401K Lessons (Learning it the Hard Way)

Last year was my first full year at work. I managed to max out my 401K contribution with one paycheck left to go. So for the last paycheck I set the contribution rate to 0%. This week I had to go in to reset it back to the original rate. Boy, was I in for a painfully rude shock - my 401K returns were negative. When I was younger I used to wonder why people who have money still worry about money. But in that one moment when I was staring at the numbers in red indicating negative returns on my hard earned money (that I had scrimped and scrounged to save, I must add) it was suddenly very obvious. The knot at the pit of my stomach did not feel good.

To cut a long story short, things have gone further south since then, and as of today, I am down 5% for the year. And my all-time returns have shrunk so badly that the returns on my 401K statement are beginning to resemble that of my bank statement. I have had 401K on my mind for the past few days, and here are some lessons I am learning.

Do not track the returns of the 401K on a daily basis
This is advice I need to learn to live by, since I value my sleep too much. Until this week, I hardly paid attention to how my 401K was doing, except for an occasional look out of curiosity, and I was doing fine. But now that I know it is not doing well, I have an obsessive urge to check it the first thing every morning. And with the losses going higher each day, it is turning out to be a heck of a lousy way to start the day.

Pay attention to asset allocation
When I started my contributions, since it was still very early in my career, I presumed I should be able to take a lot of risk. So I did. I put 100% in stocks - 20% large cap, 40% in mid cap and 40% in International. And now it is clear to me that this risk level is way too high for me to handle. It is very important to look realistically at what risk you can stomach, and balance it against how much returns you hope to make. So, I finally took some time out to go through all the funds, their volatility levels, their performance history, the expense ratios etc. and reallocated my future contributions. My asset allocation choices are - 50% domestic stock, 32% international stock and 18% bonds. And the funds I have selected offer performance close (though not quite there) to what my earlier allocation did but have much lower volatility. I still have a few questions about some of the funds, and have mailed the fund managers for details. Once I get the information, I hope to finalise my selection and freeze the allocation and only visit it once every 5 years or so to see if the risk tolerance is still OK.

Don't lose perspective
I have at least 30 more years to go before I can retire (assuming I do not retire early). The amount I have in my account is a small drop in the pond when compared to the final balance that my 401K account will have. The 5% loss on that small figure is but a ripple in the pond. In the long run, this experience is just a small blip that might not even register on the radar. It is important to have this long-term perspective to avoid losing sleep and to control the temptation to mess with the allocation every now and then.

Nobody else can determine what is best for you
Our company's 401K plan provides us access to some financial software and I went through it to obtain some advice on what my model allocation should be. I also had several discussions with the better half and some older colleagues. I used all this advice, but in the end, what I chose was uniquely suited for my particular situation. It is easier to let someone else handle the decisions (e.g., financial advisers, spouse, parents etc.) but to really be peaceful, it helped for me to go through the details of the funds and determine what was best for me.

In a way, I am glad that I chanced upon looking at my 401K when it was doing particularly bad. I had not paid much attention before and had randomly picked funds with seemingly good performance in an effort to maximize my returns without really paying much attention to the associated risk level. Now I have put in a lot more reading of the funds offered and have picked the ones that I believe are more suitable for me for the long run. I don't know if this is the allocation I will stick with forever, but for now at least, I feel a lot at peace with my choice.

*Image credit: Photograph by jay d [via Flickr Creative Commons]

Quick Update

I have been gone for so long that I don't know if anyone ever reads this blog anymore. But if there is someone out there, here is some quick update.

During the last couple of months we spent a boat load of money on medical bills. The total came up to a little more than $15,000. About $4,000 was covered by insurance and so a little over $11,000 was out of pocket. The lady in the business office of our provider was very helpful and sat with us to review the financial costs and possible ways to get reimbursement from the insurance company for some more money. So I have filed claims for another $6,000 or so. Hopefully, at least a part of it will be reimbursed.

