Sunday, October 21, 2007

My One Money Advice

Kyle over at Rather Be Shopping tagged me with one of those memes and I was honored to respond. The meme in particular is the title of this post. His suggestion was to have cash and buy things with it instead of charging. I will vouch that it is very good advice. I was once one of those "but I pay it off each month and get points for using it" types. As a consequence, I spent too much. To paraphrase Snoop Dogg, I didn't have my mind on my money, nor my money on my mind.

Credit Cards do that to you, lull you into thinking that you don't have to worry about it. If you spend too much you can always make it up next month or some similarly seductive justification goes through your head. I just got my first debit card (never wanted one before), and have surprised myself at how much more conscious I am of how much I am putting on it, which in my mind has now become 'taking from it', an important distinction, if only psychological. If you change your thinking, you can change your habits. But that was Kyle's One Money Advice. Here is mine:

Save your money.

Sorry, nothing very profound here. But people aren't doing it. I haven't been doing it like I should. But nothing will put you back in the clutches of debt like not having money to fall back on when you need it.

Paying off debt is almost a form of saving as it reduces your liabilities and frees more of your money to save. But once you get on top of debt, save like crazy. Get obsessed about it. Make it a priority. Pay yourself first. Trick yourself into having money if you have too.

Save a thousand dollars. Save a month's pay. Then save three to six. Save for Christmas. Save for vacations. Save for the things you know you are going to need. Save for those special somethings and surprises. Save for those nasty somethings and surprises.

I do have to "trick myself" a little into actually having money when I need it. I must confess that I used to be a little too much grasshopper and not enough ant. But to make sure that I should always have next month's mortgage payment when I bought my house (only 5% down!), I set up a Money Market Account with a $1000 minimum that my mortgage payment is drafted from. I don't dip past that minimum or else I get dinged $7. I'm cheap enough that I don't ever do that if I can help it, plus the fact that this account is almost exclusively dedicated to my mortgage also gives it a sort of "off limits" aura for me.

It seemed like a good idea, so I set another one up when I got a car payment again (not such a good idea, but it was pre-financial epiphany, and I'm keeping my sweet 2004 Jeep Wrangler Unlimited). This other money market gets fed each month with an automatic transfer that I set up. When I pay it off, I plan to keep transferring the same money into it, and hopefully SAVE up for my next car purchase. But this other money money market account forces me to keep another $1000 minimum laying around, and I have it purposed for automobile related emergencies and repairs. But that 7$ ding keeps my hands off of it when I don't need it, and is not enough to bother me when I do.

Online savings accounts are another great tool for sequestering money for specific purposes. They are real easy to open, and they also put those savings a little farther out of reach and temptation. I've just opened one myself, and I can say ING at least makes it real easy to set up automatic monthly transfers so that these savings goals or budgeting categories that I might want to have can be funded with no further participation from me.

You can even have multiple accounts for different categories with their own automatic transfers, so that the things you want to save for can become bills you pay now, but you pay yourself and profit from the interest involved, instead of some banker.

That is not even beginning to talk about retirement savings, which is really beyond the scope of this post. But take it from a reformed grasshopper, save now and save often.

If you are Kyle: Thanks for the tag and the bond advice.


Thursday, October 18, 2007

Another Devient Twist on My Debt Snowball

One of the things that most inspired me to start taking my personal finances seriously was the realization that all the money I'm paying to the credit cards and my car payment in interest, could be money that I was investing. Take my rather modest car payment of $350, currently $70 of which is interest. I could be opening mutual fund with just that and paying myself instead of a bank. So I really got pumped about getting out of debt thinking about how it was eating away at other better uses for my money and my potential to be prepared for things.

While the credit cards are my main concern, there is also that previously mentioned payment on my sweet 2004 Jeep Unlimited (you can tell I'm not going to sell it, can't you?). Plus the wife's student loan. I'm just not convinced that waiting until all of that is paid off to start my IRA going is a good idea. I do want it gone and have been making a lot of headway, but building a slow momentum towards investing as the debt clears might not be a bad idea.

So I had an idea, and I think it is a good compromise to the situation. I will celebrate killing off each credit card debt with an enrollment in another mutual fund in my IRA (and my wife's). This will only take $50 dollars out of what I can apply to other debts, and I can get some rewarding satisfaction of meeting two goals at the same time. Dave Ramsey would say that would detract from your focus on paying off debt, but it he also says the psychological element is the most important thing in personal finance.

But this will give me an emotional payoff now, and hopefully a financial one later. It is also giving me a major incentive to payoff the next creditor in the debt snowball, because let's face it, investing is SO much more fun than paying off debt. Of course, it would be a bad idea if I had crushing debt, the kind that makes you want to call The Dave Ramsey Show. But this is only slightly encumbering debt, and I do have a plan to get rid of it. I'm also trimming the fat and trying to earn more, so it's not like I'm completely robbing the snowball's momentum to do this.

