My First Carnival Submissions
I submitted my post 401(k), Roth IRA, then Back at 401(k) to Carnial of Personal Finance #72 and Carnival of Investing #46. This is the first time I submitted to the carnivals and I'm glad that both carnivals accepted my entry. Woo hoo! Here are some other entries I particularly enjoyed in this week's carnivals:
Carnial of Personal Finance #72
- Saving for infrequent regular bills by Tired but Happy
- How much should you save? by David at Worldwide Success
- The Road To Financial Armageddon by Trent at The Simple Dollar
- Retirement Savings Contributions Credit aka “Saver’s Credit” by GaryP
Book Review: The Automatic Millionaire
I read over the weekend The Automatic Millionaire by David Bach. See my other book reviews on this list.
The subtitle of this book is "A Powerful One-Step Plan to Live and Finish Rich" (emphasis are mine). That's a bold statement. Instead of a 9-step plan from Scott Adams or Suze Orman, here we have a one-step plan. So it goes, just do this one thing and you are golden. It turns out there is more than just one step, but the gist of the book is that you should pay yourself first, i.e. setting up automatic payroll deduction and electronic fund transfers for saving, investing, and debt reduction. I'm all for that, even though that idea is nothing new. All 401k plans work this way. There's not much secret in personal finance. So don't expect a magic wand that fixes everything without any sacrifice.
David Bach says his plan requires "no budget, no discipline, less than ten dollars a day of investment." If only it were that easy! It still requires commitment and re-prioritization. When you want to buy a plasma TV and you don't have money, do you stop your automatic savings, or charge it on your credit card, or do you forego that TV? Paying yourself first requires commitment. It means you won't be able to have as many nice dinners as you want or do today. It means you won't have leather seats in your car but settle for regular cloth seats. There's no way around that. Automate however you want. At the end of the day, you have to cut your spending. If your spending doesn't come down, you won't be able to continue on your auto-pilot for too long.
I Love Southwest Airlines
Or should I say LUV, which is their ticker symbol?
Southwest Airlines is the only airline I know that will not charge you a fee for changing or canceling a non-refundable ticket. Things come up all the time. You can't make it to your brother's place or you want to go on a different date. If you bought your ticket from any other airline, you will have to pay $50, or sometimes $100, to change your ticket. Not with Southwest. When you make a change, you get 100% credit for what you paid on your original ticket. If you have to cancel the trip altogether, you don't get your money back but you'll get a "store credit" valid for 12 months after the date you originally bought the ticket. And that credit isn't tied down to your name either. You can let anybody in your family or even your friend use it. And you can break it apart and use it on multiple tickets if you have a large credit. That's very fair.
This "no change fee" policy also allows you to take advantage of fare sales. If the fare comes down after you bought your ticket, you can just rebook the same flight at lower fare, pocketing a credit for the difference for future trips. Try doing that with any other airline and you will have to fork over $50-100 first which negates the fare difference.
Combatting Survival Instincts
Jonathan Clements wrote in the Getting Going column on today's WSJ (link) about a theory dubbed "Lizard Brain" that traces the bad money management behaviors to our hunting and gathering ancestors. The theory goes that, deep down, the survival instincts inherited from experiences thousands of years ago tell us to:
- consume more than we need
- favor consumption today over saving for tomorrow
- avoid losses at the cost of potential gains
- rely on patterns discovered in the past
I'm not sure how one can pinpoint the blame but I do agree with what Jonathan said
Some MBNA Cards Didn't Merge Into B of A After All
There has been some speculation about whether the much coveted MBNA Bill Pay Choice service will survive the web site merge into Bank of America. It turned out that it was kept intact. Smart consumers can continue to use it to pay other credit cards and mortgage payments. I was also hoping that with the merger into the B of A platform, I will get the OFX download feature so I can download transactions before the statement closes. But for me, the merger is a non-event. The card I use, Fidelity Investments Rewards Card, a TFB award winner, didn't go into the B of A platform at all. It just got a different domain name, www.ibsnetaccess.com instead of www.mbnanetaccess.com. The interface is still the same as the old MBNA. Same login, same password, no SiteKey. Oh well, so much for the fanfare. Too bad I will have to keep entering those transactions by hand.
Calculator for 401(k), Roth IRA, then Back at 401(k)
[Last updated on July 10, 2008 with 2008 tax year IRA contribution limit.]
I searched on the Internet for a calculator that implements the strategy outlined in my previous post 401(k), Roth IRA, then Back at 401(k). But to my surprise I couldn't find any. There are calculators for 401(k), calculators for Roth IRA, but not one that combines them together. So I had to make one myself. If the inline frame doesn't display well, you can download it. It's simple HTML, with calculation done by JavaScript. Please let me know if you see any problems with it. Also let me know if you find a better one elsewhere.
TIPS Auction Closed at 2.691%
Results for today's auction of the 4-year 6-month TIPS are in. It closed at 2.691% real. I'm very happy about it. I'm more excited that my spreadsheet produced results that matched the Treasury's announcement to all decimal places! My initial, incorrect, quick and dirty estimate based on 2.6% yield was about $3 per $1,000 bond higher than the final results. Not bad, but now I know a better way.
For more background on Treasury Inflation Protected Securities (TIPS), please read this previous post:
9-Step Plan From Dilbert
Jason at Wheaties for Your Wallet brought up a 9-step plan for better personal finance from Scott Adams, creator of Dilbert:
- Make a will.
- Pay off your credit cards.
- Get term life insurance if you have a family to support.
- Fund your 401(k) to the maximum.
- Fund your IRA to the maximum.
- Buy a house if you want to live in a house and can afford it.
- Put six months expenses in a money market account.
- Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
- If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
Bravo! If you've done all of these, you are all set. No need to read more finance blogs (except this one). Although I'd replace #9 with
401(k), Roth IRA, then Back at 401(k)
Money magazine published a list of 25 Rules to Grow Rich By. Blogger Blueprint for Financial Prosperity also picked it up and put the full list on one page. A few rules are a little silly, for example, Rule #22:
Resist the urge to buy the latest computer or other gadget as soon as it comes out. Wait three months and the price will be lower.
TIPS Pricing Is Complex
At the end of my previous post about TIPS, I wrote:
There are many fine details on how TIPS really work.
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