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The One Fund I Use to Invest for Retirement – VFORX

Philip Taylor — Thu, 09 Feb 2012 21:24:03 +0000

Could one fund take care of your retirement needs?

We’re so boring when it comes to investing and retirement.

But I think boring is good.

We do the vast majority of our retirement investing through one single fund: Vanguard Target Retirement 2040 Fund (VFORX).

We invest in this fund within my Rollover IRA (my old 401K), our Roth IRAs, and in my new Solo 401K.

Our goal every year will be to max out those last two accounts using this one fund.

Vanguard’s Target Retirement 2040 Fund is what’s known as a target-date retirement fund, which is a type of mutual fund. Meaning, it is a collection of multiple stock funds, bond funds, and cash funds.

Specifically, this target fund contains these three funds:

Vanguard Total Stock Market Index Fund Investor Shares
Vanguard Total International Stock Index Fund Investor Shares
Vanguard Total Bond Market II Index Fund Investor Shares

What makes target-date funds different from other mutual funds is that they automatically adjusts their asset allocation between those fund types as the fund ages. For example, a target fund might be invested in 90% stocks / 10% bonds right now, but by the time you retire, it might be invested in 40% stocks / 40% bonds / 20% cash.

Which makes sense, because as you age, your acceptable risk (% in stocks) should go down because you are getting closer to actually needing those funds. Vanguard has more target funds than just this one. Here is there complete list:

Vanguard’s Target Retirement 2010 Fund
Vanguard’s Target Retirement 2015 Fund
Vanguard’s Target Retirement 2020 Fund
Vanguard’s Target Retirement 2025 Fund
Vanguard’s Target Retirement 2030 Fund
Vanguard’s Target Retirement 2035 Fund
Vanguard’s Target Retirement 2040 Fund
Vanguard’s Target Retirement 2045 Fund
Vanguard’s Target Retirement 2050 Fund
Vanguard’s Target Retirement 2055 Fund
Vanguard’s Target Retirement 2060 Fund

I chose this particular fund from Vanguard for several reasons. Here are a few:

1. My Age – The Vanguard Target Retirement 2040 Fund is built for someone who is retiring on or with a few years of the year 2040. My guess is that I won’t be able to work (or at least won’t want to work) when I’m 65. I turn 65 in the year 2040. Mrs. PT will turn 60 (I married young, I know).

As a reminder, I don’t invest for retirement to get rich necessarily. I invest in retirement to take care of my self (food, shelter, care) when I can no longer get up and go to a job or business.

2. My Risk Tolerance – Again, the Vanguard Target Retirement 2040 Fund is supposedly built for someone who is retiring on or with a few years of the year 2040. I’ve looked at the asset allocation of the fund, and I am comfortable with that based on my own risk tolerance.

Age and risk tolerance go hand-in-hand. The number on the fund (i.e. my age) isn’t the only thing that guides me in my choice of asset allocation. I also consider my own tolerance for risk, something I discovered recently by meeting with a financial planner.

Vanguard Target Retirement 2040 Fund Allocation at Retirement

3. Expenses – Unlike some other target-date funds, which were often criticized for their expenses, this particular fund (as with most Vanguard funds), is inexpensive. It currently has an expense ratio of 0.19%. That’s actually low for any mutual fund, period.

I like to keep my investing expenses low, because unlike performance, it’s something I can completely control. How much you pay to invest in retirement matters.

4. Convenience – If there were no target-date funds, I would have to create this type of investment product by investing in multiple mutual funds to get to the right level of asset allocation and diversity. I would also have to re-balance them myself each year to maintain the proper allocation. I see no reason to fool with this type of work.

5. Performance – I have no reason to believe that this fund won’t perform the same or better than any other retirement investment over the next 28 years. It’s anyone’s guess what will happen. History is not a guarantee of future performance, but we can look to history as a guide.

This fund is investing in stocks and bonds, the two most historically common asset classes for retirement investing. Why are they the most common? Because they performed the best historically. Good enough for me for now.

A word of caution if you are going to invest for retirement and are considering a target-date fund, remember that they are not all created equal. Study expense ratios and be sure to understand the underlying asset allocation, so that you can be sure you agree with it. Don’t just default to your retirement date.

While you may be retiring around 2040 like me, you don’t necessarily have the same risk tolerance as me. For example, in 2038, you might not like that 50% of your money is tied up in stocks and could be subject to market turmoil like we saw in 2008.

Additionally, there are other factors (like the type of account you are using, the size of your portfolio, etc.) that might prevent target-date funds from being the best choice for you.

One last point…As I was studying this today, I started wondering about risk, and the risk that might be present in these types of funds because (1) you are keeping your funds with one mutual fund company, and (2) you are allowing just a few (in this fund’s case, three) fund managers to decide your fate. I’m not sure how big of a concern this is and I couldn’t find any commentary on the subject. If you have an opinion, I’d love to hear from you in the comments.

Speaking of comments, I’d love to hear your thoughts on this target fund from Vanguard and your general thoughts on target-date retirement funds.

As always, the above wasn’t investing advice. I’m not an investing professional. Seek professional investing advice before making decisions about your own retirement. I’m simply sharing with you my own investing choices and philosophies.

Image by Daquella manera

The One Fund I Use to Invest for Retirement – VFORX is a post from: PT Money: Personal Finance by PT.
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Guest Post: How I Got My Personal Finance Education and Its Role in My Life

Guest — Mon, 06 Feb 2012 17:28:34 +0000

This is a guest post from Sunil of ExtraMoneyBlog.com

How did you get your financial education?

There is no doubt personal finance is a critical component of our lives.

But because the education of this topic is not required in schools, most of us grow up on our own in terms of how we view and manage our finances.

For many, personal finance habits are derived directly from their parents, while others catch it from a variety of experiences and exposures in life.

One thing is for certain that no two clouds are alike. This is my story about how I obtained my personal finance education and its importance in my life.

When I reflect on my current financial situation in life, I attribute most of my financial success to my investment in the education of personal finance. No one is born with this knowledge, and I for sure don’t have it in my DNA.

My parents certainly didn’t have a good understanding of personal finance. As a result, I experienced a wild roller coaster ride growing up, from rags to riches and then right back to rags. When I reflect back at this experience, I feel that my strong interest in personal finance is partly attributed to such unpleasant experiences earlier in life. I am sure many can relate, or at least agree that similar “trigger” events motivate us to avoid repeating history.

As a first generation high school, college and post graduate in my family’s history, I never imagined I’d be as financially successful as I am today in my early thirties, and that’s mainly because I took the initiative to learn and apply basic, and later more advanced personal finance principles in my own life.

My Personal Finance Development

As I have learned from developing my own financial understanding and discipline over the years, investing in this knowledge doesn’t necessarily require one to spend a lot of money. Rather, one needs the motivation and willingness to make an effort to learn about a topic that is not required as formal learning, at least in terms of our education system.

When I was starting out, I read some of the best personal finance books written by commercial personal finance experts. These books are widely available for free in libraries or bookstores for purchase. I attended seminars and even took classes such as “Money and Banking” to gain in depth knowledge about certain sub topics within personal finance.

I am not saying everyone needs to go this route, but the point is that resources are available and abundant for anyone who wants to learn. This is especially true today with the advent of personal finance blogs and tablet devices that enables us to access all sorts of quality information on demand. But just as years ago, because this information is not “required learning”, one has to have just as much interest and initiative today than what I needed years ago when I was getting started.

Impact of Sound Financial Education in My Life

A solid understanding of personal finance has enabled me to develop into a financially savvy individual who is successful in several entrepreneurial endeavors, as well as in growing, maintaining and protecting a healthy personal balance sheet.

Because of my investment in financial education, I am able to insure my assets and my family’s interest and ensure that they will be taken care of adequately if something was to happen to me.
Financial education has allowed me to save and invest prudently with solid results for me and my family’s future.
Financial education has also enabled me to understand and apply to principles of leverage, whether in real estate or small business, thus allowing me to take advantage of certain opportunities and further progress financially.

What’s interesting to me is how simple succeeding financially becomes after one has invested in their education. What’s even more interesting is that the most basic personal finance principles, when talked about in casual conversation go over some people’s heads so easily. This often makes me wonder why such easy to understand concepts are beyond the understanding of many.

It is these kinds of instances that make me step back and reflect on the possibilities why many don’t understand what I consider simple principles, almost common sense in fact. But no matter how much we think some things are just common sense, these very same concepts make no sense to someone who hasn’t been exposed to that kind of material before when you come to think of it.

There are folks in my family and friend circles that sometimes cannot comprehend even the simplest concepts that I talk about. I don’t think this is because I am extra ordinarily smart, or make more money than all of them, but rather their lack of interest and investment in their own financial education. As a result, I often find these individuals asking me for advice ranging from investments, to buying a house, investment properties, starting a business and other similar topics.

A Different Perspective in Life

When we are equipped with adequate information about personal finance, it is easy to overlook the fact that most people are not nearly as educated about the topic as they should be, or as we are. Therefore, it’s not uncommon to feel as if even the simplest concepts which we may deem common sense are either not known or understood by those we communicate with sometimes.

