ROTH IRAs, you either love them or know nothing about them.  I am a fan of them for most people.  The ROTH IRA is an individual retirement account with special tax benefits. Your contributions are made with after-tax dollars and it grows tax-deferred. When you start withdrawing the money at age 59 ½, it is TAX-FREE.

In 2010, you can contribute up to $5,000 and an additional $1,000 if you are over 50.  You can only contribute to or open a ROTH IRA if you make less than $120,000 as a single person or $177,000 as a couple. If you make more than the income limit the next year, you can’t add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA; you have to open a Traditional IRA. If you have a year in the future where your income dips below the income limit you can add to your ROTH IRA again.

A great benefit of the ROTH IRA is that if the principal has been in the account for at least five years, there is no penalty to take the money out.

There is also no penalty if it is used for a first-time home purchase, qualified education expense or certain medical hardships. The only reason I do not like the ROTH IRA is that many self-employed people use the ROTH as their primary retirement plan.  While the tax benefits are amazing, it also means that they are ONLY saving $5,000 a year.  That isn’t enough.  So, if you are self-employed, push yourself to open a SEP IRA, which lets you put a lot more money away.  If you work for a company that offers a 401k, focus on maximizing the contributions to your 401k first, then open the ROTH IRA.

One last point about the ROTH IRA is you can convert other IRAs to a ROTH IRA in 2010. If you decide to do this, you will owe taxes right now.  Make sure you have the money in savings to pay the taxes.  The benefit is that old 401ks, SEP IRAs or Traditional IRAs are now converted to a ROTH IRA and you will not have to pay taxes when you take the money out after age 59 ½.  You might be hit with a large tax bill now, so be sure to check with your accountant.

I am told over and over that I help clients simplify their finances into bite size pieces that allows them to move forward and make smart money moves.  I wanted to share a Money Affirmation and Financial Checklist from my “My Money Matters” kit. If you feel stuck, just focus on saying the affirmation every day for the next week. See what happens with your money. Then use the Financial Checklist to make sure you are in great shape or to figure out what area you should work on.

Your Daily Money Affirmation
I’m a big believer that we have gotten ourselves into trouble with our money because we don’t talk enough about our positive money habits and strengths. Your homework is to say this money affirmation everyday for the next week. Even if you don’t believe it, it will start to resonate with you in no time!

“I am an Active Participant in My Finances”.

You can find many more money affirmations on beautifully illustrated cards for display at the “My Money Matters” kit, as seen in the NY Times.

Your Financial Checklist

Check off the following boxes that you have accomplished. You may not be able to check everything off, but it will help you decide which areas of your personal finances to focus on. For the unchecked boxes, just try and complete one at a time. You don’t want to overwhelm yourself.

* I know approximately how much I spend on all my monthly bills.
* I know what debt I owe and to whom I owe it.
* If I have debt, I have set up a plan to get out and stay out of it.
* I have 3 – 6 months of monthly expenses saved for emergencies.
* I am automatically saving money (or investing) on a regular basis.
* I have a percentage of my income deferred to a long-term retirement account (this includes 401(k), SEP IRA, and/or ROTH IRA).
* I am matching my investments with specific goals (i.e. saving for a house).
* I can easily locate paperwork for my investments, insurance policies, and home rentals or ownership.
* I know the total value of my net worth – as of the last quarter.
* I understand all the investments in my portfolio: non-retirement and retirement.
* I have done a checkup on my investments in the last 12 months.
* I have at least one cre.dit card registered in my name – not with a joint partner or parent.
* If I am self-employed, I have health insurance.
* If I rent, I have renter’s insurance.
* If I own a home, I know the current value, including size of the mortgage, amount of equity I’ve built and interest rate I am paying. Plus, I know what kind of homeowner’s coverage I have.
* I have an updated will.
* If I have children or dependents, I have life insurance.
* If I have children, I am saving for their college education.
* If I have a net-worth over $1,000,000, I am focusing on estate planning.
* I have reviewed my will, insurance policies, and investments within the last 12 months.
* If I am self-employed, I have disability insurance.

