Personal Finance 101 Posts of the Day 6/6/07

• We're In Debt reminds you to make sure your spouse knows about the finances.
• Clever Dude talks about setting up house without breaking the bank (or getting divorced).
• The Dough Roller bashes one of Kiyosaki's Yahoo articles. (Kiyo is dangerous!)
• $1 Million to My Name has a series on retirement mistakes. Part IV covers IRAs and 401ks.
• Advanced Personal Finance talks about why you might want to wait to convert to a Roth IRA.
• Ask Uncle Bill has a list of 10 Financial Mistakes to avoid.
  

Personal Finance 101 Posts of the Day 6/1/07

• Plonkee talks about what to do with a windfall.
• $1 Million to my Name - Part IV in the retirement saving pitfalls series - going into credit card debt.
  

Personal Finance 101 Posts of the Day 5/31/07

• Advanced Personal Finance talks about the benefits of tax diversification.
• Life Learning Today has a great post on the basics of investing.
• We're In Debt talks about how they use their joint checking account.
  

Personal Finance 101 Posts of the Day 5/30/07

• Zen Habits gives 10 tips to simplify your budget.
• Ask Mr. Credit Card asks how much do you need to feel rich?
• Life, Lived talks about ways her family saves money.
• The Frugalist gives 21 reasons why it's good to be frugal but not cheap. (I call myself a cheap-a$$ but according to this I'm just frugal. Whew!)
• Mint gives a list of 20 mistakes to avoid during credit repair.
• $1 Million to my Name - Part III in his retirement saving pitfalls series - relying on an inheritance.
• My Financial Awareness talks about things to consider when establishing an emergency fund.
• Mad Money Analyst talks about why starting to save for retirement now is important.
• Advice and Rants gives suggestons on how to join forces with your friends to be frugal.
  

Personal Finance 101 Posts of the Day 5/27/07

• Accumulating Money talks about in-service 401k rollovers.
• Boston Gal posts about how to keep your investment advisor from robbing you blind.
• The Simple Dollar tells us how to get past the need for keeping up with the Jones’.
• How I Save Money talks about how to simplify your budget.
• Not Made of Money talks about some store brand products his family uses to save money.
• Bankruptcy Law Network talks about borrowing money from a 401k to pay for debt.
• Fil-Am Personal Finance had a good post illustrating the benefits of starting saving early.
• Financial Jungle talks about closet index funds. (This is a really important think to look at wth all of your funds. Holding overlap can really mess with your asset allocation and cause you to get off track for your goals.)
  

Personal Finance 101 Posts of the Day 5/22/07

• Ask Uncle Bill talks about how to save a million dollars.
• Blogging Away Debt has some tips for living within your means.
• Mad Money Analyst talks about why you should start saving for retirement now.
• Queercents talks about setting goals and getting organized.
  

Personal Finance 101 Posts of the Day 5/15/07

• Wise Bread has a post on 10 frugal ways to get to $1 Million.
• SmartMoney talks about what retirement is going to be like for Generations X & Y. (Hint: It’s not pretty)
• All Financial Matters re-posts the 13 unbreakable laws of finance.
• 3 Debt Consolidation talks about the difference between good and bad debt.
  

Personal Finance 101 Posts of the Day 5/8/07

• My Retirement Blog gives 5 reasons to start saving for retirement now.
• Becoming and Staying Debt Free gives some great cheap/free date ideas.
• No Credit Needed talks about how he's going to teach his kids to manage money.
  

Personal Finance 101 Posts of the Day 5/7/07

• Ask Mr. Credit Card provides a great retirement plan cheat sheet for 2007.
• Make Love, Not Debt talk about how to merge finances.
• Blueprint for Financial Prosperity talks about 5 ways to save money without noticing. I love that he mentioned drinking water. Just make sure it’s water you get from a tap/brita filter otherwise buying bottled may cost more in the long run.
• Consumerism Commentary talks about how much you really need for retirement.
• Personal Finance Advice talks about why he loves not having a car. I agree! I haven't had one for more than 5 years and I love it!
  

Personal Finance 101 Posts of the Day 4/17/07

• Pro Bargain Hunter compares personal finance blogs.
• The Wise Bread lists his own take on the 7 deadly sins.
• My Simple Life lists 20 ways to keep from spending money.
• The Simple Dollar suggests ideas on things to do during a money-free weekend.
• Smart Money talks about how to save money when going out.
• The Motley Fool talks about putting your retirement savings on auto pilot.
• The Motley Fool talks about rolling your 401k to an IRA.
• Personal Finance Advice talks about ways to cut grocery costs.
• Free Money Finance debates debt payment methods.
• Journey to Financial Freedom takes a look at payday loans.

