Save money. Don’t multi-task.

The barista had to ask three times for her order before the woman finally responded. She’d been so busy nattering away to her friend in line that she didn’t notice she was now at the front.

And the fun wasn’t over. When it was time to pay, the woman pulled out her wallet and dug fruitlessly inside, opening the same compartments over and over, all the while keeping up the nonstop chatter.

As the seconds ticked passed and the line grew, what started out as vaguely annoying became absolutely absurd. The barista looked at me, the next person in line, and widened her eyes in exasperation.

I shrugged. I was just grateful I’d encountered this person in a coffee shop rather than on the road, where she probably thinks she can drive while talking on the phone just fine.

Obviously, she can’t. None of us can. Multi-tasking is a myth, and only works when both the things you’re trying to do are brain-dead simple–like folding laundry and watching TV. Anything more complicated, and you’re likely to do one or both things far worse than if you’d concentrated on a single task.

But multi-tasking isn’t just stupid. It can be expensive. Consider:

  • Talking on a cell phone while driving is as dangerous as driving drunk. You’re four times as likely to be in an accident.
  • Texting while driving raises your chances of an accident by 20 times.
  • Not only are you risking injury and death–and the injury and death of others–but you’re just begging for a nice juicy lawsuit. As Nolo Press puts it, “plaintiffs have argued (and some courts have agreed) that a driver was legally at fault for the accident (“negligent,” in legalese) because the driver used a cell phone immediately before or during the collision.”
  • If a plaintiff’s attorney can successfully argue that a phone call is distracting, think how much easier his or her case will be if you were texting–which any idiot knows you shouldn’t do in a car.
  • Even if everybody walks away without stunning medical bills, you can bet your life your auto insurance rates will skyrocket.

It’s not that hard to turn off the phone and put it away when you drive. You’ll drive better, and you could save yourself a fortune.

Young and broke? Open a Roth

You young’uns, listen up. Roth IRAs are the best thing since sliced bread. And the best time to contribute is when you’re young and broke, since you won’t always be that way.

Here’s the deal: contributions to a Roth don’t give you a tax break up front. But when you aren’t making much money, you aren’t paying much in taxes, so that’s an easy sacrifice to make.

The beauty of the Roth is when you take the money out. You can always withdraw your contributions without paying income taxes or penalty on the cash. But I recommend you don’t, because if you leave your Roth alone, those contributions—and all the lovely gains they’ll earn over the years—can be withdrawn entirely tax free.

Chances are, your tax rate will be higher in the future than it is now. The future you will be blessing the current you for tucking aside all that tax-free wealth. Every $1,000 you contribute in your 20s could grow to $20,000 or more by the time you’re ready to retire. If you’re so rich by then that you don’t need the money, you can pass the account on to your kids, and THEY can pull out money tax free.

That doesn’t mean you should ignore your workplace retirement plan—your 401(k) or 403(b)—especially if it has a match. But if you can possibly tuck some money away in a Roth, you probably should.

Starting one is easy—just about any bank, brokerage firm or mutual fund company under the sun will be happy to take your money. I like Vanguard’s target date retirement funds, since they do all the asset allocation and rebalancing for you, their expenses are dead cheap and you only have to have a $1,000 minimum investment to start a Roth there. (Don’t have $1,000 yet? Start a Roth at a credit union, save up and then transfer the account to Vanguard.)

Even if you aren’t so young anymore, the tax benefits of a Roth make sense if you’re likely to be in the same or higher tax bracket in retirement.

The ability to contribute to a Roth starts to phase out once your modified adjusted gross income exceeds $110,000 if you’re single and $173,000 if you’re married filing jointly.

Making money is a good thing. But I’ll admit to some sadness when hubby and I stopped being able to contribute to our Roths. These accounts really are a great deal.

 

Spreading the wealth: the number of millionaires grows

More people have achieved a net worth of at least $1 million, not including their primary residences. The Spectrum Group, which keeps track of these things, said the number of millionaires climbed for the third straight year to 8.6 million in 2011 (or 7.5% of all U.S. households). The growth in millionaires follows a 27% decline in 2008. But we’re still not back to the 2007 peak of 9.2 million.

