Archive for the ‘Rants’ Category

So freaking lucky…
March 3, 2011

I know why I haven’t been posting as much lately: it feels a little too much like bragging.

I feel stupid when I whine that we might not meet our savings goal this year.  Like, by less than $5K.  When our goal is $25K.  And other bloggers are struggling to get up to $1,000 in their emergency funds.  It makes me feel like an asshole.

I am a success story, but my “path to riches” includes a very important step:

Sarah’s Path To Wealth
1. Be born healthy & white in the richest country in the world.
2. (…)

No, I haven’t had all of the advantages of, say, Paris Hilton, but a large amount of my success is dependent on a number of factors that have nothing to do with my efforts.  Without parents who cared enough to force me to get good grades while they clawed out of poverty, without genetic blessings that made me smart and at least semi-attractive, without the fortune of being born in a country where everyone is guaranteed at least a basic amount of education, where would I be?

So we donate to charity, but we’re still riding the waves of luck.  How do I blog about that?

May 13, 2010

So, my computer was doing this weird thing where it wouldn’t charge. It would be plugged in, but the battery would drain.

It was almost $300 to send it in for repair. They said it was a logic board (Apple’s term for the motherboard) issue, and sent it back with either repaired or replaced innards.  Now the video card isn’t working! I get a good 3 minutes of usage, and then columns of horizontal bars appear on the screen and the computer locks up.

I am just a little confused about how Apple could return my computer in a less functional state than when I sent it to them. For $300. And I knew the internet would appreciate my Rich White Girl Problems.

Just so this is somewhat finance related: I declined to get the AppleCare extended warranty because it was $250 and since everyone says that Apple’s are really reliable and don’t break ever. This of course means that I am a moron and should have done it, since my computer would still have another year and a half of coverage and I am pretty sure something else on this POS will go wrong, jsut after the warranty for the repairs expires. Thus, extended warranties = not always a ripoff.


Make meaningful choices!
April 1, 2009

Living Almost Large wrote a blog post questioning whether a Prius is a good deal or just a status symbol.  She compared mileage for several different cars to the Prius, and found that driving 12K miles per year, it would still take at least 6.5 years to make up the difference.

Some people questioned her methods (was she comparing to the right class of cars, how could she think that people only drive 12000 miles per year, etc.) and a few threw out the classic, “Maybe people are doing it for the environment and not to save money!” line.

I’m sure that some people buy a hybrid car because they hear it uses less gas and because they think that would help the environment.  This is because most people don’t ever bother to research anything and simply swallow whatever information is given to the public by the manufacturers.  After that, it becomes very hard to shake people’s faith in said information.  Especially if they’ve already bought the product and bragged about it to their friends.

I discovered a similar effect when I wrote my posts on organic food.  Even in the face of scientific proof (or no proof of difference), people aren’t willing to give it up.  There is a “gut feeling” that foods made without chemicals must be better for our bodies and for the planet.  Anything that says otherwise is a conspiracy from the big farm lobby.

Truthfully, I say buy whatever car you like, buy food from wherever you like.  Just be informed about it.  And don’t think that throwing your money at a problem is fixing it.

First of all, good luck buying a used Prius.  I.e. you’ll be buying the car new, which goes against the best environmental advice: reduce, reuse, recycle.  Worse is the report that says a Prius does more environmental damage than a Hummer.  (I’m not here to debate the merits of the report.  I have read the article and a bunch of other articles support or decrying its content.  I don’t doubt that there are plenty of things wrong with the original study, but the combination of the nickel in the battery (which no article attempting to refute the original study ever brings up) and other factors mean that I have doubts about its environmental benefit.)

If you commute 25,000 miles per year, you could buy a hybrid car to lessen your environmental impact.  Or you could live closer to work.  You could downsize your house in the process.  Sure, you’ll be crammed into a condo with only a little space, but that condo will take less energy for heat and electricity.  You could even live close enough to walk to work.  Now that’s what I call lessening your impact!

