During our last blizzard this weekend I spent time catching up on some paperwork and budgeting things that needed to get done. One of those items was reviewing and re-balancing my retirement portfolio. I usually try to do this once or twice a year, depending on how far out of balance my asset mix becomes. It was definitely overdue!

While reviewing everything, I decided to redo my retirement accounts that are in my 403 (b) account (similar to a 401-k but for nonprofits). Along with several other funds, I had been invested in a Target Retirement fund account, but I was not happy with the percentages of stocks, bonds, etc. So I decided to pull my monies out of that and redistribute them.

Also, my balance was out of whack between stocks and bonds and I needed to get that re-balanced (getting back to the right mix and percentage of stocks and bonds). So after reviewing funds, pulling monies, re-balancing, etc. my retirement portfolio now looks like this:

• Domestic Bonds are 20% of my portfolio
• Large Capitalization Stocks are 35% of my portfolio
• Small Capitalization Stocks are 20% of my portfolio
• International Stocks are 20% of my portfolio
• REIT (Real Estate Investment Trust) is 5% of my portfolio

The basic breakdown is 75% stocks (further broken down by small, large, and international stocks), 20% bonds, 5% real estate. For my age and my goals this seems to be a pretty good mix – we will see how it works out!

I am a buy and hold, index type of investor. I am still in index funds, I just changed some of the funds to better reflect my personal goals and needs. I invest a fixed amount monthly (with a company match) regardless of whether the market is up or down. This strategy (continuous automatic investing) in my opinion gives me the best opportunity for good returns.

I will now let things go for awhile, probably checking closely every three months to see how things are going. I tend to not re-balance my portfolio unless it gets close to 3-4% over or under my target percentages. Again, unless something really wild happens, I tend to only re-balance once or twice a year.

Have you recently (or ever?) re-balanced your accounts? This might be a good time to take a look and make sure you asset mix is in line with your investing goals.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Rebalancing my Retirement Accounts is a post from: A Penny Saved, the best darn personal finance blog around.

Yesterday we celebrated my Mother-in-law’s 85th birthday! In a little over a week we will be celebrating my Grandmother’s 95th birthday! As our family celebrates these two milestones, it got me to reflecting and thinking. So in no particular order:

• Do I have enough in retirement? Even if I wait to retire at age 70, I could still need 25 years worth of savings!
• Is my investment mix correct? Even when I approach retirement, I will still need a healthy investment in stocks – 25 years is a long time horizon.
• Will the things I think are important now still be important to me when I am 85 or 95? As I watch these two wonderful ladies, what they treasure most are family and family memories. Cars, houses, “things” are of low importance.

What should I be doing now to make my life better, or my families life better in the future? A lot to think about…

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Reflections on 85 and 95 is a post from: A Penny Saved, the best darn personal finance blog around.

I scored a B+ according to their test! Over at CNN Money they have a “How Healthy are Your Finances?” quiz that you can take. It focuses on 7 financial areas – this is how I scored in each area:

• House Payments – Good
• Debt Load – Good
• Stock Diversification – Good
• Life Insurance – Good
• Company Stock – Good
• Retirement Saving – Low
• Emergency Savings – Low

It’s a pretty simple test – you either get a good or a low. Each one has a little explanation for how you scored. For instance on retirement saving, they thought I needed more based on my age and income. For emergency savings, if you don’t have 3 months worth of income saved you get marked low.

I disagree with the emergency savings – it’s not how much you save that matters but what your expenses are, plus there are other factors that come into play for me:

• I’ve been laid off before so I have some experience of what my needs would truly be. It’s definetely not 3 months worth.
• I know how to work hard at getting a job, plus I have skill sets that are useful for temporary agencies, etc.
• My wife is not working now, but she could in an emergency.

But a B+ is not bad. Anyway, it’s not a bad tool if you just want a quick review. Just know that there are many factors that go into financial decisions and just because you have a different mindset, it doesn’t mean you are wrong!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Making the Financial Grade is a post from: A Penny Saved, the best darn personal finance blog around.

It must be mistake week in the news. Last night U.S. News & World Report had an article by Kerry Hannon about “5 Mistakes that will Sink your Retirement”. Below are his five points and some personal commentary:

1. Cutting back on Contributions.

According to the article, 1/4 of American workers do not contribute to their 401(K) and many who do contribute do not give enough to get the full company match. That’s tossing away free money. Also, there is a tendency when times get tough to try to free up some cash by cutting back on retirement saving. That’s short term gain for long term pain. Unless it is a dire emergency, don’t cut back.

