Maxing out your 401(k) or IRA is just plain awesome. And even more so, maxing out BOTH in the same year! For the first time in my life, I have done just that, and I can't tell you how excited I am (even though I sorta kinda already did in my last net worth update).

I was leery to blog about this in case it came off as too "look at me! look at me!", but a recent comment from Miel at Dinks Finance coaxed me to say a few more words on it - mainly to show that it is, indeed, possible to max out not only your 401(k) for the year, but also your Roth. And the "how" part of it all? Pretty much exactly what Miel left on the previous post of mine:

"...keep stretching yourself and adding on a bit at a time. Back when I first started contributing I thought it was virtually impossible to max out. After we got married I upped my contribution by quite a bit, and then realized I could still get by, so I upped it again. I kept doing this until I maxed out. I was surprised how quickly this happened. It was a great strategy for me and now I max out on auto pilot."

SO. TRUE. Once you get in the mindset and declare to yourself that YES, I WILL MAX OUT it's just a matter of time as to when you do. You start upping it a little here and a little there, and before you know it you're close to maxing-out-land! Now, obviously it requires some hard work and a pretty clean slate to get on this, so if you're not in the right mindset as yet you may want to backtrack a bit.

Some of you have bad health issues, or you're in $50k of debt, or you're spending more than you're bringing in. If this sounds like you, then scratch away the millionaire to-do list and start focusing in on the very basics. Go through all of your expenditures (or hopefully budget!) and pinpoint the areas of weakness. You may have 1 or you may have 5, but either way it's important that you find them so you can work on fixing them. Create a "life plan" and actively work on it! It's only when you clear up a lot of the bad stuff that you can concentrate on upping the good stuff - like your 401(k) and IRAs.

With everything, it all comes down to time and dedication. 3 years ago I couldn't care less about my retirement funds - I liked seeing my paycheck as full as possible, and I didn't have any plans on where it went at all. I had no budget, no real savings, and no ultimate desire to pimp my finances. I was just living and coasting along w/out a care in the world ;) It was fun and it worked for a while (26 years, actually) but sooner or later you have to man up and set things in motion. It's only then that you can really start concentrating on that financial game plan and increase your retirement accounts.

I'm not sure if I totally went off track here, but what I'm trying to say is that you CAN, indeed, max out both your 401(k) and IRA. I did it for the first time this very year, and I can only hope I'll stick with it and report with the same next year. So, if you really REALLY want to save more and work towards that golden retirement, start today! Up that % another point or two, and continue moving it up every few months. With a little time and patience, you'll get closer and closer to your goals :)

Labels: 401k, retirement, roth ira

Once you're contributing up to your company's 401(k) match, do you continue upping the % or do you jump to the IRA?

This is one of the questions I get asked the most as a PF blogger (the other is probably how to start blogging or the order to pay off credit cards), and it usually comes down to personal preference. Since I mostly respond back the same way all the time, I figured I'd copy & paste the question and my answer below and see if maybe YOU have some better advice on it this time around? That way I could refer them back to this post in the future :) Here's the question from Mr. Wants-to-take-advantage-of-retirement-plans:

"I'm like you, turned 30 this last year, and getting my finances in line (I'm in the black, which is a good thing, but I can do better)....got a question for you regarding 401k's and IRA's. I currently participate in my companies 401k program, but I am only contributing the amount that the company matches (i.e. 60% on my first 6%...). However, my 6% doesn't even get me close to my annual maximum ($16,500 or so... whatever it is...(J: Yup, that's correct!)).

Would you suggest hitting the $16,500 in my 401k before setting up a separate IRA account? Or would you just contribute to the 401k up to the employer match amount, and then max out an IRA each year?"

First of all, GOOD WORK on matching up to that 6% already - 90% of people never even consider it. Second, I like that you're asking this as a lot of people wonder the same thing (me too, at times) and to be honest it's a tough call. You're right in that I'm not a professional, so I can only tell you what I would do in your shoes :) And that would be to compare the funds available in your 401(k) vs. the IRA, or even better, Roth. The Roth is the bad boy these days and much more pimped out than the Traditional - but still do your research to make sure it works for ya.

But back to the funds. *Most* 401ks from smaller companies usually suck as the funds to choose from aren't as good as if you had the open-sea of EVERYTHING out there like you do with IRAs. My company has a great match at that 100%, but the funds are pretty shitty from what people tell me. So, if I were only getting the 6% match then I'd do that, or maybe even up it to 10% to keep it even (I always round up) and then work on maxing out my Roth. This way, you could pick much better places to put that money and in all types of products - mutual funds, stocks, bonds, whatever you want really. It might depend on which institution you go to open one up, but it's nothing Google can't help you with. I'd start at Fidelity or Schwab and go from there. (Or, USAA if you qualify - that's who I use for my Roth) .

