Money Obedience

A lot of people lost a lot of money in the recent decline of the stock markets. My wife and I were fortunate - we did not lose a lot of money. To be sure, we lost money, but it was not too bad in the scheme of things. And, to boot, we made some money back over the last few months, just like most savers who invest with their savings.

We invested our retirement savings in a pretty conservative way. We did this for two reasons. For one, a retirement calculator indicated that a conservative way of investing was a good (enough) strategy for us since we saved a good amount of money for retirement each year. We felt that we didn’t need to take the risks that go with the quest for high returns. Another reason is this: in my past line of work, my monthly income somewhat depended on the stock markets’ performance – so I was taking on a lot of risk as it is, just by working in a market-related job. If I had invested heavily in the stock market with my earnings I would double my risk exposure, and that did not seem sensible to me.

We’re in a somewhat different scenario, now that my income is not as dependent on the well-being of financial markets anymore. Some might say that I should probably invest a little more aggressively. Why am I not doing this?

First of all, I recently re-checked our retirement planning with a retirement calculator and found out that things are really not that bad for us, savings-wise. A minor adjustment – delaying my retirement by two years – would keep us on track even with a conservative way of investing. I don’t mind this adjustment since I like working and I am not even sure whether I ever want to retire fully.

Second, my source of income may change in the short term. It may become dependent on the stock market again if I find a job similar to what I had, or at least in a related line of work. If that is indeed the case, I would have to switch back to my previous asset allocation anyway. But it’s a good idea to keep one’s asset allocation rather stable, so I don’t see much need to make changes now.

Nevertheless, I will revisit this issue in a few months again - as everyone should. Then, (I hope) I will have a clearer picture about my professional future and income. With new information, I should be able to make a better determination about my asset allocation.

This is our weekly roundup, where we share some interesting posts written by personal finance bloggers we follow. As always, when we list a post in this roundup we stick with our favorite themes: setting up a budget, household expenses, lower debt, and general personal finance topics that can aid in reaching financial goals. We hope that you enjoy the insights of these blog posts!

Setting up a Budget and Household Expenses

FI$CAL FIZZLE - Saving Money When You’re Always in a Hurry

Moolanomy - College Students Should Take Responsibility For Their Financial Situation

Master Your Card - Financial Maxims: In Your 20s

Fine-Tuned Finances - Are You Handling Your Money Like a Rich Person Would?

Generation X Finance - 8 Small Changes You Can Make to Save an Extra $100 This Month

Lower Debt

Prime Time Money - What Debts Should You Pay Off First When You Get Extra Money?

Gather Little by Little - No credit cards - Here’s why

Investing

The Oblivious Investor - Financial Planners, Volatility, and Asset Allocation

Free Money Finance - Getting Started With Investing

Retirement

Financial Fellow - How I Allocate My Retirement Money

Miscellaneous

OneMint - Citi and BoFA Fail Stress Tests: Time for Bonuses?

the simple dollar - Thoughts on Work, Personal Life, and Frugality
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A few weeks ago I wrote a post in which I compared my passion for running marathons with reaching financial goals. I focused on retirement planning, since this is usually the most important long-term goal that matters to most of us. Today I want to emphasize one aspect of this comparison that is crucial to the success for planning one’s retirement and running a marathon: getting started.

A runner once said that the most difficult part of every run was getting through the front door. Once you are out of the house decked out in your running gear, you will start running. Once you start running, you will set into your running routine as easily as you did the day before.

Planning for retirement is really not that different. Getting through the front door, i.e. getting started, is the most important step. And just like with running you need to prepare a little bit before you actually get started. But instead of putting on shorts, a shirt (optional for some), and sneakers, instead you need to map out a retirement plan. You have to figure out a few things that are important for making your retirement plan, like the age at which you want to retire, what kind of lifestyle you would like in retirement, and for what time period you want to plan your retirement. You may have to tweak these decisions a little bit to make the plan realistic and workable, but the bottom line is that you have to figure these things out before you actually start saving for retirement. Only when you know the answer to these questions can you know how much you have to put away each month to reach your goal. That is when you have to get out through the front door and start saving for your retirement.

Yet, many of us delay opening an IRA, participating in a 401k plan, or setting up other retirement accounts. We know that we have to save some money if we ever want to retire, we know that we have to get started at some point, we know that we are not getting any younger, and we know that retirement age is getting closer and closer every year. Still, we sometimes procrastinate. We do not save for retirement. We have a ton of excuses lined up, but the end result is the same - the retirement account remains empty.

So, what can you do to snap out of this procrastination?

(1) You can read a self-help book or another book that deals with the issue of procrastination. The recently published “Nudge” by Robert Thaler may be enough of a nudge - pun intended - to get you going on your retirement savings.

(2) You can sign up at stickk.com and make a contract with yourself that you will start saving for retirement at a particular time in the future. The way stickk.com works, if you don’t hold up your end of the deal - that is, if you don’t start saving - you have to pay money to some charity that you designate at the beginning of the deal. So, you may as well start saving for retirement once you make that deal with yourself, or you start seeing fairly quickly that you're losing money.

(3) Stop thinking so much about it and follow the Nike slogan, “Just Do It!”

Whatever tactic you use to start saving for retirement, you will be pleasantly surprised that, first, you do have the money to add to your retirement account every month, and, second, you are likely stay on the saving track until your retirement age! When you do that, you will be able to enjoy reaping the seeds you sowed once you "got through the front door" those many years ago.

The House Introduces 401(k) Fee Disclosure Bill - finally. Now let’s hope that the folks in Congress will actually pass the bill. The only reason why a bill like this had not been passed sooner is quite simple. Companies who are involved in the 401(k) business want to make money, and lots of it. And they want to make this money very quietly. My guess is that, until now, these companies had enough influence on Congress and/or the President to prevent any such bill from being introduced and/or from being signed into law.

Why is this bill so important? Well, they charge us all kinds of fees just to hold our money – even as they’re imploring us to save for our own retirements. Now that we have lost lots and lots of money with the declining stock market, people finally realize that we have been paying through our noses for the privilege to save for our own retirement. So, we should know how much saving is actually costing us, but many of us don’t. Let me show you an example how these fees alone make it especially difficult to put money away for retirement.

Let’s say you save $500 every month for 30 years and your average return in that time period is 7.5%. In 30 years you will have a nest egg of about $641,000. Pretty nice, isn’t it? But now let’s assume that you are saving these $500 in your 401k account. Let’s say that the various companies involved in the management of your money charge you a 2% fee. That does not sound like that much, does it? But, guess what! Over 30 years it adds up to a nice chunk of money. After you pay the 2% fees ever year for 30 years, your $500 monthly contributions add up to only $445,000 – you’ve “lost” nearly $200,000! Said another way, it comes to nearly 1/3 less the amount that you would otherwise have had! That money doesn’t just disappear - these $200,000 of lost return on your savings go right into the pockets of the companies who are “helping” you with your 401k savings.

This new bill would not eliminate these fees, but it helps to ensure that you know exactly how much of your 401k is taken out by each company involved in your savings. You can use that information to figure out how much these fees will cost you over the years you save. When you know the fees, you can also make an educated decision about how you could best invest your money. Right now it is very difficult for anyone of us to make such an educated decision because we don’t have full information about how much these companies are grabbing. Now do you still wonder why such a bill has not been introduced earlier?

If you’re thinking that this is the kind of information you’d find useful, I suggest you write to your Congressman/Congresswoman and to your Senator to make sure that this bill gets passed.