Financial Planning

[Miss Chicken]

I am quite good at budgeting but I think I find it easier than many people because I don't own or car, nor smoke or drink alcohol. It helps that I am naturally frugal, as were my parents.

For about the last 10 years I have had an emergency fund. I try to keep it at $3000 but it is down to $2500 at the moment because I had to dip into for it for some vet bills. The only thing I would consider emergencies are expenses to attend a funeral, vet bills, or if my washing machine or fridge break down. One of my friends was annoyed because I wouldn't dip into this account to go on a holiday with her.

 

[Xip]

All this talk about spread sheets, I use old school paper! ^^

I don't particularly budget everything, but I keep track of our money flows so we won't get in trouble. Both me and my husband are in college and we work part time jobs so it's not like we have a lot of money to spend. We used to have an emergency fund, but unfortunately we needed it last summer. I really want to rebuild it as fast as possible because it feels so uncomfortable not having a fund to fall back on. Fortunately things are really looking up for us financially.

 

[Gryffindorian]

^ Sorry, but it was honestly only because I care and wanted to help! I hope we're good!

(Maybe I shouldn't have reminded you that it was me!)

Mr Awe

No problem.

I am quite good at budgeting but I think I find it easier than many people because I don't own or car, nor smoke or drink alcohol. It helps that I am naturally frugal, as were my parents.

For about the last 10 years I have had an emergency fund. I try to keep it at $3000 but it is down to $2500 at the moment because I had to dip into for it for some vet bills. The only thing I would consider emergencies are expenses to attend a funeral, vet bills, or if my washing machine or fridge break down. One of my friends was annoyed because I wouldn't dip into this account to go on a holiday with her.

Part of the reason I didn't go on any trip this year is that it's just too freakin' expensive to travel alone! In the past, I would go with a relative or two and split the expense. My family wasn't interested or didn't have anything saved up. If I went by myself, I would have had to spend as much money (if not more) on airfare and hotels. I figured, f*ck it, if I have any money next year, I'll just go on a cheap cruise.

All this talk about spread sheets, I use old school paper! ^^

I don't particularly budget everything, but I keep track of our money flows so we won't get in trouble. Both me and my husband are in college and we work part time jobs so it's not like we have a lot of money to spend. We used to have an emergency fund, but unfortunately we needed it last summer. I really want to rebuild it as fast as possible because it feels so uncomfortable not having a fund to fall back on. Fortunately things are really looking up for us financially.

I know I'm gonna get booed for saying this, but my emergency fund is my 401K plan.

 

[DonIago]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

 

[Mr Awe]

I know I'm gonna get booed for saying this, but my emergency fund is my 401K plan.

Boo! But, if you have to use your retirement plan as your emergency fund, at least do that with a Roth IRA. With a Roth IRA you can take out anything that you put in without penalty and without having to pay it back.

With 401Ks, you have to pay it back or face penalties. Also, if you happen to lose your job while you owe your 401k, chances are you'll have to pay it all back immediately.

Mr Awe

 

[Robert Maxwell]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

Really sucks for your retirement, though!

 

[Toxteth O´Grady]

Myself and the future Mrs Dimesdan have been using a program called You Need a Budget for about 18 months, we have separate bank accounts, but share most of our expenditures and it's nice to see where our money goes, it also helps as I'm now back in full time higher education, my pay is about a quarter of what hers is each month.

I was going to come in here and praise this software. It turned my life around! I was so bad at handling money for a very long time. I got sucked into the world of credit. My dad helped me out once by paying all of my bills (and I did pay him back), but I just dug that hole again, even deeper the second time. I got a new job that paid more than my previous one and that helped me get out of debt the second time, but I still couldn't figure my finances out.

I saw an ad for You Need a Budget and it offered a 30 day trial. I downloaded it and tried it out. By the end of the trial I had purchased it for good. This program made it so easy do divide my money into different categories that it is pretty much impossible for me to ever get into debt again. After my money is placed into important budgets like my various bills and necessities like groceries, gas, etc, anything left over was mine to do what I wanted with.

 

[DonIago]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

Really sucks for your retirement, though!

I don't see much point in having $50K saved up for retirement if I have no money to pay for car repairs.

 

[propita]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

That's best for short-term loans you KNOW you can repay quickly--when you're still young.

