Help a trust fund baby: “What should I do with my inheritance?”

August 27 85 Comments latest by Kyle

Just got this email from Christine, a self-described “trust fund baby” who asked for advice. What would you recommend?

I am a 22 year old female in my last year of college. I never learned how to manage my money. If I got money, I spend it. So, freshman year of college, a credit card seemed like a fantastic idea. My parents have even bailed me out a few hundred dollars. I’ve kind of come to terms with the fact that this is a stupid move on a lot of students parts, and I’m working through it.

Recently, I learned of a pretty good deal of money - $140,000 give or take - that my well-off, childless aunt and uncle have put into a trust fund for me.They have brought it up to this amount by contributing $30-40k at various times over the past 10-15 years. Anyway, my question is: what should I do with this money?

What do you think?

(23 votes, average: 2.87 out of 5)

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85 Comments latest by Kyle

Credit card perks you didn’t know about (part 2)

August 26 22 Comments latest by credit card perks

See Part 1 of credit card perks you don’t know about.

Marketers know that it’s much more cost-effective to serve your existing customers rather than spending a ton of money to acquire new customers. Cost-effective, yes, but it’s sure sexier to spend money on Superbowl ads and stupid social-media spends.

The same is true of our personal finances. You could spend 10 hours per month moving your money from one high-interest account to another to eek out an extra 0.5% interest, or you could just take advantage of what you already have. One way to start is with your credit cards.

A lot of people ask me why I use my credit card for 95% of my spending. I do this for three reasons: Convenience (easily downloadable, trackable, categorizable), to build credit history, and huge consumer benefits.

Yesterday I got this list of perks in the mail, and it included a few I didn’t even know about. These perks are standard on most cards, so call yours to find out what you have.

See a bigger version

I’ve copied the best ones below. Did you realize you got all (or most) of these perks with your credit card?

You have our dedicated concierge staff to assist you.
The 24-hour personal concierge service will make your dinner reservations, purchase tickets to events, coordinate business arrangements worldwide and locate hard-to-find items. Your concierge can assist you with gift selections as well as other requests to simplify your life.

Car rental insurance
Provides up to $50,000 in secondary coverage against collision or theft when you reserve and charge your car rental to your card and decline the car rental company’s collision, loss/damage waiver insurance.

Retail purchase protection
Protects most purchases made on your card against theft, fire and accidental breakage of up to $500 for up to 90 days from the date of purchase.

Price protection
If you buy something with your card and then see it advertised in print for less within 60 days, you will receive a refund for the difference up to $250. (Excludes internet purchases and certain items.)

$0 liability for unauthorized purchases, online or off
Complete protection against the unauthorized use of account.

Extended warranty
Coverage duplicates the terms of the U.S. manufacturer or store warranties of one year or less up to a maximum of 12 months on most items you purchase and is limited to the lesser of the amount charged to your card or $10,000.

Trip cancellation/trip interruption coverage
If you are prevented from taking or continuing a trip you billed to your account, you are eligible to receive up to $1,500 in Trip cancellation/trip interruption coverage

Lost luggage coverage
You are eligible for up to $3,000 in lost luggage coverage for you and your dependents when you charge your entire common carrier fare to your Citi World MasterCard. This benefit covers permanently lost, stolen or damaged baggage or personal articles checked with a common carrier.

Roadside assistance
If your car breaks down, help is just a phone call away.

My take: If you’re already spending on your credit card, you might as well use as many perks as possible. And consider that with one use of the perks for roadside assistance or purchase protection or extended warranty, you save more than you would with stupid 0%-balance-transfer/bank-transfer games.

(11 votes, average: 4.27 out of 5)

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22 Comments latest by credit card perks

Former WSJ columnist gives advice to iwillteachyoutoberich readers

August 20 37 Comments latest by Keith

While I was in New York a few weeks ago, I stopped by to meet Jonathan Clements, the former columnist for the Wall Street Journal — which I thought was the best personal-finance column in the country. (Here’s one of his columns: Twenty Tips for No-nonsense Investing.)

Jonathan is now the director of financial guidance at MyFi. While I was there, we chatted for almost two hours (he’s hilarious) and I asked if he’d be willing to write up his thoughts on the most important step for iwillteachyoutoberich readers. Here’s what he had to say.

There’s no debate over the top priority. If you’re new to the work force, you ought to be funding your employer’s 401(k) plan, because it will give you a trio of benefits: an upfront tax deduction, tax-deferred growth and maybe a matching employer contribution.

But that brings us to the more interesting question. What should your no. 2 priority be? Forget building the six-month emergency reserve or saving for a house down payment. Instead, I would vote for funding a Roth IRA.

With a Roth, all your withdrawals once retired should be tax-free. True, unlike a regular IRA, a Roth won’t give you an initial tax deduction. But if you’ve just entered the work force and you are on a relatively low salary, that tax deduction probably isn’t worth all that much.

Meanwhile, here’s the sweetener: At any time, you can withdraw your original Roth contributions without triggering taxes and penalties. Let’s say you stash $5,000 in a Roth every year for four years. You could pull out your $20,000 in contributions and, provided you didn’t touch the account’s investment earnings, there shouldn’t be any taxes owed.

That means your Roth could double as your emergency reserve, your house down payment money, your car purchase fund or be used for any other purpose. (There is another provision that allows first-time homebuyers to make tax-free Roth withdrawals. To take advantage of this, the Roth has to be open five years and the amount is limited to $10,000.)

Ideally, you would leave your Roth to grow untouched until retirement. That way, you’ll get the most out of the tax-free growth. But if you
need it, the Roth offers wonderful financial flexibility. To learn more, head to www.fairmark.com.

I’ve written about Roth IRAs and 401(k)s in The World’s Easiest Guide to Retirement Accounts.

(13 votes, average: 4.23 out of 5)

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37 Comments latest by Keith

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