Why Wait? Be Smart, Just Start

Today I had an interesting conversation at work with three of my co-workers. One is a bit older, in his early thirties (I'll refer to him as John*), and the other two are around my age, they are both 25-years-old (I'll refer to them as Keith and Mark*). We were talking about our company's 401k and other retirement vehicles like the Traditional and Roth IRA. Warning: This is a lengthy post.

The Savers

John and I both contribute to our company's 401k retirement program. I contribute 8% of my pre-tax money into my account every month. John contributes a similar amount. We both have been working for the company for over 3 years and we've been part of the program from the start. We also get the 4% company match every month. (Our company matches 100% on the first 3% and 50% of the next 2%, it comes out to be 4% of our salary. It gets vested after you've been participating in the program for two years or by your third year of employment with the company, which ever comes first.)

The Naysayers

Keith and Mark have been with the company for about a year and a half. Our company automatically enrolls new employees into the program with a 10% contribution, but you'll have to opt-out or change the the contribution amounts yourself online. Keith decided that he didn't want to be a part of it and opted-out since he didn't think he was going to be at the company long enough to be vested. Mark had some money in it, then decided to contribute 0%, but didn't necessarily opt-out. He though the same - that he wasn't going to be around for two years.

We had talked about the company-matched 401k previously and I think we might have changed Mark's mind to at least contributing 5% so he can get the match. It's free money... you don't throw away free money. That's just crazy. I also mentioned to him that he can always roll his 401k into his next job's 401k or into his own IRA plan when he leaves. I just found it interesting that Keith and Mark had misunderstandings about the 401k and IRA. Keith also didn't know the difference between a traditional and Roth versions of both. We're engineers, we're usually good at finding information and mining data. Apparently when it comes to personal finance and retirement, we're not all great at finding and using that information.

The Excuses

Mark told us that he didn't trust our company enough to put money into the 401k (the savings program is managed by Hewitt, used to be Fidelity). He didn't think he was going to be around long enough to see the company match be vested. He's supposedly going to start contributing after his wedding. All this time he was missing out on free money. Assuming he makes about $70,000 per year, he's missing out on $2,800 every year he doesn't contribute to the 401k, let alone the potential growth of those matched funds in our company's employee stock options (that's where the company's match ends up and they're currently doing very well).

They both keep their money in a local savings account and not a high-yield one... probably making 0.01% if they're lucky. This money's not even keeping pace with inflation! If they're going to put it in savings, then at least put it in a high yield one online - I use American Express Personal Savings Bank. I currently get .85%. When I signed up a year ago, it was a bit higher at 1.3%. Not bad, but not great. That's why I have a Roth IRA with TD Ameritrade and my return is currently 8%. Better, but it needs some work.

I came across this article on Ramit Sethi's blog about people who procrastinate investing and saving, Code Words: Why We Don't Work Out. Be smart, just start. That's my advice to my coworkers. Compounding interest is your friend. Yes, you'll need to know a bit about where to put your money, but hey, we all need to learn this information and it's available all over the internet.

So check out Ramit's post and let me know what you think. Are you procrastinating or are you participating?

* Names have been changed.

Some Advice for Paying Off Student Loans

I posted yesterday about my burden - student loan debt - and how we're not alone in this. I came across an article, How to Pay Off Student Loans Now, that gives some advice on tackling student loan debt and why we should do so now rather than later. I am currently doing two out of the four strategies. I live with my fiance, prior to that, I lived in a house with 3 other roommates. My current living situation is cheaper that living with my roommates, which is surprising to me, but not unexpected.

Chris and I try to be energy conscious. We turn off lights when we're not in the room, turn off computers when we're not using them (I usually use the computer during the weekend), keep the thermostat set at 68 degrees in the winter, opt not to use an air conditioner unless it gets extremely hot inside the apartment (so far it's been actually okay), and we don't buy food we will not eat during the week. Small things, but they add up. When I was living with 3 roommates, I couldn't control all their money-wasting habits.

The other strategy that I try to follow is to not get into more debt. I pay off my credit card in full every month.

The other two strategies - get a second job and drive a beater - I didn't quite make it there. I'm still going back and forth about a second job, which I mentioned in my last post. I gave my 2001 Chevy Malibu to my mom since her 1996 Dodge Caravan was on it's way out. I decided to get a new car, a 2012 Mazda 3 hatchback, since I knew I was going to keep it until it dies. I also drive 40 miles a day to work and back, so I wanted a reliable car that wasn't a maintenance nightmare. I knew I could have bought a used car, but after going back and forth, I decided to buy new. I worked out all the numbers and with the payments, I was still able to contribute to my savings, Roth IRA, and still have money left over for extra student loan payments. All in all, I'm doing okay, but I will be stepping up my student loan payments more aggressively in 2013.

How I Got My Financial Life In Order

It wasn't always easy for me to deal with my finances. I used to be happy spending money every weekend on things I didn't need. It wasn't until my student loan payments were due that I realized that I needed to change my ways or I'll end up in a bad financial situation.

Here's how I got my financial life in order:

One Year After Graduation: Advice for College Students

Today is May 1, 2010. It's been exactly one year since I graduated from college. Where did the time go? It's been an interesting year to say the least. Going to college was great and all, but the one thing I wish they taught me about was personal finance. There should be a mandatory freshman year course on personal finance. If not during freshman year of college then during senior year of high school. So many college student graduate with huge credit card debts and even bigger student loans.