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.

My Dog's Savings Account

Yes, you read it right. My dog, Kujo, has a savings account. I started this account when he was just two months old. After reading about pet insurance I had mixed feelings about sending money to a company for insurance I may never need or wondering if they'll cover certain emergencies. Instead, I decided to open a high-yield savings account online.

Kujo at 8 weeks old.
July 2009

I started the account with $300 and contribute $25 per month to the account. By the time Kujo is 10 years old, he'll have $3000. Even if we never use the money in the account for Kujo's future vet bill, we can always use it for something else or for another dog.

Our boys, Phidan and Kujo. Thanksgiving at Grandma's house.
November 2011

For Kujo's annual vet visits, I budget $200 per year that's paid out of my own pocket. His dog food and toys are also budgeted and paid for by me. Good thing Kujo is a medium-size terrier. He doesn't eat that much and doesn't require a lot of toys to be happy. He's also a mutt, so he'll probably have little, if any, health problems.

What do you for your pets? Do they have their own savings account?

We Got Married!

Chris and I got married on Saturday, June 30th. We decided to make it legal before our Thai wedding ceremony later this month. Overall, it wasn't too bad financially. Here's a cost break down.

A bouquet of purple roses. Love!

Costs:

• Marriage license: $30
• Justice of the Peace: $100
• Rose bouquet: $50
• Wedding rings: $180
• Dress: $10

Total = $370

That's not bad at all. Too bad this wasn't everything. Later in the month we're going to have a Thai wedding ceremony. There will be Thai orchids, Thai food, appetizers, wedding cake, decorations, and servers/helpers to pay. There's also a donation to the monks and the temple - my wedding will be held at my Thai temple. The good news is that my mom will be making the food and cake. The Thai wedding party's outfits, wedding favors and some of the decorations were purchased in Thailand and given to us as a wedding present from my aunt and my dad. 

Chris and I have estimated that it's going to cost us about $2000 for everything my mom hasn't already paid for in advance. My mom has probably spent $500 of her own money. My dad and uncle will also be contributing to the cost of the Thai wedding, probably another $1000-2000. Any funds left over will given to us as a wedding present. I plan on paying my mom back for the money she has spent on the wedding. 

That's about it for now. Once the wedding's done, I'll write another update about the final cost. I told my mom to save all her receipts, but I have a feeling she only saved some of them.

Moving In With Mom?

My fiance, Chris, and I had an exploratory discussion about what we want to do in the near future regarding our housing situation. We currently rent a 750 square-foot apartment for $1000 per month. It's a second floor walk-up with easy access to the highways and centrally located near the center of town and shopping centers in two directions. We have a huge living room and bedroom. The kitchen and bathroom are on the small end, but it's okay for the two of us and our dogs. It's lacking a fenced in yard and we share the driveway with two neighboring houses. So it wouldn't be a home we settle down with a few kids.

We had brought up the subject many times in the past, but with our wedding coming up soon, it's more than a passing thought. It's the beginnings of our future home plan.

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.

The Burden of Student Loan Debt

I know I'm not alone. I have student loan debt, more than the average, but I have it. According to the Project on Student Debt, the Massachusetts state average for 2010 grads was $25,541. I wish that was the amount I owe. Multiply that by 3 and that's closer to what I still have left to pay - I started repayment in December 2009. I went to a private university and it wasn't cheap. It could have been more affordable, but I wasn't as smart as I am now about my finances. See my post One Year After Graduation.

I came across an article about a Harvard Business School graduate who got rid of his $90,000 student loan debt in 7 months. That's amazing. His story is the extreme of what one person will do to be done with the payments. At times I feel like I should do something drastic. I'm caught in a current state of analysis paralysis.

Marriage and Finances

The current count down is 52 days until our wedding. Actually, that's until the wedding reception. My fiance, Chris, and I decided to get married in June. I wanted to do it on the first day of summer, June 21. We're still trying to plan that bit out.

I came across an interesting article in the NY Times a while back (mid-May). I finally got around to sharing it. In Marriage, the Unseen Bottom Line - it's interesting to me how many women do not want to be involved with the household finances or don't want to share their spending information with their spouses. Growing up, my mom and stepdad seemed to have that relationship. He makes the money, she spends it. I never heard them take about money or finances in front of us. I can tell you that my mom is still a mess with her personal finances and my family end up giving her money to make ends meet.