2. Using Retirement Savings as a Bank

Too many people borrow from their 401(K). Sure, you need to pay it back, but you are losing ground. And once you tap into, there is the temptation to go back and tap it again, and again. You end up “sacrificing compounding investment earnings.” This is a fools game. Leave it alone!

3. Avoiding losses by reinvesting in safer places.

None of us likes to see our account balances fall, but we need to hold our ground. Taking money out of equities and putting them into money market funds or bank CD’s will cost you more in the long run. Stocks, no matter how poorly they do in the short run, give you the best shot for long term growth. If you stay out of the market, it will cost you more over the long run than some temporary setbacks. Decide on your portfolio mix – stocks, bonds, etc., then stick with it, rebalancing as necessary.

4. Cashing out your 401(K) Balance

When leaving one job for another, or even for early retirement, it makes sense to cah out your balance – as long as you roll it over to an IRA or another tax deferred plan. And you only have 60 days to do so or the IRS will come knocking on your door (and maybe with a 10% penalty added!). Make sure you cross your T’s and dot your i’s with the correct paperwork.

5. Not having a post-retirement plan.

Some of us are so focused on saving for retirement that we forget retirement itself! We need a financial plan for the “golden years.” What will be your sources of income? How will you tap into your savings? What portfolio mix should you have during the retirment years? What about healthcare?

Not a bad article. Again most of it is common sense – but then sense always isn’t so common is it?

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Five Retirement Financial Planning Mistakes is a post from: A Penny Saved, the best darn personal finance blog around.

In a previous Post (Social Security Statement – 11/4/07), I mentioned that I was considered self-employed for Social Security purposes because I was a pastor. One of our astute readers asked a very good question. Here is her comment/question:

You fail to mention that as a pastor you had the opportunity to opt out of the social in-security system altogether, something the rest of us don’t have as an option. I would jump at the option and yet not one clergy member I have ever known has opted out…is there some explanation for volunteering to participate in a system that most everyone else wants out of??

Good question! Let me try to explain. Before 1968, a pastor was not eligible to be part of Social Security unless they chose to file a Form 2031 – Waiver Certificate to Elect Social Security Coverage. So pastors were not covered at all (or taxed!) unless they chose to waive their right from exemption. After 1968, the government reversed the process: pastors were automatically part of the system and considered self-employed unless they opted out. To opt out, a pastor must file form 4361 – Application for exemption from Self-employment Tax.

On the form, a pastor must sign the following:

“I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for medical care.”

Most pastors that I know (including me), cannot sign this waiver. We may hate social security for financial reasons, but not because of conscience or religious principles. And the waiver is not just opposition to Social Security, but to any public assistance/insurance. And I think that is what the government is banking on. Also, if you are part of a denomination, and all the other pastors cannot sign off, and you do, the IRS will look into it. I know I really struggled with this at the time. And you only have a small window of opportunity to opt out – the second year of service.

So because of conscience and religious principles, I cannot sign the form that would liberate me from tyranny and taxation. O well. One more sacrifice of being a pastor. Of course the benefits after death are pretty good!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Reader Question is a post from: A Penny Saved, the best darn personal finance blog around.

I just received my annual Social Security Statement in the mail. How depressing. Since pastors are considered self-employed for social security purposes, I get the privilege of paying 12.4% in SS taxes and 2.9 % in Medicare taxes. If I work until full retirement age (67 years for me), I may receive about $1,500 a month. What a lousy return on investment. Right on the cover of this publication from the Social Security Administration is this:

Social Security is a compact between generations. For decades, America has kept the promise of security for its workers and their families. Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

In 2017 we will being paying more in benefits than we collect in taxes. Without changes, by 2041 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 75 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.

If you will allow me just a few sarcastic comments:

• A compact between generations? Does AARP know this?
• The promise of security? Who are they kidding? $1500 a month doesn’t make me feel secure, which is why I am saving like mad for retirement.
• Who is this “we” they keep referring to? They are spending more than they are taking in, not me.
• Again, “we” need to resolve these issues? How about the legislative branch? Do they even read the stuff that’s being printed by the Social Security Administration?
• Foundation of protection? It goes from the promise of security, to foundation of protection, and probably next year it will read “a token of appreciation” for all that we taxed you on.

Okay. That is my rant for today. Feel free to add your own comments. Keep it clean though!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Social Security Statement is a post from: A Penny Saved, the best darn personal finance blog around.

