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How Many Funds Do You Have?
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An open question to everyone to start off the week: how many funds do you have?
In funds, we're talking about savings, not mutual funds. Examples:
- car
- emergency
- college
- retirement
- house
- vacation
- PlayStation
I'll start off. In our savings onion, we currently have 5 funds:
- Emergency
- Housing
- Roth IRA (2)
- 401(k)
We used to have a car fund, but we got rid of that when we bought a car! (More on that soon.)
How many funds do you have? Tell us in a comment below.
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How Much Money Do I Need to Retire? ING Your Number
ING Direct is rolling out a new advertising campaign and Web site focused on determining how much money you need to retire.
ING Your Number (http://www.ingyournumber.com) is a financial calculator for figuring out "your number" — meaning, the amount of money you need to live at a level you'd like in retirement.
On the Web site, you're given a Flash presentation where you insert six fundamentals for determining your number:
- Current Age
- Marriage Status
- Household Income
- Expected Retirement Age
- Desired Income at Retirement
- Age until you'll need the incomeAfter your number is determined, ING points you to financial professionals whether you have one or you don't.
At first use, it seems helpful — you've got to know where you're going before you can get there. But at the same time, how are you supposed to know how much you'll need to live on in retirement? (It may not be the 80% often quoted.)
And, more importantly, how can I figure out when I'm going to die? (Death clocks not withstanding)
Now that ING owns ShareBuilder, it makes sense for them to be making a bigger deal out of investing for the future. We'll see how long the "your number" campaign plays out.
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Savings Onion: Where Our Money Goes
Saving is easy, especially when you pay yourself first. With automatic transfers and recurring investments, you barely have to think about pocketing money for the future.
But where should your money go? Should it be for the short term or saved for retirement?
This is the question you need to answer.
Like Dave Ramsey's debt snowball, there are some layers to your savings; hence, the savings onion.
Our savings onion started with an emergency fund. It's the place to fund first since you never know when you will need it. We live with 3 months of expenses in our emergency fund, since we are also saving for a house in a liquid savings account.
If you're getting started, reach for a goal of $1,000 in your emergency fund. It won't help you for too long if you lose your job, but will cover any emergencies that pop up (and they do).
After we got 3 months of expenses in our emergency fund, we stopped contributing money. We've used it when our windshield cracked thanks to a rock in the road, but thankfully, that's it.
The next step of our savings onion is retirement accounts. At work, I began contributing 6% of my salary to a 401(k) — enough to get my employer match. When I got a raise, I automatically bumped it up to 10%. If I never see the money, I can't spend it!
To increase our retirement savings, we each opened up Roth IRAs. We started out only contributing $100 per month each, but have been able to increase our monthly savings and were able to fill up the accounts.
The Roth IRA contributions were automatic — no need to manually make the transfer. With that layer of savings going, we moved on to the next step: saving for a specific goal.
In our case, we're saving for a house. Since we wanted to be aggressive hitting this goal, we set up automatic transfers from our checking account to a new online savings account — for a year. Our first year of autopilot savings was a huge success — in addition to the money being put away automatically, we transferred every extra penny at the end of the month into the account.
Thanks to the "extra" savings at the end of each month, we were able to triple what our automatic deposits would have contributed during the normal year.
Our Savings Onion
Starting with the outside, here's what our saving onion looks like:
Specific Goal (a House)
Roth IRAs
401(k)
Emergency FundWhat does your saving onion look like?
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My Retirement Update: 401(k) Bumped and Roth IRA Opened
In a post a little while ago, I questioned the traditional wisdom that says you should max out on your 401(k) and fully fund a Roth IRA every year.
Here's an update of where I am with that: I did some research, and I realized that I was only contributing 4% to my 401(k), which meant I wasn't even taking full advantage of my employer's match. I brought that up to 6% to get the full match.
Until the last year or so, I probably really needed that extra money in my paycheck, so I don't think I've let too much money slip away by not taking full advantage of the match.
I also opened a Roth IRA, even though I feel my retirement may be well-set without it.
So why did I open it, then? Because maybe I will use it in my retirement, and after more research, I realized I could pull out my contributions at any time if I need it before I turn 59.5. Also, if I ever have children, the contributions and interest earned can be used for their college expense.
It seems like this could work out better than a 529 plan.
I'm looking at the Roth like a miscellaneous fund right now, and I think it's a good idea I start funding it now to put the power of compounding to work earlier.
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
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Are You On a Fixed Income?
The other day, I was watching a news report on how the stock market's up and downs are affecting senior citizens — specifically, those on a fixed income.
It got me thinking — am I on a fixed income? What does it mean to be on a fixed income?
