Slow and Steady Savings Still Pays ... If Your Job Has Good Perks

The Wall Street Journal has an article today entitled Slow and Steady Saving Still Pays.  According to the article, you'd have made money over the last 10 years investing in the Vanguard 500 (a low-cost, S&P 500 index fund) in your 401K.  Their example was a person saving 6% of a $40K salary in a 401K with a 3% employer match, and a 3% raise every year, who made about $52,000 on an investment of $30,470, or 170.66%.  Their numbers are correct for their given assumption.

Their assumption, however, is crap.  Do you know anyone who has had a 3% raise every year for the last 10 years?  Heck, do you even know anyone who has had a 3% employer IRA match consistently for the last 10 years?  I don't.  I graduated from college in December 1999, and myself and my contemporaries'  employment experience has been a hodgepodge of jobs, several (mostly) short periods of inadvertent unemployment, few if any raises, and stingy employer IRA matches.  In fact, neither my husband nor I has ever, in our entire working lives, had an employer match of any kind for our IRAs.

In the real world:
(1) Vanguard 500 has and initial minimum of $3K, so it's 15 months before there are enough funds to invest in it.

(2) There's a $20 fee for every purchase (at least at Scottrade, where I am looking), so the original investment is only $2980.  On March 1, 2002 (15 months after you start saving) buy at the opening price of 104.62.

(3)Only an idiot would invest in $200 increments because the $20 fee is 10% of the investment right off the top.  Figure that it sits in the IRA as cash until a reasonable sum accumulates.  Let's say $1000 at a time (every 5 months) at opening price of that month.

(4) Even with 2 recessions, assume a saver dedicated enough to put $200 / month into a 401K every month and lucky enough to have the income to qualify for that for all 10 years.

(5) Today, the account would be worth around $25,838*, of which $23,800 was the original investment.  Gain: $2038 over 10 years.

(6) That's 108.56% above the initial investment, which doesn't sound bad until ...

(7) you realize that most investment guidelines assume an 8% annual return.  Using that model, there should be about $34,767, or 146.08% of your investment.  The account is $8929 short.

Bonus Question for Math Geeks: What post-inflation, after fee rate of return would your $25,838 need to make for the next ten years to have the $70,059 (in 2010 dollars) an average 8% annual rate of return from 2000 - 2020 would predict?  How likely is that in a moderate risk portfolio?

(Answers: approximately 11.25% and not very likely at all)

*I could not find the dividend data for 10 years in Vanguard 500.  I found a website that told me that the average dividend over the past 5 years was 2%, so I used that number for the last 10 years.  Also, the fees are low enough at 18 basis points that I did not bother to calculate them in.

2011 Goals

Here we go ...

1) Religious/Spiritual 
     A) Continue to Tithe - one of my big wins in 2010, let's keep the streak going!
     B) Start a daily religious practice - I tried to get really specific about this last year, and ended up burning out. Rather than setting up a to do list, I want to give myself 15 minutes a day where I pray, meditate, read the bible, write in a gratitude journal, sing, or do whatever the spirit moves me to do that day.  Once this is a regular activity, I'll see where my spiritual journey needs to go.

2) Health
     A) Eat within my Weight Watchers points every day - I weighed 169 lbs on the scale yesterday, which puts me 21 pounds over my "thin" weight and 12 pounds over my lifetime weight.  Rather than worry about a time line and a weight goal, I'm just going to eat right and exercise.  I'll re-evaluate in March - if I'm not losing weight, I'll worry about it then.  On that note ...
     B) i. Exercise six days a week - I have Judo 2x a week.  I'll go to the gym the other 4, even if it's just for a light, 20 minute swim.  A sub-goal, because I am this anal, is to ii. make the check-in list at my gym every month.  To get on the list, I must check in at least 17 times a month.

3) Financial
     A) Have a side business (or multiple) netting 1K a month before taxes by December 2011  I've got several ideas on this front, from farm eggs to online jewelry.  I need to just keep plugging away at it until I find something(s) that works.  More on this as events develop.
    B) Fully Fund 2011 Roth IRAs Needed - 10K, currently have 0K - see 3A
    C)  Save in anticipation of (hopefully very temporary) loss of primary income.  It's coming.  The more I can cut from the budget, and the more I can sock away, the longer we'll have before we have to make desperation kinds of decisions.

4) Dreams
     A) Get the farm books in order, facilitate farm improvements, and manage the goats.This year, I am going to take over the farm bookkeeping.  This will free up my Mom to assist the new farm manager into transitioning into his duties, incorporate the new 152 acres into the property, and work on a national lecture tour, which is one of her big dreams.  She's actually speaking at the 2011 Southern Sustainable Agriculture Conference in Tennessee later this month, her first national conference.  I also need to manage the goats more closely.  We've been in growth mode on the herd for a long time, but now it's time to maintain what we have and begin to cull the bottom 10% and replace it with better genetics.  This will require near-daily monitoring to watch for health problems, as well as miscarriages and stillbirths.  It will also require meticulous record keeping.
     B) Begin again on piano  Talked to my dad about this today and we are going to get started again.  My goal is still to be able to accompany at my church on the piano when our current organist is out of town, busy, or sick (our back-up organist is very talented, but she's over eighty, and won't be around forever).
     C) Re-connect with my Chinese friend  We got busy and it stopped happening, but she's a sweetie and I need to spend more time with her.  Also, it's fun to speak Chinese, at least until I run out of words :)

5) Prosaic
     1) Practice with my carry firearms at least once a month This was a big fail for me last year.  I was late getting my Louisiana permit application in last year (long story), so I don't have a valid carry permit and probably won't get one until mid-March at the earliest.  The silver lining is that this gives me time to brush up before I am carrying again.
     2) Consistently do Flylady routines.  Last year, I decided to give up having a housekeeper and do my house myself.  When I follow her routines reasonably consistently, my house is acceptably neat.  I am not trying for Martha Stewart neat, just reasonably not dirty.

