You NEED to know your expense ratios.

throw money in toiletNow that I’ve given our savings account the cold shoulder in hopes of building long-term wealth via our taxable and retirement accounts, basic investment strategies just wont cut it any more.

The need to go deeper.

In 2007, when I landed my current job with the Feds, I was handed a fat stack of HR paperwork as part of my new hire packet. One of the pieces of paper in this stack asked if I wanted to begin contributing to the government’s version of a 401k, known as the Thrift Savings Plan (TSP).

The paper told me that if I contributed 5% of my salary, the government would match that contribution and throw in an additional 5% on my behalf.

I didn’t have to be a savvy investor to know that a 100% return on investment was an incredible opportunity.

The TSP is nice in that it only has five funds that one can choose to invest in. They are…

  • C Fund: Essentially an S&P 500 index fund
  • S Fund: A total US stock market index (so companies the S&P doesn’t cover)
  • I Fund: An international fund that mimics a Morgan Stanley International fund
  • F Fund: A broad index representing the US bond market.
  • G Fund: A guranteed return fund. Currently about 2% ROI. 

For all of the bureaucratic red tape and politics that comes with the government, you sure can’t beat the simplicity of the TSP.

But the thing that puts the TSP miles ahead of the competition, likely even your 401k plan, is the expense ratios.

If you’re a super passive contributor to your retirement accounts you might not even know what expense ratios are.

Without boring you to death, expense ratios are a fee that you pay the organization that manages your investment account. You may not have known these expenses existed because you don’t pay them out of pocket, instead your organization just debits them from your account.

Know your expense ratios. 

It could literally mean the difference of tens (or hundreds) of thousands of dollars over the course of your accounts life.

For example, the TSP charges expense ratios of 0.029%. Or in other words, for every $1,000 you have in your TSP, they will deduct 29 cents, annually.

Whereas, if you have an actively managed account, it isn’t uncommon to have expense ratios of 1%, or in other words $10 is deducted for every $1,000 invested, annually.

Ten dollars a year might not seem like a lot, but OH BOY does it add up quick.

Impact of Expense Ratios over the long term

For the sake of making everything easy, let’s say you have $100,000 in your 401k right now. You add $10,000 to your account each year. You are planning on earning an 8% return on investment over the next 30 years.

Take a look at how an account with a 0.030% expense ratio absolutely DESTROYS an account with a 1.0% expense ratio.

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So while a 1% expense ratio may not seem like a lot up front, man-oh-man does it cost ya big bucks in the long run, $419,181.44 to be exact.

Why pay an organization $420,000, when you could keep all that money for yourself? 

I’m fortunate that the TSP has insanely low expense ratios. It would be stupid of me to not contribute as much as I can each year to take advantage of the low fees (hence the reason I’m hoping to max my contributions this year).

And the good news is, even if I quit working for the Feds, I still get to keep my TSP. This will be one account I will probably never get rid of.

“But Ninja I don’t work for the Feds.”

You ever heard of Vanguard? Of course you have! It’s universally known as being one of the most legit investing institutions in the universe (think the Costco of investing).

Vanguards expense ratios are really cheap compared to most of their competitors (although still two to five times that of the TSP).

The more money you have, the better rates you will get.

From 2007 to 2014, I was contributing to VTSMX, which is Vanguards version of a broad based stock market fund. The expense ratio was 0.17%. Not too shabby.

But now that I’m committed to not being such an investing dummy, I’ve sold all $30,000 of that fund and bought VTSAX, which is EXACTLY the same fund, but has an expense ratio of 0.05% (1/3 of VTSMX). The catch with VTSAX is that you have to have a minimum of $10,000 to invest in this account to qualify for the cheaper fee.

Had I left my money in the more expensive VTSMX, I would have paid $22,000 more in fees over the next thirty years.

THAT IS SOOOOOOOOOOOOOOO STUPID. 

So, seriously, if you haven’t thought twice about your investment (taxable and retirement) accounts’ expense ratios; you need to get off my web site and start doing some research (especially because your employer might have some really sucky options).

