Just a head’s up, I’m in no way a tax expert or anything like that. This post is about how we roll. Check with with your own accountant or tax professional if you have in-depth questions.
A long time ago, I used to listen to the Dave Ramsey show. I stopped for a multitude of reasons, but I did gleam some useful data from it. One nugget of info, was that you should always have a list of all your accounts, usernames, and passwords so that your spouse could easily access that information if something were to happen to you.
I heeded dear Dave’s advice and spent over an hour writing all that information down for Troy. I presented it to him…and within a week that paper had been lost. Lost. Gone. As in, floating around somewhere with all our monetary information for the world to see.
It took me two hours to go back and change all the passwords and reset everything. And then I told Troy if anything happened to me, he could just move in with his parents because I was never giving him financial information again. The other piece of advice I always give him when he is feeling sick is “if you’re going to croak, do it at work, because then they’ll owe me big time”. Newlyweds, this is what almost 13 years of marriage looks like. 🙂
One of the many nicknames we have given Bennett over the last year, is “The Squirrel”. That kid hides and stuffs things all over the house. One day we will find his nest, and half of my parent’s magnets will be reclaimed. Well, The Squirrel has nothing on me, because I have money stashed in so many accounts all over the place. The following is how/where we stash our cash. None of the information are affiliates, just places we use.
I used to have Washington Mutual (RIP), and when they were acquired by Chase, I dropped it like a bad habit. Charge me for the privilege of having an account with you? Screw off. We now use a local credit union, that is also part of a broader credit union group so I am always connected wherever I am. They also reimburse me for any fees incurred by using non-affiliate ATMs.
We have a savings and checking through them, and both earn interest. Paychecks are auto deposited in to the checking account, and things are moved around from there by yours truly. I transfer what I need for certain bills later in the month in to our savings account.
Years ago I set up multiple accounts through ING Direct. They’re no longer around in name, but our accounts were transferred to Capital One 360. These accounts are online only money market accounts. That means I can’t walk in to a bank and withdraw money that day. You generally need to have a “bricks and mortars” bank account tied to your online account for transferring money around. The “perk” of not having instant access to your money, is that usually the interest rates are higher than a traditional bank.
We have four accounts/sub-accounts in our money market. They are named things like “Emergency Fund”, “Life Insurance”, “Christmas”, and “Property taxes”. Twice a month, money is withdrawn from our checking account, and deposited in the various funds. The emergency fund has a set amount deposited, with no end in sight. The amounts deposited in the other three accounts are simply the annual bill, divided by 24. For instance, if I want to save $300 for Christmas, I know that $13 per paycheck needs to be transferred. When property taxes are due in April and October, I’m not left scrambling trying to figure out how to pay for them. The money is already there and collecting a minimal amount of interest.
Another benefit of this system is that these funds are taken away before I can even think about spending them. We have the accounts set up for auto withdrawal, so I never have a chance to talk myself out of saving that week. You can always think about reasons why you should spend that money, and very few as to why saving is more important. I take the impulse out of the equation, and it works.
Retirement (this is a reminder that I am not a tax professional)
I have had a Roth IRA since I was 20. Because yes, I’ve been a weird nerd for a very long time. We set up a traditional IRA for Troy after a few years of marriage. When you contribute to a Roth, you are taxed yearly on the money you contribute, but when you withdraw it in retirement, you do so without a tax penalty. With a traditional IRA, the contributions are not taxed at the time, but are taxed when you withdraw the funds in retirement. We have a mix of these simply so that we’re balancing our tax implications now, and upon retirement. You can contribute to your IRA as long as you show taxable income each year. One of the main reasons I keep up my contributions now, is that I can continue to save for retirement since I draw (nominal) income from this blog.
One of the downsides to a Roth and traditional IRA is it contributions are limited based on your income. If you make too much money (not a worry here), you are limited in how much you can contribute, or you may not be able to contribute at all. It may not be a feasible retirement savings option for higher income earners.