So far the experience with the insurance company is mixed. On the "good" side, two of my initial claims (for $163 and $192) were approved. On the "bad" side, the claims adjusters are a bunch of jokers!!!! While the first check (for $163) was sent to me correctly, they sent the second check (for $192) to the provider! After a very long phone call with the customer service we found out why the claim showed as approved/paid on the website but I did not see the money even after a month! The agent gave me two options - (a) I file a case, they will investigate, then they will send a letter to the provider requesting that the money sent by mistake be returned and after they reclaim the wrongly addressed check, they will cut a new check for me, or (b) I contact the provider directly, explain to them that I have paid twice for the services - once out of pocket and once via insurance - and then request a refund. Since option (a) will likely drag on for months, I chose option (b) and spoke to the same lady at the business office of my provider. She was very understanding and has agreed to cut the refund check to me.

Out of the remaining claims, I think we have a good chance of the claims being approved for about $4,000. The rest of it, I just filed since the bills were lying around and the worst that could happen is that the claims will be denied. I hope the claims falls in the hands of the same moron adjuster who goofed up my earlier claims and sent the check to the provider. Who knows... he might just approve all those other claims too that are at a high risk for being denied :)

So our out of pocket tally will finally be in the range of $7,000 to $11,000.

For the first time in a long while though, we went through the expenses without worrying or fretting about it too much. With everything else going on around us, that was such a boon! I did get a bit anxious for a couple of days when I found out just how much the bills could be, but I think that was more out of habit than actual financial reasons. And we have paid off all the credit card bills and are not carrying over any debt. That feels real nice too.

As for the money spent, every single penny spent was well worth it! Like I mentioned before, it was an elective procedure and a bit of a gamble at that. Statistically, the chances that the procedure would work for us was under 50%. We could have probably saved ourselves a lot of money if we had waited some more time to see if the situation could be resolved with other less expensive, but less effective procedures. Or we could have seeked medical attention in our home country where the costs are about 1/5th of the costs here in the US. But in the end we chose to take the gamble. If we do not use money for the things we really want, and are not willing to pay the premium for the peace of mind of doing things the way we like it and on our schedule, then what good is the money for? Luckily, for us, things worked out! I am still a little anxious, but it is getting more and more real with each passing week, and each follow up visit to my doctor. If any of you readers are in the same unfortunate situation as us, you have likely figured out what this is all about. Keep your chin up, and in the end it will all work out. For the rest of you who have no clue of what I am talking about, count your blessings, say your prayers and kiss your kids once more tonight! You have no idea how fortunate you are for being so normal :)

*Image Credit: Photograph by joyrex [via Flickr Creative Commons]

10 Best Gift Cards for the College Student on Your List

I am a huge fan of gift cards, and think that they make much better gifts than arbitrary stuff that I don't really need. They do lack the charm and personality of a hand picked gift, but that usually flies out the window when I have in my hands this tiny piece of plastic that I can use to buy what I want, when I want. And this year, if you are looking for a gift for that college student on your list, here are some great ideas for what gift cards will be a hit!

1. Amazon.com: This is undeniably going to be the most popular choice. Amazon offers such a range of options that it can satisfy the needs of most people, not just college students. But for college students in particular the choice of books, CDs, DVDs, games, cell phones and a lot of the items that they will use on a daily basis is incredible. Add to that Amazon’s free shipping policies for purchases over $25, and you have on your hands the making of an ideal gift.



2. Ikea: If your college grad is just starting out or moving out of the dorm into an off-campus housing, then this is certainly the way to go. Ikea has a lot of low priced inexpensive furniture with a modern take that many college students like. One thing to note though is that if there is no physical Ikea location close by then the shipping policies by Ikea are not all that great and may eat away into the gift budget.



3. Best Buy, Circuit City or Fry’s: Many college students love cool electronic gadgets. And there are tons of new toys coming out every year that you may not even be aware of. So giving a gift card to an electronics store and letting them take their pick is surely going to be a great gift, if your college grad loves tech toys.



4. iTunes: If your college grad has an iPod, this is sure to please them to no end. On the other hand, if they don’t have an iPod and you have a big enough budget, then throw in an iPod with the iTunes gift card and you will be their hero for a long time to come!