Not only should your money get into better places this route, but you hit that max a lot quicker giving you that feeling of Awesomeness. The Roth & Traditional IRA max out at 5k this year, so you could break up the payments from now until the end of the tax year to make sure & evenly distribute the money until maxed. In all honesty, you've already gotten 80% of the smart investing part down as either route you take is bad ass :) But that's what I'd do - keep your 401(k) contributions to 6-10%, and throw the extras into an IRA. What would you guys advise?

Labels: 401k, advice, reader mail, retirement, roth ira

A 19% increase in Net Worth! And reached my $100k goal :)

True I've had this goal for 2 years now, but still - I accomplished it! I don't place this out there to brag or show off or anything, but more to prove that patience and hard work really DOES pay off.

When it comes down to it, there's nothing all that complicated about it:

We save more, spend less, and we bank a $hitload into 401(k)s and IRAs. It's not the easiest thing to do at times, but it's still simple.

If you were around for last month's update, you'll notice a rather large theme going on here with our 401(k)s. Some of this has to do with an issue of tracking this from months ago (now 100% fixed), but most comes from my 2 month challenge of setting the contributions to 90% of my paycheck! I'll describe it more below, but unfortunately I've had to quit this as I ran out of extra funds ;) Next month's update won't be nearly as glamorous, but for now, I'm flying high!

Here's how July's net worth breaks down:

CASH SAVINGS (-$797.65): For the last two four paychecks I've been contributing 90% of my paycheck to my 401(k) in hopes of maxing it out while everything's still low. I had to stop contributing for a few months, so this is also making up for lost time. In doing this, however, I literally only got $69 per check and had to dip into my remaining $2.5k side savings to pay the bills and stay "on budget".

As I mentioned though, I finally ran out of extra money and now it's back down to 30% until I can finish maxing it out (which should be pretty soon). If at all possible, I highly recommend you maxing out yours too! Or at least up to the company match (3%, 6%, etc). Taking advantage of the perks given to you is one of the easiest ways to build up that net worth and invest in your future.

EMERGENCY FUND ($0.00): Our $10k is still tucked away (and left alone) in our Money Market account. It's mixed in with other funds so I can't determine exactly how much interest is accruing on this Emergency Fund in particular, but it's definitely adding up.

ROTH IRAs (+$2,056.14): I haven't been able to blog about it yet, but I finally maxed out my Roth IRA! I've been slowly applying money made off this blog into it (as well as other funds, like the recent cashing of my bonds!), and I'm happy to report it's another goal to cross off the list. And since the economy is doing a lot better, along with Operation Buffett, I can already see some healthy upticks.

401(k)s (+$17,927.09): So that's what 90% of my paychecks + a happy market looks like ;) There's nothing else much to say about it, so I'll just reiterate what I've already been saying: Patience and automation pays off! Spend a few mins & consider upping your 401(k) contributions a % point or two.

SAVINGS BONDS (-$749.74): I finally did it - I cashed in all my savings bonds! When it came down to it, I just couldn't take the measly pennies accumulating every month so I used it to help max out my brokerage Roth IRA. Plus, I was afraid I'd lose them one day (they were in paper form) and I didn't feel like holding on to them any longer. Had I known it only takes 15 mins at a bank I would have done it much earlier!

AUTOS WORTH (kbb) (-$450.00): I always expect this category to go down, but the last too months have resulted in $350+ losses over the previous $50 amounts. Not sure what's going on, but it's really out of my control anyways :) Here's how they line up this month:

• Pimp Daddy Caddy: $3,045
  
• Gas Ticklin' Toyota: $10,185
  

HOME VALUE (Realtor) ($0.00): This will remain @ $300k (the price our realtor set it at) until I hit him up again later for another review. He's the master in our particular neighborhood, and has been selling (and living in) in this area for 20+ years. I keep an eye on Zillow & Redfin.com on the side too to see what else is happening out there. Zillow just fluctuates so much that it drives me crazy. It currently has our house estimated at $370k+?! Up from $340k last month. I don't get it.

