My 401(k) is hemorrhaging but I’m not freaking out. I’m not freaking out because I’m 28 and years away from retirement. However, several readers have emailed me recently asking me what they should do about their 401(k)’s and IRAs after recent events. Unfortunately, I told them to call up a financial adviser because I don’t really have a suitable answer. But this afternoon I spent some time thinking about it and wanted to give a more reasonable response. I tried to put myself in their shoes and say what I would do.

If you’re like me, about forty years away from retirement, the answer is that you should do nothing differently. Make your regular contributions, check your asset allocations, and do something else with your time. A lot can happen in forty years so you shouldn’t do anything rash like liquidate all of your assets. We had a recession in the 80’s, a mere twenty years ago, and since then we’ve seen the longest bull market period in a very long time. Trying to time the market is a fool’s errand and, honestly, your time is better spent enjoying life rather than fretting about your balance sheet.

If you’re slightly closer to retirement, say ten years away, now’s a good time to adjust where your new contributions are going and go towards a more conservative allocation. I wouldn’t liquidate your equity positions but any new money should go towards conservative investments that will lower the amount of volatility you’re exposed to. Check out the1-year chart of the CBOE Volatility Index, an index that tracks the 30-day volatility of the S&P 500 index using a variety of investment vehicles. Note the fact that since August, that index has been going insane. The enemy of a retirement in the near future is volatility. While I wouldn’t sell everything off, I would adjust my contributions to lower the volatility by going with safer investments.

If you’re a year or so away from retirement or in-retirement, hopefully your exposure to equities is limited. Either way, chances are your investment portfolio went down along with everything else. For retirees, I don’t know what the right answer is except that you might want to consider getting some supplemental income to buy more time until the market has an opportunity to somewhat correct itself. I would liquidate enough funds, from equity positions, to make it through the next three to five years and keep the rest as is. But remember, I’m 28, so I would take that advice with a very large grain of salt.

Do you have any better advice?

(Photo: silvaazniv)

The main point of Daniel Solin’s The Smartest 401(k) Book You’ll Ever Read is that your 401(k), or 403(b) or 457(b), and it’s employer match may not be a no-brainer investment because it could be filled with funds that fat on fees and poor on investment selections. His answer? It’s to model the Thrift Savings Plan, the retirement plan available to government employees that consists entirely of low-cost index funds (the expense ratio is around 0.03%), and use low cost index funds for your retirement options. Look inside your mutual fund options to find the ones that most closely model index funds and go with them.

I think The Smartest 401(k) Book You’ll Ever Read by Daniel Solin does a very good job of opening your eyes to the fee-ladened landscape of retirement investing. He takes specific aim at 401(k) because those “captive audience” type programs are more deceitful than you can imagine. Many companies use plan administrators that offer 401(k) plans for free because they know they can make a killing on the back end with expensive fund choices. If they really had the employee’s interests in mind, then they’d simply offer cheap index funds. In fact, some companies actually pay kickbacks to company HR departments to use them. The plan administrators pay companies for the opportunity to offer their fee fattened funds! It’s pretty ridiculous.

Unfortunately, this means that if you mainly invest in low cost index funds, you won’t get much value out of the first few sections of the book (it could spur you to rollover your 401(k) when the time comes!). The book continues to talk about other retirement investments such as IRAs, both Traditional and Roth, and annuities.

One characteristic I like about the book is that the chapters are short. Many are under three or four pages long, which is exactly how long it should take to explain many of the fundamentals about investing. For example, Chapter 14 is called Simple Investing Is Smart Investing is about three pages long and explains why a simple allocation of basic mutual and index funds will be sufficient for most. Chapter 22 is called “Why Fifteen Is Your Magic Number” and uses three pages to explain why you need to save 15% of your income if you want to expect to have a successful retirement. That, coupled with a applicable quote (usually from some important successful investor such as John Bogle), makes this book an easy read. There aren’t large chapters to digest, there aren’t huge concepts to wrap your head around, this book makes everything nice and simple.

This is the second deadly sin of personal finance (the first deadly sin was failing to have an emergency fund) and one that some of our friends have been thinking about “committing.” We’re all in our late twenties and buying our first homes. Despite what the experts say, home prices are still very high in the Baltimore and Washington D.C. areas, barely within affordable reach for many people our age. So, our friends are looking for places they can tap to help with a down-payment.