So this month's IRA fund selection is in honor of the retiring of my beloved Lowes card. I guess since I put it in a block of ice at the bottom of my deep freeze, it's already retired, but I am paying it off this month. I love my new kitchen though, and still don't regret it too much. I will thaw that card out and close it when I have that Fully Funded Emergency Fund. Until then let me say I own a very old house and that is probably enough said.

Next up is the Sam's Discover Card, when its paid off I will replace the bill with another $50 automatic monthly deposit into another T Rowe Price fund like I did when I opened my IRA. Of course, the holidays are coming up, and cash flowing them (for a change) may mean delaying that double payoff until after the new year. The good thing is that I'm already working and carrying through on what would probably be my resolutions. I've even lost 20 pounds!


Tuesday, October 16, 2007

Choosing Funds for My Roth IRA

I'm trying to decide on another T. Rowe Price fund for my wife's Roth. My plan is to reduce my SIMPLE-IRA or at least contribute more to my Roth. I thought I might be able to shoot for maxing out both Roth and the SIMPLE-IRA (higher than a regular IRA contribution maximum, $10,500). Then I realized that my dear wife could also have a Roth that I could contribute to and more of OUR money can grow tax-free. So the better option would be to fully fund her Roth as well. But that is still a ways down the road to consider.

Some of the cynics out there might be thinking "but what if you split up?" (Or is it "?, I always forget.) The truth of the matter is she will get it anyway, even if she runs off with her boyfriend. Divorce is a bitch, make sure you don't marry one. But my wife asked me to move in with her when I was unemployed, homeless, and without even a car. After one date. I'm pretty sure she's not after my money. And no, she was neither desparate nor homely, we just hit it off. But I digress.

As I have said before, I'm concentrating on paying off some debts, but I think it is good to get an IRA opened up so that the channels are in place to ramp up later. That is what I like about T Rowe Price, they will let you open an IRA without a minimum investment for only committing to a $50 contribution a month.

Until more debt is paid off, I'm going to put the minimum investment into one fund, and my wife will put one into another. Then as we pay off debt we will both add another fund to diversify our portfolio, I'm thinking emerging market or international. Hopefully we can add them at the same time, and then have an "IRA race" between them.

So in the spirit of just going out there and getting started, I opted to just go for what Dave Ramsey generalizes to a "good growth stock" mutual fund. With barely more research than a quick lookover, TRP's Growth Stock (PRGFX) fund seemed appropriate for those goals. After later researching it, I could have done worse. It has a good Morningstar rating, gotten some good press in Kipplinger, although there is also the downside of a recent manager change.[UPDATE: The MarketWatch guy said sell it. Now ain't that just my luck. This is why I don't gamble.]

I also had to figure out how to make contributions on her IRA. Was I able to direct it from my account? Did I have to get my Luddite better half to sign up and just give her a check if I wanted to contribute? A quick call to a friendly TRP operator got my answers for me. She sets up her own account, but then we can establish "trading privileges" between us. I didn't explore that further but was satisfied it could be done, Luddite's not withstanding.

But for my wife's Roth, I thought I might want to go with another fund, but with the same general criteria, a "good growth stock mutual fund" from T. Rowe. Under consideration:

PERSONAL STRATEGY GROWTH (TRSGX) - Stats and press seam good. High turnover rate (85%!). Composition has 15% in bonds. This is their "Lower risk" growth stock mutual fund. Morningstar gave them a 5.

BLUE CHIP GROWTH (TRBCX) - Along with Spectrum Growth, comparable to Growth Stock (PRGFX) in TRP's ranking in terms of Risk/Reward. Large Cap. Turnover rate ~ 30%. 91% Domestic stock, 9% foreign.

SPECTRUM GROWTH (PRSGX) - Split 25/72 foreign against domestic stock. Very low turnover rate (4.5%). This is because it actually is composed of holdings of TRP Funds. A fund of funds. This is why they have a low turnover rate. The funds they hold do it for them. It is a "one-stop approach to broad diversification". What I don't get is the high expense ratios. I would think that a fund composed of in-house funds that don't turnover much would have a lower expense ratio. But I don't run a mutual fund. This guy with a 'III' in his name does, just like Thurston Howell. If I need to link who that is, it probably dates me. :-)

MidCap Growth (RPMGX) is closed to new investors. I won't even bother.

NEW AMERICA GROWTH (PRWAX) High Turnover rate (59%). Kind of a high expense ratio for the returns (0.89%).

The "Riskiest Funds" according to this:
DIVERSIFIED MID-CAP GROWTH (PRDMX) - A very young pup with not much of a track record. Slightly lagging the Lipper index for Mids. A VERY HIGH expense ratio (1.29). Turnover rate is ~30%.

