Saturday, July 22, 2017

Nine Skills Worth Teaching Your Children to Build Personal and Financial Independence

Two days ago, I posted an article entitled Nine Skills Worth Learning for Any Career – and How to Learn Them. The goal of the article is to point to some fundamental skills that have value in almost every professional situation and offer some suggestions in how to cultivate them for yourself.

As I was putting the finishing touches on the article, my oldest son walked up behind me. He’s a middle schooler these days and is beginning to really think about the world and his place in it in many interesting and surprising ways. Anyway, he asked me what I was writing about and I summarized it for him – it’s all about skills that are useful in professional life, regardless of your job.

He looked at me for a minute with that look in his eye that he gets when he’s thinking, and then he started asking questions. In his roundabout way, the idea he was trying to seek out was this: what skills should a kid growing up have to be able to be a successful adult? He didn’t state it in those words, but that was the output of the conversation.

I gave him some ideas and then turned back to my laptop to finish the article, but in my mind, that question started to float around. What skills should he really be learning to be ready to become a successful, financially independent, and personally independent adult? Even more than that, what can I be doing right now to start teaching him these skills?

After some thought, I came up with a healthy list of skills that I felt I could help build in my children (or, more accurately, I am actively helping them build) with the end goal of helping them to develop into financially and personally independent adults. As with the previous article, I combined them down into nine skills that can be built in older children, preteens, and teenagers, each of which sets them on a path to financial and personal independence from their parents.

What’s the value in this? If you are a parent, the independence of your children has a huge bearing on your financial future. If you continue to provide housing, clothing, food, and utilities for your child into adulthood, you’re incurring a great deal of financial expense during the years when you’re really going to need to be preparing for retirement. This is true even if it extends to “financial outpatient care” – in other words, giving your children money during their early professional life.

The best possible financial outcome for a parent is a fully independent child who may actually be able to aid the parent in the future. To achieve that, parents should be taking action now to develop traits of independence and self-sufficiency in their children.

Here are nine skills that you should be helping your children and teenagers to master, along with two or three specific tactics for bringing out those skills.

Skill #1: Project (and Time) Management

This is simply the ability to take on a task that will take longer than one work session. It’s something that you’ll have to put down and come back to later, and perhaps come back to again and again.

To an extent, children get a taste of this through things like music lessons and sports training, but it doesn’t prepare them for things like writing a report (in college or in an office environment), finishing a work project, or taking on a home improvement task.

This ties deeply into time management, something which will come somewhat naturally once they have a grasp on the idea that big tasks should be broken down into smaller ones and tackled one at a time. Once that concept becomes second nature, time management fits well right on top of it.

So, how do you help your children develop project management and nascent time management skills?

Strongly encourage them to take on large scale challenges in their hobbies and areas of interest.
If your child has a particular area of interest, encourage them to take on a project within that area of interest that’s bigger than what they can finish in a single sitting. This requires them to break down the project into smaller pieces to be able to complete them successfully. Using a hobby or area of interest helps your child find the focus and purpose needed for such a project.

For example, all of my children have taken on large-scale LEGO building projects. My daughter has taken on some elaborate art projects that have taken several sessions to complete. This summer, my son is taking a course on his own – without parental or classroom encouragement – to master cursive handwriting. Those types of things encourage the ability to handle large projects and break them down into simpler pieces.

As they grow older, give them large scale tasks to work on and let them develop a plan on their own (with some gentle guidance from you).
For example, I might give one of my children the task of redecorating and cleaning their room so that guests could potentially sleep there. I might give one of them a task such as reorganizing the children’s book collection and figuring out which ones to keep and which ones to donate to the library such that the collection fits on one shelf. At that point, I leave the child to complete the task on their own, letting them know that if they run into difficulty, they are quite welcome to ask for guidance.

With those kinds of tasks, they become responsible for coming up with a plan for success on their own. The solution is not ready made for them and the plan is going to take some time to complete.

The interesting part? They’re drawn to these kinds of independent tasks. They’re almost always much more interested in taking on tasks that allow them to be independent and to effectively control this larger task. This teaches them the value of autonomy and also helps them master it in an environment where they can ask for help easily if they get stuck.

Skill #2: Work, Money, and Negotiation

The basic concepts of working to earn money, paired with the fact that negotiation is a key element of improving the work environment and improving one’s pay, is a key part of a financially and professionally successful life. Money will not be handed to you in life, and the financial rewards you get for your work will be low if you don’t advocate for yourself.

Putting your children in a position to intimately understand the connection between hard work and reward is a key part in helping them build a work ethic. Encouraging them to negotiate on their own behalf and giving them opportunities to do so is helpful, too.

How do you help your children develop these kinds of professional skills?

Give your children the opportunity to earn a little money by taking on additional chores beyond the normal requirements.
One great way to do this is to have a “jobs board” where they can take on tasks that you list for a financial reward. These should be tasks that go above and beyond normal household chores – you shouldn’t be rewarding them for taking out the trash or loading the dishwasher. Instead, rewards might be put in place for weeding the entire tomato patch or paring down their toy collection or thoroughly vacuuming and dusting a room and cleaning the windows.

If they take on such a job, you can and should judge the results for quality, pointing out areas where they need to improve. In fact, most of the time, the first result isn’t “accepted” unless they did a truly stellar job. The purpose is to teach them that a quality job is necessary to earn pay.

Encourage them to negotiate better terms on their own behalf, and give them a mix of successes and failures.
When you offer a task for a certain pay level, that should be the starting point most of the time. Your children and and should negotiate for a better rate, because being advocates for themselves is going to be vital in navigating the adult world.

Encourage your children to negotiate for a better rate. Guide them when it comes to negotiation, using techniques such as basic persuasion and use of evidence that they deserve a better rate. They don’t always have to be successful here, and they shouldn’t be, but they should see some success when they come up with a persuasive argument. You should also counter-offer sometimes, adding additional factors to a chore for that better offer they’re seeking.

Enforce some basic budgeting constraints on all money that they earn (and allow those to be a bit negotiable, too).
When they earn money, this is a perfect time to teach the basics of budgeting and the value of saving. Rather than simply allowing them to spend the money freely, you should act as a “401(k)” for them and put some of the money away for a future goal. Perhaps you can incentivize this and offer matching funds for what they save out of their income (though my children really figured out how to maximize that one).

You can also use this opportunity to encourage self control by encouraging them to save money for short term goals in a piggy bank, so that they know there’s money sitting right there and have to exhibit some self control to achieve the goals they want. My oldest son’s experience in saving up for a Nintendo 3DS was very valuable in this regard, as was my daughter’s efforts in saving up for a tablet.

Skill #3: Character and Integrity

Having a good reputation is priceless, and character and integrity are the foundation of a good reputation. Having character and integrity means that you don’t have to “fake it,” but that a good reputation comes completely naturally.

A good reputation makes it easy to fit in well in the community. It becomes so much easier to make new relationships, to find help when you need it, and to help steer a broader community in a positive direction when needed. It can keep coworkers on your side, encourage positive office politics, and make it much easier for you to earn raises. Plus, it simply makes the world a better place.

It’s up to you as a parent to teach your children integrity and character. Here are two key things you can do to relay those characteristics.

Value elements of strong character – honesty, empathy, responsibility – over perfect obedience and perfect choices, and don’t punish when those elements are present. When your child shows character, reward it. When they’re honest in the face of being in trouble for a mistake, be lenient with the punishment and laud the honesty. When your child mildly disobeys you in order to show empathy for others, like being slow in returning home because they were helping someone in the moment, compliment the empathy rather than punishing the tardiness. Put a heavy value on responsibility and reward it when they show it.

Be an example of character and integrity in your own life so that your child sees character and integrity at work. Children learn many elements of character from their parents, as you’re their primary adult role model whether they directly admit it or not. Thus, it’s up to you to demonstrate character and integrity in how you live your life. Strive to be the best person you can possibly be in all avenues of life so that when your child is looking for an example of how to act, they see a person trying – and often succeeding – to act with character and integrity. Be honest. Be empathetic. Be courteous and polite to others. Be responsible. Own up to your mistakes. Be the person you want your child to be as an adult and they’ll do their best to mimic you, even if you don’t always see it.