Most people will find a million excuses not to do this.  They need more room, living close to work is too expensive, the schools are better where they are.  Ergo, they throw money at the problem, buy a Prius, and brag about it to their friends who drive perfectly reasonable sedans.  They don’t have to give anything up, they don’t have to change the way they live.  All of the smug bragging rights, none of the effort.

Similarly, my problem with organic food has never been that I think it’s bad.  Mainly, I just don’t see how it’s much better than conventional.  Truthfully, if the organic lettuce at Trader Joe’s is green and the regular is sort of yellowish, I buy the organic.  And vice versa.  But even if organic tomatoes have 5% more flavanoids than regular (which was suggested by a recent study), what is that going to accomplish?  Your problem isn’t that you’re eating conventionally-grown produce and geting 5% less flavanoids, it’s that you’re not eating the right kinds of foods.  If you drink 5 Cokes per day, it doesn’t matter if it’s made with HFCS or organic cane sugar.  Being healthy takes effort, and no amount of fish oil or supplements are going to do better than eating properly. (Full disclosure: I can often be heard complaining about how fat I feel as I eat a slice of cake.  I am the very thing I’m complaining about.  Doesn’t make it untrue.)

It’s easy to throw money at a problem.  It’s harder to make meaningful choices that will have a much greater impact.

Do you agree?  Or do you think that people won’t make the big effort so we should just be glad they make the smaller ones?  Of it’s the latter, should they still be allowed to brag about it?

It’s OK to spend money!
March 19, 2009

The Simple Dollar was one of the first PF blogs I ever read. The articles were insightful, the advice was wonderful, and he seemed to take a middle ground on the whole frugality thing.  But lately he seems to have forgotten that there are people out there who aren’t male & living with children in rural Iowa.  That someone out there might be more interested in fashion than the kids they don’t have, or might not think that organic food is the end all and be all of existence.

Yesterday, he posted a response to a comment by Sydney, who said that the “Latte Factor” was not necessarily as important as getting the big stuff (e.g. rent/mortgage) under control. The comment continued, “Yet if you arrange your life so that major expenses are not consuming all of your income and then some, you can actually eat lunch out once awhile, buy that cup of coffee, or see a movie. Quality of life goes up dramatically. At that point, if you want to save on little things also, it becomes a choice, rather than a constant necessity just to survive.”

Instead of seeing this as sound advice (keep major expenses small and you will have enough wiggle room to allow yourself a cup of coffee or a lunch out), Trent misinterpreted the comment and claimed it said that “the ability to participate in a consumer economy is directly tied to the quality of life.”

He very condescendingly told Sydney that he used to think money was the way to happiness too, but (and I’m paraphrasing) he grew up and realized what’s really important.

Way back when I first started my blog, I wrote a post on why I hated most other blogs, and TSD was firmly in my mind as I typed.

Trent’s examples all involved things with his family, which is nice for him but not really applicable to someone who doesn’t have family or someone whose family lives far away. Furthermore, enjoying a lunch out or a cup of coffee isn’t buying into consumerism! On the weekend, I’ll walk to a small coffee shop by my apartment for a latte, which is a nice change of pace from my usual coffee, and sit there drinking it. The weather has been awesome lately, so I sit in the sun and watch the people walk by. On the way home, I might take a longer route that passes by the ocean and I just marvel, “Wow. I live here.”

Nothing but the promise of caffeine and tasty vanilla lattes could get me out of bed in the morning otherwise.

The building I work in has no windows, save for the ones in the lobby. This means that I work in a florescent-lit box for 9 hours every day. Often times I’ll work straight through lunch, but every time I take the hour to go out to eat, I walk back into work refreshed and ready for another 4 hours. Getting out of here helps me regain my sanity. Sure, I could leave the building for an hour and probably get the same boost, but nothing can lure me away from my desk like the promise of an artichoke and spinach panini.

I don’t necessarily agree with the original comment that sparked Trent’s missive since she threw out furniture and vacations as big expenses you should splurge on. I think this may have been just some bad examples.

