Welcome to my long overdue reader mailbag. I’ve received tremendous questions lately from subscribers of the newsletter that I would like to share for everyone.
Enjoy!
What can I do to protect myself from the decisions that others make (the debt ceiling fiasco makes me recognize a certain lack of control). I’d pay for a service that takes complex economic concepts (current events), makes them simple, and explains how they relate to my personal finances. – Mike – age 30
The media doesn’t treat it as such, but personal finance is a lot different than macroeconomics. By trying to “protect” yourself from others decisions, you’re at the will of someone else.
It’s more important to concentrate on what you spend, save, and earn. All three of those factors you can control.
For those worried about a recession, build a big enough emergency fund that lets you sleep comfortably. There’s two ways to do that, spend less and make more.
Another tip is to answer the following question: what would I do if… (insert your worst case scenario). If your worst case scenario is that you lost your job, what steps would you take to provide yourself and family the proper food and shelter?
Once you answer your worst case scenario, answer the same question for three more probable scenarios. For example, what would you do if your employer didn’t give you a raise and cut 401(k) matching?
This way, you’re more prepared whatever happens.
How much I need to save for retirement? – Marnee
For members of Gen Y, who still have 35-45 years until retirement, I wouldn’t be too concerned about reaching a certain number. There are too many variables, marriage, kids, career, that will change throughout your life.
Being so far away until retirement, I would focus more on increasing the percentage of income you save each year. For example, if you’re able to save 5%, set a goal to increase your savings by 5% a year, until you reach 15%.
The exception to this is if you know you want to retire very early. In that case, set a goal to save around 25 times your annual expenses. It’s not perfect, but it’s a target.
If you’re close to that target, I would schedule a meeting with an hourly CERTIFIED FINANCIAL PLANNER® to discuss your plan. One or two hours of a quality CFP® time is worth the expense.
One thing that I would like you to address is the safety and security of the “mint.com” site that you use for your personal finance tracker.
In this day and age, I’m just a bit reluctant to give all my bank, investment, credit card info to a one site. I am a big supporter of online banking, check writing, investing, but I’m concerned about putting all this personal info out there??? What do you know about the security of this site? – Jude – age 40
Personally, I’m comfortable putting my information on there. Even if someone was able to get into my account, they couldn’t do anything besides view where my assets are. The passwords are not stored and Mint doesn’t ask for my SS#.
Plus, since I automate my finances, Mint gives me notices of any unusual spending. If there was any fraud, I know inside of 24 hours, instead of finding out when I review my credit card bill each month.
If it still worries you to sign up, don’t sign up. It’s a little more time sensitive to know where your money is going but it’s not worth the loss of sleep.
Just wondering what you think of T. Rowe Price target funds vs. Vanguard target funds. My husband and I have ours with T. Rowe Price but I see you are with Vanguard. – Marnee
T. Rowe Price’s expense ratios are higher than Vanguard’s. That’s why I invest with Vanguard.
T. Rowe Price’s 2050 retirement fund has an expense ratio of 0.77%. Vanguard’s 2050 retirement fund is .19%.
Over one year, the difference in expense ratios is a few dollars. Over my investment horizon of 40 years, the difference is Barry Bond’s head before and after he started taking steroids (HUGE).
Say over 40 years both funds return 9.19% annually. If I invest $5,000 a year in a Roth IRA with Vanguard, and therefore returned 9% after expenses, I’ll have accumulated $1,841,459.
If I earned only 8.45% due to a higher expense ratio, I’ll accumulate $1,582,190. The difference of a 0.55% expense ratio over 40 years is $259,260 for just one IRA and $518,538 for two.
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Thanks if you have any questions of your own that you would like for me to discuss, subscribe to the Gen Y Wealth newsletter.
Photo by: Shell Belle
{ 3 comments… read them below or add one }
RJ – I’m with you on Mint – we use it in our household and trust its security. I recently interviewed the person who designed Mint’s security system and he detailed all the steps they take to keep user info safe. You can watch the interview via this post:
http://www.mattaboutmoney.com/2011/08/08/how-does-mint-com-keep-user-information-safe-a-conversation-with-mint%E2%80%99s-security-architect/
Matt…That’s a great interview. Thanks for sharing.
@ Question #4
Compare the investments the two target funds. From what I remember, the Vanguard funds are more conservative. This would lead me to believe that you would want to compare the expense ratio of the TRP fund with a similar Vanguard fund. May be 2055 or 2060?