CREDIT CARD (car loans) ($0.00): Still at Zero! The previous debt here was an "auto loan" that I happened to charge on my credit card - effectively setting my interest @ 3%. I don't recommend this for everyone, but the method works well if you know what you're doing and don't have outstanding debt lined up. I'll leave this category in until I'm tired of looking at it ;)

MORTGAGES (-$75.94): We're still eager to refinance our first mortgage, but unfortunately we're still too under water to get on it. So in the meantime we chip away with any extra money we have left from our "house budget". Here's how they breakdown:

• Mortgage #1: $287,150.36 - 30 year fixed, interest-only @ 6.875%.
• Mortgage #2: $62,818.34 - Maxed out HELOC w/ 2.8% interest.

Another month gone, another update done! How'd you all do? Anyone come across something crazy last month? Whatever the case, remember to judge your success off of YOUR goals only. It's hard sometimes, but it's really the only thing you have control of. If you don't already, try tracking your progress every month and look back to see what works and what doesn't :)

God Bless,

-----------------
*My budget has now been updated.
*And so have my sidebars.

Labels: 401k, net worth

Our net worth is up 40% from last month - now at $95k!

And we owe it all to my 401(k), baby! I've hinted at some problems with it in the past - we were waiting for it to show correctly in our accounts (long story) - but the good day has came and we're back on track! A whopping $30k on track.

I know I've harped on it before, but it just goes to show that consistent saving & investing DOES ADD UP over time. And hopefully you'll be able to watch it grow every month instead of getting a huge sorta-but-not-really surprise in your account one day ;) The point is, you have to start TODAY - not tomorrow, not next month or next year, but today. Start small if you have to, whatever it takes. And while I recommend the 401(k) for all that free money your company hopefully matches you on, it's certainly not necessary. An IRA or savings account would work just as nicely.

So yeah, the 401(k) stuff is the biggest change this month, with a major decrease in cash reserves being second. I'll explain more below, but this was also connected to the 401(k) stuff - and something I consciously decided to do. Only $5k more to hit that $100k mark! Woohoo!

Here's how June's net worth breaks down:

CASH SAVINGS (-$3,586.80): For the last two paychecks I've been contributing 90% of my paycheck to that same 401(k) so I can make up for some lost time. In doing that, I literally only get $69 and change per check now! Ouch. Thus, I've been dipping into my $5k+ side savings account to make up the difference each period to continue paying all bills & to stay "on budget". As you can imagine, this will only last another check or so before I run out ;) But if YOUR company matched 100% of 100% you put in up to the yearly maximum allowed, wouldn't you find a way to make it happen? It's all about taking advantage of the perks given to you and finding a way to make it work.

EMERGENCY FUND ($0.00): Our $10k is still sleeping away nicely in our Money Market account. It's mixed in with other funds so I can't determine exactly how much interest is accruing on the Emergency Fund in particular, but it's definitely adding up.

ROTH IRAs (+$358.32): The good thing here is that I was able to scrounge up a decent $550 to put into the pot this month! The downside was that the markets already sucked out $200 of it. But like everything else tied to this roller coaster economy, it has its ups and its downs. But Operation Buffett is still in effect...

401(k)s (+$30,304.58): Is there anything more to say about this? ;) I was contributing a butt load. It wasn't showing up properly. But now it is. Actually, there's a little more to it than that but I can't really talk about it here. But no, mr. punch debt in the face, I was not funding a crack house on the side - you silly goose, you.

SAVINGS BONDS (+$0.20): Oh Joy! This will actually be the last time you see this category here though, so wave it goodbye (byyyyeeee). I finally listened to Ishan's advice to unload the bonds and invest the money elsewhere. You'll hear about it soon as I didn't have the time to incorporate it all here.

AUTOS WORTH (kbb) (-$375.00): A little more than the $50 devaluation from last month, but whatever - no one ever said cars were an investment ;) Here's how they line up this month:

• Pimp Daddy Caddy: $3,495. Down the $50 buckaroos.
• Gas Ticklin' Toyota: $10,185. Booooo.

HOME VALUE (Realtor) ($0.00): This will remain @ $300k (the price our realtor set it at) until I hit him up again later for another review. He's the master in our particular neighborhood, and has been selling (and living in) in this area for 20+ years. I keep an eye on Zillow & Redfin.com on the side too to see what else is happening out there. Zillow just fluctuates so much, it's crazy. I love the site, but it's seriously nuts.