Not doing so could LITERALLY cost you a fortune.

*make sure you consider tax implications on realized gains if you sell investments from a taxable account. 

Is there any reason I should still have a savings account?

Girl Ninja and I are in the process of refinancing our mortgage. We locked in our refi rate at the end of January, which saved us 0.25% compared to today’s rates. Might not seem like much at first, but it works out to about $40 per month, every month, for the next 30 years. So yeah, I’m happy about that.

We should be lined up for closing sometime near the end of this month and as soon as closing wraps up, I plan to head over to a local credit union and take out that HELOC I was telling you about earlier. (I had to put that plan on pause since I didn’t want a line of credit on our home to screw up the chances of us being able to refinance easily.) I imagine the HELOC will provide us between $10,000 and $50,000 in immediately accessible liquidity.

The HELOC will essentially serve as our savings buffer. 

For my entire personal-finance-loving life, I’ve heavily relied on my savings account. I opened up an ING high-yield savings account back in 2007 (back when I was earning around 3% on my cash) and it was the start of a beautiful relationship. I used that savings account to pay off my student loans in 2010, pay cash for a $20,000 new-to-us car in 2012, and drop $80,000 on a down payment in 2013.

I loved my savings account so much I had four of them.

  • An “emergency fund” account
  • A “future car savings” account
  • A “vacation” account
  • An “extra savings” account.

But now that I plan to use my taxable investment account as my primary source of saving, I can’t help but think…

Is there any good reason to keep my savings account? 

I mean, I’ll be sure to keep a minimum of $10,000 cash on hand at all times in the event of an unforeseen issue (medical bill, job loss, home repair, etc), but why can’t I just keep that money in my checking account?

High-yield savings accounts used to be appealing, but for the better part of the last five years, they’ve paid virtually nothing. My current Capital One 360 savings account pays a pathetic 0.75% APY.

Or in other words, my $10,000 savings account only earns 75-ish dollars per year.

“THAT’S AWESOME.”  – said no personal finance blogger ever. 

So yeah, I think it’s about time I close out my last remaining savings account, and move that $10,000 to my one and only checking account with Wells Fargo, where it will reside for many years.

I guess the idea of not having a savings account just feels weird. It is as much a part of my personal finance DNA as this very blog.

  • Will I be able to function without one? 
  • Is there any good reason to keep it around? 
  • Am I committing a PF sin by closing this account? 

Only one way to find out. RIP savings account, you won’t be missed.

 

How much does a Vizsla (or any dog) cost?

***If you don’t care about my dog that’s fine. But you MUST scroll down to the bottom of this post and respond to my question about a dress that is breaking the internet. This debate could very well destroy my marriage.***

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As many of you probably know, we got our dog Nova, about a year and a half ago. Nova is a Hungarian Vizlsa (Vee-Shluh) and pretty much the best dog in the whole world. She came from a breeder out of Montana, and we picked her out (from her seven siblings) when she was six weeks old (we didn’t bring her home until she was 8 weeks however).

If you are like 99% of people out there who don’t know what a Vizsla is, allow me to inform you:

  • Vizslas self-clean. Like a cat.
  • They are an odor free dog. No dog smell.
  • They produce no natural body oil, so no greasy hands after petting.
  • They are completely brown (eyes, nose, paws, belly, toenails).
  • They are a “pointing” dog, bread to hunt birds.
  • They have insane stamina and are considered extremely high energy.
  • Their average adult weight is between 45lbs and 60lbs.
  • They are extremely trainable (goes with the hunting breed).
  • Rub em down with a dry towel weekly and they are clean as a whistle. They only need to be bathed once a quarter.
  • They cost between $1,000 and $1,800 as a pup.
  • They are super sensitive. You yell, they cower in fear.
  • They are known as the Velcro Vizsla because they attach to you like glue.

We paid $1,000 for Nova and couldn’t be more in love with her.