Get the complete “My Money Matters” kit (26 money affirmations, 100+ money tips and 7 workbooks) HERE!

There is no question that going through a divorce can be an incredible strain on your emotions and your pocket book. A client recently asked about a friend in need who is going through a bitter divorce. He heard about “freezing” his credit through one of the credit agencies so that no one, specifically his ex-wife, can open anything in his name. And that of they tried, he would receive an alert.  Is there a service that does this and are there any downsides to doing it?  Also, is there any service, other than a credit report, where you can check every account that’s ever been opened under your name and social security number? 

Answer:
You can freeze your accounts. My clients that have had identity theft have done so and are alerted if someone else tries to open a new card.  No new accounts can be opened. You can do this through the credit agencies.  The only downside is if he wants to open a new account, it might be difficult to do so as well.

Running a recent credit report is the only way to find every account open in your name. If he doesn’t want to pay, he can run the free credit reports under annualcreditreport.com. There are 3 and he can space them out every few months or so or run them at the same time.  He won’t get his FICO score here.

Many of my clients in NYC are not able to own an apartment yet due to the large down payment that is often needed.  To make the most out of your rental, try these Feng Shui tips from Ann Gallops, Open Spaces Feng Shui.

There is no question that your friends can help you save money, but how? I have two stories to share with you:

* Success of a Money Buddy

* Your Friends Can Help Your IRA

Success of a Money Buddy

Recently two of my favorite clients teamed up to become each other’s money buddies. Each Monday they check in via email examining each other’s financial actions and how they relate to their overall money goal. They also put forward what they would like to accomplish the next week and any other small goals they might have. In a short period of time, they are already seeing money progress! One key goal that has come about is asking for more money. One woman is a business owner and realized she wasn’t asking for enough money. More importantly, she didn’t think she was worth it (even though she definitely was!). If you can’t find your own money buddy – here are a few other suggestions to help you achieve the success of a money buddy.

* Get regular reminders sent to you. They really work! A recent study showed that when people were sent text messages by their banks to save more, their savings rose 6% (Dartmouth Economics professor Jonathan Zinman). * Say your goals out loud. Look into the mirror and say them out loud every morning before you start your day. They have told me that the money matters affirmations in the “MY MONEY MATTERS” kit worked well too!

* Keep track of your accomplishments in a journal.  Why just write down your expenses and bills?

* Say your goals out loud.  Look into the mirror and say them out loud every morning before you start your day.  While you are at it, my money matters affirmations.

Your Friends Can Help Your IRA

We all know we need our friends. We need friends for many reasons: fun, sharing, support, activities. But did you think that you needed friends for a more successful retirement? Actually, it’s true; they can help quite a bit. According to a recent study by the Pew Research Center, friendship matters as much as health and finances to increase happiness. 38% of retirees that were happy in their retirement (i.e. they were in control of their money) were also very happy with their friendships. Whereas 14% of retirees that were happy in retirement were not content in their friendships. This doesn’t mean you should stop contributing to your 401k or stop making your SEP contributions a priority, but it means that focusing on your friendships and creating your money support community will only boost your odds of a more successful retirement. So what can you do?

* Find other people in your community that feel strongly about creating savvy money habits. I recently coached a client about creating a money success group in her community.

* Find a hobby that fosters social connections: sports, arts, volunteering.

* Start a money book club.  Book clubs are fine and why not read a motivating money book with a group of gals you love to chat with anyhow?

We all know how to fight dirty.  Especially over money.  But do you know how to fight over money where you get your way and your partner is happy too?  Let’s face it, it takes two to tango.  Keep these fight suggestions in mind next time the dollars and boxing gloves come out!  

What is the Consolation Prize? 

We all think our money decisions are the most important and should have priority.  Agree to disagree and then decide on a dollar amount of each of you.  For example, a couple I worked with each wanted to spend something specific every month that the other didn’t deem worthwhile.  She loved to get massages and he loved to buy fishing gear.  When we worked through their budget together, we came up with a specific amount they could afford to spend on those items each month: $100 each.  It took the pain away when she got a massage a few times a month and he came home with another $300 fishing pole she thought they didn’t need.  Each of you should walk away with some sort of a consolation prize.  