CREDIT CARD (car loans) ($0.00): Still at Zero! The previous debt here was an "auto loan" that I happened to charge on my credit card - effectively setting my interest @ 3%. I don't recommend this for everyone, but the method works well if you know what you're doing and don't have outstanding debt lined up. I'll leave this category in until I'm tired of looking at it ;)

MORTGAGES (-$386.01): We're still eager to refinance our first mortgage, but unfortunately we're still too under water to get on it. So in the meantime we chip away with any extra money we have left from our "house budget". Here's how they breakdown:

• Mortgage #1: $287,235.91 - 30 year fixed, interest-only @ 6.875%.
• Mortgage #2: $62,808.73 - Maxed out HELOC w/ 2.8% interest.

Well, that's it for this month. How'd you all do? Anyone win the lottery or take on a major mortgage? Whatever the case, remember to judge your success off of YOUR goals only. I know it's hard sometimes, but it's really the only thing you have control of. So if you're meeting or exceeding your goals, you're on the right track!

God Bless,

-----------------
*My budget has now been updated.
*And so have my sidebars.

Labels: 401k, net worth

My #1 financial goal each year is to max out my 401(k). It's the one thing I strive for more than any others, no matter what's going on w/ the world. Some years it's easy and I bask in my glory, and other times I want to carve my eyeballs out with a rusty spoon. If I can complete just that one goal each year though, poppa J is happy :)

He knows that socking away $16,500 every year (or whatever the current limits are) will bode well in the future and allow him to sip long island iced teas on the beach some day! Plus, the fear of working himself to death is just too much to bear in his old age.

Regardless of what it is though, I believe everyone should have a major financial goal to complete each year. Whether it's saving up $5k in an emergency fund, wiping away an entire credit card, or just taking a new financial course every year. Whatever it is, strive for it and make it happen no matter what it takes. You'll be amazed at what you can actually pull off when you push yourself.

In fact, I had to cut down my average 401k contribution to 1% for a while due to some accounting issues that were outside of my control. Because of this, my total contributions thus far is hovering around $3,700 instead of the $8.5k it should be at now that '09 is halfway over (scary!). You know what that means? If I still want to reach my goal of hitting $16.5k, I have to bump up my contributions like crazy to catch up! And let me tell you, it's a lot more fun having 30% taken out than 90% which it's currently at (we're talking a drop from $1740 every 2 weeks to $69 and change!). Wha???

The point is, willpower's a beast when put to good use. Focus your energy into a specific goal and make it happen. If you accomplish more? Great! But at least have that major win in your pocket. Saving and investing isn't hard in itself, it's just a matter of doing something about it. So get that game plan in action and tell us what you're working on! What is YOUR #1 financial goal this year?

Labels: 401k, advice, challenges, goals, retirement

There's a Money Genie over at Adam's blog today, and he's been so kind as to lend him to us! A true gentlemen indeed. Now, this genie isn't your ordinary genie, but rather a financially-savvy one! So don't try and ask it to bring you hot women or better looks or anything like that because it won't work ;)

Before I continue though, I should spell out two things here. The first, this genie is not real (sorry, folks). The second, I don't really believe in wishing for pasts to be different when it comes to this sorta stuff. Call me old-school, but I seriously believe the only way we can be where we are today is by experiencing and learning from all those boneheaded moves we've come to hate. So I'd have to tell that genie to go F off if he tried to wipe away my knowledge at the same time.

That being said, it's still fun as hell to think about ;) Plus, you never know who you may be helping by listing these out! That's not to say high school or college students would actually *listen* to us all here, but the advice is still free for the pickin'. So, I'll go first. Although I warn you there's nothing too exciting about my 3 choices. I luckily never got into much trouble over the years, so for me it's more about lost opportunities than past mistakes. At least for my #1 and #3. Number 2 (haha...) is a toss up:

1. I wish I contributed to my 401(k) from work day #1: It's no secret I'm a HUGE fan of 401ks, I just wish I paid more attention to them my first 4 years out into the workforce. It was the only thing my dad harped on, only problem being I just didn't care. Lesson learned Daddy-O!
2. I wish we didn't buy a house when we did: This isn't to say I'm against home ownership or anything, cuz I'm not, but more that we should have waited a bit longer. At the time I was in "I can do anything" mode and disregarded the fact that I like to live care-free and move around every other year. There's a helluva lot of pros that come with home ownership, but deep down I'd still rather be renting.
3. I wish I saved 10% of my earnings "for real": For Real in that I xfer it into my savings account, and I leave it. Not I xfer it in, then take it back out when I over budget, then put it back in 3 weeks later... and then take it back out again, and then put it back in again ;) You all know what I'm saying.

Okay, so now your turn! What 3 wishes would you ask for to better your financial situation? And remember, you get to take those lessons learned along with you ;)

Labels: 401k, advice, home ownership, life, saving

You all know how much I LOVE my 401(k), but what about our friend the Roth IRA? Both investing vehicles are sexy in their own way, but how do you know when to use one over the other?

