Pimp Your Finances

I have a confession to make to all of you, and it won’t be pretty. It may even be worse than the time that Quagmire had to apologize to the nation.

My fellow Americans, I have not been entirely truthful with you. I did ga-googity that girl. I ga-schmoigedied her ga-flavety with my googus, and I am sorry.

OK, so maybe it’s not that bad, but I haven’t been honest with myself.

I’ve been allowing myself to feel good about the things I’m doing right, when the things I’m doing wrong are costing me at least tens of thousands of dollars in the long run. Maybe more.

I’m proud of the changes I’ve made, but I’d be doing myself and my readers a disservice if I didn’t come clean about the elephant in the room: there is no reason why I shouldn’t be contributing to a Roth IRA.

Do the math, stupid

Despite all my hours of research, statistics, writing, planning, etc…, I haven’t bothered to open up a Roth IRA. Yeah, I’m contributing to my 401K to get my employer match, but that’s not enough.

I’m missing out on years of compound interest. It’s the most expensive oversight I can make. How much am I missing out on? Here’s an example (paraphrased from the soon-to-be-released I Will Teach You to be Rich book):

Let’s say there are two investors. Sally is 25, while Dan is 35.

Each investor invests $100 a month in a retirement account. Sally puts money away for ten years, then stops. Meanwhile, Dan socks away money for thirty years.

At the end of thirty years, Sally has $349,856 compared to Dan’s $271,879. That’s a difference of almost $78,000!

It doesn’t matter that Dan actually contributed $24,000 more than Sally. He’s in the hole just because he waited to get started. That’s an expensive lesson.

Start now

Unfortunately with compound interest, you can’t make up for lost time. Roth IRAs have additional restrictions too:

• You can only contribute $5000 per year (current limit, but will be adjusted for inflation)
• Once you make $101,000 (if single) or $159,000 (if married), your contributions are limited
• Once you make $116,000 (if single) or $169,000 (if married), you’re not eligible to contribute anything.

I don’t know about you, but my career goals call for getting paid more with time. I need to get my money invested while I can, so I can let it grow tax-free.

A promise to you

Part of the reason why I started this site was to document my financial journey. That means being open about the things I’m doing right, as well as the things I’m screwing up.

If I’m not honest with you, it hurts us both. I’d be lying to myself if I didn’t tell you that not starting a Roth IRA is the biggest mistake I could be making now.

I can’t promise that I’ll always make the right choices in my financial life, but I promise to come clean with you when I make mistakes. I want people to learn from my experiences – both good and bad.