Do Americans treat lottery tickets and retirement savings as competitive goods? (with data)

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Chris Jones via Flickr

When they’re less confident about retiring comfortably, Americans buy more lottery tickets.

The rational person’s case for playing the lottery

As much of the country was shivering through a cold spell, the Tallahassee studios of the Florida Lottery were a comparatively toasty 50 degrees on February 11 as evening newscasts around the country came to an end. In short order, the staff would get to their bi-weekly task of pulling six numbered balls out of a machine in hopes of turning at least one resident of one of 47 participating U.S. jurisdictions into a Powerball millionaire.

An unusually large number of eyeballs would be watching tonight befitting the unusually large prize being offered; at $564 million,the jackpot had grown to the fifth-largest in lottery history.

A couple days back, Neil Irwin of the New York Times offered an explanation toward why a rational consumer might still buy a lottery ticket that, even with a jackpot of more than half-a-billion dollars, still has a negative expected value — that is, a ticket whose cost is less than the prize payout adjusted for the small probability of winning. His reasoning was fairly simple –the $2 you spend on a lottery ticket doesn’t just buy you a (very small) chance at winning a huge cash prize; it also buys you the opportunity to dream about having real wealth and what you might do with it when you have it.

Though both involve money, many would consider it a stretch to treat lottery tickets as legitimate personal finance tools to use toward wealth building and in the same breath as making regular deposits into a retirement account. After all, lottery tickets requires a whole lot of luck to get rich quickly and the other requires a whole lot of planning, work, and patience (and yes, a little bit of luck) to get rich very, very slowly.

On building “wealth”

Wealth is a tricky, ambiguous word.

To me, it simply means having enough money to comfortably live out the rest of my days. Using that definition paired with Irwin’s reasoning, it makes sense, then, why I’m never tempted to buy lottery tickets; folks with my socio-economics don’t need the lottery to dream of some day arriving at that sort of wealth. Yes, there will be hurdles along the way — big ones, perhaps — but I don’t have too much doubt that I’ll get to a comfortable amount by the time I’m ready to settle down.

Certainly, many Americans aren’t so lucky. As of last year, when asked by the public opinion polling firm Gallup, 45 percent of respondents said, “No,” when asked if they think they’ll have enough money to live comfortably when they retire.

As high as 45 percent is, it’s lower than it has been in many years since Gallup started asking this question in 2002:

All of this led me to hypothesize this question: Do Americans buy more lottery tickets when they’re less confident they’ll have enough money to live comfortably through retirement?

The data analysis

With a bit of thought, the question is not nearly as ridiculous as it may seem on the surface. The majority of studies — including many summarized by the St. Louis Fed — have already estimated the income elasticity of demand for lottery tickets to be less than one. In other words, as someone’s income decreases, their demand for lottery tickets increases. Because lottery ticket revenue is generally earmarked for government programs, some have gone so far as to call the lottery a “tax on the poor.”

Thus, because we can intuit that the poor are more likely to lack confidence about their retirement savings, it should follow that people who are less confident are more likely to buy lottery tickets.

To examine this question, I put that Gallup data in a table alongside the lottery ticket sales for each year taken from the Census, which I translated into base-year 2013 dollars using the Consumer Price Index taken from FRED as follows:

table-595thDesktop

As a scatter plot, the data looks like this:

chart-595thDesktop

After regression testing the data, we find a statistically significant relationship between people lacking confidence about their retirement savings and lottery ticket sales, at a 99% level of confidence. At 0.75, the correlation is a strong one.

In other words, when they’re less confident about retiring comfortably, Americans buy more lottery tickets.

If this trend were to hold, we could predict that with every percentage increase in the number of Americans who say they’re not confident about retiring comfortably, there will be $271 million more worth of lottery tickets sold that year.

Data Sources:

Variable rate mortgages furnish cost-effective alternatives

Happy Presidents Day to those of you reading in the U.S. Before we get started today, please read my disclaimer.

The mortgage industry is bustling to accommodate borrowers seeking to lock-in the lowest interest rates they have ever seen. Fixed interest rates are once again near all-time lows, so a vast majority of home borrowers now embrace attractive, fixed rate loan options. Though it makes sense in many cases, a fixed rate mortgage is not your only option. Some borrowers are finding a better fit with variable rate products, so it pays to evaluate your mortgage options before committing to a standard fixed-rate payback schedule.