Inevitably, they learn about how they can borrow (or worse, withdraw and be penalized) from their 401(k) to help with the purchase of their first home. This leads right into the second deadly sin of personal finance:

Don’t Raid Your Retirement Funds

Remember when you were a kid and your parents planned a vacation? Part of the fun of the entire vacation was the anticipation of going on a trip. The excitement the night before as you couldn’t sleep, the energy you had packing for the journey, and the planning of events beforehand. In talking to colleagues, retirement is very much like that. You plan new hobbies to try, new events to attend, and new places to see. When you raid your retirement fund, you put all that in jeopardy. You have to slide back the day you hope to retire. It’s devastating and demoralizing.

Sometimes you can’t help it. A lot of people who hoped to retire last fall are continuing to work because their retirement investments fell. I’ve chatted with at least one person who thinks they’ll have to work a few more years just to get back because they were over-exposed to equities. In his case, he was too aggressive and he came up craps on the roll of the dice. With so many other potential problems, why make things harder for yourself by stealing early from the cookie jar.

You need that money if you ever want to stop working. As Gary Bonner, a contributor of BFP, once wrote in Making a Living? Or, Making a Life?: “no one has ever laid on their death bed saying ‘I wish I had spent more time at the office.’” We want to stop working as much as we want to have a new television, or a new pair of shoes, or a bigger house. However, every single time you take money from your retirement fund, you’re extending the time you have to spend at the office.

$1 today is ~$22 in forty years. At a conservative 8% annual appreciation, every dollar you take out now is worth $21.72 in forty years. Twenty-two bucks may not seem like a lot but you have to think of it as a multiple of twenty-two. $100 is $2,200. $1,000 is $22,000. Is the sacrifice worth it? In most instances, no. There is no clear cut answer in the rent. vs. buy question. With so many different situations and scenarios, you can’t clearly say that one is vastly superior to the other. But I can say, without a shadow of a doubt, you will need your retirement funds in retirement and every dollar you take today will steal $21.72 from you in forty years. That’s just math.

Like everything else, it’s not black and white. If you have a major medical emergency and it’s exhausted your insurance and your emergency fund, you won’t have any choice. You will have to raid your retirement fund. My opinion is that it better come to that and I will have to be in very desperate shape before the retirement fund comes into play.

If The Consumerist were a religion, Gotcha Capitalism would be its Bible.

I think that every consumer in America needs to read Gotcha Capitalism by Bob Sullivan (he also writes for Red Tape Chronicles). Go to the library, head to the bookstore, jump on Amazon.com, but get yourself a copy. This isn’t a book about investing that appeals only to those with some extra income to invest in the stock market. This isn’t a book about relationships and money. Gotcha Capitalism will teach you how to identify how you’re being cheated by major corporations and what you can do about it. If you spend money, you need to read this book. (I’ve never given a stronger endorsement to a book) Heck, just get it and scan it, you’ll end up savvier than when you started. I bet that once you start reading, you won’t want to stop.

The book has three major sections. Section one describes Gotcha Capitalism, how ten industries are bilking you and every other American out nearly a thousand bucks a year ($946 on average, they calculated, and that on only ten specific industries), and how they get away with it. Section two describes exactly what they’re doing and how to defend yourself against it (and get your money back!). The third and final section is like a tool-kit of consumer tools - a collection of sample letters, emails, scripts, etc. for dealing with companies. In summary, section three is the hammer, section two tells you where to hit them, and section one charges you up with the fury you’ll need to drive that nail home in one shot.

The crux of section one is that the world is separated into myopes and sophisticates. Myopes are the folks who happily overpay for things and don’t comparison shop. Sophisticates are those who are savvier consumers, who read more of the fine print and comparison shop products so that you get a good, if not the best, deal available. I’d say all of you are sophisticates (no I’m not buttering you up, a myope wouldn’t be reading blogs about personal finance, they’d simply trust the first financial planner they met) and we’re the enemy to corporations. The solution to the busting the comparison shopper is to confuse them. While we do have savviness in abundance, we only have so much time. So they force arbitration clauses on us, and hidden fees, and ridiculous early termination charges. They hide where the true cost is (for printers, it’s in the ink, not the printer) so that you can’t accurately comparison shop. They deliberately plan to confuse and befuddle you to the point that you become a myope. Your brain can only process so much! Myopes are awesomely profitable, sophisticates are not… and so the game begins.