(PRDSX) - Ditto but a little older. Heavily lagging the Lipper Index for Smalls.

There are probably many other "growth stock mutual funds" that I just didn't consider because they didn't have 'growth' in their name. But why complicate it too much? I don't have to pick the best one, just a good one. Best is the enemy of good enough when the real enemy is time.

This is also not a sound investment strategy, it was merely a goal. Open a Roth IRA was the important thing. Armed with a little knowledge and maybe I can do well enough. But I'm positive that it is better than doing nothing.

Because I'm just not quite sold on the Fund of (in house) Funds that is Spectrum Growth, I think I'm going to decide between Personal Strategy Growth and Blue Chip Growth. I might revisit one of the alleged "risker" funds later as we diversify. Or I might consider putting Spectrum Growth up against EQUITY INDEX 500 (PRSGX) in our next "IRA race". I have read or invented in my mind having read that too much diversivication in mutual funds is really just getting yourself to the point of being spread across the market like an index, except you pay more for it. So maybe we shall see.

But that is for some other late night.


Weekend at the WigWams

I spent last Friday and Saturday night in Cave City Kentucky at the world famous WigWam Villiage. One of only two (or maybe three) of the remnants of a chain that marked the glory years of car travel. They are by no means fancy accommodations but there is something so Americana-ish about the experience. We met up with family and friends there. Friday, we sat around the campfire, drinking too much beer, with me annoying the neighbors with my alchohol addled renditions of some old Gordon Lightfoot song on the ol' six string.

Saturday we got up and did a little caving, then looked around at the antique shops there. I added an item to my compulsive collection of antique juicers. Yes, I have THAT monkey on my back.

Back at the Wigwam we grilled up some burgers. After that, we sat around the campfire, drinking too much beer, with me annoying the neighbors with my alchohol addled renditions of some old Gordon Lightfoot song on the ol' six string. It was like deja vu, all over again.

But I will say a good thing about those massive concrete Wigwams is that they can block the noise. My wigwam neighbors were most grateful I'm sure.


Thursday, October 11, 2007

American Funds: My Choices, My Selections

just in case you stumbled here from the "internets", I should probably say that I have no idea what I'm talking about here, and if you are looking to be seriously informed you should definitely look elsewhere. This is my own personal journey through my own personal SIMPLE-IRA and it is a discovery process for learning about mutual funds, IRAs and personal finance in general, and I'm really writing this just for myself, hoping it will be a good reference in the future and at the very least a benchmark for a particular point in my life. That being said, you are more than welcome to come along and if you find it informative I couldn't be happier. But if you don't, well, I won't be any less happier I'll just say.

So I have a SIMPLE-IRA at work and I have a somewhat limited list of mutual funds to pick from. I have been investing in them for 5 years this month in them so far. These funds are provided through American Funds. I will first go over what led me to pick the funds I did, some recently discovered concerns, and then why I am seriously considering changing my strategy here lately.

A SIMPLE-IRA is probably off the radar of a lot of Americans and the its differences make me hesitant to just refer to it as just an IRA. Its a plan available to small businesses that kind of like a "Poor man's 401k" if you will. Employees can contribute up to $10,500 (?) , which is more than a regular IRA, but not quite as high as a 401k. There is Employer matching up to 3%. I believe it has lower administration costs than a 401k, and there might be some tax incentive for the small business. I have just opened up a regular ol' Roth, but that is already another post.

So I have progressed from a starting point of 3%, and made my way up to 9%, trying to get myself up to 12 or 15 originally thinking it was just better if I didn't see it in the first place. But that was before I actually started worrying about this stuff. Now it seems a more informed strategy might be to contribute up to the match, then max out my Roth each year and go back to contributing to the SIMPLE-IRA if there is anything left over, or ideally what I would need to get to 15% or beyond. I hadn't even thought about the option until recently that American Funds will probably let me write them a check at the end of the year (or in April of the next) to fill in what I might want to. I'm not for sure if I can, but I can't imagine why not. Especially if I owe some taxes. But I won't have to worry about that anytime soon.

But even as I may move to apply less to this plan and more to the Roth, I still need to make sure that it is properly positioned. So here are the original choices:

American Funds Amcap A (AMCPX) B(AMPBX)
American Funds American Balanced A (ABALX) B(BALBX)
American Funds American Hi Inc Tr A (AHITX) B(AHTBX)
American Funds American Mutual A (AMRMX) B(AMFBX)
American Funds Bond Fund of America A (ABNDX) B(BFABX)
American Funds Capital Inc Bldr A(CAIBX) B(CIBBX)
American Funds Capital World Bd A (CWBFX) B(WBFBX)
American Funds Capital World Growth & Income A (CWGIX) B(CWGBX)
American Funds EuroPacific Gr A (AEPGX) B(AEGBX)
American Funds Fundamental Invs A (ANCFX) B(AFIBX)
American Funds Grth Fund of Amer A (AGTHX) B(AGRBX)
American Funds Inc Fund of Amer A (AMECX) B(IFABX)
American Funds Intm Bd Fd of Amer A (AIBAX) B(IBFBX)
American Funds Invmt Co of Amer A (AIVSX) B(AICBX)
American Funds New Economy A (ANEFX) B(ANFBX)
American Funds New Perspective A (ANWPX) B(NPFBX)
American Funds New World A (NEWFX) B(NEWBX)
American Funds Smallcap World A (SMCWX) B(SCWBX)
American Funds US Government Sec A (AMUSX) B(UGSBX)
American Funds Washington Mutual A (AWSHX) B(WSHBX)

