Financial Priorities.

First things first, apparently I’m a little late to the game, but I made a Facebook fan page last night for Punch Debt In The Face (See the new widget in the sidebar on the right?). I don’t really get why that’s better than my Facebook profile page, but for some reason people tell me it is. I also don’t know why likes are important on a page, but again, someone told me they were. Would you take a moment to head on over to my new fan page and gimme a little Likey Likey. If you do, I will…well… do absolutely nothing for you. Sorry, just being honest.

Alright, on to the content…

Do you have an income? Do you have expenses? If you answered yes to either of those questions, you darn well better have some financial priorities in place.

While there are a million different things we could talk about in regards to financial priorities, I want to focus on just one. Which comes first: investing or paying down debt? Hey, speaking of…

Which came first, the chicken or the egg?

Answer: Chuck Norris.

In all seriousness, I think financial priorities are something most of us think we have figured out, but don’t always truly understand. Today I’m going to show you why investing in your 401K is often a better option than paying down high interest credit card debt.

Let’s look at an example:

Jane, makes $50,000 year. She’s 30 years old and her employer fully matches 5% of any contributions she makes to her 401K plan. Jane also has $5,000 in credit card debt, at 15%. What should Jane do, pay down the card as quick as possible, or start building up a nice little nest egg for retirement?

A 15% APR, on a $5,000 balance, means Jane will be paying about $62/month in interest. If she made nothing, but minimum payments, it would take her a little over 22 years to pay that sucker off. She’d also pay $5,729 in interest over that time resulting in a total payment just shy of $11,000. Yikes, that $5,000 original bill became a whole lot more expensive. Better pay that sucker off ASAP, right?

Now let’s examine the investing route.

Jane would be investing $208/month in her 401K if she contributed 5%. Her employer matches that and gives her another $208. If she earned a doable 6% return on this money, and never got a raise in her life, she would end up retiring at age 67 with $683,030 in her 401K. Not bad at all.

If Jane decided to postpone contributing to her 401K, she could use that $208 to make accelerated debt payments each month. But let’s not forget, that 208 number is pretax, so in reality she’d have about $175 extra to throw at her credit card. With the additional payment, Jane will now be credit card debt free in 20 months and will have only paid about $673 in interest. Sounds a heck of a lot better than the 22 years it was going to take in the first example.

Here’s where it gets interesting.

Wanna know what Jane’s 401k would look like if she didn’t start investing until after she became CC debt free? She lost nearly two years of company matching and compound interest, resulting in $596,388 in her 401K. That’s $86,642 less then if she started investing at age 30.

Guys and girls, this point is SOOOO important it can not be overlooked. It is absolutely in Jane’s best interest to start investing in her companies 401K, even though she is not debt free. If she waits until she has her credit card paid off, she loses a crap load of money. I know this seems to go against the grain. Credit card debt is evil, don’t get me wrong, but that doesn’t mean it should always be at the top of our financial priorities.

Obviously, in a perfect world you will have enough discretionary income that you can not only contribute to your retirement, but also pay down your debt quickly. I always have been, and always will be a DEBT PUNCHER, but only when it is in your best interest.

Does your employer offer a 401K match? (I’d like as many people as possible to answer this question since I’ve heard a lot of the retirement benefits in the private sector have been getting cut left and right). Are you taking full advantage of that match? If not, you’re stupid. I’m sorry, you just are. You are literally giving up FREE money. In Jane’s situation would you go the way of Dave Ramsey and still pay down your credit card first, or would you let number’s guide you and start contributing to your retirement?

p.s. Like me on Facebook, I’m desperate ūüôā

Retire early and withdraw from your 401k without penalty.

Remember that time I wrote a post about why I hate my Roth IRA and why I would probably never contribute to it ever again.

But then, like a week later, I wrote a follow-up post saying I still hate my Roth IRA, but I’ll probably keep contributing to it for the foreseeable future.

Or how about that time, a few weeks ago, when I wrote a post about having a ton of money available to me at retirement, maybe even too much?

But then my most recent post talked about how I was going to add even more to my retirement accounts, specifically my 401k.

 

This personal finance stuff can be confusing

What might sound good one week, may not be my cup of tea the following week.

With a government pension waiting for me on my 57th birthday, and social security kicking in shortly after, I’ve always just kind of resigned to the fact that I would work in to my late 50’s.

I mean, I’ll never make a huge salary in my line of work, so the idea of retiring early seemed like a foreign concept.

 

A Changed Perpective

But after reading J Money’s recent post on Early Retirement, and poking around with the spreadsheet he made, I found myself wanting to dig deeper.

