Beating Broke

Personal Finance from the Broke Perspective

Invest in Yourself Instead of the Lottery

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Last week, the Mega Millions lottery reached an historic high of $640 million.  That is more money than most of us can wrap our minds around.  In the days leading up to the historic drawing, people everywhere bought tickets, some spending $20 or more on a lottery jackpot they had a 1 in 176 million chance of winning.

Put this in perspective—if you fly on one of the 25 safest airlines (based on safety records), your chances of dying in a plane crash are 1 in 10 million (Yahoo! Voices), which is 17 times greater than your chance of winning this particular lottery.  Likewise, according to the National Lightning Safety Institute, your chances of being struck by lightning are 1 in 280,000 (628 times greater than winning the Mega Millions), yet the majority of us don’t expect to be hit by lightning in our lifetime.

In the days leading up to the lottery drawing, when I expressed disbelief that some whose states do not sell Mega Millions tickets traveled out of state and waited up to six hours to buy the tickets, the romantics around me declared, “When you buy lottery tickets, you are buying the chance to dream.”  So, basically, lottery ticket buyers know they won’t win, but they pay to “dream.”

Mega Millions Lottery

I’ll dream for free, thanks.

Even if you do buy the tickets with the hope, the dream, of winning, do you really want to win?  Time and time again we hear of those who win millions and watch their lives disintegrate and sometimes tragically end.  Business Insider included the tale of 10 lottery winners who won big and lost even more.  Consider just a few of the stories:

-Jeffrey Dampier won $20 million in 1996 and he generously helped his family members buy houses and opened a gourmet popcorn restaurant to supply his family members with jobs.  Still, in 2005 he was kidnapped and murdered by his sister-in-law and her boyfriend.

-William Post won $16 million in 1988.  An old girlfriend sued him for half his winnings, and his brother hired a hit man to kill him.  Within a year he was $1 million in debt and filed bankruptcy.  He now lives on food stamps and $450 a month.

Unfortunately, these stories are not unique.  In addition to the Business Insider post, a quick web search reveals similar posts, “6 Lottery Winners Who Lost It All” and “13 Lottery Winners Who Lost Everything.”  In addition, TLC has a show called Lottery Changed My Life.  If you watch the show, you know that for the majority of winners, their lives were not changed for the better.

Many of us dream about what we would do with more money.  However, the best way to achieve the dream is not through purchasing lottery tickets for a multi-million dollar jackpot that we won’t win (even if you use the worn out argument, “somebody has to win”).  Instead, the best way to achieve that dream is through our own lives.  Dream about what you can do with your life, how you can improve it, and then set to work doing so.  That will get you infinitely further than buying a lottery ticket and paying for the right to dream.

What is the Roth IRA?

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Retirement.  Have you thought about that yet?  Still think you’re too young to deal with that?  Or, just assume that your company 401(k) is enough, so why even worry about anything else?  Let me introduce you to the Roth IRA.

IRA is an acronym that stands for (I)ndividual (R)etirement (A)ccount.  The Roth part is named after the Senator that sponsored the bill that created the Roth IRA.  But, what really matters is that it could be really important to your retirement fund building.  So, pay attention to the next few paragraphs.  Do it for the retired version of yourself!

Source: goodfinancialcents.com via Jeff on Pinterest

Why is the Roth IRA so important?

Unlike the other versions of the IRA (Traditional, SEP, SIMPLE, Self-Directed), the Roth gets some special treatment when taxes come into play.  Instead of being a pre-tax contribution, like a 401(k), or a tax deduction contribution, like other IRAs, the Roth is an after tax contribution.  That means that you’ll be taxed on the income before you contribute it to the Roth IRA.  That sounds terrible, doesn’t it?  It’s not.  And here’s why.  All of the gains on the account are tax free.  What that means is that, if you contribute $5,000 today, and gain $45,000 between now and retirement, you don’t pay any taxes on any of it when you start taking withdrawals.  That’s pretty significant.

If you had your money in any of the other retirement accounts, you’d be taxed on the whole $50,000 as you withdraw it.  At your then current tax rate.  While we can’t know what our current tax rate will be when we retire, we do know that one will exist.  Unless you think that your retirement tax rate will be significantly below your current tax rate, you really should consider adding a Roth IRA to your portfolio of retirement accounts.

How should I use a Roth IRA?

