For many, the beginnings of a long-term relationship, and a life together, is a fun albeit financially trying time. Here’s some financial advice for every new couple:
1. Buy baby supplies, clothes and toys from second-hand shops or flea markets. When you get home, make sure to clean the supplies, clothes and toys well. When your baby outgrows these items, pack this stuff into a couple boxes and resell them or bequeath them on a friend who is expecting. This advice may seem counterintuitive because if you were to have another baby, then you would need to repurchase all these baby goods. In reality, however, you’re probably living in a smaller place and storage is tight. By parting with your baby goods, you’re more likely to free up room. Moreover, if were to give such supplies away, you’ve done a friend a favor which will likely be repaid in the future.
2. Search sites like Groupon for deals but purchase only from retailers and restaurants that you recognize and enjoy. For example, if you already like the restaurant “Crab Catcher” in La Jolla, then keep an eye peeled for a restaurant coupon from there. (Groupon has fantastic deals on dining—many times issuing coupons that are up to half off.) Similarly, surf deal sites like Woot (link is external)with the intention to buy only when needed. For instance, if you need a vacuum and see a deal on refurbished Shark vacuums at Woot, then go ahead and buy a Shark.
3. Look for deals at travel destinations that are close to home. Groupon offers plenty of deals on one- or two-night stays at local resorts. To illustrate, if you live in the Detroit Metropolitan Area and are looking for a relaxing weekend away, consider Chicago, the resplendent city by Lake Michigan. And if you’re in Chicago and feeling adventurous, head to Detroit for a couple of days.
4. Look for free diversions outside the house and take a class with your partner. Many communities offer free nighttime classes through continuing education or extension programs. If you’re uninterested in certification and just looking for a good time with your partner, you may be interested in a course in cooking or web design. Oftentimes, these courses are offered at community colleges replete with full kitchens and state-of-practice computer labs.
5. Ditch cable service in favor of an internet-streaming device—I suggest a $50 Roku player--and Netflix, Hulu Plus and Amazon Prime. Chances are you’re already subscribing to one of these services anyway, and more than likely, you’ll be satisfied by the variety of entertainment that these services provide. In the end, you could save about 50 percent in television and movie costs. Furthermore, the selection of educational children’s programming on Netflix is vast which will provide hours of entertainment for (you and) your young ones.
6. When possible buy from Amazon and Costco. (For $79 a year you can join Amazon Prime and not only be able to stream plenty of free video content but also receive free two-day shipping on a variety of items.) There’s no reason to wipe your butt with money. If you need toilet paper don’t buy 12 rolls at a time--buy in bulk. Chances are that this investment won’t go to waste.
7. Don’t mess with your credit score. Pay your credit cards in full and on time. Don’t open up too many lines of credit, and, if you decide to finance, do so wisely. If you are a bit of a spendthrift, consider using cash instead of credit. Also, if possible, make sure to consolidate your student loans and try to pay them bck on time. If you can’t pay these loans back on time, claim financial hardship or defer them until you can. Based on your employment conditions, you may also qualify to have your loans forgiven (link is external).
8. Squirrel your money away. In addition to taking advantage of your employer’s 401K, whenever you come across some extra cash, stash it in an IRA. Contributions to a traditional IRA are made using untaxed income. Contributions to a Roth IRA are made using taxed income. If you were to to distribute (pull out) money from a traditional IRA at any time earlier than retirement, you would pay taxes on the entire distribution (amount pulled). If you were to distribute (pull out) money from a Roth IRA at any time earlier than retirement, you would pay taxes only on your profits. For example, if you were to pull $40,000 out of a traditional IRA, you would pay taxes on this entire amount. If you were to pull $40,000 out of a Roth IRA, you would pay taxes on the entire amount less the principal. If the principal were $30,000, then you pay tax on $10,000. (This $10,000 is added to your taxable income.) With respect to your children, make sure to open up a college savings plan (529 plan (link is external)) for each kid. Information on such accounts is available through any brokerage (Fidelity). The great thing about college savings plans is that they are impervious to whim. The investments usually consist of conservative mutual and index funds or tuition credits; only the recipient—your kid--is entitled to receive funds. In other words, you won’t be able to gamble the kids college money away playing blackjack in Vegas.
9. Assess your tolerance for risk and invest comfortably. Some people don’t like individual stocks because the price of any one stock is likely to fluctuate. For these people, a no-load mutual fund, index fund or exchange-traded fund (ETF) may be a good idea. Other people not only like stocks but are willing to assume great risk by trading options (calls and puts) on stocks. (Normally, yout have much less latitude trading options in IRA accounts.) Whatever your preference, make sure to stay within your comfort zone when investing.
10. If you know that you’ll probably be living in a place for more than 5 years, consider buying a house. Mortgage rates are hovering around 3 percent, and although there’s been a rebound in the housing market as of late, and inventory in some areas is low, you can still get a great buy on a house. If you’re a first-time home owner and worried that you may be unable to come up with a down payment, consider a Federal Housing Administration (FHA) loan. If your income is lower, you may want to consider an Economic Opportunity Mortgage (EOM). The nice thing about FHAs and EOMs is that down payments on property purchases amount to around 5 percent. (An EOM comes with the added benefit of not having to pay for mortgage insurance.) If you still have trouble coming up with the down payment, you may want to consider drawing money from your IRA (and having this money taxed) or asking for a cash gift from friends or family. It may be painful to draw from your IRA to pay for a house but considering how tantalizing mortgage rates are, the opportunity costs of owning a home probably outweigh having a potential down payment tied up in an IRA account. Above all, remember that you are in control with your own finances. Avoid being unduly influenced by anybody whether it be a mortgage lender, stockbroker, car salesman or patron at some mid-mall kiosk selling bath gels. Take your time and closely consider your purchases and investments.
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