Before I knew much but needed to decide what to get into, what rudimentary research I did do led me to believe I should look at some historical returns, long track records and the often overlooked by the new investor expense ratio. The expense ratio is important because it will be lopped off the top of any gains. So an investment that gives you an 11% return but has a 1.75% expense ration is actually worse than getting a 10% gain with a 0.5% expense ratio.

So what research I did at the time led me to pick the 7 funds I have in bold. Most of the bond funds were out right away. I'm too young (but no spring chicken) to have anything in something so conservative besides a savings account. But the ones I picked seemed to have the best combination of lower expense ratios and the highest consistent historical gains. In the coming weeks I plan on analyzing these choices and possibly refining my choices for the first of the year. That way I have plenty of time and won't go off all half cocked again without being better informed.

Notice there are two ticker symbols, one for A and one for B. When I first got in, there was a miscommunication and I thought I HAD to get B shares. So I based my assumptions on the B-share ticket information. The difference is that American has loaded funds, particularly what are called Front Loaded Funds. This means you have to pay a sales charge before you can invest your money. With A shares, you pay it all at once in the beginning. B-Shares kind of spread out the payment over 7 years in the form of a higher expense ratio, significantly higher. Like maybe a whole percentage. But then they turn into A-Shares. After a year or so of this I discovered that I could put them into A-Shares so I did, but kept my fund choices the same.

This was slightly fortuitous for me because I then tracked these shares shares separately. I have a variable income, so it is kind of hard to extrapolate gains on the A share portfolio because I am still contributing and it's kind of hard to back it out. But the B-Shares are just sitting there growing without contributions so I can see how they perform, and the A-shares should do better with the lower expense ratios. But when I analyzed the last three years of what was going in and what the gains were they were actually horribly low in comparison. While the B-Shares were collectively up 11% over the last 3 years, the A-Shares were around 8% when I annualized the gain.

It sort of freaked me out until I realized this is the effect the front end load causes. In a portfolio effectively less than 3 years old the sales charge is putting a massive hurt on where this money could be making in a comparable no-load fund. No load funds don't charge these fees. These particular fees anyway. I also found out that the brokers might also be getting a cut of it. So that really inspired me to see if I could somehow do better on this situation.

It is also is what is making that no-load Roth look attractive. It also might make a traditional IRA look better if you have better choices, like perhaps more no load and Index funds (which have extremely low expense ratios). One thing that I noticed was that a lot of the funds that I chose seemed to just follow the S&P if you look it on a graph. So it would seem like I'm getting an Index fund, but I just pay more for them in expenses.

I plan on doing more research into these fund choices and my picks over the next several weeks to see if these choices still make sense. I have already done one thing, and rather recklessly I might add. In the B-Share portfolio I traded all of the shares of the worst performer (American Balanced Fund) and traded it all for the best performer in the selected bunch (Capitol Income Builder). A normal investment account would have tax implications for that I believe but retirement accounts don't. I was also afraid of those mysterious charges they talk about, but I think I held them long enough.

But that ought to be enough for tonight.


Wednesday, October 10, 2007

A Quick Post: More Experiences with ING Direct

So my ING Direct Electric Orange Checking Account is open now. Despite their warnings and my previously stated concerns, I had no problems hooking it up with MY bank's Money Market Accounts. I have done this a lot (draft from my MMA, and wonder if either ING is being particular about that or if maybe my Bank just dresses up a regular checking account with a MMA name, gives it a shitty interest rate, and then fee me every time I use it more than 6 times a month). But it is done now.

My plan is to keep most of my money there earning a little bit of interest and then dole it out to accounts at my two brick and mortar banks as needed. So I was eager to set up my second link. According to the FAQ, there should be an Add a Link link in the My Links tab but I have yet to see it. There were only instructions for adding them by mail. I wasn't sure what was happening but I did figure there was something that triggered it's appearance. But I wasn't sure if it was just a minimum deposit, a cleared credit and identity check, or a certain waiting period. Seems like something they might want to put in there FAQ for the curious.