According to J’s spreadsheet, if I change nothing about our spending (or saving) habits, I’m looking at being able to retire when I’m 45 years old. Check it…

early retire

Basically, the early retirement rule of thumb is you need to have 25 times annual expenses banked before you can retire.

Since our plan is to spend about $48,000 per year, we need $1.2 million stored away before I can call it quits. As soon as I hit that number, I can work my last day with reasonable certainty that I wont have to work ever again.

So the question remains, even if I had $1.2 million invested in my 401k right now, how could I possibly access those funds without paying the an IRS mandated 10% penalty for early withdrawal?

 

Introducing the IRS 72t withdrawal program. 

Without boring you to death, the 72t program allows an individual to withdraw an “equally substantial distribution” each year without paying a penalty.

Basically, if I have $1,200,000 in my retirement accounts by the time I turn 35 years old, I could take advantage of the 72t program and withdraw $56,420 from my 401k each year without paying a penalty.

There are, of course, a few catches to the 72t program. One of the most important being that you are required to continue making withdrawals until age 59 1/2 or for five years, whichever time period is longer. So no withdrawing some years, and not withdrawing others. It’s definitely a long term¬†commitment for those that choose to retire early.

But hey, how bad can retiring early really be? 

Another big whopper for the program, is that if you modify your series of payments in any way, the 10% early distribution penalty is retroactively imposed on all money you’ve withdrawn. Ever. Yikes! That would be a very costly mistake.

Basically, once you pick an amount to withdraw each year (in this example $56,000), you have no wiggle room to withdraw any amount other than that from your 401k.

If you want to learn more about the 72t rule you can do so here. 

Some other things worth noting 

So far I’ve only been talking about withdrawals from my 401k, but as you all know, I’ve also been an avid contributor to my Roth IRA and most recently, a taxable investment account.

Having my retirement portfolio diversified across a number of avenues sweetens the pot. With the 72t rule and my example above, I was only allowed to take out $56,000 a year.

No more, no less. 

But what if I have Girl Ninja and I decide to buy a new car, or pay for Baby Ninja’s first year of college, or a potential future daughter’s wedding. Where is the money for those types of things going to come from?

My Roth IRA. Duh.

I’ll be able to use my Roth as a means to buffer any abnormal spending requirements. Because, as I’m sure you already know, Roth contributions can be withdrawn at any time.

Or in other words, I’d have about $75,000 of tax-free/penalty-free money accessible to me at any given time by my 35th birthday.

 

But wait there’s more.¬†

As you might recall from my post on Home Equity Lines of Credit, Girl Ninja and I have decided to stop keeping so much darn cash in the bank and begin throwing all our discretionary income in to our taxable investment account.

That’s right. Screw our savings account!

As our taxable investment account continues to grow, I can take advantage of all sorts of tax loop holes to to minimize my tax obligation on withdrawals, possibly even completely eliminating taxes altogether. Tax loss harvesting anyone? Or how about dividend investing? The loop hole list goes on and on.

Don’t believe it’s possible?

You’re wrong. Check out this inspirational blog post¬†from a couple that paid NO TAXES in 2013.

 

It’s time you start drinking the kool-aid!

Like I said before, I’d always assumed early retirement was for two types of people.

Either the mega wealthy for obvious reasons.

Or

People like Mr Money Mustache, who¬†live such a¬†frugal lifestyle that¬†they spend less than $25,000 per year. (editor’s note: Nothing wrong with the frugal and resourceful lifestyle, I personally am just not as interested in giving up my vehicle, moving to a cheaper cost of living area, growing my own food outback, etc. I’m lazy in that respect and am willing to pay the premium for it I suppose.)

Now that I’m digging deeper and getting in to some of the nitty gritty aspects of personal finance, my eyes are open to a whole new way of thinking. While I might not be retiring at 35 like the examples above, I could see 45, or maybe even 40 being a real possibility. And I don’t know about you, but that sounds a heck of a lot better than retiring at 57 like I’d always planned on.

 

P.S. I’m aware the future will obviously have some expensive seasons ahead (multiple children in high school, potential house projects, big family vacations, etc), but we will also have seasons of reduced expenses or greater income(paying off our mortgage, kids moving out¬†and becoming self-sufficient, Girl Ninja going back to work, pension, social security, etc).¬†

How much does being ugly really cost?

Being ugly may not only be a detriment to your social life, but it could also greatly hinder your financial potential. There have been numerous studies indicating a correlation between beauty and professional success. And the verdict is…. hot people make more.

Don’t believe me? A study conducted by the Federal Reserve Bank of St. Louis, found that hotties-with-naughty-bodies make 5% more per hour than their average looking colleagues. Even worse, “unattractive” people were found to be making 8% less than average looking persons.