Take control of your employer retirement plan!

This post is inspired by Broke Now, Rich Later's post on getting a Roth 401k offered at his company.

I love to hear about people like BNRL who are taking control of their retirement options at work. There are too many people who are stuck with horrible investment options at their jobs but prefer to complain about it than to do anything. They just assume that since it's what's in place, it's what the company thinks is best.

In reality, what probably happened is that a representative of your company who knows nothing about benefits was sold a policy that sounded good at the time. They may not have known about things like sales loads, expense ratios or asset allocation options so they trusted the sales person to set them up with a good plan. Unfortunately, what likely happened is that the company got stuck with an expensive plan with bad investment options (like the one I saw recently with no international but 5 bond funds) and, that's what will reamain until someone who knows better comes along and makes an issue out of it.

You should be that someone. For your benefit and the benefit of others in the company.

Will it be easy? Nope. It will take time, effort and persistence. And, it may never happen. But you don't know if you don't try.

If you are going to go down this path, there are things you should be prepared for.

1. Whoever chose the plan, if they're still there, probably won't like that you're trying to change it because it will make them look bad. So, be *very* delicate in how you approach this. Don't make them wrong, just point out alternatives.
2. You should be willing to do this on your own time unless your company assigns this to you as a project.
3. You'll get much further if you have people standing behind you so rally the co-workers but don't be obnoxious by complaining about how horrible the benefits plan is. This will not make you any friends in management and those are the people you need to convince.
4. People like numbers but they like charts and graphs too. This is a sales pitch and you should treat it as such. Offer concrete examples and run the numbers of how this will impact the company and each investor bottom line. For example, if the cheapest fund in your selection is a S&P fund with a 1.15% ER (don't laugh, this is a real example) then run the numbers. Show the difference that a 1.15% ER will have on $10k invested over 30 years. Compare that to $10k invested in VFINX (Vanguard's S&P fund) with an expense ratio of .18% and you will have a nice fat number to show them.
5. Follow the chain of command. Nothing will tick people off more than if you skip them and they hear about it from someone else.
6. Provide expert commentary. If your company is ok with it, find a consultant to hire to set up the new plan. If you're flying solo and have to convince them, do your homework and bring in supporting documentation from known sources.
7. If at first you don't succeed try, try again. If you're automatically shot down, then you need to really rally the troops. Start a grass roots campaign for financial education and get a petition going. Make your point clearly and without emotion. Whatever you do, don't lose your cool.

There are other things, but that should get you started. I'm hoping that BNRL will post about how things are going for him so others can get ideas to use.

If you do decide to go down this path and they agree to change the plan/policy/whatever, see if you can shoot for the stars and get them to implement an auto-enrollment policy. I am a huge supporter of these for two main reasons (the first one is most important to me).

1. It will get the people who otherwise wouldn't enroll on their own to start investing. People don't enroll for lots of reasons, most of which are excuses so if you make it opt-out instead of opt-in, most people won't complain. True story: Recently I was presenting a basic financial education seminar at a local small business. At the end of the seminar I did a little poll to see how many people in that office were enrolled in the 403b plan which had just started a matching program. I was not surprised to learn that a full 2/3 of the people attending the seminar were not enrolled in the plan. ALL of them intended to enroll but just hadn't gotten around to it or didn't understand the process. The solution: everyone got their forms, sat around the table and we got them all enrolled right then. If that company had an auto-enrollment program, all of those people would have been participating the whole time (some had been there for 3 or more years) and they would be much further along the road to retirement.
2. It will benefit the company by getting more money into the plan. This will do a few things: 1 - they will probably get better deals on plan fees. 2 - it will help with non-discrimination testing. 3 - it will allow highly compensated employees to contribute more if they've been phased out.

If you decide to take this all on, then good luck! If you have any questions, just ask I'll be happy to help in any way that I can.