In my opinion, this education is critical for one to be able to live a financially sound and disciplined life, and ensure that those who we are responsible for enjoy the best life we can reasonably provide for them without worrying much about what the future has in store for us.

It’s quite surprising that educational institutions still do not formally provide this information, but that’s ok. There are many “teachers” of personal finance. Pick one whose advice resonates most with you and apply it in your own life. Personal finance education doesn’t have to cost money, but one must have the interest and motivation to self-educate and apply the principles in their lives.

Personal finance education is such that sometimes it may start after one graduates from school. Unfortunately this is where learning ends for most people. I still actively indulge in personal finance material. There is always more to learn, and the more I learn, the more I apply and the more financial success I see in my own life.

And if our schools continue not to teach this subject in the future, by educating yourself as much as possible, you can pass on a healthy financial foundation to your children, both tangible and intangible, ensuring they too enjoy a financially abundant and satisfied life. I know I will.

How did you get your personal finance education?

About the author: Sunil owns over two dozen profitable niche websites, over 20 successfully selling eBooks, and is the author of “How to Go from $0 to $1,000 a month in Passive and Residual Income in Under 180 Days All in Your Spare Time”, a FREE report you can download instantly from his blog, where he discusses expedited wealth creation through solid personal finance, entrepreneurship and internet marketing. In 2007, he sold his ecommerce website for $250,000 to a top Ebay Power Seller and since then has sold several niche sites for five figures each. You can read more about him and his work on his blog.

Image by alamosbasement

Guest Post: How I Got My Personal Finance Education and Its Role in My Life is a post from: PT Money: Personal Finance by PT.
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Stay Out of the 401k Penalty Box

Guest — Mon, 23 Jan 2012 16:55:35 +0000

The Penalty Box

High sticking in the NHL will get you a minimum 2 minutes in the penalty box.

Same rules apply for cross-checking. In more severe cases, the penalty can be doubled that.

The bright side to all that is after the penalty time expires, you are allowed back on the ice to play again.

Hopefully, with no harm to the team.

In retirement planning, this is often not the case, especially when it comes to your 401k.

If you find yourself in a financial emergency, you might consider withdrawing money from your 401k.

It might seem logical to use your own money to help yourself out of a financial bind, but there are penalties and taxes to be paid on money withdrawn from a 401k before retirement age.

Before considering this option, it is wise to be familiar with the taxes and penalties that will be charged.

Penalty for Early Withdrawal

The government considers a 401k strictly for retirement funding. Therefore, they charge heavily for early withdrawal to discourage people from taking their money before the age of 59 ½. The government charges a 10% penalty on any money taken from the 401k early.

There are a few exceptions to withdrawing from your 401k penalty free, including withdrawals made after ending employment with a company if you are over age 55, withdrawals made by your beneficiary after your death, in a divorce settlement, because of a permanent disability, or in financial hardship situations due to medical debt.

A quick note on financial hardships: To qualify for a 401k hardship withdrawal is tough. Typically, your employer will make you jump through hoops to qualify. If you do qualify, you then have to wait a minimum 6 months before you can restart contributing to your 401k.

If you are well under 59 1/2 and none of the above exceptions apply to you, this would be considered a “major penalty” in hockey terms. In fact, if you are even considering it, you might as well sit in the penalty box and contemplate your actions.

Tax Penalties

When you invest in a 401k for retirement, that is tax free income that you invested. When you withdrawal the money, you are responsible for paying the taxes.

The federal government charges anywhere from 15% to 35% based on your income bracket. You can look at your previous years tax return to determine what your tax bracket is and how much you will be charged.

The state government in the state where you live also charges tax when you withdrawal from your 401k. Generally state tax rates are much lower then the federal taxes, typically around 5%.

Additional Tax Penalty

Money you withdrawal from a 401k is considered income for the year. Depending on how much you withdrawal, this could move you into a higher tax bracket. That means you will pay even more taxes on that money during the next income tax year.

Doing the Math

Imagine you need to borrow $10,000 from your 401k for your financial emergency. If you withdrawal $10,000 you will pay $1,000 for the early withdrawal penalty, assume a 20% federal tax rate which would amount to $2,000, and a 5% state rate which would be $500.

That amounts to $3500 in taxes and penalties. That means you are only ending up with $6,500. So if you really need $10,000, then you need to withdrawal about $16,000. Of course the taxes and penalties on that $16,000 are about $5600, $2000 more than withdrawing $10k.

Most of us wouldn’t take out a loan that charged 50% interest. Withdrawing from a 401k is essentially charging yourself that much interest on the loan. Another consideration is that anything you withdraw obviously reduces the amount that you will have for your retirement which is never a good idea.

Withdrawing money from your 401k early (and even borrowing from your 401k) should be a last resort.

Jeff Rose, CFP® offers 401k plan reviews and Illinois term life insurance. He loves Crossfit workouts, writes about personal financial planning and craves In-N-Out burger. You can find him at Good Financial Cents and Soldier of Finance or follow his updates on Twitter: @jjeffrose.

Image by saruwine

Stay Out of the 401k Penalty Box is a post from: PT Money: Personal Finance by PT.
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I Chose the Solo (Individual) 401K for My Small Business

Philip Taylor — Thu, 05 Jan 2012 20:18:43 +0000

After a couple of years away from the corporate world, one thing I did miss was my 401K. The company I used to work for dumped the matching contribution at some point, but I still loved that plan. I could defer taxes on several thousand dollars in income each year. That’s a huge benefit it my book.

This benefit pushed me to save the maximum each year and amass a decent retirement account for a guy in his thirties. I also had a Roth IRA, which is a great compliment to anyone with a 401K, who meets the income requirements.

But when I left for the self-employed world and lost the ability to contribute to my 401K, I found that the Roth IRA alone wasn’t enough. After a year or so of struggling with the business to get it to a point to where I actually had enough to start considering retirement contributions again, I decided to open up a Solo (or Individual) 401K.

Solo 401K Rules

I’m eligible to open this type of plan because I have no full-time employees. You can open one too if you have a side income and want to contribute some of those funds to a retirement plan outside of your current 401K or Roth IRA. Just keep in mind that Solo 401K contribution limits are spread across multiple 401K plans.

Solo 401K Contribution Limits

This thing is awesome. Not only can I contribute $16,500 a year ($17,000 in 2012), but since I’m the employer, I can contribute up to 25% of the compensation I pay myself, up to $49,000 ($50,000 in 2012). The total annual contribution from both employee and employer is capped at $49,000 ($50,000 in 2012). That’s a huge deferral! Far greater than I could have ever achieved being employed.

If I choose to bring Mrs. PT on as an employee one day, then we can contribute up to the limit for her as well. Considering future “catch-up” contributions, this account could allow us to defer over $100,000 in income one day. One can dream, right?

Opening a Solo 401K

Additionally, a Solo 401K is very easy, and inexpensive to setup since I’m allowed to be the trustee of the account. I looked around and chose Vanguard as the place to open my account. As you know I like their philosophy, funds, and low expenses. The $20 annual fee on the plan is waived because I’m at Voyager level with Vanguard.

Solo 401K Contribution Deadline

I opened the account in December of 2011, and because of the genius of my accountant, was able to make the employee deferral portion before the end of the year, the deadline. Now I have until I file my business taxes to make the employer contribution.

My goals for this account going forward are the same as they were with my old 401K, contribute the maximum each year. I’m going to speak to my accountant about doing more routine paychecks in 2012 so that I can contribute on a more routine basis vs all at the end of the year.

Do you use a Solo 401K? What do you like about the plan?

I Chose the Solo (Individual) 401K for My Small Business is a post from: PT Money: Personal Finance by PT.
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31 Days to Improve Your Financial Life

Philip Taylor — Sun, 01 Jan 2012 13:00:34 +0000

Happy New Year!

I want you to improve your financial life in 2012. Therefore, over the next 31 days I’ll be sharing my best tips to help you improve your financial life. Each post will contain a short, actionable tip, followed by some related resources.

While I can’t promise you’ll be rich or completely debt free by the end of the 31 days, I can assure you that if you take action on the 31 tips, your financial life will be much better off this year than last.

I’m hoping mine improve as well. So let’s do this!

Day 1: Save $1,000

Everyone should have at least an extra $1,000 saved up. Having at least a $1,000 cushion in your finances can do a lot for your feelings of security. It’s also evidence that you are capable of living within your means, and (possibly more importantly) holding on to your savings.

Do this today: Open up a separate savings account and have $100 automatically deposited into the account each paycheck (or each month). After just ten deposits, you’ll have that $1,000 saved and you didn’t even have to think about it beyond that one time you setup the automatic deposit. You’ll be less likely to touch the money because it’s in a separate place. Out of sight, out of mind.

If $100 is too much. Try $50 and do it for 20 periods. Either way, pick a number, separate, and automate. This is the most guaranteed way that I’ve found to saving $1,000.