While I was waiting for that to happen, I went ahead and opened a savings account with them. What sealed that decision was the slightly higher interest rate for long term parking and the fact that you needed one of their savings accounts to open an investment account with them. I'm nowhere near ready to do that, and given the high expense ratios on the limited selection of in house funds they have, I might not.

I definitely won't open an IRA with them, preferring to have more choices with one of the other guys. But I might consider an investment account, some of their funds seemed capable of producing a "better than savings account" return (avg. of course) for money I might put away for that camper or boat or lakehouse. But that is a ways down the road.

Anyway, setting up the Savings account was just as simple. My new Orange Savings Account (OSA) was automatically linked to not only my Orange Checking Account but also to my Brick & Mortar Bank as well. The OCA doesn't count as one of the 3 linked accounts you have. The limit is on 3 external accounts.

But to get back to "Add a Link". I called their customer service # (make sure you dial 888 instead of 800), and very shortly got a rather pleasant American on the line (or a close enough facsimile of one) who told me that the answer was: 30 days you must be a customer. Although she didn't say it all Yoda-ish like that. That would have been cool.

Looks like my other checking account will still be dependent upon the US Mail for now. But hey, in the 10 years I've done that, they've only lost one! (and it was just crazy late to get there)


Tuesday, October 09, 2007

Personal Finance Blogs that I Read

I'm always looking at personal finance blogs these days since it has become my latest obsession. I thought it would be a good post to list my present favorites that I check and occasionally comment on, and occasionally anonymously. I can't hardly stand to read about politics much anymore. At least my personal finances are something I can change.

So here they are.

Get Rich Slowly - One of my favorites.
The Simple Dollar - Ditto. I love how they get down and dirty on the math sometimes.
Five Cent Nickel - I like, but I think he's a little obsessed with credit cards and freebies.
Blueprint for Financial Prosperity - The Devil's Advocate series is interesting.
All Financial Matters - A little right-wingish but that's par for the course.
The Sun's Financial Matters - Looks like some good analysis.
Generation X Finance - I guess mostly because thats my (Who ref.)
My Money Blog - I don't have the risk tolerance or discipline for CC arbitrage but theres more.
The Digerati Life - Reminds me of my time in San Fransisco. Not in the way your thinking.
Money Socket - Not as frequent a poster as some, but who am I to talk?
Wise Bread - Its like personal finance you can read on the John. If you have a computer and internet connection in your John.
Zen Habits - A little light on the PF, and too strong on the Zen, but occasionally useful to me.

And I would have to add, since she agreed with me on a comment in another blog and has commented on this blog, Mrs. Micah, which used to be here. We both apparently agree on modifying our Dave Ramsey plan to be a little harder on the other debts, house, and investing early. She just figured it out much earlier in life.

As for regular sites of course there is Dave's myTMMO, on which forums I sometimes post on, mostly to get my tagline changed. I also check out Liz Pulliam Weston's syndicated column and sometimes the MSN forums that she hosts. I also usually go through the articles listed as the latest from Yahoo's Finance experts. If I read anyone there, it is usually David Bach, Suze Orman, and Laura Rowley (and Ben Stein if I want to get pissed off).

So that is what I'm reading regularly, at least in the PF world. On my iPod, I've got subscriptions to The Dave Ramsey Show (3 hour, commercial free), Kiplinger's podcast, and Money Girl's Quit and Dirty Tips for a Richer Life, as well as David Bach's podcast. I'm looking for more of them, but as with blogs they have to appelal to me just right to keep me interested.


Wednesday, October 03, 2007

My T Rowe Price Account is Set Up

I checked out my T Rowe Price login and it looks like my account is now set up. Haven't put any money in it yet. I guess that will happen on the day that I scheduled. Or they might have just changed it for all I know. Anyway, the "Dashboard" as they call it is pretty busy but also very tight, lots of tools and research at your finger tips and you can customize it. The view is dominated by your portfolio which is nice except mine is empty. ;-(

But there was a short video that walks you through the site and its features. Probably worth the eight minutes of your time.

I had a conversation during a sushi dinner (I know, lost some focus, but I did pay cash) with a coworker, and I was telling him about this and he asked about fees and I'm still not sure if there might not be some fee when you do a transaction. I'll just wait to see next month. But here is their wording that seems to relate: "A short-term trading fee of $5 applies to shares purchased systematically and held less than six months. These fees are in addition to any short term trading fee charged by the fund. The short-term trading fee is waived for T. Rowe Price funds, however individual fund redemption fees still apply." I think this means I'm safe unless I sell them in less than 6 months.

Speaking of fees, In my B Class share portfolio (mistake, thought I had to, I stopped and moved to A shares) I traded all the shares for the under performing fund(BALBX) for the biggest performing fund(CIBBX). I'm no expert but I looked at the performance of all of the funds that I have against the market indexes and they really just followed them. It is not the case of this fund being down when the others were up. So this wasn't a reduction of diversity. It was shucking a loser (compared to the others). But that is my asshole opinion on it. If I do not incur any fees from the deal, I will not shed a tear for BALBX. I do however miss having no load and index mutual funds available in my SIMPLE-IRA.

