The basics of opening an IRA are simple in theory:

1. Decide which type of IRA you want and qualify for (Traditional or Roth, if any)
2. Choose a trustee
3. Fill out some application forms
4. Choose what you want to invest/save your money in
5. Start sending money in — up to the applicable contribution limit or what works best in your situation.

In practice though, there’s a little more to it than that. In fact it’s common to be confused about just what an IRA is exactly.

Let’s start with what an IRA is NOT: An IRA is not stocks, mutual funds, index funds, real estate, money market funds, CDs, or cash. It’s not any sort of investment type at all.

And now for what an IRA IS: An IRA is a way of characterizing your retirement savings. IRA stands for Individual Retirement Arrangement, and Publication 590 from the IRS goes into great detail about the nitty gritty.

I like to think of an IRA as being like a big pot on the stove, with the investments I choose to put into my IRA as the ingredients in the pot that simmer over time.

You want to use a good pot — often a brokerage firm, investment firm, or bank — that has low or no maintenance fees (and low trading commissions, if you’ll be buying shares of stocks or mutual funds) and is reputable. Do your research to be sure you understand what you’ll be charged and what investment options are available.

You also want to choose good investments. These investment “ingredients” could be stocks, mutual funds, real estate, etc. (There are some restrictions on what your IRA can be invested in, and if you invest in real estate there are special considerations.)

If you qualify, an IRA can be an important part of funding retirement.

Posted in Retirement on 02.08.10 with no comments.

I read Smithee’s blog post at Consumerism Commentary about how his first week with only $100 went. I gotta admit, when I first saw the title I thought “What does he mean, only $100? $100 is a lot!”.

Then it dawned on me.

I have absolutely no idea how much I spend in an average week.

I could tell you how much I spend in an average month, on everything including things like the house payment, but…figuring up how much I spend on average on the kinds of things he mentions in his post is another matter.

So I decided to check, and quickly discovered that maybe I ought to make spending “only” $100 a week a goal, because I spent $195.61 over 7 days.

Oops.

Now I sure hope that wasn’t an average week, but sadly it’s probably not horribly atypical. It seems like something always comes up — so much so that I pretty much plan on it.

For the week described here, I spent just over $100 on a month’s worth of oil painting lessons and a few supplies. The remaining amount was spent on gas, 2 week’s worth of lunch money for my son, eating out twice, a birthday gift, and some snacks.

So while I still think spending $100 in a week is a lot, maybe I ought to work a little harder at curbing my spending in order to get down to that amount or less.

Posted in Spending money on 02.07.10 with 8 comments.