Spectrum said the ranks of all affluent investors increased in 2011:

  • Those with $100,000 or more in net worth sans primary residence reached 36.7 million from 36.2 million in 2010 (about 32% of U.S. households)
  • Those with $500,000 or more in net worth climbed to 13.8 million from 13.5 million in 2010 (about 12% of U.S. households)
  • Those with $5 million or more in net worth rose to 1.078 million from 1.061 million in 2010 (slightly less than 1% of U.S. households)
  • Those with $25 million or more in net worth grew to 107,000 from 105,000 in 2010 (slightly less than .1% of households)

Retire in style: What you need to know

Reuters has a nice package of retirement stories that are worth checking out:

Ecuador seen as new retirement hot spot
I mentioned Ecuador in my column “Retire overseas on $1,200 a month,” and now it’s been named a top spot for bargain-seeking retirees, according to International Living magazine’s 2012 Global Retirement Index.

What retirees wish they’d done differently
Reuters asked several retirees what they would tell their 40-year-old selves if they could go back in time. Interestingly, the answers aren’t all about money–they’re about quality of life. (A great book on this topic is Ralph Warner’s “Get a Life: You Don’t Need $1 Million to Retire Well.”)

How low must retirement withdrawals go?
Linda Stern tackles the tricky math of how much you can afford to take from your retirement savings to have a reasonable chance of making your money last as long as you do.

Growing numbers work into retirement
I’ve written about “When only one of you can retire” and the huge numbers of people forced into early retirement by layoffs, but this article picks up the flip side: people who keep working because they want to. If that’s you, you might also want to read “Retire without quitting your job.”

Is an annuity in your future?
One solution to the risk of outliving your money is the income annuity (also known as the fixed annuity). Learn more about it here.

When to start tapping Social Security
Some people have little choice but to take Social Security benefits early. But if you can wait, you probably should.

Moonjar winners: check your email!

All 12 winners of the Moonjar Money Boxes have been notified, but I’ve only heard back from 8 of you. If I don’t hear back from the other four, the prizes will be awarded to other entrants. So: SUZY, JENNIFER S., EMILY B. and KATHY L., check your email (and your spam filter) and get back to me soonest!

Friday Follows: What’s interesting out there

Here are some recent, thought-provoking articles that are worth a look:

Get ready: inflation may hit 15%” from Kathy Kristof on MoneyWatch. Alarmist? Maybe, but there’s a lot of cheap money sloshing around in the economy right now. Once the economy heats up, that fuel could catch fire. If you don’t remember the 1970s, this is a good primer in what to do when prices skyrocket.

Daily coupon deals may not work for buyers, sellers” from USA Today. I’ve gotten some great deals–and some real stinkers. Some businesses benefit, others don’t. What do you think?

Bouncing back” from another friend, Melissa Balmain, on Success. How people find the strength to go on in tough times, and how to develop your own “resistance muscle.”

Bulls, bears and bailouts” from ProPublica captures the highlights of a Reddit chat with Wall Street reporter Jesse Eisinger. Jesse’s answer to why more of the architects of the financial collapse aren’t in jail? “Prosecutors have been overly risk-averse.”

5 debit card don’ts

ShopSmart, the excellent magazine from the publishers of Consumer Reports, just came out with a list of ways you shouldn’t use your debit card. Among them:

1. Don’t use your debit card for big purchases or when you shop online. Credit cards can serve as a middleman in disputes, so you’re typically not out any money if there’s a problem.

2.  Don’t take your debit card on trips. Credit cards often have travel insurance; debit cards don’t.

3.   Don’t use a debit card if you’re worried about getting ripped off. You have more protections under federal law with a credit card. You’re only responsible for up to $50 in unauthorized purchases, and credit cards typically waive that small amount. “With a debit card, you can be out $500 if you don’t report the theft or loss of your card or PIN within two business days of discovering the problem,” the magazine noted.

4.      Don’t rely on a debit card if you want to raise your credit score. Debit cards don’t build credit history. Credit cards do.

5.      Don’t use your debit card if you want to earn money on purchases. Banks have eliminated or reduced most debit card reward programs, while many credit card issuers have enhanced theirs.

New giveaway: Moonjars!

I’m giving away twelve (12!) Moonjar Moneyboxes. If there’s a child in your life who needs to learn about money, this is a great tool. The three-part cardboard bank allows kids to divvy their cash among three categories: save, spend and share.

To enter to win, leave a comment here on my blog (not my Facebook page).