Flexible Borrowing Options Serve Diverse Needs

For a large share of home buyers, the consistency and affordability of fixed-rate loan products makes them comfortable choices. Fixed-rates allow borrowers to anticipate payments and make sound budgeting decisions over time. To many home buyers, steady payments are the best way to manage mortgage payback.

On the other hand, some borrowers have greater tolerance for variable payments, which rise and fall according to the Bank of England Base Rate. While fixed rate loans protect borrowers from interest rate spikes adding to the cost of payback, fixed rates can also cancel-out potential savings variable rate borrowers gain when rates stay low. Your best mortgage match depends upon your personal circumstances. As you sort through options, you’ll want to consider your long and short-term financial goals as well as your sensitivity to fluctuating payments.

Current Lending Trends

A sampling of current fixed rate options shows rates near historic lows. Depending upon your down payment, rates are available as low as two and one-half per cent for many borrowers. Among five-year fixed rate loans, those buyers with 40 per cent down, for example, may qualify for an HSBC loan with a prevailing rate of 2.48 per cent. With 25 per cent down, qualified borrowers take advantage of a 2.94 per cent interest rate from Norwich and Peterborough. Even a 15 per cent down payment unlocks an attractive five-year, 3.64 per cent deal through Chelsea BS.

During the fourth quarter of 2014, nearly 85pc of mortgages initiated by lenders were fixed-rate loans. The trend accounts for new buyers, but it also reflects high volume remortgaging by property owners seeking relief from high interest rates on their home loans. Locking-in at comparatively low rates has helped many families correct household budgets, but there is another school of thought operating in the mortgage industry too, drawing some borrowers to variable rate alternatives.

Advantages for Some

Fixed rate mortgages hedge against interest rate increases brought on by changes to the Bank of England Base Rate. The interest rate offered on fixed loans is a prediction of which way economic trends will unfold. Variable rate loans, on the other hand, are directly tied to real-time changes in financial markets, so interest paid by borrowers reflects prevailing conditions, rather than future forecasts. As a result, those willing to bear the potential for variable rate increases also enjoy savings when variable rates remain low. One aggressive variable rate promotion offered by HSBC, for example, offers a .99pc interest rate for borrowers with 40pc equity or deposit. The “discounted” variable rate reverts to “standard” variable rate after two years, and requires a £1,499 fee from borrowers. Of course the loan is variable, so the ultra-low rate is not guaranteed. To certain borrowers, however, it is well worth a go.

Anecdotal reports indicate wealthy clients are choosing variable rate loans more often than less-affluent borrowers. For starters, economists are predicting interest rates will not be adjusted in the short term, opening the door to savings for variable rate borrowers. Of course this can change rapidly, but wealthy borrowers are in a better position to rebound from financial missteps. Their strong credit also allows them to move freely between variable and fixed rate mortgages, so rich borrowers can quickly change their approach as the lending market shifts. In fact, it is the flexible nature of variable rate loans that appeals to some wealthy borrowers, enabling them to pay ahead on loans without incurring early repayment penalties.

Whether you are remortgaging, or financing a new purchase, flexible mortgage options are available to meet your financial goals. Although fixed rate mortgages present attractive funding sources, variable rate loans are an even better fit from some borrowers. Before you lock-in your next loan agreement, investigate various mortgage alternatives for unique benefits each approach brings to your situation.



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Resolve to encourage and NOT mock personal finance newbies already struggling with their resolutions

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James Wheeler via Flickr

I definitely saw more friends in my Facebook feed committing to personal finance resolutions in January than ever before.

This is great news. Working toward smarter decisions about saving, spending, and paying off debt is something everyone should encourage.

It’s troubling, then, when I hear the not-so-hushed whispers among those deeper in the finance game mocking these brave new souls, belittling them for the smallest shortcomings, such as saving…but not at the highest rates, investing…but not with the lowest fees, or cutting their spending… but not to the barest minimum.

