Double Payment Whammy

I am still in my 30s, so why I do I keep forgetting that I already made my monthly student loan payment? This has happened twice this year!

The first error occurred in January. I scheduled my payment online about a week before it was due. I checked back a few days later and saw no payment pending, so I reentered the automatic withdrawal request thinking I had made a mistake earlier. Yeah, I was wrong. 

The second one happened this week. Same situation.  Its as if my financial responsibility is on overdrive, or perhaps battling a case of dementia.

Why is this even a problem if I am working to be debt free? I have set strict monthly savings goals to make sure I meet the big target of $10,000 in my emergency fund by Oct. 1. The $200 over payment could make me miss it.

I think it is time to find something new to sell on Craig's List.

My 401(k) fees doubled - have yours?

It may seem like a small amount to charge -- $2 a month to "manage" my retirement account. 

It is nearly double, though, what I paid at the beginning of the year. My company quietly raised the fees about a month ago, or rather, allowed the financial services company that oversees our 401(k) program to boost them. 

The only reason I noticed is because I painstakingly enter each investment transaction in my Quicken program.

The costs add up over time, especially if you consider the eight percent annual rate of return I could have earned had I been allowed to keep that extra dollar a month. 

At a minimum, the added fees likely mean I will have almost $1,000 less when I retire. The loss could be much greater over time, though, since the standard fees being assessed as fractions of shares I hold, not dollar amounts. As the market recovers, the cash value of these deductions will increase. Many financial companies also increase the share charge as the balance of your account grows.

I have asked for detailed cost information from the firm that manages my company's program. I'll let you know when I hear back from them.

If you need a reason to be concerned, or at least well informed about what is being deducted from 401(k) account, read this Los Angeles Times series published in 2006. 

Some charges are not being disclosed at all.

The paper noted that people like John Fuchs, an IT manager, are paying about $500 a year in hidden management fees. For him, the charges mean more than $300,000 in lost savings by the time he retires. 

A bill is pending in Congress to require 401(k) participants at least be told what they are being docked, but according to a Times editorial today, "The measure has drawn still opposition from securities firms, which have complained that employers and workers would be confused and even deterred by a detailed disclosure of the various categories of fees."

The editorial also goes on to argue, "Arrangements between employers and retirement plan providers that hide fees from those who pay them prevent market forces from holding down those charges."

I am glad I never transferred my retirement savings from other employers into the program where I currently work. I instead chose to move it into a rollover IRA at a brokerage company. It is at least required by law to tell me what is being taken from my account.

Carnival-A-Go-Go

I am a featured link on the Carnival of Debt Reduction, the 136th edition. No Debt Plan is the host, and I would like to thank Kevin for including me this week.

If you have a moment, check out the selections. They can be quite inspiring.

Update: The Carnival of Personal Finance linked to my Sharper Image? post below. Thank you, Frank at The Happy Rock!

Check out his other picks, too.

Give me a distraction

I reduced my debt by one percent this week. Oh how that increment pains me.

As much joy as I take in seeing my emergency fund build, it is still difficult for me to delay making the huge payments needed to quickly kill the rest of my debt.

Dwelling on this, though, accomplishes nothing. Since I will probably feel it acutely again next month -- when I make the minimum payment on my student loan -- I think I have found a way to distract myself from the frustration.

Besides the twin pillars of saving and eliminating debt, there are a host of other things I could be doing to secure my financial stability and peace.  They are the kind of tasks that are important but are about as enjoyable as cleaning out a rank refrigerator.

So perhaps of the double whammy of a burgeoning cash nest egg AND a dwindling list of castor-oil shoulds will do the trick.

Here are the items I would like to see accomplished over the next five months while I await reaching my $10,000 emergency fund goal:

• Create a will 
  
• Create a living will
• Create a power of attorney
• Review employer-paid life insurance and boost coverage if necessary
  
• Review employer-paid disability insurance and boost if necessary
  
• Do household inventory for my renter's insurance policy, the one I will need in case of fire or theft and have never, ever done
• Organize personal financial records 

Just seeing the condensed list on my blog is cringe inducing. Still, I think it is worth a try. This goal things seems to be working for me.

The Beauty

Thursday has become one of my favorite days of the month, when my salary is deposited into my checking account. 

In the old days (less than a year ago), I used to begin thinking about what I "needed" to buy over the next two weeks, until my next pay day arrived. 

Now, the first thing I do is transfer a huge chunk to savings. Today that amount equals $1,000. My glee overfloweth.

The transformation from spender to saver did not occur immediately. I felt deprived, but focused, during the first seven months I made sacrifices to quickly eliminate my credit card debt. 

Like all creatures of habit, though, I have adjusted. Living way below my means is no longer quite the arduous task it once was. 

At the same time, the benefits are growing sweeter. I can now survive almost three months of unemployment. This is no idle accomplishment, given the uncertainty at my company.

