I had a great convo back and forth with a reader of this site on saving and investing – we’ll call him Elmo – and I thought you may get something out of it too. Maybe someone else is in this current situation? Or needs some re-motivating again? (Pretty clever title for today’s post btw, eh? ;))
Here’s our emails copied and pasted below… I don’t know why I want to call him Elmo, haha.
I’m a year out of college and have a cool job I’m happy with. I had a much less cool job which I was much less happy doing, although the financial benefits were much better. I got 7 months into that job, said screw this, and got an awesome job I love instead of the financially rewarding corporate ladder climber I had before.
The problem is at my last job they set up a 401k, matched up to 6%, and all that fun stuff. I never saw a match but I did put a small chunk (maybe 3%?) into it.
My new job doesn’t do any kind of retirement stuff. I have my past job 401k still in the past companies 401k account. They said I could leave it there or move it. I was lazy (rather more not sure) of what to do so I left it there and about a grand sits there.
My main problems now are:
- My retirement is in a random 401k and I feel like I don’t know what it’s doing there
- I am not saving now because the job I have now didn’t make itreally easy
- I want to be saving!
Your blog is awesome, easy to read, and fun. Thanks for being a good blogger. Can you help!?
Hey Elmo, congrats on the sweet move! It’s always tough moving over to a place w/ less money but MAN I bet you feel a ton better yeah? I’d have done the same thing in your shoes, so well done :) And thanks for reading my blog too!
To answer your questions:
1) My retirement is in a random 401k and I feel like I don’t know what it’s doing there — That’s cuz you don’t! Haha… I would spend the time moving it over to an account fully owned by YOU and then stay on top of it from this point going forward. I’m not an expert in this area, but most people recommend moving it to a Traditional IRA where you can then invest the $1,000 into whatever stuff you want: stocks, mutual funds, cds, etc. That’s what I did when I went to self-employment, and I’d just call up your financial institution (or Google for a good one that fits your style) and then just have them walk you through the process of getting it all over. It’s super easy to do, just really annoying. Luckily you only have to move it once though :) And then for the future you’ll always have 1 main account for additional 401k xfers or more retirement funds, etc etc. It’s all YOURS to do as you wish.
2) I am not saving now because the job I have now didn’t make it really easy — I would set up either automatic xfers from your paycheck (if HR has that where you are now), OR set up auto xfers from your banking account a few days after your paycheck hits. If you’re one that likes everything being done for you so you don’t have to think or worry about it anymore, that’s your best best. You could always xfer the money into a retirement account (like that traditional IRA or even beter, a separate ROTH IRA), which will then make it harder for you to touch too since you know you’ll then get dinged/etc since it’s for retirement :) I have to trick myself sometimes like that too…
3) I want to be saving! — Then start! :) Do those auto. xfers I just mentioned, or pull money out every time you get your paycheck yourself and put it somewhere safe that you won’t touch. Or think about picking up a side hustle and earning some extra money at nights or weekends, and then put 100% of THAT away and to considered savings.
There’s a lot of stuff you can do once you know what you WANT, so now the tricky part is acting on it :) But better to think about all this stuff NOW than later when you’re old and wrinkly! And the fact you’re only 1 year out of college is even better – you’ve got plenty of time to let all these savings work for you over your lifetime.
Elmo hollers back:
Just wanted to check in with you again and let you know that your advice has helped me continue to move along in my financial journey.
Since I last emailed you I’ve rolled my old mega-corporation 401(k) into a traditional IRA that I now control (per your advice). I kicked my current employer in the shin and found out they match up to 3%! I just need to get the paperwork lined up and I’m making free money, something I know you love.
Oh and I got engaged – super awesome but it adds a crazy amount of financial stuff into the picture. I’m addicted to planning and budgeting though, so that only makes it more interesting :).
My main question right now I’m actually stumped on is how the *heck* I pick the right stocks/mutual funds/etc for the $ that is just sitting in the IRA?? What I would like to do now, being that the account is small, is set up this account as my conservative account which will just play it safe. I will make other accounts later that will be more fun but for now I want to set up a nice little nest egg for when I’m old and wrinkly and hitting golf courses up and down the east coast ;).
How do you go about picking mutual funds?
Congrats on your engagement – soak it all in bud! It goes by super fast and then you have a most wonderful day of your life and then it’s all over, haha… not the fun or love or anything – that continues! – but just the excitement of the wedding and all that :) It’ll suck planning and your fiance will probably worry her sweet little tush off, but just make sure to keep reminding her to pause and breathe it all in too. It’s a fun time in your guys’ lives!
RE: Stocks/funds/etc – First off, congrats on now having full control AND working on that free 401(k) match – that’s the best thing I’ve heard all night :) As far as what I pick myself, I’ve never been too good at it I’m afraid. I do have my ‘fun fund‘ as you know, but really for the bulk of my investments I always just call up the institution it’s at (in my case, USAA) and tell them what I’m going for and ask what they suggest.
For people young in their 20’s and 30’s the “pros” usually recommend a more aggressive fund (or funds) because we have 20, 30, 40 years to take advantage of all the growth, as well as recoup from any crazy losses. And even the “aggressive” funds aren’t hardcore like one or two tech stocks or anything. These mutual funds are still 50-100+ filled with stocks, and then a chunk for cash too – so I wouldn’t get too scared, unless you’re SUPER conservative and that’s fine too.
In that case just ask what they recommend then for your situation and they’d happily advise there. The only thing I know that people like a lot is to invest in “index funds” which basically follow the stock market. When it goes up, your funds go up. When it goes down, yours goes down/etc. But it follows it and the theory is over time it’s always more beneficial…
But yeah, I’m no expert in that area so I’d def. search around more…I’ve heard The Fool is a good place to check out, as well as the Boglehead community, but outside of them I haven’t heard of killer sites on stocks and funds… I feel like if someone was brilliant at it they’d be billionaires by now! ;)
Maybe someone else here knows of a great investing site/blog that they enjoy? Or any other advice/thoughts for Elmo and others in similar situations? All I know is that saving and investing *something* on a consistent basis is key for long term success… it’s just a matter of figuring out how to do so without wanting to punch yourself in the face ;)
[Clever photo by StockMonkeys.com]