My 401K Investment and the Ugly Truth

Well, this isn’t how I wanted to start the new year, but it’s looking like I’ll have to make a withdrawal on my 401K to hold me over until I secure my next position. Thankfully, I’m feeling pretty confident that I’ll have something lined up next month, but that doesn’t change my current financial scenario.  Plus, what if my gut is wrong?!

Sure, I could ask a few friends for a loan, but I hate borrowing money from people – especially when I have it available to me in my investments. I’ll need to take a hit on my taxes, but I think this is going to be a good lesson for me as I prepare to enter what I equate with TRUE adulthood (my forties).

Lesson 1: I need to truly create an emergency fund.

I need to be better prepared for things like losing a job, getting ill, suffering an injury, needing a major car repair, etc. I’ve never been good at this, and this past year has been a major eye opener.  Sure there was a severance package and there’s unemployment benefits, but if I had ALSO had an emergency fund, I would not need to consider a 401K withdrawal and could probably have been fine until I accepted a new position.

save

Lesson 2: I need to get serious about retirement.

In the past, I’ve used my 401K to pay off my credit cards and car loans. I need to get to a point where it really doesn’t get touched. If I end up not having a life partner to share expenses with in my future, then I need to really take some time to fully understand how to maximize the returns on my investments and how to get myself to a point where I don’t freely borrow from it.

Lesson 3: Evaluate my spending.

I’ve gotten much better at not spending foolishly, but there is always room for improvement. My health journey has helped me spend less on food – much less eating out – so that was a huge step for me these past 6 months financially (health benefits were a bonus). However, I still have a second bedroom full of craft supplies that are collecting dust because I keep buying more!  It’s time to go on some crafty no-spend months and start to donate and/or use some of my stash.

Lesson 4: Create a passive income stream.

When it comes to crafty ideas, my head is full of them! I need to find a way to put those ideas to use and preferably to create a passive income stream with them so that I’m not working myself to death in my free time. I also need to actually set up a shop with a some pre-designed items. I love the act of crafting, but then I’ll just let my creations sit in my house or give them away. I’ve had way too many people ask me to set up a “shop” so they can make purchases, so I just need to move forward and see if their interest translates in to actual sales. This papercutting nerd needs to get to work!

Lesson 5: Being a grown up is a hard.

I don’t think I would have ever imagined myself talking about investments and passive income streams…which is just a sign that I’m more of a grown-up than I care to admit (ha!). I may be young at heart and spirit, but it’s time to listen to the logical side of my brain and start planning. And yes, this plan will include a plan to reinvest the money borrowed!

Happy New Year!

2016 Goal Update #1: Financial Health

Earlier in the year, I was super ambitious about my financial goal. It’s almost as if I thought my Fairy Godmother was going to swoop down and stop me from spending frivolously.

When I take a hard look at why I haven’t reached some of my financial goals, the number one reason is physically visible….

shopping

As I look around my apartment on an average day, I will easily find a few shopping bags of items I have yet to pull out after purchasing them. Crafting goods, shoes, target finds, etc. It’s actually a source of embarrassment. I don’t need all this crap, but I somehow feed off the act of shopping.  I unwind by strolling the aisles and then feel extra happy by making a purchase.

Unwind? What sense does that make when you look in your bank account and see nothing in savings and nothing to show for it?

Sure, I’m a girl that likes to shop. I’m a girl who has paid off her credit cards and car…so it feels almost guilt-free, but it’s not. I still owe over $50,000 in student loan debt, and I know that the balance due could be vanishing quicker if I just stopped shopping the way I do.

But here’s the thing….I talk a good game. I will “school” others on what to do with their money and what not to do, but then not follow my own advice! I realize that I need to break this spending habit to ever reach some of my financial goals. So let’s focus!

Priority Financial Health Goal: Start a weekly savings plan 

I decided to follow a simple plan I found on pinterest. It seems doable and it’s absolutely less than what I spend on eating out per week. So if this forces me to cook more, then we have a win-win!

