Sunday, November 30, 2008

What I've been reading.

I am the type of reader who usually has two or three different books going at the same time. Right now I’m reading John Bowe's Nobodies and Reg Theriault's How to Tell When You're Tired in preparation for Citizen Reader’s Book Ménage which begins December 8th. The book ménage is an on-line book club where everyone reads a pair of related books (selected by vote on her site) and then discusses them in the comments section. The above choices are bound to generate a thought provoking discussion. I encourage you to participate or at least check it out.

Also, on my night stand is Stephen King’s, On Writing. This book has been on my reading list, since I read Trent's review on the Simple Dollar. He attributes this book as giving him the inspiration to quit his day job and become a full-time writer. I have never aspired to be a writer nor do I now, but I love reading books that inspired other people to pursue there dreams. Who knows I just might pick up a couple of writing tips.

Books recently completed:
To Love What Is by Alix Kates Shulman - I have been an Alix Kates Shulman fan ever since reading her memoir, "Drinking the Rain", so when I came across this post on Gretchen's blog "The Happiness Project" I knew I had to read, "To Love What Is", her latest book. Per Gretchen, the catastrophe began when:

Shulman's 75-year-old husband fell from a nine-foot sleeping loft in July 2004; he suffered a brain injury that keeps him from having a short-term memory. Her memoir covers the accident and the aftermath, and in flashbacks, the period during which they met, went separate ways, and years later, married.

I can't help but admire Shulman's spirit and patience; I can only hope if I ever faced a similar situation I would be able to handle it with the same strength and grace. The book is also a haunting reminder of how we need to be cognizant of our own physical limitations as well as those of our love ones. Perhaps, a 75 year-old man with signs of dementia should not have been sleeping on a nine-foot loft that didn't have a railing in a cottage without electricity on an isolated island without a road to get to it. The book also makes a strong case for purchasing long-term care insurance.

Kindred by Octavia E Butler - Dana, an African-American woman living in the late 1970s, is suddenly transported back in time to a Maryland slave plantation in 1819. It turns out that she’s been called back in time to save the son of the white plantation owner–a boy who, she soon learns, is one of her ancestors.

This book is considered a fantasy thriller, but is really so much more than that. Its depiction of slavery is one of the best historical fiction accounts on the subject I have ever read. I assure you, this book will stay with you for days.

Never Let Me Go by Kazuo Ishiguro – This book was a recommendation by my friend Dana who described it as a thought provoking worth while read she felt to be much better than, “Remains of the Day.” As children Kathy, Ruth, and Tommy were students at Hailsham, an exclusive boarding school secluded in the English countryside. It was a place of mercurial cliques and mysterious rules where teachers were constantly reminding their charges of how special they were. Now, years later, Kathy is a young woman. Ruth and Tommy have reentered her life. And for the first time she is beginning to look back at their shared past and understand just what it is that makes them special–and how that gift will shape the rest of their time together.

I can't say I liked this book, but I did feel it was worth my time.

Saturday, November 22, 2008

"Bringing Home the Birkin"

In Bringing Home the Birkin: My Life in Hot Pursuit of the World's Most Coveted Handbag, author Michael Tonello impulsively moves to Barcelona, after becoming enthralled with the city while working there on assignment. His new motto is, “Work to live, not live to work.” Unfortunately, soon after he signs a five year apartment lease, he finds himself without a job. To make ends meet he begins selling his possessions on eBay. Noting the popularity of a Hermes scarf he begins scouring European boutiques for Hermes items. This leads to a customer request for a Birkin (a pricey status bag that starts at $7,500 and is sold in limited numbers) and his discovery of the magic Birkin purchasing formula.

This is a must read if you ever dreamed of working from home in your pajamas as a full-time eBay re-seller. Michael quickly learns there isn’t much you need to know about eBay in order to use it successfully. He would set an opening bid for an item, and also a reserve (the lowest price he was willing to sell for). He was partial to either a 7- or 10- day action, timed to end on Sunday evening when most people would be at home. (I based these calculations on “eBay time” aka Pacific Standard Time, since the greatest number of eBay users are in the USA).