So anyway, it is probably a good thing that I had B shares to begin with. When I started my contributions, I was I put money into 7 different B class funds - split 6@%15 + 1@%10. I then figured out that I was in fact able to buy A class funds instead, I moved contributions to those. So I have a pretty clean break on where I ended contributions on these funds and any and all growth from those funds I can simply annualize and get a proper return on my investment. I even have a clean break when it happened between December and January 2005.

So I was doing some analysis on my portfolios and was figuring out true anualized total returns for the two portfolios. This means that I was comparing the money going in, and dividing where it was at today. I realized that the B share portfolio was kicking the A share portfolios ass using this math, which shouldn't be possible because of the higher expense ratios of the B share class. Then it hit me were the A-Share porfolio was taking it. THE LOADS! and I don't even know if that includes a sales commision for our local administrator.

The B-Share portfolio does get added to anymore and its growth is all, well actual growth. The A share porfolio's growth (hopefully!) is a combination of growth, contributions, and fees. I make variable amounts each month so that limits trying to figure out how much might be getting sucked out because of that. But it is also less that 3 years old so these fees have a much larger impact than it should in the future. I need to investigate if there is a difference from the contribution to the actual purchase that occurs.

Some good news that I discovered about the A share sales charge is that it diminishes more as your portfolio grows. But thats at big numbers. But when you are in a SIMPLE-IRA, your portfolio is lumped with everybody else in your company that participates, and you get a discount on the total.

Something to figure out: Is the reduced sales charge applied by the fund or by total of all funds?

Something to figure out: The B shares convert to A shares after a certain time. Do they all convert at once or in the sequence you bought them? Is that a stupid question?

But it was learning all this, and seeing the effect that has really inspired me to get psyched about opening a separate IRA and taking more control of where my retirement money goes. I currently contribute 9% to my SIMPLE-IRA, and I bought into the belief that I need %15 going to retirement. I'm torn between reducing that to just the match and putting the rest in my new Roth IRA. Or using that money to accelerate the debt snowball and then maxing the Roth when that is done (or much lower). Or leave it because, as the B-Share portfolio is performing ok with its crappy expense ratios, its A-Share counter part should be as well, except for the fees.

Inertia is a powerful force and the goal of leaving it at nine and maxing out the Roth seems doable as well. Maxing out the SIMPLE-IRA would actually be less costly, but it would mean less for the Roth. Maxing out both? Not an option. There are also spousal IRA considerations. If my wife has one too that is another $5000 (2008) that could go into Roth land that I could help her achieve with money that is now or might in the future go into the SIMPLE-IRA.

So there is still a lot of figuring out what to do.


Tuesday, October 02, 2007

I Opened an ING Electric Orange Checking Account

As the title suggests, I just opened an ING Electric Orange checking account. It seems silly not to, since they pay nearly 4% for a checking account than I currently get at my local Money Market account. I currently keep my checking account at my formerly local hometown bank and I will probably keep it open.

It is Citizens Deposit Bank in Arlington Kentucky. I feel like I have a strong tie to the community that I grew up in. I kinda want to give something back to it even if in a small way. So I do it by keeping an account open in the local bank and I send my insurance check to that counties KFB office instead of the county that I live in, which isn't really any big deal. The bank is just a small hometown bank, and they give me free checking, which might be by accident, but is enough to keep me there. I think they probably even lose money by having to mail me a deposit slip but it is also valuable to me to be able to just walk in there and know I can walk out with $10000 in an unsecured loan just because they know me. But I'd have to drive 50 miles to do that.

Since I've recently jumped on the Dave Ramsey plan, or my own deviant mutation of it, I felt like I needed another option to move myself from using a credit card to a debit card. Prior to drinking the DR Koolaid, I resisted getting a debit card for my checking account even though it was available. Considering it was 50 miles away, I wanted to limit it to just checks. I thought previously that I would just use my credit cards and pay them off each month. But that just doesn't always work out, does it? I like the convenience of plastic, so by giving up the credit cards, I felt like I really needed to move to debit or else I might "backslide". But not on the account that I pay my utilities with!

So I opened an Electric Orange account with ING. I rarely have found customer experience story posted about them that was negative. So I seized the day and opened an account. My main goal with this account is to provide an one that I can allocate money to where I used to just assume to put on a credit card. ING gives you, or at least it gave me the option, of having a $165 overdraft protection or $500. I chose the $165, but worried if it was not some kind of psych test that they might compare with my credit history. Oh yeah, they check your credit history, the kind of "hard pull" that shows up as a credit check for borrowing money. I haven't opened a new account that would do that in over a year so I wasn't worried about that.

