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focus on an area of study and build up my skills so I feel like an expert in an area (at least until those skills are out of date.)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?