The job isn’t as easy as it looks. Michael discovers the more you work the more you make. He made a lot of money, which meant he worked a lot. In 2005, he says he spent 1.6 million purchasing Birkins for resale. His life became a series of shopping excursions, emails and trips to the post office. In the end, after losing his mother, he comes to the conclusion that traipsing all over Europe buying overpriced purses for spoiled Americans is a shallow way to make a living and gives it up.

The book is a delightful tale/travelogue. While recounting his experiences, he gives the reader a glimpse into his exotic lifestyle; the gourmet food, wine, expensive hotels and luxurious shopping venues he visits and of course insight into all things Hermes. He does all this in an engaging style and dry down-to-earth wit.

Here are a couple of unrelated items I’ve procured from the book:
~ Barcelona and the island of Capri are now on my list of places I’d like to visit.
~ The following items have been added to my reading list:
- Lillian Hellman's novel Pentimento”
- Truman Capote's novel “In Cold Blood”
- Somerset Maugham’s short story, “The Lotus Eater”

Sunday, November 16, 2008

Consequences of Roth IRA Early Withdrawal

Dan asks:
My daughter, Lynn invested $2,000 (a gift from me) into a Roth IRA account in 2003. She now wants to use this money to purchase a car. What are the consequences of an early withdrawal?

Lynn was able to use your gift to open a Roth IRA because she also had $2,000 of her own earned income during 2003. Roth IRA contributions are made with after- tax dollars; once these monies are invested, earnings accumulate tax-free. If she keeps the money in her account until age 59½, she will then be able to withdraw money without incurring taxes or paying a penalty. If she withdraws money now, she can only withdraw money up to her original contribution tax and penalty free. She will owe income tax plus a 10% penalty on any withdrawal of account earnings. These earnings will be taxed at her marginal tax rate. The good news is with the recent market downturn she probably his little if any earnings in her account at this time.

Are there any possible scenarios in which Lynn could withdraw all her money, including earnings, without incurring a penalty?

Yes, Qualified Distributions are made both tax and penalty free. To be considered a qualified distribution, a Roth IRA distribution cannot be made before the end of the five-tax-year period beginning with the first tax year for which the individual (or the individual's spouse) made a contribution to the Roth IRA. This means even if you are age 59½ you must have held the money in the IRA at least five years for the withdrawal to be considered qualified.

In addition to the five-year holding period, there are several exceptions to the 10% federal early withdrawal penalty that generally applies to taxable IRA distributions taken prior to age 59½. These penalty exceptions generally apply to distributions taken for one of the following reasons:

· death of the IRA holder
· qualifying disability of the IRA holder
· certain medical expenses exceeding 7.5 percent of adjusted gross income
· health insurance if an individual has been receiving unemployment compensation for more than 12 weeks
· qualified higher education expenses
· qualified first-time homebuyer expenses
· conversion of Traditional IRA assets to a Roth IRA

Thus, if Lynn were to withdraw money to purchase her first home, her distribution could be considered a qualified distribution.

Also note Roth IRAs are different than Traditional IRAs in that they do not require minimum distributions. That is because Traditional IRA contributions are made with before-tax dollars. The IRS wants its money at some point, so they require you to start taking distributions by age 70 ½. There are no such requirements for Roth IRAs. You can keep the money in there until you die if you wish.

Wednesday, November 05, 2008

Saving Money on Window Treatments

One of the first things Karyn Bosnak did upon moving into her NYC apartment was to purchase (charge) expensive window treatments. Since I moved nine times between college and my current home, I feel somewhat qualified in telling you not to spend a lot of money on window treatments for an apartment, especially if you don’t plan on staying more than a couple of years. The curtains I purchased for one apartment were seldom compatible with the next apartment because the windows were never the same size.

