10 Reasons to Save in a Roth IRA

10 Reasons to Save in a Roth IRA

I’m a millennial, so I’m no stranger to my fair share of think pieces on self-love and self-care.  While I’m not wont to pair financial products with words like “love,” and especially not with the word “radical,” I do want to think for a moment about “radical” and its use to mean far-reaching and affecting the fundamental nature of something.  When we use radical to mean an act that will fundamentally change the course of your life, opening a Roth IRA is one of the most radical ways you can love yourself.

Before I dive into what makes these accounts so special, a few basics.

One, I’m not your financial planner, and this isn’t financial advice.  Got it?  Good.  Two, I know well that there are millions upon millions of Americans who are unable to meet their day to day needs.  If you’re in that situation, I don’t fault you for a moment for prioritizing the costs of the moment rather than the needs of the distant future.  Survival is the most fundamental act of self-care. If you have any ability to save at all, though, if you have any small voice in the back of your mind that says this could be possible for you, I’d ask you to please love your future self enough to invest in her.

Three, well… what’s a Roth IRA?  A Roth IRA is a retirement savings account that (almost) anyone can open, offers tax-free growth on your money, and allows you to withdraw your money tax-free after age 59 1/2.  

Roth IRA accounts aren’t tied to your job.  There isn’t a complicated process involved to open the account.  To contribute to a Roth IRA, you’ll need to have earned at least as much income as you put into the account each year, and you can’t contribute more than $5,500 a year unless you’re nearing retirement age – those 50+ can contribute $6,500 to catch up on their savings.  There are a few other restrictions tied to exactly how much income you can earn to take advantage of this great deal (though even then, there’s flexibility), but don’t get bogged down in them.  For the most part, the average American can utilize this incredible savings vehicle quickly and easily and might just change the course of her life in the process.

Here are 10 reasons why saving in a Roth IRA is jaw-droppingly awesome:

  1. Roth IRA’s are easy to open.  If there’s one thing I’d like you to take away from this piece, it’s that investing in the stock market doesn’t have as many barriers as you think.  Setting up my Roth IRA took me a total of 10 minutes, and I did it from the comfort of my home, i.e. in my pajamas.  If you have the computer skills to complete an online shopping order, you can open a Roth IRA online.  My venue of choice was Vanguard for their low fees.
  2. Roth IRA’s let you own a share of the market.  Roth IRA’s allow you to put your money into index funds.  An index fund is a portfolio designed to track or match sections of the market or the market as a whole. For example, the S&P 500 index is one of the most common, and investing in this index fund gives you a small piece of the 500 largest American companies. With index funds, you’re not actively trading different stocks, you’re matching the market. Since 86% of actively managed funds didn’t beat the market in 2014, and we see that pattern time and time again, I’d much rather put my money in index funds, trust the strength of the market through any storm, and enjoy the longterm gains.
  3. Roth IRA’s allow you to access your principle.  This might be my favorite perk of a Roth IRA.  When you place your money in a Roth, it’s. still. your. money.  You can withdraw the principle (the amount you yourself put in) at any time without penalty.  There are even some situations (like being a first time homebuyer) that qualify you to access your interest before retirement as well.  While I don’t recommend that you use a Roth as an emergency fund – it’s much better for your future to allow the money to grow – I personally take an enormous amount of comfort in the fact my money is still there for me if I need it.
  4. Roth IRA’s give you tax free growth. This is why you put your money in a Roth IRA.  You were already taxed on your cash when you earned it.  The government does not come for it again AND you aren’t taxed on your money’s growth within the Roth IRA account.  You’ll be able to withdraw with ease in retirement and enjoy all the fruits of your labor… plus its tax-free interest.
  5. Roth IRA’s require just a small initial investment.  I cannot stress enough that a Roth IRA is an incredible option for those who think that retirement savings isn’t for them. You can, and deserve, to retire with dignity.

