Done To Zen

Found at Yahoo via Free Money Finance.

1. You care what your neighbors think. No.
2. You are not patient. Indeed. I want everything by yesterday.
3. You have bad habits. Perfectionist by day and procrastinator by night, that’s me.
4. You don’t have goals. No.
5. You aren’t prepared. For alien invasion, no.
6. You’re trying to make a quick buck. No.
7. You rely on others to handle your money. No, I’m a control freak.
8. You invest in things you don’t understand. Not really, but I’m tempted to.
9. You are financially afraid. No.
10. You ignore your finances. No.
11. You care what your car looks like. I hate cars. ;-)
12. You feel entitlement. A little.
13. You lack diversification. Maybe.
14. You started too late. No.
15. You don’t do what you enjoy. Not really.
16. You don’t like to learn. No, I love learning.
17. You buy things you don’t use. A little.
18. You don’t understand value. I do.
19. Your house is too big. Yes. :-(
20. You fail to take advantage of opportunities. Nope.

Overall, I don’t think I’m doing too bad. How about you?

Pelosi brings up, Bernanke endorses, and Bush is open to another stimulus with money we don’t have.

Market ends on a positive note for the first time in several weeks.

Tip’d — Digg for personal finance, i.e., another blog in my large arsenal of procrastination excuses. :-)

Did the housing market hit the bottom yet?.

Dollar gains .6% against the Euro going from $1.33 to $1.34.

Has US defaulted on its debt? via The Kirk Report.

Warren Buffet is buying American stock.

PT Money asks what is the best financial advice you ever received?. It’s a hard question to answer, not because I haven’t received any financial advice in the past, but rather because it’s so hard to settle on any one advice as being the “best.” Every time I think about it, I seem to pick a completely different advice as the “best” advice.

Here are some of the choices (in no particular order):

1. Make savings automatic.
2. Contribute to Roth IRA.
3. Contribute to 401K.
4. Ask for a discount.
5. Do not use credit cards.
6. Buy a house you can afford.
7. Open an emergency fund.
8. Save early and save a lot.
9. Pay yourself first.

Of the nine, I think number 8 is the most important. $500 at age 60 requires an investment (with 8% return) of:

• $23 at age 20
• $50 at age 30
• $107 at age 40
• $233 at age 50
• $500 at age 60

It’s true that it’s never too late to start saving, but it’s a lot easier when you start early.

The second most important is probably number 1. I first read about this six years ago in The Automatic Millionaire (an excellent book that should be required reading for everyone in high school), and there’s no doubt in my mind that this is one of the best steps you can take to super-charge your savings. I am convinced that the weakest link in any savings plan I come up with is me, so taking myself out of the equation can only make things go better.

What do you think is the most important financial advice you ever received?

1. Reduce a recurring bill by $7ish dollars. I have been trying for three (count that: three!) months to get my instructor to correct my contract, but he has a new excuse every single day for why he didn’t get done. He supposedly will try to get it done this week, but I’m not very hopeful that he’ll do it. Even if he does, I’m worried that he’s going to forget to take into account the 3 months I already paid.

2. Keep to budget for miscellaneous/fun spending ($123/$25). I was doing so well until 3 days ago, and then everything just went kaputz. Of the $123, $33 was unavoidable (I forgot to include a purchase that I should have seen coming), but everything else is the result of utterly indulgent moments of irresponsibility. I’ll try to see if I can be better over the next 13 days.

3. Contribute $1000 - $2000 to Roth IRA account ($898). How much I contribute depends on how the market is doing. I’m not trying to time the market or anything (too much). As the amount is coming from my emergency fund, I want to make sure that the benefit of buying stocks at a bargain outweighs the lost liquidity/additional risk.

4. Open a 529 Plan to take advantage of the bear market ($50/$50). I opened a 529 Plan for a family member to take advantage of the bear market. I was kind of amused (jealous?) to see that of everything I purchased so far, I managed to buy shares at the lowest (so far) in this account.

5. Research efficient lighting. Not done. I’ve been thinking for a long time that the lights in the kitchen need replacing, not because they aren’t working but because they always seemed to be turned on. There’s also the light in the “hallway” leading to the front entrance that may also require more efficient lighting. Finally, a light blew out in the basement landing, but I’m wondering whether it’s something I can get by without replacing.

6. Apply for tuition reimbursement for the current class. Not done. It’s something of a pain because I have to ask my manager for the form for every class after I pay for it, because I don’t have access to where it’s stored on our Intranet for whatever reason.

7. Identify November’s goals. Not done.

8. Identify November’s 30-day trial. Not done.

Just today morning, I was thinking about how the government managed to do something right for a change with 401K and other retirement accounts. Then I read this article from Generation X Finance about how these brilliant politicians are trying to completely destroy 401K, quoting from this article on Investment News.

Under Ms. Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5% of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3% a year, adjusted for inflation.

Are they serious? I already have to pay a significant chunk of my paycheck into social security, knowing full well (practically) that I’m not going to see a penny by the time I’m ready to retire 30 or 40 years from now. Now, they want to force me to put another 5% of my paycheck into government bonds? And they are going to turn over the administration of this plan to the Social Security Administration?!

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

Then what’s the point of investing in 401K? The mutual fund choices in my 401K are not exactly leading the pack when it comes to low expense ratios and low turnover rates. If not for the tax breaks, I would be investing the mony in Roth IRA and taxable brokerage accounts, no question about it. Remember, too, that early withdrawal from 401K is penalized at 10% while you always have full control over your brokerage accounts.

“I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ms. Ghilarducci said.

To be technically accurate, the nation isn’t spending a dime on retirement. Rather, with the tax breaks, the government is simply not receiving the additional income to waste on half a dozen useless projects.

Here’s an idea…

Instead of mutilating 401K under a train-wreck, how about you take my SS payments and put them in those 3% inflation-indexed government bonds? $2400 per year ($200 per month) will magically transform into $186,391 by the end of 40 years.

Another idea would be to place SS payments in high-interest savings/money market accounts or even CDs that offer between 3% to 5% in interest. At 5%, $2400 per year will result in over $300,000 for retirement. If the government wants to guarantee retirement, they can choose to guarantee 100% of the funds in retirement CD/savings accounts.

Finally, the government can place SS payments in age-based retirement funds to be reallocated (short of major volatility/downturn in the market such as the current situation) every 5, 10 years so that investments are moving from stocks to more conserative bonds and/or cash so people getting closer to retirement do not have to suffer from the volatility of stocks as much any more. At 8% in return, $2400 per year will result in a nest egg of $670,000.

The thought that there are some people who think taking the tax advantage away from 401K is a good idea is just mind-blowing, but that 5% mandatory contribution idea they came up with makes my blood boil.