In a little over month I will receive a small raise at work to the tune of $2,447. While I’m stoked to be getting any raise at all, let’s be real, it’s not a life changing amount. In fact, it only works out to about a $75 net gain each paycheck. Big Macs on me tonight guys. Wait… too expensive, ninety-nine cent Jack in the Box tacos on me instead

Since Girl Ninja and I are already able to put a good chunk of our discretionary income into savings each month, we decided to be responsible and increase our retirement contributions. Instead of throwing 5% of my gross income in to my 401K each month, we increased that sucker by another 3%, for a total 8% contribution. My employer matches 5%, so in total 13% of my gross pay will be going in to my 401K plan. Is that hot or what?

So I get a $2,447 raise, and before I even have a chance to see it in my paycheck, we decide to throw $2,200 of it in to our retirement. If that’s not keeping up with the Joneses I don’t know what is. SIKE! I hate the Jones family and everything they stand for.

Since I’m a self-proclaimed PF nerd, I thought I’d run a quick calculation…

If we keep throwing that $2,200 in to our 401K plan for the next 40 years, do you want to know how much extra we’d have come retirement? This example assumes an 8% rate of return.

$765,651.82

You can see the decision was easy. Get $75 extra in each paycheck? Or have an extra $765,000 waiting for me when I’m older? I don’t know about you, but I’m picking the latter every time.

Lifestyle inflation is cool and all, but if we are already content with what we have, what else is there to inflate besides our savings, retirement, and charitable contributions? I’m not going to go run out and buy another TV or laptop just for the hell of it (pardon my language).

Last time you came in to a little extra money, what did you do with it? If you had to inflate your lifestyle in one aspect how would you do it? (We would probably dine out a little more, or maybe pay for a maid service).

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

It’s homecoming week here for the local high school. I don’t know if your school was like mine, but during homecoming week each school day had a theme. One day you’d wear school colors, another a funny hat, or a costume, or my personal favorite….matching day. I’d always dress up to match my best friend….who was black….yeah it was awesome! Even though Girl Ninja is a kindergarten teacher, it seems her school is also joining in on spirit week. That’s right, they’re matching….

…..her 403B contributions that is. HA! How about that for a PF tie in?

For the first time ever, Girl Ninja will be directly contributing to her very own retirement plan (we are also in the process of starting up a Roth for her). She gets paid biweekly and will be socking away 5% of her gross income each pay period – which gets fully matched by her school.

She was so cute when she came home to tell me about it. She sat down, all professional like at the table, with a packet of information about her various investing options. She was talking to me about how her schools financial adviser recommended that she be relatively aggressive in her investments since she is only 24. I couldn’t help but smile. For the first time in our marriage, Girl Ninja was actually excited to talk about retirement! I think I fell in love with her all over again during that conversation

Anywhoozle, included in her financial packet was a worksheet designed to help assess how risky (or conservative) she should be with her investments. Check it…..

As you can see. Girl Ninja, on her own volition ended up ranking in the most aggressive category (makes me so proud). Here’s how the form recommends GN invest based on her “aggressive” assessment…

Not sure yet if we will follow their guidance 100%, but we’ll likely end up doing something close to it. I’m so stoked for Girl Ninja to start her 403B. I’m already making a list of all the things I’m going to buy with her retirement income; a boat, skis, new car, and of course… a unicorn

Where do you rank according to the first chart? Were you surprised by the results? Would you follow the recommended investing strategy on the second form? Why is saving for retirement such a turn on….meow.

Yesterday the Dow dropped more than 500 points, nearly five percent. Girl Ninja and I lost around $2,000 as a result. When I told her the tragic news she asked if I was really sad/mad about it.

Do I like losing money? Heck no techno, but that’s what I signed up for when I decided to start playing the investing game. I knew there would be days that I made money and days that I lost money. Yesterday was a loss. Ain’t no thang but a chicken wing.

Sure losing $2g’s sucks, but I got 40 years to make it back, and I’m pretty darn confident we will. For me, investing is not an emotional decision, but a financial one.

Are you emotionally affected by big drops in the market? How about big gains? Anyone think buy and hold is stupid?

Got an email from a lost soul yesterday and I thought we could help put her on the path to eternal riches. Check it…

Hi!

I’m a long-time reader of your blog. I want to start a retirement account for myself. I’m a 23 year-old, soon-to-be-married female with a full-time job. My employer does not provide any type of retirement savings of any sort, and I haven’t been making any contributions to my retirement in my lifetime so far. I’m ready to change that.

I’m not sure where to being and am not really that “seasoned” in stocks/bonds/etc. If you have any tips, words of wisdom, or a direction I could head in, I would appreciate it.

Thanks!
Rachel

Well, first of all I would personally like to thank Rachel McAdams for reading my blog. Loved you in Mean Girls…

Anywhoozle, on to your question. How do you get started with investing when you know nothing about it? Easy. Get out your checkbook. Write a check to Ninja@punchdebtintheface.com. Send on over about $10,000. And I’ll mail you back $5,000 in two weeks. BOOM! You just got $5k. Pretty sweet right?

Okay, now it’s time to get serious. Investing, especially for something like retirement, can seem both daunting and unimportant. Stocks, bonds, REITS, Options, blah, blah, blah. Not only is the subject matter rather boring, but retirement is like eleventy bajallion years away, why the heck should we give it any thought? Answer: Because Ninja said so.

Unfortunately Rachel, I know almost nothing about you except that you are 23, employed, and your name is, well… Rachel. Since I don’t know you, I can’t really recommend an investment strategy for you. That said, I can tell you what I do and if you think it sounds sexy, feel free to copy me.

I invest 5% of my gross income to a 401K plan each month because my employer matches that dollar for dollar. Next I take $5,000 of my take home pay each year and invest in a Roth IRA. Roth’s have some pretty epic long term tax advantages for us younger peeps. Since you don’t get an employer match in a 401k plan, I would focus on starting a Roth. I can’t tell you who to open up this account with. Just make sure pick a company (like Vanguard) that won’t fee you to death.

Since I am relatively young (25), I am fairly aggressive in my retirement investing. That is to say, I only invest in the stock market. No bonds for this Ninja. I go the way of Dave Ramsey and invest in a few different mutual funds. 50% of my cash goes to VTSMX (Big US Companies), 25% goes to NAESX (Small-Mid sized US companies), and 25% goes to VGTSX (Foreign Companies). This investment strategy helps diversify my investments across the entire market. If one company collapses (I’m talking about you Radio Shack), it doesn’t really effect me. It’s also important to invest at least a little in international markets. If the US goes to hell in a hand-basket, it will be nice having something that’s still of value.

I don’t like to get super technical when it comes to investing. My mom messes around with individual stocks, options, etc. She’s crazy to me, but it seems to work out just fine for her. A good place to get familiar with solid mutual funds, stocks, etc is MorningStar. They’ll tell ya just about everything you could ever want to know about a specific stock or fund.

Oh man. I’m pooped this was way more “finance” than I am use to in a one blog post. Moral of the story…