Skill #4: Physical and Mental Health

Physical and mental fitness simply means taking regular action to maintain and improve one’s physical and mental state. You can always improve your body and your mind by taking action to exercise each of them and to remove burdens of stress from them.

Not all children are made the same way, of course, and your individual child may have different needs and standards for physical and mental fitness. Your goal should merely be to encourage their own efforts in improving and maintaining their own physical and mental health and fitness.

Here are three things you can do to encourage both physical and mental fitness in your children.

Encourage your child to participate in some type of regular physical activity as well as some type of intellectual hobby. For example, my oldest son enjoys taekwondo, soccer, and reading, a list that’s mirrored by my daughter, who also chooses to practice the piano. You’ll often find them practicing taekwondo forms on their own or practicing their soccer moves or curled up somewhere reading a book of some kind. We encourage these hobbies and try to discourage ones that are less mentally and physically engaging, like watching junk television programs.

Avoid overburdening them with too many activities. It’s easy to get into a pattern of “oversubscribing” your children, either to bolster a resume or to have them try lots of things. Having some free time and down time – and learning how to self-manage that free time and down time – is also a vital element of mastering the autonomy of the adult world. Rather than oversubscribing your child, limit the activities they’re in and encourage excellence in the areas they choose. This also eliminates a lot of stress from their life – and from your life, too.

Teach them how to accept and use failure rather than fearing it. It is often tempting to protect your children from failure, but learning how to fail is perhaps one of the most beneficial lessons a child can learn. When they fail, don’t try to remedy that failure, but also don’t strictly punish that failure. Instead, talk about what can be learned from that failure. You can teach this all the time. I often do it when we play a game together, for example. If I lose, I’ll actually say out loud, “Hmm.. why did I lose? What did I do wrong?” This encourages thinking and self-improvement rather than disappointment and self-doubt. It moves the locus of control inwards, which is a key part of managing successful independent adult life.

Skill #5: Social and Relationship Skills

One of the most powerful skills that a child can build is social skills and relationship skills. How do you go from a room of people you don’t know well to a handful of strong relationships?

In school, children often form friendships simply because of forced time together. They eventually have to get to know each other a little bit because they’re forced to do so by the constraints of school. To a somewhat lesser extent, this happens at college and in some workplaces, but in many careers and especially in the community, people are often left on their own.

Knowing how to build relationships and maintain them, whether it’s professional relationships or friendships or romantic relationships, is a skill that people often don’t master. For some, it comes naturally, but for many, it’s a challenge. One of the most powerful skills you can build in your child for a successful professional, personal, and romantic life is the ability to build relationships from scratch.

Teach by example by putting yourself in social and relationship situations with your children and show best practices in those situations.
You can start doing this by actually going to community events with your children and meeting people there. Go to a church and get involved, or find a civic group where your family might be welcome. Take that first step yourself, with your family in tow, and start building those relationships. One good way to do this is to explain, on the way, what it is that you’re going to do there, and encourage your child to watch. “I’m hoping to get to know some people in the community today. I’m going to do that by introducing myself to people and having conversations and, hopefully, connecting well with a few of them.” Then, actually do this. Your children will view this practice as normal and it will serve them well in future social situations.

Talk through common relationship and social situations at the dinner table, at bedtime, on car trips, and other situations. How do you handle abrasive people at work? How do you handle a friendship that’s drifting apart? How do you handle a dispute between lovers? Don’t be afraid to talk about these situations with your partner and with your family. Bring them up, go through some potential solutions, and talk about how they might and they might not work. Put those solutions into practice, if needed, and then relay the results later. These types of conversations can be the basis for powerful learning.

Skill #6: Emotional Awareness and Self-Control

One of the most challenging areas in adult life is emotional control. As we’ve all witnessed, many adults often fail in this area, but those that master it (at least most of the time) tend to find success financially, socially, and personally. They learn how to keep their emotions in check and make decisions rationally rather than emotionally.

This is a skill that children can and should begin to develop early on. Most parents do this to a certain extent to avoid things like tantrums, but that’s just the beginning. Learning emotional awareness and self-control is a lifelong journey and it’s valuable for parents to help their children on that journey beyond the toddler tantrum years.

Here are two simple strategies you can use to build this skill in your children.

Encourage them to step back when they’re feeling an emotional rush (whether positive or negative) and practice this yourself.
This is a practice I’ve found incredibly useful with my daughter, whose emotions often come right to the surface in many situations. I simply gently encourage her to “time out” of the situation for a bit; sometimes, I’ll go sit down with her somewhere, while at other times I’ll encourage her to just chill out by herself. This isn’t really a “time out” in that I don’t treat it as a punishment in any way, just a moment to calm down and make a better choice. She’s started to actually do this on her own, and I have spoken positively about her doing this on her own many times and have even lightly rewarded her for doing so.

Strongly encourage them to actively postpone decisions that are full of emotion so that they can be considered with a cooler head.
This is something of an extension of the above practice. Basically, if you’re in a situation where you’re making a decision and you feel a strong emotion – anger, desire, frustration – then it’s an indication that you should step back from that decision if at all possible and make it later after giving it some thought. Again, I do this myself in front of them when possible and I strongly encourage them to do it as well. My oldest son has become a master at this – he rarely makes any sort of meaningful choice until he’s had a chance to calmly think about it. This didn’t come automatically for him – it’s something he’s learned and built over time – but it’s something that’s going to be very valuable for him going forward.

Skill #7: Shopping

This skill is a highly practical one, but simple mastery of this skill will save your children a tremendous amount of money in their life. Simply knowing how to plan ahead a bit for shopping and how to shop around and compare items on the shelves (virtual or otherwise) is an invaluable skill to have, one that will keep you from buying a lot of unnecessary things and will help you find good prices on the things that you want.

Shop together for things and use smart shopping techniques so they can see the benefits of them.
Quite often, I take my kids to the grocery store on small trips and literally talk through the entire process. I explain why I’m going to the store, what items are on my list, and how I decide which ones to buy. This is a great time to show off comparison shopping, like comparing two boxes of garbage bags in one store and then comparing that price to the price in another store to figure out which one gets us the cheaper bags.

I often do the same thing when shopping online, especially when it’s a purchase that may be relevant to them. For example, if we’re selecting a gift for their mother on her birthday, we’ll discuss what to buy first and then look for that item in various places to compare prices. Sometimes we find a new idea, but we don’t impulse buy – instead, we research the new idea a bit and shop around for that item. My favorite result here is showing them how much money we’ve saved by shopping around rather than just clicking buy or heading to the checkout at the first store.

Openly discuss purchases before going into a store so that you have a plan before you ever enter the store.
This is the “grocery list” part of going to the store. Before we ever set foot in any store, whether a brick-and-mortar grocery store or Amazon or anywhere else, we have a plan for what we’re going to buy. We’re going there for a purpose, not just to browse, and that purpose is set before we ever visit the place, ideally with some specific detail of what we’re looking for.

Why? Doing this cuts off a lot of impulse purchases. When you go to a grocery store with a list, your focus is on the list, not on the variety of items on the shelves. If the list is thoughtfully created, it contains everything you need so you don’t have to debate whether you should buy some random item you spot on the shelves. This is something I point out to them – if they spot something on the store shelf that’s not a part of our plan, I can simply say that we didn’t plan for that item and maybe we can think about it and get it next time.

Skill #8: Meal Preparation and Planning

This actually runs in parallel with the above skill. Again, I consider this a skill of high importance during the early stages of independence – knowing how to feed oneself inexpensively can make an enormous difference when it comes to surviving independently on that first entry-level job, and it can make a huge impact on financial success later on, too. It’s a skill that will serve them throughout their independent life, and it’s one you can start teaching at home right now.

Doesn’t this fall into typical household chores? For some families, it does, but for many families, the routine is oriented around going to restaurants, picking up takeout food, or making prepackaged meals. That’s an expensive (although convenient) routine to fall into, one that will add greatly to the burden of the early steps of independent living. If your child knows how to prepare meals efficiently and at a low cost, they’re going to have a much lower food budget and will find independent living, particularly in the early stages, much easier.

Here are two things you can be doing right now to teach this skill to your children.