Any financial adviser worth anything will keep repeating this mantra over and over – contribute as much as you possibly can to your retirement accounts, starting right now.  If you have a financial adviser and this advice doesn’t sound familiar, fire him immediately – he’s not looking out for your best interests.  The power of compound interest is impressive, and even a few extra years can make a world of difference when it’s time to leave the working world and go fishing all day.  Just take a look at a couple numbers I ran through a calculator, concerning Roth IRA’s.  Please note that none of these numbers are adjusted for inflation, which can have a significant impact.  They are also assuming a 9% rate of return. However, since the money comes from a Roth IRA, there are no additional taxes due at the time of withdrawal.

Investor 1 drops $4,000 into his Roth IRA at age 25, and leaves it be until retirement.  At that time he’ll have a cool $144,439.60 balance.  Compare that to Investor two who drops the same $4,000 into a Roth, but does so at age 45.  His account balance will read just $24,036.6 at age 65 – a difference of over one hundred and twenty thousand dollars.  The same initial investment in both cases, but 20 years apart – the difference is tremendous.

Here’s another scenario.  Investor one contributes $100 per month to his Roth IRA, starting at age 25.  His total contribution is $48000, and his account will reach a whopping $468132.02 at age 65.  Investor 2 contributes $333 per month ( the max is $4,000 per year ) to his Roth, for a total contribution of $79,920 – almost twice what the first investor put in.  However, #2′s account will read $222406.32 – less than half of investor one.  Invest half as much and end up with twice as much – that’s how powerful compounding interest is.

There’s a lot of details to learn about investing, and inflation is one that you can’t forget – but that’s a topic for another post.  The bottom line, and something you need to take to heart is this – Begin investing for your retirement right now, today, this minute.  If you have a Roth IRA, put some money into it.  If you don’t have a 401(k) , OPEN ONE.  Whatever your retirement investment of choice is, start right now.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Start saving for your retirement Right Now is a post from: A Penny Saved, the best darn personal finance blog around.

This is part 2 of 2 of 20 real answers to the 20 dumbest finance questions. The questions come from a post called the 20 dumbest personal finance questions at Punny Money. I covered the first 10 questions in the first post and we’ll tie up the last 10 in this one.

• Q: How much is my house worth?
  • A: The short answer is I don’t know. The long answer is that only an assessment can really tell. That or selling the house. Since I’ll assume you don’t want to sell right now, try visiting Zillow.com and see if it has any info for your neighborhood. If not, you’ll most likely have to order an assessment if you want to know the real value of the house. Expect to pay anywhere from $200 to $500 for an assessment.
• Q: Why can’t I get a loan when I don’t have a job?
  • A: One of the key factors in your lendability (think of it as lending risk) is your ability to repay the loan. If you don’t have a job, and can’t show some other form of income, you in effect are not showing any ability to repay. Nobody will loan money to what appears to be a automatic default.
• Q: Extended Warranty. How can I lose?
  • A: Let me share a story with you. My first car would have stayed in my possession about 2 years longer had I gotten an extended warranty. The transmission went and had I bought the extended warranty, it could have been fixed. As it was, I didn’t have the warranty and I had to trade it off because I couldn’t afford to pay the money for a transmission up front. The car I got on the trade, I purchased the Extended warranty. I paid nearly $2000 for the warranty. I used it once for repairs that would have cost me about $600. The car cost me an extra $1400 because of the warranty. The truth is that the extended warranty is a crap shoot. The odds are against it paying off and as a general rule, they really should be avoided. Use the money you would have spent on the warranty to build an emergency savings to pay for those repairs instead.
• Q: How much money should I spend on ____?
  • A: A concrete amount is impossible without an actual item, but the best way to find a fair price for an item is to comparison shop. Look the item up on eBay, Shopper.com,and a few other sites like Amazon or niche sites where it would appear. Doing so should net you an average price for the item. Be prepared to pay a little more if you’re buying the item from a physical location as you’ll pay for the convenience.
• Q: Can I avoid paying taxes on interest by stashing my money in a foreign bank account?
  • A: No. Most foreign countries have agreements with the U.S. to report those things. Even if they don’t, if you get caught (you will) you can be charged with tax evasion. It’s a pretty serious charge and can bring some pretty serious fines about.
• Q: If I don’t pay this bill, will anything bad happen to me?
  • A: If you’re asking if Bruno the bat boy will show up at your door, the answer is no. However, not paying a bill can have serious effects on your credit rating and your future. The delinquency can be turned over to a collection agent and your rating will plummet. You’ll have a hard time getting a loan and find yourself trying to use 25%+ credit cards for the smallest things. It’s a downward spiral. If you truly can’t pay a bill, contact the debtor, and ask if there is anything that can be done so that you’ll stay current.
• Q: Are there any jobs where I can work from home and make over $100,000?
  • A: There are. They are very few and very far between but they do exist. In most cases, you won’t be working from home so much as from a hotel as they usually have travel ratios of around 80%. They also usually require oodles of experience in a very specific field. (think “husbandry habits of the northeastern mole.” yes, that specific)
• Q: I read the economy is heading towards recession/depression/annihilation. Is that true?
  • A: The odds are that it isn’t. There are many safeties that are in place to try and prevent that from happening. I didn’t say it was impossible, just not likely.
• Q: How much money do I need before I can start investing?
  • A: Very little. Places like Sharebuilder.com let you invest in as little as $20 increments. The real question is when should I start investing. The answer to that is: when you have little to no debt.
• Q: Why do hookers cost so much?
  • A: Surprisingly, it does have a little to do with supply and demand. It also has something to do with the fact that the customers are people who don’t realize that they can walk down to the bar and get it for free. I’d charge those customers a lot too.