See the numbers in Black and White.  

Sometimes you don’t even know what you are fighting for.  For example, you say you want to save for retirement but your spouse doesn’t feel as strongly and then you don’t do anything and are angry.  Well, if you used an online financial calculator together or went through the exercise with a financial advisor, you might see that to retire at age 65, you should be saving $1,700 a month.  Right away, you notice that between both of your 401ks, you are already saving $1,000 a month. Maybe you won’t save the $1,700 but you can easily find the extra $300-400 a month to jump you to the next level.  This can also be applied to buying a home.  Seeing the actual numbers, such as how much you need for downpayment, how much interest rates are, or how much your new mortgage payment will be, can help make a decision if you should buy a home or not.  Fight averted, next topic! 

It is amazing how much difference it makes to get a third party’s perspective.  I recently saw a couple that really needed help saving more money.  Not that most situations are so one-sided but it was mostly a function of her bad spending habits.  While she was able to take the responsibility in front of me, she also was open to trying to spend differently – which it sounds like she wasn’t open to do with her husband.  I gave her the options of using cash only and really walking her through prioritizing her spending.  She took taxis everywhere because she was an artist and had to carry her work.  We talked about buying a car, which actually made more sense in the long run.  We also discussed buying ready made food instead of ordering in every night.  It was a huge relief to her and both she and her husband, separately, sent me an email thanking them afterwards for helping them move forward.  

Put yourself in their shoes. 

Sometimes fights arise because you don’t really know what they are going through.  For example, change who pays the bills one month.  Or schedule an appointment with your accountant or financial advisor by yourself.  You will see your finances in a whole new light.

FOX TV CLIP

I was interviewed on Fox National News about how consumers are affected by the retail market. Check out my interview.

There are so many areas of our lives we are diligent.  Many of us get our hair cuts regularly.  We call our parents every week.  We make sure we have milk in the house (sometimes!).  We rush to the bookstore to buy the latest Stieg Larsson novel (I know I did!).  Why not apply these disciplines to your spending, earning and managing money? A great place to start is by examining your non-money life.

Do you take your career seriously?

Most of us do. If that is the case, what steps do you take to make sure you get promoted or get ideal clients?  Can any of these habits be applied to your personal finances?  I used to keep a journal at work of my accomplishments.  When it was time for annual bonuses or raises, I had the ammunition of everything I did throughout the whole year.  I always walked away with a bigger bonus or higher percentage raise.  All I had to do was read the list.  Do the same with your personal finances.  Alternatively, there may be areas that are unhealthy as well – perhaps you work too hard or you are not efficient with your working hours.  Do you even know what percentage you are contributing to your 401k?  Set a few ground rules so you can start seeing changes.

How much do you value your personal relationships?

Are you the type who talks to your friends and family every day – no matter what? Or do you just send cards on holidays and birthdays?  You are probably in between but this is a good time to examine your personal relationships and figure out how to apply a new money action.  If you really are the type to talk to your friends and family every day, insert a money habit there too. Every time you talk to a friend, text another friend your daily spending.  Or if you want to make more of an effort to talk to your brother in Tacoma, then at the same time learn more about the mutual funds within your 401k.

What do you earn and spend hourly?

If you earn $100,000 a year, pay 30% taxes, and work 50 hours a week – you are earning about $27 an HOUR.  If you are spending $15 on lunch and snacks every day, is that worth working almost 3 hours to eat an overpriced lunch? Or if you spent $300 mindlessly at Target or Bloomingdales, were those purchases worth working more than 11 hours?  Once you figure out your hourly rate of earnings, you will be inclined to do the following:

• Give yourself a raise!  Increase your hourly rate to $35, $40 or even $70 an HOUR!
• Spend less.  When you really think about how hard you are working, you realize the purchases may not be worth it.  You can have the best budgets in the world but you have to be motivated to follow them.
• Know that you are worth more.  A client recently realized she wasn’t charging enough because she didn’t value her services enough.  Through support from me and her friends, she acknowledged her fantastic experience and had the motivation to go for the higher paying projects.