Month: October 2015

Should I max my 401k?

I’ve been playing around with the idea of maxing my 401k for the last few months. I can’t talk to anyone in my real life about this because they don’t care about this kind of stuff. So I am asking for your input. Should I max my 401k in 2016?

Historic Contributions:

2014: 1% 

This was the year of the debt slayer. I was auto-enrolled in the 401k at 2%. I lowered the percentage to 1% to minimize my contribution without unenrolling from the program. I wasn’t eligible for a 401k match the first year.

2015: 11% + 4% match (a round 15%)

I got antsy this year and bumped up my percentage before my debt was paid off. It has been at 11% for most of the year.

2016 and beyond:

The plan was to increase my 401k contribution by 6% every year until I’m maxed out. I’m wavering on this plan.

It comes with positives and negatives

Positives

  • Tax Savings

The tax savings of maxing a 401k are a no brainer. Defer taxes now, pay taxes later when I’m hopefully in a lower tax bracket. The more taxes I can defer the better.

  • Use the Space!

401k contribution space is use it or lose it. Every year that I don’t max my 401k, I’m losing out on the ability to funnel money into it. I can’t get this space back!

  • Early Saving, Big Compound Interest, All the Money in the world!

I’ll be 29 for most of 2016. I’m running out of time to be considered an early saver. (Thanks law school for dumping me in the job market so late). The earlier I can get my 401k rolling, the easier all of this will be when I’m older. There is also something pretty about being able to say “I maxed out my 401k before I was 30.”

Negatives

  • Lower Paychecks

I’m no where near the max in my 401k today. If I max it, my paychecks are going to drop significantly. Due to the tax savings, my check won’t drop the entire amount of increased contribution, but its still going to be dropping a lot.

This matters most because Hubs and I recently switched to living off my paychecks. Yes, it’s all one pool of money, but it divides nicely right now. Lowering my paychecks significantly would mess up the plan.

  • Neglect Other Savings Goals

Lower paychecks means I’ll have less money to divert to other savings goals. The savings goals on deck for 2016 are significant: 1) Continue saving for a house and 2) Save roughly $7500 for my Japan trip. Maxing my 401k would mean that one of these would have to give.

  • Finding Balance

Knowing me, I’ll probably try my darndest to do it all and make it work. Between house savings, Japan and a maxed 401k, I may end up living under a rock eating only rice (no money for beans)

Other Options

Wait 1 more year

Riding my 6% increase for 1 more year would give me ample time to fluff up my house fund and pay for Japan, all while contributing a decent chunk to retirement. In 2017, I expect us to decide whether or not we are buying a house. If yes, then proceed as planned. If no, funnel all the money we can into tax deferred accounts.

More than 6%

Going from 11% to max in one year is no small feat. However, there is nothing stopping me from increasing it more than 6%, but less than max.

Play Games with Bonuses and 3-check Months

In 2016, I expect to receive a bonus of some magnitude. I’ll also have 2 months with 3 paychecks. If I decide my regular budget can’t handle the full max during normal months, I could significantly increase it in time for these 3 checks (1 bonus check and 2 ‘extra’ paychecks). I won’t miss the money if I never have it.

Alternative- December 2015 is a 3 paycheck month. I could count one of these as my first January paycheck and bank an entire January paycheck.

Pray for a Raise

If I get a sweet raise, this will all be a moot point. Fingers crossed for a sweet raise!

Do you max your 401k? Do you have any suggestions for me? Which options would you choose ?

Don’t let this sway you, but I’m leaning toward sticking with the 6% increase and playing around with the percentage in time for the 3 fat paychecks.

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September 2015 Recap & Net Worth

Hello Internet!

Let’s talk about September. September was a good financial month for many reasons. Some of these reasons were more obvious than others. Some reasons I didn’t even put together in my head until September was over. Let’s get into it.

1. Hubs and I combined finances!

After 2 years of co-habitation and 3 whole years of marriage, Hubs and I finally have a joint checking account and combined finances. For all financial intents and purposes, we are now one. Friday’s paychecks marked the first time we’ve entered a month as a financial unit. To prepare for any implementation hiccups, I am hoarding cash. The actual method we’ve chosen to corral our spending was Hubs idea. As the finance nerd in the family, it was exciting to have him be a key part of the process. I’m looking forward to having 1 account to manage.

2. My student loans have been gone for 6 whole months!

I didn’t realize the significance of the day when September 27 passed. It marked 6 whole months since my last repayment day. I still feel a little lost not working toward such an aggressive goal, but every day it gets better. Happy Half Student Loan Payoff Anniversary to me!

