Give Yourself a Bonus!

Crimson by Greg "Craola" Simkins
It took me a few years to get my savings to the point where I could max out my 401(k) every year. The main reason I wasn't trying to max it out was because I followed the standard advice of only contributing 10 or 15 percent of my income to it.

Retirement Advice 101

I thought that if was following the advice that I always heard that I was ahead of most people. To be honest, I was probably doing better than most people by saving just 10% anyways. But I wasn't making $175k per year so 10% was not going to even get me half of the way to maxing it out. Years later, if I still followed the 10-15% advice I would still have a large gap between how much I was saving and the maximum allowed.

But why did I follow the standard rules for what I had heard about saving for retirement? I knew if I followed the standard advice I would be comfortable once I got closer to retirement. If I followed the beginner's rules, then I would probably end up with the beginners retirement, and 67 does not sound like the age I want to retire at.

Retirement Advice 201

Eventually I found personal finance blogs which changed my way of thinking about saving for retirement. I stumbled into them quite accidentally but once I realized I could cut decades off of my working career I woke up, I had that moment where things just click and I knew I could make it work.

Suddenly I realized that the standard advice I followed was for the normal person, and I didn't want to be average in this area. I wanted to be an above average person, I wanted to retire early.

The first step was maxing out my 401(k) each year. So I figured out how much I would need and I upped my contributions to a large percentage, the woman in the HR department even gave me a funny look about it that screamed, "wait, you really want to contribute that much."

Retirement Advice 301

The next piece of advice on retirement savings came from an unlikely place for me. My parents are good with their money but it's not something we really talk about very often. One day I was telling them about how I was maxing out my 401(k) and my mom told me about how she likes to give herself a bonus each year.

Zee: "What? A bonus? What do you mean a bonus?"

Mom: "Yeah a bonus. I contribute enough to max out my 401(k) early so that at the end of the year I start getting a bonus in each paycheck. Since I'm used to getting paid a certain amount, once I max out the contribution for the year my paychecks get larger and I feel like I'm getting a bonus for doing a good job. Also you are my favorite child, your brother and sister come in at a distant second and third place."

Okay, okay, perhaps the conversation didn't happen exactly like that. She might have not mentioned my brother and sister in the conversation but the rest really did happen. I was in my late 20's when my mom told me that... and she's still taking me to school.

Getting a bonus is a great feeling. Suddenly when your paycheck increases by the amount that you were contributing it can have a few different effects. The first is feeling awesome, because not only have you maxed out your contributions, you've managed to give yourself a bonus to enjoy for doing such a good job. The second is that since it's usually the end of the year and the holidays are coming it can make your holidays not seem so expensive since your bonus is timed with the most expensive time of the year. But since humans can adapt pretty well to certain situations we're used to only having so much money coming in. Most people will have already planned for the holidays in their budgets so your bonus is truly that extra icing on the cake.

If you're truly committed to early retirement you'll probably do what I do and just invest it somewhere else, I find that it's a good kick start to my next years Roth IRA contributions.

I know that not everyone can max out their 401(k) but if you can, I suggest you try giving yourself a bonus. There's nothing wrong with maxing out your contributions early!

UPDATE: As J. Money pointed out to me in the comments, please be sure that if your company has a match that you don't get penalized by front loading your contributions. Some plans only match the first 3% of each paycheck, so if you max out your plan in October you miss out on the potential match (and free money!) for November and December. Some plans avoid this so you might not have to worry about this but if you don't know ask your HR department for clarification.

Would you try it? Do your parents still make you feel like a novice?

What is Normal?

Wired up like Neo in the Matrix
I'm wired up like Neo in the Matrix....
As I sit here, hooked up with 12 electrodes to my head, 2 on my chest, 2 on my legs, 2 belts wrapped around my chest, a tube in in my nose and a monitor on my finger I begin to wonder how I got here... Not how I drove myself to a sleep center to run tests to determine if I do or more likely, don't have narcolepsy. But I wonder how I got to the point of needing this test to begin with.

All of my life I just thought I was more tired than other people. At first I blamed it on typical things like being in high school and college, where it was normal to stay up too late on a regular basis cramming for tests that I should have prepared for earlier. Or just staying out late with friends and regretting signing up for that 11am class because it was waaaay to early to need to be presentable to the world. Many times I would just go to class unshowered and wearing what I fell asleep in. (side note: PJ's are acceptable to wear to class in college. Bathing suits on a rainy day are probably not.)

Everyone Makes Sacrifices

Guardian by Sam Flores
Everyone will have to make sacrifices at some point in their life. And I'm not talking about the little ones either, like going to a certain restaurant because that's what you're significant other wants, or settling on used car with low mileage because you can't really afford a new one. I'm talking about career goals, things that will change years or decades of your life.