5. Gift card to favorite restaurants: Most college students are perpetually broke. Eating out is usually a luxury that is much looked forward to. So if you know the favorite restaurant that the gift receiver likes, then buying a gift card to that restaurant is bound to be a sure fire hit.



6. Gift card to a travel site: This may be a gift they may not appreciate right away, especially if they have traveled a lot to meet you. But come spring break time, which is not that far from Christmas, you are bound to receive a huge “Thank You” note :)



7. Mall: The local malls in my area allow me to buy a gift card that is good in all the stores within that mall. If your college grad was a big spender before she/he went to college and got all sobered up due to the high cost of tuition and text books, they are bound to enjoy an evening of splurging at your expense.



8. Gas Cards: With the gas prices starting to climb up again, and the prices of crude oil showing no signs that this will slow down in the near future, this is a great gift. It does not have the wow effect like many of the other gift cards on this list, but if you are a family with a history of practical gift-giving, then this is bound to be better appreciated than a pack of socks or ill-fitting clothes.



9. Local grocery store (Walmart, Target, HEB etc.): While we are on the topic of practical gifts, we may as well cover the gift cards to local grocery store. Personally, I would hate to receive a gift card to a grocery store, since I already have a budget for grocery shopping and can get it done even without the help. Any other gift card in the list so far, let’s me “indulge” but the grocery store gift card is just too practical to be any fun. But like I said, if your family has a history of giving practical gifts, then this is something you might want to consider.



10. The good old Visa Cash Card: Finally, if you just can’t decide, go for the good old Visa debit card. They are as good as cash and can be used anywhere credit cards are accepted. Depending on who you are giving it to, this could be treated as the king of all gifts, or the most impersonal cop-out ever! Your call :)

Do you like receiving gift cards? What are some of the “best” gift cards that you have received?

~~~o0o~~~

Broke College Kid? Take a virtual spring break in Vegas: http://www.partycasino.com/.

~~~o0o~~~

Single Parenting and Finance

(This article is part of a weekly guest column by Claire Moylan*)

When you are a single parent, it becomes even more important to have a good handle on your finances. You may have one or many children that are relying on your ability to generate sufficient income and reduce expenses enough to keep a roof over their heads. While the responsibility of single parenting is enormous, it can become even harder when faced with additional financial burdens. Here are some tips to help you provide for your future and that of your little ones.

Get Help Sooner Than Later – If you are divorcing, make sure that you get enough child support to help you bring up the kids. If you need help and have a low income, you may qualify for some assistance, either through food banks or daycare or financial assistance programs.

Have A Job With Benefits – For a working parent, benefits are essential to providing good healthcare and other additional perks. Some of the benefits that can work well for single parents besides healthcare are flexible spending accounts and company-matched retirement accounts. Using flexible spending accounts a parent can budget daycare and out-of-pocket health care costs in a pre-tax format. Company matching retirement accounts help make the little you do manage to put aside grow a whole lot faster.

Locate Reliable Daycare – Daycare is expensive, but it can cost you your job if it is unreliable. Unlike a dual parent home that has an emergency backup in case your regular daycare is closed, a single parent doesn’t have another adult in the home. You will want to make sure that your daycare is reliable or have some emergency backup daycare providers (family, neighbors, friends) so that you can continue to work.

Take Advantage of Low-Income or Parent Programs – There are low-income programs for school lunches. Some day care provides a discount on multiple children. After school programs sometimes offer single parents a discount too. If you’re not sure, ask. It may surprise you to learn that there are discount programs out there targeted specifically towards helping single parents survive.

Understand Your Tax Situation – If you are single head of household, you will be in a different tax bracket than a married householder. This can also lower your withholdings and make you eligible for a child tax credit at the end of the year. Be sure to check out your tax obligations early so that you have the money in your pocket during the year when you need it.

Be Creative With Your Situation – Maybe you can trade instead of pay for some of your services. Is there another single parent around who can do daycare in exchange for a room in your house? Why not pool your resources? Do you have a hobby you can turn into a side business after hours?