And there are the real answers to the other 10 dumbest personal finance questions. This was a pretty fun series to write and I hope it was slightly educational. If you find yourself asking any of the questions, remember that there are plenty of sources online that will give you the truth in somewhat easy to understand ways. Just know that you might have to put a little time in to do research and learn.

[tags]dumbest finance questions,saving,debt,loan,credit rating,fico[/tags]

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. 20 real answers to the 20 dumbest finance questions: Part 2 is a post from: A Penny Saved, the best darn personal finance blog around.

If Nick at Punny Money does one thing well, it’s creating humor where there sometimes isn’t. His recent post about the 20 dumbest personal finance questions had me laughing with it’s “here’s your sign” sort of answers. Then I got to thinking. Before I started seeking answers to my financial questions, I might have asked a couple of those questions a time or two. And rather than sarcasm, wouldn’t it be nice to have honest real answers to them? So, hopefully, I’ll do the questions as much justice for real answers as Nick did for humorous ones.

• Q: Why Can’t I ever seem to save any money?
  • A: If you can’t ever save any money, one of two things is happening. You are stretched too thin and have too many bills and debt to have any true extra. If that is the case, it’s time to take some serious steps to remedy the situation. The other possibility is that you have your priorities a little messed up. You most likely are waiting until the end of the month and “saving” whatever is left over. If that’s not working (and 99.99% of the time it won’t) try writing down all your bills and other expenditures and putting them in order of importance. Now add the money for savings to the list. Add other things that you’d like to save/spend on. When you get a check or other income, pay the first on the list and then move to the second. Continue until you run out of money or you run out of list. Whatever you do, make sure you’re planning for the savings rather than “seeing” if there is anything left over at the end of the month.
• Q: Why should I pay off my credit card each month when I can just pay the minimum payment?
  • A: Well, the most obvious answer to this question is that if you only pay the minimum payment, it will take you years to pay off the debt. You don’t want to pay on that for years, so pay it off each month if you can. The other reason is that 99.99% of credit cards have absolutely ridiculously high interest rates. I know bookies with better juice. Why would you want to pay the credit card company nearly 1/4 of the debt each year just because you don’t want to pay the full balance. Another option is that you can’t afford to pay the whole balance. If that is the case, go back to the first question, because you have more debt than you can afford and it’s time to get rid of it.
• Q: How should I invest my money?
  • A: You have two choices. Get a professional to guide your investments and probably pay a pretty good bit of fees to do so. Or, you could learn some of it for yourself. Get a subscription to a financial magazine. I suggest Money or Kiplingers. Learn about the different modes of investment. Educate yourself and then begin to test your own theories. One caution though. Don’t put all your eggs into one basket until you’re sure of yourself and your ability to invest.
• Q: I have two loans: One small one at 5% and one large one at 21%. Which one should I pay off first? The small one, right?
  • As a general rule, you should pay off the loan with the higher interest rate first. You’ll be saving yourself 16% if you get the 21% paid off and are still paying on the 5% loan. One exception to this rule is that if the smaller loan is so small that you can pay it off in 3 months or less, it can be very encouraging to pay it off first.
• Q: Why should I bother going to college?
  • A: The truth is that College isn’t for everyone. However, the college degree has become a nearly necessary asset for most well paying jobs. If you think you can make it through College, your lifetime salary could increase by 1/4 or more.
• Q: Will I have enough money to retire?
  • Honestly, I can’t say for certain. The easiest way to decide is to make a few calculations. You should estimate that you will need 70-80% of your current salary at retirement to survive in your retirement years. So, if you are making $100,000/year when you retire, you should expect to need $70,000 to $80,000 a year to continue your current lifestyle. There are plenty of calculators that will estimate how much you need to save and what you need to have in savings today to make that happen. Visit just about any finance website and you’ll be able to find one.
• Q: Somebody told me about an opportunity to make lots of money. Is it a scam?
  • Like my son’s good friend Cookie Monster is fond of saying, “smells like a cookie, looks like a cookie, tastes like a cookie, must be a cookie.” If it sounds too good to be true, it probably is a scam. There are exceptions to that. The recent Real Estate bubble for instance. They are few and far between though. Do your research on any “opportunity” before partaking.
• Q: Hey, can you lend me X dollars?
  • Sorry, I’m not much on lending, but you could try out Prosper.com and see if anyone there will help you out. It’s a great site that allows people like you or me to lend to people like you or me while still giving the lenders some protection from default. (besides Bruno the bat boy)
• Q: I’m really trying to impress my new girlfriend. Got any ides for a cheap date?
  • Don’t tell my wife or she might expect me to do it, but try a nice bottle of wine, some sandwiches and a picnic. It’s not the greatest in January, but sometime between April and October usually work out pretty good. If you wanna go really cheap, leave out the wine and go for her favorite beer.
• Q: How will ____ affect my credit score?
  • Everything that you do financially affects your credit score in some way either positively or negatively. As a general rule, Paying your debts on time and reducing them are the best things for your score.