The answer to these questions always lies within the situation at hand - and it just so happens we've got one today. The odds? ;) A fellow reader hit me up recently and wanted to know what we thought about her dilemma. Here's what she sent:

"I graduated from college in December and am in my first "real" job with benefits. I am a teacher. I am required by the union to contribute to the teacher's pension. In addition to this, I have the option to have a 401(k) and the employer does not match contributions. My thought is to skip the 401(k) and simply open a Roth IRA. Is this a good thought? In any circumstance would I want to pick a 401(k) over a Roth IRA? (Besides the obvious employer matching) What made me start thinking this path was an article I read on Kiplinger about Roth IRAs and one of the benefits is that you can use it to help save up for a first home, and this is another goal in the somewhat near future of my life."

First off, I'm impressed you are already thinking of this at a young age! Good for you. This topic has been debated like crazy amongst the finance world, but it really comes down to your goals here. Both 401(k)s and Roth IRAs are awesome as hell, and both have their pros and cons. For anyone who's not familiar with them, here they are in a nut shell:

401(k)s - All money that goes here are pre-tax, meaning not taxes come out while investing. This is great in that you have MORE money to invest and accumulate over time because you have that additional 25% (or whatever your tax rate is) earning money for you. 401(k)s are also great in that your employer will usually match you up to a certain % (as mentioned in your email) meaning you get FREE money. On the flip side, you have to pay taxes on this once you start drawing out the money in retirement. You will also get charged up the a$$ if you take any money out before you're eligible. There are some sneaky ways here and there where you could, potentially, take out some money w/out incurring this wrath, but I wouldn't advise it.

Roth IRAs - Another investing tool that allows you to save for retirement, and sorta like the opposite of 401(k)s in that you get taxed UP FRONT, but you never have to pay a tax again down the road! So say you drop in $5k and then leave it alone. In 30 years that $5k can become $20k and you don't have to pay a cent on that $15k of earnings :) On the flip side, you can only put in a certain amount each year ($5k for 2009 if you're under 49 vs $16.5k for 401ks ), and you can't make over a certain amount of money (a bit over $100k)

But back to your question. Whether you choose a 401(k) or a Roth IRA comes down to your future plans. If you want to invest for RETIREMENT, meaning you won't touch it for 30+ years, then I'd open up both a 401(k) and a Roth and leave it alone (you can add more to one over the other, but I always suggest having both).

In your case, it looks like you will probably need this money for a down payment on a house sometime soon. So dropping $ in a 401(k) is def. not the way to go (after you contribute up to your employer match to get that FREE money). In fact, I probably wouldn't even go with a Roth either since its main use is for retirement funds as well. If it were me, and I were definitely getting a house in 3-5 years, I'd throw the main chunk of extra money into a high-earning savings account like ING or another online bank since you'll be dipping into it soon.

That being said, you'll probably end up opening up a retirement account anyways cuz it looks like you really want to ;) In that case I'd recommend going with a Roth. While it's not designed to be used like that, at least according to my accountant when I asked her last year, you *can* take out any $ you have contributed at any time w/out incurring any fees or taxes - you just can't take out any interest earned. (there are certain situations where you CAN take out all of it - like a home or hardship - but you have to make sure the account's been open for at least 5 years. I'd talk it over w/ a professional)

So if you want to save save save and then take out the contributions when you need that down payment, the Roth is the better option here between the 2. Would you all agree?

Labels: 401k, reader mail, retirement, roth ira

Do you think you're in line w/ Joe the Plumber? Or how about that co-worker to your left? Well now's the time to find out buster ;)

My boy Hank over at Own The Dollar found some pretty sweet graphs from USNews.com the other day, and I just couldn't hold it in. Y'all know I'm addicted to them 401(k)s!

And not only do these bad boys show the average amounts per age group, but it's broken down by account balance, job tenure, & even asset allocation so you can closely hit your target niche. It would be better to see how it ranks among locations too, but I guess you can't have everything all the time ;) Here's a little on how it was compiled (via USNews):

"The numbers come from an analysis of 21.8 million participants in 56,232 employer-sponsored 401(k) plans done by the Employee Benefit Research Institute and the Investment Company Institute, as of the end of 2007."

