"How to be an adult" Lesson 2

FINANCIAL TRAINING

The day I arrived at the new job, my supervisor told me that she had signed me up for “Finnancial Planning for New Hires”. I attended the class on Monday, and I found it to pretty interesting.

The instructor was a mix between that guy on Mad Money and a snake oil salesman. He also struggled with his on the fly math skills which he was never called out on, but his multiple errors definitely did not go unnoticed in the room full of engineers.

Despite all that, he had a lot of good information, and provided a booklet of info for us to take home. Here are a couple of non-civil servant related financial nuggets I learned:

1.) A Roth IRA differs from an ordinary IRA in that all the money comes out when you retire is tax exempt. This includes your principal investment and all your earnings which can come out to quite a lot if you have had the IRA for many years. The catch to this thing is that you can’t contribute if your household earns too much money. If you think you and your spouse will ever be in danger of earning over $160,000 combined ($110,000 if you are single), you should start contributing to this thing early before you’re such a baller. From what I understand, you can stil keep the account when you make too much; you just can’t contribute to it any longer.

2.) You will be exempt from Capital Gains Tax on any profit from selling your house if you have lived there for 2 out of the last five years. If you will be moving to a new house in the same area, you may want to rent out the old house over the next 3 years and then sell. The renters will be paying the mortgage, while your old house has a chance to appreciate in value (depending on the real-estate market). As long as you sell the house before the 3 years is up, you can still rake in the profits tax free.

3.) You can check you credit score at Fico.com for $45.00 or so. You can get a free credit report each year at AnnualCreditReport.com, but this report does not provide you with a credit score. A credit score may be good to know before trying to finance a major

4.) Innactive credit cards are bad for your credit score. Having credit cards that sit in your wallet unused with a zero balance are apparently bad for your credit. Signing up for a department store card to get the 10% off, paying the balance, and then sticking the card in your wallet never to be used again can negatively affect your credit score. Credit reporting agencies like to see some activity on active cards along with on-time bill payments. If you have credit cards that you never use with a zero balance, you should just cancel them.

One I picked up on my own:

5.) There is a hybrid car purchase tax credit. For all those out there that think purchasing a hybrid isn’t worth the money, it definitely is if you purchase a 50 mile- to-the-gallon compact car in 2006. The 06 Honda Civic and Toyota Prius earn tax credits of $2100, and $3150 respectively. This almost makes up the added cost of choosing the hybrid over their standard models in one chunk. Once your factor in the added 20 miles to the gallon over the next 5 to 10 years (and the morality money you’ll earn going easy on the environment), it should make sense for you to go with the hybrid, especially if you have any sort of commute to work or school everyday. This one was really just an excuse to justify my desire to purchase a hybrid civic this year.


*I would advise doing your own research before taking action on any of this information. This is just reporting on some of the things I learned.