Reduce Your Expenses – Most single parents know all about consignment shops, discount grocery stores, and how to make do with very little. The three main expenses of food, clothing, and shelter all need to be budgeted to make sure that you always have what you need to make do.

Locate Sources of Credit – You will have debt as a single parent. The point is to not get in over your head. You do need to locate sources of credit for those emergency situations. If family can’t help, then using a credit card can be one way to extend your ability to pay. Just keep a tight reign on this as it can easily balloon out of control.

Get Free Emotional and Physical Support – If there is no single parents group in your area, think about starting a network or hopping online. You will need to access to resources and programs out there that can help you overcome some of the financial hurdles that single parents face. It’s also important to have someone to share your troubles with so that you don’t feel alone. This can help you to keep a positive attitude.

Being a single parent is tough and there are multiple ways to cope financially. However, all children grow up and these financial hurdles will eventually pass as they fly the nest to make their own way in life.

About the author: Claire Moylan is a freelance writer specializing in ebooks and custom-tailored articles for niche websites. You can view her portfolio online or check out her constant content page for more information about her writing assignments.

*Image Credit: Photograph by WhatDaveSees [via Flickr]

Frugality and Hardship

I have written quite a bit on this blog about frugality. My general philosophy for these posts has been to find ways to live frugally without compromising the lifestyle significantly. In other words, try to adopt a frugal lifestyle without feeling deprived. But the problem seems to be that I have started to begin believing in this principle of “frugality without hardship” so much so that, I cannot convince myself to give up some things that I am used to, even if I want to! In other words, while I have been relatively successful in making sure I don’t give in to the desire to live a life of excess, I find I am extremely unsuccessful in giving up the little luxuries I am used to!

With the huge medical bills rolling in this month and possibly the next few months, I wanted to trim a little more fat out our fairly lean life style – at least temporarily. But as I look at the different expenses that we have, I find that we cannot bring ourselves to cut down on any of them. We have made sure not to fall for some of the indulgences most of our friends have given in to, but now that we have gotten used to our existing lifestyle, we have a lot of resistance against changing anything. We had a much more leaner lifestyle for a while when we got out of school and started attacking debt – but somehow we just can’t bring ourselves to go back to that.

Frugality without hardship is a luxury of those that want to live frugally out of choice and not out of need.
I remember reading a comment on some one’s blog (sorry I don’t remember whose) that all the talk about living frugally without hardship is a luxury of those that want to live frugally out of choice. For those have to live frugally out of need, whether to do it with or without hardship is not a choice. And that is so true. In some cases, it is just not possible to take the hardship out of the equation. But is the reverse also true – ie, if you are frugal out of choice, you cannot accept any hardships at all?

We have an inherent entitlement attitude that we deserve a decent life.
When you live a frugal life out of need, it is important to try and get out of that situation as soon as possible and a few sacrifices seem acceptable. The situation may be that you are in too much debt or have had a sudden job loss, etc. But somehow, when the frugality is no longer a need, we give in to the inherent entitlement attitude that we deserve a particular lifestyle and having to make sacrifices that compromise that lifestyle seem very difficult.

Short bursts of having to go through hardships can offer stretches of a life without hardships over a long time.
Now, in our particular case, it is not required to make those sacrifices just yet. We could go on having our cable television and eating out 1-2 times a week etc. But, if we don’t want our medical bills to turn into huge debt, we need to give up something some where. And without sacrifices in lifestyle, usually the savings goals fall victims. Instead of compromising our savings goals, it seems logical that short bursts of voluntary hardships now are better and could ensure that we stay hardship free for longer stretches.

If you are willing to go through hardships on choice, you are much better prepared to handle life’s ups and downs.
Moreover, if we can bring ourselves to give up some of our little indulgences voluntarily now, in the future if life throws bigger curve balls at us, we can survive them more easily. We can face whatever life has to offer without feeling like it is imposed on us and we don’t have a choice.

I understand that logically, we should be able to give up some of the little luxuries we are used to. It was not long back that we could not afford these little luxuries and got on by fine without them. Then why is it that I find it so hard to give them up now? Why do even small sacrifices feel like huge deprivations?