Want to get to $1,000 quicker? Consider selling some things you don’t use anymore and stashing that money in the account. Or, you could ask friends, family, or neighbors if there are any odd jobs you could do for them to earn quick cash for the savings account.

Resources:

2 Reasons People Aren’t Saving Enough
Online Savings Accounts
The Automatic Millionaire by David Bach

Day 2: Sell Your Excess Stuff

Yesterday I mentioned that to save your $1,000 a bit quicker, you might want to sell some of your excess stuff (you know, the valuable things you have lying around the house that you never use anymore).

Mrs. PT and I started doing this yesterday. We’re selling an old DVD player that we no longer need, my old table saw, and some more things. So far I’ve made close to $100. In just 1 day! I’d be willing to bet there are some valuable things that you have that you’re willing to part with to give your savings account a quick boost. What’s great about doing this now (on day 2) is that it puts you in the right mindset to make better spending decisions later.

Do this today: Walk around your house and make a list of this things that you want to sell. Take pictures (I use my iPhone and quickly upload them using the craigslist.org app). List the items for sale online at significant discounts (think quick sale!).

Craigslist.org is best for big items, tools, and generic household items. Be sure to meet people somewhere other than your home to make the exchange. Use eBay.com for collectibles and clothes. Use Amazon.com for books and DVDs. Finally, consider Gazelle.com for your old electronics and cell phones.

The stuff you don’t sell in a week should just be given away for free or donated. Once you’ve collected your cash, deposit it quickly into your new savings account so that you keep the money instead of spending it on new stuff. After all, your goal is more savings, not more stuff. Repeat your search for excess stuff once every few months so you can keep the junk moving out, and the extra money coming in.

Resources:

Day 3: Adjust Your 401K

Most of us have a 401K (either though our employer, or we’ve setup an individual 401K because we’re self-employed). I contend that the 401K is one of the best tools we’ve been given to reach our maximum potential when it comes to retirement savings.

The new year is a great time to adjust your 401K, both to the amount (or percentage of income) you are contributing, and to the type of individual funds or investing products to which you are contributing.

Do this today: Access your 401K account (either online at work or by talking to your HR department). Make a positive adjustment to your 401K contribution percentage. If you’re not contributing anything, then start…at least enough to get the company matching contribution. If you’re currently contributing 5% of your income, bump it up to 7%. If you’re currently contributing 10%, consider bumping it up to 12%.

You get the point. Push yourself to contribute more. Whenever I’ve done this in the past I’ve found that I’m able to stick with it and I don’t really miss the money. Why contribute more? Well, you’ll save more money on current year taxes, and more importantly, you’ll have more stashed away for retirement, which means you can retire earlier or you’ll have more income in retirement.

Now take a moment to look at the mix of investments you have within your 401K. Are you satisfied with the way your money is spread between the different funds? Are you too heavily invested in stock funds? Should you be in more bonds and cash? Are your fund expense ratios too high? Could you use the convenience of a target date fund? If you’re not sure of what mix of investments you should have, make an appointment (today) to speak with your plan administrator to discuss your options. Ultimately though, the answers to these questions will depend on you and your preferences. Educate yourself on your options and keep asking “why?” until you can make an educated choice.

Resources:

7 Retirement Savings Excuses You Can Overcome
See How Well Your 401K Plan Ranks
How to Choose Funds in Your 401K by Oblivious Investor

Day 4: Review (and Fix) Your Credit Report

In a few days we’ll be covering getting rid of debt. Before we can have that conversation, we need to review what’s on our three credit reports to get an understanding of our current credit situation.

We can also use this review to make corrections if necessary. It’s not uncommon for your credit reports to contain errors or fraud, and these issues can pop up at any time. So it’s a good idea to review your credit reports at least once a year, if only for this purpose.

Do this today: Visit www.annualcreditreport.com. It’s the only place to review your three credit reports for free each year. Print your reports and perform a thorough review.

Your credit report review should contain a search for things that shouldn’t be on your reports that are, and mistakes (e.g. mis-spellings). You should also review your reports for debts that should be on your report but aren’t, as you want to get credit for your complete credit history.

Once you’ve identified the corrections needed, take steps to reach out to the three credit bureaus to have the errors fixed (see resources below). The process is somewhat cumbersome, but totally worth it since your future financial life could depend on a good credit file.

Before we close out this day, be sure to use the credit reports to make a list of your outstanding debts. We’ll use this list when we tackle getting out of debt in a few days.

Resources:

Day 5: Get to Know Your Monthly Expenses

No matter the income level, financial success comes from consistently living below one’s means. Today we’re laying the groundwork for becoming a better spender. We’re going to be doing a review of our monthly expenses.

This process will give you a sense of part the “big picture”. It will also give you the information needed to create an emergency fund, simple budget (if needed), and help you in automating your bill pay process (if you so desire).

Do this today: Using online banking information, make a list of your monthly expenses. Where appropriate, group some expenses into larger categories. If you don’t pay your bills with a check or credit card, and instead use cash, break out all of your last months bills to help you in making your list. Your list should include the name of the expense, how much it is, and when it’s due.

Be sure to include both fixed (e.g. rent) and variable expenses (e.g. groceries). For variable expenses simply make a conservative estimate. Also, be sure to account for annual expenses (e.g. insurance) by including the amount divided by twelve.

This doesn’t require complicated spreadsheets and software. All you need is a pencil and paper. In fact, I almost prefer this method since it requires you to physically write down your expenses. Writing is great for bringing awareness and for memorization. Also, you can then take your piece of paper and post it somewhere where you will see it often.

However, if you want to get geeky with it, consider using the free spreadsheet I’ve linked to below, or using a service like Mint.com, which will help you to quickly categorize the spending in your account.

Resources:

Spreadsheet for Tracking Monthly Expenses
How I Automate My Bills
Don’t Get Nickel and Dimed by Deliver Away Debt

Day 6: Reduce Your Debt

Earlier this week we used our credit report to discover exactly what debts we have. Now it’s time to tackle one of the biggest new year’s resolutions: reducing that debt.

Whether it’s debt on a credit card, a car loan, student loans, or your mortgage, owing money to someone else is a pain in the you-know-what. Most people get into debt because they ran into a tough time financially. If the bleeding has stopped, meaning you’ve been able to get out of your tough situation, then you are probably looking at that mountain of debt and want to see your it eradicated. It’s not going to happen on it’s own. Unfortunately we don’t get a bailout. So let’s examine how to create a simple plan to execute towards getting rid of unwanted debt.

Do this today: Take your list of debts and prioritize them by interest rate, amount, or level of emotional attachment. Start aggressively attacking the first debt on your list. Each month, plan to pay as much as you can afford on the highest priority debt, and pay the minimum payment on the other debts. Once you pay off the first debt, move to the next, and so on. This snowball approach works because you build momentum as you knock each debt down successively.

Just like when we discussed saving $1,000 on day one, there are some things you can do to speed up this process: taking on an extra job, selling your extra stuff, etc. Consider using a free online service like ReadyForZero to help organize and automate your debt reduction effort.

Resources:

10 Tips to Help You Reduce Your Credit Card Debt
23 Powerful Tips and Tools to Eliminate Debt by Dough Roller
Debt and Credit: The Only Guide You Need by Financial Mentor
The Total Money Makeover by Dave Ramsey

Day 7: Know Your Assets (and Net Worth)

Earlier in the series I had you list your expenses and your debts. Thankfully that’s not all we have in our financial portfolio, right? Wouldn’t that be a bummer? Today we’ll complete our financial picture by listing our assets. This will allow us to calculate our personal net worth (assets minus liabilities). It will also give us a sense of what we need to insure, secure, or include in our last will and testament.

Do this today: Break out the old pen and paper or spreadsheet and start listing your assets: cash, bank accounts, investing and retirement accounts, your house if you own it, other real estate, your car(s) and other vehicles, jewelry and collectibles, expensive art or furniture, etc.

To get an accurate value for your home use something like Zillow.com. To value your car(s) and other vehicles, use Edmunds.com. Use conservative estimates on other items.

Once you have this list totalled, you can subtract your debts and you’ll know your personal net worth. Is it positive? Do you foresee it heading in a positive direction in the future? Keep this in mind when we set goals next week.

As you look at your list, ask your self if all of your assets are insured or secured in some way. You bank accounts should be protected by FDIC. How about your retirement assets? Are they protected by diversity and proper asset allocation? If you’re not sure, makes plans to find out. What about assets like jewelry and art? Do you need to insure them? If you do, make a note that you need to run an insurance quote.

Finally, create a home asset inventory. Take a video camera and make a sweep through your house video-taping the stuff in each room. Be sure to upload the video to the cloud or burn a copy to CD and place in your safe. This will be useful for insurance purposes in the case of a fire or burglary.

Resources:

My Personal Net Worth Reports
How to Track Your Net Worth
Apps for Taking Home Inventory by NYTimes.com

Day 8: Feed Your Financial Brain

I’m proud of this series I’ve got going here, but it’s far from a comprehensive guide to all things personal finance. I write on this subject everyday and I’m still learning things.

