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Archive for August, 2008
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Developing Strategies To Remain Debt Free – Strategy 1 In The Series
August 18th, 2008 
NCN Finally, YOU DID IT!
You worked hard, you sacrificed, you made extra payments, and now, you are, officially, 100%, DEBT FREE!
Excited, you do a little dance, complete with running-man style knee lifts and a little old school moon-walking.
Life is good. No. Life is GREAT!
For the next few weeks, you feel like a King. Who’s the man? You’re the man! Who’s debt free? You’re debt free! Who rocks? You rock?
Then…
You realize that you have a NEW goal – an even BIGGER goal.
You want to remain debt free.
On February 26, 2006, I made my final debt reduction payment. I was, for the first time in my adult life, free from the burden of debt.
Debt free, I celebrated with my friends, my family and my blog readers. Life was good. No. Life was great!
A few weeks later, after the euphoria subsided (it never quite goes away…), I realized the need to develop some strategies that would help me remain debt free.
Developing Strategies To Remain Debt Free
Strategy 1 – Finding The Balance Between Investing For The Future and Saving For The Present
If you want to remain debt free, you need cash. But, if you want to plan for your retirement, you need contributions. I have worked hard to find the right balance between investing (for retirement and kids’ college) and saving (for future purchases like newer cars, new furniture, and other major items). Income is limited, and must be allocated wisely.
At every turn, there are decisions to make. If I contribute to my 403(b) (a pre-tax retirement account), my income taxes are reduced. But, I won’t have access to that money (without penalties) until I’m ready to retire. If I put more money into my savings account, I’ll have easy access, but I’ll pay income tax (and tax on any earned interest).
If I maximize my Roth IRA (an after-tax retirement account) contributions, I’ll be setting the groundwork for a great retirement. But, there are some restrictions associated with accessing the money in my Roth, should I need it. Conversely, if I keep the money in a checking account, and don’t make my Roth contributions, I lose a year’s worth of retirement funding.
I created a life priorities list, to help me decide which accounts get funded first, second, third, and so forth.
1. I want minimize my taxes.
2. I want a nice retirement.
3. I want to pay cash for major purchases.
4. I want a really nice retirement.
5. I want to help my kids pay for college.
6. I want to pay cash for a home.
Using this priorities list, I’ve then created my prioritized funding list.
1. Each year, I will fully-fund my 403(b) (and other pre-tax retirement plans).
2. I will maintain (or build) and emergency fund (in my savings account) equal to 12 months worth of household expenses.
3. I will save – in my savings account – for future car, furniture, and appliance purchases.
4. I will fully-fund my Roth IRA.
5. I will fully-fund Education Savings Accounts for each of my kids.
6. I will save – in my savings account – for a future home purchase.
As you can see, I’ve tried to find balance between the future and the present. There are some expenses, like newer automobiles or newer appliances, that are inevitable, even if I don’t know precisely when they will be incurred. As a person living debt free, I need to plan for those expenses now, instead of waiting to worry about them when the engine blows or the dryer dies. But, if I focus too much on the ‘what ifs’ associated with current needs, I’ll fail to adequately fund my retirement accounts.
Finding balance can be difficult. It requires asking, and answering, some challenging questions.
Am I willing to be as intense about saving money as I was about reducing my debt?
Am I willing to give up some retirement contribution opportunities, so that I can maintain adequate (as defined by me) cash reserves?
Am I willing to pay higher taxes, this year, so that I can have access to my money?
What percentage of my money should be dedicated to savings?
What percentage should be dedicated to investing?
Over the next few weeks, I’ll explore these questions, and many more. I hope you’ll stay tuned, and I really value your feedback. (When leaving a comment, please be patient. For some reason, comments take a few minutes to show up. It’s a problem I’m aware of, and I’m working to correct it.)
If you are interested in keeping up with this series, consider subscribing to No Credit Needed. This series is very important to me and I’ll be taking the time to adequately prepare for and develop each post.
Side note: For those looking forward to the next installment in the Bills-In-A-Box series, stay tuned. It will be up Thursday! (Hint: I have a new video camera.)
One final note: For the purpose of this series, debt free means debt free including OR excluding a first-mortgage. I live in a house provided by my employer as part of my compensation. So, I’m saving for a future home purchase. Should I need to move, I would face another decision – to rent or to buy (with a mortgage). At some point in the future, I’ll write a bit more about this topic. Suffice to say, buying a home with cash is a big time goal – and one for which I’m shooting!
Midnight Meanderings: Sites Redesigned And Network Reopened
August 17th, 2008 NCN The No Credit Needed Network, sister site to No Credit Needed, a now open to new members. Click here for more information about the NCN Network, including how to join.
I have spent several hours redesigning the look and feel of the No Credit Needed Network Site. Hopefully, members will like the new look and enjoy the added usability.
I have also updated the look of my other site, No. Calories Needed. Check it out and let me know what you think.
Decision Made – I Am Moving All Of Our Accounts To Vanguard
August 16th, 2008 NCN Yesterday, I mentioned that I was thinking about moving all of our retirement and education savings accounts to one brokerage, Vanguard. Spurred on by this comment from reader Matt, I did a little more research, and I have decided to make the move.
Vanguard offers enhanced services for customers who qualify. Qualification for these services is based on total household assets held with Vanguard. For complete details, check this page from the Vanguard website.
To qualify for Vanguard Voyager Services, a minimum of $100,000 is required.
To qualify for Vanguard Voyager Select Services, a minimum of $500,000 is required.
To qualify for Vanguard Flagship Services, a minimum of $1,000,000 is required.
From the Vanguard website:
We determine membership by aggregating assets of all eligible accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs, annuities through Vanguard, The Vanguard 529 Plan, certain small-business accounts, and employer-sponsored retirement plans for which Vanguard provides record keeping services.
As an added bonus, once I’ve accumulated $100,000 in a single fund, in a single account, I’ll qualify for Vanguard Admiral Shares, which have lower expense ratios than do standard shares.
As soon as I publish this post, I’m going to begin the transfer process. Wish me luck!
Tags: Stuck Trying To Decide What To Do About My Retirement And Education Savings Accounts
August 15th, 2008 NCN I’ve spent the last few hours trying to decide what to do with our retirement and education savings accounts. As it stands, my wife and I have our Roth IRAs with one brokerage, my daughter’s ESA is with a second brokerage, and my SEP-IRA is with a third. I’d love to move them all to one brokerage, Vanguard perhaps, but I don’t know if it’s worth the hassle – and the fees – associated with moving them.
I’ve also spent some time thinking about our asset allocation. Right now, we’re invested in a hodgepodge of index-based mutual funds and exchange-traded funds (ETFs). I need to reread Nickel’s post about managing asset allocation across multiple brokerages.
I really haven’t decided what I’m going to do, but I wanted to get my thoughts out of my head and onto the screen. I also need to open two more ESAs, one for my son and one for our newborn, but, I’m not going to do that until I have decided whether to consolidate with one brokerage or not.
Decisions, decisions. If you have any suggestions, I’d love to hear from you. Simply leave a comment and let me know what you would do in a similar situation. Would you move all of your accounts to one brokerage? How do you track your investments, especially if they are with different brokerages?
Side Notes – I hope you like the new logo at the top of the site. It was designed by Pete from over at Bible Money Matters and Blog Logos. I think he did an awesome job, and I really dig the bold black and red design. Also, I’ve added a new dedicated search page to the site. Hopefully, it will make the site a bit more user-friendly.
