Money, Love, and Change

Everything seems to be in the crapper.  With election politics heating up (and not necessarily in a good way), an economic bailout that I am pretty sure no one has a real clue about, and the American dream becoming less achievable for many, things seem to be “not so great”.

Or is it?  I think that perhaps we’re really at a turning point — a sort of reality check where those that have not been realistic about what they cannot afford need to come to terms with the consequences.  While this is happening at a personal level, I am not really sure that it is happening on Wall Street and in the government.

I know that for us, things are a lot more tight financially because we are trying to rebuild our emergency fund quickly after some major truck repairs.  But we’re really coming together as a family, mostly because I am working evenings to generate additional income to rebuild our fund.  This is an added responsibility for my husband, since he has to come home from work and take over childcare duties.

Although initially it took some getting used to, I think that this is also a great opportunity for us to really evaluate what is important in life.  I think it has helped us develop a better appreciation for what the other person is doing, since now we are both working, and both taking care of the kid alone.

We’re also very thankful that we are frugal, and can currently handle our financial situation.  I don’t need to run out and make the big $$$, but can stay at home with the kid during the day.  At the same time, it has strengthened our resolve to get out of debt, and I am working harder to generate additional income streams.

How about you?  Are you keeping your head up in today’s economy?  Why or why not?

It’s not very often that I burst out laughing when we get the mail.  I’m usually annoyed at the amount of junk mail, or ticked off at the unexpected bill (ie. is it time to pay the garbage bill again?).

But today, on the day where all us common folk are wondering just how bad we’re going to get screwed, I get my annual Social Security statement in the mail.  What a nice touch Uncle Sam!  Waste some trees to send me paperwork on a system that is going to probably be nonexistent by the time I retire.

Furthermore, since I received a government stipend as a graduate student, I didn’t get taxed for social security, so even though I have worked since the age of 16, I am still 2 credits shy of being able to collect my nonexistent benefits.  Craptastic!

It’s days like today that I want to go to Washington with a pair of ****kickers and a shovel.  Of course, I’d probably need to purchase a bulldozer, but I’m not sure if I would be able to get a loan…

I recently finished Dave Ramsey’s Total Money Makeover, and it is a quick and easy read.  I would recommend getting it from your local library – I would not buy it just because there are enough blogs and information on his methods on the web (and you can use the cost of the book as your first snowflake!).  I think that Get Rich Slowly has a nice synopsis of the book here if you want to get the basic idea before investing your time reading the whole book.

Is Total Money Makeover going to change our lives?  I’m not sure.  We have been  working hard to pay down debt, and I am confident that we will eventually reach our goal of being debt-free.  However, this book made me realize that we need more of a concrete plan.  We tend to throw money towards debt in a haphazard manner, but I like the idea of having a psychological boost of seeing something get eliminated.  After talking it over with my husband, we’re going to create a modified version of his plan:

1.  Get our savings back up to $5,000 – Ramsey suggests a $1000 emergency cushion, but this just doesn’t sit well with us.  Maybe it has to do with my lack of dependable income, the recent upheaval we were in as my husband found another job (since his old one will be in China soon), or the fact that our little truck will have to give out someday.  We recently used a portion of the emergency fund to cover some unexpected car repairs, and it is sitting at roughly $4400.  We will both sleep easier at night when it is back up to $5000.

2.  Pay off that *$)!(@ private student loan  – it is not our smallest debt, but it is our highest interest debt (currently at 7.5%).  I hate it.  I don’t care that the interest is deductible.  Every time I log into this account, I cringe.  At roughly $3500, it needs to go.

After these two goals, we have a couple of others, but we are not sure what order they will go in yet:

3.   Max out our Roth IRA contributions – Although Ramsey suggests stopping 401(k) retirement contributions until debt is paid off (in most cases), I just can’t pass up free money.  In a recent post, I talked about how we recently decreased our contributions from 20% to 10%.  My husband’s company match is 75% on the first 6% – keeping at 10% will help us in attaining our goal of $100,000 in retirement accounts by the end of the year.

4.  Pay down our mortgage so that the balance is at 75% of the value of our home – this will allow us to close our escrow account and keep the money in savings.  Since we are about $3000 away from reaching this goal, it seems reasonable.  Although interest rates in savings accounts isn’t so great right now, the lower mortgage payment would be a nice psychological boost.  I know we have enough discipline to put the money aside every month, and I also like the idea of having a little more wiggle room about where our money is going every month.

What do you think of these goals?  Are we destined for failure because we are not following the Ramsey plan exactly?