    I’m most familiar with Vanguard, so to speak to their process first, Vanguard allows you to open a Roth IRA with a $1,000 contribution.  While $1,000 is decidedly large sum to save for many Americans, you don’t need to have that $1000 today.  What you do need to do is prioritize having $1,000 on a timeline that’s manageable for you.  For some, that’ll be a few months, for some a year, for some longer.   Making the decision to set aside that money for yourself is frightening and overwhelming, but it’s love. Anything as powerful as love is terrifying.

    If $1,000 dollars is an insurmountable obstacle, and for some it will be, there are other options.  A little internet sleuthing led me to T. Rowe Price, which allows you to open a Roth IRA with a $50 a month contribution rather than Vanguard’s initial investment.  I can’t speak to T. Rowe Price’s fees, and as a Vanguard fan I’m prone to prefer saving $1,000 to start a Vanguard account, but the plan proves there are options out there that make retirement savings possible with the smallest of initial investments .

  6. Roth IRA’s benefit your heirs.  Let’s jump from money to everyone’s second favorite topic: death.  While it might not be polite to talk about, we will all die someday, and we all want our loved ones to be as taken care of as possible when we do.  A Roth IRA will allow your heirs to withdraw funds without tax.
  7. Roth IRA’s offer the chance to diversify.  The next two points are more critical for those who already have their feet wet in the world of personal finance and investing.  Because Roth IRA’s aren’t tied to your job, you’re able to take your investment into your own hands and diversify your retirement strategy.  Whether that be by choosing different funds than in a plan you have through work or by adding an account to your portfolio that uses after-tax money rather than your pre-tax work contributions, a Roth IRA gives you autonomy and options.
  8. Roth IRA’s allow spousal contributions.  This is another benefit that may seem niche but is hugely impactful (and a personal favorite.)  If you’re married, a Roth IRA allows your spouse to contribute to a Roth IRA in your name with their earned income, even if you don’t work yourself.  Why’s this important?  Because currently women are twice as likely as men to be in poverty in retirement.  There’s a host of factors behind the trend, but the fact that women work on average 12 fewer years than men in their lifetime, often due to childrearing duties at home, is largely at play.  Roth IRA’s allow your family to recognize a stay at home parent’s contributions to the family by investing in their retirement.
  9. Roth IRA’s might just make you a millionaire.  Let’s get back to the fun stuff.  Let’s imagine that you’re a 25 year old reading this piece.  You have your first salaried job, and you’re ready to make one of the biggest adult decisions of your life.  You decide to open a Roth IRA today, and from here on out, you contribute $5,000 a year until age 65, and you average an 8% return each year.  My friend, you’re going to retire with $1.4 million, and you’re not going to pay an additional cent of taxes on it.
  10. Roth IRA’s are not intimidating.  It all comes back to this.  The vast majority of us do not have anyone to invest in ourselves but ourselves.  You’ll need to figure this out, and the sooner you do, the more the magic of compound interest will work in your favor.  Roth IRA’s allow you to quickly set up an account online, begin to fund your account with a manageable initial investment, and passively invest your money into index funds that match the market.  You don’t need to know anything more about stocks themselves; even the people who are paid to manage stocks for a living don’t often beat the market.  What you need is the bravery and self-love to take this step forward.  You are in charge of your future, and you can act to make it as secure for yourself as possible.

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Apple Announcement September 9th: What You Need to Do (Part 2)

Apple Announcement September 9th: What You Need to Do (Part 2)

If you read part one of this post series on the September 9th Apple announcement, you might think it’s all gloom and doom here on Life as a Hat.  You know there’s a new iPhone coming out soon, but you also know that the pricing model is designed to rope you into a quasi contract– you’ll pay a low initial deposit, sure, but you’ll owe your cell phone provider money for months and months to come by way of a hefty monthly bill.

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Gloom and doom are the antithesis of everything Hatters are about, though. I want you to be able to manage your money in a way that gives you the greatest utility for your purchases and lets you keep as many of the hours you trade for wages as you can.  That’s freedom, baby, and the Apple announcement is going to help you get it.

