So as the work week was winding down and 30 minutes until I could go home, my manager asks me if I'm good with investments with regards to our 401(k) plan. It was kind of weird for her to approach me about finances. Even though she knows how much I make, I'm not sure how she knows why I would be good about that stuff. Maybe she heard from my co-workers. Anyways I agreed to help her out.
My manager was getting worried because nearly every investment offered in our 401(k) plan was negative for the year. I had to tell her not to worry because now she is able to buy shares of those investments for a discount. If we are in a recession, all we have to do is stick to a good asset allocation and continue to contribute no matter what the condition of the stock market was.
Principal Financial, the company that administers our 401(k), recently added target-date funds. The funds automatically change your asset allocation from high risk growth to low risk funds as you approach the target date of your retirement. I asked my manager when she planned to retire. She was aiming for 2017. Looking over the target-date funds, the target dates were spaced every decade. If she chose the 2010 target-date fund, her asset allocation would be too conservative from 2010 until 2017 while she continues to work. If she chose the 2020 target-date fund, her asset allocation might be slightly riskier for the first three years of retirement. To immediately address her needs, I suggested a 50-50 split of both the 2010 target-date fund and the 2020 target-date fund. The combined asset allocation of both target-date funds should be equivalent to a 2015 target-date fund.
The whole conversation took about 5 minutes. I was straight to the point and confident in my decision. When I met my manager at her desk, she had a printout of the performance of the 24 funds offered in our 401(k). I did not look at a single number. I do not need numbers to tell me how good a particular fund is. It would have been hard to individually choose the good funds from the list, since all year-to-date changes were negative. To get the best performance with as little risk as possible, it was more important to pick an asset allocation with risk that she can tolerate.
The only thing I could have done better was pick a better ratio of target-date funds. A 50/50 mix of 2010 and 2020 target-date funds would have an asset allocation equivalent to a 2020 target-date fund. I should have calculated a ratio that would have given her the asset allocation of a 2017 target-date fund. In that case, a 30/70 mix of 2010 and 2020 target-date funds would have given her the proper asset allocation.
My advise to my manager does not directly help me career wise yet. Especially since I gave her advise in the area of personal finance and that I work in the chemistry lab. She already knows my expertise with chemistry, computers, technology, and writing, that contribute to performing more than what is expected of my position. A knowledge in finance might be another area that adds value to my versatility of my position. It possibly might lead to a pay raise to keeping me around. Another possibility is getting promoted into a supervisor or managerial position because of my knowledge of finances, budgeting, and discount purchasing.
Showing posts with label retirement. Show all posts
Showing posts with label retirement. Show all posts
Friday, March 7, 2008
Sunday, February 24, 2008
Career or financial decision?
Yesterday, I was browsing the career sites for Pfizer (PFE) and Johnson & Johnson (JNJ). I used to own shares of Pfizer but sold them when they were not profitable to me. I still regularly invest in Johnson & Johnson by purchasing shares through a DRIP. Anyways, there was no jobs suited for me at Pfizer in La Jolla. There was one position open at Johnson & Johnson that is exactly what I am looking for. Career wise, it would be perfect for me to apply and get the job. Financial wise, I might be throwing away potential money I would have made just by staying at my current job.
At my current job, I invest in the employer stock purchase plan (ESPP) and have received stock options. At its highest point in the last 6 months, my ESPP was worth about $15k and my stock options were worth about $20k. Because of the volatility in the stock market right now, the ESPP is worth $12k and my stock options are worth about $10k. If I changed jobs, I could easily keep the $12k in ESPP because I already own the stock, but I would have to exercise the stock options and only receive $10k gross (~$7k post-taxes). I would lose out on a potential of $10k that the stock options could appreciate to in a bull market.
Comparing salary between my current job and Johnson & Johnson, a former co-worker in my department who made 20% less than me got a job at Johnson & Johnson and immediately made 6% more than me. So in the salary sense, a career change would be an immediate boost.
My 401(k) plan is another issue. I am not fully vested, so if I left before I am fully vested, I do not receive the entire company match. The way my 401(k) vesting schedule works, I get 25% of the company match after 1 year of working, and it increases monthly so that another 25% is vested by the 2nd year. It would take 4 years to receive 100% of the employer match during those 4 years. I am not due to hit the 4 year mark until May. I do not want to throw away retirement money that the employer gave me.
Finances aside, the career change would be a position with higher responsibility in a company that is recognizable around the world. In my current position, I have to explain in detail what my company does because it is not a consumer brand. With Johnson & Johnson, people immediately think "No More Tears" baby shampoo but also realize they make Accuvue contact lenses, Listerine mouth wash, and many other consumer products. In the R&D position, I can help change lives with my knowledge that can help bring a product to market.