*Image credit: Photograph by davebluedevil [via Flickr]

The Ten Commandments of Black Friday Shopping

This year, thanks to all the medical bills that are piling up, I have decided to sit out the Black Friday (day after Thanksgiving) sale :( But I impart unto you the knowledge and experience gained from years of surviving the stampede and gaining some sweet deals :) Here we go, the ten commandments of Black Friday shopping.

Commandment 1: Thou shalt be prepared.
There are many, many websites that allow you to do your research ahead of time and find out which deals are really worth it, and which are not. You don’t need to worry about not receiving the fliers any more since adscans to most popular stores are available online. Add to that the deal discussions on forums and blogs, and there really is no excuse for not being prepared. Here is a list of few good sites to get you started.

• Excel spreadsheet of all the deals (via Fatwallet. You’ve got to see it to believe it!!!)
• bfads.net
• fatwallet forums
• blackfriday.gottadeal.com
• blackfriday.info

Commandment 2: Thou shalt make a prioritized list.
Not all deals are created equal. As you look through the different sites, note down the items that you like best (and really need), the store where it is available and price at which it is available. After you are done looking through all the deals (if ever), then organize your notes so that they are prioritized by the stores which have the most number of items that you would really want to buy.

Commandment 3: Thou shalt know the store layout.
There is no point in going to a store and trying to find out where the item might be. So stick to stores that you most often go to, so you are familiar with the layout. I read on one of the websites that many stores have a “store map” which they hand out during Black Friday sales. I personally have never found it, but it is definitely won’t hurt to ask a sales person for one (if you can find a sales person in that crowd, that is).

Commandment 4: Thou shalt know the sale hours.
More and more stores have the midnight madness and all-night marathon sales these days. And almost all have exclusive “early bird” and “door buster” deals. Make sure you know the timings for the items on your list and that you are there as early as possible if you really want to lay your hands on that item.

Commandment 5: Thou shalt know the store policies.
The stores do not have unlimited supplies of items on sale, and the hot items in particular are very limited. It is not uncommon for the stores to have only 15 – 50 items of big ticket products like TV, laptops, game consoles etc on door buster sales. So, if you are not planning to camp out the store all night and elbow your way in when the doors open, don’t bank on such items. Also, many stores have per-person limits on the number of items. For instance, you may find a 2GB USB flash drive for $7.99, but more than likely you will not be able to walk out with a handful of these. Don’t waste your time on lost causes.

Commandment 6: Thou shalt shop in tag teams.
Always, always go to a store in twos or threes. The first person goes directly and stands in the check out line, while the others go scour for the deals on their list. The person in the checkout line acts as the central coordinator. In addition, if you have a big group of friends share your lists with each other and split up into different groups and hit different stores. Remember commandment 5 though – you may be limited by how many items a person can buy. So use this strategy wisely.

Commandment 7: Thou shalt make sure that your cell phones are fully charged.
If you are tag teaming or better still coordinating with friends in different stores, you should be able to communicate efficiently and fast. So it is vital that everyone has cell phones that are charged to the hilt. In addition, treat cell phones with Internet access as premium commodity since they will come in very handy for looking up the reviews, price comparison and staying up to date on the latest deals. Make sure you carry your car charger with you, so you can charge the cell phones back up while going from one store to the other.

Commandment 8: Thou shalt wear comfortable clothes and preferably running shoes.
The Black Friday sale is not about being fashionable – its all about being efficient and agile. You have the rest of the year to fashionably show off your spoils. But for this one day, make sure you dress in sensible comfortable clothes and shoes. Also, you might want to go with the layers approach – even though it is freezing outside, it may be pretty warm inside the stores because of the crowds of people milling about.

Commandment 9: Thou shalt keep some water and snacks in the car.
If you have just a few items on your list and after hitting a store or two, you plan to retire, then you can skip this one. But if you are a hard core veteran and plan to hit many different stores and come home with the best of the deals that can be had, you better make sure you have enough nutrition supply in the car to keep you fed and hydrated between stores.