Over the last 5 years of running this blog, one thing has remained constant: there is always something new to learn and discover – some unique financial situation which I’ve yet to consider. That’s how it is. You can’t just memorize a few rules of thumb and move on with your life (well, I guess you could, but I wouldn’t expect much financial success or security).

Proper money management is a language you never stop learning. That’s why it’s important to regularly consume information to help you in your journey.

Do this today: Pick up a good book (hard, soft, kindle, or audio) about personal finance, subscribe to a related podcast or blog, sign up for a money management course, or start listening to Dave Ramsey or Clark Howard each day.

Feed your brain real financial knowledge on a routine basis, not just the puff pieces you get from the big news outlets. You don’t have to go all-out, but you should be consistently investing in a little financial education and growing. Commit today to learn something new each week of 2012.

Resources:

Day 9: Save for Emergencies, Travel, a New Home, Etc.

On day one of this series I challenged you to save your first $1,000. If you already have that much saved or if you’re ready to start taking on some other challenges, consider creating a savings plan for all of life’s short-term future cash flow needs (i.e. everything but retirement and college expenses).

Nothing disheartens you quicker than an emergency that drains all of your cash and forces you to go into debt. And nothing can leave a pit in your stomach like coming home from a vacation knowing you financed the whole thing on credit and have no way to pay it off quickly. There’s a solution to these problems: savings. Don’t be a grasshopper. Be like the ant who considered the future when living out his daily life.

The best place to start in my opinion is by creating an emergency fund. This is money set aside to be used if, and only if, you experience a household emergency like a job loss, a major car or house repair, major medical expenses, etc.

This fund usually consists of three to six months worth of expenses (use your list of monthly expenses from day 5), and is usually held in a separate savings account. But don’t stop with the emergency fund. Use the idea of saving money in advance to help you set aside money for other things.

Do this today: Make a list of all your future cash needs. Here are some ideas: emergency fund, a vacation, house down payment, Christmas gifts, annual bill payments like insurance or taxes, a new car, etc.

Now do the same thing you did in day one and start automatically contributing money each month to separate savings account designed to hold money for each goal. This works because you’ve designated a separate place to hold the money and because you’re moving the money automatically each month. No discipline required. See my post below on creating multiple savings accounts.

Resources:

Building an Emergency Fund
How to Setup Multiple Savings Accounts
Targeted Savings Accounts by Wealth Informatics

Day 10: Create Goals for Your Money

You might be wondering why we didn’t kick this series off with goal setting. That would have been fine. But we’re doing this in really small steps and before you set goals it’s important to know where you are financially (i.e. know your net worth, know your expenses, etc.). Hopefully over the last nine days you’ve been able to look closely at your financial life and developed a mindset to create some goals for your money.

Goals have been powerful in my life. Mrs. PT and I have set savings and debt reduction goals throughout our marriage. In short, we’re no longer in debt and we’ve been able to save for a home and the beginnings of a solid retirement. I think SMART goals are the way to go versus the more arbitrary goals like “save more” and “have less debt”. You should take time to really spell out your goals so that you’ll know it when you hit them.

Do this today: Look back through the last 9 days and write down all of the little goals you’ve set for yourself. Did you decide to save $1,000. Did you decide to get rid of your debt?

After you’ve written those down, take a moment to ensure they are SMART goals. This means they should be specific, measurable, attainable, relevant, and timely. Now take a moment to think about other financial goals that you have that we haven’t covered yet. Write those down as well and ensure they are SMART. Nothing is too big or too small here. We’ll prioritize later.

An example goals might look like this: I plan to save $1,000 by June 1, 2012 by saving $100 from my paycheck each month for 5 months and earning the remaining $500 by working odd jobs or selling things. Another example might be, I plan to have 1 million dollars in my 401K by the time I’m 65. For more examples, be sure to check out the resources below or see our goals.

Once you have your list of goals, take a moment to think about priority. Will you be able to do them all simultaneously? Will one need to be achieved before you can start on another? If so, designate that in your list of goals. It might also be useful to separate your short-term goals and your long-term goals. Lastly, don’t think of these goals as set-it-and-forget-it. You’ll need to occasionally re-evaluate where you are with your goals, considering possible life-changes and new desires.

Resources:

How to Set Financial Goals by One Money Design
4 Reasons You Should Set Big Goals by Watson, Inc.
Setting Financial Planning Goals by Good Financial Cents

Day 11: Plan a Money Date With…

Today we accomplish two things: healthy communication with our significant other and accountability to reach our money goals. There’s something here for everyone.

I realize that not everyone is going to come at this thing like I do. Mrs. PT and I share everything, keep all our money in joint accounts and actually compliment each other style-wise. Althought sometimes I’m guilty of plowing ahead with money plans without fully vetting them with her.

Some of you may keep your finances separate from your spouse. Some of you may share everything like we do and struggle with the one-partner-controls-everything situation. I contend that whether you have joint finances or separate, things are cool as long as at some point you are sitting down with your spouse to get on the same page. If you are joined legally, and joined in some of your obligations, then it’s prudent to know what’s going on with your spouses’ money.

Similarly, if you are single, you don’t have a default accountability partner to discuss your money issues. You may be working in a silo with your money. You may not have the good compass that comes from checking yourself against a trusted partner.

Do this today: Schedule an hour to meet with your significant other about your money goals. Talk about days 1-10 of this series. Seek input from them about what they want to be doing with money. They may have come with their own list of goals.

If they aren’t as savvy about the finances as you are then explain to them the money moves you are making so that they can get on-board with the family finances. Make them a cheat sheet of your financial picture so they have something to refer to when you are not around (consider adding credentials for your online financial accounts to this sheet).

If you are single, plan to go over your money goals with a trusted friend or family member. If you are nearing retirement, or if you have over $250,000 in your retirement plan, consider meeting with a fee-only certified financial planner to ensure you are heading in the right direction.

Have fun with these discussion. Make them about creating a bright future. The bottom line is to have that discussion about where you are at, discuss dreams and plans for where you want to be, and then talk about the actions you are taking to get there.

Resources:

My Wife Spends Too Much Money
6 Ways to Argue Less About Money
How to Talk to Your Spouse About Money by Get Rich Slowly

Day 12: Get (or Renew) Life Insurance

If you earn an income and someone else (e.g. spouse, kids, etc.) depends on that steady stream of income to survive both now and for years to come, then you should probably consider life insurance.

Why? Because if you’re gone (tough to think about, I know), your dependents will be left without that income source.

Since most people don’t have $500,000 already stashed away in a “what if” account, it’s wise to get life insurance.

Do this today: If you don’t have life insurance, and the policy that you get through work isn’t enough, then buy some. Calculate how much you need, get quotes for someone your age and health, and then take the steps to buy.

Most people after having kids just need a simple, term life insurance policy for around 20 years. Most people do not need whole life insurance or insurance that mixes investment products with insurance. If someone suggest anything other than term life, ask a ton of questions until you are comfortable with why you need this product.

If you already have life insurance, but have recently lost weight or stopped smoking, consider renewing your policy. Life insurance rates can fluctuate enough in your favor such that a new policy might outdo your current one. Run some quotes and see. Never cancel your old policy before you lock down a new one.

Resources:

Why I Bought a $500k 20-Year Term Life Insurance Policy and You Should Too
How Much Life Insurance Do You Need by Money Smarts Blog
5 Tips to Get Cheap Term Life Insurance by Wealth Pilgrim

Day 13: Trim Your Expenses

Today’s challenge is all about taking that list of expenses that we developed earlier and looking for ways to eliminate and reduce. This is one of the fastest ways to improve your financial situation. Are there expenses on your list that you do not need? Are they simply wants? Additionally, are there expenses on your list in which you are paying a premium. Could you find a cheaper alternative that is just as nice?

Do this today: Take your list of expenses and label them as needs vs wants. If something is a want, think about eliminating that expense, if only for the short term. Now look at all of your expenses and decide if there are any that you could possibly pay less for. Call up your service providers and cut and reduce expenses accordingly.

This process isn’t about making yourself into a miser. It’s about spending wisely and within your means so that you can achieve those goals we just set a bit faster. Increased savings and debt reduction will happen much faster if your expenses are reduced to needs and a few wants vs needs and a bunch of wants. Good luck!

Resources:

Day 14: Create a Simple Budget

When you were going through your list of expenses yesterday you probably noticed this: some expenses can’t be reduced simply by calling your service provider.

I’m referring to those expenses that are necessary, but can vary from month to month. Examples include groceries and household goods, clothes, and my big nemesis, dining out and entertainment.

What I do when I feel like I’m spending too much in these categories is create a simple, selective budget to get this spending back under my control. All with the goal of living more within my means so I can reach my other financial goals.

Do this today: Determine the expenses that fall into these variable categories. Decide to reduce those by 20%, 30%, or whatever percentage you feel is attainable. Put your simple budget down on paper and start following it this month.

If you spend with a credit or debit card, be sure to watch your spending on at least a weekly basis to see how you’re doing against your budgeted amount. If you use cash, then withdraw your new budgeted amount at the beginning of the month and only spend the cash that you have.

