she does and more about where to go for answers when I don't know myself so I guess it's understandable, but I worry that I'll end up talking her into things she isn't comfortable with, like the Vanguard target date fund, and she'll be upset with me if things turn out badly. I am not an expert.
Saturday, April 12, 2008
Some (ill-informed) thoughts on the foreclosure crisis
I think we can all agree that this is a mess. That may be about the only thing we can all agree on. This seems to be a pretty polarizing issue, with one camp focusing on personal responsibility and moral hazard and the other on predatory lending .
I lie somewhere in the middle.
There are people who took calculated risks by getting ARMs and lost out, and there are plenty of middle class families I know who're one minor crisis away from disaster, not as a result of an unfair system, but as a result of huge consumer debt they voluntarily assumed to pay for luxuries I can only dream of. I understand the grumbling about how we shouldn't finance other people's irresponsibility.
At the same time, I don't buy into the idea that the victims of predatory lending, which does exist, have no one but themselves to blame. In an ideal world,everyone would be well informed. However, we're not equipping people with the tools they need to make good decisions about money.
I think about my mother's co-worker, whom I tutored a couple of times. He's thirty and a nice guy. He has a high school diploma, which means he had more formal education than most of his family, and works as a cook at his aunt's pizzeria. He doesn't want to work there forever so he started taking classes through a well-known online university. When he got really far behind in his introductory algebra class, he called me for help.
He struggles with fractions. Problems involving simple interest were a mystery to him so there's no way he could figure the compound interest associated with his car payment. We're sending people out into the world who are functionally innumerate, giving them no formal guidance on financial matters, and expecting them to sink or swim in a society where easy credit has become almost a birthright. What did we expect would happen?
I lie somewhere in the middle.
There are people who took calculated risks by getting ARMs and lost out, and there are plenty of middle class families I know who're one minor crisis away from disaster, not as a result of an unfair system, but as a result of huge consumer debt they voluntarily assumed to pay for luxuries I can only dream of. I understand the grumbling about how we shouldn't finance other people's irresponsibility.
At the same time, I don't buy into the idea that the victims of predatory lending, which does exist, have no one but themselves to blame. In an ideal world,everyone would be well informed. However, we're not equipping people with the tools they need to make good decisions about money.
I think about my mother's co-worker, whom I tutored a couple of times. He's thirty and a nice guy. He has a high school diploma, which means he had more formal education than most of his family, and works as a cook at his aunt's pizzeria. He doesn't want to work there forever so he started taking classes through a well-known online university. When he got really far behind in his introductory algebra class, he called me for help.
He struggles with fractions. Problems involving simple interest were a mystery to him so there's no way he could figure the compound interest associated with his car payment. We're sending people out into the world who are functionally innumerate, giving them no formal guidance on financial matters, and expecting them to sink or swim in a society where easy credit has become almost a birthright. What did we expect would happen?
Friday, April 11, 2008
Someday I'll be sane again.
Then there will be talk of finances and life.
The thesis is looking quite thesis-like, a tight forty pages full of nifty equations, references, and graphs. It seems to actually contain data from which we can draw meaningful conclusions, which seemed like a lost cause last semester when I was redesigning the equipment instead of getting results. Now the end is in sight! However, I'm going to have to go sleep rather than finish the latest set of revisions and send it off to my adviser, which is not a good thing since it has to go to the committee tomorrow.
I get the feeling my adviser has been coddling me a bit these past couple of days. Apparently yesterday,despite my best efforts to feign cheery optimism while getting by on three hours of sleep and facing a thesis that was nowhere near complete, he thought I looked dangerously close to breaking. Now he keeps reassuring me that, yes, I will pass my defense and get to graduate, and reminding me to eat real food rather than trying to subsist on granola bars and diet soda.
The thesis is looking quite thesis-like, a tight forty pages full of nifty equations, references, and graphs. It seems to actually contain data from which we can draw meaningful conclusions, which seemed like a lost cause last semester when I was redesigning the equipment instead of getting results. Now the end is in sight! However, I'm going to have to go sleep rather than finish the latest set of revisions and send it off to my adviser, which is not a good thing since it has to go to the committee tomorrow.
I get the feeling my adviser has been coddling me a bit these past couple of days. Apparently yesterday,despite my best efforts to feign cheery optimism while getting by on three hours of sleep and facing a thesis that was nowhere near complete, he thought I looked dangerously close to breaking. Now he keeps reassuring me that, yes, I will pass my defense and get to graduate, and reminding me to eat real food rather than trying to subsist on granola bars and diet soda.
Tuesday, April 8, 2008
How big an emergency fund do I really need?
