Vesting Schedules (i.e. when do you get your 401k match?)

Most people know about the employer match for 401ks.  What most people don’t know is that you are not entitled to that money right away.  You have to work for a certain amount of time before you get to take your employer match with you when you leave.  So when you put money into your 401k and your employer gives you a match, imagine them being put into separate accounts.  (I say “imagine” because they’re not actually in separate accounts.  But imagining that they are makes the concept a little easier to digest.)  The account that has just your money in it is 100% yours to take with you anytime you leave.  The account that has just your employer’s money in it has what’s called a vesting schedule – a schedule that tells you when you are entitled to that money.  Your employer’s vesting schedule is most likely either 2-6 year graded or 3 year cliff.

If it’s 2-6 year graded…

After you work there for:

2 years, you get 20% of the money in your “employer’s account”

3 years, you get 40%

4 years, you get 60%

5 years, you get 80 %

6 years, you get 100%

If it’s 3 year cliff…

You don’t get any of your employer’s money until you’ve worked there for 3 years.  But once you hit the 3 year mark, you get 100%.

Where can you find your company’s vesting schedule, you ask?  In the Summary Plan Description provided by your HR department.  Knowing this information is important because lets say you were thinking about quitting your job after being there for 5 and a half years.  If your company has a 2-6 year vesting schedule, you can get 100% of your employer match just by waiting 6 more months before you quit.

Renter’s Insurance

I’ve never considered getting renter’s insurance until recently, when I had to find a new roommate for my apartment for the 4th time.  I’ve been living with roommates (most of them being total strangers) since my first year of college and it never dawned on me that I could have my stuff damaged or stolen until now; probably because of all the horror stories I heard in CFP classes.  Ignorance is definitely bliss!  Plus, now that I’ve been working full-time for several years, I actually own a few valuables worth stealing.  Not so much the case in undergrad.

After reading this article, I decided to shoot my insurance agent an email to get her thoughts on the matter.  Long story short, if my parent’s home is considered my “primary residence” I would be covered for damaged or stolen property up to a couple thousand dollars (after the deductible, of course).  A couple thousand dollars would certainly cover all my “valuables” in the apartment.  However (and this is a BIG however), I wouldn’t have any liability coverage.  No liability coverage is a huge problem because if someone got hurt in my apartment, my roommates and I could potentially get sued for an indefinite amount of money.

So then getting renter’s insurance for the liability coverage is a no-brainer, right?  Not necessarily.  If you want to be extra cautious and you don’t like being susceptible to any risk, then yes, renter’s insurance is a must.  But it’s still a trade-off.

Most of my friends don’t have renter’s insurance because it probably never crossed their minds.  But some people simply don’t need that coverage as badly as others.  For instance, if you live alone and hardly have guests over, you’re not really at risk for getting sued by an injured visitor.  So paying the insurance company an X amount of dollars every month for that protection may not seem worth it.  But if you or your roommates have people over all the time, especially people you don’t know very well or people who like to bring their young children, then you should definitely considering getting it.  Same thing if you have an aggressive dog that might attack a visitor or neighbor.

As for me, I think I’ll get a quote and see how my roommates feel.  If it’s inexpensive and they’re willing to split the cost with me, might as well.

Do Millennials Need Life Insurance?

As usual, it depends.

When you hear the word “insurance,” think protection.  You have auto and homeowners insurance to protect yourself from major damages to those assets.  You have liability insurance to protect yourself from getting sued.  So what is life insurance protecting you from?  Dying?  Of course not, since all of us will die eventually.

The purpose of life insurance is to protect your family from being financially burdened if you were to die all of a sudden.  Here are some examples of when you might need life insurance:

  • If you bought a house with someone and the mortgage payment is heavily dependent on BOTH your incomes.  If one of you were to die unexpectedly, the other person would most likely have to sell the house because they wouldn’t be able to make the payments on their own.
  • If you have dependents (young children, parents who you support financially, etc.).
  • If you have any debts you want to have paid off when you die so you don’t burden anyone else with it.