When you reach your budgeted amount, stop spending until the next month. I like this budgeting method because it’s not too complex and it focuses on your areas of weakness. If you’re tracking with a service like Mint.com check out their built-in budgeting tool.

Resources:

Budgeting and Easier Smarter Way
4 Reasons Why Your Budget Failed
10 Online Budgeting Tools by Dough Roller

Day 15: Organize and Protect Your Financial Records

Getting your financial records in order helps you in your efforts to improve your financial life. Having your financial records organized and in one spot brings clarity and allows you to quickly find documents for reference. Properly protecting your records means you won’t be starting over if a fire or other incident leaves you in a bad spot. The bottom line is that having your financial records in order is a sign that you’ve got your finances in order as well.

Do this today: Do a search online for a list of financial records you need to keep. See the resources below as well. Take your list and start organizing your financial records into both physical and online folders, as well as a safe. For the longest time I used a simple accordion style folder and it helped me stay organized.

If you don’t have a small, fireproof safe, go buy one. In short, important financial documents you need for the long-term (marriage and birth certificates, will, titles, social security cards, etc.) should be kept in your safe. Remember that video we took on day 7? That should also go in your safe.

All short-term records can be kept in either your physical folders or digitized and kept on your PC, plus some backup service like Dropbox.com.

Resources:

Use Manilla.com to Store Your Statements
The 25 Documents You Need Before You Die by The Wall Street Journal
What Financial Paperwork Should I Keep and How Long by The Wisdom Journal

Day 16: Reduce Your Interest Rates

Previously in our series we developed a plan to get out of debt. While you are executing that plan it’s wise to get your interest rates as low as possible, reducing the amount of interest you ultimately end up paying.

Mortgage and credit card debt are two common places to start your interest rate deduction efforts. Mortgage rates can be reduced by doing a refinance. Credit card interest rates can be reduced simply by calling and asking for a lower rate or transferring your balance to a card with a lower interest rate.

Do this today: If you’ve got a mortgage, haven’t refinanced in a couple of years, and plan on staying in the home for at least 5 more years, get a refinance quote and see if you can reduce your rate.

If you have credit card debt, call your credit card company and ask for a rate reduction. Finally, consider performing a balance transfer to either a new credit card or to a peer lending loan. See the resources below for more information on how and if you should execute the plans.

Resources:

How to Do a 0% Balance Transfer
My Refinance Experience
Reviews of Successful Rate Reductions at NegotiateMyRate.com

Day 17: Shop Smart with Lists and Coupons

So far in this series our discussion on spending has revolved around the elimination of unnecessary spending and the reduction of needed spending by budgeting and other methods (e.g. lowering your electric bill by switching providers).

Today I want to zero in on a specific type of spending: household goods, groceries, and clothes. This type of spending is mostly necessary, but it can vary greatly each month depending on the types of products you buy and strategies you use to make your purchases.

We talked about making a simple budget on day 14. You may have decided to start budgeting for these items. Great. But don’t think just because you budgeted a reduced amount of spending in these areas it automatically means you’ll get less stuff.

You can apply the simple strategies of list making and couponing to help you stay in budget and get more with less.

Do this today: Commit to creating a shopping list for your next trip to the market or mall. Google “shopping list template” and print one of those out for when you’re ready to make your list. When you make you list, only include items that are necessary. After you make your list, do a search for coupons for your items. Also, do a comparison with items that can be ordered online (i.e. diapers).

I’m not going to recommend you take this to the extreme. But a good list can go a long way in helping you to keep your shopping within reason. When you go to the store, stick to your list. Add just a few coupons on top of that and you’ll leave the store having spent considerably less than you may have in previous months.

Resources:

Day 18: Consider the Roth IRA

Earlier is this series we discussed adjustments to the 401K to help you save more for retirement. There’s one other retirement savings vehicle I want to discuss in this series that can work in conjunction with a 401K: the Roth IRA.

Whether you have a 401K at work or not, you can contribute to a Roth IRA each year as long as you meet the income limits. The Roth IRA is great because it allows you to contribute after tax dollars and allows those contributions to grow tax free. So when you withdraw the money in retirement you won’t have to pay any taxes on that money. If you think your tax rate will be higher in retirement, this is a smart move.

When it comes to retirement savings vehicles, the Roth IRA has many other advantages. Unlike your 401K, you can open a Roth IRA anywhere you want (e.g. at a discount broker, bank, etc.). You can then invest in just about any type of investment you want to.

Further, you can typically use the contributions for other things like college expenses or a house down payment without facing a penalty for withdrawing them. Finally, also unlike a 401K, you don’t have mandatory withdrawal requirements in retirement. If you can’t tell, I’m a fan.

Do this today: Spend some time researching the Roth IRA and see if it’s a good fit for you at this point in your financial life. Luckily, it typically doesn’t cost anything to open a Roth IRA at a discount broker, so it might be wise to go ahead and open an account and start automatically contributing a small amount each month. As I like to say, “strike when the iron is hot.”

Resources:

10 Reasons to Get Off Your Butt and Start a Roth IRA
Roth IRA vs 401K: Which is Right for You?
Why is the Roth IRA a Good Choice When Investing by Bible Money Matters
Where to Open a Roth IRA by Cash Money Life
Difference Between Roth and Traditional IRA by Stupid Cents

Day 19: Make a Will

Talking about making a will is a lot like talking about life insurance. It’s necessary, but it might make you uncomfortable. That’s okay. As long as you get it done. I have a confession to make. I don’t have a will completed for me and my family. So today’s challenge hits close to home. I’m not going to try to give an excuse. I simple don’t have a will, like many of you possibly.

A will is important if you have minor children because it designates where your children will go in the event of you and your spouse’s deaths. A will is also important because it dictates how your assets are divided up among your family when you die.

I’m on the fence about where to get a will done. If you feel more comfortable working with a lawyer then go for it. Anyone with significant wealth or a complex family situation should probably go to a lawyer to get their will done. But, as with many things in personal finance, the perfection is the enemy of the good. If you want to make your own will for free or use an online will making program, go for it. For some, their situation is simple enough where this may just work.

Do this today: If you don’t have a will and have kids or assets, then take action today to get a will completed. If you want to use a lawyer, then call today and make an appointment. If you want to use software, then go download it right now. Make plans with your spouse to work through the details at your next financial planning session.

Resources:

How to Write Your Own Will for Free
Do You Really Need to Make a Will? by Good Financial Cents
What to Do Before You Meet with a Lawyer About Your Will by My Journey to Millions

Day 20: Spruce Up Your Online Profile

This just in from Captain Obvious: these days your online presence is becoming increasingly as important, if not more important, than your paper resume or business card. What people find when they Google your name is critical in growing and maintaining a healthy career or business.

Unemployed? Growing your online profile is an important part in helping you land a job.

Employed? Even if you are not looking for a better job right now, there’s no time like the present to increase your professional online profile. Additionally, poor management of your “personal” online presence could endanger your current and future job prospects.

Self-employed? Are you effectively using online tools to market your business and stay connected with customers and colleagues?

Do this today: Google yourself (or your business). What do you see? If nothing or not what you want, then start building a proper online presence. A great place to start is to set up an account at LinkedIn.com. Already there? Use the guides below to increase the impact of your presence there. If you are unemployed, it almost goes without saying that you need to be on Monster.com.

Are you an artist? Set up your account on Etsy.com and Pinterest.com. If you have your own business, setup a simple website using WordPress.

Last but not least, be sure to adjust your settings and keep your personal Facebook profile from being viewed by the whole world, or just stop putting crazy things on the Internet.

Resources:

Where to Find Jobs Online
10 Ways to Lose Your Job Using the Internet by Moolanomy
How to Use LinkedIn by Cash Money Life

Day 21: Save for College

Today we discuss the last big savings effort of the series: future college expenses. If you have kids then you’ve no doubt thought about the cost of their post-secondary education.

Being able to help your kids with their college expenses is a great goal. But it’s last on my list for a reason. Make sure you have your own finances and future savings needs taken care of before you go crazy with the college savings.

Luckily, like with retirement savings, the federal government has given us a few tax-advantaged tools to encourage savings. The most popular of these plans is the 529 college savings plan (what we use personally for our two girls).

Others include the 529 prepaid plan, Coverdell education plan, UGMA/UTMA custodial accounts, Roth IRA, or a simple savings account. In my opinion it matters less which particular account you choose. It’s more important to just get started.

Do this today: Spend some time looking at the different college savings options below. Choose one and begin automatically contributing a small amount to the account each month.

If you’re not quite ready to start contributing, at least open the account so you’ll have it ready. As your income grows and your financial situation improves increase your monthly savings amount.

Remember to keep the proper perspective with college savings. Your retirement savings needs should come first.

Resources:

5 Ways to Save for College
Common Questions About 529 Plans
How Much to Save for College for My Child? by Couple Money
College Savings and Investing With 529 Plan and ESA by Moolanomy

Day 22: Stop the Junk Mail

Junk mail does two things: (1) forces you to waste time sorting and recycling wasted paper and (2) temps you to make purchases or make financial decision that you hadn’t previously planned to make.