Let them handle meal planning and preparation entirely on their own (within a reasonable budget).
Just hand the entire meal plan over to them for a week and see what they come up with. Guide them through the general process – look at a grocery flyer, see what ingredients are on sale, think of meals that use those ingredients, find recipes, plan the meals, make a grocery list from that meal plan, buy the groceries, make the meals – but let them handle all of the specifics along the way. Give them a reasonable budget to work with.

This is a great exercise for a week during the summer when your children may have more time for pulling these things off. Naturally, you can help as much as possible, particularly in terms of suggesting recipes or showing them how to find recipes, and also in some of the food preparation.

Let them try doing this with some budget constraints or ingredient constraints once they become adept.
Once they’ve managed to pull off the previous project a few times, add a few constraints. Make them come up with meals that take fifteen minutes or less to prep. Have them use a slow cooker. Have them use some of the ingredients already in the pantry to base their plan around. Have them make a meal plan on a very tight budget.

All of those things are valuable learning experiences. They’ll learn to be resourceful with their food. They’ll learn lots of ways to cook different things. They’ll end up feeling like they can handle almost any food situation. When you feel like that, dinnertime becomes inexpensive and rather fun.

Skill #9: Self-Reflection

This is the last skill on the list (well… sort of), but I consider it to be the most important. It’s a skill that my parents and my grandmother embedded in me in their own way growing up and it’s the single most powerful skill I learned from them.

Self-reflection simply means that you are willing to step back from your life regularly, look for areas where you can improve without beating yourself up, and then strive to improve upon them. It’s a constant honing of yourself into a better person, step by step. It’s a way of evaluating your mistakes and making sure you don’t repeat them and making sure that they don’t turn into large disasters.

Here are two techniques you can use to turn this into a regular practice for your children (and for you).

Have thoughtful dinner table and bedtime conversations that encourage introspection.
Almost every dinner we have together as a family involves some sort of introspective question. “What was something you wish you had done better today, and how can you do it better next time?” “What did you do today to make yourself better?” “What relationship in your life did you improve today and how did you do it?” Everyone shares something around the table and it ends up being a learning experience for all of us because many of the stories launch great conversations.

If you’re not sure how to do this, just think of something you’d like to reflect on a little bit in your own life, reform it into a question, then ask it at the dinner table and get it rolling by volunteering your own story. I often think about this before dinner, where I come up with this kind of introspective question and my response to it. Responding first gives people an example to think about and gives them time to think about their own life a little bit.

Encourage setting aside a bit of time for daily self-reflection.
Most nights, I encourage our children to each write in their journal for a little bit before bed. I often do it with them, if it works out. I just have them write down a couple of things they’re grateful for, one thing they messed up on today, and how they can do it better going forward, and one thing they want to remember about today if they want. Four or five sentences is plenty, because the valuable part is the thinking.

Simply add this into your nighttime routine. Your children really don’t have to write much here, just enough to record a piece of their thinking. It’s the reflection that counts.

The Final Lesson: Less Helicoptering, More Free Range

If you hope that your children will one day be truly independent, you need to give them progressively more control over their choices, their actions, and their day-to-day lives. They need to learn how to manage their own time, make their own choices, set their own priorities, and navigate their own difficult situations. As they grow, you need to gradually become the copilot and then the flight instructor and then something more akin to the air traffic controller, and the earlier you begin that transition, the better.

Yes, they’re going to fail. Yes, they’re going to make mistakes. Your role should be to show them how to make better choices and how to stand back up when they make mistakes and fail. You should not give into the temptation to make those choices for them or to shield them from failure, because if you do that, they won’t be prepared for the real world.

Here are five things you can do to foster that kind of independence and self-reliance.

Let them handle the details as much as possible, only asking you for help when they need it. Let them dress themselves. Let them manage their own laundry. Let them manage the state of their own room, only requiring a cleanup when presenting it to guests. Let them decide how to manage their homework, only requiring them to have a homework “session.”

Encourage them to ask you for help, but don’t provide that help unless they ask, even when they seem to be headed for failure. Naturally, you’ll want to teach them at first, like a child learning how to ride that bicycle, but when you start removing your hands from the handlebars, let go. Don’t keep holding on because it feels good to you. Let them ride freely.

Don’t punish them for honest questions. Encourage them and reward them instead.
When your child tackles a challenge on their own, figures out where they’re stuck, and then independently asks for help, that’s a moment to be rewarded because that’s a moment they’re acting like a functional adult. That’s the model of behavior you want to encourage.

Don’t ever discourage them from coming to you when they run into a difficult situation. Never, ever turn a request for help or a sincere question into punishment, even if it’s a confession of a transgression of some kind. The fact that they understand that they’ve made a mistake and they’re trying to fix it is evidence that additional discipline is probably unhelpful.

Rely on natural consequences as much as possible.
Quite often, parents rely on discipline of various kinds to enforce certain behaviors. The truth is that those disciplines rarely work in terms of correcting those behaviors. What truly works is the natural consequences of bad choices.

This isn’t to say that discipline isn’t sometimes warranted, but quite often the natural consequences of a bad choice, on their own, serve as punishment enough for a bad choice. Many children (including myself, when I was a teenager) are more bothered by the fact that they’ve disappointed a parent than they are by any punishment that’s doled out.

The most effective punishment that was ever given to me wasn’t a punishment at all. I borrowed my parents car one evening and stayed out far later than I should. Rather than grounding me, my parents simply showed their disappointment. When I asked to borrow the car the next time, they simply said no, because they didn’t trust that I would bring it back when I said that I would and that they couldn’t trust my word now. That made me rethink things far more than any “punishment” ever could. Why? They treated me like an adult and let me see the consequences of violating their trust as an adult, rather than resorting to “grounding” which amounted to treating me as a child.

Have lots of open and honest conversations about how to navigate daily life as an adult.
Don’t be afraid to talk through your thought processes as you figure out how to handle something in your life or as you work through a normal process. When they’re younger, talk through the steps of doing dishes or doing laundry. When they’re older, talk though the thought process of paying bills and whether or not you can afford to go out to eat.

Bring your children into these decision-making processes, too. Don’t just provide an answer; let them make up their own answers and then talk through them, whether they’re right or wrong. Let them see the results of their attempts at solutions to adult dilemmas, as often as you can.

Be a “good adult” yourself.
This is the best advice of all. Even when you think they’re not watching you, your children are observing you and using you as a role model for adult behavior. What kind of model are you?

Be the kind of adult you want your children to become, as often as you possibly can. If you’re doing something that would bother you if you saw your children doing that same thing as an adult, stop doing it. That’s an indication that you’re not acting like the kind of adult you want your children to be.

Be the person you want them to become and they’re much more likely to become something like that person.

Some Final Thoughts

The key thing to remember about this list is that it’s intended to give children the functional foundation they need to be financially and personally independent. There are many life lessons that they will still need to learn to achieve a high level of financial and personal success, such as money management, retirement savings, and so on.

The important thing to remember here is that with these skills, they’re going to be prepared with the underlying elements they need to want to learn things like money management, like retirement savings, and so on. These skills are all about introspection and independence and planning, which are the bedrocks of personal finance. Once those things are at the core of who you are, the ideas of budgeting and saving for retirement come naturally.

My goal, as a parent, is to raise truly independent children, both for my own sake and for their sake. This means leaving them in a position where you feel as though they’ll make it just fine when you drop them off at the door of their first apartment. Will they have mastered everything they need to know? Of course not. Your job was to give them the tools they need to survive at first and also to pick up the other things they need as they go.

If you can do that, you’ll have independent, successful children. My own experience with my parents, my own experience so far with my own children, and the research I’ve done into successful parenting points me toward these strategies as being the most efficient way of achieving that goal.

Good luck on your own parenting journey!

The post Nine Skills Worth Teaching Your Children to Build Personal and Financial Independence appeared first on The Simple Dollar.

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Friday, July 21, 2017

Why You Shouldn’t Use a Roth IRA as an Emergency Fund

Nadine writes in:

Does it make sense to use a Roth IRA as an emergency fund? It seems like I could contribute money to it, have it build tax free for a while, then I take out the contributions in an emergency and just keep those earnings for retirement. Why not do this?