We will never own any other breed. And I’m not just saying that to be dramatic. We’re totally convinced Vizslas are the best kept doggy secret.

How much does a dog cost after the purchase? 

Being new puppy parents, Girl Ninja and I had a lot of learning to do and Nova had a lot of vet appointments to attend.

As soon as you get your pup you should schedule a vet visit. The vet will check the overall health of the dog and probably give them some shots. This will happen every couple months for the first year of their life. Kind of like a baby, puppies have a weak immune system.

Our vet charges $50 for each visit, plus the cost of any medications/supplements/etc provided.

Thankfully, Nova has only been to the vet for routine appointments. We had her spayed at about 6 months old which cost us $437. That was definitely the most painful of the vet bills, but they took good care of her.

With all the shots and vaccinations young dogs require, we’ve spent a total of $950 on veterinary visits (this includes the $437 spay) over the course of her life.

Since we did not have a dog before getting Nova, we had a handful of purchases to make prior to getting her. A leash, collar, kennel, dog bed, some toys, doggy shampoo, dog food, etc.

We buy her a good quality, grain-free, dog food called Taste of The Wild off Amazon. It is the only food she’s ever been fed outside of the occasional treat, and she seems to do great with it. It’s a little pricey at $45 a bag, but it’s a heck of a lot better than that Purina crap. A 30lb bag lasts us about 6 weeks.

Nova’s costs break down as follows:

– Purchase price: $1,000

– Flight to get her from Montana to Seattle: $250

– Vet bills, including spay: $950

– Food, toys, supplies: $500

– Total cost in first 16 months of life: $2,700. 

If you are thinking about getting a puppy, your costs will likely be pretty close to ours. We don’t spoil her rotten by any means, but when it comes to her health we make sure she’s provided for. If you’re not willing to buy a quality dog food, or make all your vet appointments, I’m not sure you should get a dog.

Similarly, if you don’t have $1,500 to spend for all of these things, I’m not sure you should get a dog.

Things should taper off a good bit from this point forward, and I expect her annual cost to us to run about $500/year between shots, vaccines, and dog food.

We love her to death and she’s seriously been the sweetest dog to Baby Ninja. He tugs on her big floppy ears. Rolls around on the ground with her. And has even taken a dog toy right out of her mouth. She totally gets that he is fragile and when she is around him she treads very carefully.

We were a little concerned that her energy might be an issue and that she would bulldoze him, but that’s not how it is at all. While there is no denying she is a fireball with endless energy, she knows that outside is the place to get that energy out. When she’s indoors she is pretty much just following us around or sleeping.

She’s the best.

And now is the time where I get to show her off to you…

First time meeting her…

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Her first time meeting Baby Ninja…

 

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Looking like they expect me to entertain them…

 

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She stood like this for five minutes…no joke…

 

 

 

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Getting out her energy…


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I’m going to explode from all the cuteness…

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She loves to do tricks…

 

But hates her doggy conditioner…

 

 

p.s. People that think I’m terrible for buying a dog from a breeder instead of a shelter; save your breath. I don’t really feel like I need to justify why I wanted a dog from a breeder. Much like I don’t feel a need to justify my love of meat to vegetarians. To each their own.

 

 

MANDATORY READER RESPONSE.

This dress is causing a tizzy all over the Internet. When you look at it do you see a white and gold dress, or a black and blue one? I see the former, Girl Ninja sees the latter. It blows my mind.

 

I’ll still be so pissed if student loans are forgiven.

Back in the Occupy Wall Street hayday, Circa 2011, I wrote my 8th most popular post ever. It was simply titled “I’ll be so pissed if Student loans are forgiven“.

Yesterday I read an article by the New Yorker titled “A Student-Debt Revolt Begins“. Here’s a snippet from the article, but make sure to click through and read the whole piece.

On Monday, Heiney and fourteen other people who took out loans to attend Corinthian announced that they are going on a “debt strike,” and will stop repaying their loans. They believe that they have both ethical and legal grounds for what appears to be an unprecedented collective action against the debt charged to students who attended Corinthian schools, and they are also making a broader statement about the trillion dollars of student debt owed throughout the country.