I struggled with the idea of making this one of the days in this series. Seems pretty inconsequential compared to saving for college, right? Well, I think it is important. Part of taking control of your financial life is learning to control what messages you let into your life.

You are driving your financial life and you already have your own roadmap. You don’t need other people trying to get you off course, which is what most junk mail is hoping for.

Junk mail brings with it cash advance checks from your bank, credit card offers, insurance pitches, and all sorts of direct mail marketing that just isn’t needed.

You can stop most of the junk mail though, and you can even stop the offers coming from institutions where you already have a relationship, like your own bank.

Do this today: Visit the resources below and discover the websites and telephone numbers needed to opt out of junk mail. Log on to those sites today, or make plans to call them asap so that you can reduce the amount of junk mail you have coming into your home.

These services work. I did this several years ago and I haven’t had a single credit card offer sent to my house in my name since.

Resources:

Day 23: Improve Your Credit Score

A good credit score can improve your chances of getting a loan, renting a house, getting good insurance rates, and even landing a job. A good score also means you’ll qualify for better interest rates on your mortgage, potentially saving you thousands over the life of that loan.

Earlier in the series we discussed reviewing and cleaning up your credit report. That’s a good first step in building a good score, which is just a numerical representation of your report. The next step to improving your credit score is understanding the major factors that go into creating your score.

Luckily, we don’t have to guess at what these factors are. FICO tells us what they are. Some of the factors are pretty obvious: pay your bills on time and do this consistently over the long-run. Other factors aren’t so obvious. But if you learn them, you’ll know how to take action to improve them.

Finally, remember not to be a slave to your credit score. It doesn’t define who you are as a person. Simply aim to slowly and steadily increase it over time, and you’ll start to see improvements in your financial life.

Do this today: Review the five factors that make up your credit score. Check your credit score (note that you can check your score for free using Credit Karma or Credit Sesame). Determine if there are any quick steps you can take to improve your credit score. Take them. Finally, take the long-term approach: using credit wisely and making your loan payments on time from now on.

Resources:

5 Ways to Improve Your Credit Score
15 Ways to Establish and Improve Your FICO Score by GenXFinance
8 Ways to Improve Your Credit Score by Free From Broke
Your Credit Score by Liz Weston

Day 24: Take On a Part Time Job

It’s time to get to work! Today I hope to challenge you to seriously consider a temporary part-time job to help you achieve your financial goals much faster. If you’ve decided to get rid of debt or save more money for future expenses, then a part-time job can only help you get there quicker.

A quality part-time job is one that fits into your current schedule, pays well (obviously), and even provides other benefits. A part-time job could also be a way to break into a career or line of business that could end up meaning a bigger full time paycheck for you.

Do this today: Look at your weekly calendar and mark off the times when it might be practical for you to take on a part-time gig. Think about the types of part-time jobs that fit well into those time slots. Compare their pay, benefits, work environment, and future career opportunities. Pick the best and start applying. Remember that a part-time job doesn’t have to mean a life lived working two jobs. In most cases this should be temporary.

Resources:

10 Best Part Time Jobs with Benefits
The Part-Time Money Podcast
What Are Good, Easy Part-Time Jobs? by Ask MetaFilter

Day 25: Save on Auto Insurance

Not considering housing, transportation, and food, car insurance can be one of your biggest monthly expenses. And it varies greatly from person to person. Insurance rates are constantly in flux. It’s a good expense to focus in on, to see if you can find some savings.

I’ve found that you can usually save on auto insurance by doing one of two things: changing your coverage level or getting a brand new policy. Changing your coverage level is as simple as reviewing your policy and taking a moment to understand if your policy contains the things you truly need. Brand new policies can be obtained quickly and easily by getting an auto insurance quote online.

Do this today: Using the resources below, see if there are ideas you can implement that will help you lower your current policy. Call your insurance company and see how much you’ll save under this new, more efficient policy.

Now make note of your current policy (with the new savings) and run a new quote for similar auto insurance. Compare the insurance coverage, service, and price, and either sign up with the new company or get the more affordable policy from your current provider.

Resources:

Day 26: Give More Regularly

Here’s a challenge I’m setting for myself this year: giving more regularly. I typically wait till the end of the year and do a “catch-up” give.

The problem is that the organizations I support have expenses throughout the year, not just at the end. Additionally, I’m not showing much faith by waiting till it’s safe to give. Thereby stealing some of the thunder for positive things to happen as a result of my giving.

The isolated act of giving money away doesn’t improve your financial life, in the sense that it directly adds to your net worth. It’s what goes along with giving that helps you financially in the long-run.

By giving regularly, you practice the discipline of sacrifice more regularly, not just when it’s convenient. I think this translates itself into an ability to give to other areas of your life (e.g. future needs). It also means you are probably paying closer attention to your finances.

Giving regularly also gives you perspective on the needs of others. When you get beyond yourself and your own needs you become, in my opinion, a happier, healthier person. I believe these types of people have financial success in the long-run.

Lastly, giving to qualifying organizations means you get a slight tax break. The charitable contribution deduction is taken on Schedule A (itemized deductions) on your tax return.

Do this today: Make a list of the organizations that you’d like to support this year. Be sure to check your list against CharityNavigator.com to ensure you’re giving to an efficient organization. Come up with a monthly amount you want to give. As with any financial effort, start small and automate if you can. Most organizations take donations online and automatically, so take advantage of the technology to make this a regular occurrence.

Resources:

Automated Tithing: A New Way to Give at Bible Money Matters
Do You Include Giving Back in Your Budget? by Couple Money
The Positive Effects That Giving Can Have on Your Finances by PerkStreet (and Careful Cents)

Day 27: Involve Your Kids

There are several ways that the act of involving your kids in your financial life can help to improve it.

First, kids (especially little ones) are naturally frugal when it comes to how they spend their time. I think if we followed their lead a bit more in this area, we’d spend a lot less on stuff and activities.

But kids can become a financial burden of their own in the teens if you let their spending get out of control. By involving them in the family budgeting process, and by showing them how you plan to spend your money in the future (i.e. delaying gratification), they get a proper perspective on their wants. Otherwise, they might think you’re just an endless well of cash, able to be primed if they whine long enough.

Lastly, kids can help “earn their keep.” I’m not suggestion you break any child labor laws here, but assigning chores for your kids or encouraging a part-time job or business won’t hurt. In fact, it will lead to a more responsible kid who’s used to the idea of receiving their own money and making decisions (with your guidance) about where to spend, save, or give it.

Do this today: Make a commitment to bring your kids into your financial world. Not so they can worry about money, but so they can master it. Check out the resources below and discover what and how to teach them.

Resources:

10 Opportunities for Teaching Kids About Money
Want Your Kids to Manage Money Well? Teach Them! by Canadian Finance

Day 28: Get Spending Rewards

With so many nice opportunities to earn spending rewards today, you might be missing out on hundreds of dollars a year if you aren’t actively using a rewards program.

We cashed in almost $1000 in spending rewards last year. To accomplish this we didn’t really have to go out of our way or use some complicated system. We just spent like we normally would, but made sure the spending was tied to a rewards program. We attempted to literally tie every dollar that we spent (including several recurring bills) to some type of rewards program.

I prefer straight cash back programs. We’ve used PerkStreet’s debit card rewards program in the past. Last year we relied on the Chase Freedom card and it’s rotating categories, plus Ebates.com (when shopping online) for additional cash back rewards.

Do this today: Look over the cash back programs available today (credit, debit, and cash-back shopping sites) and sign up to start using one or two of them. Tie as much of your spending as you can to the programs.

If you’re in debt, I recommend staying away from the credit card cash back programs until you’re debt free and can pay your bill in full each month. Another caution is to not let the rewards programs (including those tempting rotating categories) push you into spending decisions. Just spend like you normally would.

Resources:

Reduce Your Tax Burden

Taxes are a big part of our financial life. It’s hard to avoid them. We pay taxes on our income, our investments, our property, the things we buy, and a bunch of other things.

You gotta pay your taxes. But there are some things you can do to reduce the amount you pay in taxes, even as your income rises.

You can “shelter” some of your income from taxation or investment by using tax-advantaged accounts, like the 401K, Roth IRA, and 529 Plan, as we previously discussed.

You can keep your property taxes in check by paying them yourself at the end of the year, as well as by ensuring the municipality is valuing your property correctly.

Finally, you can reduce your income taxes by taking advantage of every deduction and credit that is legally available to you on the federal and state levels. The only way to absolutely ensure this is to learn a little about taxes yourself and then use the help of a CPA and/or tax software to help close the gap.

Do this today: Look at your income from last year and see if you can shelter more of it. There is still time to fully fund a Traditional IRA and reduce your taxes.

Also, take a look at your property tax situation. Can you reduce your burden there?

And deductions and credit…are you taking advantage of them all? Spend some time researching the most common deductions and credits. Reference this list when you are speaking to your CPA or filing your taxes online.