Well, as you can see from the title of this article, I don’t actually think this is a very good idea. While Nadine’s point is accurate – you can, in fact, withdraw your contributions from a Roth IRA without penalty and just allow the earnings to build – that’s a really bad idea outside of an absolute emergency.

Here’s why.

Reason #1: You Lose Most of Your Retirement Gains

Let’s say you contribute $5,000 at age 25 and decide that you’re going to leave it in there until age 65. You put it into a hypothetical investment that earns 7% per year.

You check that account at age 65 and what’s in there? $74,872. Sweet!

Now, let’s look at an alternate scenario. You put $5,000 in there at age 25, just as before, but then you withdraw your $5,000 contribution at age 30 because of an emergency. What happens then?

Well, you peek in there at age 65 and… you have $21,489. Wow.

Because you took out that original $5,000 at age 30, you lost $48,382 in investment growth in that account. You tossed away what amounts to most of a year of living expenses (depending on inflation).

Here’s the core principle to remember here: If you withdraw your contributions early from your Roth IRA, you give up a lot of tax-free growth.

“But can’t I contribute more later to put the money back?” Unfortunately, no.

Reason #2: You Lose Your Contribution Window, Too

As of right now, each year, a person is allowed to contribute $5,500 to a Roth IRA (or $6,500 if they’re over age 50), provided their income makes them eligible (most Americans are). Once you reach that limit for a given year, you can’t contribute any more.

Furthermore, once a year passes by, you lose that contribution window. You can no longer make contributions for 2013 or 2014 or 2015. The calendar keeps marching forward, and as it does, you lose out on opportunities to contribute to your Roth IRA.

Those contribution windows are valuable. You only have so many windows to contribute during your working career. Between the ages of 25 and 65, you basically have 40 such windows (and that assumes that you’re within income limits on all of them).

So, let’s say you withdraw $10,000 in contributions from your Roth IRA. That’s the equivalent of just throwing away two of those contribution windows. You can never, ever get them back. They’re gone forever. You’ve effectively permanently reduced the amount you can ever contribute to your Roth IRA by $10,000.

Let’s put that in perspective. From ages 25 to 50, you have a total of $137,500 in contribution windows, and from 50 to 65, you can contribute a total of $97,500, giving you a total of $235,000 in contribution windows. You can only ever contribute that much to your Roth between 25 and 65, period.

Whenever you choose not to contribute up to the cap in a given year, you lose some of that total window. Didn’t contribute for the first five years? You can only ever contribute $207,500 total, because those first five years are lost. Only contributed $1,000 a year for the first decade? You threw away $45,000 of contribution windows that you’ll never get back.

The same thing is true when you withdraw your contributions. You’re effectively losing a contribution window you can never get back. If you contributed $5,000 when you’re 25 and then take that money back out when you’re 30, you’re not going to “gain back” the opportunity to contribute more. You’ve not only taken $5,000 out of that account, but you’ve lost some of the total that you’ll ever be able to contribute to the account. You can’t just put the $5,000 back without eating your current contribution window. The old one is gone forever.

What if you want to “make up” that $5,000 withdrawal later? You can, but by doing so, you’re effectively gobbling up a later contribution window. If you withdraw $5,000 in 2017 and then decide to put it back in 2020, you’re eating up $5,000 of your 2020 contribution window, leaving you with only $500 in fresh contributions that year.

Here’s the core principle: Your contribution windows are a limited resource, and withdrawing your contributions wastes those contribution windows. This might not be a big deal if you’re not using your Roth IRA to its full extent… but if you’re not using every drop of that Roth IRA contribution window, you may be making a mistake anyway (that gets into retirement planning issues that are outside the scope of this article).

There’s a final reason why simply taking money out of a Roth IRA to solve a problem might be a bad idea…

Reason #3: You’re Taking an ‘Easy Way Out’ of Your Financial Situation

When a financial emergency occurs, it’s often easiest to simply look for available pools of money and use those to solve the problem and then move on with life. The problem, of course, is that this really doesn’t solve the problem at all. The short-term problem – whatever the crisis of the moment is – is solved, but you’re left with a big, ongoing, long-term problem – a lifestyle that’s stretching your means – along with a new problem – a reduction in your retirement savings.

In short, if you’re tapping your Roth IRA in an emergency, you’re introducing a new long-term problem without really solving the one that already exists. Sure, you’re getting rid of the short-term issue, but you’re facing a lifestyle that’s pushing your means to sustain it while also facing a retirement for which you’ve just tapped some of your savings.

What’s the solution, then? First of all, if you’re in an emergency where tapping your Roth seems like a good solution, use other resources instead. Leave that Roth alone and try to find a different way to solve that challenge. Your Roth should be your last resort.

When the immediate crisis passes, step back and take a deeper look at your life. If you’re making financial choices that led to you considering tapping out your Roth, you may want to consider different choices.

Are you spending less than you earn? If you’re not doing this, you are going to constantly run into financial trouble in your life. There are simply times in the course of life where you are going to have more financial demands than you expect and it’s during those moments that you need to draw on your resources. If you aren’t preparing for this constantly during the easy times, the hard times are going to be very hard, indeed. As is often noted, winter is coming.

Do you have an actual emergency fund, one that’s large enough to handle most major emergencies? Do you have a pool of cash on hand that could help you bear the brunt of a sudden job loss? What about the transmission failing in your car? What about both? What about a sudden death in the family that necessitates emergency travel? What about identity theft that causes your accounts to be stolen and your credit cards to be closed? These things can and do happen. Are you prepared for them?

Are you earning up to your potential? In other words, are you doing everything you can to succeed in your career so that you can easily move on to higher paying jobs and pull in more income? This is perhaps the most important aspect of all if you’re struggling to spend less than you earn and are only covering the bare necessities. The only way out of that conundrum is to improve your earnings and that requires a serious focus on your career.

The key thing to remember is this: a situation where you’re even considering pulling contributions out of your Roth IRA is an indication that you’re living a life that’s full of financial missteps. You’re likely spending as much as you earn (or nearly as much). You likely don’t have an emergency fund, either. Part of this might be fueled by a job that doesn’t pay well, which is another thing that you can be working on. Correct those missteps. That desire to tap your Roth IRA is a warning shot.

Some Final Thoughts

First of all, if you’re ever in a position to even consider tapping your Roth IRA in an emergency, you need to step back and take a bigger look at your finances. Your Roth IRA is for retirement; if you use it in an emergency, you’re damaging your retirement savings plans. Instead, you should have other emergency protections in your life – namely, a cash emergency fund.

If you’re in this situation, start by considering all other options first. Have you investigated other methods of paying down debt? Do you have some unused belongings you could sell to pay for the emergency? Can you borrow something for a while, such as borrowing a ride or a car for a few days until you figure things out? Is there an alternate strategy you can use for a while, like using the bus instead of your car?

Your Roth IRA should be your emergency fund of absolute last resort. You don’t just lose the contributions from your retirement savings, you also lose the many years of earnings that those savings will generate and you lose some of your window of opportunity to contribute to your Roth IRA. It’s not worth it.

Related Articles:

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Thursday, July 20, 2017

Nine Skills Worth Learning for Any Career – and How to Learn Them

I recently had the pleasure of reading Scott Adams’ book How to Fail at Almost Everything and Still Win Big. At one point in the book, Adams refers to a set of skills that will serve a person well in succeeding in virtually any career path that they might choose:

Public speaking
Business writing
Accounting basics
Design basics
Overcoming shyness
Second language
Proper grammar
Technology basics
Proper voice technique

I found this list quite compelling, but I would actually trim it down to just nine key skills by eliminating and merging a few:

Public speaking
Social skills
Business writing
A second language
Technology basics
Accounting basics
Design basics

It is my belief that any person out there who seeks to have a better job – or seeks to improve their side business – can benefit from improving all of these skills. They make you more valuable in your current career path. They open up more doors for finding new and better jobs. They make it possible to effectively move into management and leadership positions. It doesn’t matter whether you’re working as a nighttime cashier at a gas station or as a computer programmer or as a lab equipment salesperson, these tools will open doors for you.

What does that add up to? It adds up to a higher income, and with a higher income, you can eliminate your debts much more quickly and save for the future with much greater ease, particularly if you keep lifestyle inflation in check.

