Personal Finance tips and tricks.

I woke up to a text from one my good friends yesterday morning that read “Can I pull 100% of my Roth contributions at any time without penalty?”  Why yes, yes you can. Roth contributions can be pulled at any time, for any reason, without any repercussions. That’s why I like to think of my Roth IRA as a second-tier emergency fund. My Roth is really just as liquid as my savings account and that’s why I think all young people should seriously consider opening one up. The Roth is  like the filet mignon of retirement planning for 20-somethings.

But today’s post isn’t actually about Roth IRA’s or filet mignon, but instead just a list about some of the most important things I’ve learned through my personal finance journey. In no specific order, here they are:

    • You don’t have to be rich to end up rich. Never knew a $50,000/year salary could turn in to millions in retirement if done right.
    • Albert Einstein once said the most powerful force in the universe is compound interest. I had no idea age played such a significant role in one’s financial future. The earlier you get your shizz together, the better off you will be down the road.
    • 401k’s sound really boring, but in reality they are pretty straightforward and typically provide a guaranteed return on investment (for example my employer automatically matches up to 5% of my gross salary in contributions). Can’t beat a 100% guaranteed return on investment anywhere.
    • Renting IS NOT a terrible financial decision.
    • Minimum payments on debt are the worst. I remember calculating how much my $28,000 student loan would end up costing me if I made minimum payments. The answer….$52,000. Minimum payments suck. BAD!
    • Credit Cards are pretty awesome when used responsibly. Girl Ninja and I get airline miles for every dollar we charge to the card, dollars we would have spent anyway for things like groceries and gas. Not to mention, that my C.C. also gives me a 30 day, interest free loan. Awesome sauce!
    • Investing really isn’t that complicated. In about 30 minutes you can set up and get started investing in a Roth IRA. Investing seems intimidating, but it really doesn’t have to be. Don’t let fear be an excuse not to act.
    • You don’t have to have a car payment. When Girl Ninja and I bought our car a handful of people made inferences that we must now be proud owners of a car payment. Not so much the case. A little saving goes a long way and contrary to popular belief, you don’t need to finance your next car either. Your checking account will thank you.

Alright I’ll end this geekgasm here. Don’t want to totally nerd out on you all, but man Personal Finance really can be exciting. The bullet points above were all things that really resonated with me as I’ve navigated the world of PF for the last few years.

What bullet points would be on your list?

What are some of your favorite things you’ve learned, or come across in your journey?

15 thoughts on “Personal Finance tips and tricks.

  1. Having a plan for your money is really important, no going commando with your dollars. I really like prioritizing needs over wants. Really helps you when you got the latest and greatest item in your hands at the store.

  2. The biggest thing I’ve learned along this about the Gap (kudos to Trent at the Simple Dollar) – it’s about how much you earn AND how much of that you spend – that is, the gap in the middle that you have to play with in savings and investments. Living below your means is EVERYTHING in PF. I’ve been going through some friends’ budgets, and it’s clear that they aren’t there yet.

  3. CORRECTION – You can pull out your contributions(not the earnings), given that your account is AT LEAST 5 years old.

    • Maybe I’m misunderstanding you, but I don’t know what you’re correcting here. The statement “Roth contributions can be pulled at any time, for any reason, without any repercussions” is 100% correct. it’s the earnings on those contributions that must be held in the account at least five years to avoid tax and penalties on early withdrawals.

      I would add that a Roth IRA has benefits over the traditional type, even if an after-tax dollar invested in a Roth is not the same as a tax-deferred dollar invested in a traditional, or for that matter in a 401(k). For one thing, you have the peace of mind knowing that taxes on the Roth account have already been satisfied. For another, withdrawals from a Roth are not used in the formulas used to calculate required minimum distributions or taxes on social security benefits, which may create a significant tax advantage to persons of retirement age. At age 66 and just retired, I am seriously thinking of converting my traditional IRA to a Roth and paying the taxes now before I hit age 70.

      • Larry- you’re right. I spoke too soon. I apologize for the misinformation.
        I knew there was a 5 year rule, but I couldn’t remember if it was for contribution and/or earnings. I could have sworn there was a 5 year waiting period before being able to withdrawal contributions, but I was wrong.

        • You may be thinking about the Roth Conversions: Contributions converted to a Roth do have to sit in there 5 years to avoid penalties. If you would have a 10% penalty to withdraw contributions from an IRA or 401(k), you can’t get around that by converting to a Roth first unless you wait 5 years. Even then only the contributions not the earnings could be withdrawn before age 59 1/2 without penalty.

  4. Transitioning from a natural born spender to thoughtful saver has been quite the journey. I am continually surprised by how much more I enjoy my purchases after having saved for them, thought about them, anticipated them. I get a total charge out of spending money mindfully–much more than when I spent money instantly gratifying every whim.

  5. Great post and a nice refresher.
    I’ve learnt that saving doesn’t have to be difficult. It’s all about consistency even if it’s starting with just 1% of your income. It all adds up over time and even more so with compound interest thrown in.
    Another thing is delaying gratification. Sometimes we think we want something but if we delay the purchase by even just 24 hours we realise that we can probably do without and end up not buying it.
    Thirdly, just because the shop sign says ‘Save 50%’ doesn’t mean you’re saving 50% if you buy a product you didn’t really need in the first place.

  6. Just do it. Stop talking about making more payments on your debt, and start doing it. It gets addictive, and instead of thinking about the next thing you’re going to buy, you think about how much you can pay toward getting rid of your debt.

    • Yeah! Don’t forget about your readers. You rarely even respond to the comments anymore. I’m sure you can do that while baby Ninja naps.

  7. I totally second the no car payment. I’m planning on buying my next car in cash and I *know* some people are going to question this decision. But, it’s my money and I get to be the one to make wise decisions with it 🙂

  8. I totally agree that credit cards are pretty awesome when used responsibly, we need to maintain a good credit score in order to have points, especially the travel rewards. My hubs travels a lot that’s why we are thinking to sign up for our very first credit card.

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