Section two goes into every one of the ten industries, and more, they identified (Credit Cards, Banks, Retirement/401(k)s, Mortgages and Rentals, Cell Phones, Home Phones, Pay TV, Internet Access, Travel, Groceries, Gift Cards, Rebates, Student Loans, Everything Else) and talks about all the fees and ‘gotchas’ they employ. A great one they discuss deals with retirement plans and 401(k)s. The ‘K’ in 401(k) stands for kickback. Your HR contacts a third-party administrator to handle the fund options for your 401(k). Your company gets a great deal on the administration of the plan from the third party administrator because the third party gets a huge “revenue-sharing payment” (*cough* kickback *cough*) for including certain funds. They state that 90% of mutual funds use revenue sharing. 90%. Look to the person to your right and then the person to your left, chances are you’re all getting screwed. This section is nearly 200 pages long.

The last section is the toolkit section with sample phone scripts and form letters you can use to battle the fees described in section two. The sample scripts are great because they outline exactly what you need to do and they can help keep your emotions in check. If you’re listening and reacting, there’s a pretty good chance you’ll get angry, flip out, and start screaming at the poor CSR on the other end. By having a script to follow, you can go through it like an emotionless killing machine to get the job done. Plus, yelling never helps.

That’s Gotcha Capitalism in a nutshell. I don’t really want to talk it up any more than I had in the first paragraph so I’ll leave with this suggestion. Give the book a chance by getting it at the library. When you realize you can’t put it down and that it could be a handy reference for a long while, you’ll understand why I was so positive about it.

Ever have one of those days where you crank out a bunch of things on your to-do list? I had one of those last week and it had a retirement and investing theme to it (that’s why I’m writing about it!). It consisted of kicking off the 401(k) rollover process, and researching what we needed to do to change the name on a brokerage account and consolidate multiple accounts. These all had to deal with Vanguard and, naturally, they made it painless.

One thing, above almost all else, I love about Vanguard is the fact that I can call their phone number and talk to someone in minutes. I don’t have to play the “hit 0 until the menu system gives up”-game, I just call and wait a few moments until someone picks up. Today, I spoke with a representative named Fred who was very helpful. After figuring out the exact name of the check for the rollover, I asked about changing names on accounts and consolidating them. Since I had called the rollover phone line, these questions were a bit of a curveball but he was able to help me out by linking up with Brian in brokerage services to figure out what we needed to do. That’s service. Oh, and it wasn’t outsourced to someone in a foreign country reading off a script (and they still only charge relative-pennies for their index funds!).

Rolling Over 401(k) to Vanguard

Rolling over a 401(k) to Vanguard, and I suspect any other brokerage, is painless. Simply call up your 401(k) provider and tell them that you’d like to terminate your account and initiate a Trustee to Trustee rollover. For Vanguard, the name on the check is Vanguard FTC; check with your IRA provider for their legal name (this is very important, putting the wrong name can delay the rollover process). My 401(k) provider was CitiStreet and they are required, either by their policy or my employer’s, to mail the check to me. I then forward it to Vanguard’s PO Box (Vanguard Group, PO Box 1110, Valley Forge PA 19482-1110), which will add two or three days to the process. One thing I do need to add to the check package is a Letter of Instruction indicating how they should deposit the funds. Here’s what mine said:

To Whom It May Concern:
   Included is a 401(k) rollover check that I would like deposited into my Rollover IRA account #XXXXXXXXXX. Please deposit the funds into these funds:

      50% into 0533-XXXXXXXXXX (VEIEX)
      50% into 0699-XXXXXXXXXX (VFIFX)

If there are any questions or concerns, please contact me at XXX-XXX-XXXX.

Easy as pie! Unfortunately, I did this last Thursday and missed the post-Google rally by the market on Friday… but one shouldn’t time the market!

