My Friend: help i need a financial consultation.
me: shoot.
My Friend: tiaa cref.
what the arse is it?
and how do i know what percentage of what makes good sense>
?
me: It's a retirement thing for non-profit folks.
What kind of account are you looking at?
Is it a 403(b)?
My Friend: yes.
me: Okay, that's the nonprofit equivalent of a 401(k). It's an employer-sponsored retirement plan.
Are you being offered a match of any kind?
My Friend: i have no clue.
they sent me this form.
they said 'return it!'
and then they said 'today!'
me: That probably means no, but I'd ask someone if you have time. Do you have a Roth?
My Friend: no.
me: Does the convenience make a big difference to you? If you start contributing to the 403(b), the contributions will be deducted directly from your paycheck, pre-tax, which is very convenient and doesn't reduce your paycheck the amount of the full contribution, which is also cool.
My Friend: no contribution match from employer.
i checked.
me: Okay.
My Friend: convenience?
no, not a big deal.
me: Ideally, then, I think you'd open a Roth instead.
But that requires a lot more individual initiative.
My Friend: i don't know if i have that option.
me: You do. It's an IRA, not an employer-sponsored plan.
My Friend: ah.
so what about the form that i need to return today?
me: Well, I think if you're up for opening and administrating the Roth yourself, you skip this form.
The advantage of the Roth is a tax advantage: you pay taxes when you put the money in, not when you take it out (that's what happens with the 403(b)), so it grows totally tax-free, and when you retire making more money than you do now, you save lots on taxes.
My Friend: right! which makes so much more sense.
me: Way more sense.
The obstacle is this: a lot of plans require an initial investment of $2,000-$3,000, which you may not have on hand.
My Friend: no, i do.
so that will be okay.
me: Cool. You can open one online at Vanguard in about twenty minutes.
It's way easy.
I would do that instead of the 403(b) if there's no match.
I contribute to my 401(k) at [My Company] because there's a super-generous match.
My Friend: woot!
unfortunately not the case here.
me: Alas!
My Friend: in the short term, my dental insurance is free . . .
me: nice.
me: One more thing: once you set up the Roth (Roth Individual Retirement Account, is its full name, often Roth IRA) with the minimum $$, you can automate contributions by linking your Vanguard account to your bank.
My Friend: wow!
you are the best financial advisor i've ever had!
Wednesday, September 17, 2008
A GChat Transcript In Which Financial Knowledge is Power!
Monday, May 19, 2008
Goodness.
It's been quite awhile--I do apologize. The apartment hunting really ate my life for a week and a half or so there, and I've been recovering since we signed a lease last Tuesday. That's right! Signed a lease!
K and I will be Brooklyn residents at the end of the month, and it feels a little bit like the end of an era. I'm a born-and-raised Manhattanite, so it'll be a bit of an adjustment.
My personal rent bill is going from $625 to $750, which is a big bump. The raise (about $90/month in real terms) will make much of the difference, but I'm also going to have to dial down my 401(k) contributions. While doing so is a bit disappointing, I've been contributing a pretty sizable amount up until now (about $115/paycheck), and reducing that to about $60/paycheck will allow me to pay my rent while still earning the full employer match in my 401(k) this year. I'm just going to get from here to December on that--my budget will need to be totally retooled then anyway, since I'll (hopefully) have met my Freedom Fund goal, and my travel fund will get much more urgent, and everything will be in flux some more.
We've paid the security deposit and the first month's rent, but have yet to figure out the situation with the broker fee--we're still hoping to negotiate the broker down from her draconian 12% figure, and it's all a little bit chaotic right now. Having pulled $1250 from savings is scary, even though I'm pretty confident that it'll be paid back when we get our security deposit back from our current place.
There's a limbo period in which many balls must be kept in the air. I'm just hoping not to drop any.
Tuesday, March 11, 2008
Rethinking a Recession Portfolio
When you buy stock, your money becomes imaginary. You don't have it anymore--you have, instead, a share of stock, which you will eventually sell at a market rate later. It's like any other investment object, really, except less tangible. The asset is the stock, not the money.
To that end, I think I should start thinking of my investments, for the time being, not as an ever-declining balance, but as an ever-increasing number of shares of stock. It will help me to see the real truth of the "you're buying stock on sale!" argument and remind me that I am still making progress, even if the balance is dropping, dropping, dropping.
