This year has been full of fiscal ups and downs. After making a solid salary at a full-time job, I was laid off in February and ended up picking up part-time gigs which, while paying great by the hour, didn’t cover enough hours to meet my prior salary. And then I interviewed for a bunch of jobs and got a few offers. In the end, I landed a six-month contract with very strong hourly pay.
I’ve been obsessed with the idea of applying to / going to grad school lately. Not for the earning potential post graduation, but for the chance to focus on an area of study and build up my skills so I feel like an expert in an area (at least until those skills are out of date.) But then I wonder… financially speaking, is grad school worth it?
Lots of my readers think I’m a spoiled brat with a spending addiction, and occasionally I get a comment along those lines. Part of the reason I started this blog is that I agree with that statement and I’m trying to be smarter about my finances. Without the PF world I probably would be in debt by now instead of having $45k in savings. Yes, I have a shopping addiction. Yes, I need to stop making excuses for buying expensive clothes. Yes, I need to focus on saving more. But my biggest problem is not knowing where to save. It’s not the best excuse, but it’s true.
I can easily put away $5k per year in my Roth IRA because I always save up that much the year before (I overestimate on my taxes and pretend that money doesn’t exist) but beyond that I am not sure where to put my savings. Spending the money is, sadly, a lot easier than figuring that out. Again, an excuse, but I really don’t know where to put my money. With no 401k at work, I’m not sure where I should save. Do any of you have ideas for me?
I have some automatic transfers set up. $100 / month to ING Direct liquid emergency fund, $50 / month to Sharebuilder, $50 / month to my 529 plan. I’m not really sure how to save for retirement beyond my 401k or if I even should be saving more than that right now specifically for retirement. If I could figure out HOW MUCH I should be saving and WHERE I should be saving it, believe me, it would be a lot easier to save it.
My current accounts…
Basic Savings Account: $301
CD / Emergency Fund: $8,073.49
ING Direct Savings / Liquid Emergency Fund: $3000
Roth IRA: $14,482
Sharebuilder Stocks & ETFs: $9,801.43
Vanguard Index Fund: $4113.69
Vanguard 529 College Plan: $890.44
Lending Club: $555.95
Where on earth should I be putting my savings and how much should I really try to save each year?
Today, I put the last $300 into my Roth IRA for 2008. It feels rewarding to know that I’m saving for my future, yet the $5000 in losses to my Vanguard Portfolio due to current economic conditions isn’t exactly a fun “reward” to look at in my accounts.
Still, I’m investing with the hope… and faith… that the economy will recover again. I think it will, eventually, but it’s going to take a while. Had I followed my faith a year ago that the stock market was going to keep tanking, I would have possibly shorted some stocks and cold have been much better off now… but I don’t have time, or the heart, to deal with such “high risk” behavior. Instead, I put my money in the stock market, knowing it’s going to tank now, hoping it will rise in the future.
The question I have now is when do I invest in my Roth for 2009? Usually I put a large chunk of money in up front (money left over from taxes). By “usually” I mean over the last two years, since that’s how long the account has been open. I like to just get it out-of-sight, out-of-mind before I start thinking of myself as wealthy enough for luxuries. The stock market seems pretty bad right now, so I’m not too worried about adding another few thousand once I get my tax return back. Still, this all begs the question whether I should spread out my investments ($440 a month) or put a bunch in up front and finish up over the later half of the year (like I’ve been doing.) Dollar cost averaging is always the recommended way to go… but, eh, when the market is this down, maybe it doesn’t matter as much?
Also, as far as retirement savings go, I decided to do the HSA for my healthcare. In addition to my company putting $100 in the account per month, I’ll be putting $100 in. So that’ll be $2400/year for healthcare *or* retirement. I’m just worried my frugal save-for-retirement self will avoid doctors in order to save for my retirement, and I’ll end up killing myself slowly in the meantime. (Not that I ever go to doctors, even when I have full insurance, I’m too lazy and busy). In any case, the savings rate for the HSA is so sucky – 2.1 or something – and w/ the taxes in California taken out of that it isn’t a huge savings. But I’m going to look at it as a traditional IRA that’s being overtaxed by my bankrupt state. One that I can dip into if I need to go to the doctor for antibiotics every once in a while.
