Thursday, August 30, 2007


There is a 1 in 170 million chance that my next post will declare me the winner of Friday's Mega Million Jackpot. It really is about the dollar and the dream, and $330 million is a lot of reverie. I am not a gambler by nature, the recent stock market gyrations notwithstanding, but if the jackpot cracks $300 million they get my dollar.

I'll play lotto a couple times a year, but collect my dividends from wiser investments. If you invested $25 dollars a month in jellybean stocks you could make more money than daily lottery players, for chrissakes.

Monday, August 27, 2007

Steering yourself toward retirement

If you want to be able to be seventy years young and not living like you're a nineteen year old street urchin, you better start steering yourself toward retirement now. It's kind of like mapquesting. You have a known point of origin, a destination that is unfamilar, and you need to know what roads to take to get there, distance markers along each path, and that it's almost gauranteed that the mathematical certainty of GPS coordinates matched with Rand McNally-like cartography will almost always be, at some pivotal point, outright wrong- to which end you will find out the hard way while you're mid trip and cursing the program that told you where to go.

The stats are sobering. In ten years it is expected that Social Security Trust Fund will pay out more in benefits than it will take in FICA taxes. By 2041 it is expected to run out completely. Just in time for our retirement. This is all from the horses mouth, or the 2007 Trustee report. Lots of things can happen to divert this- the GAO (Government Accountability Office) suggests that the year before Social Security goes bankrupt the shortfall could be met by cutting federal spending by 60% or by doubling taxes. Fun stuff. Or cutting Social Security and Medicare benefits. More fun stuff that won't happen on the Baby Boomers' dime, but on ours. All scenarios rely on politicians doing right by us. Therefore, moving right along...

Assume you will not see one penny of Social Security. Assume that unless you save for your own retirement your own damn self, you will be one piss poor i-pod deaf senior citizen. To get started we turn to the abacus. (Not really, but I saw you falling asleep at the wheel). Retirement calculators for people who freelance, or people who are in the restaurant & bar industry are about as helpful as an abacus. Why? Because online (and offline) retirement calculators take your pre-tax income and calculate Social Security taxes, after tax income, projected annual income raises, and other fun factors. All of which reflect the unpredictable to the straight up non-existent for a bartender whose entire income may be undeclared cash. Nevermind the fact that nobody is going to start voluntarily tipping $1.04 a drink instead of a dollar a drink, just because inflation went up 4% that year. So not only do New Yorkers live in a city that tends to have higher inflation and/or cost of living increases than the national average, freelancers and service industry worker bees have an income stagnancy not shared with many nine-to-fivers clutching contracts. I don't advocate tax avoidance, but let's just admit that everyone from your doctor (insurance co-pays are mostly paid in cash) to large corporations who DO exploit the tax code for their benefit in so many brilliantly legal ways that it makes people in the service industry seem soooo i-work-for-free, manage to jiggle the tax code, and move on from there.

If the online retirement calculators don't work, you have to come up with your own using a compounded savings calculator instead. I like's, which I used for the following example. First off, let's wrap our heads around the idea of inflation. In thirty years one million dollars will be worth just a hair over $400,000. In other words, 3% annual inflation (ie projecting how much things like the Consumer Price Index (CPI) go up, let's say your rent, the cost of dinner for two, utilities, etc.) means that in thirty years the buying power of a single dollar bill will have the same buying power as today's forty cents. And if you dream of retiring on a million of today's dollars, it will take you almost two and a half million dollars in 2035 to be worth equal buying power. Which means you better start saving now, because the statistics are outright scary if you don't.

But forget the million dollar retirement. Your destination is simply to be able to retire with as much money as you can save, by spending less than you earn and saving the difference. Let's say you're currently 35 and would like to retire at 65 but so far have nothing to show for it. So you start to sock away 10% of your income for retirement in a ROTH IRA. If you make $600 a week that's $240 a month. So if you have zero retirement savings right now, you save $240 a month for thirty years, you'll have $340,247 in the end. Don't let me lose you, if you know the difference between a fifteen percent tipper and a twenty percent tipper you can follow these numbers. Now this is the best thing about saving- compounded interest (which is tantamount to investment returns). Because while $240 bucks a month over thirty years is just $86,400 in money you put in, it's the 8% returns that have generated the other $253,827. That 8% annual (projected) return must come from the stock market. There is no other way for the small investor to generate a comparable return. I'll get into portfolio allocation later, but for now just know that in order for money to work for you, you have to be invested in stocks. And in order for you to get all of that money when you retire, you should invest in a Roth IRA, because all qualified withdrawals are tax-free. That's right, your Apple (AAPL) stock gains are all tax-free.