3. Effectively Debt Free!

September marks a glorious occasion! I am effectively debt free! Because my car loan interest rate is 1%, I’ve decided to make the scheduled payment and not attack it. The interest rate is too good. After 6 month of saving, I officially have more in my House Fund than I owe on my car. Hooray! This feels pretty excellent. It’s also pretty cool to think that had I gone after it, my car would have been paid off in under 6 months.

Due to the different in interest rates between my car and my savings account, I’m technically losing .25% on my money today, but over 3 years, I expect it to be a wash. 1% is cheap money and I’m happy to take advantage of that, especially as my goals overlap.

4. A Mental Investment Break Through!

Over the last 2 months, when the market played its game, I’ve thought about how I feel today with my current investments and how I would feel if I had a big nest egg. For two months, I’ve belittled my baby nest egg and been thankful that I don’t have much invested. Then, it dawned on me. I didn’t actually know how much I had invested. I knew my individual accounts, but I’d never aggregated my 401k, Roth, Taxable and the invested part of my HSA. When I did, I realized I had just over $30,000 working for me. Simply knowing that number felt different. That’s a lot of coin!

I’m a newbie and you may be a newbie. Let’s be newbies together and celebrate that we got started. My current road is different than a seasoned investor. Yes, its good to learn how to handle market downturns with a smaller balance, but I (and we) should really stop comparing financial swings to people who’ve been investing for years.

[flashback]

September 2014: I started the month in Scotland (that beautiful country). I had $25,485 in student loans remaining. With this wonderful community’s support, I came out to Hubs as a blogger. I can’t believe I kept this from his for so long. To this day, no one else knows.

September 2013: A whole lot of nothing. I turned 27 and had a law degree with no job to show for it. The dark depression days were starting. It was a bad time. It’s amazing what can change in a year.

September 2015: A New Financial Beginning

September 2015 Net Worth

Assets!

Retirement: $20,248 (+544)  I broke through $20,000!!! I went from $0 in August 2013 to $20,000 just over 2 years later. Those 2 years include 6 months of unemployment and 14 months of debt slaying. My brain tried to be sad about this number because 1 year of maxing a 401k is $18,000 and I’ve lost that space. But no no. It is time to be positive. This is a pretty sweet accomplishment and I need to be proud of it. 

To get over $20k, I capitalized on one of the downturns this month and threw some extra into the market. I have little to show for it now. I’m thankful to walk through these crappy returns while I have a small balance. It’s all training for the balances to come. 

Taxable: $8,485 I presume this is still down. I try not to look because I like the surprise in December. I’m concerned this account will be down overall for the year, even with the dividends. Please don’t let that happen Market! I don’t want to go backwards!

Auto Value: $13,000  Valuing cars is stupid. I’m going to keep this as $13,000 until the end of the year and then I’ll re-calculate. If anything happens to the car between now and then, I’ll also re-calculate. Recalculating, Recalculating. After that, I’ll update it every 6 months.

House Fund: $11,593 (+1,564) A good month for the House Fund and a great month with context. I am hoarding cash in my checking account while Hubs and I get through the finance merger. It’s not a lot of cash, but we were consciously conservative adding money to House Fund this month. I view this as a vault. Once money comes into this account, I don’t want it to leave (unless of course, we buy a house!) I’m happy to accept smaller progress this month.

Round Two Progress: (What is Round Two? check here!)

  • Baby Saver: $2125 
  • Middle Saver: $7953 (Loan value: $5828) ✔
  • Thing 1: $16,453 (Loan value: $8500) >in progress<
    • Yee! $10,593 down, $4,859 to go!
  • Things 2: $24,953 (Loan value: $8500)
  • Big Momma: $45,330 (Loan value: $20,377)

Thought Bubble: I would love to break into working on Thing 2 before the end of the year. How far can I get?

HSA: $4,757 (+155)  There were several doctor visits in September for Hubs…. and dental visits for both of us. I view this little increase as the calm before the storm. I would love to keep this above $4500 for the year. We’ll see how it all hits. 

Car Fund: $175 (+74) I shuffled some money around again. Poor Car Fund. This is where I go to pull money when I want to throw extra into my index funds. I need to stop playing around with this. It’s become a futile account. Leave it alone, Kate. Leave it alone. 

Liabilities!

Student Loan: $0! 6 months with no student loans!! *does a little dance*

Car Loan: $9,848 (-374) Look at that 🙂 Under $10,000. I lost a digit! It’s beautiful 🙂

Overall:

  • Net worth: $48,410. Up $2,711 from last month. 

I wanted to hit $50,000 this month, but that didn’t happen. Had the markets behaved, I could have gotten there and that’s progress enough for me. Pending any disasters, I should cross that line with ease in October.

  • Net worth increase: $125/day

 

How was your September? Tell me, tell me! Did you cross any milestones? Share and we can celebrate!