Don't Quit Your Day Job…

When it comes to guaranteed returns, there is a list of investments perhaps as numerous as your fingers.  The most famous example is the 401(k) with an employer match.  In order to charm you into investing some of your money in the company’s 401(k) account, most employers tend to put up a bit of their own money as an incentive.  The return is immediate, guaranteed, and something that should be captured.  The bottom line is – in almost all instances you should make sacrifices elsewhere in order to receive the full employer match.

Tying to an article earlier that my colleague PKamp3 wrote, personal finance seems to have taken a dive in popularity in more recent years. As a writer for a confessedly self-aware personal finance crowd, this assertion may seem irrelevant, surprising, or, at worst, alarming. As a young college graduate, many of my fellow coworkers (as well as I) have student loans as one of their more significant financial obligations on top of car loans and (soon) mortgages. Some plan on paying down their student loans as fast as possible to deleverage themselves and then start saving for a home. I am of a different and not necessarily correct opinion: to hold onto the student loans for as long as possible due to their incredibly low interest rate and tax-deductibility for incomes up to $60,000 (partial deductions up to $75,000).

Reality check or tempered expectations? The number of 401(k) investors who believe they can retire early has, as expected, decreased over the last few years of market turmoil. Since 2007, the number of investors who think their 401(k) or IRA accounts will be the largest source of income in retirement has fallen 7 percentage points – from 52% to 45%.

I hope I convinced you in my earlier article you’ll soon be dealing with higher taxes. I’ve got some more slightly depressing news for you… you might be dealing with a reduction in the amount you can contribute to your 401(k) in the near future.

Yes, as Robert Powell says in this MarketWatch article, to go along with retirees not getting an increase in their Social Security payments, you may be losing some of your ability to sock away money in your 401(k). Nice.

Do you get a match? What’s the average management fee on your fund choices? Does your plan have all of the necessary asset classes? If you’ve got a 401(k) at work, no doubt you’ve been pressured to sign up (or automatically enrolled). How does your 401(k) stack up?

A commonly heard refrain in the personal finance world is ‘Keep 3 months of living expenses in an emergency fund!’ If fact, this is heard so much it’s almost become a mantra for people taking control of their finances for the first time. Where does this ‘3′ come from? Why do you keep it? All this and more will be answered, read on…

One of the more interesting questions that has cropped up recently is whether the Roth or traditional 401(k) is the superior savings vehicle. Most people know that if you expect your tax rate to increase in retirement, a Roth is better, and a Traditional 401(k) is better in the case you believe it will decrease. I would like to show you some of the considerations where this may not be the whole story. I am not a financial planner; I just like to think through these sorts of decisions on my own. The following is my judgment of the situation, and you should discuss your own situation with a financial planner. Hopefully you can use this information for your own purposes. Also, if the middle is too dry, skip to the end. Enjoy!