If you took the time to read the whole piece, you’ll learn that it’s pretty clear Corinthian was likely not putting the students’ needs first. But then again, what would one expect from a for-profit entity? Of course the executives primary concerns are going to be how much money they will make, and how much money they can make for their investors.

It’s also abundantly clear Corinthian was taking advantage of the government’s generosity just as much, if not more, than they were taking advantage of their students.

Does this sound familiar? How about just a few years ago when all the financial institutions utilized predatory lending practices, knowing the fed was there to bail the bank out in the event the crap hit the fan.

Tons of upside. Virtually no downside. 

But to be honest, I actually feel for Heiney and think she should pursue legal recourse. If the college operated unethically, and the Dept of Education, requires that colleges do operate ethically, then I don’t know if the blame can necessarily be placed on her decision to enroll.

If she was deceived and lied to, how can I demand she pay back her loans. Lord knows if I was unknowingly ripped off, I’d like a chance to plead my case and get some type of relief.

BUT

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If she is successful in getting her student loans forgiven, then I would demand she forfeit any degree or credential she earned from her student-loan subsidized education.

I mean, her whole case is predicated on the fact that the school she attended sucked, wasn’t actually worth a single penny, and she feels her degree is useless.

Fine.

Give up the degree and I’m cool with you being able to explore student loan forgiveness.

Treat student loan forgiveness the same way that we treat foreclosures and bankruptcy.

I don’t get to revolt against my mortgage AND keep my house. No. The bank will kick my butt out, take back the house, and essentially forgive my loan (and damage my credit a good bit).

I don’t get to file bankruptcy, but keep my vacation properties, fishing boat, two dirtbikes, and $40,000 in personal savings. If I go to Bankruptcy court and convince the judge I can’t afford to pay back my creditors, the court takes whatever I do have, and distributes it amongst my creditors. My loan is forgiven, but I have to forfeit most of the things that debt allowed me to acquire.

So yes, even in Ms Heiney’s situation, as sad as it is. I will still be SOOOOOOOOOOOOOO pissed if her student loans are forgiven.

You can not have your cake and eat it too. 

Where do you see the student loan forgiveness issue going?

I think it’s inevitable and within 10 years student loan forgiveness will be a thing. And I’m sure it will be abused just like bankruptcy and foreclosure often are.

Heck, I’d take a damaged credit score for a couple years if it means I can swoop a free degree in the process.

*** keep in mind I graduated college with $28,000 of student loan debt, which was above the national average for my graduation year, so I’m intimately familiar with the “Frick, what did I do” feelings that come with a student loan obligation***

For Oh Won Kay.

In the blink of an eye, my overtime income that I blogged about two days ago is gone. Rest in peace, hopefully we will meet again.

Where did it go?

I’m glad you asked.

As soon as I learned the opportunity for overtime was available, I immediately began deciding how to purpose this new found income.

And like a true personal finance nerd, the result was about the most boring thing you could possibly imagine.

My 401k. 

While I’d like to pretend you didn’t see that coming, I imagine you nerds would have been just as nerdy and probably done the same nerdy thing.

Seeing that I have no idea how long this overtime option will be available to me, I want to make sure I take advantage while I can.

For now that means I’ll be throwing $1,600/month in to my 401k instead of the $600/mo I have been doing.

Since my agency matches 5% of my income each month, I have to be careful about how fast I max out my 401k.

If I hit the $18,000 limit by, let’s say August, then I would no longer be allowed to contribute to my 401k for the rest of the year (September to December). Which means, my agency wouldn’t be able to provide me a 5% match (since I’d no longer be contributing).

Or in other words, I’d lose out on about $2,000 of 100% FREE MONEY.

No way in heck I’m going to let that happen, so even though the overtime I’m working should theoretically gross me an additional $2,400/mo. I’ll only be throwing in $1,600 towards my 401k.