Or maybe the worst thing of all — now that we’re a month into the year and plenty of these new people are invariably struggling, old-timers wonder aloud just when this newbie is gonna quit and revert to their old spend-happy ways.

Stop being a jerk

I was one of those newbies who started a path toward financial  a couple years back, and have since paid off over $60,000 in debt. I couldn’t have done it without my experienced readers offering advice, and I especially couldn’t have done it without them offering encouragement.

Unfortunately, alongside that group were plenty of detractors — the sort of people who’d say my goals were a dime a dozen and who happily would have taken bets to see how quickly I’d fail.

The worst thing about this judgmental sort is that they’re not quiet about it. Rather, they wear their disdain on their sleeve like a badge of honor.

This is, after all, their moment to feel superior and to remind you that they’re concerned with their finances all the time.

What to do instead

Don’t be that person.

Instead, add just one more New Years resolution to your list to welcome that person into the community and encourage them to do their best.

Offer to take a look at their budget (or debt payoff plan or investment allocation or whatever).

Or better yet, ask them to take a look at your budget. Think of it as an opportunity to show them what “right” looks like without making them feel self-conscious about doing something wrong.

And if you encounter that sort of judgment, kindly remind the offender that we were all newbies once.

 

 

February 2015 net worth update: Paid off $2,400 debt and still going strong with New Years resolutions!

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Ian White via Flickr

Good morning and welcome to February!

Just one month into the new year, I’m happy to report that I haven’t yet busted my New Year’s resolutions. Alongside three sub-goals, I set one big personal finance goal for 2015:

  1. Get to a net worth of zero after starting the year with a net worth of negative $47,000

Let’s see how I did in January working toward that.

February 2015 net worth update

Here’s how my numbers looked last month:

What I’m proud of: Paying off $2,400 in student loan debt feels great! After a 2014 where I had some good months and long stretches where I hardly paid off any debt at all, I’m looking for both progress and consistency this year. I’m proud of this strong start.

What challenged me: I had a surprise monster cavity that needed an expensive crown, for which I had to pay a budget-busting $500 out of pocket! Luckily, I have an emergency fund to deal with these sort of surprises — and a Health Savings Account for tax-advantaged payment.

What I learned: This is simple; the lesson here was definitely to brush and floss regularly.

Spending

Here’s how I spent money in January:

  • 59% Debt repayment and retirement savings. Slightly lower than my 61% goal for the year…stupid crown
  • 15% Rent
  • 15% Food, health, and personal care. Stupid crown…
  • 7% Travel and transit. A bit overblown because I pre-paid for some travel I’m doing in February and March.
  • 4% Utilities and everything else

Sorry, did you say you needed that as a pie chart?

spending

2015 goal progress

As for my greater goal of getting to a net worth of zero by the end of this year, $3,900 gets me eight percent of the way there, so I’m definitely on track. Here’s that in graph form:

progress

Thanks for reading and thanks for all your help! How was everyone else’s January?

The $500 dentist visit that left me toothless and one frugal tip: Floss!

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Arno Meintjes via Flickr

Last week, I learned a couple important lesson at a dentist appointment.

The first lesson was that I could opt into text messages from my dentist. Now, I can more easily fit her floss-shaming into my busy, on-the-go lifestyle. What an age we live in!

The second came toward the end of the appointment, when I found out that a tooth of mine had decayed enough that I needed my first ever crown! To add to the bad news, because crowns are only half-covered under my dental plan, I’d have to pay around $500 from my own pocket.

Now that’s a rough way to derail my debt payoff goals for January!

Anyhow, as she got to work replacing my real tooth with plastic and porcelain, thereby making me a small percentage more machine than man, we talked about flossing.

Why I really should floss more

I’ve always thought of flossing as only useful for getting rid of bits of food stuck between my teeth. But she told me that flossing does so much more! Flossing agitates the nearly invisible film of bacteria that forms between your teeth and between your teeth and your gums. Leave that bacteria unchecked and it forms into plaque. Leave that plaque alone and it turns into the much harder tartar, which can either be scraped off at your next dental cleaning or left to ruin your gums and teeth — and cost you $500 every time you need a crown!