I have a hand-me-down couch from my parents, and the upholstery has ripped on both sides of the cushions. It’s an eyesore, and not really something you can hide. I feel better just by covering those ratty slipcovers with some red sheets, and that way the stuffing doesn’t scratch or poke me. I love the rattiness of the wood (each ding and scratch is a reminder of my childhood), but the cushions are bothersome. Chad and I are saving up to reupholster it – is that wasting money?

And my honeymoon is going to cost a bundle, but it’s worth it to finally get to see all the places in Europe I’ve dreamed of seeing.

I’m not saying that you should derive happiness solely from spending money, and sure, I could walk by the beach or leave work without doing so. I’m just sick of the big-name blogs who seem to have a hostile reaction to spending money on anything that isn’t absolutely essential and basic. You can save money by cutting back on the big stuff and you can save money over cutting out smaller luxuries. When did spending money become a moral failing, indicating that you’re too simple-minded to enjoy the free things in life?

Frugal Bachelor (comment #77) had the best reply; I actually said, “Oh snap!” when I read it. The comments in general are a shitstorm, which is why I still read TSD. (OK, I also read for the same reason I watch The Hills – because it gives me something to be angry about. You don’t know what they’re going to do/say next, but you’re sure it’s going to be ridiculous.)

Am I A Savings Snob?
March 17, 2009

I’ve written before about my friend Shelly, who makes probably about twice what I do and spends probably about 3 times as much.

She was complaining recently about how much money her financial planner is making her save for a down payment on a house. Apparently he has already told her that she’ll be adding her pay raise (and then some) to her monthly savings, for a total of $1500 per month. She’s secretly cutting back her 401K contributions to compensate. Oh, and she hasn’t told him about her 401K loan because she’s worried he’ll make her pay it back more quickly.

She was clearly looking for someone to agree that saving $1500 per month is ridiculous and that $1000 was already a lot to be saving, but all I could think about was the bottom line on my budget: $1800. She seemed confused by the fact that I wasn’t impressed with what she had managed to save – $10,000 last year, she crowed.

I am happy that she’s saving, and I know that going from not saving to saving $1000 per month is a huge leap.  But it’s hard to be impressed when she takes home $1500 more per month than I do and complains about how hard it is to save money.

(On a completely unrelated note, she also told me that it’s useless to try to put down more than 3% on a house because you pay PMI no matter what (and I guess it’s not even possible to come up with the full 20%?).  I stopped talking to her then because I wanted to pull out my hair at all the things wrong with her logic.)

But maybe I’m a savings snob.  I have Chad, so I don’t have to go out to get social interaction when I crave it.  We share an apartment (although we do share a really small one, which she might not be willing to do), so that helps us save.  We don’t do anything that requires a big outlay of cash, most of the time we like hiking or just hanging out on the beach.  Perhaps I’m a snob because my personality is one that welcomes alone time and enjoys simpler activities.

And the weirdest thing is, if she was a PF blogger, I would be impressed with (and jealous of) her savings & earnings and I would cheer her on.  I’d encourage her to indulge when she felt deprived, although I might go off a bit in the comments about her 3% down payment spiel.

What do you guys think?  Am I a snob?

In Defense of Television
March 10, 2009

Cable TV is much maligned just about everywhere these days. This American Life had a show where David Rakoff tried to watch the average amount American’s watch (29 hours). He was appalled. The Simple Dollar and Get Rich Slowly have both had posts on how to eliminate TV from your life.  Most of the bloggers I read regularly either don’t own TVs or have gotten rid of cable.

I have a confession: I am a total TV junkie.

I would estimate Chad and I have 15 shows we watch regularly (well, we DVR them but that’s the same thing), not including sports or movies.  The TV is on probably about 2-3 hours on the weeknights and even more than that on the weekends.  Chad likes to fall asleep with the TV on (even though it keeps me awake).

Why am I admitting my shameful secret?  Because I think TV gets an undeserved bad rap.

Cost Analysis

We pay about $65 per month for DirecTV. Over the course of the year, that’s $780. (We haven’t been paying that much the whole time – we were paying about $45/month for the first year we had the service.)  We have about 6 months left on our contract.  I made a list of the shows we watch regularly; there are 15 of them, most of them one hour long.