Changing Name on Accounts

This is a bit of an extension onto the changing your maiden name after marriage because I never discussed brokerage accounts. To change your name, seek out the “Change of Ownership” section and select the reason you’re changing names - for us it’s Marriage but there are options for death, divorce, gifting, financial planning, and other. Selecting marriage will automatically select the reason “From an individual nonretirement account to a joint account” (there is only one). After that, you select the from accounts, for us it’s a mutual fund account, and then it’s onto the forms (we opted to download and print them, rather than mail which can take up to 10 days!).

send in a copy of your marriage certificate and a Letter of Instruction indicating that you want your name changed from X to Y along with a signature guarantee or medallion guarantee. You can get a signature of medallion guarantee at your local bank and it’s different than a notary. We will be mailing that form to the same PO Box 1110 as the Rollover check.

Here’s our Letter of Instruction for that one:

To Whom It May Concern:
   Please change the legal name on account #XXXXXXXXXX from Jim’s Beautiful Fiancée to Jim’s Beautiful Wife.

If there are any questions or concerns, please contact me at XXX-XXX-XXXX.

Consolidating Accounts

Lastly, we have account consolidation. At the moment, both my wife and I have accounts at Vanguard. In the near near future, we would like to consolidate those accounts into a single sign-on and be able to manage it through one account. To consolidate, we need to change the ownership of her account from an individual to a joint. To do this, there is a change of ownership form on Vanguard.com that we will need to print out and get signature guarantees for. This is necessary because we cannot consolidate accounts until I am considered an owner of the account. The signature guarantees are required because she is essentially surrendering ownership. This was all explained very plainly by Vanguard, which I appreciated.

And can you imagine, that entire phone call took about fifteen minutes (including two minutes of hold time while Fred got Brian on the line). This is why Vanguard is on the list of companies I’d promote for free.

When I started working back in 2003, I was introduced to the beauty and power of 401(k)’s and how my employer would match fifty cents on the dollar to the first 6% of my salary I was willing to put towards my own future. I immediately saw it as a way to take advantage and get a 3% raise as well as put a large chunk of money away for the future. The 401(k) was my money time machine, allowing me to send some money to the future, money that could be fruitful and hopefully multiple if I made good sound decisions. The only question at that point was how much I should I put in my money time machine?

Many experts would argue that you should work backwards. Set your goals based on careful thought (”I want $10 million in my retirement fund when I’m 65) and then set your retirement contribution based on those goals, given dangerous assumptions like 10% annual growth. For some, that’s a great way to plan but that’s not something for me. There are simply too many variables for me to say that my target number is this, my growth rate is this, let’s start saving! Instead, I go the other direction, I plow as much as I reasonable can and see what happens! (did you expect something more structured? sorry!)

Setting Initial Contributions

When I started, I did was Paid Twice did, I put in as much as I would not miss. For me, that was the maximum contribution! (it’s crucial to do this when you’re still in the poor college kid mentality!) I went from earning a modest four or (really low) five figure income hawking items on eBay, selling freelance software I wrote, and other little online ventures to a legitimate job with a legitimate salary. My expenses had gone up for sure but I knew I had enough room to put ~20% of my salary (I would later reduce that to buy a new home) and I knew I wouldn’t miss it. This was exactly the same logic that led Paid Twice to set her contributions at 2% when she first started working.

Changing Your Contributions

As your life situation changes, your money needs also change and it’s important to identify those situations. I contributed the maximum amount for two years and then pulled the amount back to the minimum contribution for the maximum employer match. I did this so I could route the difference (minus taxes) to an account focused on saving for a house I wanted to buy within the next three years. It’s important that you make these adjustments so that you can foster sound decisions down the road. Had I kept contributions to the maximum, perhaps I would be tempted to raid my 401(k) funds, which is widely regarded as a bad idea.

You can also change your contributions based on your changing situation on the income side too. Many people increase their 401(k) contributions as they receive raises. If you get a 4% raise, maybe you increase your 401(k) contribution by another half or full percent (or more!). You don’t “feel” it because you still get an increase, though some would argue 4% is cost of living/inflation and not really a merit based increase (I would argue that, which means I’ve never received a “raise,” just COL adjustments!).

Is More Better?

