Done To Zen

MSN Money has an article about the characteristics of people addicted to saving. Via FreeMoneyFinance:

You’re probably a saver if you:

1. Save more than 20% of your earned income each year.
2. Spend and give away less than 3% of your total net worth each year.
3. Increase your net worth by more than 5% from year to year.

Me

1. Yep, I save 20% of my earned income each year. I save a lot more than 20% of my earned income each year.

2. Are they talking about spending savings? I hate spending savings and usually restrict my spending to my income for the year. This year has been something of an aberration because Yours Truly is slogging through her MBA, which unfortunately cannot be financed completely through earned income…

3. I’ve only started tracking net worth this year, but I’ve been increasing my net worth by 25% (give or take a couple of percentage points) over the past couple of years.

So, looks like MSN Money would classify me as a saver (though I don’t much feel like one this year). What about you?

Junger over at Online Savings Blog wants to know how many funds we have:

An open question to everyone to start off the week: how many funds do you have?

In funds, we’re talking about savings, not mutual funds. Examples:

• car
• emergency
• college
• retirement
• house
• vacation
• PlayStation

I have:

1. Emergency
2. College (2)
3. Roth IRA
4. Traditional IRA
5. 401K
6. Travel
7. Fun

I used to have a fund for downpayment on my future rental real estate property but I’ve since dumped it into my emergency fund because I didn’t have 3 months’ worth of emergenices yet. At some point (probably late next year), I will reinstate this fund. I’ve also been eyeing the new MacBook PRO. I know I won’t buy it next year (my current MacBook is just 2 years old). Maybe for Christmas 2010.

How about you? What funds do you have into?

Stop Buying Crap ask the question what will you do with your second stimulus check?

First of all, will stimulus checks really achieve the goal of making customers spend more? If you make $30,000 and aren’t spending on anything except bare necessities, are you likely to start going on a spending spree just because you have an additional $600 one month or are you more likely to save the money? What if you were making $150,000? Personally, in either case, I’m thinking people who are not spending are likely to continue not spending while those who have stuff to buy (whether necessary or not) will probably buy it regardless of whether or not they receive the stimulus check.

Anyway, to answer the question: I will save it, the only question being where: emergency fund, Roth IRA, Traditional IRA, 529 plans, brokerage account…So many choices.

squawkfox asks the question what were your 3 worst financial decisions.

1. I bought a house that is too big: I forgot to enter in all the additional costs of owning a house (property taxes, HOA dues, water, Internet, gas, electricity, etc). I calculated only what I would have to pay in mortgage (well, mortgage and property taxes) when determining if I can afford the house. Unfortunately, what house you choose is a mistake that you can’t fix easily. I do have a silver lining: I got the house for a great deal: I think I will be able to sell it for at least that amount (the “fair” market value) once the housing market starts to pick up again.

2. Investing in a bad mutual fund: I opened a Traditional IRA account with a bad mutual fund whose expenses and fees are absolutely killing the money in there. This particular mutual fund, my friends, not only has an expense ratio of over 1%, it also has a front-end load of around 2% (a front-end load is money you pay the brokerage firm every time you make a purchase). Right now, I have only half the money that I had invested just last year. I’m waiting until I get back to the 2007-levels so I can roll it over into a Roth IRA that I hold with Vanguard.

3. ??? I can’t think of another big mistake…maybe procrastination? I had known about IRAs and 401Ks since I was 18 but let inertia stop me from investing in them. But I was still saving all the money (that would have gone to these accounts), so I wasn’t completely hopeless. I’m actively working to get rid of this habit so I don’t end up regretting not taking good opportunities that presented themselves in the past.

What about you? What were your three biggest financial mistakes?

I recently engaged in a conversation with my HR department to find out if there was anything I could do to get my company to give us the option of investing in a Roth 401K (along with a regular 401K). Imagine my surprise when the HR person informed me that the committee that oversees our retirement planning had considered Roth 401K but decided against it because it is just a glorified Roth IRA.

What?

There are several differences between a Roth 401K and Roth IRA, but the main one is the max contribution limits: in 2008, you can contribute a maximum of $5,000 to your Roth IRA but the full $15,500 to your Roth 401K (just like your regular 401K). At a return of 10%, $5,000 annual contributions turn into just under $2.5 million in 40 years whereas $15,500 contributions turn into just over $7.5 million. You contribute $200,000 in the first case and $620,000 in the latter case. (You would have $7.5 million if you had consistently invested in a regular 401K, too, but you would owe tax on your withdrawals, so you only really have just under $5 million.)

Currently, there are also income limits placed on participation eligibility for Roth IRAs. If you earn more than $110,000 (or $160,000 for married couples), you cannot participate in a Roth IRA, but there is no such limit for a Roth 401K.

A Roth 401K is certainly similar to a Roth IRA, but they are not the same.