Thursday Poll: What day will the government get its crap together?

I recently mentioned I have not yet contributed to my Roth IRA this year. If you haven’t been living under a rock, I’m sure you’ve noticed the markets are down a couple hundred points as the Republicans and Democrats are being a bunch of drama queens. I would never advocate trying to time the market because no one can predict the future, but almost surely one of two things will transpire over the next week…

Option A) The government shutdown continues, and for the first time in the Nation’s history, we will default on our national debt obligations. The economy will likely see an immediate and sharp decline. If I buy in today, with the dow at 14,800, it could easily be thousands of points lower a month from now if the economic crap hits the fan.

Option B) Republicans and Democrats continue bickering, but ultimately strike a deal. Either the national debt issue is pushed back for another few weeks/months, or the debt limit is permanently increased and the shutdown ceases. The markets will react positively to this news.

What’s going to actually happen?

No one knows exactly. But, I’m pretty sure no elected official wants to be part of the nation’s first debt default so I’m betting a deal is struck before default becomes a reality.

Now is the part where you, the reader, can help me out.

I want YOU to pick what day I should make my Roth IRA contribution. Ideally I will contribute on the last business day BEFORE The House and The Senate strike a deal (right before the markets would make a nice little jump). Only problem is, I don’t know what day said deal will be made.

To have a little fun, I’ll let you do the picking for me. Whichever day gets the most votes, will be the day I drop $4,500 in to my Roth (side note: I’ve already contributed $1,000 to regular IRA). 

This could end up being the greatest idea I’ve ever had, but it could just as likely end up being the worst. Haha. Should be fun either way right?

So reader…

[poll id=”22″]

 

Well, we officially quit saving yesterday.

After a brief chat with Girl Ninja yesterday, we’ve made the wise decision to stop saving money for the foreseeable future. No, we haven’t hit our $100,000 savings goal yet, and if I all goes according to plan, we never will.

I first blogged about our ambitious $100,000 savings goal in June 2010. Exactly three years ago. And here we are, probably four weeks away from reaching said goal, ultimately deciding it’s time to throw in the towel and give up.

Have I gone bonkers? 

bonkers

 

Don’t worry, I haven’t gone off the deep end yet. It’s just time I start practicing what I preach.

While it’s true we have not hit $100,000 in savings, we are pretty freaking close. About $3,500 short as of this writing. This week’s blog post about 401(k) loans got me thinking. I like the idea of using a 401(k) loan, but ultimately have decided against it for one reason.

I wont need (or want) a boat load of cash sitting in the bank once we’ve made our down payment.

As I’ve mentioned before, we will likely use between $70k and $80k for a down payment and closing costs. This will leave us with a $10,000 emergency fund and between $10,000 to $17,000 for “other things” (furniture, vacations, etc).

I have no desire to keep more cash in the bank than necessary. In other words, we’ve reached our MAXIMUM savings threshold. I feel like any additional savings would no longer be classified as “being responsible” but instead as “hoarding”.

hoarding

We knocked debt freedom off the list years ago. Yesterday, we put a check mark next to savings. Now it’s time to make some new priorities. So…

  • I upped my 401(k) contributions last night from 13% to 20%, and after I see exactly how that affects my paycheck (thinking about $430/month less in take home pay), I might increase it even more.
  • We’ll probably begin living slightly more frivolously (emphasis on slightly). Maybe we go out to a nice restaurant once a month. Take a weekend trip somewhere once a quarter. Or finally update one of our six-year-old laptops. We won’t be keeping up with the Joneses by any means, but it will be fun to splurge every now and again.
  • Lastly, and what I’m most excited about, we will take the majority of our discretionary income and FINALLY start throwing it in to taxable investment accounts. If all goes well, we can make some serious progress in our goal to build up some short to mid-term investments. It’s important we get a jump-start on this now, before we have kids, a larger house payment, and only one income. 

While it would be cool to actually reach our $100,000 savings goal, I think it’s way cooler to move on to the next phase of Operation Build Wealth.

Does “buying low/selling high” apply to retirement?

