October 2014 net worth update — crushed $2,700 of debt this month


Bob Jagendorf via Flickr

Welcome to October. It’s fall here in the northern hemisphere and as the leaves change color, it’s pretty natural to think of transition. One big transition I’m personally looking forward to is finally being out of debt.

In September, I took a big step in that direction by knocking out $2,700 of debt.

It just goes to show that that fixing my financial situation is all about attitude.

The numbers

Debt: Paid off $2,700 for a balance of -$105,700

There’s that big number again. And while that balance is still hugely negative, it feels amazing to make big progress like this. Financial freedom, I’m coming for you!

Retirement: Dropped $600 to $50,800

Sometimes, even though I contribute new money, the market is a total jerk about things. This month was one of those sometimes. Luckily, I’m focused on the long game here, but this still stings.

Net worth: Increased $2,100 to -$54,900

I’m pretty happy about this too. It too is very, very negative but headed in the right direction.

Let’s see how I did tackling the personal finance goals I set for myself at the beginning of September.

The goal results

Goal #1: Pay off $2,700 of student loan debt. Pass.

Yeah, I did. I made this work by setting up an automatic payment at the beginning of the month to take away the temptation to spend the money on other frivolity.

Goal #2: Limit total vacation spending to $100 per day. Fail.

Oh hey, I’m in London, still just about 3/4 of the way done with a short vacation in Europe.

I still have a few more days to go, but big expenses like rental cars and train trips are all paid for and it looks like the best I’ll be able to do will be averaging about $115 per day for the 18 days I’m afield. I was actually on track to be much closer, but then I missed a train and had to pay exorbitantly for a last-minute ticket on the next train so as not to miss my follow-on connection.

Sigh. I suppose this is what I get for scheduling early departures when I’m on vacation.

Sub-goal #2a: Have fun. Pass.

Almost forgot I set this goal!

Yes, mission accomplished :)

Goal #3: Make good vegetarian food. Fail.

Not only did I cook far less than I thought I would, thanks to Europe’s amazing culture of fast, inexpensive, good food, I also gave up on the vegetarianism pretty quickly.

At most of the inexpensive small restaurants we’ve been to, the only vegetarian options have been pastries or bread with butter. I suppose I’ll try to get back on the train in October.

Goal #4: Not get fat on vacation. Neutral.

Not quite fat, thanks to all the walking around and thanks to the much more reasonable portion size, but I’m certainly not in any great shape right now.

I’ll try to get back to this in October as well.

Goal #5: Write a post about not spending too much on attending weddings. Fail.

What the… this seems like it would have been the easiest goal to accomplish, considering that the whole point of traveling here was to attend a wedding (without spending too much). You’ll get this post in October as well!

Looks like there’s a lot I’ll have to make up in October, but because these accomplishments are important to me, it’ll be very worth it.

How was everyone else’s September?


Oh, still here? Have a bonus video of a bear waving:

Fixing your finances is all about ATTITUDE


Tambako The Jaguar

I told a friend over the weekend about some of the progress I’ve made in paying off student loan debt and was taken aback at the single follow-up question he came back with.

In fact, I’ve started to notice a trend among the reactions when I tell people about some of the progress I’ve made along the way toward getting out of debt.

When they’re simply making comments, folks are generally supportive, offering words of praise with the occasional bit of advice rolled in there. I always appreciate the motivation and additional suggestions on how I could be doing better.

But it’s the follow-up questions that make me a bit confused and make me wonder where some folks’ heads are at.

What they never ask:

I have never had someone ask me, “What are some tips for using public transport so I can get by without a car?” or “How do you find nice roommates you can get along with?” And I can say with utmost certainty that no one, upon hearing about my debt payoff, has ever asked me, “What did you eat for dinner last night?”

I find this odd because dwelling, transport, and food are the biggest components of most people’s budgets and so cutting these down should make the biggest difference in giving you more to send off to your debt servicers. And consequently, these would be the most important thing in determining how quickly you can pay off student loans.

The one questions they do ask

No, rather than ask about ways to save money, most people pretty much all ask one thing: “How much money do you make?”

That’s it.

This question is ridiculous because you should know that getting your personal finances in the right place isn’t about how much you make; it’s about how much you save.

And how much you save is all about just one thing: ATTITUDE.

As for what I had for dinner last night, I had a chick pea curry that I made with a bit of rice. And yeah, I’m still hungry.