I’m on week 6 and still going strong. I had actually forgotten that I had also set up a weekly $20 transfer to my savings ages ago (in addition to the monthly automatic $25 transfer from my bank), so the balance will be higher than $1000 in 26 weeks.

Why is this significant for me? I don’t think I’ve ever had $1000 just sitting in an accessible account. If it’s not in my 401K, then I spend it. SUCH A TERRIBLE habit that I need to break!

Now do I have plans for this savings account money? Honestly….yes. I want to take a great vacation for my 40th birthday next year, and I want to do it guilt free, and I want to remain credit card debt free.

So this poses a dilemma. I’ll be accumulating savings to deplete them for an experience. Will it be fabulous, and do I deserve a great trip? Yes. However, I have to admit that there is a slight kick to my gut in thinking about finally having savings and then potentially cleaning them out.

Is there a solution?

I need to save more, I need to spend less, and I need to create another revenue source from my creative creations (potentially). I’m not sure what the final plan will look like. I just know that I’m happy with phase 1 – there are untouched savings in my bank account.

If I need to dip in there for an emergency, I won’t feel as guilty because that’s what savings are for, but I really want to come up with a plan to have savings and take a trip next year.

What if I focus on winning the lottery instead? It’s got to be easier, right?  Ha!

2016 Midyear Checkpoint

Well let’s just say that this year has not gone the way I thought it would go back in January when setting some personal goals.  I can’t say anything negative or bad has happened, but I haven’t really pushed forward with many of my fun, non-work related goals.

This stagnant status seems to be a trend for me and it’s one I reflect on annually. However, the annual reflection without action is really starting to piss me off. I’m always offering advice to younger relatives and friends about how they need to plan out their goals and take the baby steps to get there, but here I am at the same place in a lot of areas of my life.

I’ve done well professionally and am so grateful to be part of an organization that cares for its employees and has a direct positive impact on the families it serves. Outside of wishing I had a better handle of my work-life balance, I really have no real complaints about my professional life. Are there areas of improvement there?  Yes, of course – there always should be if you care about your work!

Where I feel like I’ve just stopped pushing is on items that affect my personal fun goals. So let’s use this Memorial Day to do a little reflection and status check.

When I look at the goal planning session I conducted earlier this year, there were four main areas that I decided to put a little more emphasis on for 2016 and my theme was to commit.

Financial Health

  1. Eat out Less – failing miserably
  2. Pay down 1% of my student loans – I reached about 30% of that goal
  3. Create a new revenue source by stocking my etsy shop – still empty!
  4. Have a 3 month emergency fund – not even 1 month yet but there are now savings that I haven’t touched in quite some time (major progress)
  5. Start a weekly savings plan – am officially on wk 4 of a 26-week $1000 savings plan

Physical Health

  1. Workout 3x/week – has not happened once!
  2. Increase my daily steps to 10K/day – barely hitting 5k/day
  3. Drink 8-12 cups of water/day – I have been habitually confusing diet coke and coffee for water
  4. Cook more at home – this one happens in spurts

Home Health

  1. Declutter closets – I start but never finish
  2. Declutter shoes – donated 5 pairs of shoes (so much more should go)
  3. Declutter my craft room – I keep adding to it instead
  4. Donate or sell more than you accumulate – not even close

Mental Health (have more fun)

  1. Read 12 books – I am one book behind for my 1 book/month pace
  2. Regular blog posts – ha ha ha ha (I didn’t really need to answer that one)
  3. Do something creative every day – I am realizing that while I would love this, it just isn’t realistic

While I can’t say I’ve been completely ignoring everything on this list, it is frustrating to see that nothing has had good or consistent progress.  I think I may have bitten off more than I could chew for 2016, so I am going to pick one goal in each area to focus on for the remainder of the year. If any of the other items get completed too – they will be an added bonus!