The most common sacrifice is the debate of working for money or passion. If money wasn't important people wouldn't sacrifice their passion for it. Sometimes people (myself included) don't have a passion that is strong enough to outweigh the money we could make doing something else. Sure, I could have picked a different profession like working with animals that would have given me more personal satisfaction than my current job. But my current job affords me the lifestyle that I like and will hopefully get me closer to my goals much quicker than any other use of my time.

Everyone will have to make a sacrifice at some point. There's a reason the term "starving artist" exists, it's because most of them don't make enough money to get by. They have decided to sacrifice money for their passions in hopes that eventually some reputable publication takes note of their work and helps them "break out".

But it's not always a sacrifice between money and passion. Entrepreneurs have a passion for the products and companies they build, and occasionally they make money off of those passions pretty quickly, but they sacrifice something else. Their time. Do you think that someone like Mark Zuckerberg didn't sacrifice his time when he started Facebook? Or what about Elon Musk when he started PayPal? Mark Cuban is known for not taking a vacation for the first 7 years that he started his company.

Everyone has to sacrifice something

Don't Live With a False Sense of Security

Morphine by Michael Hussar
Morphine by Michael Hussar
People don't save enough these days.

It's apparent in almost every survey done when we ask people how much they have saved for retirement. The most recent survey that I saw was conducted by LearnVest and Chase Blueprint supports my thoughts pretty well, it's actually quite shocking how underprepared the average person is for their future retirement. I think that many of these people are going to have to work for much longer than they really want to.

But what comes before savings is living below your means. If you can live off of 50% of your income then you can save a lot more compared to someone that lives off of 95% of their income. It's simple math. But actually executing this is the hard part, not everyone can live off of small portions of their income. In fact some people live off of more than they make thanks to credit cards.

The other day a person that I know was talking about sending their daughter to summer camp. There were various courses that they could sign up for at this camp but they mentioned that they couldn't afford to sign up for certain courses because they cost $75 more than some of the courses. While I'm glad they recognized their limits I was stunned that they weren't able to afford the extra $75. After all, this family of 4 had season passes to Disneyland, ATV's for each of their children before they were even 10 years old, and own their own RV. So why were they spending so much that the $75 for their daughters summer camp was too much?

I think they were living with a false sense of security

Can You Over Diversify?

Casey Weldon - Cat
Painting by Casey Weldon
In a word - Yes.

At least I think so.

But I think that there are multiple ways to over diversify. The first one that you probably are already thinking of is owning over 100 different individual stocks. There's probably no way you can keep up that well with all of those companies on a regular basis unless you happen to work in finance or have a LOT of spare time on your hands.

But because of over diversification you may be killing your returns without even knowing it. Investors think that they are playing it safe by spreading their money around everywhere when in fact they may be whittling away at their returns before they even start.

The Revolution Will Be Fabulous

Peter Gronquist - Versace Assault Rifle
When it comes to financial goals, the end game for most people is retirement. In the personal finance community it has many other names: Financial Independence, FIRE Day (Financial Independence Early Retirement), FU Money (though I would call it F<3ck Yeah Money!)

All of these terms are great and they all revolve around the goal of retirement, but I think it's more than that. I think that reaching that goal early in life is also about rejecting societies idea that you need $2 million dollars to comfortably retire these days. Or not accepting the idea that you have to work until the age of 65 before you can fully retire (67 for those of us born after 1960 [and who knows when that might be raised again]). Why aren't we questioning what people think is "normal"? When I was growing up I was rebellious, if someone told me no I questioned why, so why I should stop now?

I'm planning my own revolution, and it will be fabulous

Money and Relationships

Have you ever let money ruin a friendship?

Liam at Disneyland
You kiss your mom with that lying little mouth of yours?
Meet my nephew Liam, he is a liar. Over the past few days I have taken him to Disneyland. He is out visiting with my sister and it was his first time visiting the Magical Kingdom of $4 churros and never ending lines. On the first day as we walked by a delicious smelling churro stand he pointed to it and said that he wanted one. I asked him if he even knew what it was.. Ha! Silly me, kids remember churros better than they can remember my dog that becomes their best friend every time they visit.

Anyways, apparently he "conveniently" forgot his money at home that day. So I made a deal with him, I told him I would buy all the churros that day that his teeth could handle before they rotted out of his little head, but that he would have to buy them for me the next day. He agreed faster than Pinocchio's nose grew on donkey island, that stone cold little liar didn't even hesitate. And I must say, his rotten little teeth sure can take a lot of sugar, after 4 churros throughout the day I was looking forward to not having to pay the next day.