Mortgage refinancing saves me over $5,000 per year — small changes make a big difference!


American Advisors Group via Flickr under a Creative Commons license

When I started this blog and started getting serious about paying off debt, one of the first things I did was work to refinance my mortgages. After months of working with multiple banks and credit unions, I knocked about 2.5% off each of them. Sure, 2.5% may not seem like much, but considering that each mortgage is for hundreds of thousands of dollars, my annual savings on interest charges is well over $5,000.

Every little bit counts!

That money saved goes straight to paying down student loan debt.

Refinancing could be good for all kinds of people

If you’re a property owner, there’s a pretty good chance you’re locked into a rate higher than what would be available to you right now.

There’s plenty of reasons why that might be; maybe you bought a home when all interest rates were higher. Maybe you got an adjustable rate mortgage with a low, fixed teaser rate that has since reset. Maybe you just couldn’t get a great rate since you were just starting out and hadn’t yet built up much of a credit history.

Got any other tips for saving on housing payments?


‘Are there advantages to the Roth 401(k) for high-earners?’ Ezekiel asks

USFWS-Southeast on Flickr under a CC license

USFWS-Southeast on Flickr under a CC license

I received a reader question over the weekend from Ezekiel. Ezekiel gets an employer match for the first 6% he sends to a 401(k) and he asks whether it made sense for him, as someone making six figures who plans to work until 65, to contribute to a Roth 401(k) instead of a traditional 401(k).

First a definition.

What is a Roth 401(k)?

A Roth 401(k) is a separate account in the 401(k) your company holds for you that holds designated Roth contributions — that is, contributions that you’ve paid taxes on now and that won’t be treated as taxable income in retirement.

For the 2014 tax year, the sum of your total contributions to a traditional 401(k) and a Roth 401(k) may not exceed $17,500, or $23,000 if you’re over 50.

Difference from a traditional 401(k)

The primary difference is that contributions made to a Roth 401(k) are made with after-tax dollars, and that distributions are not taxed if taken after you reach 59 1/2.

Difference from a Roth IRA

The most obvious difference is that Roth 401(k) contributions are made into an account set up by your employer and Roth IRA contributions are made into an individual account. As such, the two are subject to different limits. In other words, if eligible, you may contribute $17,500 to a Roth 401(k) and $5,500 to a Roth IRA for the 2014 tax year.

You do have to take required minimum distributions from a Roth 401(k) account by age 70 1/2. This isn’t the case with a Roth IRA

However, the main difference for Ezekiel is that there is no income limit to participate in the Roth 401(k). A single person with a modified AGI over $129,000 or a married couple filing jointly with a modified AGI over $191,000 may not contribute to a Roth IRA.

Ezekiel isn’t quite at the Roth IRA’s limits yet, but he’s likely to get there pretty soon.

Sources:Retirement Plans FAQs on Designated Roth Accounts” and “Roth Comparison Chart,” both from the IRS.

Advantages of the Roth 401(k) for high earners

Because the main difference between the Roth and traditional 401(k) boils down to whether you’d rather pay taxes on the money now or in retirement, the starting point for the decision depends on where you expect your tax rate — and to some extent ALL tax rates — to be when you retire.

If you plan to take less out of your accounts each year after you retire than you’re currently making in income, you’ll generally see a lower marginal tax rate while in retirement and should thus tend toward the traditional 401(k)

That said, there are a few compelling reasons to have some money in Roth accounts:

Taking a distribution before retirement

He definitely should plan to not have to take distributions from his retirement savings before he retires, but if some emergency pops up, he’ll be able to withdraw money from the basis he put in — but not the earnings — from a Roth 401(k) account without penalty. He would have to pay a penalty on any money taken from a traditional 401(k).

Taking a lump sum distribution in retirement.

While the average amount Ezekiel takes out each year in retirement may be lower than his current income, there may be some years where he takes out a much higher amount — perhaps when he decides to pay cash for a sailboat that he uses to invite me on trips. Taking a big distribution like this from a traditional 401(k) might bump his Adjusted Gross Income up into a higher marginal tax bracket — not so with money pulled from a Roth 401(k).

Taxable income management

I just mentioned that distributions from a Roth 401(k) don’t add to your AGI for tax purposes, but the IRS isn’t the only federal office that cares about your adjusted gross income in retirement. Your medicare premium and the amount of your Social Security payments that are subject to taxes also depend on your AGI. I suspect that by that point, Ezekiel will have plenty of tax shelters to manage his AGI, but it’s still something to consider.