I’m trying to not be too hard on myself because I always strive to be better and at times think I should excel in everything that I do.  However, it’s time to give myself a little breathing room and acknowledge the fact that I set way too many goals for myself.  It’s fantastic to set goals to reach but if these are all challenge areas to begin with, what makes me thing I can accomplish it all just by writing it down?

There has to be room for baby steps and time for habit development.

 

 

 

 

1% rule update: Is it working?

So I’ve been doing really well with paying everything on time since I unloaded the unnecessary credit card and car debt – THANK GOODNESS!  I’m actually getting excited about checking my credit score in a few months – I’m expecting big things!

I previously mentioned that what I now needed to do was to work on my savings and paying off my student loans. It’s been almost a month since I wrote that post so I decided I would check my balance to see if a 1% weekly payment would make a difference in the total balance.

  • Has it made a difference?  Yes.
  • Has it made a huge difference?  No.

While my balance is still less than the previous month, it’s only just barely. Looks like I’m just squeaking by on the minimum to cover the interest. Progress is progress, right?

So what are my choices? Well, I really want to try and create an emergency savings fund first so I’m going to have to be okay with this minimal progress.  I’m slowly creating a savings pot by simultaneously adding 1% of my gross pay to my savings account each week.  So 2% of my weekly gross pay is being paid out to two funds – savings and student loans.

When I finally reach a 3 month salary pot, I’ll make the decision to focus on putting more money in the student loan repayment.  I need to be less scared that a huge emergency will happen and that I won’t have the funds to help myself out.

I’m liking the freedom of not worrying about funds each month, but I know I would feel even better if I had a great emergency reserve.

It’s nice to have finally gotten serious about this and to see the impact…even it’s minimal!

Goal #2 and #3 met: Pay off my last credit card & suprise parents with a paid mortgage payment

Two weeks ago, I did something I never thought would be possible this year….I paid off my last credit card!

How did I do this? Well, I got serious about my budget and started to look into what options were available in my current world. I don’t have the best credit so I couldn’t open a new credit card to transfer balances and I was a tad scared to take that route as my goal was eliminate my credit card.

I eliminated payments by unsubscribing from frivolous monthly costs.  Bye bye Weight Watchers online and Freckled Fawn subscription. One I never used and the other had items collecting in my craft room – so those were easy to eliminate!

But I still didn’t see much relief and I was getting frustrated that I would make a very minimal dent in a necessary goal of mine – eliminate my debt and start cleaning up my credit score. There had to be something!

And then it hit me….the one financial area I hadn’t tapped in to for help was my 401K. I am blessed to have a solid 401K plan and I’ve been great about investing in to it despite some of my other poor choices. Like a ton of bricks, I realized that had a great pot to get me back on my feet positively. By taking out a “loan” with a very small interest rate (about 1%), I could pay off the stupid financial choices and consolidate about $500 worth of monthly payments to a single payment of $180.

Reducing my monthly expenses by $320 would have a huge impact on my savings and emergency reserve…so I did it!  I eliminated my car payment (which had an interest rate of 8%) and my last standing credit card (which had an interest rate of somewhere close to 15% because of my late payments). I then used some of the extra funds from that loan to pre-pay a couple of utilities to get me back on track. I no longer have any excuse for late payments and/or balances from month to month.

This right here has changed my financial situation so much so that I finally feel I can breathe!

After resolving all my issues, I realized that I still had a significant amount in my savings account to help me reach a second financial goal – to pay one of my parents’ mortgage payments.

I can hear some people screaming that I should have put the remainder in savings.  Yes, I could have made that choice, but this goal is one that I knew I wanted to make the savings’ pot sacrifice for….they deserved it and I could do it.  So in celebration of Father’s Day in Mexico and my dad’s 65th birthday (June 15th), I surprised them with the deposit. My dad was so overcome with the emotion of the gift that he broke in to a sweat as he chuckled and my mom started crying. The moment was unbelievable.