I have been blessed to have employer contributed retirement at all my previous “big girl” jobs. When I worked for the state and contributed to deferred comp for retirement. When I worked in corporate, I had a 401(k) with an insanely generous employer match of something like 6-8% (it’s been 8 years since I worked there, so I can’t remember exactly). For those unfamiliar with employer matching, it meant whatever I contributed, up to the employer rate, was matched by my company. So, if I saved 8% of my income in my 401(k), my employer would also put in 8%. I also participated in a “step” plan, so every year, I increased my match by 1%. The amount I saw disappear from my paycheck with that 1% bump was so very small, but it made a positive difference in my long-term financial planning. Additionally, I was blessed to receive a yearly bonus. The month my bonus was scheduled to hit my paycheck, I would increase my 401(k) contribution to the 25% limit. And then quickly change it back for the next month. The benefits of increasing it to the limit for that month were two-fold. More money would go in to my retirement account, and the tax penalty of that bonus would be minimized by the 401(k) contribution.
Troy has deferred comp through his employer. Our plan is to increase his contribution each using a very simple formula. For every year he receives a raise, we’ll increase his retirement contributions by 50% of the raise. So, if he were to get a 4% raise one year, we would make sure his deferred comp contribution goes up by 2%. Taking small steps is a great way to make sure you’re keeping pace with the cost of living, while also saving for your future.
Most retirement accounts are made up of a mix of stocks and bonds. Bonds are generally government backed securities. Basically, you’re giving the government a loan, and they are promising that in x number of years, you’ll get your money back plus some extra. Since they’re backed by the US government, they are considered a safe bet. The downside to that safe bet is that you you don’t earn a lot from your loan to the “man”.
Stocks at their core are you owning a share in a company. They are more volatile, so the returns for putting your retirement money in the stock market can be huge. Or very dangerous. If you are saving for retirement, and it is all confusing to you, you’re not alone. There are people who love to mess with the allocation of stocks and bonds. I am not one of them.
I would be considered a moderately conservative investor. I’m ok with not getting the huge windfalls, because it means I also rarely lose a lot. I have always used a “target fund” for my retirement accounts. You simply look at the account options offered by the financial company you are using, and choose the one to the date closest to when you plan to retire. If you are far out from retirement, your allocation will usually be more stocks, and a low number of bonds. You’re young, you have time for market corrections (crashes and rallies), so they can play a bit more “loose” with your cash. As you get closer and closer to your target retirement date, the company shifts you away from stocks, and you begin to see a higher allocation of bonds in your mix. The idea is that the closer you get to needing that money, the more secure it needs to be. Your potential for gains (earning more based on the money you’re investing) will be reduced because you are now parking your money in securities that pay less because they are safer.
Again, just to go back to my original point…I am NOT a tax professional. I used to read a lot more about financial planning than I do now, and even did a few semesters at the UCLA Extension School thinking I may be interested in becoming a Certified Financial Planner. Turns out, I didn’t want to, but I enjoyed my time and what I learned. But in no way, should what I wrote above be considered financial planning!!
Bottom line, 95% of people (stat I totally just made up on the spot) can probably contribute something each month to their retirement. When I was 20 and opened my Roth IRA, I could only afford $25 a month. And that went on for a few years, until I pinched some pennies and could increase it to $50 a month. As our income has changed, so have my contributions. Many people have nothing saved for retirement, and my motto is that something is always better than nothing. If you are young, start now. If you are older, start now.
As I mentioned in my last post, I save a miniscule $20 a month in “go money”. It is locked away in a fire and pry-proof item in our home, but easily accessible to those who know the combination. The money is there to be used in a situation where banks are closed, the power is out, and we can’t access our accounts. As a society, we’re more reliant on debit and credit cards then ever. Hardly anyone carries cash anymore! Which is fine, except when it is not. The stash cash is there for those events. And zombie attacks. Because Troy is allergic to horses, and we’re going to need some alternate transportation to outrun those rabid walkers.
I’ve sat here so long writing this word wall, that my FitBit just buzzed to remind me to get off my ass. I do believe that is it for our financial accounts, but who knows. Troy lost the damn master list. 🙂
What are your tips and tricks for squirreling away your hard earned dough?