Set It And Forget It?

Dear Dough-Nutters, You may notice a different tone this week, as your regular blogger (my brother, Craig) has handed the reins over to a guest blogger, his younger brother (me, Andy). I am nowhere near as financially savvy as my brother (or handsome, smart... Craig still retains editing rights), but I share his passion for personal finance and have learned many financial lessons from my brother along the way. Also, while you may find our sense of humor to be similar (we were raised on the same VHS tapes of Monty Python and Michael Nesmith's "Elephants Parts", after all), there will be ZERO references to Beanie Babies in this post.

A childhood photo. I was sensitive about my nail-biting, so I hid my fingers in every picture.

About Me I have been working as a lawyer for about 10 years, have no children, and live a pretty frugal lifestyle (for example: I don't pay over $50 for sneakers, and you can regularly find me at Marshall's, Goodwill, and rummage sales). Given those circumstances and choices, I have been fortunate to have saved a fair amount of money using many of the same strategies that my brother advocates on this blog. However, despite consistently working since the age of 14 and throughout college and law school, I started my post-school life with almost nothing in my bank account and owing a couple years of tuition to M&D Bank (thank you for the loan, Mom and Dad!). So, after repaying my loans - with interest - my first priority was establishing the "emergency savings" that my brother touts so often. After that was established, I started contributing to my 401(k). With time, I saved up to buy a house, established a separate investment account, and recently started funding an Health Savings Account (HSA). Well, you might be saying to yourself: "I'm glad that you've been able to save some money, but now I'm sure you sit back and just let your investments do the work for you." There's some truth to that sentiment, but unlike Ron Popeil's famous "Set It and Forget It" rotisserie oven, you can't get totally complacent even after you have established some savings. Since I have so much to share, Craig's letting me contribute two weeks of content! I will address some of my experiences with finances/investing and how actively you should manage your hard-earned dough.

Is Your 401 OK? I started somewhat conservatively investing in my 401(k) as soon as I could afford to do so, to make sure that my contributions weren't compromising my emergency savings and regular living expenses. However, within a few months, I found that I could afford a higher contribution percentage, so I gradually ramped that up over time. My first employer didn't offer a 401(k) match, but my current employer matches up to a percentage of my salary. So even if you start with a relatively small contribution while you build your savings, if you have an employer match, make sure you are at least maximizing the employer match as soon as possible. The match might be based on what you contribute, a percentage of your salary, or a fixed amount. It's part of your total compensation, but more importantly it's free money!

Once you've maximized your contribution based on the employer match and savings goals, make sure you check the account from time to time. Many will tell you that checking your 401(k) once/year is sufficient. Personally, I like to check every few months, for a few reasons: (1) it's nice to watch your savings/earnings grow; (2) it's important to make sure that there aren't any unexpected fees; and (3) it's prudent to make sure your HR and 401(k) administrator are properly administering your selections. To the last point, when I first started at my current job, somehow my 401(k) contribution was not recognized for my first two pay cycles. Had I not checked the account early, I could have gone months without realizing that the paperwork simply hadn't gone through, and I would have missed out on a lot of savings/earnings.

Stocks/Other Investments

If you manage to squirrel enough away to save above and beyond your mortgage payment, other living expenses, and 401(k), you may start thinking about other investments. There is a plethora of options that I won't get into here, and that I'm sure my brother has addressed or will address in another post. But whatever additional investments you choose, once again, it's a good idea to check in from time to time to make sure that you are maximizing your return and not paying exorbitant fees to a third-party advisor.

I chose to use a well-known, national investment company that would manage my investments for me. I can't say the name as they don't sponsor Dough-Nuts, but Craig says the feeling is "mutual". As the stock market grew recently, I checked my portfolio and was somewhat concerned that my returns were too low and that their management fees were too high. Rather than making a rash decision to cash out, switch to another company, or invest myself, I crunched the numbers. Fortunately, I found the returns were on par with other investments like my 401(k), and the fees were reasonable compared to average management fees. While it turns out I was not being duped, it was worth it to me to spend some time to feel comfortable that my investments were well-managed.

It really doesn't matter what you invest in - stocks, bonds, land, Beanie Babies (Craig strikes again!) - it's healthy to check in on the investment from time to time. Understanding the actual, or even approximate, value of your asset is key to having a grasp on your financial well-being. Besides knowing its value today, it's good to have an idea of what to expect in the future. Will your stock portfolio grow at a 7% annual rate? Will the land you purchased be worth twice as much in a decade? Will your Valentino the Bear pay for your kid's college? Answering these questions will either help put you at ease about your financial situation, or let you know you have some more work to do!