To that end, I have the following shares:
401(k)
Fidelity Freedom 2050 Fund: 317.15 shares
Fidelity Total Stock Market Index Fund: 29.06 shares
Roth IRA
Vanguard 2050 Target Fund: 358.31 shares
Yep, that's it! But with the market down, I'll be buying more shares for every contribution to these accounts, so when it comes back up, I'll see bigger gains. This is just a reminder to myself to hang in there.
Tuesday, January 08, 2008
After a Visit to HR
So, I'm officially switched to the Roth 401(k), though I'll miss Thursday's paycheck (drat!). I made this choice largely because of what commenters reminded me when I last posted about this option: that I probably won't have this option forever (because I probably won't be working here forever, and laws change, and whatnot) so it's smart to take advantage of it while I've got it, and while I'm young and in a low tax bracket (at a historically low tax level, too). Because the contribution percentage is set aside and then has the appropriate taxes deducted from it, I bumped up the contribution to 9%--I can't remember whether it was 7% or 8% before--so as to put myself on track to get the full $2,000 match. I can always tinker with that when I get a paycheck if it's too much or not enough.
I also got information on our corporate discount at NYSC--turns out, you can set up the membership fees to function as a payroll deduction. I'm not sure whether that means the membership is paid pretax or not, and I'm not sure how it works with the "extra" paychecks that fall outside the two-paychecks-a-month pattern, so I'll have to ask. I was hoping that there might be some room for negotiation--like, say, "Hey, if I pay cash for a year up-front, will you give me 20% off?" But the membership plan that my company offers is a good one--the enrollment fee is waived, and it's a substantially discounted price for a membership that allows me to use any NYSC location at any time. Not too shabby for $77/month. Essentially, then, this will work out much as I thought it would: the gym membership plus the switch to the Roth 401(k) will eat up my raise. That's fine with me. Both are worth my money.
Tuesday, January 01, 2008
My 2007 Financial Progress: The Numbers
I had five financial goals for 2007. I also, somewhere along the line, developed an unofficial goal of reaching a savings goal of $5,500 in my Freedom Fund. For whatever reason, that goal was the most important to me. It represents progress towards being able to do what I want to do with my life.
And as of this very morning, that goal is met. My Freedom Fund account at ING reads $5,500, which actually represents cash savings from this year of somewhat less than $4,500 (the balance also includes a CD that matured). And I've transfered my beloved-and-generous aunt's $500 Christmas check in, so it'll stand at $6,000 for the year. And as to the rest of them?
1. Give 5% of my income.
My gross salary income for the year was $31,615.37. I gave $1,371.45 to good causes this year. That's 4.3%--short of the goal. Not by much, but still short. I copped out of giving for a couple paychecks (or maybe three?) this summer when money was tight. Had I given that money, I would still actually have been a little short (4.9%), so this goal will need a little rejiggering for next year.
2. Open a Roth and automate contributions.
Sort of. I actually funded my Roth in a lump sum, with the money my parents gave me. But the end is accomplished—the money my parents gave me maxed the thing out.
3. Earn the full employer match in my 401(k).
Big fat check, and I'm proud of this one.
4. Open and automate contributions to a travel fund towards a savings goal of $2,000.
No. But this one was by choice—I just wanted to prioritize the Freedom Fund as that goal grew in size and priority.
5. Triple my net worth.
Stupidly (as Moom pointed out at the time), I didn't count my checking account in my net worth when I set this goal. When I started this blog, though, I listed out every penny I had, an though it had clearly come up somewhat in the next two months, even if it had been $7,000, it would be well and truly tripled. And I bet it wasn't even that high—I bet it's more like quadrupled. My net worth as of today is $21,247, which is a modest increase from last month of 2.27% and well clear of my unofficial goal of $20,000.
So I think I made some pretty good progress. And this is just the numbers.
Thursday, November 29, 2007
Roth 401(k)?
I just got an email announcing that my company is adding the option of a Roth 401(k) for next year. That's pretty appealing to me, given my low tax bracket--but one does hear finance-types whispering about "tax diversification," so maybe I shouldn't be putting all my eggs in one basket? I also hate the messiness and complication of having lots of little accounts floating around, so it would be even more appealing to me if there were some way of rolling my current 401(k) balance in--but then again, I believe it's the case that your employer can't contribute a match directly to a Roth 401(k), so I guess I'd have to keep the standard one open anyway.
Anyway, more research is clearly needed: I'll post more information about the Roth 401(k) as I find it.