I've been contemplating changes to my asset allocation. Right now, I have $10,000 in a c.d. that will mature in a month, $8,041 in online savings, enough money in checking to get me through the end of the semester but not a lot extra, one $50 I Bond I bought a couple of years ago, $8 in my wallet, and a bank full of miscellaneous coins. I'll get a $2,000 signing bonus as part of a fellowship in June as well and will start a teaching job making around $27,000 to $35,000 a year this fall.
I know moving, paying deposits, and buying supplies for my classroom will take a bite out of my savings. I'm also planning to put $5,000 in a Roth asap since this will be the first year I'll have earned income instead of fellowship income. Even after doing that, I'll be left with a substantial amount of money.
There's the dismaying possibility that my astonishingly reliable 1999 Ford Taurus with 111,000 miles on it will need big repairs or even replacement in the next couple of years. In addition, I won't feel comfortable without some reserves for emergencies. The big question is: how big should these reserves be?
My mother told me that she and my father always felt that $10,000 was the minimum they needed, and I've had that in mind as a goal. They arrived at that figure many years ago so inflation is an issue, but they also had a mortgage and two small kids back then. Lately, I've started wondering whether I really need that much on top of the car fund as I'd previously assumed.
Let's say the worst happens and my car requires repairs that cost far, far more than its value and I end up deciding that replacing it is the better option. If I have a grand total of $10,000 in savings, I can get a good newer used car for $6,000 and still have more than three months living expenses in reserve while I begin to build the account back up. That doesn't sound like the height of recklessness, does it?
It isn't as though I'd be forgoing the larger emergency fund in favor of lavish meals, shiny baubles, and a great dvd collection. The whole reason for keeping less in an e-fund is to be able to put more toward big, more distant goals like a house and retirement where it makes sense to take a bit more risk and/or sacrifice some liquidity to pursue higher returns. It all makes good sense, but I'm still reluctant to leave behind the security of a huge emergency fund.
I know moving, paying deposits, and buying supplies for my classroom will take a bite out of my savings. I'm also planning to put $5,000 in a Roth asap since this will be the first year I'll have earned income instead of fellowship income. Even after doing that, I'll be left with a substantial amount of money.
There's the dismaying possibility that my astonishingly reliable 1999 Ford Taurus with 111,000 miles on it will need big repairs or even replacement in the next couple of years. In addition, I won't feel comfortable without some reserves for emergencies. The big question is: how big should these reserves be?
My mother told me that she and my father always felt that $10,000 was the minimum they needed, and I've had that in mind as a goal. They arrived at that figure many years ago so inflation is an issue, but they also had a mortgage and two small kids back then. Lately, I've started wondering whether I really need that much on top of the car fund as I'd previously assumed.
Let's say the worst happens and my car requires repairs that cost far, far more than its value and I end up deciding that replacing it is the better option. If I have a grand total of $10,000 in savings, I can get a good newer used car for $6,000 and still have more than three months living expenses in reserve while I begin to build the account back up. That doesn't sound like the height of recklessness, does it?
It isn't as though I'd be forgoing the larger emergency fund in favor of lavish meals, shiny baubles, and a great dvd collection. The whole reason for keeping less in an e-fund is to be able to put more toward big, more distant goals like a house and retirement where it makes sense to take a bit more risk and/or sacrifice some liquidity to pursue higher returns. It all makes good sense, but I'm still reluctant to leave behind the security of a huge emergency fund.
Saturday, April 5, 2008
Am I officially a college student now?
I got home past one a.m. I think I may have a bit of hearing loss (temporary, I hope), and my clothing and hair reek of tobacco. Yep, that's right, I was at a bar.
It all started when I went to a dinner in honor of our physics department's centennial. Alumni and retired faculty came in from all over, and it was a fairly swanky affair. Naturally, I ended up at a table with a few undergrads, plus the daughters of my academic advisor and her husband, my E&M prof. I had a grand time talking with the older of the girls, BJ, who has a B.S. in physics, recently completed an M.A. in humanities, and will be leaving for the Peace Corps in five months. We knew each other fairly well already since her mom pretty much adopted me when I was a freshman; I was at her house for Thanksgiving dinner last year.
I chatted with my research advisor about the thesis, and he suggested I needed to take a break. BJ then invited me to go out with her to hang out with some other alumni, including a very close friend of hers from her undergrad days and his girlfriend, whom she hadn't met. She suggested I could just go, have one drink, visit for a bit, and then leave whenever I wanted.