The HSA does have the option to invest with Ameritrade, so I’m probably going to look into setting that up soon. I won’t put all the money in stocks, but I’d like to diversify my retirement portfolio outside of Vanguard and I do want to get some Gold/Silver ETFs in it… since they don’t get taxed at the ridiculous collection tax rate if they’re in an IRA. Well, I don’t know how that works in an HSA… esp since it doesn’t get taxed federally but it does get taxed in CA. Hmm.
This year, I’m going to be making at least $60k. Which is wonderful. I plan on saving as much of that money as I can. The question is where to save.
2009 is an interesting year to have the opportunity to put away a chunk of money. With the stock market down, it seems like a great time to start making consistent, monthly long-term investments in the stock market. But without a 401(k), where do I put all of my savings? It’s surely a luxury to be able to ask this question, but one that I have to start thinking about nonetheless.
There’s also the real possibility that even if I do an amazing job at work in 2009, my startup will not receive funding to go on in 2010. Thus, I have to plan for unemployment at some point, just in case. The good news is that if I do a good job and the company goes under, god forbid, i’ll have a really solid network of references to help me find my next opportunity. So my only concern here is making sure I do an amazing job over the coming months. That’s just about the only thing I need to do for this situation to turn out positively.
But the question remains, where do I put this savings? It’s so hard to find answers to this question because most people say “max out your 401(k) first and then max out your Roth.” Well, what if you don’t have a 401(k)? Then where does your money go?
There are a lot of options. I’m not sure, from a tax perspective, which are the right options for me. And maybe the tax savings isn’t something I should be concerned about? Savings, in general, is a good thing.
So… a few other factors play in to the equation. I’m pretty sure I want to go to grad school in a few years. I’ve decided I likely want to go for an MBA, hopefully at a fairly good school. I’m not sure when I’m going to do this exactly. But I know I need one to become a product manager, which is my goal right now. There is always a chance I won’t end up going to grad school, but it’s looking more and more likely as I advance my career and figure out my long-term goals.
There’s the possiblity that I will move with my boyfriend to New York or wherever he goes to grad school (which is even more of a definite than my potential grad school experience) and have to find a new job. NY is a super expensive city, obviously, so having a solid emergency fund will be vital. I already have an emergency fund of $7k, but I’d like to grow it if I’m going to be moving to NY.
Assuming I can put away $10,000 for the year, where do I put it?
$5000 goes into the Roth IRA.
Then, where does the rest of it go???
Some options that I know of:
1. Mutual funds. No tax help there. Taxed going in and coming out.
2. An HSA. Which still has a limit of $2,900 a year. And my company would put in $1,200 a year. So that’s only $1,700 more on top of the $5000 in the Roth.
3. An 529 education savings fund. The problem with that is if I don’t go to grad school and/or have kids who go to college, I lose the money.
There are two types of 529 plans: prepaid and savings. Prepaid plans allow one to purchase tuition credits, at today’s rates, to be used in the future. Therefore, performance is based upon tuition inflation. Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the beneficiary gets closer to college-age. [via wikipedia]
4. P2P lending. I’d like to try out lending club. My Prosper accounts are doing ok, only one default, and I’ve heard better things about Lending Club.
5. ETFs and individual stocks. I already put about $2,000 into a Sharebuilder account (that’s down to $1500). But the coming year may be a good time to buy some good stocks at bargain prices. Unlike two years ago when I started investing.
6. Buy property. I don’t really have enough money to do this, nor do my circumstances equate to this making sense. But I know there are tax benefits to owning property, which is why I’m including it in the options.
7. CDs. CD rates suck right now. But they’re at least safe.
8. Bonds and other such lower risk investments. Prob doesn’t make sense in my 20s.
That’s about the only options I can think of right now? I don’t think employed people can open a SIMPLE IRA or SepIRA… so I’ve run out of options. Or do you guys have a better suggestion for me?
She’s apparently not the only wife out there who prefers to avoid discussing finances. State Farm recently released findings of a national survey revealing that while 74 percent of American women feel anxious about their retirement and financial futures due to the recent economic decline, only 15 percent have made major changes to their financial plans.
More than two in five (41 percent) of survey participants admitted that going to the dentist is less excruciating than talking to their spouses about their daily finances. “The State Farm survey indicates that women are more aware of their retirement needs, however, too many of them are not taking the necessary actions to secure their financial futures,” said Susan Waring, executive vice president and chief administrative officer of State Farm Life Insurance Company.