Resources:

Save on Health Care Expenses

When you factor in today’s insurance premiums and potential out-of-pocket expenses, quality healthcare can be very expensive. If you’re not lucky enough to work for one of the fourteen companies that pay 100% of your healthcare, then it’s probably wise to take action to keep costs down.

I’d start by focusing on tax savings that comes from opening a health savings account or flexible spending account. Next I’d take a look at your current health insurance plan to fully understand the coverage and to see if it’s practical to raise the deductible or change to a less expensive plan. Of course, you would need to be comfortable with self-insuring for more of your potential costs. Other ways to save include negotiation and comparison shopping (of both services and prescriptions). Finally, and probably most obvious, stay healthy by eating right, exercising, and getting regular check-ups.

Do this today: Make sure you have adequate health insurance and emergency savings so that a major medical issue won’t put you in deep debt. Getting a high-deductible, health savings account eligible individual health insurance policy is easy. Just visit a place like ehealthinsurance.com to get a quick quote. If you have a group health plan at work, take a look at your flexible spending account options and consider contributing to save tax dollars on your medical expenses. Finally, make an appointment to get checked-out (visit a local health fair for a free check-up). Be sure to check out the resources below for more tips for healthcare savings.

Resources:

Tax Advantaged Medical Savings Accounts
How to Save on Health Care When Having a Baby by Bible Money Matters
10 Tips to Stretch that Health Care Dollar by The Wisdom Journal
10 Ways to Lower Health Care Costs by Squirrelers

Day 31: Align Your Money with Your Values

One thing we didn’t mention earlier in the series when we talked about goals was how they might align with your higher values. I think this is a good way to end the series. As I said at the outset, this series won’t cover everything you need to know about improving your finances. But it will help you make positive steps to hopefully leave you in a much better place.

Therefore, it’s probably important that on this last day I leave you with one overriding framework to live your financial life within. What I’m talking about is the idea of tying your money (how you spend it, save it, and make it) to your own personal set of values.

If you do this, every financial decision you make (whether you are looking for a new job, setting goals for the year, or buying a pack of gum at the checkout line) is tied back to your values. Living this way means you’ll constantly be moving towards a life that is more and more aligned with your values. If you avoid doing this, next year you’ll find yourself wondering why your financial life isn’t turning out like you want.

Let’s put this into real terms:

If you value security, do you have adequate savings, insurance, and are most of your assets not at high risk?
If you value community and working with others, does your job, business, or free time allow for that?
If you value adventure, are you delaying gratification enough in your daily life to afford a truly adventurous lifestyle?

Do this today: Define what it is that you value in life. Need a little help? Grab a list of personal values and pick the ones that resonate the most with you. Now translate those values into financial terms. Do this by asking yourself how the value relates to financial matters. For instance, if one of your values is freedom, ask yourself what you can do financially that will lead you to freedom? Repeat this line of questioning for each of your values. What you’re left with is a strong sense of your values and what actions and choices you can make now and in the future that will lead you to a truly improved financial life. Best of luck!

Resources:

31 Days to Improve Your Financial Life is a post from: PT Money: Personal Finance by PT.
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Year-by-Year Guide to Teaching Money to Children and Teenagers

Emily Guy Birken — Tue, 27 Dec 2011 18:53:09 +0000

Parents can easily get caught up in the day-to-day needs of their children and forget about imparting the big life lessons.

But our kids need more from us than just diaper changes, peanut butter sandwiches, bandaids, and hugs.

They need to be prepared for their lives as adults, particularly when it comes to money management.

Here are ways to teach your children to be frugal, giving, and money savvy at every age:

Children Under 3

Very small children don’t yet have an understanding of what money is or how it works. Your job is to introduce them. Making realistic-looking play money is a great craft project that will give you an opportunity to talk about how much each coin and bill is worth.

Your little one will love using the homemade money to play store in your kitchen or living room. Together, you can make price tags for food and toys and “sell” them to each other.

Small children also love mimicking Mom and Dad, so now is a great time to include them in your bill paying. I sit my 1-year-old son on my lap while I balance my checkbook.

He loves to play with the calculator, and I’m letting him know that I manage our money regularly. Eventually, I’ll give him his own “checkbook” and calculator so he can plan his own monthly finances.

4 to 6 Year Olds

Once your child has reached pre-school age, she’s ready for an allowance. There is a longstanding parenting debate over whether allowances should be earned or given, but no matter how you decide to give your child her first taste of money, you do want to teach her how to save it.

A great way to do that is to make three coin banks—one for spending, one for saving, and one for giving away to charity. Creating and decorating banks out of clean jars will add to your child’s excitement at controlling her own money. Check out Kidworth.com, an online service that can help facilitate this three jar approach.

Once your child has some money in each of the banks, make an event of depositing money in a savings account, donating money to a charity of your child’s choice, and spending the rest on whatever strikes her fancy.

She’ll quickly learn she could have a lot of cheap candy or one new toy for the same amount of money.

7 to 9 Year Olds

Now is a great time to start including your kids in your grocery budgeting and shopping. If you clip coupons, ask your child to help you cut them and have him identify the products at the store. Talk about how you determine what is the best deal by comparing unit prices. Practice math skills by adding prices together while you shop.

This is an age when you can impart to your kid just how much fun it is to budget and save money (which it really is if you make a game of it!) and you’ll help him understand the importance and value of money.

10 to 13 Year Olds

Pre-teens are old enough to learn about investing money, and they’ll have a great time with an investment game. As a family, do some pretend investing in companies of your child’s choosing. Keep track of how these stocks fare over a set period of time. Your kids will get excited when their stocks are up and they will learn about what can affect market value when they go down.

If the entire family plays this game, you can decide that whoever picked the stocks that have “earned” the most money at the end of the game wins some sort of family prize—like a special dinner or a movie night.

14 to 16 Year Olds

Encourage your young teens to find new ways to make extra money. This is a prime time for children to want to keep up with their friends in terms of clothing, electronics and other material items. When your child asks you for Abercrombie jeans because everyone is wearing them, ask her how she can pay for them.

She could do odd jobs around the neighborhood for extra cash; she could sell some of her old belongings on Ebay; or she could get a part time job. No matter what she chooses, you’ll either be encouraging her entrepreneurial spirit, her frugality and resourcefulness, or her work ethic.

17 and Older

Teens this age are ready for the responsibility of a checking account and possibly even a debit card. Depositing allowance and found money into this account can get them prepared for the money management strategies they will use as adults.

Encourage your teens to continue to divide their money into spend/save/give categories and help them figure out how to do that through their accounts rather than a coin bank.

Another important lesson that teens this age will enjoy is determining which charities are worth their hard-earned money. Help your child to research charities to learn what the charities do and what percentage of donations go toward the cause.

If it’s a charity your child really believes in, suggest that he volunteer his time as well as his money. It will help set up a habit of social responsibility and a sense of gratitude.

Making money lessons a part of your daily routine with your children from cradle to college will be one of the best gifts you’ll ever give them.

Image by ND Strupler

PT Money is a Kidworth Ambassador and is compensated for involvement in the program.

Year-by-Year Guide to Teaching Money to Children and Teenagers is a post from: PT Money: Personal Finance by PT.
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Avoid the Sticker Shock of Upcoming 401K Fee Disclosure

Guest — Mon, 26 Dec 2011 13:00:14 +0000

Shocked by Those 401K Fees?

Starting in the second quarter of 2012, the Department of Labor will require all 401K plan sponsors to disclose investment and administrative fees charged to plan participant’s retirement accounts.

The new regulation is intended to help employees understand where their money is going and help them make decisions that are more informed.

The concern among plan sponsors is that next year may be the first time many investors are even aware the fees exist.

Don’t let the newly disclosed 401K fees discourage you from saving for retirement.

Prevent savers remorse by taking the following into consideration:

Use the Disclosed Information to Your Advantage

Under the Department of Labor’s new regulations, plan participants will receive data regarding their investment options, including plan costs and comparison charts. Use the information to your benefit.

Review your quarterly statements with the fee disclosures to see exactly what you are currently paying and to compare fees. A fund with a higher expense ratio may be worth it if it meets your long-term needs.

Take the time to educate yourself with the new information so you can fully understand your investment options.

Forget the Myth that Retirement Plans are Free

401K plans and similar retirement plan options, like an IRA, are not free and never were. A recent AARP study revealed that seven in ten Americans are not aware they pay 401K fees. That is an alarming number of people who may be surprised by the new fee disclosures.

It’s important to remember that those fees have always been there, the only difference is that now they are disclosed and you don’t have to calculate your 401K fees manually. To better understand the costs, here’s a brief breakdown of some fees associated with 401K plans:

Plan Administrator Fees – These expenses cover the everyday costs of a 401K plan including record keeping, accounting and legal costs. The costs associated with educational software and electronic access to your plan can also be bundled under this heading.
Individual Service Fees – Some plans have additional fees for special features and options. These are usually applied to the specific participants who elect a special feature – not to all plan holders. An example would be a fee associated with a 401K loan.
Investment Fees – These cover the highest percent of your 401K fees and are generally assessed as a percentage of assets invested. They’re usually investment and management related expenses stemming from trades, loads, redemption costs, account maintenance and transfer charges.

