Tag Archives: roth ira

Shooting Through My Glass Ceilings

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.

It’s almost funny how just a year ago I was writing about how what I was making then would give me so much extra to save, and then I quickly found that I while I had money to save, the cost of doctor’s bills and life kept my savings per month low. And now, looking at the next few months of income, I’m more excited than ever about helping my networth move out of being stuck in $35k. My goal, by the end of 2010, was to have a networth of $50k. Now, I’m aiming for $75k.
What will that take? Mostly, being amazing at my job, which I plan to do. Also, I can’t look at the number I’m taking home and get as much out of my bank account into savings accounts before I have a chance to get near a mall or travel website.
I’m not going to complain about how much I will make because I’m thrilled that I’ll be able to save for grad school and a house (MBA, here I come), but it makes savings a lot more complicated. I don’t know how many of you can relate because there’s a chance this year I’ll hit six figures. I’m not sure it will happen — I will only really know for sure next winter. It’s certainly possible for the first time in my life.
With that type of income I move out of the average American household and hit what many people in America would consider rich for a single person. In the least, there’s a chance I will make over the limits for a Roth IRA. For the past five years my Roth IRA has been my primary retirement savings vehicle. I’m not really sure where else to save money for retirement. I might be able to set up a 401k but it’s going to be kind of messy to do that since I’m a contractor. None of the companies I’ve worked for in the past have had 401k funds, so if I am able to participate, even without a match (there won’t be a match), I will. I probably should put a good amount of my monthly income into a 401k if I can open one. I can always max out my Roth IRA at the end of 2010 if I don’t end up making the higher end of my potential earnings. Or a traditional IRA if that makes more sense. I also may put a lot more into my 529 plan for grad school, though I’m nervous about putting too much in that account as there’s a chance I’ll never end up going to grad school. I do want to have children, so I’d like to think if I don’t spend my 529 plan for me, I can pass it on to my children one day. But that’s a long time off, it’s tough to put more than $100/month in that account without worrying about wasting money on that account. I can always take it out for something else, but I’ll have to pay a fine. And in my state the money put into that account is only tax deductible on the federal level, not state. Still, it’s probably worth it this year to put a larger amount than normal in that account, since I may not have access to a Roth IRA.
It is hard to plan when the amount you may make over the year is not set in stone. On one hand, it’s kind of exciting. It makes me want to work extra hard to prove myself and earn as much as possible. As I grow in my career, my blog title becomes more and more misleading. I’m not going to be overconfident with this as so much is up in the air. When I’m 10 years out of undergrad (in 2015) I will write a post on how my income fluctuated over the years. I’d love to know what will be in that post, but I like being surprised by life too.

Is Grad School Worth It? Financially Speaking.

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?

Really what I need to look at is how much I will have when I retire. I figure I should have at least $1.5M in my bank account when I “retire” (although I plan to work at least part-time well into retirement, but at this point I want to be able to travel and freelance and not have to worry if I get sick and can’t work.)
At the moment, if I can live up to my quasi-frugal savings plans for the year and maintain my current job and occasional freelance income (say $70k per year pre tax) and save $20k each year, according to the compound interest calculator if I start with $30k today and save $20k a year for 30 years at a modest average interest rate of 3% I will have $1.052M in savings by the time I’m 56 and $1.65M by the time I’m 66.
It almost seems silly then to add in the cost of grad school, which will put me into debt and for many reasons, not guarantee I will make more than I am now later and certainly will not allow me to comfortably save $20k anytime during or after graduation from a graduate program.
Additionally, if/when I have children, it will also become increasingly difficult to save $20k per year, if not impossible. This variable could effect both the non-grad school and grad school potential scenarios. And since my 27-year-old boyfriend refuses to work a full time job or put an ounce of his occasional earnings into a Roth IRA, it’s likely that I’m saving for the both of us and our families. Which makes that $1.65M, esp with inflation, seem like a few dimes and a penny.
That brings me to wondering if I should just keep living like I’m living now for the rest of my life. No kids (they’re expensive.) Roommates. A small room. Living in an area where heat isn’t necessary. Cheap bills otherwise. Saving $20k per year. Cutting back when needed to make that possible. Retiring single at 66 with $1.65M (some of it would be taxed, of course, but that’s still not bad.)
Then again… why should I be living life to save for retirement? I can’t imagine ever wanting to fully retire — I see my grandmother at 80 spending her days in the casino and I think if I had the mental capacity she does at 80 I’d be working. I might be limited in my job choices but still, I’d be working because I don’t want to be the type who just sits around and “enjoys” retirement.
Going to grad school is probably an easier choice when you’re making $35k or less. But once you’re making $70k it’s a hard trade in. I’m looking more and more at MBA programs (my career counselor seems to decided that I should consider this path and is in awe of my knowledge of social networking and certain aspects of the tech business) but I don’t know. I don’t see myself ever really following an MBA path — working 100 hours a week, traveling more than I’m staying… I could do that maybe for a few years but not my whole life. How much more can I really earn with an MBA vs. 2 more years of experience that I can gain through my current or next job? Alas, these days I’m liking numbers a lot more than I used to… and I think I’d like studying applied math. I like spreadsheets.
The debt truly freaks me out. People go into debt all the time for school but I don’t know if I can. Partially its because I don’t know if it will actually be worth it for me to go to grad school. It would probably make more sense to give a loan to someone more focused than I am and more dedicated to getting a high salary, pay for THEIR grad school, and earn interest on that… then for me to go to grad school.
And, anyway, I read that in 25 years a dollar today will be worth $.32 which means that my $1.65M when I’m 66 will not be enough to get me through retirement (unless natural causes like stabbing myself help me reach those goals.)
How much are you saving for retirement? How much do you think we will need to retire in 2050?

How much should I save and where should I put 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…

Checking: $375
Basic Savings Account: $301
CD / Emergency Fund: $8,073.49
ING Direct Savings / Liquid Emergency Fund: $3000
PayPal: $70

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
Prosper: $233.10
HSA: $1000

Where on earth should I be putting my savings and how much should I really try to save each year?

Roth IRA: Just Maxed Out 2008, down $5000

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.

Frugal October

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?

Risk vs Reward

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.

Dreams of a 401(k)

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.