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A friend was surprised to learn that I buy a Lotto ticket whenever the jackpot gets into $10-million territory. He thinks I ought to be smart enough not to waste my money since it's extremely unlikely that I will win. I think buying a ticket is cheap entertainment.
Being smart about money doesn't mean squeezing every bit of fun and frivolity out of your life. Rather, it means setting priorities and making the most of the money you have.
If your budget doesn't include fun, I recommend making room for it. It is perfectly okay if your idea of fun is completely different from your friends' and neighbors', although it is helpful if you and your spouse or partner can come to some accommodation. Here are a few suggestions on how to have fun without wrecking your finances:
Budget for fun, then keep your spending within those preset limits. Charging things you can't afford just turns today's fun into tomorrow's nightmare. If you really want more fun money, look at trimming other parts of your budget, such as saving on transportation by driving an older car.
Set priorities for your fun. Maybe you'd like to save most of your fun budget for something big, like a vacation. Or maybe you'd rather blow it on little things like that a cappuccino every Sunday afternoon. You may need to eliminate some lower-priority items. The point is to make sure you don't run out of money before you get to the things you want most.
Make moderation your watchword. Your fun money will go a lot further if you don't fly first class, sit in the front row at the concert or load up on expensive photography equipment. It only takes $1 to buy a $10-million lottery fantasy, so if you're spending a lot more than that on Lotto tickets each week, you're overdoing it.
Shop for bargains. Check local ads and the Internet for good deals before making larger purchases, such as airline tickets and sporting or electronic equipment.
Don't delude yourself into thinking your fun is an investment. A lottery ticket is not a substitute for a 401(k) plan. And unless you're a professional dealer, collectibles aren't a reliable path to wealth. Treat fun as fun rather than trying to justify it some other way.
Q. I recently lost my job after more than 30 years and have accumulated money in a pension fund, credit union account, 401(k) plus severance pay. Can I transfer any of the above to my IRA to minimize my taxes?If you receive a lump-sum pension payout, it can be transferred to an IRA to continue deferring taxes. So can the balance in your 401(k). In both cases, it should go directly from the plan custodian to the IRA custodian so no income taxes will be deducted along the way.
If you have a choice between a lump sum and regular payments from your pension plan, ask a financial adviser to analyze the numbers to help you make the right decision for your situation.
Your severance pay and the money in your credit union account don't qualify for special tax breaks. However, you could use some of the money to make a 2004 IRA contribution of up to $3,500 ($3,000 if you are under 50). The contribution may be deductible, depending on your family's income.
Q. What is the minimum amount you can invest in a mutual fund? I don't have much money but I would like to start investing.Minimum investments vary from one fund group to the next and from one type of account to another. For example, AIM funds have a $1,000 minimum for most accounts, but the minimum is reduced to $250 for an IRA and $50 if you sign up for an automatic investment plan in which money is transferred electronically from your bank account.
However, I do not recommend choosing a fund based on the size of its minimum investment. It would be better to use a bank or credit union account to save $1,000 or even $3,000 to give you the flexibility to choose a fund that best meets your needs. In the meantime, you can learn about funds and narrow your choices to those that have low costs and good performance and that match your investment objectives.
Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.