You have to have an existing account in another bank to pull funds from. I decided to pull money from the same money market account that I set up for T. Rowe Price. [UPDATE: They say you can't open it with a money market account. But only because "institutions put restrictions on these types of accounts that prevent electronic transfers". I have plenty of electronic transfers coming out of mine. Perhaps that is ok because they are monthly bill things. Maybe they won't even notice. Still waiting on that.] The EO account may actually one day replace it in this scheme. Heck, it ought to, the interest is about 3X as better.

Also if you start out with $250, and a referral from someone, they might give you $25. Like I said, I was seizing the day, which is really more important in the long run, and opened with less. I feel like inertia is better at this stage than $25. But your mileage may vary.

I'm now awaiting the approval and arrival of snail mail stuff that will complete the process. Once the EO account is open, I might veer into their Investment or Savings accounts. I'm not sure yet if it is a Savings account only option, but you can sign up to have regular withdrawals for you starter account. I might do that too.

They even have a few funds that might make sense for an investment account. Seems like a good spectrum of No-Load, low expense ratio funds (for all I know). I might even prefer them to the loaded funds my SIMPLE-IRA has available. But that is for a much later day.

I'll plan on posting more about completing this process later and possibly utilizing their investment accounts.


What to do with my SIMPLE-IRA

For those of you that don't know, a SIMPLE-IRA is an IRA account for employees of Small business that provide a Match for retirement accounts. Its kinda like a poor man's 401-k. A SIMPLE-IRA has smaller administrative costs than a 401, but may also be more limited in its options. At my company, you can only invest in loaded American Funds funds. I have tried to find the right combination of historical returns vs. expense ratio with the funds that I have available.

When I first got into our s-IRA, I was under the misguided impression that I had to get the B-Class shares because of my lowly status. This was a miscomunication as it turns out so I have half of my portfolio in some suck-ass B-shares, but they should convert to A-Shares after 7 years so that mistake can be quickly forgotten about. I may actually have benefitted by getting into the A-Class level later when the total IRA holdings of my small company were larger, hence the sales charge was lower.

My contributions now go into the A-Class shares that have a steep up front sales charge. But at least now it is somewhat lower because as a SIMPLE-IRA participant I am discounted at the rate of the holdings of my entire company's contributions. This is were being in a SIMPLE-IRA plan really helps when you are stuck with loaded funds I think. At least you are discounted on the holdings of the group, as opposed to just yourself.

Regardless, I am now on my way to funding my Roth, even if its just a small amount right now. Hopefully it is easy to increase the monthly allotment. If not, I should be able to buy into other funds easily and diversify this IRA a little. But Roth's max out with 4K in 2007, and 5K in 2008 so those are the ultimate goals, no matter how much you are making. So thats only $417 a month/apiece. Plus, the beauty of the Roth is that, since you have already paid taxes on it, you could withdraw what you put into it without penalty, should the need arise.

One final note that I would add is be prepared to allocate to which year you wish to put the funds you allocate into. With these "Asset Builder" plans you may apply funds extracted all the way up to April 15th on the previous year. With regards to Roths, I see no reason not to apply as much as I can to the previous year. Until you regularly max it out, it seems you should always play catch up unless you are unelgible to contribute. Traditional IRA's will have tax concerns to account for that will have to be considered that are beyond the scope of this post.

So that's all I have to say about my first attempt at opening a Roth. I'll let you know how it progresses. I also don't know how screwed I might possibly be if I can't make the contribution each month. But thats why I went with a low amount to get the account set up.


Monday, October 01, 2007

Opening a Roth IRA

While I am not completely through with my debt snowball, I've been actively researching the options for opening a Roth IRA. I have also almost convince myself that I could get into one of the "monthly commitment" styled mutual fund companies for a small monthly contribution that wouldn't detract from getting much debt payed off. I actually think that in my case getting the inertia rolling early for contributing to the Roth would be better because I would have the "channels" open for when I could start contributing more.

I'm talking about monthly commitments of $25 or $50 dollars. If that is not a significant part of your budget, I think there can be a case made for getting that set up and treating it just like another bill if your budget allows for it. In mine, I think it does. I will start out with $50 and then crank it up to a lot more when my debts are all paid (except the house (and maybe my sweet 2004 Jeep Unlimited that I owe $12K on)).

My first immediate goal is to have my higher interest debt, about $5K paid off by the end of the year. Christmas complicates that. I do enjoy the holiday. I do enjoy buying presents. The difference this year is that I will budget and plan to have the CASH to pay for them this year. This might push this goal back to January 2008.

But in the mean time, I'm going to set up a Roth IRA and contribute $50 dollars a month. I want to also get a monthly contribution of $50 set up for my wife as well. Because she makes less, I will want to contribute to her IRA as well as mine, spousal IRAs were an important factor with me choosing to go with T. Rowe Price. Their sponsorship of NPR was also a factor with choosing them as well I am not ashamed to say. But this is the tale of me setting up my IRA with TRP.