Why did I just say “adding a Roth IRA to your portfolio of retirement accounts”?  There’s a couple of reasons.  The biggest one, though is that the Roth has a contribution limit that is a bit low.  As of right now, that limit is $5,000 if you’re under the age of 50, and $6,000 if you’re over the age of 50.  Unless you really think you’ll be able to build a retirement nest egg that will be sufficient on $5k a year (hint: you won’t be able to), you’ll need to supplement with other retirement accounts. If you’ve got a 401(k) offered at your employer, use it.  At the least, contribute enough to get the maximum match from your company.  Once you’ve met the match, use the next $5,000 and put it into a Roth IRA.  (I’ve got mine at Sharebuilder, but just about every investment house does Roth accounts.)  Once you’ve got the full 5k in your Roth, you and your financial planner can decide what the next best idea is.  If you’re happy with your 401(k) and the investments offered in it, you can continue to contribute any further monies into the 401(k).  If you don’t like the 401(k), you might consider some other form of retirement account.  Maybe a traditional IRA.  The traditional doesn’t have the same tax benefit of the Roth.  Taxes are still taken out before you contribution, in most cases, and you get a tax deduction based on those contributions.  Any withdrawals taken after retirement are also taxed.  The contribution limit is the same, however.

How do I structure my retirement?

How your retirement portfolio and where/when of your contributions is very important.  There are tax codes to take into account, as well as changes to the way that you contribute.  Everyone’s retirement situation is very unique to them.  To really get a good handle on all of this, you really should talk to a financial planner who can get a good idea of what your unique situation is, and make suggestions based on that.  It will likely cost you a little bit up front, but the difference could be life changing when it comes time to retire.  (Check out these great tips on finding a great financial planner)

I’m writing this post as part of the Roth IRA Movement.  It’s a great movement, headed up by Jeff Rose of GoodFinancialCents.  He recently discovered that many of our youth are under-educated on what the Roth IRA is.  He’s gathered well over 100 personal finance bloggers (including Beating Broke) and we’re all posting a Roth IRA post today to try and help with educating on the Roth IRA.  You can read all about the movement as well as see a list of all the posts that are/were written as a part of it at Jeff’s Roth IRA Movement post today.  You can also see a list of the posts over at RothIRA.com.

Earning Swagbucks and Saving with Coupons

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Coke Zero © by DefeatEd2k4

Have you all seen those commercials for Coke Zero where the person is put into some crazy situation and then they drink a little Coke Zero and notice the and in the description, then start saying “and” and getting all these crazy things?  That stuff doesn’t happen in real life.  Right? That’s just some commercial mind’s crazy idea of what the melding of “Real Coca~Cola taste AND zero calories” can do for you.  While I can’t vouch for the power of and in your soda drinking, I certainly can show you a way that and works in real life.

What I’m talking about is saving money with coupons AND earning Swagbucks.  I’ve talked about Swagbucks a few times before, but, if you’re unfamiliar with them here’s a rundown.  Swagbucks is a “paid-to-search” site, where you use their custom search engine, and occasionally win Swagbucks for doing so.  They’ve got a bunch of other ways to earn Swagbucks, including taking a daily poll, watching SwagbucksTV, Tasks, and even games.  One other way, that I’ve been taking advantage of, is their coupons feature.  Using their coupons page, you print out coupons.  They’re running the same system as Coupons.com, so if you usually use that, you’ll be getting the same coupons.  The big difference here (the “and”, if you will) is that for each coupon that you print through the Swagbucks system, and then redeem, you earn 10 Swagbucks.  Pretty cool, no?

Once a week or so, I’ll go through the list of coupons and print as many as we’ll use, then give them to my wife who cuts them out and sorts them for use.  She’s in charge of that, because she’s got the coupon organizer, and is far better at actually remembering to use the coupons than I am.  🙂

My favorite use of my Swagbucks is to trade my Swagbucks in on Amazon.com giftcards.  450 Swagbucks gets you a $5 Amazon card.  On average, I get a new card every other month.  While it certainly isn’t going to make me rich, it feeds my Amazon habit, and helps me reduce my spending on books and such.

Give Swagbucks a try. (Join Swagbucks here.) After all, who wouldn’t like to make some extra cash and save with coupons?

If you sign up before April 2nd, 2012, and use the code MARCHSWAG during the sign up, you’ll get an added 70 Swagbuck bonus on top of the current 30 Swagbucks you get when you sign up, for a total of 100 Swagbucks to start off with.