Need more motivation to floss? Here are some more reasons:

  • Brushing your teeth is like like using a bath sponge to clean off the broad parts of your body like your arms and back. That’s important for sure, but you wouldn’t leave the shower without cleaning your arm pits and other in-between body parts!
  • Each tooth has five faces: a front, back, top, left and right side; brushing but not flossing leaves two of those five faces uncleaned!
  • Flossing prevents gum disease which can also attack the bones that support your face; let those bones sag by not flossing and you’ll look like an old person prematurely (Source: WebMD)

How I’ll hack myself into flossing

First off, I’ll find motivation in the reasons I listed above.

Second, I’ll always have it around. Floss already fits my criteria of the ideal item to buy in bulk:

  • It never spoils
  • The storage space and cost of having a lot of it around is close to zero
  • I’m definitely going to use it in the future

But I won’t just keep what’s left of the five-pack underneath the bathroom sink; I’ll have a pack of floss in my medicine cabinet by my toothbrush, put one in my desk drawer at work, put one on my bedside table, have one by the television remote. In fact, I’m looking at a pack of floss as I type this right now.

Finally, I’ll make sure I’m flossing the way the American Dental Association recommends — by gently rub the floss against each side of your tooth multiple times, then curve the floss to rub deep between your tooth and gums.

So, ya flossing yet?

 

 

Here are some reasons why you might want to close a credit card account

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Håkan Dahlström via Flickr

Welcome!

If you’ve arrived at this post from a web search, there’s a good chance you’re already looking to close a credit card and need some validation, so hopefully, this list can provide that.

The story starts with my own experience as I’m looking to close a credit card right now.

Before we get started, let’s review the primary reason that you shouldn’t close a credit card account — because it can negatively affect your credit score. As illustrated by the wonderful Credit Karma here, your credit score is made up of six items — three of which are affected by closing a credit card account, as follows:

  • Payment history
  • Credit card utilization (lower is better): Your utilization is the fraction of the total amount you currently owe divided by the total credit you have available across your cards. Close a card and your utilization goes up when the denominator of this fraction decreases (To understand this, remember that a 1/4-pound burger is smaller than a 1/3-pound burger)
  • Age of credit history (older is better): Over time, closing an account could also decrease the average age of all of your credit card accounts
  • Credit inquiries
  • Total accounts (more is better): Should be self-explanatory why closing an account makes this number smaller
  • Derogatory marks

If you’ve got otherwise solid credit, it’s likely that closing one credit card account won’t hurt your credit score much, if at all.

Still, that’s hardly an argument for closing an account. It may be tough to think up many benefits of closing a card that wouldn’t be similarly achieved by paying off the entire balance and simply shredding the card or making it otherwise unusable to you.

Still, I came up with a few which I explain here.

You’ll be charged an annual fee

This is a great reason to close a credit card account.

It’s why I’m closing mine! The annual fee was waived that first year and I got a fantastic sign-up bonus.

But keeping it open after that first year? No thanks. There are just too many solid alternatives out there that don’t charge an annual fee.

You’re afraid of fraud

Well, this is totally sensible. After all, the fewer accounts you have, the fewer opportunities thieves will have to steal your account information.

There are some steps you can take to minimize the chance of fraud before closing a credit card account:

  • Opt out of paper statements so thieves can’t pluck your information out of your mailbox
  • Ask your credit card company to not send you balance transfer checks in the mail (If they keep sending them, ask that your cash advance limit be dropped down to $0)
  • Practice good password discipline
  • Check your transaction history frequently so that you can spot and report charges you don’t recognize as soon as they happen

Emotions

Sure, there are plenty of practical, technical reasons why you shouldn’t close credit cards, but we’re humans; not robots! If closing your credit card makes you feel better, the potential drop in your credit score shouldn’t stop you from doing so.

Ambiguity of personal finance

I’ve said it before and I’ll say it again — personal finance is personal. I can only begin to imagine all the reasons that people might come up with for wanting to close a credit card given all the complex aspects of personal finance out there. And really, if you want to close a credit card account, you should just do it. Personal finance is personal.

And that’s that! What are some of the other reasons you can think of to close a credit card account rather than just paying it off and shredding it?