The best part? You can build them all in your spare time at minimal cost, and can even build them during your downtime at your current job. It just requires the willingness to improve.

Let’s take a look at how you can improve each of these skills.

Skill #1: Public Speaking

Let me be clear on exactly what I mean by “public speaking.” It is my belief that you’re doing public speaking every time you’re speaking to a group of people on a topic. A manager gathering together several members of their staff for an announcement or a meeting is doing public speaking, for example. A person trying to explain the ins and outs of a project to three coworkers is doing public speaking. It’s not just a person standing on a stage delivering a speech to an audience, though that is definitely one part of it.

The truth is that most people in the workplace do some flavor of public speaking pretty regularly, especially if they find themselves in any position where they’re trusted by others. People will gather around and listen, and if you can deliver a great message to them, they’ll trust you and listen to you even more.

That’s a great place to be in. The person who stands up and speaks, even when its scary, is the person who builds a natural reputation as a leader, as a go-to person. That person is the one who is going to receive a lot of opportunities and a lot of rewards along the way. You’re going to have strong relationships with your coworkers, with the people who work under you, and with your supervisor and their supervisors, too. That’s a position from which you can build a great career.

Key Book to Read: Confessions of a Public Speaker by Scott Berkun
This is an incredibly readable book about the art of public speaking, written in a conversational tone that makes it easy to keep going and breeze through the pages, but buried in there is some of the best advice on public speaking that you’ll find anywhere. Perhaps what I appreciate most about it is the focus on preparation and the value of it. Preparation for public speaking is an enormous part of success and Scott really nails the reason why: it comes down to respect for the audience, and they can sense that respect.

Daily Practice: Speak to a group of people
Always be on the lookout for opportunities to speak to a group of people on a topic. Volunteer to speak at meetings at work. Volunteer to present ideas informally to groups. Volunteer to give speeches to represent your company. Look for opportunities to do that outside of your workplace, too, by doing presentations for civic groups. You’ll burn away any stage fright you might have, relegating it to mere butterflies (which are actually useful), and you’ll have many opportunities to practice the principles you’ve learned in the book.

Skill #2: Socializing

Simply being comfortable in a crowded room and knowing how to strike up conversations with people you don’t know where they walk away happy to have met you is a powerful skill for anyone to have. That’s socializing and while it comes natural for some people, it’s something that’s very uncomfortable for many others (myself included).

Rather than seeing a group of people as something to be intimidated by, successful people typically see such a group as an opportunity. It’s an opportunity to learn things. It’s an opportunity to build friendships and personal relationships. It’s an opportunity to build some bridges to your future.

Thus, people who are comfortable around people they don’t know and are able to strike up meaningful conversations with them tend to earn a lot of benefits along the way. They build relationships. They get opportunities. They learn things. Those doors are closed to the people who avoid crowds and those that stay quiet on the periphery.

I’ll fully admit that I’m an introvert and that my instinct is to avoid such crowds or to stay quiet at the edge of groups, but I’ve witnessed time and time again that when I force myself out of that shell and actually converse with people in a meaningful way that causes them to walk away with positive feelings, I reap some enormous rewards. My primary tool? I just ask questions and listen carefully and follow up on what they’re saying. I learn things. People like me. If I ask meaningful follow-ups, they’ll usually remember me, too. It takes practice, but it’s incredibly worth it.

Key Book to Read: How to Win Friends and Influence People by Dale Carnegie
This book might be dated, but it’s a handbook on how to carry on an effective face-to-face conversation, written almost purely with the introvert in mind. For someone who finds these things to be natural, this book can seem a bit mechanical, but for the rest of us, this book is practically a revelation. (I’d also recommend Never Eat Alone by Keith Ferrazzi and Tahl Raz as a follow-up.)

Daily Practice: Carry on a conversation with someone new and with someone old
Have a conversation with someone you don’t know and also have a conversation with someone you’ve known for a while and perhaps fallen out of touch with. In both cases, make it your goal to learn something new and interesting about the person and send the person away feeling better about themselves. Let them do a lot of the talking and make it your goal to learn about them and their ideas rather than just sharing your own thoughts.

Skill #3: Business Writing

The key to successful business writing is clarity and confidence. You need to be able to express your ideas clearly and succinctly so that the other person understands what you are trying to say. You also need to be able to put forth those ideas with a sense of confidence so that others actually read and value what you’re writing.

These aren’t natural skills. They take practice. Almost everyone can write out an idea, but it takes a lot of work to be able to write out an idea clearly and briefly. It takes skill to be able to share a proposal with confidence in your words (without sounding arrogant).

It is clarity and brevity and confidence that makes a person into an effective communicator in the workplace, and a person that can effectively communicate is a person that is able to keep ideas flowing around the modern workplace, often gets credit for things, and often gets their ideas and thoughts noticed and used. It’s an incredibly valuable skill to have.

Key Book to Read: Writing that Works by Kenneth Roman
This book offers a ton of useful advice on keeping your writing clear and brief, as well as many suggestions for making your writing confident and persuasive (we’ll get back to persuasion in a bit). It’s littered with specific, actionable tips that you can directly use in your writing to improve its effectiveness in your workplace.

Daily Practice: Write down or revise a description of a task you do regularly
One great way to practice communicating information in a business setting is to start documenting your regular tasks. Try writing a standard operating procedure for a task that you do regularly, then read it to yourself. Does it sound clear? Does it sound succinct? Spend time polishing it until it seems as clear as possible in the fewest words possible, then share it with a coworker for suggestions and improvement. Doing this regularly will naturally improve your business writing skills, as this practice highlights clarity and brevity in your writing. Plus, it enables you to create useful documentation for your work along the way, which is actually a useful result.

Skill #4: Applied Psychology

This is a very broad subject that you can easily learn about for the rest of your life, but by simply thinking about it and learning about it at all, you can take a major step forward in your attitudes and habits in the workplace.

The key focus of applied psychology at work is understanding what other people genuinely desire and altering your actions and words accordingly to maximize the value you get from that. Rather than looking strictly at a list of tasks to do, look instead at the desires and ambitions and goals of your coworkers and customers and how you can help fulfill them.

When you start evaluating situations in terms of what other people want out of them and hope to get out of them, and then evaluating how you can get the most value out of helping them succeed, you’re going to find yourself succeeding wildly.

This can take infinite forms, from writing a thank you note to putting a bit of polish on a project in a certain area, from helping someone fit in a little better to understanding what results are truly important to your boss. Knowing those things – and then shaping your workplace actions around them – can make a tremendous difference when it comes to your career success. It’s not just about completing a list of tasks – it’s about how you complete them, which ones you prioritize, and how you help others achieve their ambitions along the way.

Key Book to Read: Drive by Daniel Pink
There are many, many books I could recommend here, as applied psychology is an enormously popular book topic, but for the purposes that a person might use applied psychology in the workplace, few books click better than Daniel Pink’s Drive.

The focus of this book is what drives people to work hard and how to tap into that. Most people aren’t really driven by threats or negativity or a call to altruism for altruism’s sake. They’re driven by a desire to control their own destiny, to do creative work, and to make the world a better place on their own terms. Those are the core motivations that separate ordinary work from great work. Drive‘s focus is on how you can tap into that, both within yourself and within others.

Daily Practice: Try to evaluate what motivates someone else to do something you didn’t expect
Most of the time, the people around you do things for rational reasons, once you understand their motivations. They might not act in ways you fully expect, but their reasoning is clear.

However, that doesn’t stop us from misunderstanding what they’re doing and why they’re doing it and how they’re trying to do it. We often interpret people as being incompetent or misguided or greedy when we’re often not fully understanding their motivations. In short, we end up with a broader misunderstanding of that person because we didn’t happen to fully understand why they’re doing something.

Don’t let that happen. Spend a bit of time each day reflecting on the unexpected behavior of a person. Why did they behave that way? What motivated them to do so? Did it make sense?

This simple exercise can be done nearly anywhere and will go a long way toward improving your understanding of the psychology of other people, particularly when complemented with readings on applied psychology.

Skill #5: A Second Language

The ability to speak a second language means that you can converse natively with people who do not speak your primary language, opening the door to communication to a much wider range of people than before. It also enables you to be of assistance to people who speak English as a second language.