That’s the first 10, come back tomorrow for the next 10!

[tags]dumbest finance questions,finance questions,debt,savings[/tags]

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. 20 real answers to the 20 dumbest finance questions: Part 1 is a post from: A Penny Saved, the best darn personal finance blog around.

What if you received a $100,000 gift?  What would you do with it?  What would you buy? What would you pay off?  These are the questions that Jade asked of me in a comment.

HI I wanted to see if any of you financially wise people could give me some advice.
My relatives have been talking about gifting me $100,000( I won’t hold my breath)If it happens I want to have a plan. what would you do with it?
Jade.

Well Jade, it’s a little difficult to give you exact advice without knowing your financial status, but here goes.  If you follow the following and just ignore steps that you already have completed you should do ok.  Follow it in order.

1. Put 3-6 months expenses aside in a high yield savings account like ING or HSBC.  For most people this amounts to somewhere between $7,000 and $15,000.
2. Put about $3000 aside for fun money.
3. Pay off everything.  Get rid of all debt.  Lose the Credit Cards, car payment, student loans, and mortgage.  Of course, you might not be able to get rid of it all, but do what you can.
4. If there is anything remaining, drop the max into a Roth IRA.
5. If there is still more and you have children, drop the max into either a 529 or ESA.
6. Whats left?  Anything?  Increase your savings to a full 6 months.  Open another savings and drop the rest into it.  This is your fun savings for future purchases.

Now, this is really a pretty generic list.  Your situation is most likely different from most and will need some tweaking.  Now, chances are that if your family is able to gift $100k, they can probably help you with the financial planning.  Don’t be afraid to ask them for help with it if need be.  If you follow the above list, you should end up with a pretty solid savings, little or no debt and be started on both your retirement and your children’s education.  From now on, you put as much as you can into your future purchases savings.  When you need a new(used) car, it comes from the cash in that account or you can’t afford it.

Your new goal is to have no debt for the rest of your life.  Think about how quickly you can build savings if nearly your entire paycheck is free to be added to it!  Got an extra $1000 a month?  Be a diligent saver and you’ll be able to pay for things with cash in a lot less time than it would take to pay it off any other way.  Plus you get the rush of knowing you owe nobody.

Now is where all the rest of the PFBloggers out there get to chip in.  If you have any other advice or different advice add it here and help Jade out.

[tags]gift,savings,retirement,education,debt,credit cards[/tags]

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. $100,000 gift? Now what? is a post from: A Penny Saved, the best darn personal finance blog around.