Accountability 
In an effort to give myself some accountability, I'm going to review these goals monthly on the first of every month.  Wish me luck (and good health too, please).

Happy New Year!

I'm happy because I paid off one of my two family debts today!  It was the one that I had earlier planned to pay off in June 2011, but I decided to cash out my Roth 2011 fund (I am fully funded for 2010) to pay it off now, then use what I was paying toward the debt to refill the Roth kitty.  I'm comfortable with this - I have 15.5 months to come up with 10K in Roth money, and there's an incredible sense of relief in just getting this debt paid off as it's been hanging over my head since 2003.

Now I have one family debt and one school debt remaining.  Combined, they come to about 2/3 of our take-home income.

If our income stays reasonably steady, and we keep on track, we can pay it off in three years.  However, I have no reason to anticipate a steady stream of income; that's not how it works in the computer industry.  We've had steady income for a bit less than three years at this point, which is not quite a record, but getting close.  I figure things will change sometime in the next year, so I'm about to start socking away all extra money in savings in preparation for whatever comes next.

2010 wasn't the most efficient year ever for me due to heath issues.  I'm hoping this year will hold more accomplishments and fewer doctor visits.

Heading into the new month and the new year, I still have $7 in my toy budget.  I can't think of a better way to ring in the new year than ordering Silent Blade and snuggling down in bed with my iPhone.

Closets ... still ...

I'm still working on step 7, cleaning out my closets and liquidating.  But I'm having some real issues letting any of my clothing go.

I can't find anything in this!

 Does anyone else have this problem?  My closet full of stuff that I never wear, but can't bear to get rid of because I am sentimentally attached to it.  Several years ago, in an effort to break myself of this habit, I gave away (1) the outfit I wore to my wedding reception (4 sizes too big), (2) the outfit I wore to senior prom (I was a 34 B then, I'm a 36D now), and (3) every other thing in my closet that I had not worn for at least a year.  I vowed that never again would I get so attached to my clothing that I kept it beyond all reason and usefulness.

Today, the front third of my closet is full of clothing that I wear all the time and enjoy.  The back two thirds, and my off-season storage closet, are so crammed full of stuff that I have no opportunity to even try to wear any of it.  There are two categories of clothing (1) things that I happily remember the occasion that I purchased/received them every time I look at them, and (2) things that I purchased and have barely ever worn (sometimes never) but which are nonetheless quite cute and still fit, and which I am convinced that I will wear someday, as soon as I have something that coordinates with it.  Anything that is the wrong size or was worn out got purged in my last closet clean. 

So now I am stymied.  In general, I am ready to get rid of things.  I must pare my closet down, so that I can actually get to wearing some of this stuff.  But, in the specific,  I can't seem to let any individual item go.

Does anyone else have this problem?  How do you decide what to let go and/or make yourself do it?

There isn't anything to say ...

A good friend's son shot himself last week and died on Christmas Eve. His family opted to donate his organs, showing incredible fortitude and class in the midst of tragedy.  Please offer a prayer for his family, especially for his four remaining brothers and sisters, of whom he was the oldest.

Homemade Christmas Presents - Fingerless Gloves

This year, I got my homemade Christmas presents done on time.  I think it's a record.

I made the gloves, using this pattern, for my sister-in-law.

I found the pattern to be a bit large around the fingers, so I decreased from the thumb from rounds 22-25, one sc on each side.  I used 100% cotton yarn.

I wanted something a bit more feminine for my aunt, so I replaced the sc with lacy shells, and sized the pattern a bit smaller (she and I both have skinny hands).  I used a bamboo/acrylic yarn for these, so they are fuzzy like wool, but super-soft.  I'm pretty proud of the results.

I already had the yarn for my sister-in-law's present (it matches a scarf that I did for her last year).  I had to re-buy the crochet hook, because I always lose them in between projects, and I bought one skein of yarn for my aunt's gloves, for a total cost of $8.  It would have been about twice that if I'd had to buy the cotton yarn, but I still think I'd have come out ahead versus buying equivalently nice gloves at the store, plus there's the "I thought of you" bonus from homemade presents.   I'm definitely doing these again next year!

Hope you and yours are having a Merry Christmas!

Closet Mess > Willpower

I have been trying to work on step 7 of out with the old, in with the new, clean out your closets and liquidate.   But between having out-of-town guests and the lure of holiday parties, I haven't made much progress.  Tomorrow I need to mail our Christmas cards; I have zero done so far, and last year I sent eighty-three.  This year I'm going to have to pare the list down a bit I think, but if I can get them to the post office by 4pm tomorrow, most of them will arrive before Christmas.  I also need to finish two homemade Christmas presents before Saturday.  So, basically, I don't have much time for anything else, so my goal is to finish step 7 this week and worry about step 8, rethink your retirement plan, next week after Christmas. Wish me luck!