This turns out to be an incredibly powerful addition to your resume in almost any career path. If your career points you in a direction that requires you to speak at any time with people who are not native English speakers, conversational ability in their native language is a huge boon for you. This might mean serving customers who speak native Tagalog or engaging with coworkers who speak Punjabi. This might mean talking to a tradesman who speaks only Spanish or to a contractor who speaks only French. There are many, many situations like this in the world; the value in being able to speak across that barrier with little effort is enormous.

Key Book to Read: Fluent Forever by Gabriel Wyner
While Fluent Forever won’t directly teach you a specific language, what it will do is teach you how to learn that language (and any other language) efficiently and thoroughly, moving you toward spoken and written fluency very quickly. It can serve as your handbook in foreign language study.

Obviously, beyond this, you’ll need additional tools to learn the language that you want to learn. I’ve already prepared a long list of additional materials for language learning at a low cost.

Speaking of which…

Daily Practice: Complete a Duolingo lesson in your chosen language

As I mentioned above, I recently discussed methods for learning a new language inexpensively and those methods start with Duolingo, which is perhaps the most accessible tool that has yet existed for free language learning for a broad audience.

Simply download Duolingo to your phone, choose the language you want to learn, and dive into the lessons. Commit to completing at least one lesson per day until you’ve completed the learning track for that language. You’ll find yourself at a simple conversational level in that language, one that you can build upon with these additional tools.

Skill #6: Persuasion

The simple ability to persuade someone to come to a particular conclusion or course of action is an incredibly powerful skill to have. It can help you directly in persuading people to give you opportunities and raises. It can also help indirectly in perhaps even more powerful ways, as you can use persuasion to steer elements of your workplace in particular directions.

It all comes down to the ability to persuade, which is a mix of the social skills mentioned above and the applied psychology mentioned above with a healthy dollop of knowing what words to use and when.

Key Book to Read: Influence: The Psychology of Persuasion by Robert Cialdini

If there’s one book to read on how to become more persuasive, it’s this one. This is simply a master class on how to become more persuasive in your words, your actions, and your presentation.

While the core ideas of this book can fit on a few pages, this book shines in the examples: in sales, in office situations, in marketing, in customer relations. Over and over again, this book succeeds at translating dry principles into action, which is why it stands out so well.

Daily Practice: Engage in a persuasive discussion

Remember, your goal here isn’t to prove that you’re right and that the other person is wrong. Your goal is to persuade the other person to simply have a higher view of an idea that they might have rejected or to lower their view of an idea that they have.

Try using the techniques from Influence when doing this. The purpose isn’t to be antagonistic, which will typically drive the other person to keeping their views, but in finding ways to relate and connect. That’s the heart of persuasion, and the more you practice it, the easier it will become.

Skill #7: Technology Basics

By this, I don’t simply mean knowing how to use your iPhone or how to Google things. I’m referring to understanding how changes in technology are shaping your field and how to communicate technology challenges to people who are experts in that niche.

For example, when something goes wrong with a point of sale machine at work, how do you communicate the problem to others? “It’s broken” is an incredibly simple answer, and just repeating an error message isn’t helpful, either. What’s the real problem? What’s the model of the machine? Did you verify that all connections are in place? What simple solutions might exist? How can you find all of this information? Can you apply all of that information?

In other words, technology basics means understanding the technology you’re using on a deep enough level to be able to effectively communicate with a technical consultant while also having ideas about the technology solutions to come that will help solve workplace problems (and figuring out how to stay out of the way of that progress and actually harness it for your own career).

Key Book to Read: How to Speak Tech by Vinay Trivedi
This is a great place to start with this type of understanding of technology. This book doesn’t really focus on specific technologies, but instead focuses on how to learn about technologies, how to identify what you need to know about them, and how to communicate that information effectively.

This isn’t just helpful for talking to an IT fix-it guy. It’s helpful in terms of being able to interpret technology articles. It’s helpful in being able to offer input on potential technology changes at work. It’s helpful in terms of being able to present technology ideas. In short, it makes you an “expert” without truly being an expert simply because you can speak the language.

Daily Practice: Read technology news and look up terms you don’t understand
One simple way to build up your technology basics is to regularly read technology articles that pertain to your field in any reasonable way and look up any terms in that article that you don’t fully understand.

For example, if you work in retail, look up articles on point of sale machines and what innovations are coming in that area. Try to identify what would actually be useful in your workplace out of those changes. If you don’t understand some of the pieces, look them up. At that point, you’re prepared to have conversations about this topic with your supervisor, which can do nothing but help your career.

Skill #8: Accounting Basics

The simple knowledge of understanding how money flows in and out of a business can be a huge boon to any professional because, in the end, businesses are designed to make money and accounting is how all of that is tracked.

Again, you don’t need to be a master of accounting to be useful here. You just need to understand accounting concepts and how they might apply to your business. What are accounts receivable? Accounts payable? How might different things be written off?

This type of thinking almost always leads directly to business decisions, because many business decisions are based on accounting data. Understanding how to interpret accounting summaries and how those translate into decisions is not only going to prepare you to start moving into management, but it will immediately help you in terms of discussing matters with your supervisor and understanding some of the decisions being made in your workplace (and, again, how you can avoid the downsides and be prepared for the upsides).

Key Book to Read: Accounting Made Simple by Mike Piper
This is a wonderful readable introduction to accounting practices. The intent isn’t to make you into an accountant or an accounting expert, but to make the basics of accounting comprehensible to a layperson.

Remember, the key knowledge that you’re looking for isn’t full accounting ability, but how to translate an understanding of accounting and how to read accounting summaries and translate those into making and understanding useful decisions based on them.

Daily Practice: Evaluate a normal business activity from an accounting perspective
This is how a successful business evaluates everything, from employees to the products that they sell, from the time and effort spent on cleaning and maintenance to the quality of workplace attire. Are those things returning enough value to be worth the cost?

Spend some time thinking through those things and see if you can figure them out on your own. If not, you’ve got the basis for a great discussion with your supervisor, one that will almost always raise your stock in the workplace, because you’re asking the right kinds of questions for business success.

Skill #9: Design Basics

Design basics refers to things like how to assemble a product display that’s attractive to customers or how to alter your website so that it’s more appealing. Often, people understand what they like and don’t like on an intuitive basis, but it’s difficult to explain those differences in words. Understanding design basics makes it much easier to communicate those ideas.

Again, this isn’t about becoming a designer. It’s about being able to communicate with designers and being able to translate those words into real-world things and knowing why, at least in a basic way, a design choice is being made. Why is a store laid out the way that it is? Why are products displayed that way? Those are design choices.

Key Book to Read: The Non-Designer’s Design Book by Robin Williams
This is the best one-volume book out there for understanding the basics of design when you’re not attempting to become a designer. It gives you what you need to know to think about things from a designer’s perspective and understand some of the terminology and reasoning, but it’s done in layman’s terms without the intent of being a full education in design.

In other words, it’s pretty much perfect for this type of situation. It’s going to give you the tools you need to look at problems from a design perspective and at least understand some of the answers without expanding into a full study of design, which is perfect for most workplace purposes.

Daily Practice: Evaluate the pros and cons of the design of something you’re using
Why are products laid out the way they are on a store shelf? Is there a better way of doing it? What’s wrong with it? What about the layout of the store? What about the design of a website, or the design of a package?

Stop for a moment and ask yourself those questions about something you’re using. Perhaps you’re wandering around in a grocery store looking for something – why is the store designed this way? Is it bad? What is it missing?

The goal isn’t to solve the world’s problems, but to raise your own thinking on such design problems. This will help you again and again in your own career.

The Final Underlying Skill: Honest Self-Evaluation

At the end of the day, the most powerful skill we all have is the ability to honestly self-evaluate ourselves. We can step back, look at what we did right and what we did wrong, and use that information to look for ways to improve in whatever areas are most important to us.

That kind of self-reflection is surprisingly rare. Many people move through life without doing it, or under the assumption that they’re already excellent. Almost none of us are – true excellence is rarely achieved in life, though it is a noble goal. The people that truly excel are the ones to whom success flows like a river, and those people got there either by having an absurd natural talent or by doing a lot of self-evaluation and self-improvement.