 

 

 

 

 

My 2015 finance goal: To go completely broke in one year

My personal finance goals for this year boil down to one simple target: By December 31, 2015, I want to be worth absolutely nothing.

Getting there is much less simple, but this post lays out the steps it’ll take to make that happen.

Goal #1: Have a 61% savings rate

Last week, I shared a categorical breakdown of all the spending I did in 2014 and found that I sent 60 percent of my take-home pay toward saving for retirement, paying off student loan debt, or traditional savings to be used as an emergency fund.

It certainly wasn’t easy using 40 percent for all of my other expenses.

In 2015, I’d like to improve upon that savings rate by one percent in order to tackle this year’s other ambitious goals.

spending

Goal #2: Contribute $6,000 to retirement savings

Spending just 39 percent of my income will leave me with more than enough to achieve my retirement savings goal for 2015, which is to contribute $6,000 before the end of the year. This is an average of $500 per month, which will be enough to qualify for the full employer contribution to both my 401(k) and my HSA. Of course, this doesn’t mean that I expect my retirement savings to stand still. To the contrary, I expect it to be over $20k bigger by the end of the year, due to the following:

$58k Starting balance
$ 6k My contributions
$13k Employer contributions and vesting
+$4k Gains (at 5%)
 $81k Targeted end of year retirement savings

Among these, the 5% gain is the most uncertain, but will work for this projection.

retirement

Goal #3: Pay $36,000 toward student loans

Spending just 39% of my income on all of my needs and wants, and limiting my own contributions to my retirement to $6,000 will allow me to send $36,000 toward student loan debt. That’s a mind-blowing $3,000 a month! Uf. Still, if I can manage, here’s what could happen during 2015:

$105k Starting balance
$-36k Payments
$+11k Interest
 $80k Targeted end of year student loan debt

 Making these aggressive payments would knock a big chunk off of my student loan balance, so I’ll give it my best shot!

debt

Goal #4: Get to a net worth of $0

As I mentioned in the 2015 net worth update I posted yesterday, I’m currently at a net worth of -$47,300. It’s ugly, I know, but when I started this blog at the beginning of 2013, I had an even uglier net worth which was worse than -$150,000. If you look at goals #2 and #3, you might notice that my target balances for retirement savings and student loan debt are just about equal.

networth

If I’m able to take the steps that let me accomplish both of those goals, then I’ll reach a point I didn’t think I’d hit for a long while: having retirement assets that cover my student loan liabilities.


My 2015 net worth update — up $46,000! — and 2014 year in review

Good morning, y’all! 2014 is no more; long live 2015!

Having watched another year pass by, I’d like to take stock of where I am right now, and look at the progress I’ve made on my long-term personal finance goals.

2015 net worth update

Let’s start with the numbers:

net-worth

The bad: If I had to pick one thing to feel bad about, it’s that the $31,300 gain to my retirement savings was so much bigger than the $15,000 drop in my debt.

Some of that was just being smart and contributing enough to a 401(k) or Health Savings Account to take advantage of an employer match.

Some of it was just the market being very kind to me. Can’t complain about that!

However, most of it was just because I don’t always do the smartest things.

The good: In the post yesterday detailing how much I spent on different things last year, the two biggest line items by far were student loan repayment and retirement savings.

This represents nothing short of a total transformation for me; as recently as 2013, those two numbers would have been $0 and $0 if I even tracked them (I didn’t).

But numbers aren’t everything and they definitely don’t tell the whole story of my 2014. Sending 60% of my take-home pay to savings and debt payments doesn’t come without sacrifices. I skipped weddings and birthdays, didn’t buy the nicest gifts, declined invitations for travel, restaurant dinners, and nights out, sold some things I shouldn’t have bought in the first place, and more.

And that’s why it’s such a great feeling to see this big increase, helping to reassure me that in at least one way, it was worth it.

Here’s a graph of my retirement savings, net worth, and debt ever since I started this blog back in January 2013.

graph

2014 goal results

I set four personal finance goals for myself at the beginning of 2014.

2014 Goal #1: Pay off $27,000 in debt. FAIL.

I wasn’t even close on this one. This goal was always going to be a reach and I really shot myself in the foot by allocating so much effort toward retirement savings at the expense of paying down my student loans.