How You Should Take Advantage of the Apple Announcement

You’re going to use this announcement to buy your own phone, and you’re going to take that phone to a pre-paid plan like we talked about.  Here’s where I might lose some of you, though; it’s not going to be the iPhone 6s Plus.  It’s not going to be the iPhone 6 Plus.  It’s not going to be theiPhone Trending Ebay Prices 2015 iPhone 6.  Hatters, I want you to put some serious thought into buying the iPhone 5s this October.

Take a look at the chart to the left.  I’ve priced out the current line up of Apple phones plus a few older models of the iPhone based on their trending prices on Ebay (as of 9/7/2015).  I made a few choices when it came to the phones I selected–namely, I opted towards prices for “unlocked” phones that can be taken to any carrier, and I chose the midrange storage capacity when options were available.  Those choices mean the prices you see might be slightly inflated depending on your needs, but they’re the phones that will work best for the average consumer in the second hand market.

Right now, an iPhone 5s with a 32 GB storage capacity will set you back about $320.  That’s only a little over the $299 most consumers are willing to pay for the latest Apple release, but when you spend your $320 on an iPhone 5S, you aren’t locked into a contract or a payment plan.  You own that phone, and you can take it where you choose, to what deal you choose, at any time.  Choices, my friends, choices.

Here’s where it gets even better.  These prices?  Give them until October, and they’re all going to fall.  The new iPhone will push the 5C and potentially the 5S (depending on how Apple chooses to incorporate the “Plus” options) out of the line up, but those options will stay available on the second hand market.  You can see from the chart that the 4S, a great phone, is down to about $120 because it’s an older model that’s left the line up already.  I don’t know about you, but I would much rather stop paying $90 a month for cell phone service, and take two month’s worth of savings from the $30 T-Mobile plan to buy my very own, no-subsidy, no-contract iPhone.

So why the 5S?

I’m recommending you consider the 5S for a number of reasons this October (I say October because the price drop from the September release won’t happen immediately, but keep your eyes peeled.)

The iPhone 5S offers some of the fan favorite features of iPhone 6 and up like…

  • Fingerprint unlocking
  • 8MP camera
  • IOS 8.4
  • A powerful processor
  • 1 GB RAM
  • ~One day of battery life with medium use

It also offers a few of my own personal favorite perks like…

  • Freedom from bulky monthly contracts
  • More money for your emergency fund/your retirement savings/your dream trip/your home downpayment
  • The pride in knowing that you own your phone, and you’ll take it to the network that gives you the best deal

I’ll be upfront with you.  There are some downsides to choosing a second hand 5S.  Your camera won’t have the upgrades of the 6S, though it’ll still take incredible photos with ease.  You won’t have the slightly faster processing of the 6S, but you’ll still be able to use your device for more than we could have imagined a few years ago.  You won’t have the convenient larger screen for gaming, but you will have a proficient system that will rarely make you wish for more.

I think the perks far outweigh those costs, though, don’t you?

How to Buy a 5S (Relatively) Safely on Ebay

This last portion is for my readers who might not feel comfortable buying a phone second hand.  There is always going to be risk associated with the second hand market, but there are things you can do to mitigate those risks.  When you buy your iPhone 5S, I want you to make sure…

  • There is a clean IMEI number advertised on this listing.  This helps ensure the phone wasn’t stolen and that you’re able to activate it on your own network. It’s important that the clean IMEI is advertised in the listing because it helps ensure Ebay can protect your purchase if you receive a phone that can’t be activated.
  • You pay close attention to the condition description of the phone.  I’m personally comfortable with anything listed from “Good” condition on up; your comfort level might vary.  Do understand that the photos on eBay are often stock pictures, and they aren’t involved in any purchase protection from Ebay.  The condition description is what the seller is obligated to match.
  • The phone is listed as “Factory Unlocked” or listed for use on the carrier network you intend to use. Factory Unlocked will allow you to take your phone to any network, and I personally prefer that freedom.
  • The Ebay seller you choose has plenty of positive reviews from other iPhone sales
  • You make purchase using a method that will provide you secondary protection beyond Ebay–I like to use AMEX because of their great customer service, but PayPal also provides a set of purchase protections.