Not only do the attractive people make more money, but they also have a higher statistical shot at landing the job in the first place. Here’s a quote from a CNN article on the study…

After variables like education and experience are factored out, Fed researchers said the “beauty premium” exists across all occupations, and that jobs requiring more interpersonal contact have higher percentages of above-average-looking employees.

And here’s another snippet from a published study in the Annals of the New York Academy of Sciences…

When someone is viewed as attractive, they are often assumed to have a number of positive social traits and greater intelligence.

That means beautiful people (like Justin Bieber) are not just gorgeous, but also perceived as smarter. Now I know why so many people think I’m a geenyus. Haha, get it… “Geenyus”. It’s funny ’cause I spelled it wrong. Man I’m unBIEBERlievable (yeah, I got the Bieber Fever).

Don’t worry though. Even if you are beat-up-from-the-feet-up or tore-up-from-the-floor-up, you still may have a chance at earning a decent wage. That is if you are tall. A study by two professors at the University of Florida found that “tall” people earn a substantially higher wage than their shorter counterparts, with each inch providing $789/year more in income. So, I guess it’s true… size matters ūüėČ

Moral of the story kiddos. Don’t be ugly and don’t be short. Otherwise, it could cost you some major moolah. If you’re not attractive, don’t worry. There is always plastic surgery. I mean remember how good Michael looked after all his plastic surgery…

Have you ever witnessed some beauty biased in the work place? Can any level of “equal employment policies” prevent beauty from becoming a professional factor? Who are some exceptions to the “beauty” rule (think Bill Gates, Jack Black, Amy Winehouse)?

I guess this is Goodbye.

Screen Shot 2016-03-13 at 10.54.16 PMIf it wasn’t entirely obvious, my blogging flame has finally flickered out. It’s been nearly six months since my last post and I’d be lying if I said I had a desire to write again. My season as a Personal Finance blogger has come to an end.

It’s been a wild¬†ride and I’ve been fortunate to have many successes over my six year blogging career. Girl Ninja and I were flown to Chicago to appear on the Steve Harvey Show. I was featured in a print version of Reader’s Digest. Had a huge interview and feature on Forbes.com. And even won the “People’s Choice” award at the largest personal finance blogging conference in the world UNIVERSE, meaning a bunch of random people thought I was the best PF blogger alive!

Thanks for sticking around for so long. If you want to keep somewhat abreast (hahaha, I said breast) of my current life happenings, feel free to follow along on my latest hobby, furniture flipping. I started¬†MidandMod.com (not so much a blog, but a showroom for my furniture, with an occasional random life thought), or on instagram at…

Midandmod (my furniture instagram)

or

B_patch (my real life, day-to-day, instagram)

Or you can always shoot me an email if you’d like to stay in touch (ninja@punchdebtintheface.com)

Also,¬†Girl Ninja has another human/fetus/baby/thing inside of her, a Girl apparently. Due in May. Jury is still out on a name. Oddly enough Baby Ninja 1, Weston, was named by a random reader of this blog when I asked you all to help name him. Perhaps you have some gem of a name you’ve been saving that you wouldn’t mind us considering ūüôā If so drop it in the comments.

I’ll¬†do my best to respond to any comments this post gets (within the two weeks before my anti-spam robot closes the comments section of this post), so feel free to ask any questions if you have them.

Oh, and our current Net Worth is like $420,000 (for those of you weirdo’s that would feel like you were left with a big cliff hanger if I didn’t do one last net worth update).

Well, I guess that’s all.

As the cliche saying goes…

ALL GOOD THINGS MUST COME TO AN END. 

That end is here.

Adios,

Ninja

 

p.s. If you’re interested in¬†buying my¬†blog and the URL let me know.I guess I won’t have much use for it anymore.¬†

A tree fell on our house. 

No really a Giant tree crashed down on our house yesterday evening during a gnarly Seattle Storm. Check it…


  
Fudge.

Have a dozen or so holes in our roof and two busted skylights, but otherwise things seem to be in decent shape.

Now I get to go through the process of learning how a homeowners claim is handled.
Woof.

I bought a couch I never got to see in real life.

Last week, in a moment of zeal, I decided to post our relatively new sofa on Craigslist. We bought this pretty piece of furniture Summer 2014…

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We liked it a lot, but I had two issues with it. It was a little too big for our relatively small living room; As you can see we had to shove the couch all the way up against the left wall just to get it to fit.

Second, we live on a wooded street and don’t get a ton of direct sunlight. The dark charcoal fabric didn’t help our dark living room.

We paid $1,700 (after tax) for it last summer. I posted it on Craigslist for $1,500 thinking no one would be pay me close to that since they could go buy the sofa brand new for just $200 more.

I was wrong.

Not only did our sofa sell in a couple days. I sold it for $1,600. That’s right $100 more than I posted it for. If you didn’t already know… I LOVE CRAIGSLIST!!!

