Click Paralysis - Start Your Financial Journey Now

While deployed, I tried to motivate people to reach their financial goals with their deployed entitlements. They left my office with motivation and excitement, but by the time they got to their office, they had lost all motivation. I gave them a lot of options and ideas to think about and, instead of empowering them to start, it created paralysis.  I think most people just want to be told exactly what to do. So against my own philosophy, I created this post with the most vanilla information to jump start your finances.

Disclaimer:  No matter what I write, please do your own research. There are a lot of variables you need to think about, but I know those variables are what causes the paralysis, so each recommendation will be followed up with more research to do if you choose to.  This post also assumes that you have little to no debt.  If you have too much debt, then get rid of it first.

1.  Start an emergency savings account.  Go to CapitalOne 360 and open an account using this link.  Start the account with more than $250, and this referral link, and we both get $20 for opening a new account.  You should put no less than $5K and no more than $10K in it.

• For more research, go to www.bankrate.com and look for the best savings account to get the highest yield for your cash.  I know for sure CapitalOne 360 is no longer the type yielding savings account.  You should have 6 months worth of expenses saved up, so the $5K-$10K is just super generic.

2.  Start a ROTH IRA.  Go to www.fidelity.com or to www.vanguard.com.  You can put $5,500 a year into an IRA ($11K a year if married, regardless of spouses employment).  Once the money is in the account, put all your money in FSKTX (VTSMX for Vanguard).  Once you have over $10K, you'll be automatically enrolled in FSTVX (VTSAX) for Vanguard.  Contribute to FSTVX (VTSAX for Vanguard) every year, reinvest all dividends, and don't sell out until retirement.

• Both companies offer Total Stock Market mutual funds with different performances and fees.  Also, depending on your age and personal tax situation, you'll need to decide if a ROTH or a Traditional IRA is the right thing for you.  Lastly, you'll need to determine your risk profile to see if a pure stock portfolio is the right risk allocation.  MOST people would benefit from just sticking to the Total Stock Market mutual funds listed above.

3.  Military members, start your TSP.  Go to Mypay (https://mypay.dfas.mil), figure out how much you can afford a month, and then start contributing.  Then go to www.tsp.gov, sign up, get your PIN [can take 30 days], log in, and put all your money into a Lifecycle fund that matches when you want to retire from work (not the date you plan on retiring from the military).

• Not many people have money left after starting an emergency fund and maxing out an IRA.  If you do, then that's great, so you'll definitely want to take advantage of the TSP.  You don't want to put 100% of your money into retirement accounts so you can save for short- and medium-term goals.

4.  Civilians, max out your 401(K) matching contributions.  Find out how much your employer matches for your 401(k) and then contribute enough to get the max matching contributions.  It's free money.  Just walk into your HR department and they'll give you instructions.

• Just like for military members, you'll definitely want to make sure you're not putting 100% of your savings into retirement accounts.

5.  Go to your emergency savings account bank and open up a new bank account for your short- and medium-term goals.  Regularly put money into these accounts.  An example of a short-term goal is a vacation.  Open an account called Vacation.  Decide how much and by when you want to save it and start putting money into the account.



Hopefully I helped take some of that click paralysis away.  Just do exactly what I wrote here and you'll be ahead of 90% of the population in your income bracket.   

2015 New Year's Resolution Breakdown

2015 was not a great year for my personal finance goals.  Here’s a quick rundown of my 2015 financial resolutions and how I plan to meet them in 2016.

1.       Max out my IRA.

a.      Accomplished.  It’s the first thing I do every year so I have money to invest with.

b.      2016:  This is always my first goal, so I’ll definitely accomplish this.

2.      Save $X in my savings account.

a.      Accomplished.  This is the second thing I do every year now that I have a house, to cover large maintenance expenses.

b.      2016:  This will come second after my IRA, and I have no doubt I’ll accomplish this.  I plan to buy a car in cash this year too, so this near-term goal will be a primary objective.

3.      Save at least $X every paycheck.

a.      Not accomplished.  We had some large expenses this year, and we basically took 3 vacations.  We went back home for two weeks, Vegas in December for two weddings, and my in-laws came to my house for the holidays.  I came close though; just needed one more paycheck in the year.

b.      2016:  I’ve already implemented some routine deductions in expenses throughout the year.  This should help balance some of the larger expenses like car and housing maintenance.  I’m also going to try and publish blog posts more frequently and build some side income.

4.      Increase 2015 passive income (dividend/interest/mutual fund distributions) by 50%.

a.      Not accomplished.  I waited too long in my investing career to focus on passive income from investments—which explains the goal of trying to reach a 50% increase.  There were several factors contributing to me not reaching my goal in 2015.  The first was a reduction in end-of-year mutual fund distributions.  There weren’t a lot of short- and long-term gains with the market dropping this year.  Additionally, some of my dividend stocks gained quickly and I sold the profit.  For example, WWE offered a 5% dividend when I bought it a low of $9, but then it skyrocketed to $18—doubling my money, and I sold it.

b.      2016:  I’m going to put more money into mutual funds during large market drops.  I will also put more money into large dividend payers whose industry isn’t doing well like oil companies and Real Estate Investment Trusts (REITs).  I have a solid chunk of money in bonds, so I’ll need to keep a close eye on the bond market and make sure that I don’t take a huge capital loss by keeping my money in those bond mutual funds just to get a passive income.