Got through all that?  You’re ready to take on the Apple announcement this week like a personal finance pro and make it work for your own freedom.

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Apple Announcement September 9th: What You Need to Know (Part 1)

Apple Announcement September 9th: What You Need to Know (Part 1)

Hatters beware. On September 9th, Apple is going to announce the new iPhone 6s–expect a better camera, faster LTE capabilities, and maybe even the ForceTouch technology we saw in the Apple Watch.

Also expect Apple to team up with the big cell phone carriers whose subsidy and payment installment plans rip you off.

What You Need to Know about Apple and the Big Carriers

In the past few months, we’ve seen the big carriers move away from contracts explicitly based around a two year plan.  Smaller players like T-Mobile, Republic, and Straight Talk have influenced consumer consciousness enough that Verizon, ATT, and Sprint know a two year contract is seen as an unpopular option.  Those lofty two year contracts, though, were very good at one thing consumers love; they lowered the initial stocker shock for smart phones like the newest Apple installment.

As most of us know, Apple operates on a tiered pricing system based on release schedule.  Right now, consumers who sign onto a new two year contract could pay $299 for the entry model iPhone 6 Plus (the latest release), $199 for iPhone 6, $99 for the iPhone 5s, or they could get the iPhone 5C for free.

Don’t let the advertising fool you, though.  iPhones were never sold at those price points.

Apple gets away with advertising those prices because the big carriers would subsidize the remaining cost of your phone as part of your two year contract.  You traded your freedom to pursue a better deal for hundreds of dollars that would be spread out month to month within your hefty plan.  It was a win/win for businesses, and, I’ll concede, for those absolutely desperate for the latest iPhone model, but for most consumers, it was a really bad deal.

So what’s changed without two year contracts?

Here’s where I really need you to pay attention.  Very little is going to change in our quasi post contract world.  Expect that Apple will talk about the low entry fees associated with the brilliant new phone we meet this Wednesday.  Apple needs to talk that up because otherwise, the sticker shock of iPhones priced at $800+ would let Samsung hammer in the nails to the iPhone’s coffin.  iPhones needed to be affordable, but they’re an incredibly sophisticated piece of technology.  Apple was never going to give these phones away, but consumers weren’t suddenly going to pay hundreds of dollars more to own them.  Something had to give.

So what did Apple do?  Team up with the big carriers (insert my shock here.)

Rather than selling you a two year contract, the big players in cell service are now going to offer you the opportunity to place a deposit on your phone (hmm, I bet a tiered model starting at $299 and working its way down would do just fine) and allow you the chance to pay the rest of your phone off month to month within a set amount of time.

Are they kidding me? Isn’t this just a two year contract?

No, of course they’re not.  Yes, of course, it is.  It has a different name, it has a slightly different structure, but for all intents and purposes, nothing’s changed at all.  This is business and business is not about your freedom.

So what should Hatters, who want to be free but also love iPhones do?  Stay tuned for Apple Announcement September 9th: What You Need to Do (Part 2) to find out.  Want that post ASAP?  Like our Facebook page to get the quickest notification of when new posts arrive.

Shop 24/7 and Never Regret a Purchase Again

Shop 24/7 and Never Regret a Purchase Again

When I started thinking about who I wanted to be, I also started thinking about how I wanted to shop.  I’ve realized that deep down, I’ve always believed that when we shop, we’re creating ourselves.  And we are, aren’t we?  Humans live on snap judgments–is someone friend or foe?  Are they like me?  How can I categorize them to know how to interact with them?

When we shop, we’re building the lens that the rest of the world sees us through. We’re telling friends, acquaintances, strangers, “Hey, this?  This is how I want you to tag me in your mind.  I’m like the other people you’ve met who dress like this, but I’m not the ones who dress the opposite.  I like Johnny Cash, or Katy Perry, or raging against the system in clothing the system designed.”  We’re creating our own reality with our purchases.  I didn’t think there was anything more powerful than that.

Well, there’s nothing more powerful than shopping except for the fucking fact that I’d rather not live through categories that someone else created to make money for themselves.  That’s more powerful.