There was only one problem, I wasn’t expecting our sofa to actually sell. So when it did, we had a big empty living room.

Awkward. 

We spent the weekend doing a good bit of couch shopping visiting the local modern stores and sitting on nearly 50 different sofas. We found a lot that we liked. But there was only one that we LOVED.

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The Hess leather sofa at Room and Board was absolutely dreamy. Clean lines. Super supple leather. And extremely comfortable. But $3,800 for a sofa…before tax and a delivery charge…

HELL NO! 

I now had a mission. Get a sofa very similar to the hess without breaking the bank.

Enter the Interwebz….

After doing a good bit of research on a handful of online furniture vendors (All Modern, JoyBird, YLiving), a random Google search brought me to Bryght Furniture.

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I clicked through the furniture they offer and just about pooped my pants when I stumbled upon this beauty…

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I mean look at this ghetto side-by-side photoshop I did comparing the Room and Board Sofa to the Bryght Sven sofa…

Screen Shot 2015-11-16 at 11.28.48 PM

 

Pretty similar right?! 

So my thought process was something like “Holy Crap, I found the perfect sofa. But what if it sucks?”

I mean, I can’t sit on the thing. I can’t call their customer service department and ask them about it. They’ll just lie and tell me it’s dreamy.

So what do I do?

First, I try and Google “Bryght Furniture Reviews” but there aren’t many. So naturally, I decide to instagram stalk people that have hastagged this specific Bryght sofa. I click to their instagram profiles and find that two of them have a blog. I click to their blog and go to their “About Me” page. I find their email address and send them an email asking for a review of their sofa after owning it a couple months.

Creepy? Whatever. 

In the emails I ask them things like…

…Does it look as nice in real life as the photos?

…Is it comfortable?

…Does it look nice, but feel cheap?

…How has it held up?

…Anything you wished you knew before you bought it?

Fortunately, they emailed me back and both had glowing reviews and said they would absolutely recommend the sofa.

Sold. 

I bought the sofa online last Wednesday, knowing that if we hated it, I’d take advantage of the 30 day, no-hassle, return policy and be only be out the delivery fees ($98 total). It was worth the gamble.

So today (Monday), I’m sitting in my living room and I get a call from a truck driver that says he is 5 minutes from my house and has my couch. I never got a call asking to schedule the delivery so I find it odd that they were just randomly showing up to my house, virtually unannounced. But whatever, I was home so it didn’t matter too much.

Look at how absolutely monstrous the cardboard box is the sofa was shipped in…

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It was kind of a headache breaking that giant box down in to a manageable size, but it was definitely well protected so I can’t really complain.

To get the couch ready for use, all I had to do was screw on the five legs (there is a center support leg) and we were rocking and rolling.

WE ARE IN LOVE. 

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It looked just as good as it did in the photos and felt even better than I was expecting. Our last sofa had a firm seat cushion, which I loved because it helps keep it from looking saggy and lumpy. Our Bryght sofa was right on par. A nice firm, yet comfortable cushion. The back cushions are poly filled so I imagine they will start to look a little frumpy in a couple years, but since they are zippered, I should be able to throw in some extra fill as needed down the road.

My favorite thing about this sofa is that it is full aniline leather. It has a ton of variation and a nice patina (that’s the fancy word for leather that ages prettily). I don’t have to worry about scuffing or scratching the leather, because the scuffs and the scratches are part of the charm. BOOYA! What’s more, it will be much more wipeable than our old tweed fabric sofa. I’ll condition it a couple times a year to protect from stains and to prevent the leather from cracking, but that isn’t that big of a headache.

Overall, I would say I’m pleasantly surprised with my first significant online furniture purchase. It’s exactly what I wanted it to be, and nothing like I feared it might be. Win, win.

Is it as nice as the $4,200 Room and Board sofa? No. But at $2,400 cheaper, it’s definitely the better value.

And in case you are wondering. NO. I was not paid or compensated in any way for this Bryght Furniture review. In fact, I tried to get the hook up from Bryght in exchange for a review and they, politely, declined. Darn.

Have you ever bought a substantial piece of furniture online, without seeing it in person?

Was it what you expected, better, or worse?

Any other gem of a websites y’all know about that I need to be filled in on?  

Hey I’m on Forbes Today…

So a Forbes journalist reached out to me a couple weeks back and we did a phone interview about my life and financials. The article is live on Forbes today and if you want to read it you can click here. I wouldn’t say everything in there is exactly how I would have portrayed our situation, but nonetheless, it’s a still a decent piece.

And if you want to get a real kick out of it, click over to the same article on Yahoo and read the comments. Man, some people are brutal ūüôā