Right now, I will hold off on applying to Johnson & Johnson. I will wait until May so that I can receive 100% of the employer match in my first 4 years of working. From now until then, maybe I can find another position within my current company to allow me to grow in the direction that I can see myself still doing in 5-10 years. That will allow me to hold onto my stock options and exercise them when they are valued higher. My former co-worker at Johnson & Johnson is one of my best friends. Ironically, I was her reference when she got the job there. When I do apply, I will ask her to submit my application internally because that has a better chance of getting reviewed since she can vouch for me.
At my current job, I invest in the employer stock purchase plan (ESPP) and have received stock options. At its highest point in the last 6 months, my ESPP was worth about $15k and my stock options were worth about $20k. Because of the volatility in the stock market right now, the ESPP is worth $12k and my stock options are worth about $10k. If I changed jobs, I could easily keep the $12k in ESPP because I already own the stock, but I would have to exercise the stock options and only receive $10k gross (~$7k post-taxes). I would lose out on a potential of $10k that the stock options could appreciate to in a bull market.
Comparing salary between my current job and Johnson & Johnson, a former co-worker in my department who made 20% less than me got a job at Johnson & Johnson and immediately made 6% more than me. So in the salary sense, a career change would be an immediate boost.
My 401(k) plan is another issue. I am not fully vested, so if I left before I am fully vested, I do not receive the entire company match. The way my 401(k) vesting schedule works, I get 25% of the company match after 1 year of working, and it increases monthly so that another 25% is vested by the 2nd year. It would take 4 years to receive 100% of the employer match during those 4 years. I am not due to hit the 4 year mark until May. I do not want to throw away retirement money that the employer gave me.
Finances aside, the career change would be a position with higher responsibility in a company that is recognizable around the world. In my current position, I have to explain in detail what my company does because it is not a consumer brand. With Johnson & Johnson, people immediately think "No More Tears" baby shampoo but also realize they make Accuvue contact lenses, Listerine mouth wash, and many other consumer products. In the R&D position, I can help change lives with my knowledge that can help bring a product to market.
Right now, I will hold off on applying to Johnson & Johnson. I will wait until May so that I can receive 100% of the employer match in my first 4 years of working. From now until then, maybe I can find another position within my current company to allow me to grow in the direction that I can see myself still doing in 5-10 years. That will allow me to hold onto my stock options and exercise them when they are valued higher. My former co-worker at Johnson & Johnson is one of my best friends. Ironically, I was her reference when she got the job there. When I do apply, I will ask her to submit my application internally because that has a better chance of getting reviewed since she can vouch for me.
Sunday, February 17, 2008
Allocating my paycheck
I have two jobs, but I budget my spending around my primary job only. With an annual salary of $49,600, I make about $1908 gross each week. Because my employer offers 50% matching on the first 6% contribution to my 401(k), I contribute 6% to gain the full employer match. I also contribute 15% of my pay to the Employee Stock Purchase Plan (ESPP). I set up my Flexible Spending Account for an annual $250 contribution, which is deducted bi-weekly from my paycheck. After contributions and taxes, I receive a direct deposit of $1055 every other week. Sometimes it is higher if I work overtime, but I count overtime as surplus.
$1055 is directly deposited to my Citi E-Savings account on Friday. It eventually gets divided two ways. On Saturday, $540 is automatically transferred to my Citi Ultimate Savings account, which offers a higher interest rate than my E-Savings account. On Sunday, $515 is automatically transferred to my checking account.
The $515 from my checking account gets transferred to other savings accounts on Monday. $15 is automatically sent to ING Direct, and $500 is automatically sent to EmigrantDirect. EmigrantDirect offers a higher interest rate than all my other savings accounts. That $500 funds my house deposit fund. $15 funds my emergency fund.
The Citi Ultimate Savings account, which receives $540 from every paycheck, is my payment account. On the 15th of every month, it will automatically transfer $200 to my checking, because I automatically purchase $100 of FIGRX and $100 of FCVSX on the 15th. On about the 20th of the month, I will manually transfer the exact amount of money to pay the entire statement balance for my Merrill+ Visa credit card. On about the 30th of the month, I will manually transfer the exact amount of money to pay the entire statement balance for my Charles Schwab Visa credit card.
But what about my other bills? You may ask how I pay for them. Well for accounts that accept credit cards, I will pay by credit card (not just using the Merrill+ Visa or Charles Schwab Visa) and have those accounts setup to be paid automatically. See my previous post how I determine which credit card to use. For accounts that do not accept credit cards directly such as electricity, gas, sewage, and water, I can use the BillPay feature of either the Merrill+ Visa or the Charles Schwab Visa. Lastly, I can use the BillPay feature to pay other credit cards. This allows me to extend the period in which I pay off a purchase, and consolidate all my payments from my checking account to just the Merrill+ Visa and the Charles Schwab Visa.