You can see all the age groups on the USNews site, but today I'll just be showing the 20's and the 30's group since they're the closest to me...in fact, this is my last year as a 20 y/o! Guess I'll have to own up to the 30's next year and face it like a man - bleh. So here's what we got for the 20's:


So let's see here. My salary range is @ $60k-$80k, my Job Tenure @ 5-10 years....YUP, sources say my $43k in 401k is rockin' it! It doesn't necessarily mean I'm a baller or anything (we all have our own situations going on and all), but it SURE does help in the motivation department :) Just gotta keep doing my thing and trying to stack those funds as best as possible.

Now, as your age increases (and your liver gets better from not as much partying! *tear*), naturally so should your 401k. Sooooooo, here's where you should be at w/ the 30's crowd:


Looks like I'll have to step it up next year, eh?! Whew that's quite a jump. Perhaps by then the economy will recover and start doubling my funds w/out me having to do anything ;) In the meantime, I better start pumping myself full of coffee and get back to my "real work" over here...this 401k sure ain't gonna fill up on it's own!

Labels: 401k

You KNOW how much i love my 401(k), would you really do this to me? We've fallen in love, and could not bear such a tragedy :( I promise to behave, really. Whatever you wish, i shall do - just name it!

What? You want me to do what? Stop blogging @ work? errr......

Haha, yes, i am all hocked up on coffee and cold medication ;) Seriously though, it's like my brain work a lot better when i'm in a total state of loopiness.....the words just flow out like butter! warm butter, that is. it's the only up-side to possibly getting sick...but i digress..

So WHY, exactly, would companies start getting rid of their 401(k) matchings? The Economy - plain and simple. Here's a clip from a recent CNNMoney article i just read:

"[In a slowing economy] it's reasonable to assume that some employers will reduce or even eliminate the 401(k) match," said Frank Boucher, of Boucher Financial Planning Services in Reston, Va.

Any well-drafted 401(k) plan allows the employer discretion to change the company's matching policy at any time, Boucher said.

It's all about weathering the storms i suppose. And I have a sinking feeling our company could be next...i don't have anything to back that up, but i'm pretty sure changes are coming in '09, and that seems to be a favorite to cut.

I know not everyone cares, or even particpates, in their retirement funds (naughty, naughty!) but when you're getting matched 100% of 100% of your contributions, it's a big deal! That $15,000 i threw in so far this year has rewarded me handsomely with an extra FREE $15,000!It's seriously insane.

All that being said, what'll happen will happen no matter what my feelings are on it. After all, if it's between firing a couple of us OR losing our generous benefits, then by all means slash away! The money is nice - okay, HOT DIGGITY nice - but my employment is better. I like it here and i don't wanna go anywhere :(

Labels: 401k, career, crazy economy

Have you ever heard this before? I seriously couldn't believe i was hearing 2 "adults" talk about this during this morning's commute. I haven't been around this earth nearly as long as they have, but I can tell you flat out that it's a stupid idea - i won't even sugar coat it.

What i find funniest though, is that i was literally reading the pros and cons about taking out a 401k loan in this month's Money Mag while these 2 boneheads were discussing it! haha...If i had bigger balls, and weren't in the quiet car, i SO would have slapped them upside their heads and forced them to read the article. but i didn't. and now here i am typing my thoughts away in hopes it will find it's way towards them one day!

Now, before i continue, there ARE times when someone might need to access these 401k funds, but (a HUGE but), it's generally not a good idea. Obviously if you were in a serious jam and needed money no matter where it came from, then Yes it is an option, but I'd pretend it's not there unless absolutely necessary.

Everyone has their own idea of an Emergency Fund, but in theory it's a holding place for liquid funds that can be accessed ASAP in case anything you deem as an emergency comes up.

So the concept of using your 401k here is already shot down considering it would take at least 2 weeks to get your hands on the money anyway...unless it was a SUPER big emergency that you were planning for ahead of time, which really makes no sense. unless you're a fortune teller, in which case bravo ;)

So why am i, and many others, so against it? Well, to start you get taxed BIG TIME whenever you cash out: You get the privilege of paying the regular income tax, PLUS a 10% penalty on top of it if you're under 59 1/2. Then, of course, the money is out of your retirement account and will be much harder to build back up as time goes on. Add on that today's economy and the fact that you'd be pulling the money at the absolute worst time (bear market), and you've got yourself a sticky little situation my friend.

Now, the other option it to take a loan out from your 401k. In this case, you'd pay it back on a scheduled timeframe, and all the interest (usually prime + 1%) would go back to yourself too as you're essentially borrowing from yourself here. A much better option than the above, but still not the best in my opinion. Sure you'd be paying yourself back, and losing possibly only a little over time all depending on the amount you take out and the market of course, but it's pretty damn risky. The main reason? If you terminate your job (or get terminated), you usually have to pay back the entire amount borrowed within 60-90 days!!! OUCH that would hurt.

