Why You Shouldn’t Max Out Your 401(k) – Of Dollars And Data

Why maxing out your 401(k) might not be as beneficial as you initially imagined.
— Read on ofdollarsanddata.com/should-i-max-out-my-401k/

I think this is worth sharing for Monday Financial Nuggets. This is for you if you work 9-to-5, or have ever contributed to a retirement account, or are thinking of contributing.

Many, if not all of us, had heard that it’s good to max your annual contribution to the retirement/401k (or 457k if you’re a public/government employee) because of the employer matching contribution. Well, the same folks (financial experts) who touted the paradox of maxing out are singing a different song now.

If you’re currently maxing out on your 401k, this is a must-read for you.

I never maxed out; only contributed enough to have each employer I worked for match it. But I did know a few people who did. The few I knew complained about any and everything involving money; it was pulling strings to get them to take self or family to dinner or vacation. Whether or not it paid off for them, I wouldn’t know.

Anyways, maxing out surely puts a strain on available cash-in-hand and, as the article states, dampens the enjoyment of living, and missing out on one’s youth including other life essentials.

Of course, we’ve been taught that life is about opportunity costs. But about time we make life about equilibrium.

I hope you enjoy reading the article and learn something. Let me know your thoughts on this in the Comments.

Monday Financial Nuggets: The Poor, The Rich, and The Wealthy

The poor, the rich, and the wealthy: God made them all. Baring any financial inheritances, and level playing fields, God created all equal – one head, two eyes, and two legs. None was born with two heads and three or four legs, right? Such a being will no longer be human.

Why then are some poor and some rich or wealthy? Why isn’t everyone in a level financial field? And why is it that some no matter how hard they labor, it’s as if the money is being thrown into a basket with holes and yet have to worry about food, clothing and shelter? Yet, some only work a few and have all the luxuries of life and not a care in the world?

Is it right to say that God intentionally created some to be poor? God, the One who owns the hills and cattle on the hills (meaning that God is abundantly wealthy and owns everything) will desire that His sons and daughters live in abject poverty, while reserving the wealth for a few 1% (10%?)? That is not the kind of God I have come to know. Let’s think about this for a second.

The above verse has weighed heavily on my heart until I came across another statement, then I understood what the verse meant.

The Three Types

There are three types of people in the world: the poor, the rich, and the wealthy.”

Dr. Myles Munroe

“There are three types of people in the world: poor, rich, and wealthy.” This statement was made by the late Dr. Myles Munroe, the Sr. Pastor of Bahamas Faith Ministries International. Dr. Munroe went on to say that:

  1. Poor people always talk about money. “I don’t have enough.”
ThinkerTalker says: Change your words and start speaking in abundance and positives, lest it becomes self-fulfilling.
  1. Rich people think about “things” and what they have. “Look at my clothes, yacht, car, stock, etc.”
ThinkerTalker says:  Don’t let “things” be the yardstick for measuring your life. There are tons of invaluable feats that we can invest in. Let’s look for those.
  1. Wealthy people think and talk about ideas. They don’t think or talk about their money or things.
ThinkerTalker says:  May God bless us with multi-million dollar ideas and creative abilities.  Could it be that we are already blessed with those million-dollar ideas but we’re sitting and procrastinating on them or allowing fear to keeps us from moving forward with them?

Looking at the three different types of people, we can deduce the outcomes based on each’s mindset, focus, time and money management. Including each’s proactiveness and reactiveness.

In order to become a different type of person, one has to desire the type and vigorously pursue it. what it is that is done differently by those types.

Income Inequality

Put another way, there is income inequality and the gap has widened for the top 10% while shrunken for others. “Income allows a family to get by; wealth allows a family to get ahead.”

Credits: Federal Reserve, St. Louis

“Income is also a fairly common indicator of financial well-being.”

Education has been deemed a necessary tool to help in reversing the lack. Still some debate the need of education because of such people like Bill Gates and Steve Job. Such folks should engage in however means they know or have to stay informed,

Demography may not be economic destiny, but it is strongly related to financial outcomes

St. Louis Fed

In conclusion, we can reverse an unhappy financial situation, be it personal or generational, by investing early in life for the long run, having cash (or readily convertible to cash) in hand, spending wisely, and managing the money we have.

Thanks for reading. Cheers to your wealth and improved financial situation

Of Wealth and Attitudes

Do you know what determines whether you will be wealthy or not? Or yet, if you’re wealthy, whether or not you’ll be able to manage and hold it?

There is a science and art to wealth and most of us are still trying to figure it out. I do not have the right answer, but I realized that that there is no one thing that determines one’s propensity to be rich. Well, being born into a wealthy family could be one inclination to continue in the wealthy paths if the wealth is passed down and properly managed. Sometimes the wealth is donated to organizations rather than willed to the children. Another inclination is to hit the jackpot. Short of these two, you’d have to work and make your money work for you.