So how much?

Alright, so if the conclusion is that:

  • he should shoot to have most of his money in traditional 401(k) accounts to take advantage of deferring taxes until he’s in a lower marginal bracket, but
  • there are real reasons why he’d benefit from having some of his money in a Roth 401(k)

then how should he decide how much to put into each?

To figure that out, he would have to create projections based on his expectations for income growth, inflation, future tax rates, growth of his invested portfolio, and idiosyncrasies of the sailboat market.

Good luck!


September 2014 goals to smack debt in its stupid face


Don McCullough

August was a very productive month for me. I paid off loads of debt, saw my retirement savings make a big jump, and more importantly, started to feel much more confident and in control of my debt.

In order to build off that momentum, I’m looking to have a strong September.

One hurdle this month will come in the form of a great blessing — I’m headed off to Europe for a friend’s wedding and extended my time there for a brief vacation.

Here are the goals I’ll try to accomplish.

Goal #1: I’ll pay off $2,700 of my student loans

Let’s get straight to the point. I’m looking to have another monstrous month of paying off student loan debt. Last month I paid off over $3,000 and the month prior I paid off just a couple hundred. This month, I’m aiming to end up on the higher end of that range, but tempered a bit to take into account spending on the trip.

Goal #2: I’ll limit total vacation spending to $100 per day

In order to not throw off that debt repayment number too much, I’ll have to make sure that I don’t drop money everywhere.

I’m aiming for that number to be all-inclusive too: Flight, lodging, and sights. But not food, of course; food will still go in the food budget.

Sub-goal #2a: Have fun

Because then what’s the point?

Goal #3: Make good vegetarian food

Here’s something fun that I’ve noticed:

  1. The amount I spend on food each month is most closely related to how much I eat out
  2. How much I eat out depends on how bored I am of what I cook

So my answer is to find a few really exciting vegetarian recipes, make them, and maybe share them on the blog.

Goal #4: Not get fat on vacation

I normally put a running goal in here, but have a much bigger fitness goal this month — not getting fat. I have no idea how to not get fat on vacation in between the butter-laden foreign food, relaxing, and always forgetting to pack running shoes.

But this time, I’ll do some research and it’ll be different.

Goal #5: Write a post about not spending too much on attending weddings

I’m gonna write a post about not spending too much attending weddings as I attempt to not spend too much attending a wedding.

And that’s everything I’m going to try to do! What have you got planned for September?


I’m off to complain to a company; here’s how I’ll do it effectively

If you’re like me, you interact with dozens of businesses every month. And for the most part, these interactions — whether buying, selling, or just staying in touch — go off without a hitch.

Every now and then, however, things don’t go as expected and it becomes necessary to complain about it.

Without naming any names, here’s what I got in the mail late Friday afternoon:

Oh my. Looks like it’s time for me to review the steps I take to complain effectively.

A note before continuing: When I talk about complaining effectively, I’m taking about getting some tangible benefit from it, like a full or partial refund. I understand that there may be a purely psychological benefit to venting independent of results, but that’s a post for a different day.

Let’s continue.

1. Make sure you have a real reason to complain

If you’re thinking about complaining because you believe that you deserve special treatment or because you’re trying to get over on the system, then stop reading right here. You’re totally ruining things for the rest of us.

All companies are more likely to take your complaint seriously if your complaint is a legitimate one.

Of course, not every issue is perfectly black and white, and determining whether yours is truly legitimate could take a good bit of introspection — and perhaps a sanity check by talking it over with trusted friends.

In my case, I got both the wrong model and the wrong color. This feels like a very compelling reason to complain!

2. Make sure you appear legitimate by not complaining all the time

This point ties into the first. You lay the groundwork for a compelling case well before you’re wronged by the company.

Like the proverbial boy who cried wolf, if you complain about a whole lot of nothing all the time to this company, or complain generally and leave an easy-to-find paper trail, then there’s a good chance they’ll think it’s just more frivolity — even if your newest complaint is totally legitimate.

I’ve never said a word to this company before today and as far as I can tell, my only past complaints that are easy-to-find on the internet are these two:

3. Know the best way to reach out to them

Different companies treat different media differently!

I’ve dealt with plenty of companies that take monitoring their email address very seriously and get your written request resolved in no time. Some will use every other medium as a way to funnel you to their phone lines, which is really. And for a select few brave companies, the very public space of Twitter is the quickest way to make them move.