You do that in your 40s and you are screwing yourself. You do that repeatedly or long-term loans (more than 1 year), and you are screwing yourself. You're basically defeating the 401k purpose of accumulating towards retirement.

A 401k loan is for emergency.

ETA: A sudden car repair can be an emergency. Just pay back as soon as you can. The 401k was part of your foresight in taking care of yourself.

 

[Gryffindorian]

A 401K loan, whether you're for or against it, is still much BETTER than using credit cards for emergencies or unexpected large purchases. You're "borrowing" your own money, and the finance charges are a small fraction of what the bloody credit card companies charge. The payment deductions get taken out of your paycheck, although you may have to pay loan initiation and maintenance fees, which are quite minimal. So it's a win-win situation.

The only drawback that I can think of is that your take-home pay is considerably smaller, depending on the amount and term of your 401K loan. Right now I'm having to pay $500 per paycheck back to my loan. Ouch!

 

[Mr Awe]

A 401K loan, whether you're for or against it, is still much BETTER than using credit cards for emergencies or unexpected large purchases. You're "borrowing" your own money, and the finance charges are a small fraction of what the bloody credit card companies charge. The payment deductions get taken out of your paycheck, although you may have to pay loan initiation and maintenance fees, which are quite minimal. So it's a win-win situation.

The only drawback that I can think of is that your take-home pay is considerably smaller, depending on the amount and term of your 401K loan. Right now I'm having to pay $500 per paycheck back to my loan. Ouch!

Like I said, if you must do it with retirement money, use a Roth IRA not a 401k for the reasons I stated. Although, I know it's too late for the current situation.

And, the other huge drawback is that you won't have as much money for your retirement.

I can understand the surprise emergency but it should be a last resort, and preferably from a Roth IRA.

Mr Awe

 

[DonIago]

Well you still end up with more in your 401(K) than you took out since you do pay interest on the loan which in turn is dumped into your plan. It may not be as much as your holdings would have paid on their own, but it's something.

I would think, given the choice, a 401(K) loan would be less of a last resort than ratcheting up a credit card balance.

I concede that there is the caveat that if you leave your job then you're faced with either paying the remaining balance immediately or having it turn into a distribution.

 

[Yoda]

I've always been reasonably solid in managing my finances. I have a pretty good income now so it's fairly easy, I can max out my 401k contribution, indulge in my hobbies, and still have money left over.

But 7 years or so ago when I was struggling to find good work to make use of my Comp Sci degree, and was working as a video game tester I still managed to save money. When I lost my pretty bad testing job and ended up at bottom of the barrel next to guys right out of high school testing job, I downsized from sharing an apartment to renting a room in a house, and still saved. Not a ton of money, but still.

On the other hand, the people I know who are in debt... their income doesn't matter. When they're not making much money, they spend it all, and then some. If they get a new job that pays more, do they pay off their debt? Nope, they immediately find a way to spend it. Some even pile on more debt. Others just stabilize it, but for reasons I can't figure out people don't pay down their debt when they have the ability to do so. It makes no sense to me.

A friend of a friend is the worst example of this. He doesn't work, he lives off of benefits. But he also lucked out and has some mineral rights in North Dakota or something, which results in him getting a check every month. Now granted, this income would put him off of benefits, but he doesn't report it, pay taxes or anything. So, he's evading taxes and defrauding government assistance programs. Ignoring all that.. the mineral rights check varies based on how much oil they pump out of the ground in a given month. So it is anywhere between $1,500 and $5,000. But, it doesn't matter. No matter the size of the check, he spends every last penny, and is completely out of money before the next check gets there. He has $5,000 dollars this month? Time to buy the gf some jewelry, time to buy a new TV, time to trade up on the car, time to go on a trip!

That's not to say I'm perfect, I have some flaws in how I manage my money. First of all I spend way too much money eating out. I need to come up with a learn-to-cook plan of some sort. It would help from a health standpoint as well. I also do a bad job of investing, the 401k is nice and easy... but aside from that my money is rotting in a very low interest. There's a lot more in there than I need for emergencies, so I really should figure out a way to make the rest of it work for me. Part of it is me being risk-averse, part of it is me thinking it is a soon-to-be down-payment on a house, but the market has rebounded a bit, and even when it was at its bottom I still couldn't quite afford something that I would actually want to own.

 

[Mr Awe]

^ Much wisdom you have Yoda!

It's true, debt tends to be based more on spending habits than income. Some people will tend to be savers or in debt regardless of their income.