If we did what Ramit often suggests and bought only the shows we watch, at $1.99 on iTunes, here’s how much we would pay (assuming 24 episodes per season):
15 shows x 24 episodes x $1.99 = $716.40

Of course, spending $2 per episode might cause us to drop certain shows, but even with that, I don’t know what we’d drop. Heroes, probably. It’s so bad this season.

We could also buy seasons on DVD, but at $40/season it still comes in at $600. Of course, we don’t get the daily entertainment that you get from a weekly episode. You could try waiting and watching one episode per day, but just try to not stay up for 24 hours straight watching Lost. You can’t do it.

We could join Netflix, and that is something we’re considering for the future. I have heard that the internet content isn’t as good, though, and even 3 DVDs at a time doesn’t sound like it would provide a lot of entertainment time.

Per hour, just for shows we watch regularly, TV costs breakdown as follows:
at 40 minutes per show, (1 hour shows, less commercials) we pay roughly $3.25 to watch TV.

Neither of these calculations includes sports, and Chad watches more sports than any other person I know. Regular season college football games are about 3 hours long and there are 12 – 14 games per team per season. We follow Penn State and USC religiously. NFL teams play 16 regular season games; I am an Eagles fan and Chad roots for the Jets. Even though we only get about 25% of the games (no market for Philadelphia teams in Los Angeles), that’s still 8 3-hour games.  Chad is also really into baseball (they have 162 games!) and March Madness.  The boy likes his sports, and while I don’t always understand his compulsion to watch every game he can, there really is no good replacement.  Going out to a sports bar can run you from $10 – $50 for beer and food, at least here in LA.

The calculations also don’t include movies.  During free preview weekends for HBO, Showtime, etc., we page through the TV guide for movies we want to see and then use the DVR to record them for later viewing.  No need to rent movies, and we usually end up with enough to last several months.

The average American watches 39 hours of TV per week.  At that rate, TV only costs $0.38 per hour.  Even at half that rate, you’re still paying less than a dollar per hour.  Even going to the gym costs us more than that!  Chad and I went hiking in Malibu a few weeks ago; we hiked for about 5.5 hours, drove about 45 minutes each way and paid $10 to park + $10 for a half tank of gas.  Even that cost more than clicking on the TV for a few hours!

The Value of Multitasking

You’re not supposed to multitask, I know.  But the truth is, I spend a lot of the time I’m watching TV doing something else.  I’ll straighten up the room, or dust, or fold laundry while watching TV.  Sometimes I’ll send my brain into melting overdrive by watching TV and surfing the internet at the same time.  I do homework with the TV playing in the background.  And as weird as it is, I like to read while the TV is on.

TV is the one activity where your mind doesn’t have to be completely focused, where your hands can be doing something and your head can be doing another.

It’s interesting to note that no anti-TV PF blogger ever recommends giving up internet, and sometimes they even recommend watching TV on your computer.  There’s just as much crap on the internet as there is on TV, sorry to say.

Common Arguments Against TV

It’s too expensive! I agree, actually.  But compared to other things you could be doing, it’s not that bad at less than $1 per hour.  So get out your baskets of unfolded laundry and let your mind go numb as your hands clean the living room.

You could be exercising! There are so many times when I could be exercising instead of doing what I’m doing.  When I sleep late, I could wake up and go running instead.  When I’m reading, I could be doing yoga.  When I’m lingering over dinner and wine with friends, I could be at the gym.  If you think about it, watching TV and exercising aren’t mutually exclusive.  Do some crunches during the commercials, or ride a stationary bike during the actual show!  Let’s not blame TV for the poor choices people make.

You could learn something new! I watch the Food Network and learn how to make a new meal.  I watch The History Channel and learn about how the Nazis built giant bomb shelters underneath Berlin.  Used to be you could watch Bob Ross and learn to paint.  Or you could make fun of his hair.