Here's what Wikipedia has to say:
Fixed income refers to any type of investment that yields a regular (or fixed) return.
For example, if you borrow money and have to pay interest once a month, you have issued a fixed-income security. When a company does this, it is often called a bond or corporate bank debt (although 'preferred stock' is also sometimes considered to be fixed income). Sometimes people misspeak when they talk about fixed income, bonds actually have higher risk, while notes and bills have less risk because these are issued by Government agencies.
The term fixed income is also applied to a person's income that does not vary with each period. This can include income derived from fixed-income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. When pensioners or retirees are dependent on their pension as their dominant source of income, the term "fixed income" can also carry the implication that they have relatively limited discretionary income or have little financial freedom to make large expenditures.
So, if your investments are paying out a certain amount of income over a given time period, you're on a fixed income.
But what if you're on a salaried paycheck? Aren't you getting a fixed amount of income every paycheck?
For the most part, I know how much money will be coming in to our bank account every month because our paychecks are consistent. Isn't that being on a fixed income?
For hourly workers, salespeople who work on commission and 9-5ers with inconsistent part time work, each month, your budget's "intake" column probably looks different. You don't necessarily know how much money you are earning until the month is over.
So if you're a salaried, non-commissioned worker, you're probably on a fixed income. Live like it.
It might seem a bit counterintuitive, like when I say I live paycheck-to-paycheck (even though technically this isn't true). Knowing how much money you have to spend, save and invest each month puts you on a fixed income — and helps you prepare to achieve your goals.
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The Retirement Conundrum: Near-Term vs. Long-Term Goals
Everything I read tells me the same thing when it comes to saving for retirement: contribute to your 401(k) and start a Roth IRA.
I contribute to my 401(k) so that my employer-match is maximized, but that's it. I don't max out on the overall contributions, nor have I yet opened an IRA.
Many people would tell me I really should either max out the 401(k) and/or start funding a Roth. I totally understand why they'd say that; I realize the benefits of tax-free growth.
But the reality is, I have near-term goals that need addressing, namely purchasing a larger house, getting ready for a family, and saving up for a possible business venture.
Socking away a bunch of money for use when I'm 60 or beyond is the practical, conservative thing to do.
But what happens if I never reach that age? Or what if I do reach that age and do get to my money, yet I realize my "prime years" were spent living in a cramped house, working for someone else, and did not contain any luxuries?
Has it been worth it?
I'm not saying I'm not planning for a retirement, because I am with my 401(k) and other investments, including mutual funds and real estate.
I am planning to use those investments wisely and spread them out over my life. So I'm not so sure the bulk of my savings should go into formal retirement programs.
If anyone has any advice or has been in the same situation, I'd like to hear it.
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
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Are You Saving For the Right Reasons?
One of the most basic questions anyone committed to saving money has to ask themselves isn't as easy to answer as you might think.
Are you saving for the right reasons?
I touched upon this briefly when talking about saving aggressively, but it deserves its own discussion.
When you say you're putting 10% of your salary into your 401(k), or you're pinching pennies to start a college fund, do you really know what you're saving for?
It's not enough to say "for retirement" or "for college." Sure, it's easy to say this when the goal is far off, but there's a deeper answer here.
For example, I'm saving for a house — not because I want to get into the real estate market, but because I want to provide for my family.
If you're saving to start your own business, chances are you're not doing it for the money — you're doing it for the challenge and the freedom to work for yourself.
The next time you put some money into your savings account or you decide not to make that big, unnecessary purchase, think about what you're really saving for.
Money is not the be all end all. Money is the fuel on the road to get to the be all end all.
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When You're Saving Aggressively, It's Easy to Forget How Well You're Doing
We've got some pretty aggressive savings goals for the near-term future, mostly centered around buying a house while still contributing a lot to my 401(k) and to both of our Roth IRAs.
And we're doing a really successful job, too; we've got automatic transfers going into our housing fund every month (in addition to automatic Roth IRA contributions), we track our spending and live within our means.
But when you have such aggressive savings goals, sometimes your mentality overpowers reality.
I forget sometimes that we are doing a great job saving for a house and for retirement (and have an emergency fund, too). I want to save as much as we can — I think I am going put nearly my entire 2007 bonus toward the housing fund — and succeed.
But there's a line between being a smart and aggressive saver and just being cheap. I try hard not to cross that line — having money is not the goal. Creating a happy life for my family is the goal. Money is just the means to the end.
The next time you think you're being cheap, step back. Think about how well you're doing on your savings goal and how much the situation is going to affect your bottom line.
This isn't an excuse to go out and buy whatever you want; it's a reality check to determine if you're saving for the right reasons.
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