So yes, as you can tell i'm not a fan of taking out your 401k money at any point. But again, that's just me talking about living a financially perfect life :) We all know $hit happens, and sometimes you're forced to do things to remain afloat. All i ask is that if you find yourself in one of these sticky situations, make sure you do some good research first and come up with a solid game plan.

And for the love of money, PLEASE set up a side account for your Emergency Fund so contemplating it won't ever occur! I swear you'll sleep happier at night.

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Here are some good links if you'd like to read more:
- CNN Money: Money101 Lesson23: 401(k)s
- BankRate: Don't be dumb -- don't cash out your 401(k)
- BudgetsAreSexy: Some of my other 401k posts :)

Labels: 401k, cockamamy indeed, emergency funds

Every now and then a friend or two will ask me for my best financial advice, and while I wished I could refer them to a single post of mine, unfortunately I never could....until today!

This post encapsulates my all-time favorite "words of wisdom", jotted down in one simple place.

There's a bazillian of things I'd love to share with everyone, but there are 4 main biggies I repeat over and over again - whether on this blog, or when talking to friends, family, or strangers. They aren't new, but they sure do work! And I follow each and every one of them personally, even if I do slip at times ;)

I truly believe that these will improve anyone's finances, regardless of age, occupation, or net worth. Your wallet will thank you, your peace of mind will thank you, and you'll find yourself feeling sexier than ever! So here they are - my all-time favorite pieces of advice:

1. Pump up your 401(k)

If your company offers it, jump in as hard and as fast as you can! Contribute AT LEAST as much as your employer matches. if they match 100% of 6% invested, invest 6%. If they match 25% of 3%, invest 3%. Whatever the case may be, their portion is FREE money baby! Aka 100% guaranteed profit before it even gets invested! And if you have the means to put even more in? Then you, my friend, qualify for the Bad A$$ of the year award ;)

Not only that, but Uncle Sam will hate you for it... at least for now (that's a good thing). The more you invest, the fewer taxes you pay out that year. Say your annual gross income is $50k. Well, if you don't put anything in at all, you pay taxes on that $50k. BUT, say you contribute $10k towards your 401(k) in that year, well now you're only taxed on $40k! (you pay the taxes later) So yeah it may suck initially "being out" of a little money each paycheck, but over time you'll get used to it and maybe even forget since it's all automated. Either way, those amounts pile up BIG time over the years, and you'll be thankful you jumped on this money train when you did!
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*if your company doesn't offer a 401(k), OR they don't match, consider picking up a Roth or Traditional IRA instead (or in addition to). There's a pretty cool breakdown of the differences and benefits here

2. Track your spending for 3 months

This is the one thing you can do to learn EXACTLY where your hard-earned money goes to. Think of it as an E-True Hollywood Story based on Your Financial Life - you think you know, but you have noooo idea! haha...okay, well maybe it's not that drastic, but you'd be amazed at the things you'd find if you actually sat down and sorted through it all. Even if you do it just one time, and one time only, it'll give you a better over all picture of your finances.

Once you know EXACTLY how much you spend, you can then figure out how to move forward - whether it's to remain on the same route you're currently taking, or move to a newer one. I went back through 3 months of checking and credit card statements to figure out my habits, and boy was i surprised! It wasn't so much in seeing the items purchased, as I remembered them all, but it was the grand total of the expenditures that hit me. I had a guestimated a budget of $500 for my credit card each month, but in reality i was spending between $800-$1200! Woops. I then created a more realistic budget ;)

3. Create an Emergency Fund

Simply for a great peace of mind! There's something to be said in having a pile of cash in your account for whatever it is you'll need it for. I really don't know what constitutes an emergency, exactly, but for me it's more of a stash to keep myself out of trouble ;) As for how much to put in there, I personally shoot for 3 months, but it really depends on what you're comfortable with. It can be 2, 3, even 6 months, whatever you feel would make you sleep better at night. Once you reach that point, you're all set! You can then go about using your money as you wish, knowing you have that safety net.

4. Pay off all Bad Debt

Get rid of it! Whether it's credit cards, outstanding loans to friends or family, or whatever - it's not great to have. This is much easier said than done, of course, but my goodness if it's not true. It effects everything from credit scores, mortgage rates, car loans, and even worst - your overall happiness :( What would you do if you had $0.00 in debt?! How insanely awesome would you feel! It's not gonna happen overnight, and it certainly won't be easy, but it's definitely imperative to work it all out. Whatever you need to get rid of it, just start.