Not all shopping is “wrong.”  Wanting to create an image for yourself isn’t wrong.  Anyone who tells you otherwise is condescending, or misogynistic, but probably both.  Being too caught up in the system, though, is bondage, and we’re about freedom here.  I still love to shop, but I use what I call a 24/7 system now when I do it.

24/7 Shopping to Never Regret a Purchase

What’s the 24/7 system?  It’s a way to shop that makes sure you’re getting the maximum amount of utility for the money (freedom) you exchange for your clothing.  It’s how I can keep my desire to create the me I see in my mind from stopping me from creating the free me I value more than anything.

The 24:

  • If you’re going to use the 24/7 shopping system, you’re not going to buy ANY piece of clothing unless you’ve had 24 hours to think on the decision
  • It’s a flash sale?  It won’t be there tomorrow?  I don’t care.  Those flash sales are design to give you less time to think.  They’re the definition of being enslaved to the system.  You’re better than that.
  • If you want something after 24 hours, it might be a real desire and not just a whim of marketing and pressure.  You’re going to give yourself the chance to find out.

The 7:

  • It’s been a day and you still want that leather jacket?  Awesome.  Now you’re giving yourself a week to find it second hand.
  • Yes, a week.  Entire careers went into making you want that jacket. One day is a joke when it comes to the amount of time you need to separate yourself from the marketing.
  • Yes, secondhand.  Remember, we’re about freedom and sustainability.  Buying your clothing second hand means that it’s already depreciated in value, and you’re paying far closer to its actual worth.  You’re also not participating in the fast fashion marketplace that does a whole hell of a lot of damage to our world and the people in it.

If you haven’t found what you wanted second hand after 7 days, and you’re still thinking about that jacket now 8 days after you saw it, go back to the store and try it on again.  You know what, though?  I bet you’re not thinking about it.  I bet you’ve completely forgotten about it, or you’ve found it second hand for a fraction of the price and guilt.  I bet you’re a step closer to freedom because you shopped 24/7.

On Being Free

On Being Free

Life as a hat is about finding your path, but before we get started, I want to make something clear.

I’m not here to help direct you to your perfect career or the right hobbies to make you marketable.

Don’t get me wrong–I would love if becoming more free led you to find the interests that make you happy and make you money at the same time. The goal here isn’t, though, to put you on a path to the right 9 to 5 for the next forty years. I want you out of the 9 to 5 (or, 7 to 6 with commute for most of us.) I want to give you freedom, even when you’re not yet sure what you’ll do with freedom when you have it.

That brings us to Life as a Hat’s first post. What is freedom, why do we want to be free, and how do we get there?

I started thinking about freedom when I was a few years out of college but hadn’t felt like I found my “calling” yet.  I had skills, but I didn’t have passions.  I had interests, but I didn’t have ambitions to monetize them.

I’m starting to think that’s okay.

It turns out, some pretty smart people agree with me.

We’re ambivalent about work because in our capitalist system it means work-for-pay (wage-labor), not for its own sake…  For most of us, a paying job is still utterly essential — as masses of unemployed people know all too well.  But in our economic system, most of us inevitably see our work as a means to something else: it makes a living, but it doesn’t make a life. — Gary Gutting, The New York Times

So, freedom.  When I talk about it here on Life as a Hat, I mean the ability to make choices without wondering how I’ll put food on the table. I mean “F*ck you!” money–the ability to leave any situation where I’m being taken advantage of, whether that’s on the job or in a relationship. Freedom is being able to say that I choose where I am and whom I’m with because I want to be there.  Freedom means the people around me can trust that I want to be there with them.

Freedom sounds pretty damn good to me.

It doesn’t come by magic, though, or by ambition, or by the right Etsy page, or the right credit card, or the right connections at the right farmer’s market.

We get freedom when we cultivate habits and skills that remove us from the bondage of trading hours of our life for money.  That’s it.  

I’m not free yet.  I’m not even close.  I’m learning, and I’m trying, though.  I’m starting on my path.

And I want you to come with me.