Money for Nothing Monday: Opening Retirement Accounts

Once you’ve completed the steps in the first Money Monday segment, (the principles for most of which, once again, were instilled in me by Ramit Sethi of I Can Teach You to Be Rich) you should begin to think about your retirement accounts. Hopefully you’re already taking advantage of any pre-tax savings plan your company offers, most commonly a 401(k). Contribute the minimum to your 401(k) that will enable the company match (if any, in this economy), and then gauge your ability to live without a little bit extra, up to the max (usually $15K/year or thereabouts). At a young age it’s unlikely you’ll contribute any more than 5% or so, but the more you do, the lower your taxable income right now. The older you are, the more you should (and can legally) contribute.


Your company's plan will have a financial adviser who can help you understand the mutual funds offered in their particular plan, but you will need to choose your own. Think about how many years your money will spend in the market before you want to draw it out (i.e. retire). If you have many working years ahead of you, be more aggressive in your allocation; if you’re retiring soon, choose conservative—thankfully the work is done for you when they categorize the various funds.

If you are not employed by a company offering a 401(k), pension or profit-sharing scheme of some sort, you will need to look into a personal retirement fund like a Roth IRA (Individual Retirement Account). You can pay to have these managed by a professional broker, of course, but another option is to use an online trading site like E*Trade or TDAmeritrade, where you can buy into funds and individual stocks for a low per-trade fee and barely any maintenance (monetary or time-wise). Ramit suggests you buy a target-date fund, which basically manages your money for you based on when you plan to need the money (again, the formula has to do with how much risk you can withstand in the short-term; historically, the stock market does always return). Once you have selected your retirement account provider, research the various options they allow you to buy into. Most have a minimum contribution, so you should have $500 to $1000 transferred to the account in order to buy (plus any applicable fees). If you don’t have that much to put away, you can wait until you do, or you can get yourself excited about retirement funds (woo-hoo!) and buy a small amount of some stock that you really love or believe in (yeah, I mentioned I have a little Harley and Vicky’s stock?) and then wait until you have enough for a (boring old) target date fund.

If you contribute annually to your Roth IRA, your tax burden will be lower (you can contribute a few months into the new year for the previous year, too) and you will, of course, be growing your savings for the long run. Try not to trade too much unless it’s just fun money for you—trades cost money and the way to make money is to stick with a good stock or fun for the long haul. The best thing about the target date fund (or perhaps just not caring if your favored stock does well for the moment) is the “set it and forget it” (probably Ramit’s via the infomercial guy, I don’t recall) mentality. Once you are contributing regularly to a fund like this, your money will grow without you even paying attention. Try not to freak out at minor ups and downs. Mantra: Long Haul.

If you have at least one of these retirement accounts, you’re on your way to being able to maybe retire! Nice. If you do not, maybe get rid of some of the stuff you’ve accumulated and stop buying stuff for a while so you can get on that. It’s never too early, and it’s really never too late unless you want to be rich and not just get by (in which case it’s now or never).

Happy Saving!

Money Monday: Money for Nothing

Even if you’re living paycheck to paycheck, it is unspeakably essential that you start setting aside anything you can, for retirement and in case of a layoff or medical emergency, even if those possibilities seem less remote than imminent starvation. (Difficult to care about social security shortfalls when you want to gnaw your own arm off for sustenance, I know.) The simple math facts are that the earlier in life you begin to save, the less you actually have to put away in the long run in order to have a decent retirement (or at least hopefully not die naked in a ditch). So even if it’s only $20, which you make returning cans or forgoing one latte per week, start a savings account and contribute to it regularly. Do it NOW.


I’ve had an account with ING for a year now, and I couldn’t be happier. They pay a slightly higher interest rate than most banks because they are online only and don’t have to support expensive edifices. They also usually hand you $25 or $50 for joining or adding a checking account… email me for a referral and we’ll probably both get some dollars ;) There are other options- check out this article for comparisons. You could start a regular savings account at your brick-and-mortar bank too, but my favorite thing about ING, pointed out recently by my financial guru, Ramit Sethi (of I Will Teach You to Be Rich), is the “Bucket” system.

For someone very visual and very Virgo like me, being able to move money in and out of labeled accounts within my savings account (they call it opening a “new one but it’s just a sub-account) is the best method of saving for specific goals ever invented. It's like having jars labeled "Summer Vacation,"House Down Payment," "In Case My Job Goes Up in Flames," "Car With Four Wheels," except you can't steal quarters for laundry or bus fare out of them.

My new “buckets” are the main “Dez-Savings” that I transfer money into, and then:

VACATION

HOME IMPROVEMENT

EMERGENCY

WEDDING

My dream dress by The Secret Boutique on Etsy, $650 (custom)

Right now I have a month and a half’s pay in Emergency, slightly more in both Wedding and Home Improvement, and about week’s pay in Vacation. If I hadn’t diverted $1000 to my Roth IRA to buy a target-date mutual fund (more on this when I discuss Ramit’s book in detail), I’d be a lot closer to re-doing the kitchen, setting an actual wedding date and location, and planning a honeymoon. Oh well. It seemed like the thing to do at the time, but it took a great deal of straining against impulses for instant gratification.

If you’re one of those lucky people who has achieved most of the improvements and toys and sojourns that your heart desires and you have money languishing in a savings account, even a high-ish interest one, you should probably move some of it out into a Roth, CD, or other investment. (By the way, I am a firm believer in having some fun money in the market: I bought a tinch of Harley and a wee bit of Victoria’s Secret stock when I was in my early twenties, and I hang on to them, in addition to my more sensible holdings. They say buy what you love, don’t they?)

The next thing to do, once you have set up your savings accounts, is to find ways to cut expenses and up your income so that you can increase your rate of savings. You simply must track your expenses. Some people really like to do so electronically, through a service like Mint or their own bank’s online statements. The only problem with this solution is a little-known ethical one: most small business owners are charged several dollars per debit or credit transaction by the issuing bank or the card machine leasing agent. They have to take cards because “no one carries cash anymore” but they lose money on every transaction. This eliminates their already-miniscule profit margins and helps to drive them out of business, destroying neighborhoods and contributing to the Walmartification of America.

If you can get off of the debit card habit, give yourself a cash allowance and keep strict track of how much you have on you and how much you’re spending on incidentals. If you run out, examine where it all went. And try to do a little bit better next time (or re-evaluate whether your allotment is realistic). Think of your spending like you’re on a business trip and will have to account for every penny or it’s lost to you forever. Learn to ask for a receipt every time and to collect them in a centralized place (if you find a gorgeous flat wallet or pouch or a small notebook with a pocket , you’ll adore looking at it so much you’ll remember to put the receipts in it. Hopefully).

Pink Giraffe wallet clutch by DesignSK on Amazon, $13.99

Growing your savings is akin to tending a garden: plenty of work-- but in the end, enjoyable. Do avoid fixating on the long-term—retirement— so much that you forget about surrounding yourself with beauty, rest and relaxation, and the occasional rich meal prepared by someone else or good bottle of imported wine that makes life worthwhile.

Happy saving!