After finishing the taxes, we decided to decrease my husband’s 401k contributions from 20% to 10% with the intention of putting this money into our Roth IRAs.  The next day, we get a letter in the mail with regards to our health care plan.

They have changed the salary tiers and the contribution limits.  My husband now falls into a higher tier (if he made $1 less, he would still be in his lower tier).  The contribution limits have also increased.  When all is said and done, he is now making less than he did before his raise after he transferred to a new position at the end of last year.

Ironically, he works for a company that deals with health care products that is still trying to convince their employees that “they come first”.  My husband has a hard time digesting this – he was forced to transfer to his new position because his old job is being outsourced to China (his boss actually had the nerve to bring the blueprints for the plant in China to a meeting to show how big the improved facility was going to be!).

Although this really sucks for us, I am thankful that we had the cushion of our retirement contributions to fall back on so that things even out.  We come out $150 ahead (after taxes) in each paycheck after taking the health care increases into account.  Not as much as we had hoped for, but we plan on snowflaking this into a student loan, and then into retirement.

Have you been screwed by your job lately?  We really weren’t expecting this, but it hardens our resolve to get out of debt so that we’re not slave to the company (aka the man) for the rest of our lives.

I feel like February and March kind of flew by.  I know that I have been sick, but I also feel like I have been busy.  The problem is that I am not sure exactly what I was busy with.  There’s all the daily things that have to do with life in general, but this is the first time in awhile where the fruits of my labor are not really tangible.

This is why I’ve decided that it is time to set some general goals for April.   It’s going to be more like a long list, but I need to start somewhere, so here goes!

1. Get taxes done.  I bet that I get this one done before the end of the month!
2. Figure out general game plan for the finances.
3. Get a job?!
4. Decide what do to about kid’s preschool.  This is kind of a big deal – it seems so weird to deal with this months ahead of time, but that’s life these days!
5. Blog development
   1. Get more on About Me page.
   2. Approach for Entrecard – I have some new ideas on this one.
   3. I really want to start reviewing some books and products (I’ve been really impressed with my kid’s Brio trains, for example).  I’m not really trying to sell anything, but would like to share some of my personal recommendations without being too forward.
   4. Get ahead on posts.  I really want to have some content written ahead of time so that I can post on a more regular schedule.
6.  Simplify more – we’re working hard on this one.  I really need to make more of an effort in the “getting rid of crap” department.  Our problem is that we want to recycle as much as possible (ie. sell on Ebay, get rid of on Freecycle, etc.), but these things take time and effort.  Time to buck up!
7. Spend some real quality time with family on the weekends – we’re not traveling this month (to my knowledge), and we’ve spent the past couple of weekends sick or just trying to catch up.  I want to make a little list of places we can go hiking in the local area, and maybe even go camping one weekend!

What are some of your goals for April?  Whether it is personal or professional, I think it is always good to be moving towards something.  When I finished school in January, such a large weight had been lifted from my shoulders.  I think that I deserved a little break, but now I need to regain some focus.

Have a wonderful weekend everyone!

Not that I have any control over it, but I am curious to learn what other people are doing about their retirement accounts, if anything.  Are you reacting now, or did you react earlier?  How far off is retirement for you, and how did that play a role?

Back in September, my husband and I discussed our retirement investments.  For our IRA accounts (held with Vanguard), we decided to pull out of the stock market to some degree, and invest in more of a mix of stocks and bonds.  I had a gut feeling that the housing market decline and the general state of things in this country might have an adverse effect on the market, and we were interested in preserving the money we had in the IRA accounts.  When it comes to investing, both of us lean a little more towards the conservative side.

In terms of my husband’s 401(k), we also pulled a majority of his money out of the stock market funds and placed them into a fixed income fund in September 2007.  I know that this seems like a stupid move, considering that we are in our early 30’s, but we had gotten a notice about how the funds were going to handled by another company starting in January, and we wanted more information.  We’re still allocating the money that is going into the account according to our original plan (it is divided between an index, small cap, large cap, and international funds).  The last time I checked, we were close to breaking even in terms of our contributions vs. losses (over the past couple months).

I want to update our total net worth in our retirement accounts, but of course the site is down for general maintenance.  I’ll try to remember to update things this week.  I’m hoping that our retirement picture is brighter than our current debt picture – did I mention that I really need to get a job?

After reviewing our pension and 401k yesterday, it is time to take a quick look at our IRAs. Both my husband and I hold Roth IRAs with Vanguard, and have been really satisfied with the low fees, investment options, and the ease of using the website. We have not maxed out our contributions for this year, and we probably will not be able to unless I find another job where I can work from home in the immediate future.

