Tuesday, December 11, 2007

the cookie in the cookie jar

When I was in graduate school I got kind of obsessed with personal finance literature. I don't know exactly why--I know the first book I read on the topic was some Suze Ormond thing and it left me with more questions than I had started with, so I went looking for another book, and after that one another, and then once I found out they existed, for blogs on the subject(and there are lots of them, very good ones) and web pages and the like. I am fascinated by it, and possibly if I had discovered it earlier I might have ended up with a degree in economics or in the field of financial planning.
Occasionally I look at academic programs and think about going back, but from this vantage point it doesn't make that much sense--I already like what I do, and it would cost me a fair amount of money and time take that path and see if it was really as interesting as it seems at first glance.
So instead, I keep reading, and doing my little "run numbers" sheets (occasionally also referred to as "bistro math" or "Cait's ridiculous percentage obsession") and trying to figure out what I should be doing with what I've got. It changes a lot. Every time I read something new I want to integrate it into my planning and also I don't want to be totally in the thrall of minute finance at every waking moment. I like the idea of simplicity and automation where it comes to financial things (I read about that someplace early on, of course).
For my first two years out of school I focused solely on getting rid of my credit card debt, I got rid of it for good (fingers crossed) early last year. Then I started on the current quest: a 60-40 split of income; where I live on roughly 60% of my take home pay and save the other 40% of it in various vehicles (high-interest savings, CDs, and Index funds predominantly). Incidentally this doesn't count my pre-tax 403b plan: into that I had been putting 8% of my gross income (with an employer match for the first 7%) . So I've been doing alright. Generally I'm pretty proud of myself. But then I read something new; for instance the fact that the limit for pre-tax account contributions this year is $15,500, and my measly 8% of my measly income doesn't even come to half of that. Also, I'm not debt free by any measure: I had to take out some considerable loans to complete graduate school, and during my debt-repayment phase I was sending double payments every month to the folks that hold those loans. But this fall I had a talk with my uncle, who was outraged that I was paying double (and in June was technically all paid up for the current year) on a loan that was only earning 2.65% interest. He said I was doing myself a disservice by not saving or using that money for myself, and education debt being considered "good debt" it was the kind to have around. I thought about it for awhile, and then I reached my 36th on-time payment and qualified for a 1% interest rate reduction and decided that I could make minimum payments on a loan earning 1.65% interest, let it live forever and be okay with it. So now I am, and I'm taking that money and hopefully offsetting an increase in my pre-tax 403b, from 8% up to 15%. Well, I say that but I think at the same time I may also have put that extra money into an index fund...I rebalanced my 40% savings scheme and set it up so that an estimated 25% of it is going into index funds (and of course the stock market is tanking...so thats not the smartest thing ever I suppose, but over the long term it should give me a decent return, again, fingers crossed) and the rest is sort of unevenly distributed between savings for a new car in about two years and a house in about five and a "fun" fund (about $25 a month) for the misc good time stuff that I will likely never buy.
Does any of this make sense? Its hard to say. I am not necessarily very good at keeping track of this stuff: I am not 100% sure how the increase in pre-tax savings is going to affect the size of my next paycheck, but I want to at least try to get a little closer to the maximum next year, because there is hope that I am young enough to have compounding interest working in my favor and helping me into early retirement. Which is, at least sometimes, a goal of mine.

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