Pinyo is running a contest at Moolanomy. The prize? 5 copies (1 per winner) of Wise Investing Made Simple by Larry Swedroe. I think I need to win this contest, because I have very limited investing experience.
My only experience with investing is with the 401k from my husband’s old job. We qualified for the 401k plan when he had been on the job for 18 months. The company gave a 50% match up to 6% of my husband’s income. We had a hard time deciding how much of our income to put into the 401k. We had gotten used to using all of our take home pay for monthly expenses. The thought of giving up 6% of Jim’s income made us a little panicky.
In the end, the allure of free money trumped any fears we had. We decided to put 6% of Jim’s salary into the 401k, so we could qualify for the maximum amount of matching funds. But then we faced another decision. Which fund or funds should we put the money into?
I’m pretty good at research, but for some reason I just cannot understand investing lingo (do you hear me, Pinyo? I NEED this book!). Frustrated, I took some advice I found on the Motley Fool, and we decided to put the entire amount in an index fund. We signed the papers, and then adjusted to the new, lower take home pay.
We didn’t miss the money each month like we thought we would. We went on with life, and forgot about the 401k for the most part. Eighteen months later, my husband was fired. He had stayed on the job just long enough for his 401k to be vested.
In June we rolled the money over into an IRA (I think…do you see ignorant I am about investing?), and it’s grown some more. We aren’t planning on touching that money for a long, long time. But given our current circumstances, it’s nice to know that money is there. If the choice came down to living on the streets or pulling the money out to live on, we’d pull it out. Circumstances would have to be VERY dire though.
So what have I learned from all this? I can’t say I know a lot more about investing, but I have learned a few important lessons.
- You don’t miss money you don’t see. The best way to invest or save money is to have the money automatically taken out of your paycheck. You’ll forget about it, and your nest egg will grow in the meanwhile. And I’m all for things that don’t take a lot of effort.
- If there is any way possible, contribute enough to your 401k to obtain the maximum company match. It’s free money! That should be enough of an explanation.
- Become knowledgeable about investing as soon as you can. You don’t want to be like us, trying to decide where we should park our 401k on a deadline, and not knowing a think about what a foreign fund vs. a safe fund vs. an index fund is. You want to know everything you can and have a plan before decisions like these need to be made.
Do you have an investing story or experience to share? Visit Moolanomy to see how you can win a copy of Wise Investing Made Simple.
Photo by Thomas Picard.
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That’s great, Lynnae. Not the being fired bit, but the being there long enough to be vested. :) And then rolling it into an IRA. It’ll keep accruing nicely.
Some companies are doing away with pensions and 401K’s are the only way they are contributing to your retirement. So take advantage of them, by all means.
Lynnae,
From what I’ve read, the 401K’s are hard to beat. You get free money from your company plus you get the tax break. We’ve never had access to a 401K but we try to put as much as possible into our IRA’s. We found out the hard way our second year in business we should have been putting in much more than we were. This year will hopefully be better as we’ve been putting in quite a bit more each month by just having it drafted directly. You’re right, you don’t miss what you don’t see!
Great post Lynnae. I think you know more than you’re giving yourself credit for. You did great by contributed enough to get the full match, stayed long enough for it to be vested, and rolled it into your IRA.
Your 3 tips are also excellent.
Okay I am co-dependent on my husband when it comes to investing and need to learn for myself but one thing I can say is evey time I am going to get a pay raise I increase my investment to my retirement account. It is a great tax break and I never get used to more money. This is especially important for us since my husbands line a work doesn’t usually offer retierement benefits!! Now to do the research on how to make that money work for us….ugh!
Thanks for the confidence booster, everyone! I feel really clueless when it comes to investing, and my husband is just as clueless. So we tend to wing it a lot.
@Michelle – How did you find out the hard way, if you don’t mind my asking. If my husband jumps into the realm of self-employment, I don’t want to make a big mistake.
@Angela – I love that idea. It’s a good way to remain frugal and grow your retirement savings. And if you ever find the key to figuring out how to make the money work for you, let me know. :)
Hi Lynnae,
Well, it’s kind of long story so bear with me. We went into business for ourselves (Dishnet Retailer) in September of 2005. That first year we took a loss on our business as we had some start-up costs and not much income generated by the end of the year. However the next year, I knew we were making more so I asked our accountant what I should do since we weren’t making estimated payments to the IRS yet and she said for me to run our financial statements June 30th and she would take a look and let me know what her guess was as to our taxes. She called a few days later and said she estimated it around $5,000. This was quite a shock as we owed nothing the year before! Well we just put everything we could into paying that $5,000 in by year end. However, just as I was breathing a sigh of relief, we actually got our tax return back and out total tax was over $10,000! The $5,000 estimate was for only 6 months! I thought she had pro-rated our income for the whole year. ugh! Anyway, we had only put about $1000 into our IRA’s. If we had been able to put more in it would have reduced our tax burden. This year we have kept up with our estimated payments and also put quite a bit more into the IRAs – I’ll let you know how it turns out!
PS We also bought a house during this year and our oldest daughter got married! God is good – we made it but I don’t know how really……
Wow! $10,000 is a LOT of taxes! And you managed to pay the taxes, the house, and for your daughter’s wedding? You’re right. That’s God at work! :)
Thanks for telling your story. And I’m making a mental note to myself to stay on top of estimated taxes!