My 13 y.o came to me the other day, handed me $200.00, and asked me to put it in his car savings acct. I was in disbelief as he was saving for an Xbox 360. When asked why, he said he just changed his mind. WOW! So I took it and ran. 
He then went to his 11 y.o. sister and told her what he had done, so she had to "one up" him, and she gave me $200.00! $100.00 for her car acct, and $100.00 for her reg. savings acct. This money was mainly birthday money.
Okay, I was now 2 for 2. On to my 6 y.o. I asked him how much cash he had in his wallet. He counted it (very number savvy kid) and had $104.00. I asked him if he would put some into his savings. Immediately he said "half, $52.00." (I talked him up to $72.00)
Some may ask, why do the kids have so much cash? They save. They each have savings accts with ING and are doing quite well. I don't make them deposit their cash, though I try to persuade (sp) them in the right direction.
Now the question...
I have a young friend that is trying to get her financial life in order. She is 22, a single mom, and has a $1000.00 emergency fund. Her 2007 tax refund was $5000.00! (You have got to be kidding!) Anyway, I was telling her she should be investing this money in a Roth IRA.
A little history...She grossed around $16,000 in 2007.
Standard deductions...$7850.00
Exemptions...$6800.00
Taxable income...$1793.00
Fed witholding...$1650.00
EIC...$2680
Add. child tax credit...$704.00
She has since gotten a new job with a better income. Now making about $25,000-$30,000 annually.
How does she figure how many deductions to claim w/o having to pay in at the end? She would prefer to have a small $100.00 tax cushion a mo.
If anyone needs more details, feel free to ask.
Another kicker... She now works for an ins. agency, and someone there is telling her to get whole life. ARGH!
My kids amaze me and question
March 5th, 2008 at 11:53 am
March 5th, 2008 at 12:31 pm 1204720312
1) 1,000 emergency fund
2) Pay off all debt (except mortgage)
3) Increase emergency fund to 3-6 months of expenses
4) Save 15% for retirement
5) Pay off mortgage
6) Invest
Even if she doesn't follow this plane, she should have an emergengy fund of 3-6 months before investing.
just my 2 cents.
March 5th, 2008 at 01:34 pm 1204724066
March 5th, 2008 at 01:47 pm 1204724863
princess, she is claiming only 2, but with EIC and all, she gets a sizable return that should, IMO, be used for debt payoff or investing.
March 5th, 2008 at 02:43 pm 1204728184
The Roth is a good idea unless she has debt to pay off.
March 5th, 2008 at 02:55 pm 1204728941
March 5th, 2008 at 03:13 pm 1204730018
I say she could really take a good 4-5. (I assumed she was bumped to the 25% tax bracket, which is doubtful, but to be conservative). She can claim extra exemptions for the child tax credit, for one. Plus she has 2 exemptions and the standard deduction. That all adds up to around 5 allowances.
Also, if you go to the IRS website, they have a withholding calculator. It is pretty accurate.
I would personally tell her to change her allowances to 2. This would free up some cash, but would also continue some forced savings. Probably good middle ground for her. She can reevaluate next year again and inch it up if she feels comfortable.
May 5th, 2008 at 03:51 pm 1210002692