The Science

In making your money work for you, one scientific way is to save or invest. Savings is less riskier than investing. With savings you’re guaranteed your money back, with a meagre extra. Except, of course, there is a bank run. I pray not. But with investing, there’s no guarantees – you can either lose it all or make large sums of extra money from it following a rule of finance of “the greater the risk, the greater the reward.”

But how do we save or invest? Consistently. Consistently setting aside a fixed amount is the key.

For how long? Forever. Excuse me, nothing is forever. Howabout holding for the long run, at least consistently for ten years. Better will be twenty to thirty years, and best for as long as you live.

This is the main secret of Warren Buffet’s wealth after his experience of selling his initial stocks too early only for the stock to quintuple. According to sources, Warren Buffet started investing in stocks at the age of 11.

Undoubtedly, Warren Buffet benefited immensely from the compounding interest (CI) over the long haul. With CI, your money multiplies exponentially. For example, if interest rate is 5% and you invested a $1000, the first year will be $1,050, (note: leaving the same amount in a savings account might only yield about $2-$5!), second year will be $1,102.50, third year $1,157.63, 4th year 1,215.51, 5th 1,276.28, etc.

The compound interest formula is P*(1+i)^n; where P = principal, i = interest rate, and n = number of years. You can plug the numbers on your computer or an Excel spreadsheet to calculate it.

Compare compound to simple interest using the same example of $1,000 at 5% for 5 years, the total interest will be $250.

The difference in this examples are not so great; $26.28. However, the larger the amounts invested, the higher will be the yields and thus become more meaningful sums.

The yields will also depend on if the rates are calculated annually, quarterly, monthly, or daily.

“It is science because investing is a process and art because of the manner in which it is executed.” –

Brijesh Damodaran

The Art

Having the money is not enough. Our behaviors with money; how we view it, including our spending habits, whether we believe in savings, in taking risks or not, will also determine whether we hoard money, donate it, or just like to stare at it in our room, drawer, or safe. Unfortunately, some still don’t believe in keeping their money in the bank. Once the bank is full, do we go on a spending spree or start bragging about it? May God forgive us for either. These sums up our money attitudes and falls under the art of money. Our attitudes towards money is constant irrespective of our salaries or business revenues. Some folks wished they made more money. But I propose to you that it is not about making more, it is about efficiently managing what you already make.

The art of money management can be genetically-inherited or environmentally-acquired by learning from different sources such as friends, from work, or self-taught.

Like everything else, the art of money management (that is, our behaviors and attitudes) can be changed. We can reprogram ourselves if a particular habit is not working. May God help us all to see what areas of our money habits need to change.

Let’s Talk About BUDGET and Budgeting

Benjamin Franklin once said that

“If you fail to plan, you will plan to fail.”

What are your thoughts on the above quote?

. . .

I am a big proponent on planning and I believe that planning is essential in one’s personal, professional, and/or business lives. There’s no better place to plan than one’s finances. Personal finance is a big topic and the beginning of a New Year is a good time to talk about it, as well as Budget and Budgeting.

What is Personal Finance?

Personal finance is the management of your money and knowing how to make financial decisions that impact you (and your family). It starts with knowing how to budget, balance a checkbook, obtain funds for major purchases, knowing the difference between good and bad debts, saving for retirement, planning for taxes, purchasing insurance and making investments.

I am not a financial advisor. But I was a Sr. Financial/Budget Analyst for a few years during my professional life including having being a Budget Manager for a couple of social organizations. I also enjoy budgeting and analysis.

What is a Budget?

A Budget is one part of personal finance. In fact, I would say that it is the first step in personal finance. Budgeting is necessary to plan your cash inflows and outflows. However, a lot of people don’t budget, or like my younger daughter used to say in mid school, “it’s in my head.” The problem is that the head can only retain so much on any daily, weekly, or monthly basis; let alone annually. I also didn’t use a budget for years, but now I will gladly say out loud, “that’s not in my budget!”

On a personal basis, a budget is a plan of your income/all monies received by you less your total expenses, including monies set aside for savings, investments, and loan repayment if any..

Budget is for a specific period of time that can be a calendar or fiscal year. Personal budgets are usually done for the 12-month calendar year, but it could also be set for any rolling 12-months.

A Budget is a plan. It is not etched in stone. You can move money around from one bucket to the other especially for unforeseen expenses. But make sure that the bucket being used will not have any expenses for the year.

Benefits of Budgeting

  1. Avoid financial stress
  2. Know your financial state at any particular time
  3. Control and track your spending/expenses
  4. Help avoid unnecessary spending
  5. Helps prepare for financial emergencies.

The primary disadvantage of Budgeting is that it takes time to set up and to do the monthly forecasts. But once set you don’t have to redo it from scratch every month or year. Budget also helps you forecast your spending.

Most people are a paycheck away from (fill-in-the-blanks). This is partly due to living paycheck-to-paycheck and lack of budget and/or (financial) planning.

Start the New Year right with a Budget; a plan for your money; you will be glad you did. Reach out if you need help creating your Budget for the year.

Do you have a budget or feel that it is unnecessary to have/create one? Answer in the comments. Thank you!