IMG_7073Before anyone starts panicking, please know that I still have savings in my bank account and that I went ahead an upped my 401K investment with my employer. I’ve found that the automatic deduction from my paycheck forced me to adjust my spending because I don’t even think of the 401K as something I can use freely.

I will still continue to watch my budget and plan to put away at least 10% of each paycheck in to savings to start a true savings/emergency fund. There’s a plan in motion and it all feels incredibly doable barring any major emergencies. So send me lots of prayers and well wishes. I finally feel like I’m a true grown up who can handle most emergencies on her own because I’ll be financially ready to tackle what may come — but let’s keep the emergencies away from me for now (or ever!).

Reaching these two goals has been one of the most memorable moments of my life. Now to move on to the next!

Making some smart decisions

Fact: I’m terrible with my finances. Not epically terrible, but not good.

Proof: I physically live within my means but yet I never pay my bills on time.

I can feel you all making this face (I think my subconscious also makes it daily):

Source: Chicken Smoothie

Source: Chicken Smoothie

As I looked at the start of my 40 before 40 goals, I realized that some of my not silly goals require being financially stable and smart. So I’ve taken a hard look at my monthly spending to see where I could make some changes.  Boy oh boy are there plenty! So I had to put my University of Chicago educated brain on and take away the strength of the emotional “want” factor. The changes will commence now!

Some of the immediate changes that I’ll be making:

  1. Stop eating out so frequently – I’m a big foodie. While I don’t plan on giving up my eating adventures, I do need to stop the ordering lunch out, or picking up dinner on the way home because I’m too “tired” to cook. Eating out this much not only hurts my wallet, but it hurts my fitness goals. It needs to stop.
  2. Pay on time – this one frustrates me because I do know that late payments affect your credit score.
  3. Stop paying interest – for my last standing credit card and student loans – I need to pay more than the minimum and finish sooner. It pains me to see how much I’ve already paid of my student loans but yet feel like I’m nowhere near the end of them. The interest is killing me. I need to pay more than I’m asked.
  4. Eliminate the unnecessary monthly payments
    1. Weight Watchers online – I signed up because I wanted recipes. How many recipes did I get from here in the last year? none. How much am I paying monthly?  $20…..that’s $240 worth of payments that could have gone to the last standing credit card.  Cancelled on Monday.
    2. My Freckled Fawn kit club – I love paper crafts (which I haven’t really shared on this blog yet) so much that I actually have a second bedroom full of supplies. I had to purposely choose to live in a 2 bedroom apartment because I have so many supplies. That’s just crazy! This kit club has helped me fill in a few holes of my crafting arsenal – I needed embellishments – but they are now starting to pile up faster that I can use them. I cancelled my $25 monthly membership. I can always purchase individual items that I NEED (not want) later.
  5. The make-up hiatus – I looooooooooove Dior Make-up and other similar brands. Like my crafting supplies, I have collected an arsenal of goodies that help me paint a canvas on my eyelids and combine beautiful colors for very specific looks.  The Problem: I don’t wear make-up daily and so it piles up in my bathroom closet. I am officially committed to only buying the things I really need through the rest of the year. So things like replenishing my foundation, concealer, etc.

An example that some of my spending is not so secretive? My friend recently send me this meme which made me chuckle but came at the right time to remind me why I need to do this.

meme

I needed to really step back and examine why I wasn’t able to reach some of 40 before 40 goals a long time ago. I had to be honest with myself because I have no one else to blame. I’m not supporting anyone else in my household (except my cat Charlie), so the only person responsible for the state of my finances is ME.

I’ve never worked from a budget because I didn’t want to evaluate myself. It’s hard to intentionally look at your dumb choices. However, I’m glad I started this new blog (which has a cost) so that I can share my journey and ask you all to help me stay on track.

I still haven’t found the best budget sheet for me, but I’ll share when I do. The beauty of PINTEREST and bloggers as that others have been where I am and have already developed the tools. I just need to find what works for me and keeps me on a healthy financial path.

Perhaps my journey will inspire others to take that hard look and push forward!