If you have extra money for investing after your 401K, look into Roth IRAs. This can be as easy the 401Ks where money goes in them automatically each month. Anything you put it, you can withdraw without penalty or having to pay back.

Mr Awe

 

[Gryffindorian]

A 401K loan, whether you're for or against it, is still much BETTER than using credit cards for emergencies or unexpected large purchases. You're "borrowing" your own money, and the finance charges are a small fraction of what the bloody credit card companies charge. The payment deductions get taken out of your paycheck, although you may have to pay loan initiation and maintenance fees, which are quite minimal. So it's a win-win situation.

The only drawback that I can think of is that your take-home pay is considerably smaller, depending on the amount and term of your 401K loan. Right now I'm having to pay $500 per paycheck back to my loan. Ouch!

Like I said, if you must do it with retirement money, use a Roth IRA not a 401k for the reasons I stated. Although, I know it's too late for the current situation.

And, the other huge drawback is that you won't have as much money for your retirement.

I can understand the surprise emergency but it should be a last resort, and preferably from a Roth IRA.

Mr Awe

I don't even know the difference between a regular 401K and Roth 401K. How is it that you could borrow without paying back?! Wouldn't that be considered a withdrawal? That would mean paying hefty taxes and penalties.

 

[the 4th hanson bro]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

The money appears to be cheap to borrow, but there's some additional costs that people don't think of. Often times, the only contributions that can be made are loan repayments. So not only did you take a percentage of your capital out, you're not adding to the balance only bringing yourself back to even. The potential investment return lost often outweighs the low interest on the loan.

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

Really sucks for your retirement, though!

I don't see much point in having $50K saved up for retirement if I have no money to pay for car repairs.

That's why one should have a true emergency fund in a savings or money market account that one DOESN'T TOUCH unless it's a true emergency. And a vacation or new car are not emergencies.

One needs to have short, medium, and long term savings. A budget is a nice first step, because without knowing what's coming in and going out, it's impossible to know anything else. But any budget that doesn't include savings as a fixed, non discretionary expense each month isn't really worth much.

 

[DonIago]

My 401(K) plan lets me takes out loans against it, and I have to say paying yourself back at a low APR beats the hell out of paying pretty much anyone else back at a probably higher APR.

The money appears to be cheap to borrow, but there's some additional costs that people don't think of. Often times, the only contributions that can be made are loan repayments. So not only did you take a percentage of your capital out, you're not adding to the balance only bringing yourself back to even. The potential investment return lost often outweighs the low interest on the loan.

That may or may not be the case oftentimes, but it's not the case in my...er...case. I can both have an active loan and continue to make normal contributions.

Obviously anyone considering such a loan should review the conditions carefully before committing to it.

 

[propita]

A Roth IRA is not a 401k.

There are people here who can post the actual differences, and likely correct what I'm posting, but I don't think I'll be too far off, just overly simplified and incomplete:

A 401k--or 403b for some institutions--is a pre-tax retirement account, often partially matched by the employer. You get a tax savings because your taxable income is lowered.

An IRA is a pre-tax retirement account that is unrelated to an employer. If you contribute to a 401k, you cannot contribute to an IRA also. if your spouse is not working, s/he can contribute to this and you will get a tax savings.

A Roth IRA is an after-tax retirement account that is unrelated to an employer. If you contribute to a 401k, you can contribute to a Roth IRA up to the annual cap. You don't get a tax savings upon deposit, but interest is tax-free (for now, at least).

 

[Gryffindorian]

^ Thanks for the clarification. My 401K account is through my employer, but I pay the full contribution, meaning my employer doesn't match what I put in every pay period.

On the other hand, since I'm a civil service employee, we have a retirement system funded by working employees. The current contribution rate is currently at 6%, but management is pushing to have it increased progressively to 8.7% within the next few years.

 

[Mr Awe]

I don't even know the difference between a regular 401K and Roth 401K. How is it that you could borrow without paying back?! Wouldn't that be considered a withdrawal? That would mean paying hefty taxes and penalties.

Yes, it's a withdrawal. But, no, as long as you only withdraw what you put in (but not withdraw the earnings), you don't pay taxes or penalties.

Knowing stuff like this is why it's important to understand your investment options.

And, to be clear, I'm NOT talking about Roth 401K. I'm talking about a Roth IRA.

Mr Awe