You should be social. Have you ever watched a football game with a room full of people and a giant plate of nachos?  It is possibly one of my favorite things to do.  And clearly you have never brought up The Hills in a roomful of educated people who secretly, guiltily watch the show and hate every minute of it, yet keep watching.

You should be reading! I actually am a voracious reader when I’m not studying orbital dynamics all day.  I can probably read Anna Karenina in the time it takes you to read The Giver.  Let’s face it, though, people aren’t going to be reading Proust after a day at work.  People don’t read “good” books for entertainment!  No one likes reading The Scarlet Letter! I call reading my “intellectual television.”  There’s nothing wrong with that, but let’s not pretend that reading Confessions of A Shopaholic is any better than watching it on TV.  Let’s not pretend reading Twilight is better than watching Slumdog Millionaire.

You’re not doing things you should be doing when you’re watching TV: playing with your kids, taking care of bills, talking to your wife,  etc. It is a truth universally acknowledged that the things we don’t want to do won’t get done.  If you’re not spending time with your kids because of TV, you probably would find something else to take up that time.  If you’re not taking care of household chores, you’d find some other way around it.  If you don’t like your wife enough to talk to her during a TV show, you wouldn’t talk to her the rest of the time, you’d just feel more awkward about it.  Leonardo da Vinci was pretty famous for being a procrastinator; his journals are full of brilliant ideas that were never realized, he accepted payment for paintings that were never finished.  How long did the guy work on the Mona Lisa, and he was still playing with it when he died!  (P.S. There were no TVs back then).

I’m not suggesting that zoning out in front of the TV is the most productive way to spend your time, but I don’t think it gets fair treatment.  There are some high-quality shows out there – it’s not all reality shows and MTV and celebrity biographies.

For the TV junkies out there, here are some fun links to make you feel better around your smug TV-hating friends: The Onion: Area Man Constantly Mentioning He Doesn’t Own A Television and Stuff White People Like #28: Not Having a TV.

Walk away from your mortgage
February 23, 2009

Meg from World of Wealth recently posted a response to Ginger from Girls Just Wanna Have Funds’s post about unpopular PF opinions. It turned into a somewhat entertaining fight in the comments (go read!), but first I wanted to remark on this unpopular opinion:

Given the present state of the economy, people should be able to walk away from their homes if they are “under water” by a certain amount without penalty.

Meg was pretty pissed about that. The way it’s worded, I can’t agree either. Meg’s problem came from the fact that people wouldn’t be paying what they owe; she asks “why make banks take a loss?”

Why? Because they are a business. They have a contract with the house buyer, and it’s implicit in that contract that if the borrower can’t or won’t meet the conditions of the contract (i.e. they can’t/won’t pay their mortgage), the bank has the right to seize the property. Often, mortgages are non-recourse loans, meaning that the banks can’t go after anything more than the collateral for the contract – i.e. the house – if the borrower defaults. Banks knew this going in. Well-Heeled linked to a fantastic article on Twitter that explains this.

The article states, “If the value of the loan is less than the value of the collateral, the best option for the borrower is to leave the option unexercised, i.e. to walk away without using the option to repay the loan and claim the collateral (you want the house only if it’s worth more than the loan).”

It’s not ethical, maybe, but most people are completely within their rights to walk away.

The article goes on to talk about what might be driving the willingness to go through the shame of foreclosure: the media’s reports about predatory lending, which means people feel justified because they’ve merely been a victim of unscrupulous banks; the widespread foreclosure problem, which makes it less shameful since a lot of other people are doing the same thing; and societal changes that make us less likely to care about what others think of us.

(It’s really a fascinating article; I highly recommend it.)

Meg works in banking, so I can see where she’s coming from. I don’t think banks are big and bad and evil, but I think they neglected to protect themselves. Knowing that this was a possibility, that they could be left with houses instead of money, makes the excessive lending seem even more monumentally stupid. I don’t have sympathy for the banks, because they should have seen it coming. (There is a quote from the CEO of Bank of America, who says, “I’m astonished that people would walk away from their homes.” It makes me laugh every time I read it. The article in which this appeared in the Wall Street Journal goes on to say, “… there is a new class of homeowners in name only. Because these people never put up much of their own money, they don’t act like owners, committed to their property for the long haul.” It’s almost… poetic.)