My Roth IRA – $19,677

My husband’s Roth IRA – $2,875

This brings our total retirement savings to $78,006 (401k + pension + IRAs).  This may not be a lot to some people, but it’s not an insignificant amount of money either.  Considering that I have been making less than a fast-food restaurant manager for the past 10 years, it’s not too bad (nothing against fast-food managers!).  Also, my husband brings home a decent paycheck, but is not making anywhere near a six-figure income.

My goal for this year is to bring our retirement accounts up to $100,000.  This is a lofty goal considering our current state of affairs (one income, with student loans, credit card debt, and a mortgage), but I like to think big!  I do think it is realistic that we can easily hit the $90,000 mark given our current 401k contributions.

What are your retirement goals for the year?  Whether you’re just starting out or are almost at retirement, I think it is really important to have a plan and a goal.  I’d love to hear what yours are!

After reviewing our student loans, I thought it would be a good idea to switch to something on the savings side. Today, let’s take a look at my husband’s 401k and pension. (I have only had a single 401k in my life, and I transferred it to an IRA, and then to a Roth IRA, after leaving the job.) I am going to use January’s figures since our monthly contribution does not happen for a couple more days.

401k – $46,025

Pension – $9,429

Total $55,454

We started contributing to the 401k plan in April of 2003, and we are currently maxing out the contribution at 20% of my husband’s salary. The company match is 75 cents to the dollar on the first 6% of contributions. There are a variety of investment options (mutual funds and company stock), and we can track our returns, but other than that we are not provided with a lot of information about the individual mutual funds.

The pension plan is something that we didn’t really think much of until last year, when we were given the option to take the money from the pension plan when my husband leaves the company. This would not benefit us if we thought that he would be there for the rest of his life, but this is not the case. He just got a different position within the same company since his old position is being outsourced to China – the job stability at his company is questionable. Also, we do not necessarily see ourselves in this area for the next 20-25 years.

My big question for this year is whether we should lower his contributions to the 401k (still making sure he contributes enough to receive the company match, of course) and use them for Roth IRA contributions. Here are my thoughts on why we should make the change:

1. I think that we have enough financial discipline to do this now, and we would have more control over the money (in terms of investments).

2. Since we are only 31 and 32, taking the tax hit now makes a lot more sense. Also, we are still paying state and local taxes on 401k contributions, so there is no added benefit on these fronts.

3. I don’t have a regular job anymore. Therefore, I don’t see us moving into a higher tax bracket anytime soon.

Any thoughts or suggestions?

I think Suze Orman is a little crazy. I just started watching her on a regular basis a couple of weeks ago, and I am surprised at her large fan base despite how arrogant and annoying she can be at times. There is almost a point during each episode where I am ready to turn off the tv, usually due to how annoyed I am, but also because I disagree with her opinion sometimes (there are times that I think she fails to get enough information about a person’s situation before dispensing her advice).

So why do I continue to go back? I have learned something new each time I have watched her show (3 times). For a 40 minute investment of my time (I use the DVR and cut out commercials), that’s not a bad return!

The last episode I watched had to do with retirement. My husband and I have been dragging our feet when it comes to a will – our excuse is that we are still not sure who we trust with our son if we were to both die. This is no reason to delay things, however, and I really want to take care of it soon after the new year. After watching the show, it really drove the point home.

What I learned from Ms. Orman was that the beneficiaries on 401(k) and IRAs override a will (I think that this is the case for life insurance as well, but I would need to check on that). After checking on our IRA beneficiaries, I found that I had not updated them since we got married (over 3 years ago)! I am not sure if having my husband listed as a beneficiary without formally naming him as my spouse would have been a problem, but leaving money to a deceased person would probably have caused an issue (which was the case for one of us).

Taking care of naming each other as primary beneficiaries was not a problem (Vanguard, for example, let us name beneficiaries online). However, we still need to name new secondary beneficiaries (ie. in the case that we both die). At the moment, we both have our son listed, but according to Fidelity.com (please check out the full article here):

Your beneficiaries can be individuals, charities, or trusts — but probably shouldn’t include minor children. “If you choose a minor as a beneficiary, most states will appoint a guardian, who must be bonded, and file very cumbersome accountings with the court each year until the child turns 18,” notes Modly (a financial advisor). “Then the courts hand over the money to the 18-year old, no questions asked, and wash their hands of the consequences.”

Eek! It looks like even though we don’t have a huge amount of assets, we need to seriously consider a trust. It seems like such a daunting task, but it really does need to be done, and soon.