Did you know I LOVE LOVE LOVE getting emails from PDITF readers!? It’s nice to break up the spammy sponsored blog post proposals that typically flood my inbox. “Dear Ninja, I would like contribute relevant financial information to blog readers of your fine website”. 

Emails like that make me want to stab my eyeballs out with a jalapeno.

jalapeno eye

That’s why I was pleasantly surprised to get this email from a reader….

Ninja,

I have a question about buying low and selling high. Does this apply to retirement accounts as well?

I have nearly 40k in my 401k, nearly all a ROTH. I put in 12% of my income in and my employer matches 4%. Given that the markets are what I would consider “high,” does it not make sense to sell now and move my accounts to cash?

I tried doing this through my Fidelity account, but did not have a cash option, everything was in funds or bonds of some sort. When I contacted a representative on how to do this I was asked why am I doing this, that this is not the point of a 401k, and that it would benefit me to stay in the market, for the long term.

Thanks!

Ahhh, pretty simple question “Should I buy low and sell high?” 

The answer is even more simple…. YES!!!!!

Only problem is, no one knows what “high” or “low” means. People were freaking out when the Dow dropped under 10,000. They thought 9,000 was an insane deal and it was time to buy. Little did they know, the markets would shed another 25%.  

I think your Fidelity rep is spot on. Maybe the markets hit 16,000 next month, or maybe they drop to 13,000. Since I have no way of knowing what’s going to happen I just invest consistently every month. That means I bought in when the market was in the 6’s and I’m buying now in the 15’s.

Don’t get me wrong. I know the markets have been extremely bullish the last couple years. A correction will surely come. But is that correction going to be from 20,000 back to 17,000? Or will it be from 15,000 down to 12,000? Will it be six months from now, or six years?

I CAN accurately predict the market will go up and down, but I CAN’T get any more specific than that.

And for that reason, I’ll stick to boring old unemotional dollar cost averaging in my retirement accounts.

Should I accept a free financial consultation?

goldilocksgoldilocks

goldilocks

A few months ago, I signed up for a new money management website called Personal Capital. It’s a competitor to Mint.com and apparently was founded by the former CEO of PayPal. I decided to give the new guys a shot and set up all my accounts shortly after they launched. After a few weeks of use, I decided it wasn’t for me and that I’d just stick with Mint. Haven’t logged in to the site for a couple of months now.

Personal Capital (PC) was out of sight and out of mind… until yesterday, when a financial advisor from the company left me a voicemail. Apparently PC prides itself on its investment portfolio analysis tools, and as a benefit to new members they offer a free consultation with one of their financial advisors.

I find this both intriguing and creepy. I haven’t called the advisor back yet because I’m kind of skeptical of what can really be accomplished in a 30 minute phone call. Me thinks it will be more of a sales call, than a productive advising session.

But then another part of me figures “What the heck, it’s free.” Might as well give it a shot right? Even if the guy is super sleazy and just tries to sell me on more advising sessions or investment products, I’ll at least get to write an epic blog post about the call, right?

I’ve never consulted with a certified financial planner before. I’m definitely open to the idea (especially if that consultation is free), but I don’t want my first experience to be a bad one and I fear this could be exactly that.

If someone from Personal Capital, Mint, or your bank called you and offered a free consultation on your investment portfolio, would you take them up on it? Or should one only consult with a neutral, third-party, financial advisor? Should I return the voicemail? Anything I should ask the advisor if I do?

 

A 5% discrepancy could means millions.

Just about every personal finance guru has an opinion on how much you should contribute to retirement. Their suggestions usually falls between 10% and 20% of your gross income. For as long as I’ve been at this personal finance thing (since 2007), I’ve decided to contribute no less than 15%.

Here’s what my retirement contributions look like for 2013…

401K: 13% of gross income

Roth IRA: $5,000 (which is 6.5% of gross income).

As our income has increased, we’ve been able to send more discretionary income to retirement, nearly 20% of my income. There’s something missing though, I also get a 5% match from employer in the 401k. So that really means about 25% of my pre-tax income is being stashed away for future me.