The lesson from this failure, of course, is to switch the two around and focus hard on paying off debt in 2015. It’s still a doable goal.

2014 Goal #2: Add $17,000 to retirement savings. PASS.

Because $31,300 is still more than $17,000, right? Excellent, let’s move along.

2014 Goal #3: Add $1378 to my emergency fund. PASS.

This is a very big deal for me. I’ve always had trouble adding to my savings account even though I knew it was important to put cash away for those inevitable rainy days.

I finally kicked my hesitancy by taking the 52-week savings challenge, wherein I saved just $1 the first week, $2 the next (easy, right?), and so forth until before I knew it, I was putting about $200 per month into savings in November and December.

The result? An emergency fund that’s now over $6,000 which makes me feel much more comfortable :)

2014 Goal #4: Reduce monthly food spending to $300 and switch to prepaid service to save on cell phone bills. NEUTRAL.

My food spending — which includes groceries, alcohol, dining out, and food while traveling — was just over $400 per month. I failed that part pretty badly.

I may never get to $300, but I think it’s still good to aim for.

I also never did switch to prepaid service.

However, I did drop my monthly bill from $90 to $18 thanks to switching to T-mobile (plus a couple other steps).

I’ll call this a neutral.

Pretty soon, I’ll post my personal finance goals for the new year, but for now, I’m happy with my results.

How did everyone else do with their goals?

Everything I spent money on in 2014 (toward a 60% savings rate)

With 2014 in the books, I’m in a retrospective mood. I’ll start reviewing the year just past today by looking at my spending.

Twenty years from now, it might be difficult for me to remember that 2014 even happened when compared with the years preceding it. I didn’t finish grad school, didn’t lose my job spectacularly, didn’t end up in the emergency room, didn’t go to war, didn’t win an election.

Instead, I’m working for the same company, having received a modest promotion, and living in the same apartment in which I started the year. That second thing is more of an event than it seems on the surface; I’ve now lived in the same place for two full years — something I haven’t done since leaving my childhood home in 1998.

Rather, 2014 was a great reminder of just how important the journey is. This past year, I strengthened existing relationships, rekindled old friendships, and — just to balance things out — burnt a couple bridges. I got back into writing fiction and did some long overdue maintenance work on my mind and body, finding saplings of success with each.

I can truly say that 2014 was both the best of times and the blurst of times.

Now let’s talk spending.

Total effective tax rate: 32%

There wasn’t a whole lot I could do to avoid taxes this year. Of course, I contributed to a 401(k) before tax, contributed to a health savings account, and even gave to charity, but none of it had much of an impact since I’ve been phased out of many tax credits and deductions, and don’t yet get those associated with being married or having kids.

From my gross income, the American people — by way of the government — took 32%, broken down as follows:

Click to enlarge
I’ve got nothing much to say here as none of that looks out of the ordinary.

After-tax spending by category

Once those taxes were taken out, here’s how I spent my disposable income, broken down into three categories I call basic needs, wants, and savings and loan repayment:

Click to enlarge

These ratios look solid. Obviously, I would like to put more toward savings, but as it stands, 60 percent feels very respectable.

Basic needs

Here’s that category I called Basic needs, broken down a bit further:

Basic needs

Of course, the definition of a Basic need can be subjective, but I think this gets close.

My New York City rent, at 18 percent, makes up the majority of this category. Even though I split a small apartment with two roommates in one of the outer boroughs, this is more than I want it to be. However, I’m sure that I’d spend more than two percent of my disposable income on transit if I lived in a place where I needed to buy a car, insure and maintain it, and fill it with gas, so I don’t feel too bad.

As for transit, that includes about two cab rides a month. I live in a very subway-friendly area, but if I’m running late to an appointment in Queens or the less subway-friendly (to me) neighborhoods of Brooklyn like Williamsburg, then I can pretty easily convince myself to take a cab instead. Taking fewer cabs is something to strive for.

In the food section you’ll find booze, even though it probably doesn’t belong in the needs section. Still, it’s much easier to include money spent at bars as part of restaurant spending. Consumables pretty much includes anything bought at a grocery store, such as toilet paper.