You should know that there are two different kinds of IRAs (Individual Retirement Accounts), the Tradional IRA and the more recent Roth IRA. The Roth IRA uses after-tax income (ie the cash sitting in your sock drawer) to invest in stocks and/or bonds, while the Tradional IRA uses pre-tax money (ie directly from your pre-tax paycheck). It's just a matter of when you pay the piper; in a Tradional IRA you pay taxes when you're retired and withdrawing the money, with the Roth IRA it's before you invest the money and have presumably paid regular income tax. The Roth IRA is better for people who expect to have a higher income tax bracket when they retire than they do now, and/or people who need the stock market's compounded return to come tax free, which is almost everyone I know. The idea is to pay the least amount of taxes, and for most it's before you invest, not after. The Roth IRA is your new best friend.

And if you are twenty five years old? Ten more years of investing $240 a month will bag you $778,033- more than twice as much money for less than half the amount of time and money invested. It's not that you can't afford to save, it's that you can't afford to wait. Because compounding interest/market returns work most of its magic in the later years. Obviously, years of an 8% average return on a few thousand dollars is nothing compared to years of an 8% return on a few HUNDRED thousand dollars.

Now that you know what to drive, next up I'll suggest where to park it. That and the shock and awe of what it takes to max out your annual Roth IRA contribution.

Monday, August 20, 2007

The Online Piggybank

I love Amsterdam. No, I really really mean it. And no, it's not because I nearly went into an artificially induced cardiac arrest one starry night on a bridge over a famous canal, nor is it the culinary delight of a well known brownie, but between Van Gogh and the headquarters of ING there hides a wee bit of love. Van Gogh aside (if you want one you're on the wrong site- perhaps hedge fund blues?), ING is my savings bank of choice.

Banks kill me. They have hidden fees and the most unhelpful people known to those who don't know ConEd. If they didn't have fees when you opened the account (um, hello Commerce Bank...) they sure as hell will eventually. It's like my cash has it's own EZpass. They'll nail you with the fees they forgot to tell you about, like the new minimum to replace the old minimum, and if they do tell you about it they bury it in the fine reading material known as your monthly statement. And their savings account gives you the why-bother interest rate. But everybody needs a checking account and a bank teller, so while the brick and mortar bank is a minor soul suck, it's a necessary one. Commerce is great for waitresses and bartenders and people who drink too much because their business hours are better for people who wake up too damn late to run to the bank before it closes at three. Washington Mutual has no fees, I believe. But for SAVING, I love my bank in Amsterdam.

So here's the new sock & underwear drawer, the freezer, the sigerson morrison box, or whatever place you stash your cash. ING direct gets your ten percent, that minimum percentage of your income that you're saving-remember?And if you send me your email- I'll send you a link to get twenty five bucks when you open an account with at least $250! Like a tradtional bank, ING online bank is FDIC insured. How does it work? You go online and link your ING savings account to your brick and mortar bank checking account. Then you open an account, give it a nickname, like "i got kicked to the curb", and transfer money. You can transfer one time, or even better, on a monthly basis any day of your choosing. Let's say it's the 15th of every month you want to save $100 for that time in the not so distant future your rent goes up and you need another place to live. You set it up online, and like clockwork it will withdraw from your checking, deposit it into your online savings account, and just like that you're increasing you're net worth. You can change the date, cancel the transaction, change the amount, etc. online at any time. It's convenient, and best of all, it's earning you 4.5 percent just for spending too much time on the internet.

Thursday, August 16, 2007

The Boring Budget

There IS a big picture. Being debt free. Saving for an apartment. Being financially stable. All of the above and then some. But the devil is in the details. And before you are overwhelmed with retirement numbers, you have to go through financial planning step by step. And the first step is mandatory. Thankfully, it is also the easiest.

Everybody needs a budget. You need a clear idea of just where your bank bleeds. Because I will tell you right off the bat that if you don't have zero revolving credit card debt, an emergency fund of three months expenses (also to be used as first and last month's rent plus brokers fee of 10% annual rent- for those all to frequent you got out-gentrified moments), a fully funded Roth IRA, then you need to get there. Because those are the basics. And now that I've gone and said them, just get them out of your head if you don't have them because it'll make your head hurt and it doesn't need to. Right now all you gotta be is boring as all get out.

Take a pen and paper, it could be your favorite pen and your favorite notepad, or the back of the nearest scrap paper and the pen you're sitting on, and grab a calculator. Or practice basic addition, subtraction, and long division. And write down the absolute basics. Not needs, we'll get to that part, but your needs and small wants. Like rent and wi-fi. Like so.

RENT 1000


CON ED 80 (average monthly cost, so august will be above $100 and december will be below)

GAS 40

Metrocard 80

Verizon 80 (phone and wi-fi)


FOOD 400

Now add it all up, and our budget expmple is $1880 in monthly expenses. This is made up and based on a single person in their own apartment, obviously adjust if you share expenses with someone.