But when the gurus talk about retirement, what satisfies their stated 15% threshold? Is it simply what the individual contributes, or is the company match factored in to that equation? Or in other words, would Dave Ramsey say I’m investing 20% towards retirement, or 25%? 

It’s an interesting question, one that could literally mean the difference of a $1,000,000+ come retirement.

When I asked this question on twitter, I got a 50/50 split. Half said they count the match towards their goal, while the other half said they pretend like the match doesn’t exist.

I-R-HoorAy, ho, hey, ho.

stupid brain

It’s a good thing I have a cousin-in-law that works for a Wells Fargo retail branch. He always fills me in on things I need to know about the companies personal banking products (Girl Ninja and I are WF clients). Normally I’d be all about a local credit union or community bank, but Wells Fargo has a product line called the Portfolio Management Account (PMA) that is pretty swaggerific.

It has some standard benefits like free checking, free cashiers checks, custom ATM cards; but the thing that really makes it stand out from the competition is the fact that a PMA member can make 100 free trades each year through their Wells Fargo brokerage account. The $30 annual fee for these types of accounts is also waived.

If you have the assets necessary to qualify, the PMA package is pretty much the best thing out there. Or at least that was true 10 days ago.

On March 31st, my cousin-in-law informed me that the 100 free trades benefit was disappearing on April 1st. Wells Fargo now charges a $6.95 per trade fee to any newly opened PMA accounts. That’s not an excessive amount by any means (E*Trade is $8), but that’s a heck of a lot more than the $0 per trade I’ve been paying for the last five years.

The accounts Girl Ninja and I already have are grandfathered in (my Roth, her traditional). But what if I quit my job a year from now. In the event I change careers, I’ll need to roll my 401k assets in to a traditional IRA. Meaning my new traditional IRA would be subject to the $7 fee.

Fortunately, I was able to call at about 8pm on Easter Sunday and get a traditional IRA opened up if/when this becomes a reality.

Problem solved.

Well except for the fact that I have never contributed to a traditional IRA before and made a major boo-boo. I told Wells Fargo to throw $1,000 in to my new traditional IRA for the 2012 tax year. Thinking I was a good boy for putting a little more away for future-me.

Not so fast! Apparently if you max out your Roth IRA, you aren’t suppose to contribute to a traditional IRA (or vice versa).

Basically I’m only allowed to contribute $5,000 total between my traditional AND Roth IRAs. I already maxed out my Roth ($5,000) a few months ago, so my recent $1,000 addition to my traditional puts me over the maximum allowed contribution. If I left things how they are the IRS would come kick my door down, punch me in the face, and penalize me for over-contributing. How lame!

Ugh, I remember the days where I worried if I should have Golden Grahams or Cinnamon Toast Crunch for breakfast, now I’m worrying about getting a visit from Uncle Sam for investing too much. Growing up sucks.

Completely unrelated note: Anyone work in medical/pharmaceutical/tech sales. I want to explore that career field and would like to pick someone’s brain! Not literally. Literally picking your brain would be kind of weird.

 

Keeping up with the Joneses like a boss.

My next paycheck will be a bit larger than the last.  I’ll be getting a slight raise, about $2,500 more per year. 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. Or as I look at it, a free lift ticket each pay period 😉

Since Girl Ninja and I are fortunate to have our income exceed all of our wants, we decided to do the boring/responsible thing and further increase our retirement contributions. Instead of throwing 10% of my gross income in to my 401K each month, we increased that sucker by another 3%, to 13%. My employer matches 5%, so in total 18% of my gross pay will be going in to my 401K plan each paycheck. Is that hot or what?

That's hot

So I get a $2,500 raise, and before I even have a chance to see it in my paycheck, we decide to throw all of it towards retirement. If that’s not keeping up with the Joneses, I don’t know what is!!!!

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

If we keep throwing that $2,500 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 a 6% rate of return.

$416,968

There was really no decision to make. Get $75 extra in each paycheck and blow it on things we don’t need, or have an extra $417,000 waiting for us when we’re old?

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 account, retirement funds, and our charitable contributions? I’m not going to go run out and buy another TV or laptop just for the heck of it.

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 pay for a bi-weekly cleaning service)