In the very general, I believe so, but I’ve also said that you shouldn’t invest in the stock market (where most of 401(k) money goes!) and that everything should be in moderation. You can contribute too much and put yourself in a situation where you’ll need to take money out, sometimes at a 10% penalty; so please exercise moderation in this and all things.

Becoming a millionaire used to be hard back when gum was a penny and comics were ten cents. Now that a pack of gum costs a buck and comics suck, becoming a millionaire is much easier but still a laudable goal. Don’t believe me when I say that becoming a millionaire is easy? I’ll give you six easy steps that, if you have the diligence and the discipline to discard the temptations of a world filled with easy credit and consumerism, will leave you a millionaire. $1,000,000 buckaroos. If you don’t follow them, you’ll likely have to start a dot-com that Google will buy or work 16 hour days and climb that corporate ladder (that’s if you don’t hit some glass ceiling because you’re not in the old boys network).

Many of these ideas are so simple the could make you crazy. None of them are sexy. None of them have you racing down the autobahn in a convertible going 150 MPH. None of them have you throwing dice in Vegas and none of them involve games of poker against James Bond. That’s part of the reason so few people do them… that’s exactly why if you do them you will become a millionaire.

Step 1: Participate In Your 401(k)

If you contribute a meager $3,000 a year to your 401(k), get no match, and it appreciates at 8% a year - after 40 years you will have a balance of over $777,000 on contributions of $120,000. That one little step gets you three quarters of the way there. That one little step that anyone with a job can, and should, do (if you don’t have a job, becoming a millionaire will be very difficult) immediately. Unfortunately, the purchasing power of that $777,000 in 2006 dollars (assuming 3% inflation), will only be $238,000 so we still need some more help to get to the millionaire status but we’re well on our way to millionaire status.

Step 2: Contribute To A Roth

The Roth IRA and it’s tax-free growth is one of the best investment vehicles out there. It also diversifies your tax profile when it comes to retirement because it balances out for your pre-tax 401(k). If tax rates go through the roof, you still have a Roth IRA to tap into tax free. What’s unfortunate is that if your salary keeps increasing, there may come a time when you reach the phaseout contribution limits for the Roth IRA so get your contributions max’d out as early as you can.

Step 3: Find Another Source of Income

Whether it’s selling knick-knacks, performing some freelance work, writing a blog, or taking on a second job; increasing your income and saving that extra income is yet another way to get your precious net worth into the seven figure range. Take that extra money and put it into a brokerage account (if you have no debt) and watch it grow. Since this second income isn’t “necessary” or “expected,” putting it all away should be trivial and something your future self will thank you for as he or she sips mai thai’s in Waikiki.

Step 4: Cut The Fat (Your Budget and Your Belly!)

Do you really need some of the things you always buy? Consider taking a little breather on Netflix and save some cash. Look for some trimmables in your budget and cut them out. Much like losing weight, it’s far easier to reduce your spending than it is to increase your income. If you don’t buy that cup of coffee, you can save yourself $2. Can you think of a quick way to make $2? Probably not.

Step 5: Cut Down On Fees

Adding just half a percent in fees severely reduce the appreciation of your assets. In the earlier example with the 401(k), I did the math and said you get $777k after 40 years at 8%. If you were to add a half percent annual fee, you end up with less than $675k after 40 years instead of $777k. If you add a full percent in annual fees, your nest egg is now worth less than $587k. One percent in annual fees results in a difference, over 40 years, of nearly $200,000. If all other things are equal, find yourself a cheap fund!

Step 6: Buy A House, Then Rent It Out

At one point or another you’ll probably want to buy a house and live the American dream (it’s become the American nightmare for some now!). Be smart about it and don’t overpay, don’t get rushed, and you could be unlocking one of the great wealth building strategies. As they say, they aren’t building any more land. When you buy, remember that after you live in it for two years, you can sell it and the profit is tax free as long as you buy another home with it. If you don’t want to sell, consider renting out the home. In renting, you can go after positive cash flow or just tread water, content in banking on the appreciation of the home at a later date. Either way, it’s a great way to leverage your assets into something bigger.

There you have it, six powerful steps that will turn you into a millionaire in no time!