One thing I do is always include food. If I can't shop at KeyFoods and do bodega runs for a hundred bucks a week, then I need to start. Ideally, since I share expenses, this hundred buck item would also include going out to eat once a week. I include it because the reality is that in New York City, we love our restaurants. We don't have a stocked walk in pantry, because we only shop what we can carry (not what we can throw in the trunk), but we have a restaurant on every block and a bodega on every corner, so if you don't include it in your budget you are going to come up short at the end of the month.

Now you subtract what you make. So waitresses, add up the average tip every night for the week and get your weekly total. Let's say it's $600. Multiply it by 4 weeks, and you have a monthly take home of $2400, subract the monthly expense total of the budget you just did, and you have your difference. Also, if you survive on tips, you know that your weekly income varies, so if you have a crap week one week, next week's tips will have to cover last weeks short. I'll get into underwear drawers next post. Now you know how much you blow, how much you thought you had but didn't, and/or a quest for a new job. In this example, $520 isn't a heck of a lot left over. It means that you would really have to spend only a hundred bucks a week on food, and when you went out that night for drinks and dancing at mon mon mon amour last thursday, you can't buy that comme des garcons wallet you almost stole from a friend. What it does, most importantly, is put things in perspective. So that you are more aware of what goes in and out of your wallet, and spending is thoughtful impulse, not blind impulse.

So that was easy, right? A little too easy. Because I am here to tell you the secret to it all. Spend less than you earn and save the difference. This is the part that hurts. I don't care how much debt you are in, you must save no matter what. You must make habits to break habits, and other trite little lecturous bits of wisdom. Let's say that you should save 20% of your income and live off of 80%. It might look easier than it sounds, or not. In either case, it aint easy. Which is why you should start at 10%. Even if you are brokety broke. Kill the wi-fi. Lower your phone bill. Anything. Our pretend budgeter above would start saving $240 a month. That's sixty bucks a week. Let's say our pretend budgeter is a waitress, so we'll just call it the A-hole tip jar. Ten percent of your customers are grade A numbnuts, or ten percent of your workload is complete and total BS, and it's your hard earned labor with them that you're not gonna piss away.

How, where, and why will be the next entry. Unitl then, please feel free to ask questions as we go along.

Singing the Blues

Welcome to PiggyBankBlues. This is for all you artists and other ilk who are waitresses and bartenders, college professors and grad students, non-profiteers and cash cow hustlers. I like to think of you as my friends and family. I, of course, am one of you. The not so nine to fiver. The one with the gargantuan student loan and four year degree in an intellectual bar of gold and not much else. Okay, I slogged a bit through my four years, an intellectual bar of sterling silver.

So why PiggyBankBlues? I'll tell you why. Because I have too much time on my hands. Which brings me to a story. Once upon a time there was this little market anamoly known as the tech boom. You might have heard about it, it was the roar before the crash. New York City was flush, and boy oh boy I do mean flush. Two hour wait for my table and I was walking out of work my pockets stretched. After waiting tables we would go out and have lobster dinners and knob creek until four in the morning. We would buy fancy clothes, go to South Beach for the weekend, and put the "disposable" in "disposable income" in big bold font. Around this time I was trying desperately to clean up my student loan mess. Spending so much money, I had a vague sense that I should have accumulated more, and was trying to do band aid sort of things. I got a secured credit card. I opened an online brokerege account to buy some internet stocks. After a little while, though, things didn't feel right. And then the market started skidding.

After September 11th, 2001, a fellow waitress and I bought shares in American Express because they had announced that, unlike scores of other companies, they were staying in downtown Manhattan. It was then, along with many other things, that I sarted to pay attention. Because now, not only was my city devastated, so was the national economy and right down to my personal bank account. All this money and we had nothing to show for it.

I became, as many of you know, a little obssessed with finance. But don't get me wrong, I'm no Benjamin Graham (for those of you who don't know, he's an intelligent investor who is also famous. I guess i'm an intellegent investor, but not famous, and certainly not AS intelligent). I'm a dyslexic writer prone to the run on sentence. Up unitl recently I hadn't progressed past 11th grade math. I thought it would be a good idea to become a Certified Financial Planner (CFP) for my closest friends and their dearest associates. Half way through the training, though I enjoyed every moment of it, I realized that this was serious business, the kind that doesn't allow for the writing of the great american novel (purposefully lowercase). Well, that and I found out that I couldn't manage money that was, um, mostly cash. See, the idea was to help people cut off from things like 401Ks, people who don't live in a city where 5% down and a $45,000 annual salary get you and your family an affordable home and mortgage, people who have lots of questions and no accountant to answer them. People with the PiggyBankBlues.

So after much hemming and hawing, I decided to start this blog. Because I don't wait tables anymore, thank you baby jesus, and I can't harrass you all about maxing out your Roth IRA with dollar cost averaging. But boy can I do it here.