Welcome to Better Have My Money, my Monday night newsletter about investing, stocks and figuring out our money mess.
First up, thank you for all the lovely emails, tweets, reviews etc about Get Money, the new podcast I co-host which launched last Wednesday. If you haven’t had a chance to listen yet, the first episode is about debt and I tell a few random lil personal stories amongst it (and also display a lack of knowledge about snowballs). And yes, everyone keeps texting about how nicely it is edited and produced, this is a quality production (aka I had nothing to do with that)!
Second, I wanna tell you all about a random thing that happened recently where suddenly I learned I’d invested an extra $1400 last year. 😱
So, the week before Christmas I got an email from HR, informing me that due to a payroll error, I had been making double deductions for 401(k) contributions for several months. Which meant that I’d contributed an extra $1398.93 than I was supposed to for the year
Confusing term of the week: “401(k) contributions” — the amount you put in before tax of your salary into a retirement fund. It also helps lower your taxes because your 401(k) lowers your taxable income. For 2020, the annual limit of contributions is now $19,500 (we all need to have dreams), which is what people are referring to when they say they’ve “maxed out” their 401(k).
Now, I don’t make huge 401(k) contributions (I know, I know). My employer offers a very small match (0.75% of the first 3%) and I had cared more about building up my own emergency savings and building investments that I could access sometime soon, in the next few years, not when I’m in my 60s.
Plus, I’ve never been sure if I would end up in the US longterm! What happens if I put all my money in US retirement accounts and then move countries? (seriously, someone please answer that, I don’t know). I think I can just leave it in there, but it seems messy, tax wise. Also do I trust all the financial institutions and government rules around retirement to still exist when I finally take off my press fedora?
Retirement funds only have tax advantages if you leave the money in there.
Anyway, all that is to say that while I’ve always contributed to a 401(k), I was only putting a small percentage of my salary in.
But then HR emailed me a killer question:
Would you like to keep this amount in your 401k account or get the amount refunded? Please let me know and we apologize for the inconvenience."
Reader, this email that was sent FIVE DAYS BEFORE CHRISTMAS aka exactly when my bank account would have been quite glad for a $1400 Christmas bonus.
But, sigh, I knew that since I hadn’t even god damn noticed $1400 was missing from my pay checks, that I had to keep it in and let that bad boy compound interest do its work.
In fact, I got out my compound interest app on my phone (I am fun at parties) and worked out that my $1,400 would be equivalent to around $28,557 in 35 years. Yes, if I didn’t add a single cent more but kept it in a retirement account getting the annual stock market returns of 9%, then that small amount would become a decent sized amount. Could I live off it full-time? No, but I could for a few months! Or it’d be a nice new bathroom or holiday in Italy or whatever it is I’ll be doing as an old bird.
As my boss slacked me:
So I did that. I’m trying to look out for you future Amber.
Plus, the whole incident, urgh, convinced me that I needed to increase my 401(k) contributions. I had already planned to just raise them by 1% for the new year as a little new years treat for my future self.
But I decided to raise it to 6% (to be clear, I think I had it on just 3% previously). Maybe more! Just starting with 6% and giving it a few months. It’s really, really easy to up your 401(k) contributions (just log into your account and click on anything about your contributions) and like all types of money saving, I always prefer the ones that are set and forget and don’t require constantly thinking about how to better save and invest.
Anyway, what percentage of income you contribute to your retirement fund? If you’re maxing out the account is that… just because you’re rich?
May you all accidentally help make future you richer.
Better Have My Money is on Twitter @bhavemymoney, so please tweet nice things (aka the link to our sign up page) and tag us. Got a mate who needs to open their 401(k) already? Forward this onto them and tell them to subscribe.
As always, if you've got any questions about stocks, this is a shame free zone. Just reply and ask away.