Key Book to Read: Meditations by Marcus Aurelius
This book is basically the private journal of Marcus Aurelius, the last of Rome’s Five Great Emperors. In it, he spends a lot of time puzzling through how to best live in the world and how to overcome some of the flaws he perceives in himself in terms of how to be an effective leader.

To me, this is the prototype of how to effectively self-reflect. You identify problems without criticizing yourself with unnecessary harshness, then evaluate those problems and seek a better way to live with regard to that problem. It’s all right here, along with some pretty good solutions to the problems of modern life.

Daily Practice: Write in your journal about what you’re grateful for and what your mistakes are
In other words, become Marcus Aurelius. Set aside some time each day to write about what you’re grateful for in the world over the past day or so (I usually try to list five things each day) and then evaluate a problem or mistake in your life and what you could do to improve that flaw. The focus here should be on improving yourself, not forcing your will on others.

The truth is that most of success comes from constantly refining yourself. Most of the tools in this article boil down to that kind of self-refinement, and actually translating that to a daily journal makes refinement into a daily practice.

Some Final Thoughts

It’s not realistic to expect that you’ll attempt to add all of these skills to your life at once. Instead, simply choose one or two of them to add to your life. Adopt a daily practice to improve that skill over time and look for ways to use that burgeoning skill. Over time, that skill will slowly become natural and you can move on to new skills.

If you’re unsure what to start with, I suggest starting with self-reflection. That process will often point you in the direction of the skills you most need to build in the world. Start with a simple daily journal, reflecting on what you’re grateful for and what mistakes you’ve made. After a while, you’ll see some patterns, and solving the source of those patterns is right where you should be.

Good luck!

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Three Myths About Your 401(k)

With traditional pensions all but disappearing, the workplace retirement plan has become the bedrock of many people’s retirement savings strategy. Four out of five Americans work at a company that offers a 401k (or a variant such as a 403b). And while far too many workers still don’t or can’t contribute to their 401k, it’s a great tool for those who do, for several reasons.

For starters, a 401k is one of the easiest ways to begin investing: You don’t need a lump sum of cash to get going, and once you set it up, your savings are invested automatically – before you see (or are tempted to spend) the money. It’s also tax-deferred, which helps lower your current tax bill and allows you to invest more money sooner – funds that will hopefully benefit from years of compounding growth. And, best of all, most companies offer some kind of employer match — free bonus money to help you save.

However, not all 401k’s are created equal, and even the good ones aren’t perfect for everyone. Moreover, some 401k benefits and drawbacks are often misunderstood. Here are three myths many people hold about 401k’s, according to Scott Puritz, managing director of Rebalance IRA.

Myth No. 1: Base your target-date fund on the year you expect to retire.

Target-date retirement funds, which gradually shift into more conservative investments such as bonds as you near and enter into retirement, are generally simple, low-maintenance, and low-cost investment options. However, some experts caution that selecting a fund based on the year you plan to retire will leave you with an investment mix that’s a bit too conservative.

“For many years, the standard practice for retirement investing was to access your funds the day you retired. For most people this meant at age 59 and a half or several years later at 65,” says Puritz. Now that people are living much longer on average, he says, retirement investors should instead be aiming to withdraw funds in their mid-70s – and selecting a target-date fund to match.

Myth No. 2: Most 401k plans offer good investment options and control.

A 401k may be the simplest way to invest, but that doesn’t mean it’s the best one. Because it’s administered by your employer (or whatever third party they’ve contracted to handle it), you’ll typically have only a few basic investment options – such as a handful of potentially costly, actively managed mutual funds – and limited control over them.

“Investors are often put in specific investment vehicles that are not in their best interest,” Puritz says. If your 401k offers good, low-cost index funds, then by all means, take advantage of them. Otherwise, you might be better off contributing just enough to max out your employer match, and then investing the balance of your retirement savings in a traditional or Roth IRA, where your investment options are virtually unlimited.

Myth No. 3: Your 401k is a low-cost way to invest.

A 401k may be simple, but simple doesn’t always mean cheap. “In reality, 401k plans are one of the most expensive investment options,” Puritz says.

Cost is the single biggest predictor of an investment’s future returns – the less you pay the better – and many 401k’s carry high or hidden fees that eat into your investment gains year after year.

Because many companies use a third party to manage their 401k plans – with the goal of outsourcing liability, Puritz says – administrative fees for marketing, record keeping, and other services can add up quickly. “You should never pay more than 0.5% per year in fees,” he adds.

“If consumers are looking for a way to determine their fee structure, we recommend asking their advisor in writing for all expenses applied to their retirement accounts,” Purtiz says, including fund-level and one-time fees. “Requiring an answer in writing will often lead to a more detailed response.”

The Bottom Line

While your 401k is a great starting point for retirement savings, remember that’s it’s not your only – and perhaps not your best – investing option. Contribute at least enough to get your full employer match, but keep an eye on fees, and don’t be afraid to branch out into an IRA or even a health savings account.

“A low cost structure ultimately predicts the success of your retirement savings account in the future,” Puritz says. “So remain informed on your account activity to ensure your hard-earned money isn’t being eaten away by fees.”

Related Articles: 

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Wednesday, July 19, 2017

10 Smart Ways to Use Leftover Sweet Corn (Smart Staple Strategies #7)

This is the final entry in a short summer series covering smart strategies for using leftover staple foods – things like rice, beans, pasta, and so on. Here’s what you do when you cook a bit too much and don’t know what to do with the rest!

Before we dig into techniques for using leftover sweet corn, let’s look back at the earlier entries in this series:

Today, we’re going to cap off the series by talking about an incredibly familiar summer staple for anyone who grew up in the Midwest: sweet corn.

Throughout many Midwest states, the summer roadside sweet corn stand is simply a part of the landscape in July and August. During a good summer with a bumper crop, it’s easy to get absurd amounts of sweet corn for just a few dollars; similarly, those who grow their own will sometimes wind up with a crazy bumper crop of sweet corn.

This can cause people to find themselves with a ton of sweet corn on their kitchen table – and that often leads to the dual problem of simply having too much corn on hand and cooking too much sweet corn for meals.

What can you do with all of that sweet corn? Thankfully, sweet corn happens to be one of the most versatile foods on earth. Here are 10 options that we use.

Freeze it! There are few things better than taking sweet corn kernels, cut freshly from a cob in the summer, and freezing them for use on a cold winter day.

There are a number of ways to do this. You can simply shuck whole ears, put them in freezer bags, and remove the excess air. You can cut the kernels off of an uncooked ear and save them. Or you can cook the ears first, then cut off the kernels. (Just be sure to note whether the kernels are cooked or not.) In general, if I have some extra space when cooking corn, I’ll cook a few extra ears, cut off the kernels after cooking, and freeze them, because it’s easier to use them later, but uncooked kernels also work just fine!

Make salsa! Sweet corn kernels cut from the ear make a great addition to almost any salsa recipe. Traditional tomato salsas welcome it, black bean salsas welcome it, even unusual salsa variations will often welcome corn kernels.

Of course, you can just make a corn-focused salsa instead of just adding some kernels to another salsa recipe. I swear by this Food Network corn salsa recipe, only varying the poblano pepper depending on the amount of heat that I want (I’ll substitute in hotter peppers if I want more heat), and I actually like to use grilled corn in this rather than boiled corn, but either one actually works. It’s a great way to use a few extra ears, as you can cook them along with the ears you’ll eat for dinner.

Make soup! There are many, many, many soups and chowders that work wonderfully with fresh sweet corn. You can definitely add sweet corn to lots of different soups, from vegetable beef soup to barley soup, from chili to clam chowder. It all works.

Of course, you can make a mean corn chowder, too. I like this corn chowder recipe from Food & Wine; it’s quite easy and tastes amazing on an autumn day. It’s a great way to use corn kernels that you froze in July or August using the above freezing strategy.

Make tacos!? Yep, I’ll often use leftover kernels as an addition to taco night. I’ll season them with just a bit of chili powder and serve them in a bowl with all of the other taco ingredients.