Good News Could Result from the Fee Disclosures

The increased 401K transparency has the opportunity to bring down fees. Service providers disclosing more information about employees’ retirement account charges will be accountable for providing employees with plans that have cost-effective investment and administrative fees.

The New Year will bring new fee disclosures, but don’t let sticker shock affect you and your retirement future. Use the available data to compare investment costs, reevaluate your portfolio’s performance and make the information work for you. Though these disclosures may be surprising at first, you’ll have a better idea of where your money is going and that’s certainly a good start.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401K advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.

Image by Gabriel Porras

Avoid the Sticker Shock of Upcoming 401K Fee Disclosure is a post from: PT Money: Personal Finance by PT.
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Stop 401K Contributions to Pay for Private School?

Philip Taylor — Mon, 28 Nov 2011 21:46:02 +0000

What would you sacrifice to send your kid to private school?

I’m a big fan of trying to have it all when it comes to financial goals (i.e. get rid of debt while you save for emergencies and your future).

I know some people like the hyper-focused approach where you zero-in on one goal at a time and don’t move on to the next until you’ve achieved the first one. I get that.

But I’ve had success trying to do it all too. And I don’t shy away from telling people to try the multi-pronged approach. I recently received this question from a reader:

“Would you ever advise someone to suspend 401K contributions to fund a child’s K-12 education?”

I’m going to assume they are referring to some type of private education, because everywhere I’ve been in the States, K-12 education is totally free.

Anyway, this person is obviously trying to make a choice between two goals: saving for retirement or using those same funds to pay for the cost of a private education for their child.

It would definitely be a rarity for me to advise someone to do this. Here’s why:

I’m a Big Believer in Public Education

I understand that some people feel like a private education is necessary, but I don’t see it. I went to one of the worst public schools in Louisiana (ranked 444th out of 642 elementary schools in the State), and I went on to graduate Magna Cum Laude with a Masters degree from a respected state university. I passed the CPA exam, have had a rising career in financial services, and now I own a successful small business.

I firmly believe that school is what you make of it. I believe that as long as there are books, teachers, supportive parents, and a willing student, then a good education will take place. Whether you are paying for it directly or through taxes doesn’t seem to make a difference. Studies will support both sides in the private vs public debate. But for me, there isn’t a difference.

Your Retirement (i.e. Future Living Expenses) Should Have Priority

Probably the more important (and financially relevant) reason I would not suggest foregoing 401K contributions is that you are neglecting your own needs. By not contributing to retirement (for 12 years, theoretically), you are putting your future at risk.

Take a step back for a second and think about it this way… When you turn 70 and can’t work for yourself anymore, you will need money to live on, right? This money needs to come from somewhere. If not from you, then who?

As I always say about retirement savings, it’s not about accumulating wealth, yachts, and beachside villas as much as it is about putting food on your table and keeping the heat on.

Additionally, by not contributing to your 401K you are probably also missing out on employer matching contributions (i.e. free money).

Lastly, once you stop contributing to your 401K, I tend to think it’s hard to get back going again. I don’t have data to support this, but if you let one expense come before your retirement needs then you will continue to do so. There’s always another expense that comes along. Kids will only get more expensive.

You Can Do Both

This doesn’t have to be an either/or thing. You can save for retirement and put your kid in private school, if you so desire. You just need to make your mind up that the two are worth fighting for. Can you cut back on other expenses? Can you increase your income, either at your job or through a part-time opportunity or business? Can you wait a year and save up some tuition while waiting to increase your income?

My advise is to stick with the 401K contributions and if it’s that important to you that you send your child to private school, then by all means go for it. But don’t default to stealing from your future need to pay for a current want for your child.

What do you think? Is private school worth the cost? Is it worth sacrificing your own retirement needs?

Image by Michael 1952

Stop 401K Contributions to Pay for Private School? is a post from: PT Money: Personal Finance by PT.
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Our Current Savings Goals – Nov. 2011

Philip Taylor — Wed, 16 Nov 2011 18:20:00 +0000

Time to update our savings goals.

I just realized I don’t think we shared out current savings goals on the blog at the beginning of the year.

What better time than now to share with you why we want to be saving money?

I’ve also consolidated all of my “savings goal” posts from years’ past so you can see our progress.

Maintain six months of expenses in an emergency fund. Our emergency fund is currently at $25,000. Considering we have roughly $4,000 in monthly expenses, that amount will get us by for six months. In a perfect world that might be higher, but I’m happy where it is for now. So, our goal there is to maintain it and not have to dip into it to meet other savings goals (i.e. property taxes, down payments, etc.)

Save $4,200 for property taxes by the end of the year. We pay our own property taxes and have been saving $350 a month all year to make sure we have enough set aside to pay those. Right now the account is at $3,850, so one more contribution will get us there and then the only decision left to make is a tax-related one: whether to pay it in 2011 or in 2012?

Save $60,000 for a down payment on a new home by March 2012. We have plans to rent out our current place and buy a new home early next year. Considering we have no funds currently designated for this, this goal will be a challenge. But, we have a couple of things working for us. We have some money in my business accounts that could help out, roughly $20,000. We also have plans to sell one of our vehicles, netting us $20,000. So, the real goal is to save $20,000 from new income in four and half months. The blog is doing well and I still have about $5,000 to collect from the conference, so we should be close. Worst case scenario we have to dip into our $25,000 emergency fund.

Contribute $5,000 each (max for 2011) to our Roth IRAs before we file our taxes in March 2012. We love our Roth IRAs and have contributed something to them each year for the past three years. Reaching the max will be a stretch considering what all else we have going on, but it’s a goal if other pieces fall into place. We have been automatically contributing $100 each month to each of our accounts, so we will have already racked up $1,200 each in contributions by the end of the year.

Contribute any remaining funds to a SEP IRA or Solo 401K. I’m going to open this solo 401K account soon and potentially use it to help reduce our tax burden for this year. Therefore, I might have to shift some money that would have gone to the Roth IRAs to this account. We’ll see. I’ll update you all in the year-end tax planning post.

Continue to contribute $25 a month to each of our girls’ 529 College Savings Plans. We have an automatic contribution of $25 going each month to each of these two 529 savings plans. It’s not much, but it’s something and we’re making sure to take care of our own retirement needs first. Something I recommend for every parent. One maintenance thing we need to do here is change the beneficiary of one of the accounts from Mrs. PT to our second daughter, Little Miss PT.

So what do you think of our current savings goals?

Want to see my goals from the previous year? Click to the next page.

Our Current Savings Goals – Nov. 2011 is a post from: PT Money: Personal Finance by PT.
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SaveUp: A Startup That Wants You To Save Money

Emily Guy Birken — Mon, 07 Nov 2011 12:59:15 +0000

There are a million reasons not to save money, and even the best-intentioned saver can succumb to temptation in the face of a shiny new gadget or sun-drenched vacation.

Who doesn’t love the feeling of instant gratification?

That’s why the average American carries more than $8,000 in credit card debt and has nothing but cobwebs in his savings account.

But what if you were given temptations to save instead of spend?

That’s the idea behind SaveUp, a San Francisco based startup that offers savers opportunities to earn prizes for saving money. When you enroll in SaveUp, you can earn credits for doing any number of financially responsible actions—from saving money to paying down debt to using the financial education content on the site. The credits offer you opportunities to play for various prizes, including gift cards, vacations, home and wardrobe makeovers, electronics, and cash jackpots.

SaveUp has partnered with more than 18,000 financial institutions so that their members can register savings and debt-bearing accounts with SaveUp. Registration is quick, free and secure. When I signed up, I was easily able to register my bank, my online savings accounts, and my mortgage lender. Within the first day, I had earned more than enough credits to play for prizes. And what prizes! I had my eye on the iPad 2, the Toyota Prius and the $2 million super jackpot. SaveUp partners with merchants like Virgin American and other popular retailers to offer things you really want to win.

Though the number of credits you can earn is nearly unlimited, you can only play three times each day, and each play costs 10 credits. This felt a little disappointing on my first day of playing, since there were so many great prizes I wanted to win. But the reasoning is ingenious: by limiting the plays to three per day, those who have well padded savings accounts don’t get an unfair advantage over those savers who are taking their first steps toward financial responsibility. SaveUp has leveled the playing field and given savers a great reason to come back to the site every day to play again—and save even more money.

Banks are also excited about SaveUp’s program as it gives them a platform for financial literacy outreach and education while also encouraging banking customers to put more money away.

SaveUp’s program has done something that might have seemed impossible. It has made paying your student loan and putting money away in your 401k a lot of fun.

As a special promotion, SaveUp is offering 100 free credits here, so there’s no excuse not to start saving today.

SaveUp: A Startup That Wants You To Save Money is a post from: PT Money: Personal Finance by PT.
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