5.      Net assets of $X on 31 Dec.

a.      Not accomplished.  I rarely reach my net asset goal, mainly because the percentage increase is always higher than the market average.  I’ve also never measured my progress monthly or quarterly.  I guess I just hoped I would land on the arbitrary amount at the end of year.  The main reason for not meeting my goals this year was the massive loss I took trying to get quick money.  I invested in some speculative, risky, short-term investments and underestimated how quickly I could lose money. 

b.      2016:  I’ll need to split the goal into monthly and quarterly goals and work harder if I’m not meeting those goals.  I won’t make those same risky investments I tried in 2015 either.

I have a feeling that 2016 will be a great year for those prepared and ready to take advantage of it.  What are your 2016 New Year’s goals?

2014 Year in Review and 2015 New Year's Resolutions

Every year I create financial goals to help guide me through the year. I first read this quote when I started my fitness journey regarding meal preparing, "If you fail to prepare, then you are prepared to fail." (Unknown). I think this is relevant in any goal management, but especially with financial goals. Here's a sneak peek at how I managed my finances in 2014.

• Max out Individual Retirement Account (IRA) - In 2014, the limit was $5,500. This is always my first goal and I've been maxing it out every year for almost a decade. This is my first goal in 2015 as well. I use Fidelity to manage my IRA; if you're interested in starting a Fidelity account please let me know so I can refer you. In 2014, I met this goal.
• Put $XXK into my "high-yield" savings account - This is my emergency savings account. I'm expanding it beyond the 6 months of bills (the typical advice) to add 12 months of bills for my new house. My goal is to have the ability to absorb a whole year of not having a renter when we PCS and have to rent this house out. Some of the increase will also be for a new car in 1 1/2 years. I use CapitalOne 360 (the bank that bought ING Direct) for my "high-yield" savings account; if you're interested in starting a CapitalOne 360 account please let me know so I can refer you and we both get money. In 2014, I met this goal.
• Save at least $XK from each paycheck - Ever since I was an E-4 I've been creating this goal. No matter how hard you plan, you'll always have unexpected costs throughout the year. For this goal, I'm focused on the end goal so if I can't save the goal from one paycheck, I'll make sure I save a little more from a future paycheck. But this gives me an average savings goal from each paycheck and allows me to see if I'm exceeding my goal or not meeting it. In 2014, I met this goal.
• Increase dividend income by X% to $XK - One of my retirement goals is to supplement the amount I lose by retiring with dividend and interest income by the time I retire from the Air Force. This is a lofty goal and I may need several years after Air Force retirement to achieve it. Nonetheless, I try finding better return rates on my investments to achieve this goal. One of my new investments this year was Lending Club. They offer loans ($35K or less) to people and investors can contribute $25 increments to their loan so it spreads the risk while offering a better yield. By playing it safe, I earned a 9%+ return on investment this year. If you're interested in starting a Lending Club account please let me know so I can refer you and we both get money. In 2014, I DID NOT meet this goal. I was very close but missed the goal by less than $200. I'm not too worried, but next year I would like to say I exceeded the new goal I set.
• Net Assets of $XXXK by the end of the year - This is just an overall goal. I don't focus on how much I have saved total. I focus on what the money is doing and what return on investment I'm getting. People focus on a round number like $1M without figuring out what their going to do with it once they get there. Most rich people don't even care how much total they are worth, they only care how much money it's earning so they can use it. Either way, it helps me focus and ensure I'm earning a decent of return on investment. In 2014, I DID NOT meet this goal. I tried to do some ultra-risky investments to help my wife pay off her school loans and they all back fired on me. I lost a lot of money this year on those investments and it stings pretty badly. My house equity didn't rise at all either like I had expected. In fact, I manage my Dad's IRA and it's pretty conservative and safe and he crushed my returns this year.

These goals are specific to me. If I had debt-management goals, then those would be near the top. If I didn't have an emergency savings account, then that would've been my first goal. What are your goals for this year? If you need help or are interested in being referred so we both get money please leave me a comment or e-mail me at bjone6 @ gmail . com (spaced out to prevent spam bots).