(Photo by tychay)

This morning I did a bit of an apples to oranges comparison of a 401(k) and a high yield savings account, showing that the two would meet two years and two months out given a set of probably unreasonable assumptions. It was apples to oranges because the risk involved in investing in the stock market simply isn’t anywhere near the risk involved in saving money in a high yield savings account. So, I took Anne’s suggestion and compared a pre-tax account, in this case the 401(k) again, and a post-tax account.

Results? 401(k) never catches up. Despite starting with more money, $133 vs $100, 401(k) can never get over 25% the marginal tax rate + 10% penalty hit that it takes when you extract funds from it (not a loan, a straight up withdrawal). If you plan on pulling out your 401(k) funds to buy a house, don’t put them in there in the first place. Make the minimum contribution to get your match, then put the rest somewhere else.

Assumptions

• Better is defined as the approach that ends up with the most amount of gain.
• You are in the 25% marginal tax bracket.
• Both accounts return 11% a year, or 0.8735% each month, compounded monthly.
• There is no 401(k) contribution match by your employer. An employer match will bring in the breakeven point and raise the value of the 401(k).

Pretty Charts!

The chart below plots the growth of the brokerage account versus the 401(k) account. The value shown is the final extracted value, but growth is based on the non-extracted value. For example, with the 401(k), it’s the pre-tax dollar amount that is being compounded but the graph is showing that value reduced by 35% (25% tax, 10% penalty). The brokerage account line is growing based on its unrealized gains but the value shown is the realized gain, minus long term or short term capital gains. If you’ll notice the little hitch in the purple line at around month 12, that’s because the brokerage account tax rate fell from 25% (short term capital gains) to 15% (long term capital gains).

If you’re interested in the Excel spreadsheet I played with to reach these simplistic conclusions, I’ve made them available here. Please check it out and let me know if you see any mistakes I may have made.

When I was younger, I used to play Sid Meier’s Civilization all the time. One of the best parts of the game was trying to build one of the Seven Wonders of the Ancient World because it gave your civilization a distinct advantage in the world. My personal favorites were the Lighthouse (it gave your ships a farther range and they wouldn’t get lost) and the Hanging Gardens of Babylon (I believe each one of your cities now had a Granary), but fun part was being exposed to these wonder in the first place.

Since then, there have been more “Wonders of the World” like the Natural Wonders of the World, 7 Wonders of the Modern World, so why not create a Seven Wonders of the Personal Finance World? Hokey, I know, but it’s my opinion that, if you can, you should “visit” every single one of these wonders.

1. Roth IRA

tax free and whose disbursements are tax free isn’t worth a darned thing. Another wrinkle that makes the Roth IRA is interesting, outside of the tax free elements (growth and disbursements), is that you are limited in how much you can contribute based on your income. While you’re young, it’s less likely that you’ll be restricted in your contributions and it’s more beneficial (because you’ll be taxed less now), so it creates a scarcity effect that almost spurs you to contribute while you still can. (Photo by scottwills)

2. 401K Employer Match

If you put $1 in this jar, I’ll put in 50 cents and you can keep it all. It’ll grow and grow as long as you pick the right jar and you can have it all in forty years, minus taxes. That’s sounds like magic right? Well, for some workers, it’s a reality and it’s called a 401(k) employer contribution match. At my former job, if you contributed 6% of your salary to your 401(k), the company would kick in 3% of your salary and that vested immediately. It’s like a 3% raise for something you should be doing anyway.

3. Pensions (and Social Security)

I lump these in together because they exist and will likely stop existing in the near future so get your looks in now. In both cases, you’re contributing (with a pension, you’re contributing by virtue of having a slightly lower salary than if there was no pension; with social security, it’s deducted straight out of your pay) to a pot that is supposed to grow over time, without you having to deal with it. The problem with pensions is that it requires your company to remain in business, not a guarantee. The problem with Social Security is that it requires the government not to pilfer the lockbox, which it already has. In both cases, they look like great plans because you don’t really contribute and you get a benefit in retirement, which make them wonders, but they’re also both probably on their way out, which makes them ancient wonders. (Photo by Barack Obama, yeah really!)

4. ETFs

These babies have the flexibility of a stock with the diversification of a mutual fund. Before ETFs, you traded mutual funds on their net asset value calculated at the end of each day. Now, with ETFs, you can do everything with it than you can with any stock, such as short it, and you can do it all day as its price is determined much like a stock is. Want to invest in diamonds? Find a Diamond ETF. Want to track the S&P? There are a ton of S&P ETFs. I’m sure if enough people wanted a Personal Finance Blog ETF, someone would sell those too.