You can generally find out which medium is best by searching for the company’s reviews on the Better Business Bureau website or on Reseller Ratings, or by checking out their Twitter feed.

The company in question only wants to talk by telephone.

4. Be polite, but firm

Of course you should work aggressively to state your case accurately. However, there’s no need to be a jerk about it.

For one, you should always assume that anything you say to customer service is being recorded. If you ever have to take your complaint public, you can be sure the company won’t hesitate to widely broadcast you berating a well-meaning customer service rep.

Furthermore, that poor customer service rep likely had nothing to do with the initial screw-up, and unloading on her just to vent might feel good, but is totally misdirected.

Finally, don’t make threats you’re not willing to back up. If you suggest that you’ll cancel your service with a company unless they address your issue, ensure that you’re prepared to do so if they call your bluff.

You better believe I’m gonna be polite!

5. Know what you want and be satisfied when you get it

If you’re reading this blog, you’re probably the sort who fights for every scrap available. Especially in times where you feel like you’ve been wronged, you may feel compelled to try to materially injure the guilty company as much as possible.

All well and good, but the problem with this is that you’re likely to come away disappointed with this mindset.

I plan to fight this tendency by knowing exactly what I want going in — to get the lens and color I paid for — to do what it takes to get it, and to walk away when I’ve got it in hand.

What other tips have you got for effective complaining?

September 2014 net worth update: Paid off $3,500 in debt!

Welcome to September everyone!

As summer approaches its tail end, it’s time to reflect upon what I did this past month to pay off debt and reach my financial goals.

August was a very low-spend month for me, as I spent a lot of time outdoors hiking or on the water, and with people I care about — rather than spending more on entertainment. Speaking of entertainment, I stopped spending money on books and e-books after finding the OverDrive app. And I cut my grocery bill significantly by not buying any meat.

All of that saving contributed to one of my strongest months for paying off student loan debt.

The numbers

Here’s what happened in August:


The good: So, in case you can’t tell, I am into paying off debt — like, really into paying off debt. That’s why what I’m most excited about this month was taking a big bite out of my student loan debt. I knocked off $3500 of student loan debt — or 3% off the total. What makes this even more special is that I had only averaged $800 per month in debt payoff the five months prior.

Picture2The OK: Adding $4400 to my retirement savings was OK. Wait, a $4400 gain was just OK? Yes, because much of it was largely expected due to a work anniversary and my conservative accounting. Another big chunk of it came from market gains, which I have no control over. Yes, it’s nice for company contributions to vest and it’s definitely nice to see the market go up, but I know that neither are things I can hope to repeat consistently. To the right, you’ll see a pie chart of where this month’s jump came from.

The lesson: Reaching personal finance goals is all about ATTITUDE!

August 2014 goal results

Here’s how I did at trying to achieve all the goals  I set last month:

Goal #1: Pay off $3500 in debt in August. Pass! See above. This feels like a pretty solid accomplishment and I’ll be working hard to keep going this strong.

Goal #2: Add $4500 to my net worth. Pass. Actually, it looks like my net worth increased by nearly $8,000 this past month. What a month, that August!

Goal #3: No buying meat. Pass. Since I do a lot of my own cooking, this wasn’t very tough at all. In the few instances I had to eat out, it got a bit tougher. Still, not buying meat saved a lot of money and was a very big help in paying off debt!


Goal #4: Run 80 miles. Fail. I got to 65 miles this month, which feels like a lot — especially when the Nike+ Running app broadcasts the results out to everyone I know. Still, a bit of a disappointment as late nights meant that I often had to decide between getting a reasonable amount of sleep and getting a morning runs in. That’s definitely something I have to work on for both my running and sleep goals.

Goal #5: Tend to career. Neutral. I think I did a decent job of this. One of the best ways to tend to a career is by doing well at my current job and I think I did a particularly good job this past month. I also gave out a couple informational interviews this past month, which doesn’t necessarily help me, except in a karmic sense — which sometimes feels just as important. I’m also up to date on LinkedIn and my résumé, so that’s good. Where I failed was that I missed out on more than a couple networking happy hours that I had wanted to go to because of double-booking and because of general malaise. Yet another reason I need to be better at sleeping. Uf…

 And that was my month! How did everyone else do on your August goals?