How can you do to save money on window treatments?
1. Window treatments should not be the first purchase you make upon moving. Get your bearings in your new place before spending money on furnishings. Plus, if you’re just starting out, you probably don’t have a lot of discretionary cash left after paying for the move.

2. If the lack of window treatments really bothers you; the morning sunlight is blinding or you need privacy, hang a sheet or blanket over the window during the interim.

3. If you have the opportunity, ask the previous tenants if you can buy their window treatments or if you are lucky they may just leave them behind. If they aren’t totally hideous make due.

4. Look for bargains. Try the JC Penny Outlet Store, or the clearance section of JC Penney’s store. If you hurry you might be able to snag a deal at Linens N’ Things which is going out of business.

5. Use a neutral colored sheet as a curtain. If you can sew use sheets as cheap material and make your own.

6. Be creative. The curtains in the photo were purchased from JC Penney’s and are held in place with tacks and rubber bands.

Saturday, November 01, 2008

Save your money. Pay down your debts. Secure your job.

Save your money, pay down your debts and secure your job is the advice financial gurus are giving lately to help us weather the storm in these turbulent economic times. I can't help but think this advice is timeless. I thought of it often while reading Karyn Bosnak's quirky book Save Karyn.

Karyn moves to NYC in May 2000. Over the next couple of years, she racks up $20,000 of debt and loses her job. Ultimately, she becomes a cult figure after soliciting donations from her website Save Karyn, where she asks people to help pay off her debt. Her plea: if 20,000 people each give her $1 she'd have enough money to pay off her entire debt. She also sells most of the stuff she bought incurring the debt on eBay.

How did "Not saving her money, paying down her debts and securing her job,” impact her situation?

Save your money:
Kayrn moved to NYC with virtually no savings. She didn’t even have enough money to make it to her first paycheck, forcing her to take an advance on her American Express card to pay for apartment necessities. Once she started receiving a paycheck, she began a downward spiral of excessive spending and charging; buying furniture for her apartment, designer clothes, expensive makeup, beauty treatments, a health club membership and a weekend summer vacation package she used only once. She didn’t save $1.

Pay down your debts:
She moved to NYC with unpaid balances on her credit cards. When she received her first paycheck she was surprised to see how much money was withheld for taxes. She hadn't budgeted accordingly. Instead of realigning her budget to her actual paycheck, she kept spending and charging. It wasn’t long before she couldn’t keep up with her monthly credit card payments and still pay her rent. She began missing minimum payments, incurring late fees, interest and over limit charges. Eventually, she finds a new job and begins earning over $100,000 a year. Even then, instead of paying down debt she continues her spendthrift ways thinking why shouldn't she, she makes over 100,000 a year.

Secure your job:
She remained in denial that her job was in jeopardy. After September 11th, the job market for TV production in NYC virtually dried up. Ratings for her show were low. New management was brought in; they asked everyone in her department to sign a new, less favorable employee agreement. Refusing, along with her fellow contending co-workers, she was let go. She hadn’t thought this through completely, she now firmly believes if she would have asked for her job back her boss would have given it to her. At the time, however, she didn't like her job and thought she’d be able to find another one within a month. She ended up being out of work for four months, when she finally did find a job it was at a substantially lower salary than what she had been making before.

The results:
She was no longer able to pay her rent and her credit card payments without overdrawing her checking account. She took steps to get control of her finances; consolidating her debt, finding a roommate, canceling her health club membership and even making her own coffee. Not making much progress and feeling overwhelmed she dreamed up the Save Kayrn website and the rest is history.

Overall, based on the subject matter (financial irresponsibility) I was surprised how much I enjoyed this book. It was filled with financial lessons. My professional organization is planning a workshop to teach financial literacy targeting college sororities. After reading this book, I can’t help but think perhaps they are right; young adult women do need financial literacy training. I know where they should start: Save your money, pay down your debts and secure your job.