First off I took advantage of the free membership benefits that Morningstar will provide anybody who fills out some form on their website. I am a long way from being able to justify their $140 annual premium membership, but they provide a lot of research value for free. I had decided to go with TRP, so first off I had to choose a fund from TRP.

Since I only wanted to test the waters, I chose one of their 5 star Growth funds,
T. Rowe Price Growth Stock (PRGFX)
. It looked like it could at least keep up with the market so it seemed like not a bad place to put $50 a month into. So with that pick, and a $50 dollar commitment I was off and running.

I needed a checking account that the money would be drawn from each month, I chose the Money Market account that I have set aside for Auto expenses. The thing about MM accounts is that the limited amount of transfers might lead you to use an underutilized one for a purpose you didn't intend to. But I can usually get by having a surplus in this account so it made sense.

That and getting through the verification process were the biggest hurdles, but not that big, especially if your are well aware of what is on your credit report. They use this info to verify you are who you say you are.

So I have completed this process, and excluding research into the fund that I wanted to choose, the process was shorter than twenty or thirty minutes. Now I have a $50 bill each month for a contribution but I don't have to think about it. It's gone from my money market account on the day of the month that I set up. This will utilize the "so-called" strategy of Dollar Cost Averaging. DCA is a popular, but actually not all that effective, strategy. But as long as you are investing, as opposed to NOT investing, it still makes sense. But it generally makes MORE sense to invest when you can, what you can, considering the cost of trading at levels which make it cost effective, as far as I can tell from what I've read.

So I've got a start on my Roth IRA. The current contribution rate will put me at a mere $600 dollars a year right now (with $4400 left to go), but hopefully I can really crank it up when the debts are paid off. I can also set my wife up with a similar IRA (probably will go with a different growth fund) that she can contribute to. I plan on setting up a similar deduction from her this month as well. Like I said, the inertia needs to be ready to go as quickly into savings as possible.

You know, much against the advice of Dave, my wife and I do have separate checking accounts. But I look at checking accounts like I do a pocket book. It's just something you put money into so I want to have a different checking account that I only have to keep up with the particulars of. I don't buy that they have to be combined, but that is an argument for another post. Otherwise its all about OUR money.

So thats my plan somewhat. Wish me luck. Unless of course you are some trolling hater. :-)


Personal Finance - Swamproot Style

I've gotten real keen on Personal Finance here lately. Part of that is my fear is that Baby Boomers like my 'rents are gonna blead social security dry and it will be up to me to provide for a dignified retirement. A lot of this realization comes from the fact that I am 37 and I have missed out on doubling just about everything that I stick in my retirement account from now on. But this is spilt milk. And this is the last time I'm going to cry about it.
I have recently become a rabid fan of Dave Ramsey. I subscribed to the commercial free 3-hour* subscription of his show (3 hours without commercials is 3X38 minutes). I post random crap on their myTMMO forums. I have drank the Kool-Aid. I am pissed off at debt and I'm not gonna take it. I've made my budget and set my goals.
It seems a lot of people who bother blogging about personal finance post their financial goals. I thought why not, nobody actually reads this fucking blog. I can say whatever the hell I want. But the idea is posting your financial goals and updating them in such a public forum will help to keep you on track.

So I'm trying to start off with a debt snowball, ala Dave Ramsey. I don't mind deviating though. I'm not actually "gazelle intense" but I am "really nervous antelope at the watering hole". I currently have 14000 dollars of credit card debt to pay off. I had accumalated about 7 thousand and my wife had accumalated another 7 thousand. Now "we" owe fourteen thousand. She was paying some high interest rate that was costing her around $100 a month. I transfered it to one of mine that offered a balance transfer at 4% and the interest is around $30. That, and combining our efforts has helped to pay off about $2000 in the first month or two of our endeavor.

I recently posted about where I deviated from the "pure" Dave Ramsey plan. I think I have room to manuveur as I have outlined without giving too much up to focus. I have a two tiered approach to the credit card debt that I would like to apply. First off is to get the balances on 3 higher interest cards (which have the lowest balances, btw), then pay a little more to an emergency fund, then pay off some lower interest balance transfers.

According to Dave's plan I shouldn't save for retirement while paying for debt, but I respectfully disagree if you have a small hole to dig yourself out of. I am currently thinking of opening IRA's using a minimum monthly deposit option that will allow a small monthly deduction to go to a mutual fund for as little as $25 or $50 dollars. I am going to do my next post on my analysis of this.

So that is the set up for the new series of personal finance articles that I am about to post about. They are really only of interest to myself and serve as a means to keep up with my research about my my investments. If they serve any purpose to any body else that might not be casing me or stealing my identity, that is merely a coincidence. So look for the yellowish rooster for personal finance.