We arrived at the bar, where I bought a Coke for myself and a beer for BJ (total cost including tip: $4). Everyone was friendly, even though I was my usual shy self. I concluded I needed to stay longer than anticipated to provide moral support when we learned that BJ's close guy friend, with whom she has had some romantic entanglements and for whom she still carries a torch, is engaged and will be getting married in two weeks. The happy couple were engaging in a bit of PDA, and poor BJ was having a rough night, although she handled the situation with great aplomb (and a substantial bit of drinking).
So I spent a few hours in that bar, nursing that one Coke and trying to politely decline the numerous suggestions that I needed to have a few beers. My advisor would almost certainly kill me if I let anything happen to BJ, and no one else was in any shape to drive her home. It wasn't my ideal evening, but it was surprisingly ok, all things considered. BJ insists we must hang out under less excruciatingly awkward circumstances after my thesis is complete so I have that to look forward to.
On the whole, not bad for my first time legally in a bar. (Once in New York I went with the grad students from my lab to watch a World Cup match in a bar down the street. I had a soda then too, and nobody bothered to check my license to determine whether I could legally enter.)
It all started when I went to a dinner in honor of our physics department's centennial. Alumni and retired faculty came in from all over, and it was a fairly swanky affair. Naturally, I ended up at a table with a few undergrads, plus the daughters of my academic advisor and her husband, my E&M prof. I had a grand time talking with the older of the girls, BJ, who has a B.S. in physics, recently completed an M.A. in humanities, and will be leaving for the Peace Corps in five months. We knew each other fairly well already since her mom pretty much adopted me when I was a freshman; I was at her house for Thanksgiving dinner last year.
I chatted with my research advisor about the thesis, and he suggested I needed to take a break. BJ then invited me to go out with her to hang out with some other alumni, including a very close friend of hers from her undergrad days and his girlfriend, whom she hadn't met. She suggested I could just go, have one drink, visit for a bit, and then leave whenever I wanted.
We arrived at the bar, where I bought a Coke for myself and a beer for BJ (total cost including tip: $4). Everyone was friendly, even though I was my usual shy self. I concluded I needed to stay longer than anticipated to provide moral support when we learned that BJ's close guy friend, with whom she has had some romantic entanglements and for whom she still carries a torch, is engaged and will be getting married in two weeks. The happy couple were engaging in a bit of PDA, and poor BJ was having a rough night, although she handled the situation with great aplomb (and a substantial bit of drinking).
So I spent a few hours in that bar, nursing that one Coke and trying to politely decline the numerous suggestions that I needed to have a few beers. My advisor would almost certainly kill me if I let anything happen to BJ, and no one else was in any shape to drive her home. It wasn't my ideal evening, but it was surprisingly ok, all things considered. BJ insists we must hang out under less excruciatingly awkward circumstances after my thesis is complete so I have that to look forward to.
On the whole, not bad for my first time legally in a bar. (Once in New York I went with the grad students from my lab to watch a World Cup match in a bar down the street. I had a soda then too, and nobody bothered to check my license to determine whether I could legally enter.)
Thursday, April 3, 2008
Thesis in progress
You'd think that writing a thesis would be a budget-friendly activity. Spending hours in front of a computer with a bunch of papers and textbooks, annoying your research advisor by asking lots of questions you really ought to know the answer to already, performing experiments to determine just how much systematic error your apparatus has introduced in your data, fixing your analysis to correct for said error and redoing the graphs you spent hours making the day before, and being a stressed-out self-pitying mess doesn't leave oodles of time for spendy social activities or shopping. Alas, I'm overspending even though I'm not having tons of fun. (Is writing a thesis satisfying? In a weird sort of way, yes, but it isn't fun.)
How, you may ask, do I manage to blow money without going out or doing anything? It's pretty simple. Junk food = comfort. (Yeah, that's a bad pattern, but if I keep it under control 95% of the time, will a couple of weeks with lots of chocolate and few fresh veggies do long term harm?) Convenience foods = less time cooking = more time for pressing activities. I'm not proud of my lack of willpower right now, but if a vending machine poptart or some microwave popcorn keeps me going, that's just the way it has to be for now. As a recent op-ed in the NYTimes suggests, I have only so much willpower and focus, and keeping my grocery budget low isn't high on my list of priorities this month.
How, you may ask, do I manage to blow money without going out or doing anything? It's pretty simple. Junk food = comfort. (Yeah, that's a bad pattern, but if I keep it under control 95% of the time, will a couple of weeks with lots of chocolate and few fresh veggies do long term harm?) Convenience foods = less time cooking = more time for pressing activities. I'm not proud of my lack of willpower right now, but if a vending machine poptart or some microwave popcorn keeps me going, that's just the way it has to be for now. As a recent op-ed in the NYTimes suggests, I have only so much willpower and focus, and keeping my grocery budget low isn't high on my list of priorities this month.
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