I think it is important to have a savings plan. I would suggest sitting down and listing all the things you want to save for and how much you need to save for each of those items. This gives you a tangible savings goal to work toward and you will be able to keep track of your progress. I just recently made my goals, which are far from getting accomplished. I am going to list each category and my progress on each of them.

1. Regular Savings (8 month’s worth of current salary – keep in CD ladder) – This is my safety net in case something happens to my job. I suggest keeping at least 6 month’s worth of your salary in this savings account an putting it in a CD ladder so that there is always a portion of available in cash and you are earning higher interest on it. I have yet to begin on this savings goal.
2. Emergency Travel Fund ($5K – keep in high interest savings account) – This is for any traveling that I need to do in case of family emergencies or etc. I have yet to begin on this savings goal.
3. Retirement Savings
a. 401k – at least 10% of salary annually – I am investing 15% of my salary in my 401k currently.
b. Roth IRA – $5K each year – Sometime this year, I hope to open my Roth IRA account and begin with this goal.
c. CD’s – 5% of annual income – I have yet to begin on this savings goal.
4. Saving for a House – This is my savings for the down-payment on a house/apartment that I am looking to buy. I am close to saving enough for a 10 – 20% down-payment depending on the property price.

It is apparent that I have just set these goals recently and have a long ways to go in accomplishing them, but I think having this plan will allow me to stay focused in what I am saving for. Do you have a savings plan? Is there anything you would add to this list?

In a previous post I started discussed who holds the power in a negotiation. This time, we will talk about preparing for a negotiation.

Preparation is the key to success in negotiations. This is the most important part and you will not be as successful as you can be without preparing. If you go into a negotiation without preparing fully and understanding the facts, you will most definitely get rocked.

You need be aware of what your next best alternatives are and to establish a reservation point. A reservation point is the number at which you are indifferent to whether or not you do the deal. In other words, this is the lowest you will go. You also need to establish a goal that is above your reservation point that you are going to shoot for. If you achieve your goal, you have succeeded. If you do not but are above your reservation point, you have still done well for yourself. However, never accept a deal below your reservation point; instead, just walk away from the deal. Sometimes the best possible outcome can be “no deal.”

It is also extremely important to run through different scenarios. A good negotiator will be prepared for almost any situation. Say this to yourself, “if they say this, I will…” A way to throw the other party off is to change the parameters of the deal or mix things up. You need to be prepared if the other party attempts to use this tactic.

I’ll go into an example of a street vendor. Street vendors are very familiar with the numbers associated with their products. They make a living off this. As a result, when you try to negotiate with them, they will attempt to mix things up, often saying things like, “if you buy this, I will throw in this.” They will bundle and package deals to change your perception of the deal.
Another example is car salesmen. They often will try to negotiate the price and the financing of the car at the same time. While giving you a reduction in price, they will offer you a financing package that is actually not as beneficial. If you are not familiar with the numbers, they will succeed and you will not get the best result.

Prior to any negotiation, do your homework and run the numbers. Think of every possible scenario and how you will react to them. Next time, we will go through a couple hardball tactics.

The previous post talked about some deductions and credits that you should remember. In this post, we will stress the importance of tax planning.

It is important to plan ahead each year with your taxes. Try to estimate what your total income will be and subtract out all expected exemptions, deductions, and tax credits. What tax bracket will you expect to be in?

For 2009, I expect to jump up an income tax bracket. I am hoping to lower my taxable income so that I can remain in the same bracket. How do I plan on doing this? Here is my goal:

1. As I mentioned in a previous post, I am on the market to buy a house. I hope to be able to purchase my first home this year and pick up a mortgage payment. This way, I will get the $8000 tax credit for first time homebuyers and be able to deduct the interest from my mortgage payments by itemizing my deductions. (Mortgage interest payments are usually the highest itemized deduction so it will make itemizing my deductions more beneficial than taking the standard deduction.)