And that's it! Those are my Top 4 all-time favorite pieces of advice I give out. Some are easier to follow than others, but they all work magic on your financial health!

Labels: 401k, advice, budgets, debt, emergency funds

Man it was hard getting up this morning! I think i overdosed on hazelnutt coffee yesterday while sitting in 9-hour beach traffic...which is sad, considering i'm sipping on MORE as we speak ;) Addicted much? haha...

At any rate, I came across a link for the Motley Fool in my inbox the other day, and think you might enjoy it. It's one of those "million dollar calculation" type articles, which are always fascinating to me - especially considering i'm working on my OWN millionaire plan!

The stats, themselves, never change of course, but the way people write about them sure do. This particular article states that if you do the following ONE TIME ONLY in a year, you could be ritch b*tch! (in the voice of dave chappelle on james brown):

• Max out your 401k contributions for the year
• Max out your IRA contributions for the year
• Earn historical average returns of 10%
• And do so by the age of 26.

You will become a millionaire by the time you retire!

Sexy, right? Sure thing, but as cool as it sounds (anything to do with a million dollars is cool to me!), it's not as simple or easy to do. A lot of the variables are discussed in the article, but to reach the above, for example, it means you'd have to come up with that initial $20,500! Y-I-K-E-S.

Compound interest is your friend, but it sure doesn't perform miracles ;) Plus, there's the whole "inflation" stuff, but that's another story. The Fool also adds:

In order for most 26-year-olds to save $20,500 in a single year, they'd either
need to find a fabulously high-paying job or a rent-free room in their parents'
basement. Either way, they'd probably be living on a strict diet of ramen
noodles.

Haha...agreed. Of course, saving a butt-load early on is killer for any goals you might have. Just because you can't be superman and invest a huge lump sum like that, by all means keep plopping those dollars into your account!

And if your goal is to indeed reach that $1 million dollar mark, then create your own plan and stick to it (I used this millionaire calculator to get started on my personal goal). You'll be that much closer either way you look at it.

And be sure to holler back too so we can track your progress and learn :)

Labels: 401k, Ira, millionaire love, retirement

Seriously, sometimes you have to just step up to the plate and ask for what you want. It might not be easy, but the only person looking out for #1, is you.

Want that raise you've been working hard for? Want that date with the chick you've been stalking eyeing lately? Ask for it! No one else will for you.

Personally, i had been waiting for some missing 401k deposits to hit my account. My patience was growing ten-fold, but my sanity wasn't going to last any longer. It really isn't easy for me to have money floating out there in "la la land", and i wanted it to finally come home where it belongs.

I wish i could explain all the twists and turns over the past year regarding it, but it's way too complicated this early in the morning. Plus, i really don't want to bore you to death ;) Let's just say it had been going on for way too long, and something needed to finally be done about it.

That's what today's post is about - asking your way to the solution.

When things go wrong, it's easy to point fingers. But flashing them everywhere seldom gets you answers, so let the other's flash! If the issue affects you, then what you need to do is find a way to get what you want. This usually takes a lot of questioning.

So, when i first realized these 401k deposits went missing, I started throwing questions (not fingers). I talked with a few co-workers first, then the 401k firm, and then HR. All of whom answered my questions, but didn't resolve the issue at hand - plopping my money into my account.

A few months went by (i just thought they'd "magically" appear after a while), but still nothing. At this point i realized that either:

a) I'm out my money, or
b) I have to bring it to the master of the domain - my CEO.

I ran with b), which isn't an easy thing mind you. We get handsomely rewarded here, like WAYYY more than others in our industry, and i'd continue to work here regardless of getting that money back (aka I love it here). So when you're basically telling the head honcho that he "owes you money", you gotta be careful, especially if you're lower management. But i HAD to ask - we're talking about $4,000 here.

And asked I did. I set up a quick meeting, explained the situaton in detail, and showed him the respective statements. And can you guess what happened? He gave me the money!!!

Well, not yet actually, but very very soon. The point is, i got what i asked for cuz i ASKED for it. Sure it was already owed to me, and was legally enforcable anyways, but had i not asked I'd still be stewing here in my seat wondering where the hell it's been all my life. and that's no fun for anyone.

Truth be told, my CEO hadn't even realized they were missing, so it was a problem that could have been resolved months ago! Lesson learned. I'll throw that little nugget in my pocket for later ;)

Labels: 401k, advice, career, retirement, speaking up