Finally, my total spending on utilities was way down in 2014, now that my cell phone bill is just $18 per month compared to $90 per month in 2013.

Wants

Here are the things that made up my wants section:

Wants

I work pretty hard at saving money on travel (See here, here, and here, for example), but it still makes up a big chunk of my spending, thanks to living across the country from the place I call home, and going to lots of weddings all over the country and all over the world. That said, a lot of the money I spent on what I call travel went to trips around the northeastern United States, including New Jersey, Connecticut, Pennsylvania, and Delaware, which means much of this is just a factor of living in New York and not owning a car.

In the electronics and home goods category, I needed a new flat sheet for my bed and was pleasantly surprised by the inexpensive option I found. I also needed to replace an aging tablet that I was using as a laptop, and was also pleasantly surprised by this Asus I picked up for $180.

Otherwise, the rest of this chart looks about right.

Savings and loan repayment

The category I called Savings and loan repayment was composed of the following:

Savings

It’s pretty nuts to think that I’m sending almost one-third of my take-home pay to student loans, but I guess that shows how serious I am about paying those things off. In fact, I wouldn’t mind seeing my retirement contributions go down just a bit — while still enough to take advantage of my employer match, of course — so that I could send an even bigger percentage toward paying down my loans. There are lots of good goals to strive for in 2015 and I’ll include them all in a later post.

So, how did everyone else do with keeping spending in check this past year?

Five personal finance must-do tasks for the end of the year

Dawn Ellner via Flickr

Dawn Ellner via Flickr

With just a couple days before we say good night to 2014 and good morning to 2015, there’s just a little bit of last-minute housekeeping I’m doing to make sure I don’t leave any money on the table and any loose ends hanging around.

1. Make sure I have contributed up to my company match for my 401(k)

This is a no-brainer. If, for example, your company matches your contributions to a 401(k) up to six percent of your income, and you’ve only contributed five percent so far, then you’re essentially saying no to free money.

Don’t say no to free money.

I have contributed at least as much as my company will match.

2. Use up any money in a Flex Spending Account

What did I just say about saying no to free money?

If you’ve contributed pre-tax money to an FSA for health spending and you haven’t yet used it all, make sure you do before the end of the year or else you’ll lose it.

(Note: The law allows employers to extend the deadline to as late as March 15, but not all do)

You would likely need a prescription for any drugs to be eligible, but medical supplies — including contact lenses and eyeglasses — are also eligible. An easy way to do it would be to search Amazon for “FSA eligible” and then check with IRS Publication 502 to verify that whatever you choose checks out.

I personally don’t use an FSA.

3. Consider giving to charity

There are many good reasons to give to charity.

If you were planning to give early in 2015 anyway, consider moving that up to 2014 if having the additional tax deduction would make sense for you.

I have given as much as I would like to charity for 2014.

4. Contribute to an IRA

Sadly, because we’re this close to the end of the year you’re unlikely to be able to complete a Roth conversion in time for it to apply to your 2014 taxes.

However, if you still haven’t hit the $5,500 maximum for contributing to an IRA, you have until April 15, 2015, to contribute for it to count for the 2014 tax year.

Get more information from this IRS table on traditional and Roth IRAs.

I have maxed out a traditional IRA.

5. Have tough talks with parents (or children, if you’re the parents)

There are never any fun times to have the difficult conversations with aging parents including the following:

  • Whether they’re prepared financially for retirement,
  • Whether their will and testament are up to date,
  • Whether they’ve taken the necessary steps toward estate planning, and
  • Whether they’ve put together an advance directive — also called a living will — that is, what should happen if they become incapacitated to the point that they can no longer make decisions by themselves.

Sure, this conversation will never be easy, but think about it this way: The holidays might be the only time every year when you’re together with your parents and all your siblings and it’s best to have this sort of heavy conversation in person.

I had a few of these conversations in pieces with my parents. Definitely not fun

6. Reflect and re-energize for the new year

Bonus tip!

If you’re like me, you had a mixed year with some good outcomes and some challenges. But the new year offers a blank page to continue writing our story and the opportunity to look forward to adventures to come.

Best of luck to all of in finishing the year strongly.