5. Credit Cards

Like many things in life, credit cards are a double edged sword. It’s easy unsecured credit that can get you out of a jam or just give you some extra time to float a purchase. It’s easy, unsecured credit that can get you into a jam if you lose control, overspend, and find yourself unable to pay the bill after the grace period. To say that it’s not a wonder would be wrong, but to say that it’s a wonder with just an upside would be wrong as well. With one plastic card, you can bring to bear the power of thousands of dollars of purchasing; it’s enough to carry you through the difficult times and it’s enough to sink you through the prosperous times. With great power comes great responsibility. (Photo by Martin Q)

6. Insurance

Automobile, homeowners, renters, term life, medical, dental, disability, … etc etc etc. If something bad can happen to you, someone is willing to sell you insurance against it. If you’re willing to pay enough, you can insure parts of your body! However, the fact that this exists is a wonder because there is absolutely no reason why someone has to sell you protection against an unknown future. The reason they do is because they can make money, but that doesn’t necessarily mean that they’re making money off you or that you shouldn’t get insurance because you’re “losing.” Insurance buys you peace of mind, sometimes at a premium, but the fact that you can even buy peace of mind is a wonder in and of itself. Look at your situation, look at the various coverages, do you have enough insurance?

7. Personal Finance Blogs

That’s right, I’m calling personal finance blogs a Wonder of the Personal Finance World and you all probably think I’m having a swell time patting myself and my “colleagues” on the back right? There are excellent reasons why personal finance deserve to be mentioned:

• Where else can you read about regular people pulling themselves out of thousands of dollars in credit card debt? (Tricia, NCN)
• Where else can you read about the personal finance trials and tribulations of LGBT individuals? (QueerCents)
• How about the issues swirling around in someone’s head after they’ve just lost their job? (Lazy Man: lost job, his first day off, his wife’s thoughts, an update, and how he handles “how’s work” questions)

Personal finance blogs are open, honest, and they’re not written by Suze Orman, Robert Kiyosaki, or other “experts,” they’re written by regular people for regular people who are dealing with regular problems. That’s why it’s a Wonder. (Photo by nina_pope)

There you have it, the seven Wonders of the Personal Finance World; what do you think?

Are you employed? Does your employer offer a 401K (or 403B, or any number of similarly acronym’d up retirement plans)? Does your employer offer an employer match/contribution on dollars you contribute? If the answer is yes to all three, you better be contributing to your 401K. If your employer doesn’t offer a match, you should still be contributing to your own retirement though it’s not as pressing. It should take you less than ten minutes to sign up for your 401K unless your company is stuck in the stone ages. Give your HR a call or check out your company Intranet for a 401K enrollment form, fax/inter-office mail that baby over to HR/Benefits, and you should be all set. As for the what funds you should divvy up your hard earned money into, just wing it until the account is setup. You can figure all that stuff out later, time is of the essence!

For many recent hires, this is a non-issue because the Pension Protection Act of 2006 made employers auto-enroll their employees. So, for some, this tip took less than ten minutes! The next step is making sure you’re contributing enough. The law says that you’re auto-enrolled at 3% and then every year after that you’ll be bumped up 1% until you get to around 6% to 10%. Now, employers are not required to do this (they get out of some discrimination testing if they do), so there’s a chance your employer hasn’t done any of this (double check!). Also, this is what the employer must do, you can adjust it up or down or sideways as much as you want.

Let’s say your employer offers to match your contributions 50 cents to the dollar up to 3% of your salary. That means if you contribute 6% of your salary, they kick in 3%. Well, if you’re auto-enrolled at 3%, that means you’re leaving 1.5% of your salary on the table because you didn’t do anything. 1.5% doesn’t seem like much but:

1. It’s free.
2. In 40 years, with interest and years of 1.5% of your salary, that’s going to be a lot of money.
3. It’s free.

So, make sure you’re enrolled and make sure you’re contributing enough. If you saw a twenty on the sidewalk, you wouldn’t just walk by it would you?