As I said above, though, whatever the mortgage contract say or don’t say, I have one major problem with the opinion in bold: the idea that this should come without penalty. There should be penalties!

1. Trashing of credit scores.
This will probably be meaningless by the time this whole mess is over since there are so many people facing foreclosure, but if you default on your mortgage, your score should be destroyed. Sorry, that’s what it’s there for.

2. Worse loan terms in the future.
I have no idea what banks are supposed to look at when they are approving you for a loan, but if your credit report indicates foreclosures, they should look closely at all of it! Your loan terms should be stricter if you’ve previously defaulted. That’s just smart business.

3. You should have to pay taxes on what the bank considers to be the remainder of your loan.
There were a lot of articles about this tax law last year. I believe it was waived for 2008 taxes. I don’t think it should be waived again. If the government is going to be propping up the banks, they deserve the taxes. I’m all for offering nice payback terms – no interest or penalties – but the money should be paid.

What are your thoughts?  Let me know in the comments!

Stop complaining about taxes!
February 16, 2009

It’s tax season, and everyone is talking about refunds or how much they hate paying taxes.

To be honest, I don’t get the visceral hatred people have for paying taxes. I mean, it’s not my favorite thing to have 25% of my pay taken away from me, but I do enjoy interstate highways and the government paying the interest on my student loans while I’m in school and criminals serving time in prisons. Heck, I work for a government contractor!

I may not approve of everything my taxes pay for, and I may never get the benefit of all the services the government provides. I’ve resigned myself to not getting Social Security when I retire. I’m sure, however, that some things I like are hated by others, and vice versa. We all have to pay for each other’s crap.

And of course, the US has one of the lowest tax rates of any first-world country.  I’m not saying there is no waste or corruption.  But if you’ve ever complained about the status of healthcare or public education or about the amount of national debt,  you shouldn’t complain about taxes.

Sweden is recognized as having one of the best healthcare systems in the world.  But you’ll pay up to 55% of your salary to get it.

College is free in France, with a tax rate of up to 40%.

Personally, I think that the tax code is way too complex.  The best option would be a simple graduated tax rate.  If you earn $75,000 a year, you’re taxed on it.  No deductions for things like interest paid on your mortgage or charitable giving or hybrid cars.  If you pay for medical care or school, that’s a deduction, but hopefully the system could be improved so that healthcare and education are covered.

I don’t understand why it has to be so complicated.

Another thing I’d like to address is this widely-used bit of personal finance advice: “Don’t get a tax refund!  You’re giving an interest-free loan to the government.  If you put that money into a savings account at unrealistic X% interest, it would earn $inflated amount over 30 years!”

The average refund in 2008 was around $2400, or $200/month.  My ING account earns 2% interest.  Over the past year, my 401K has lost about 35%.

If you put that $200 into an ING account, you’d earn roughly $22 over the year.  At 3%, you’d get $33.   If you increased your allowances to offset your 401K contributions, you’re currently down about $1800 (assuming you did as well as I did).  Or, your cost of living swelled up to swallow that $200 every month and you have no savings and no refunds.

As always, do what works for you and accept that others do what works for them.  I find the debt snowball method to be sort of silly, but I understand that the psychological benefits outweigh the mathematically better method.  So stop mocking those of us who get the refunds and like it.

But I was responsible with my money!
October 28, 2008

The Simple Dollar linked to this article at Wisebread, where the author complains that by being responsible, he’s not going to get a piece of the bailout. He proposes a plan where he stops paying his mortgage and lets the handouts roll in.

Look, I’ve been responsible with my money, too. I could have gone on trips and cruises and worn high-end designer clothing. I probably could have even bought a condo here in LA if I’d wanted to, with no money down and my small entry-level salary. I didn’t. I saved, and now my 401K has fallen even further, my ING account isn’t even competing with inflation, and my company may go through another round of layoffs soon.