Personal Finance 101 posts of the day 4/13/07

• Uncle Bill shows us that negative savings isn't always negative.
• Grad Money Matters talks about whether you should loan money to friends and family.
• Personal Finance Advice wonders if you can save too much for retirement.
• Aimee’s Blog talks about marriage and money.
• Crazy Money talks about the dangers of mental accounting.
• 3 Debt Consolidation talks about DIY debt reduction plans.
• Smart Money lists 5 sneaky bank fees to watch out for.
• Aridni talks about the value of your time. This is a great thing to keep in mind. You should use it in lots of areas but particularly when you're spending time doing research for investing. Whenever I have a 'stock picking guru' bragging about his returns I ask him what his return was minus taxes, fees and the value of his time spent on research/execution. That always stops them dead because most people don't think to include the time they spend researching as an expense for investing.
• Money and Happiness Blog talks about some of the best kept finanical planning secrets.
  

Personal Finance 101 posts of the day 4/12/07

• Young and Broke talks about how people aren't saving these days.
• Broke Now Rich Later tells us how he's campaigning for a Roth 401k at his job.
• Consumerism Commentary asks if personal finance should be required in high schools. He says no but I strongly disagree.
• The 6 Month Project talks about ways to trim your budget.
• Mighty Bargain Hunter talks about pre-packing your lunch to take to work.
• The Thinking Men talk about how you can get a free credit report.
• Yahoo Finance has an article about how deluded people are about their retirement prospects.
• Free Money Finance asked his readers for suggestions on how to save on a small income (read the comments).
• Fool for Travel gives some great tips on how to save money while traveling.
• MSN Money talks about payday loans and their huge interest rates.

Personal Finance 101 Posts of the Day 4/11/07

• Ask Mr. Credit Card discusses debt repayment plans.
• 3 Debt Consolidation talks about debt reduction mistakes.
• My Personal Finance Odyssey talks about the US savings rate.
• 5 Cent Nickel talks about how to prioritize your retirement contributions.
• The Bargain Queen gives us a lesson in bargain shopping 101.
• Make Your Nut talks about credit scoring and the 7 year myth.
• Canadian Dream lists 10 signs your retirement plan isn’t going to work.
• Everybody Loves Your Money talks about finding the balance between living for today and saving for tomorrow.
• Free Money Finance talks about how Social Security is a rip-off.
• Queercents talks about 101 ways to save a buck or two.

Personal Finance 101 Posts of the Day 4/9/07

• Get Rich Slowly talks about choosing to fund a retirement account vs. paying off debt.
• Debt Free talks about the statute of limitations on old debts.
• Blueprint for Financial Prosperity asks if married couples should combine finances.
• Living Almost Large talks about the risks of being a stay at home parent.

Personal Finance 101 Posts of the Day 4/4/07

• PF Blog asks if $1M is still enough
• Money Smart Life asks if you should use your emergency fund to pay off debt.
• 12 Years wonders what ever happened to frugality.
• Grad Money Matters tells us to stop blaming our credit cards!
• Personal Finance Advice talks about debt reduction mistakes.
• Money, Matter and More talks about how to save money and time by making left turns.

Personal Finance 101 posts of the day 4/2/07

• Blueprint for Financial Prosperity talks about Saving Beyond 401k and Roth IRA.
• Resident Alien lists 25 rules to grow rich by.
• Free Money Finance talks about how it’s the little splurges that can get you.
• Grad Money shows us how to get into the swing of cooking at home.
• Consumerist talks about how to stop living paycheck to paycheck.
• Make Love, Not Debt talks about how they developed their budget without killing eachother.

Personal Finance 101 Posts of the Day 4/1/07

• Picture of Wealth talks about relationships and money.
• The Simple Dollar talks about retirement benchmarks.

Personal Finance 101 Posts of the Day 3/28/07

• 7CM reminds us to Take a Money Day to Organize Your Finances
• Financial Baby Steps asks Should Personal Finance Be A General Education Class?. My answer is a resounding YES!!! The reason I started my business was because I kept hearing from way too many people who started their adult lives without even basic financial education and got themselves into trouble. It's horrible! My goal is to eventually start a non-profit geared towards requiring financial education in both high school and college. I think that the basics about credit and debt should be taught in high school before they start getting credit cards and digging a hole. In college they should expand on their basic education by teaching students about investing, retirement planning, goal setting and how to manage debt. Hopefully our government will wake up and take care of this.
• Wealth Building Lessons gives is Ben Stein’s Basic Rules of Retirement.
• Financial Hack talks about the benefits of low-cost living.
• Endless Gibberish talks about why they like credit cards.
• Ask Mr. Credit Card talks about drastic things you can do for debt reduction.
• My Wealth Builder illustrates how carrying debt can keep you from being wealthy.