Commandment 10: Thou shalt not buy junk just because it is on sale.
Finally, pay particular attention to this one. Just because it is on sale does not make it a deal. If you don’t want it, or if it is just poor quality junk that will likely break down after two uses, you are much better off without it. Buying junk will undermine all the hard work, melt away the benefits of all the deal that you scrambled so much to grab. So only buy those items that you really need and are really worth buying.

Well, have fun y’all. I will be rooting for you from the warm comfort of my home :) Happy Thanksgiving and seeya back on Monday.


Other similar articles from around the web:

• Black Friday Stories, Thoughts and Strategies @ Wise Bread.


• How to Shop Like an Expert @ Alpha Consumer column on usnews.com.


• Black Friday Thoughts and Strategies @ Not Made of Money


• 2007 Black Friday Buying Guide for Electronics and Gadgets @ Finance Is Personal.

*Image Credit: Photograph by Johnia! [via Flickr]

Is Your 401K Tempting You To Borrow?

(This article is part of a weekly guest column by Claire Moylan*)

It’s certainly nasty out there in the lending world right now. As banks tighten their credit requirements, some people are wondering how to pay back large credit card debt or fund a down payment for a home. While many Americans haven’t been model savers in the short-term, many have retirement accounts that are a tempting source of money when times get tough. The amount of people borrowing from their 401K plans is increasing. It’s estimated that at least 20% of Fidelity’s clients are borrowing against their 401Ks. However, is this really a good option when money is tight?

Some Things To Consider

The reason people borrow from their 401K plans is because it’s easy to do. You just go to your employer and fill out some paperwork. In about a week, you have a loan to you from your own 401K account. The loan repayment can range from 1 to 5 years, sometimes 10 years, and is usually with a lower interest rate. Whatever interest you do pay when you repay the loan is returned to your account. So, the idea of borrowing from your 401K to reduce your debt burden elsewhere is very tempting. Even though there are limits to how much you can borrow (typically 50% of your vested interest up to $50,000), if you have a large retirement account and you aren’t anywhere near retirement, you may think putting the money towards paying down debt is a good strategy.

This might be the case, if it weren’t for one thing: You don’t know how secure your job is in this economy. If you are laid off, terminated, or even quit to get a better job before you pay off the loan, the entire balance is due in full – and, within 60 days of your leaving! If you do not pay the loan back within that amount of time, then you are subject to the same penalties and taxes as an early withdrawal. These are quite hefty and can result in a tax bill of up to 20 to 50% of the value of the loan; depending on what tax bracket you are in. So, taking a loan from your 401K is a risk if you leave your present job (for whatever reason) and can result in a large tax bill.

The Alternatives

Other forms of loans that can help you in the event you need to get funds for a major purchase, like a home, or to repay a large amount of debt are: home equity loans, loans from credit unions or banks, or even a personal loan.

• Home equity loans – A home equity loan uses the equity in your home to help you consolidate your debt and pay it off. You can get some good rates on home equity loans and is a way of putting your equity to work for you, even while you still live in the home. Although this type of loan won’t come due if you lose your job, you do have to continue to make the monthly payments on time in order to keep your home. Since this is a risk with any home equity loan, you want to check to make sure that the terms of your agreement can be met and that you can afford the loan.


• Loans from banks and credit unions – If you belong to a credit union, they are very good for helping people lower the rates on their existing loans. Banks will have more market-competitive rates but are also a good source for lending, if you have good credit and some assets.


• Personal loans – Don’t overlook friends and families. You can even go to Prosper.com and get a personal loan from total strangers. If you want a loan to start a business or consolidate high interest debt and are having trouble with a bank, try to find someone who might know you who is willing to take on the risk based on your character. If you are paying 10% to someone else and they are willing to give you the loan at 7%, you are not only making a friend richer, but saving yourself some money too.

There are a number of creative ways to find financing, besides your 401K. Unless you are sure you intend to be at your job for the duration of the loan, or have funds to pay it back quickly, then it’s best not to tap this source.

About the author: Claire Moylan is a freelance writer specializing in ebooks and custom-tailored articles for niche websites. You can view her portfolio online or check out her constant content page for more information about her writing assignments.