But when the next day came around, he seemed to have conveniently forgotten his money again! "Okay" I said, "I'll spot you one more day but you have to pay me back. I'm not some peer to peer lending site." And once again he nodded his head and grinned at me like the Grinch about to steal something, little did I know that it would be my money... Again.

When Was Your Sewing Machine Moment?

Many people call it an "A-ha! Moment" or the Eureka effect, but sometimes I like to use simplified abstract comparisons such as the spherical cow to describe things, so I call it the sewing machine moment. It's that moment when suddenly something clicks, things make sense, and you change because of it.

Clothing has existed for thousands of years, the process of binding pieces of material together to create clothing has existed since humans started being exposed to weather.... Now that's a long time.

How a sewing machine works
Image via Wikimedia Commons
But the process of creating clothing didn't evolve much over that time. It has been less than 200 years since we were able to create a machine to speed up this process for us. Until that time people had to take a piece of thread and push it through material and repeat that process hundreds or thousands of times to stitch pieces of fabric together.

Since clothing has been around as long as humans. People have been trying to come up with a better way to do this process for... Forever... Well, at least hundreds of years, but no one could figure out how to do it. Eventually someone had their sewing machine moment, they came up with a backwards idea of using two threads and pushing the eye of the needle through the fabric to get the threads to interlock.

Suddenly, this machine changed the world. Since every piece of clothing did not have to be made by hand and the work could be done faster, and clothing became cheaper.


What was your sewing machine moment?

Don't give up a lifetime of happiness for a few moments of pleasure.

Hide and Seek by Alice Dufeu
Hide and Seek by Alice Dufeu
Why do we approach buying a home backwards?

I'm not sure how my mind wandered across this lately but I started thinking about how people typically go about buying a home. Most people start saving money and once they feel like they have a decent chunk saved they begin to look at how much they can really afford and then decide from there what to buy.

I mean, this sounds reasonable. I think this is kind of how I approached it, but why did I do that. I don't do that for anything else. I would never look in my wallet and say, "I have $60, let's find a place for dinner that costs around $50 so that after the tip I have about $0 left." That makes no logical sense. When I'm hungry for dinner I decide what I want and then I look for what my options are.

To a degree people know what they want and need out of a house, but most people look for more because "they can afford it." Do you really need separate bedrooms for all of your kids? Can they share? What about the extra guest room or the office that you want in your house? Do you really need that or is it something you just want? Does your kitchen have to have a gas stove or would you be able to survive with electric?

Saver's Block: How to begin when you don't know where to start

Smackdown by Eric Joyner
Smackdown by Eric Joyner
Eventually everyone has to become a saver. No one can (or wants to) work forever. When you get to the age of 70, your body might not let you keep working so hopefully you became a saver long before that happens.

I've heard many people say that they want to start saving for retirement but investing is too confusing. When they hear the words, "personal finance" something in their brains just shuts off so they don't bother. There's a tried and true method to resolve this and it works for more than just finance. Writers get writer's block, painters get .... some sort of painter's block equivalent, and even athletes get into slumps or "cold streaks". And you know what they do, they just keep playing. They know that eventually it will come back and they will hit their stride again.

It's really a simple solution to all of these problems.

Learning From Our Mistakes: How to Kill Zombies

Nathan Ota - Hearts
Hearts by Nathan Ota
Wouldn't it be nice to go through life never having to learn anything "the hard way"? There's something to be said about failure that makes a lesson stick in your head. In fact, it's actually an evolutionary tool to remember negative emotional events more clearly than positive emotional events. Primitive man would have had a hard time surviving if they did not remember that the nearby river had crocodiles in it. Or a more modern example would be that if you asked someone where they were on September 11th, 2001 they could probably tell you where they were and even details of that day. I know that I can.

So why can't we remember the positive events as clearly? Well, some people can. They still remember the bad events, they just don't focus on them as much. You know what they say, when life gives you lemons... And that really is the key to it, focus on the good events while they happen, take note of those small details so that later you can recall them just as easily. Be mindful of these events.

The Power of No

Hello Mr. Skeksis - Leontine Greenburg
Hello Mr. Skeksis by Leontine Greenberg
I've been thinking a lot about motivation lately. I was never a really motivated person in a lot of respects so recently it's been a surprise when I find myself more motivated to do things that just a few years ago I wouldn't have.

It's possible that because of this blog and telling people to go out and improve themselves that I have actually motivated myself. Perhaps it's the new writing schedule and frequency to constantly produce new posts that have somehow sparked something in me to want to be better. It could also be that my current job is actually filled with coworkers that I actually socialize with and don't treat me like crap. Either way it's a change for me and the pessimist inside me keeps wondering when I will go back to my old ways.

I think the most powerful and consistent motivator throughout my life has been the word 'No'.