Sep 2014

The free app that lets you download FREE, unlimited ebooks and audiobooks — OverDrive

A couple weeks back, I weighed whether it would save money to pay $10 a month to subscribe to Amazon Kindle unlimited to borrow unlimited ebooks and audiobooks. With most Kindle ebooks costing between $8 and $11, the math seemed to favor subscribing to the unlimited service.

What could be better than unlimited ebooks and audiobooks for $10 a month?

With just a little digging, I discovered something that had the potential to be even better — the free OverDrive Media Console app for iPhone:


There are also apps available for Android, Windows Phone, Kindle, Nook, Mac or Windows.

The app gives you access to free, unlimited ebook and audiobook downloads through your local public library or school, if they’ve partnered with OverDrive.

Better yet, you can download straight through the app or the website meaning no trips to the actual library are necessary!

Here’s the gist of how it would work:

  1. Download the app
  2. For now, you have to create an Adobe ID for copyright authorization, but the forthcoming version of the app will not require it
  3. Use the app to find your local library within the big list of libraries and bookmark it
  4. Browse for an ebook or audiobook
  5. Check it out using your library card (or student ID, if that applies)
  6. The book will automatically delete itself from your phone when it’s due — usually two to three weeks — so there’s never any late fees. Alternately, you can just return it when you’re done

And that’s that!

One thing I’d suggest is that if there’s a popular or new book you’re thinking of reading, you should put yourself on the waiting list as soon as possible because I hear that these can go long. Otherwise, this seems like a pretty solid option.

Good luck and enjoy your long weekend! :)

The most important thing about investing as a 25-year-old; on compound returns and a follow-up to Eithne


Marcin Wichary via Flickr under a Creative Commons license

Good afternoon to all of you and a very special good afternoon to Eithne (pronounced Enya). Last week, I answered some questions that a reader named Eithne had sent in about how best to roll over an old 401(k) to something that made sense in her new capacity as a freelancer. In that post, I talked through some details of the SEP IRA and the One-Participant 401(k) to help her decide between her options and got her started on thinking about what to consider when putting together an investment strategy. However, I unfortunately forgot one huge aspect. The most important thing about investing as a 25-year-old is to do whatever it takes to contribute as much as you can as early as you can. Sure, you can invest at any point between now and when you retire, but you’ll never see this long a horizon for your contributions to grow and recover from any downturns in the market. Let me see if I can explain better with an example.

An example (based on my life)

Part 1: The early investor

Suppose I had started contributing $4000 to a Roth IRA every year since I turned 25. Suppose further that I had put all of that into a broad-based index fund; in this example, I’ll use the Vanguard Total Stock Market Index ($VSTMX) mutual fund*.

Click to enlarge

Click to enlarge

After plugging in the values for VSTMX taken from Yahoo! Finance, it looks like taking this approach would have left me with $64,167 as of the market close yesterday. Not bad for putting just a few-thousand dollars away every year, right? Now, look at the next line after that. What that says is that if I were to never make another contribution again, then the value of my Roth IRA would be a not insignificant $157,769 when I turn 65 and am ready to retire.

Part 2: The later investor

Now, imagine instead that I had done the opposite — that is, suppose I had put nothing away until this point and instead, planned to put $4000 into a Roth IRA for the coming 31 years until I turn 65.

Click to enlarge

Click to enlarge

If I had waited to put anything, then I would end up with $188,367. What you should notice is that yes, I do end up with more in the second scenario — 19% more, in fact — but it doesn’t seem to be substantially more, even though I made over three times as many payments. Let me say that again more clearly: Investing for 10 years now will give you almost the same result as investing for 31 years later. And one more time a different way: Investing $40,000 over the next 10 years will give you almost the same results as investing $124,000 later. Look at these two graphs: earlygraph latergraph

What these graphs say is that when you invest later, you have to keep working hard to keep putting new money in. But when you invest early, the money you put in does the work for you, thanks to compound returns. Before I conclude, there are a few assumptions I made here:

  • I assumed that VSTMX would grow at a constant 8% annual rate; the market will likely not do this
  • I did not adjust for inflation because I’m comparing final results at the same future date, however inflation may play an important role in how much you’re able to contribute
  • I did not adjust the retirement strategy as age 65 approached; in practice, investors near retirement may change their investment mix or contribute more to catch up

Of course, what wold be even more ideal would be to both invest now and invest later. Good luck, Eithne :)


*Important disclaimer: Do not take my use of this fund in my example as an endorsement of this fund, the fund family, or any implied investment strategy