Women tend to make less than men through their lifetimes, which means they usually save less for retirement than men, Business Week reported in August. In a 2008 survey of more than 1,300 workers or retirees over age 25 by nonpartisan Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates, 68% of women and 76% of men said that they “had” saved for retirement.
Vanguard, a mutual fund company that also manages retirement plans, reported that in 2007 the average account balance of more than three million participants in their 401(k) plans was $56,723 for women, compared with $95,447 for men. More recently, Hewitt Associates consultants surveyed nearly 2 million participants in large-company 401(k) plans the company manages and found that women had an average of $56,320 in their accounts, compared with over $100,000 for men.
State Farm advises women to act now and take the following steps to ensure their financial profiles are ready for the unexpected:
* Review credit cards and checking accounts to assess all purchases,large and small, and tally where money is spent. Then, prioritize to identify where to cut expenses.
* Calculate monthly expenses and make sure to have enough money insavings to cover at least three months of costs.
* Seek financial advice from an expert to ensure financial plans are secure.
My goal this year is to save 50 percent of my income for “taxes” (as a self-employed person I have to pay my own taxes; I do not get any money taken out of my paycheck throughout the year.) While I am unclear what my actual tax rate will be, I doubt it will be the full 50%, thus I will have additional saved funds to put towards larger purchases or saving accounts.
I’m a little behind on my target, which is scary because if my tax rate ends up being 50% after my 15% self employment tax, then I would be screwed. Well, I think I have enough time to catch up, but that means my trip back east is going to have to be frugal, and I’m not going to be able to take any days off of work (I’ll be working remotely from the east coast.)
I try to put $3000 into my Roth IRA right after I pay my taxes, if I have the money available, which leaves $2000 to put in throughout the year before I hit my limit.
However, I’m wondering now if I should be funding a Roth IRA at all. Besides the poor performance of the stock market, the Roth IRA may no longer be the “smart” choice for me. I make about $60k, give or take, before taxes. I think my tax rate right now is high enough where doing a Roth is kind of dumb. Sure, I get to take my money out tax-free when I retire, but if my taxes right now are higher than what I will pay when I retire, then this is a dumb move. Not sure how to figure this out, though. Do any of you know?
By now, I’ve read plenty to scare me into investing as much as possible for retirement as soon as possible. Last year I maxed out my Roth at $4000 (put some of my savings into that, since my income didn’t allow pulling from that) and this year I’m already up to $3300 of my $5000 limit. I’m trying to put in $300 a month, which will get me to my limit in a few months.
Ok, so the question is, after I max out my Roth IRA, where do I put my money?
*I am a freelancer so I don’t have access to a 401(k).
I’m diversifying my investments away from my Roth right now as the case may be, but I’m not sure if that’s the ideal situation. I’ve got about $1300 in my Sharebuilder (non roth) account which kind of seems foolish. What seems more foolish is my heavy investment in the GLD (gold) ETF, since, despite it making nice gains, is a terrible play for long term. Ok, so I should have researched this before investing in it, but I recently found out that GLD, because it’s investing in gold bullion and not the gold mining companies, actually counts as a collectible after a year, which means it gets taxed at 28 percent instead of 15 percent if you hold it long term.
Well, at this point Sharebuilder is starting to seem like a huge rip off. I do like the idea of dollar cost averaging, and I am using up all of my six “free” investments each month, putting $300 a month into my sharebuilder account as well.
My question is… while I could max out my Roth IRA sooner by skipping over my Sharebuilder account altogether, I’m definitely on track to max out my roth one way or another (yeay) and then… what should I do with the rest of my savings? What’s the smartest place to put it for growth and tax purposes?
Here are some options I’ve recently discovered and am considering. Let me know if any sound like a brilliant idea because at this point I’m completely confused.
1) 529 Plan
Part of me wants to go to grad school one day down the line, although I’m not sure of this, and putting savings into a tax advantaged 529 plan would make sense if this were the case. Worst scenerio, one day I probably have kids and they get to take advantage of my 529 plan that never got used, since it can be transferred within the family. Not a bad idea, I guess. Worst, worst case scenerio, I never have kids and someone else in my family gets the money. But this won’t help me save for a house/condo, which is really want I want to be saving for right now, as grad school is a maybe and house is a definite sometime in the next 10 years.
I still need to open my HSA account, as my health insurance IS HSA eligible. While I can’t withdraw that money until retirement (so it’s less flexible than a Roth) I can use it to invest. And there are some tax advantages (that I don’t entirely understand) available for the HSA as well.