It’s easy – just cook a couple ears of corn as normal, then cut the kernels off the ear as normal. You can save the kernels in the fridge for a few days, but when you’re ready to use them, mix them with a bit of seasoning (a dash of chili powder is great) and heat them up. They make for a great taco addition.

Make fritters! Corn fritters make for a wonderful finger food that really reminds me of home. They’re incredibly easy to make, too, if you have a fryer available.

I like this basic recipe from AllRecipes for corn fritters. It’s simple and straightforward and results in a nice golden corn fritter when you’re done. Obviously, when you substitute fresh leftover sweet corn for the canned corn in the recipe, the fritters just pop!

Make succotash! Succotash is just a mix of corn, tomatoes, onions, and lima beans with some seasonings. You simply cook those things together in a skillet and add some thyme, garlic, dill, and chives, along with some butter. It works as a great side dish with chicken, for example.

If you want a formal recipe, here’s MyRecipe’s take on succotash, but this is honestly a “throw it together with what you have on hand” type of dish, at least in my experience. If you have lots of corn, make it corn heavy; if you have lots of tomatoes, some extra tomatoes aren’t going to hurt. It’s the unique blend of flavors that makes succotash work.

Make cornbread! Yes, cornbread is actually made from corn meal, not kernels of sweet corn. However, sweet corn kernels are a magnificent addition to cornbread!

Just take your favorite corn bread mix or cornbread recipe and add half a cup of cooked sweet corn kernels right into the mix, then cook as normal (adding perhaps a minute or two to the baking). You’ll end up with a wonderful texture to the cornbread with bursts of flavor throughout!

Make pancakes! Believe it or not, sweet corn makes a wonderful addition to pancakes. When you slather them with maple syrup, the little sweetness and the texture addition that sweet corn kernels give to the cakes is something well worth savoring.

Just make pancakes as you normally would, but simply add a cup of kernels to every three to four cups of batter. This will stretch the batter a bit, enabling you to make more pancakes while also providing this unique flavor and texture.

Make salad! You can add a wonderful texture and flavor to many different salads by simply adding a cup of cooked corn kernels cut straight from the cob (or thawed from being frozen at an earlier date). Most simple dinner salads benefit greatly from the addition of corn kernels, plus there are many different salads you can make that emphasize the kernels.

My favorite corn-focused salad is this corn and tomato salad from Food Network. It’s what it sounds like – fresh corn kernels, cherry or grape tomatoes, plus some mozzarella, some olive oil, some vinegar, basil, scallions, and a bit of black pepper. Delicious!

Make a casserole! There are many, many casserole recipes that use fresh sweet corn kernels. Some serve as wonderful side dishes, while others work as main courses on their own.

I’ll mention two that I particularly love. I quite like this corn and bean enchilada casserole, made with fresh ingredients such as fresh corn kernels and beans. Similarly, one of my favorite comfort foods is this cheddar corn casserole, which uses ample amounts of cheddar cheese as a wonderful pairing with the sweet corn kernels. These are just two options – there are many, many more.

What’s the take-home message? Don’t think of that abundance of sweet corn as something you must eat on the cob right now. There are many, many other things you can do with it – you can simply freeze it for later, for starters, or you can use it in a wide variety of sweet and savory dishes.


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How to Make Money as a Pet Sitter or House Sitter This Summer

If you started summer with the goal of picking up part-time work, you might wish you had started searching sooner. While it’s still possible you’ll pick up some seasonal employment, most summer job openings have come and gone – at least until next year.

But, there are other ways to earn money, some of which don’t require working for someone else. If you could pick up a gig as a dog sitter or house sitter, for example, you could earn money on the side during your spare time, and all on your own terms.

How much will you earn? It depends on where you live and the type of work you find. Most pet sitters charge $19 to $50 per night, or more for multiple pets, although they lose some of their earnings to fees. House sitters can charge rates in that range, although you may earn more if you’re watching pets and a house at the same time, or taking care of household chores. Simply put, it depends on the job.

But since many families travel during summer, it’s not too late to throw your hat in the ring. The key to getting your foot in the door is to get the ball rolling now.

Best Websites for House Sitting and Pet Sitting Jobs

But, how do you find work as a dog sitter or house sitter? There are numerous websites that promise to connect pet and homeowners with individuals willing to help out. Here are a few of our favorites:


Founded in Seattle in 2011, Rover.com is the top resource used by people searching for pet care jobs in their area. The service now boasts 85,000 pet sitters in 10,000 different cities. Further, 95% of their profiles list five-star reviews.

Rover.com makes it easy to set up a profile and set parameters for your work. You create your own calendar and set your availability and rates. From there, your profile becomes searchable for people in your area. Rover does take a percentage of your pet-sitting profits (15-20 percent of the booking total), but they provide customer support, website support, and liability insurance for pet sitters who use the service.

Joining Rover is easy and setting up a profile is free. You do need to pass a background check and keep up with ongoing sitter education, however. While Rover.com focuses on pet sitting jobs, you can offer additional services on your portfolio including pet walking, drop-in visits, and house sitting.


Care.com connects caregivers with local families who need babysitting, childcare, and other household help. Services offered through the site include house sitting, pet sitting, child care, housekeeping, errands and shopping, senior care, and transportation. You can create a profile that includes all of these services or just a few. Either way, the profile you create will become searchable for people looking for help in your area.

There’s no cost to create a basic membership profile on Care.com. However, the functionality of the basic membership is very limited. Unless you’re a paid member, you can’t communicate with people directly or view their contact information. With a free profile, it appears you have to wait until a paid member contacts you.

A Care.com membership isn’t cheap, but it can pay off if you make the right contacts and use it regularly. Currently, you can buy an annual subscription for $147 or pay $37 monthly.


Petsitter.com is another up and coming website where animal lovers can connect with pet owners who need help. This website lets pet sitters post a free profile. “You can include your pet sitting rates, experience, type of animals you work with and the services you offer,” notes the website. “This allows your profile to be found when local pet owners search for pet care providers that match your qualifications.”

Since PetSitter.com isn’t quite as established as Rover, you may not find as many (or any) pet owners who need help in your area – at least for now. However, the website normally has more than 8,000 job postings at any given time, making it worth the effort – especially since creating a profile is free.


TrustedHouseSitters.com is the top website for homeowners and house sitters looking to connect. The website offers an array of house sitting opportunities around the world, including popular vacation destinations. Since many homeowners also have pets, TrustedHouseSitters also has many jobs that require both house sitting and pet care.

Both homeowners and house sitters need to pay an annual membership fee to use the website. The same $119 fee applies annually whether you’re seeking care or looking for a job. Both subscriptions qualify you for unlimited care opportunities, website troubleshooting, and member services support.

The downside that comes with TrustedHousesitters.com is that many homeowners are looking for “free help” in exchange for lodging. This is especially true in popular international destinations people visit often. Their website even admits as much: “From Tuscany to New York, pet lovers enjoy home comforts world-wide in exchange for caring for an owners’ home and pets while they’re away.”

If you’re hoping to make money, make sure to seek out jobs that offer pay. Otherwise, you could at least score free lodging while you travel. That’s not the same as earning money, of course, but it can help you save money if you’re hell-bent on a vacation anyway. Keep in mind, however, that you’ll need to pay airfare and other travel expenses.


Housesitter.com is another website that promises to connect homeowners with house sitters in their area. The difference is, this portal focuses on connecting individuals with house sitters in their area, as opposed to TrustedHousesitters.com, which focuses on connecting people who live in different parts of the world.

Posting your profile is free, and you can be fairly picky about the job opportunities you pursue. You can set your rates as high as you want, although you’ll need to be competitive with others in your area to get jobs.

In addition to house sitting gigs, many jobs on Housesitter.com also require pet care. If you’re a house sitter who also loves animals, you might have a leg up.

The Bottom Line

While the bulk of part-time summer jobs are already spoken for, there’s no timeline to get started as a pet sitter or house sitter. Just set up a profile on one of these websites and wait and see what happens. You never know when a neighbor or someone in your area might be looking for someone with your exact availability and skill set.

Also keep in mind that many pet care and house sitting jobs can be found via networking and social media. If you let your friends and family know you’re looking for this type of work, they’ll know to keep their ears and eyes open. Many times, word of mouth is the best kind of advertising. Best of all, it’s free.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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