Reader question: How do I open an IRA?

Hi Mandy,

How are you? A quick question..I plan to contribute 4000 to IRA this year (I believe this is the max)...Can I contribute anything additional to Roth IRA?

Would you suggest that I put in Roth IRA or traditional IRA?

Also what is the yield I get out of this account?

I am planning to open it with Citibank, since it is close by

Thanks,

ANSWER

Hi,

You can only contribute $4k total to both accounts. Since I believe you have a 401k at your job, odds are very good that you cannot deduct your traditional IRA contribution so I'd strongly suggest you do the Roth instead. And even if you can deduct it, typically a Roth is a much better investment in the long run. See my article: What's so great about a Roth IRA?

Also, you should never invest through a bank. They are the worst places for investments since they typically offer loaded funds that have high annual expenses and underperform. Instead you should open your account with Vanguard or Fidelity.

As for what kind of yield you can expect, that is completely dependent upon what you invest in. IRAs are only accounts within which you buy an investment. You can choose almost any investment. Considering your age, you should be as aggressive as you are comfortable with. Since your balance in this account will only be $4k to start (assuming you don't have an existing IRA that you could add to) you probably don't want to invest in more than one fund (to minimize fees). If you're ok being very aggressive, or it's balanced out with your other investments, you could choose a total stock market index fund as it will give you great diversification and be 100% stock. If you prefer to be a bit more conservative and/or you just don't want to think about it again besides to put more money in, you should consider a Target Retirement Fund.

Target Retirement Funds are funds that hold a basket of funds that ensure that you are completely diversified and have an appropriate asset allocation based on your expected retirement date. They are a one-stop investment and you can put your money in and never think about it again because it automatically gets more conservative as you get older.

Final thing, assuming you didn't make a contribution in 2006 (otherwise you'd just add to it right?) when you open this account you should identify this money as 2006 money. You have until tax day to do this. Then you still have all of 2007 to contribute another $4k.

Let me know if you have any questions and unless I hear differently from you I'm going to post this (with your name removed) onto the meetin forums since it's a great question that lots of people probably have.

Have a great day!
Mandy

FOLLOWUP QUESTION

thanks Mandy,

I was planning on Citibank since some of my friends have opened accounts there...they don't charge any fees too.

Does Vanguard charge any fees?

However the trick is to find the mutual funds that I should be investing in.

I do not mind being aggressive...but i need to know how and what to look for in mutual funds...Any pointers on links, details that i should look for?

and no, I do not have a 401K account, since my company does not contribute...

thanks,

FOLLOWUP ANSWER

Ok. Well, since your company offers a 401k and you just choose not to participate you still may not be able to take the deduction. Check your tax form and see if there's a mark on it that indicates you're covered by a retirement plan. If that box is checked then you can't take the deduction.

Even if you can take the deduction you should still probably consider the Roth. The advantages are much better with a Roth than a Traditional IRA.

Regarding Citibank, they may not charge fees up front, but odds are great that the products they offer are loaded funds (means you have to pay a sales charge to buy them) and have high annual expenses (anything over .5% is too high unless it's a very specialized fund).

Vanguard charges $10/year/fund for investments under $10k which is why you only want to do one fund at a time. $10 may sound like a lot compared to Citibank's $0, but when you take into account that a load is typically 5%, that means on a $4k investment you're paying $200 just to buy the fund. That doesn't even include the difference that a .25% expense ratio will make over one that's 1%.

The main things you should look for in a fund are: Load (never pay a sales load. They're a waste of money), ER (stands for annual expense ratio) and should definitely be below 1% and ideally below .5%. You also want to look at what the fund is invested in. Funds can invest in almost anything so you want to make sure that whatever it is invested in meets your needs.

As a younger person you want your investment to be much more heavily weighed towards stocks than bonds. You also want to make sure that you have a little bit of everything (small, mid, large-cap and international) which will keep you diversified and boost returns and lower risk.

Since you're just learning how to pick funds, I would definitely recommend the Target Retirement fund. I would choose the 2050 fund which is the most agressive. I would do this just to get the account set up and then you can spend some time learning more about how to choose funds. After learning more you may decide to just stick to the target fund (they are great investments) or take a more active hand in your investment choices.

On my book recommendation page I list 2 books which I think are must reads for everyone. The first is The Automatic Millionaire and the second is Investing for Dummies. I'd recommend reading both since they'll give you a great educational foundation to get you started.

Mandy