After payments, any extra money in my Ultimate Savings account just sits there for months in which I have larger payments to make. Basically, the spending money is still spending money. If I get overtime and my direct deposit is larger than $1055, the extra money sits in the E-Savings account. I choose what to do with this money, and it varies when and how. Sometimes I save it (any account) and sometimes I'll contribute it to my Roth IRA.
Because I have a second job, I allocate that paycheck too. Because the job is per-diem, I may not get shifts to work from time to time. Sometimes it would be months between paychecks. I never counted on my second job as a second income so I don't allocate it the same way I do as my primary job. After taxes, 100% of the net wages are deposited to my checking account. I immediately contribute 100% of the deposit into my Roth IRA account. If I reach the yearly limit for IRA contributions, I start to send it over to my EmigrantDirect savings account.
It may seem like a complicated setup, but I configured almost everything to be automatic. I have only to manual payments to make. This configuration allows me to maximize interest by letting the money used for payments sit in my savings account up until the payment due date. And automatic saving for a goal is easier than trying to budget around spending. My spending revolves on what I have leftover after the automatic savings and investing. I automatically save 6% towards my 401(k), 15% towards ESPP, $515 bi-weekly towards house deposit and emergency fund, and $200 monthly for mutual fund contributions. Because this budget revolves around 2 paychecks per month, I end up with two months out of the year with 3 paychecks per month. An extra paycheck means I can do whatever I want with it, but in most cases I won't spend it.
$1055 is directly deposited to my Citi E-Savings account on Friday. It eventually gets divided two ways. On Saturday, $540 is automatically transferred to my Citi Ultimate Savings account, which offers a higher interest rate than my E-Savings account. On Sunday, $515 is automatically transferred to my checking account.
The $515 from my checking account gets transferred to other savings accounts on Monday. $15 is automatically sent to ING Direct, and $500 is automatically sent to EmigrantDirect. EmigrantDirect offers a higher interest rate than all my other savings accounts. That $500 funds my house deposit fund. $15 funds my emergency fund.
The Citi Ultimate Savings account, which receives $540 from every paycheck, is my payment account. On the 15th of every month, it will automatically transfer $200 to my checking, because I automatically purchase $100 of FIGRX and $100 of FCVSX on the 15th. On about the 20th of the month, I will manually transfer the exact amount of money to pay the entire statement balance for my Merrill+ Visa credit card. On about the 30th of the month, I will manually transfer the exact amount of money to pay the entire statement balance for my Charles Schwab Visa credit card.
But what about my other bills? You may ask how I pay for them. Well for accounts that accept credit cards, I will pay by credit card (not just using the Merrill+ Visa or Charles Schwab Visa) and have those accounts setup to be paid automatically. See my previous post how I determine which credit card to use. For accounts that do not accept credit cards directly such as electricity, gas, sewage, and water, I can use the BillPay feature of either the Merrill+ Visa or the Charles Schwab Visa. Lastly, I can use the BillPay feature to pay other credit cards. This allows me to extend the period in which I pay off a purchase, and consolidate all my payments from my checking account to just the Merrill+ Visa and the Charles Schwab Visa.
After payments, any extra money in my Ultimate Savings account just sits there for months in which I have larger payments to make. Basically, the spending money is still spending money. If I get overtime and my direct deposit is larger than $1055, the extra money sits in the E-Savings account. I choose what to do with this money, and it varies when and how. Sometimes I save it (any account) and sometimes I'll contribute it to my Roth IRA.
Because I have a second job, I allocate that paycheck too. Because the job is per-diem, I may not get shifts to work from time to time. Sometimes it would be months between paychecks. I never counted on my second job as a second income so I don't allocate it the same way I do as my primary job. After taxes, 100% of the net wages are deposited to my checking account. I immediately contribute 100% of the deposit into my Roth IRA account. If I reach the yearly limit for IRA contributions, I start to send it over to my EmigrantDirect savings account.
It may seem like a complicated setup, but I configured almost everything to be automatic. I have only to manual payments to make. This configuration allows me to maximize interest by letting the money used for payments sit in my savings account up until the payment due date. And automatic saving for a goal is easier than trying to budget around spending. My spending revolves on what I have leftover after the automatic savings and investing. I automatically save 6% towards my 401(k), 15% towards ESPP, $515 bi-weekly towards house deposit and emergency fund, and $200 monthly for mutual fund contributions. Because this budget revolves around 2 paychecks per month, I end up with two months out of the year with 3 paychecks per month. An extra paycheck means I can do whatever I want with it, but in most cases I won't spend it.
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