If you’re in one of the situations listed above and decide you need life insurance, there are several different types of life insurance policies you can buy ranging from Term Life (the cheapest) to Whole Life (the most expensive).  All of them have pros and cons so it’s important do your research and select the best policy for your specific situation{Beware!  Most life insurance agents will try to push Whole Life policies on you because they get the biggest commission from it!}

Callan Periodic Table of Investment Returns

Earlier this year, my colleague send me this Periodic Table:

Callan Periodic Table of Investment Returns 2013_Page_1

Here’s what it says at the bottom:

The Callan Periodic Table of Investment Returns conveys the strong case for diversification across asset classes (stocks vs. bonds), investment styles (growth vs. value), capitalizations (large vs. small), and equity markets (U.S. vs. international). The Table highlights the uncertainty inherent in all capital markets. Rankings change every year. Also noteworthy is the difference between absolute and relative performance, as returns for the top-performing asset class span a wide range over the past 20 years.

Key takeaway: it is more important to diversify your investments than to try to pick the next “Apple stock.”

Should I Max Out My 401k?

My friend asked me this past weekend if he should be maxing out his 401k because a lot of people are telling him to do so.  My answer to him?  It depends.

The max you can put into your 401k this year is $17,500, which is $1,458 a month.  If you’re making under 6 figures, saving $1,458 a month for retirement might be unrealistic or put a lot of strain on your cash flow (income – expenses).  But if your expenses are minimal or if you like living on a really tight budget, then of course, it’s still possible.

So I told my friend the most important thing was that he was putting money into his 401k consistently and that he was contributing at least up to his employer match, which he was.  Beyond that, I told him to consider his cash flow and short-term financial goals.  If he had a lot of money left over each month after expenses and savings and he wasn’t planning on needing the cash anytime soon for any major purchases (wedding, car, house, etc.) then he could go ahead and contribute more.

Ask and You Shall Receive

You can get a lot of money back just by asking.  Allow me to demonstrate:

Case 1 – Overdraft fee waived

A while back, I wrote checks to different people from my church to support them on their overseas mission trip.  The checks were written over a period of several weeks.  The church collected the checks and deposited them all at once about a month later, after I had totally forgotten about them.  I didn’t have enough cash in my checking account to cover all those checks at once so I got hit with a thirty something overdraft fee.  When I realized this, I used their Live Chat service to speak with a rep and got the fee waived.

Case 2 – Accidentally signed up for Amazon’s Professional Seller Service

I signed up for an Amazon Seller account with the intention of using their Fulfillment By Amazon feature.  Fulfillment By Amazon is a service that allows you to send your items to Amazon for them to sell the items for you.  You only have to pay them a small commission after each sale that gets completed.  During the sign-up process, I accidentally signed up for the Professional Seller service, which is $39.99 a month.  When I saw the charge a month later on my statement, I spoke with one of their reps (also via Live Chat) and they refunded me the money.

Case 3 – Tricked into paying for extra insurance at Enterprise

The place that I get my car serviced provides it’s customers free car rentals.  The last time I got my car serviced, the Enterprise guy asked me to sign this sheet of paper before giving me the keys for the rental car.  He mumbled really fast something about “$14.99…charged only if something were to happen…”  I figured it was a security deposit of some sort and didn’t think too much of it.  Later, I realized he was selling me extra insurance but tried to play it off like it was just part of the rental process.  I emailed my service rep about what happened and he asked Enterprise to give me a refund.

Just by talking to these 3 reps, I saved almost $100.  And each conversation took me only 10 minutes or less.  So the next time you find yourself thinking “is it worth the hassle?”, it probably is!  Especially since Live Chat and email make it super easy these days.

Planned Splurges

As much as I’ve curbed my urge to shop these last few years, I still have a never-ending list of things I want to buy.  I think most of it has to do with the fact that my overall style has shifted from cheap & pretty to quality & classic looking.  So most of my “to-buys” are to replace items that no longer reflect my taste (i.e. replacing my hot pink side-table with this one).

To keep my spending in check, I limit myself to one major purchase (any item about $100 or more) a month, max.  I also count shopping sprees as major purchases.  For instance, my July splurge consists of the 3 items I bought from Nordstrom.  (Fyi their anniversary sale is going on until August 4th!)  

I’ve found that by planning out my splurges, I am able to purchase the pricier things I want at a sustainable rate without any buyers remorse.  Knowing that I can buy (almost) everything I want eventually helps keep my spending willpower in check.  It’s just like eating healthy.  If you intentionally allow yourself to indulge a little, you’re a lot less likely to randomly binge eat junk food.


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