Archive for January 2015

How Paycheck Withholding works   Leave a comment

Some people are misinformed about how paycheck withholding works. Today I’ll discuss two common misconceptions:

  • Overtime pay is taxed at a higher rate
  • Bonuses are taxed at a higher rate

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Posted January 29, 2015 by Fiby in Uncategorized

Dollar Cost Averaging vs Lump Sum Investing   Leave a comment

You can find many articles and blog posts on dollar cost averaging vs lump sum investing. This discussion is only relevant when you have a large lump sum that you want to invest, which generally occurs either when you are starting investing, or you receive a windfall from say an inheritance.

Lump sum investing – You invest the entire lump sum according to your Investment Policy Statement (IPS).

Dollar cost averaging – You invest your lump sum over a period of time, typically 6-12 months.

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Posted January 28, 2015 by Fiby in Uncategorized

Treat All Your Accounts as One Big Portfolio   Leave a comment

Sometimes I see people self impose limits on their asset allocation within each account, to their detriment. This is best illustrated by example.

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Posted January 27, 2015 by Fiby in Uncategorized

My April Vacation to Korea and Japan Booked with Miles!   Leave a comment

I’m going to interrupt this stream of finance oriented posts with the details of my award ticket for my upcoming vacation to Japan and Korea in April. One of the major things I want to do when I’m financially independent is travel the world (and keep the costs down while doing it). So “travel hacking” is one of the things that I have been strategizing for the past couple months, and now I have finally booked a major flight using miles (I have booked a short domestic flight on United before, but that’s not that exciting).

“Travel hacking” is the act of substantially reducing the costs of a trip through various means. The most common way is to utilize credit card signup bonuses – typically you are required to spend $1000-$3000 in the first three months after approval of certain credit cards to get the bonus. For higher end cards, this bonus can be 50,000 miles (or sometimes, even more). Sometimes you can get miles from bank accounts (though this is somewhat rare, and not used as often). Using credit card signup bonuses for airline miles and hotel points is the common way that people engage in travel hacking.

So today I’m going to explain how I got the miles I used for the flight, how much that cost me in both money and time, and some technical difficulties I had in booking.

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Posted January 26, 2015 by Fiby in Uncategorized

How To Avoid Capital Gains Tax   Leave a comment

Recall that when you sell an asset, you owe capital gains taxes on the difference between your cost basis and the sale price. There are, however, at least three ways capital gains taxes can be avoided (I’m sure there may be more, but these are the ones I am aware of)

  • If the asset is a stock, mutual fund, or ETF, and you’ve held it for at least a year, and you are in the 0% long term capital gains bracket, you don’t owe any tax on the sale. Of course, this requires you to be in the 0% long term capital gains bracket, which you may not be.
  • Donate the stock, mutual fund, or ETF to charity. Of course, this is only really beneficial if you were going to donate anyway.
  • Leave the asset to your heirs in your will. Neither your estate nor the heirs will owe any capital gains taxes.

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Posted January 25, 2015 by Fiby in Uncategorized

Best Bank Accounts   Leave a comment

I thought I’d take a bit of a break from investing and taxes to discuss what I think are the best bank accounts.

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Posted January 24, 2015 by Fiby in Uncategorized

Do Your Taxes Yourself   Leave a comment

[I updated an earlier post on IRAs to mention one of the most important characteristics of Roth IRAs – early withdrawal of contributions without penalties or taxes].

Almost all Americans should do their taxes themselves. Many people just have wage income and some bank interest, which is incredibly simple to file. Some people all capital gains and qualified dividends to that, which isn’t that much harder. A couple of tax credits can get hairy, but for the most part, people should do their taxes themselves, by hand, without any software. Now I do recommend using software to check your work (so long as you can find free software that will handle your tax situation). But you should do it by yourself by hand first. I have two major reasons for this recommendation

  1. If you just mindless answer the questions asked by tax software, you don’t learn the tax code, which means you can’t plan ahead
  2. You can outsmart the tax software and get a better refund. I’ve done this before, and will continue to do this for every single year I am a graduate student.

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Posted January 23, 2015 by Fiby in Uncategorized