But you know what else? I haven’t laid awake at night wondering where I’ll get the money to cover my next mortgage payment. I haven’t had to survive on Ramen just to have enough money to pay utilities. I’m not ebaying all of my furniture, or waiting until the bank finally comes to throw me out of my house. I’m not wondering how I’ll ever break it to my kids that we’re going to have to leave the only house they’ve ever known. I may worry about my job, but I can live quite comfortably on my emergency fund for some time.

It’s scary out there right now, but to be honest, I’m not that scared. Sure, the market might not rebound, or may take a long, long while to rebound. You know what? It’s just money. I wasn’t going to get to touch that money for 40 years anyway.

I’m not scared because I was responsible.

It’s easy to only see that people are getting money they didn’t earn, that they will get refinanced mortgages at rates lower than yours, that their loan amount will be less than yours.  However, these people have been suffering probably for longer than you can imagine.  They were probably barely afloat before anyone even knew this was going to be a crisis.  They probably have gone without food to make sure their kids eat and the water doesn’t get turned off.  They do lay awake at night, hoping that some bit of luck will enable them to pay their bills, or that they will not be laid off.

I wouldn’t want to experience that.  Not for all the handouts in the world.

Of course there will be people who scam the system.  There are people who scam the tax system and the welfare system, people who use foodstamps for beer, people who steal identities and ruin lives.  It’s unavoidable.  And so maybe people were stupid and irresponsible while you envied their BMW 3-series and McMansions from your sensible rented apartment and Toyota Corolla (both of which I personally have).  It’s not fair, I know.

So let’s lay of the blame game.  Let’s stop worrying about gettin’ ours.  Isn’t that what got us into this mess in the first place?

ETA: My Nittany Lions are now 9-0!

Contributing to my 401K was still a good idea.
October 15, 2008

With the recent drops in the stock market, I’ve been sort of mentally slapping myself for having contributed so much to my retirement accounts.  I pondered cutting back on my contributions and saving more in a bank account, but I haven’t yet because I know it’s just reactionary.  (When the market rebounds, I’ll have more money that’s poised for growth and less that’s hoping to get back to a break-even point.)

I started wondering, had I never put any money into my 401K, would I be better or worse off than I am today?

Over the past 3-ish years, I’ve contributed $26,800 to my 401K.  My employer matches up to 6% of my salary, and that totals roughly $12,100.  My retirement account – as of the market close yesterday – was worth $30, 100, which means I’ve lost nearly $9000 on paper.

Clearly, this was a bad idea.  Or was it?

I’ve only put in $26,800 of my money in.  Technically, I’m still up $3,300.  Not a great rate of return, but roughly equivalent to what my ING account is getting.

It gets better.

The following calculations are from a webpage that my company’s 401K program put together.  The numbers are generally accurate, although I find that it underestimates how much taxes I’ll pay.

The total amount of taxes I would have paid on 401K money (assuming I had never contributed anything) in the past 3 years is $10,200.  So I’d have an extra $16,600 sitting in my savings right now.  I already max out a Roth IRA (and I’m not looking at the balance for that- I don’t have a match to offset market losses!).

So on paper, I’ve got $13,500 more than I’d have if I didn’t contribute to my 401K.  Yes, it’s all on paper and I’ll have to pay taxes on that $13,500 eventually, but ultimately, that number looks OK.

Taxes make everything a bit fuzzy, of course.  I’ll eventually pay taxes on my 401K, but taxes on growth will be deferred.  If I’m smart & balance 401K withdrawals with Roth withdrawals, I could pay less tax on the money when I’m retired.

Obviously things could have been better.  If I’d only contributed up to what my employer matches, I’d probably be in an even better position right now.  If I’m still saving over half my take-home pay, does it even matter?

Mostly I’m saved by my employer’s generous match and my own somewhat high tax bracket.

How about my readers?  Are you below the level you’ve been putting in, or has your account balance just fallen really far since January?  Find something wrong with my numbers (I should note that taxes is total taxes, not just federal)?  Or do you just wish people would stop complaining about retirement accounts they won’t be touching for another 30 years anyway?