I’ve had great success with Propser in the few months I’ve been using it thus far. I’ve only put in $200 and lent to 4 people ($50 each), but the first three at least are paying on time and I’m getting my 8% return, for now anyway. Of course I’ll have to pay tax on all that, but it’s still a nice return. I just worry about my borrowers defaulting, since one default will take out a huge chunk of the money I’m lending. With $200 in loans, it’s not that scary. If I start lending out lots of money, it could get scary.
I already have $12k tied up in CDs that are ending over the next six months. I’m considering putting $5000 of that into my Roth IRA for 2009 when the time comes, but that still leaves $7000 plus whatever savings I manage to make over the year. Where do I put that? Back in a CD? CD and savings rates are so crappy right now (thanks economy!) so it seems like a bad idea for the short term.
5) Put extra savings into my ING Direct high interest savings account and put it into a Roth IRA next year, and the year after, and the year after that. Don’t touch it for anything else.
That leaves me with…
6) Keep the money in Sharebuilder and grow my non roth ETF investments. Figure out what the deal is with my GLD investment taxwise and sell before it moves into the higher tax rate. Probably break even on that if it performs as well as it might. Oh boy. What a bad investment! I wanted to hold it long term, but now it seems silly given what a high rate it will be taxed when it take it out. So I plan on focusing my Sharebuilder account on emerging market ETFs. Either they’re do awful and I’ll lose all that money or over the years they’ll do well and with a low fee percentage, I might make some money. It will be taxed when I take it out, sure, but at least it will be a way to grow my savings after my Roth is maxed out. I might sell off my three individual stocks too. I’m a bit confused on dividends, but it seems that if they’re going to get taxed each year and then be reinvested and my stocks keep losing money, that’s a bad situation for me, no? I don’t have that much money invested in individual stocks at the moment (about $300 in three stocks, the largest holding being MCD, and all three of these stocks have gone down since I started investing in them, yet I still owe tax on the dividends).
I like investing in Sharebuilder because it gives me a chance to learn all this. Still, if I want to buy a house one day, I need to be somewhat careful. I know I’m young now and I can take changes, but there’s no reason to be stupid about things.
So, faithful readers, help! What should I do with my savings after I max out my Roth IRA?
I always thought that when it came to risk, I’d avoid it at all costs. Skydiving of the body or the spirit was not for me. Sure, I moved a lot and took tiny little risks like living on my own with no job, but nothing beyond riding a roller coaster known for its safety record.
Now that I’m getting into the stock market, albeit very slowly, I’m ever-so tempted by risk. Yesterday I found the blog of Timothy Skyes who is famous for turning his $12k of Bar Mitzvah money into more than $1 million. He loves the thrill of day trading and obviously it has paid off for him.
I don’t think I’ll ever be able to take my entire savings and make some educated guesses about where to place my bets on Wall Street, but I am getting more and more interested… and risky… when it comes to my relatively small stock and ETF purchases.
It surely is an addiction. A year ago, I finally took the “leap” of putting a huge chunk of my savings into a Vanguard index fund to open a ROTH IRA. But index funds, especially ones that cover multiple industries with no specific focus, have already started to bore me. Additionally, with the way the overall stock market is performing, watching my “less risky” investments tank makes me want to take more risks so I feel like the failure is, uh, much more deserved.
I started out a month ago buying a few shares of GLD, the Gold ETF. Everyone is screaming “gold” these days, as with the recession such commodities seem to thrive. GLD is the main gold ETF available for purchase. I started out buying about 4 shares of GLD and adding some more funds to that ETF. I’m not sure if I should buy more.
This purchase was followed by investing in McDonalds and Comverge (COMV). I figured why not start with one large cap, and one small cap. They ought to balance out in the middle, or something like that, right? Comverge was a company I had covered in the past as a cleantech reporter while they were still private, and I liked what I knew about them. However, I also acknowledged the fact that I had no idea whether they could turn their good idea into a profit for the company. But I always wanted to buy shares in them just because, well, I felt like it was one company I had been following from near-birth, and if anything I wanted to watch them grow (or fail) with a small amount of my money attached.
Meanwhile, McDonalds, I read, was a good buy because it offers yearly dividends to investors AND its price right now has gone down with the current recession.