The change is beautiful, at least to me. I have my first taste of financial peace, and I love it.

Camaraderie

A wonderful thing about sharing your financial struggles with others is when they join you on the trek to improvement.

For a time, a group of female friends at work would gather once a week to discuss our money goals. My father likened it to a financial version of Weight Watchers.

As we each achieved our immediate goals, though, the meetings fell to the wayside.

So I feel fortunate that one friend in particular has stuck with the journey. We both have paid off our credit cards, but we still owe much on student loans and desperately need more savings. 

On Saturday, we took a three mile walk together around a lake and discussed the financial road ahead of us. It was so invigorating. 

Sometimes it is the little things in life that sustain us.

Sharper Image?

Understanding the perils of debt is akin to seeing a dinosaur in a Magic Eye stereogram.

Remember those once-popular, colorful prints with hidden 3D images that could only be seen with steady, unfocused gazing?  

Thanks to a whack to my vision, I finally saw the monster lurking in my finances. 

So when I read this story from the New York Times on the increase of retail business bankruptcies, I saw my old foibles on display.

Many retailers have relied on borrowed money to finance merchandise purchases and meet payroll, according to reporter Michael Barbaro. When sales are strong, the debts are repaid. 

Enter a market downturn and perhaps recession, plus a growing mortgage credit crisis that has made lenders unwilling to extend new loans.

The equivalent in my life would be a cut in pay or a layoff, which is never quite off the table at my company, while my credit card was maxed out.

I was surprised to see Levitz, Bombay and Sharper Image among those that filed for bankruptcy. Linens N' Things is weighing the move as well. Apparently their executives are no brighter than I was.

A retail consultant said the consumer spending slowdown was merely wiping out the "bottom tier" of companies.

I wonder. It seems this approach to business and personal finance is way too common. Unfortunately.

To reflect

It has been nine months since I began the onslaught to right my profligate ways.

While I am still a little more than a year away from achieving the most important goal -- being debt free -- I take comfort in noting how profoundly my financial behavior has changed.

Here is a list of three new, and essential, nerdy habits I have acquired so far:

1. I diligently track my spending, with the help of a trusty software program. This has allowed me to continuously find new expenses to pare. It also has made me acutely aware of how each dollar used for a purchase is one less that can go into in my emergency fund (my primary goal at the moment given persistent layoff buzz). My monthly expenses have dropped to about half my take home pay now. Talk about living below one's means.

2. I review my budget at the beginning of each month and reevaluate my spending. I also run reports to see how well I hit the mark the previous month. I keenly know my weak spots now. The biggest one is not taking the time on Sunday to make my lunches for the week. Every time I tell myself that I'll fix something on the fly, it never happens. So note to self -- suck it up and cook EVERY Sunday, not just most of them.

3. As soon as my salary hits my checking account, I throw the money I budgeted for savings into the emergency fund. Next, I pay any bills due in the coming two weeks. As a result, little confusion -- or delusion -- exists over how much money I really have until my next paycheck arrives.

4. When I can, I listen to the online stream of Dave Ramsey's show on Fridays. He devotes this day to listeners who call and scream -- "We're debt free!" They also share how they reached the milestone. I am a total sap about this. I find it completely motivating to hear how long people worked to rid themselves of debt and the exultation in their voices at having achieved it. For me, it will be about a two-year process in all. You can count on a huge shout from these lungs when it is all done.

There are other habits I could note, but these are the big ones. 

I'm starting to feel a bit like an athlete, preparing for the big game of wealth building once I remove the $14K weights I currently have around my ankles.

Adrienne!

Yippee!

Here's a bit of good news.

I checked my IRA and 401k accounts today, something I have avoided doing much because the balances seemed to drop each time I looked.

My investments were up $1,900. Woo hoo! I still haven't made up all my losses since October, and I realize my holdings could slide again tomorrow. Nevertheless, it is nice to see my net worth climb again.

It has been a little disheartening to work so hard to pay off my debt and build up my cash savings only to see my retirement accounts decline in value. It seemed at times as if I was jogging at a stand still, waiting for the crosswalk sign to change, instead of improving my overall financial position.

The Dave Ramsey debt reduction plan I started nearly a year ago calls for no contributions to retirement until the debt is gone and the emergency fund is complete. It has been a scary feeling not to give to my 401K, but it keeps me motivated to fix my mess quickly. 

The Ramsey way has one downside, at least lately -- it makes market drops all the more glaring, because I have no new contributions to mask them. Hence the hamster-on-a-spinning-wheel feeling I have.

I eagerly await the magic month --  June 2009, when my debt is gone and emergency fund is complete. My retirement contributions will return in full force, with an additional 5 percent on top of what I had been making.

My new short-term goals will then be home ownership and boosting my net worth to $100K. Hopefully, this can be accomplished in another 2-3 years. 

A girl can dream, and strive, can't she?