2. In case I do not purchase a home (it is likely I will not find the right place or will not have the funds), I have increased my contributions to my 401k retirement plan. Since this is nontaxable income, it will effectively lower my taxable income. I also have student loan interest deductions that will lower my taxable income.

I also recommend keeping very good records of all of your spending, especially if you itemize your deductions. Keep records of all your expenses such as receipts and etc. The more organized you are, the easier it will be when you do your taxes each year. In the next post, we will discuss what to do with the money if you do get a tax refund.

With the ever increasing cost of higher education, almost all students have some form of student debt. I will address acquiring student loans and comment on the different types of student loans in a separate post. Since I know a number of graduated students in my position are beginning to pay off their student loans I want to address this subject first.

Generally student loans come in two types. You have federal loans and private loans. Federal loans usually have a lower limit for the amount you can borrow, but tend to have much better interest rates. With private loans, you can usually borrow more, but charge you more on the interest rates. Naturally, if you do not consolidate your loans (we will discuss consolidation in another post – leave a comment if you want me to cover this earlier than later) you want to pay off private loans fairly quickly as they have pretty high interest rates. When it comes to federal loans such as the Stafford loan, your interest rates most likely range from 6-8%, which is not all too bad. The question of whether to pay off the student loans first or to invest that money comes to mind.

If you are in the situation in which you only have federal loans to pay off (which have a relatively low interest rate), you should consider just paying the minimum monthly payments instead of paying as much of it down as possible. The reason for this is because you get an above-the-line deduction on your taxes for the interest paid on student loans. Since there is a tax benefit, the interest rate is actually lower than the 6-8% you were paying. This may make it worthwhile for you to invest the extra money you would have used to pay down the debt for a higher return.

Whoever holds the power in a negotiation has the opportunity to get the most out of it, especially in a distributive negotiation. If you are in a negotiation where each party has conflicting preferences on certain issues, the person with the power will win. For example, if I am negotiating a job offer and the most important issue for me is to get the highest salary while the most important issue to the employer is to give the lowest salary, the person with the more power is going to win and the other person will give in. Now the question is who holds the power?

In every negotiation, the person who holds the most power is the person who has the better next best alternative. In the previous example, the person with more power depends on the job market conditions and the other person’s alternatives. If I am negotiating the job offer and I also have another job offer with another company, my negotiating power has increased. Why? Because I have something to fall back on, and my next best alternative is to go work for someone else. In today’s job market environment, the employer probably has the power since their next best alternative is to hire the next guy that comes along as so many qualified people are unemployed.

Here is another example. Have you ever gone up to a street vendor and tried to buy something and haggled with them to get a lower price? And then, when they said “no”, you said “ok”, and started to walk to away. At this point, they wanted to be your best friend and shouted out a much lower price and if you kept walking sometimes they would go even lower. Why do they do this? Because you have the power in the negotiation! You have the better alternative! Your next best alternative is to walk to the next street vendor and get the same product from them. Their next best alternative is to wait for the next customer to come along and hope they are willing to buy their product. Of course, this tactic doesn’t work well if you are trying to do this in a high tourist area where the vendor’s next best alternative is to wait for the next tourist who is dumb enough to pay full price.

Another way to get power is through information. A key to getting the best result in a negotiation is to get the most information from the other party without giving up your alternatives. Your goal should be to find out what the other party’s next best alternative is, so you can exploit that. Take another example where I am renting an apartment from a landlord. If I am able to find out that nobody else has been interested in that apartment and the landlord’s next best alternative is a vacant apartment with no income, I can exploit that to get a lower price. On the flip side, the landlord would not want to let me know that he has no other potential tenants and instead, try to find out if I have other apartments I am interested in. If I did not, then he could exploit that because he knows that I do not have any other alternatives.

Remember, your next best alternative is your source of power. Don’t give it away unless you are showing the other party that you hold the power in the negotiation.

Coming up in this series will be a post about preparing for a negotiation.