Click on the tab above this post that says “comments.” Make sure to include your email address, which won’t show up with your comment, but I’ll be able to see it.

If you haven’t commented before, it may take a little while for your comment to show up since comments are moderated. But rest assured, it will.

The winners will be chosen at random Friday night. Over the weekend, please check your email (including your spam filter). If I don’t hear from a winner by noon Pacific time on Monday, his or her prize will be forfeited and I’ll pick another winner.

Also, check back here often for other giveaways.

The deadline to enter is midnight Pacific time on Friday. So–comment away!

 

Saving for college: what parents need to know

I’m giving a talk this morning to fellow parents about saving for college. I’ll be covering three important topics: why you need to save, how much you need to save and where you should put the money you’re saving.

Why you need to save

A college degree, or at least some post-high school training, is already important if you want your kids to remain in the middle class. That’s only going to become more true in coming years. Read “Should your kid skip college?” for more.

If you can save, you probably should. Financial aid formulas will expect you to have put aside at least something if you’re middle income or above. The idea that saving will hurt your kid’s chances for financial aid is the #1 myth I address is “3 college myths that will cost you.” (You also should read the second part of this series, “Costly college myths part 2.”)

To learn more about financial aid, visit FinAid.org and try out its estimated family contribution calculator. Another good site: TheCollegeSolution.com.

How much you need to save

The answer: A horrifyingly large amount if you expect to pay the whole tab. Even if you start when your child is born, you’d need to save:

  • Nearly $500 a month to pay for a public college
  • Nearly $1,000 a month to pay for a typical private college that currently costs $40,000 a year
  • Nearly $1,500 a month to pay for an elite private school such as Harvard or USC.

If you don’t start saving until your child is older, you’d need to put aside even more to cover the entire bill for tuition, books, room, board and living costs.

(A note: Harvard, like other Ivy League colleges, has committed to capping the cost for education. Families earning $65,000 pay no tuition. Families with incomes between $65,000 and $150,000 will contribute from 0 to 10 percent of income, depending on individual circumstances.  Significant financial aid also is available for families above those income ranges.)

Most families can’t save enough to pay the whole tab. But anything you can save likely will reduce your child’s need to take on debt. You can play with the numbers using SavingForCollege.com’s college savings calculator.

One thing you need to keep in mind: retirement savings must come first. Nobody will loan you the money you need to retire. But try to put aside at least $25 to $50 a month for college, and increase it as you can. Encourage grandparents and relatives to chip in as they can.

Where you should save

Three key points:

  • If your child stands any chance of getting financial aid, don’t put money in UTMAs, UGMAs or other custodial accounts, which are counted as the student’s assets and dramatically reduce financial aid.
  • Savings bonds have very poor returns and aren’t a great way for most to save for college.
  • State-run 529 plans are a good option for many families. The plans have limited impact on student aid awards. The money grows tax-free for college and the contributor retains control. There are estate-planning benefits as well. For more on which plan to use, read “The best and worst 529 plans.”

UPDATE: In my speech, I mentioned how Coverdells (Education Savings Accounts) were changing–I should have been clear that those changes haven’t happened yet. At the end of 2010, Coverdells were scheduled to revert back to their old version, where the limit on contributions was $500 (down from $2,000) and the money could be used only for college (instead of for K-12 as well). Congress actually extended the more favorable rules through 2012, so Coverdells aren’t scheduled to revert to their old form until the end of this year. Congress may extend the rules again, so anyone with a Coverdell may want to wait before they transfer the money to a different type of account.

Want to save money on gas? Check out these cards

Credit card comparison site NerdWallet took a close look at gas cards offered by Gulf, BP, Chevron, ExxonMobil and Shell and compared them to 10 cards that offered rewards at any gas stations. Nerdwallet’s conclusion: it doesn’t pay to be loyal to one brand of gas.

NerdWallet found the station-branded cards offered lower rewards and higher interest rates, plus they rarely had sign-up bonuses.

From the study:

There’s a popular misconception that station-branded gas cards will give you better rewards in exchange for limiting your fill-up options. But when you step back and actually compare, the numbers just don’t add up.

So what should consumers do who want gas credit cards?

Consider these no-fee, non-branded gas cards:

  • Pentagon Federal Platinum Rewards: unlimited 5 points per $1 on gas and $250 signup bonus
  • Chase Freedom: 5% cash back on gas for half the year and $200 signup bonus