After a few days it became clear that my Comverge purchase, although not the end of the world, should have been spread out over time so I could have “cost dollar averaged” and saved money. I bought a few shares of the stock for $23 each and since then they’ve gone down to $18 a piece. Now they’re at about $19.50. I’m considering waiting (hoping) they go back up to $20-something again and then I’ll sell them so my loss isn’t that huge and instead invest them in another stock or ETF that might actually perform well. Or I can keep the $100 in COMV and watch it disappear. Who knows, maybe the stock will soar one day. I’m waiting for the quarterly earnings to see how they’ve done, and see what that does to my four shares.
Meanwhile, I found that I’m now hooked on investing. I quickly signed up for Sharebuilders “$12 a month” 6 “free” trades plan and started to pour about $300 a month into a variety of stocks and ETFs. This time I did a bit more research and picked the following three stocks/ETFs to invest in:
KOL, EWZ, WFM
What do all those letters mean?
KOL: An ETF of coal. Why coal? It’s terrible for the environment. Yet with the prices of oil rising, and other cleaner alternatives far from being able to provide the energy needed in the world, I think coal has (for better or worse) a pretty strong future. I was excited to find the fairly new ETF that would allow me to get into coal with a little less risk. I plan to keep putting about $60 a month into the ETF to see if I can prove myself right. Also, a lot of the ETF is invested in Asia (coal is huge there and growing), so this gives me the Asian diversification I’ve been seeking.
EWZ: This stock symbol doesn’t give one a clue of what the stock is! It’s actually an index fund of companies in Brazil. A lot of advisers seem to be recommending it, and I want to diversify my overseas investment so it’s not all in coal and Asia. Brazil has a lot going for it and the ETF has performed quite strongly in the past. Will it perform as well in the future? Beats me. I’m investing most heavily in this index fund right now, putting in about $150 a month to EWZ.
WFM: Whole Foods. I spend enough money shopping here! This is another dividend-paying, large cap stock. Not that interesting. I doubt I’ll make a fortune on it, but it might at least grow slowly and calmly. Or I’ll lose some money but I’ll try to get out before it tanks.
One thing I’ve learned is that in order to make a stock purchase worth it, I eventually need to own a lot of that stock. Even if the stock goes up $10 from $10, a 50% increase, if I only own one share and have to pay $9 to sell it back, that amazing performance will only make me $1. So I’ve decided to try to focus on these six stocks for now, and if needed to sell one of them and replace it with another. Six seems like a good number to start with, and I’ll let my portfolio grow as needed or merited by my income and thirst for risk.
Oh 401(k), when I think about you, I touch myself.
Employers matching contributions? That’s a truly beautiful concept, and one I’ve never been able to take advantage of.
At the moment, my freelance career prohibits me from obtaining full benefits at one company. That’s how I chose to live my life, so I have to deal with the fact that my Roth IRA has lost significant amounts of money this year, while if I had been able to contribute to an employee-match 401(k) I might have at least broke even amidst this recession mess. However, I just have to go it alone. That’s my choice.
But that wasn’t always the case. My first full time job at a magazine showed me how even full-time gigs at companies don’t always equate to earning the luxury of a 401(k). That company was a bit, how-do-you-say, confused in terms of organization. We had a meeting about getting 401(k)’s where the financial companies came in and presented our options, then they came in another day and we met with the reps and signed the paperwork. Of course, since the company was not making any money, our 401(k) was not going to include a match at all. So ultimately the only benefit was that it would encourage employees to start saving (but tax-wise, most of us would probably be better off with a Roth anyway).
Next up on my job history resume, I obtained another full-time gig at a startup where I was to get stock options instead of a 401(k). I never actually earned any of those stock options because I left the company after three months. I was fired. I was bored with the topics I was writing about. And I couldn’t keep up with the pace. It was for the best.
I worry a bit about my retirement. I know it’s many years off, but I won’t have the security that my dad has. He retired early so my family is living on a tight budget now, but in a few years he’ll have access to his pension and he and my mother can live off that. What will I have to live off of in 2058? Or whenever it is I end up retiring?
Thus far I put $4000 into my Roth IRA (started in 2007). It’s down to $3600. I know… I know that investing is a long term thing. Still, I can’t help but be concerned about what my future holds. Maybe the smartest thing to do would be to get a stable full-time job at a public company or government agency. But I’m trying to balance my happiness and my future. It’s hard to find that balance. I’m worried I’m leaning too far towards happiness right now.