Leaving me with about $600ish dollars to tinker around with after tax.

To make sure things don’t get too exciting around these parts, I’ll probably just set up an auto-transfer and have that extra money go straight to my brokerage account.

Sexy by the worlds standards? Hardly.

Sexy by not-being-an-idiot-with-new-found-money standards? Absolutely. 

Overtime.

My field office has been one of the hardest hit field offices in the country in terms of work load. We have fallen way behind because we don’t have enough agents to complete all the work that comes in. We’re generally known as a busy office, but things have gotten so out of hand that we aren’t expecting to be caught up until 2016, possibly even 2017.

We’ve had several agents from different areas come in for three weeks at a time to try and support our team and get things more manageable. While it helps, it’s still not enough.

One of the perks of working for the federal government, or at least my position within the government, is that I never have to work more than 40 hours a week. While some of my friends in different industries might make more money than me in a calendar year, I always remind them that my hourly rate is not far off from theirs since they frequently show up to work early, stay late, and even go in to the office on the weekends.

Sixty hour work weeks have never been a part of my life. 

Thank goodness.

Yesterday, my boss sent out an email, letting me and a few colleagues know that we are authorized to work up to ten hours of overtime per week for the foreseeable future.

It is completely optional, and there is no expectation from management that we must take advantage of this program.

I get paid 1.5 times my hourly rate for overtime.

Assuming this stays an option the rest of the year, I could gross an extra $30,000 this year.

Which virtually replaces the income we forfeited when we decided Girl Ninja should quit teaching and be a stay at home mom.

Let me get this straight. Girl Ninja can quit working the 40+ hours per week she was putting in as a Kindergarten teacher, I can pick up an extra 10 hours per week, and it’s like nothing changed in regards to our income?

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While I legitimately enjoy the work life balance my job provides, I’m definitely willing to give up a little more of my free time if it means we can provide a nice financial buffer for us this year.

How many hours a week do you put it in at work? Do you get paid overtime for extra hours? If your supervisor offered you 10 hours of voluntary overtime right now would you take advantage?

 

The first $100,000 is the hardest.

I’ve been feeling a little nostalgic as of late and have been rummaging through old files on my computer. That’s when I happened upon this gem of me back in my glory days….

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Look at those thunderous calves. Those luscious locks. Those chubby cheeks.

It’s no wonder Girl Ninja desperately wanted to bear my children.

After laughing at my baby pictures for a good 20 minutes, I started clicking through my old Excel spreadsheets.

These old spreadsheets taught me a very valuable lesson. A lesson that will be relevant for any of you who are in the early stages of getting your financial crap together. The lesson is this…

The first $100,000 is the hardest. 

I mean check out my net worth progression over the last seven years.

NW end of 2008: $18,617

NW end of 2009: $28,793

NW end of 2010: $63,714

NW end of 2011: $114,622 (first full year of dual income)

NW end of 2012: $168,878

NW end of 2013: $234,881

NW end of 2014: $288,180

As you can see it took me about four years to build up a net worth of $100,000. But then it only took two years to increase it another $100,000. And if my 2015 projections are close, these last two years will yield another $100,000 increase (which isn’t bad considering we gave up our dual income status).

The power of compounding is no joke. 

I mean think about it. If you have $10,000 invested for retirement and the market goes up 10% on the year, you’ve increased your net worth by $1,000.

Whoop-de-freakin-doo.

But if you have $100,000 invested, you see a $10,000 jump.

Or better yet, once you have a cool million invested, a 10% jump just means you earned yourself $100,000 without doing a darn thing.

The rich really do get richer… Because they let their money make money. And then they let the money, their money made, make money.

How confusing and awesome and wonderful and rad and bodacious is that!!!!

At 29 years old, I’m pumped I’ve gotten a taste of just how sweet building a nest egg can be.

Hopefully my story can motivate a few of you to keep on chugging, even if things seem like they are moving slower than you prefer, don’t give up. Your future you will thank you for it.

Cheers to your first (or next) $100,000!