2015 Thrift Savings Plan (TSP) Contribution Changes

In 2015, there will be big changes to our retirement contribution limits. For military members and our civil servants, our Thrift Savings Plan limit will be $18,000 up $500 from $17,500 in 2014. For those 50-years or older and that are eligible for TSP Catch-Up contributions, it will increase to $6,000 up $500 from $5,500 in 2014. This is great news. This $500 increase will allow us to put more money into tax-sheltered investments. If you do the Traditional TSP, you will be able to contribute an additional $500 pre-tax money to grow tax free and then be taxed when you withdrawal. If you do the ROTH TSP, you will be able to contribute an additional $500 of post-tax money to grow tax free and then will be tax free when you withdrawal. 2015 contributions will remain the same.

http://www.afpc.af.mil/news/story.asp?id=123433265

Another great change in 2015 is a larger saver’s credit amount. For our junior enlisted that meet the income qualifications they will see higher credits.

http://money.usnews.com/money/retirement/articles/2014/01/13/tips-for-claiming-the-retirement-savers-credit

BL: If the government gives you an opportunity, then you should take it. When funding your retirement, you should max out an IRA and then max out your TSP. This allows you to invest up to $23K in 2014 and $23.5K in 2015 in tax-sheltered accounts.

Full Disclosure: I’m a conspiracy theorist who believes there is a widening social gap and the government will look to the middle class to support the rich like some future dystopia movie. The investors who took advantage of government-offered programs will be better protected.

Everything You Need to Know About Dividends

If you’re not fluent in finance, then hearing two people talk about it can sound like two people speaking a foreign language. I met another military blogger, Starting from Zero, and his site focuses on investing with an emphasis on DIVIDENDS. Here’s some information about Dividends so you can increase your finance fluency and how to invest with them.

What are dividends? Dividends are paid out to shareholders by companies. When a company goes “public” it offers up shares in exchange for money. The company can use this influx of money to make the company bigger. The shares represent a portion of the company. If the company offers up a large portion of shares, then it most likely will offer a Dividend too. A dividend is a portion of a company’s sales returned to the shareholder. In industries where companies are mainly owned by shareholders, like utility and phone service companies, you will find larger dividend amounts. In industries where companies have few shareholders, like technology stocks, you will find smaller dividend amounts.  Some companies are legally required to pay out a dividend, like Real Estate Investment Trusts (aka REITs) and carry very large dividend yields; though their stock price remains stable.

How do you invest with dividends? Dividends are an essential element for anyone investing. Some people create portfolios, or collection of investments, solely on maximizing dividends. There are several mutual funds dedicated to find the safest and highest dividend amounts through Fidelity or Vanguard. You can measure dividend amounts by a stock or mutual funds’ dividend yield. A dividend yield is the amount of dividend divided by the stock price. Large dividend yields don’t always mean a good investment.  If a stock is about to go bankrupt or is failing horribly, its stock price will go down and its yield will look huge. For the riskiest investors, this may present a short-term gamble, but for most of us, this is to be avoided.

The best idea is to look for large companies that pay out large dividends and increase them regularly. Look around your house and determine what you purchase every week and see if it’s the same brand. Coca-Cola (KO), currently offering a 3.2% yield, and Johnson & Johnson (JNJ), at 2.9%, are favorites among dividend investors. Over the long history of the companies, they also raise their dividends. AT&T (T) and Verizon (VZ) are also favorites because telephone-service companies pay out large dividends; 5.7% and 4.5% respectively.

These dividends should be reinvested immediately back into the stock or mutual fund it came from or to your cash balance to purchase different stock. You can set the automatic re-investment through your bank. If you are under 55, you SHOULD NOT be spending your dividends. Reinvesting dividends is one of the top strategies of rich people.

You must also think about taxes. If you’re receiving dividends through your IRAs, then they are tax-free.  If you are receiving them through a taxable account, then the dividends may increase your tax rate. As of now, dividends are only taxed as high as 15%.  They can be taxed at 20% for the ultra-rich, but I don’t imagine they would be reading this blog if they were.  You can read more about dividend taxes here: http://www.irs.gov/publications/p550/ch01.html#en_US_2013_publink100010066

Current News on dividends. Some companies retain a large amount of cash on hand. In times of low-interest rates, like we are currently seeing, investors become angry when companies “sit” on large hoards of cash. If there are enough shareholders becoming angry and there are enough shares to have a controlling interest, then the company will be pressured to offer a dividend or increase its dividend. Most recently, this has happened to Apple (AAPL). Its size and success has made it to difficult to invest the money into Research and Development or future projects and the cash is just building. Investors got together and forced the company to pay out a dividend.  AAPL currently offers a 2.3% dividend while Google (GOOG) does not. Microsoft (MSFT) was forced into a similar position and offers a 3% dividend.

BL: For the average investor, we rely on our IRAs, TSP and/or 401(k)s, so dividends aren’t such a big deal. But for those of us investing ourselves, dividends should be a big deal. Your total portfolio of investment should have a yield equal to or higher than the interest rate on a 10-year bond. Unless you are extremely confident with your stock picking abilities, then there should be no reason you are taking on the risk of stock market losses AND earning less than a 10-year bond. You can find the dividend yield on any stock or mutual fund by using Google or Yahoo! Finance.