Category : planning

The Right Small Steps in the New Year Can Make a Big Impact

Have you ever noticed how a lot of financial blog headlines read like they’re introducing the latest diet trend?

“Ditch the Starbucks and Retire Ten Years Earlier!”

The premise of this kind of financial advice always boils down to the same basic principle: in order to grow your money, you need to spend the money you already have more wisely. Makes sense, right? Especially around this time of year, it may even sound like a pretty good New Year’s resolution. And yet,somehow, it is simultaneously unattainable.

“Abandon your morning latte fix and you’ll become rich”, they say.

“That’s easy! I can do that!”, we say. But for a lot of us, we can’t seem to make it work.

Starting in February, there might be an attainable way to save more without sacrificing anything. Some people will see their take home pay increase due to the new tax code. This could be money you can invest into your retirement and still keep drinking those lattes guilt-free.

Sidenote: Want to know how the tax rate will affect your paycheck? There are many options, but this is one we found that’s easy to use.

The problem with saving money, whether it’s on ditching lattes or getting a little more in your paycheck, is that unless you’re taking the money and putting it directly into your piggy bank, you’re likely just spending it on other things throughout your day or rest of your week, so none of it ever actually makes it back into your savings or retirement account. It’s all of the sacrifice with none of the reward.

How I learned to stop worrying and love automation

So what’s the solution? In today’s technologically-driven world, the trick may lie in automation. The old adage to ‘pay yourself first’ becomes surprisingly easy if you can set it up once and then forget it. There are a growing number of tools to help you do just that.

Many banks have round up programs to automatically save your change – i.e if you buy that latte for $3.81, your account rounds up to $4.00 and automatically saves $0.19 into your account. Or if you’d rather route your money to the market instead of bank account, you can sign up for a penny stock provider like Acorns. It may not seem like a lot, but think of how many purchases you make in a day, in a week, in a month. It adds up!

Let your paycheck do the work

Additionally, you might be surprised by the programs offered through your workplace. If you’re not already contributing to your employer-sponsored retirement plan (401k, 403b, or similar), start contributing a percentage of your paycheck. Most employers will match your contributions with some of their own. Some employers also offer other types of savings plans, or will allow you to split your paycheck among multiple accounts, so that a portion could be directly deposited into your savings account.

But maybe the most powerful automation you can make is the annual contribution increase in your retirement plan. The chart below illustrates the difference between steadily saving 5% of income, and starting at 5% but increasing contributions by 1% annually until the recommended goal of 15% of income. As you can see, the amount saved with small incremental savings is more than 2× that with no increase. While you may initially notice the difference in your wallet for the first couple of months (or if you’re lucky you won’t, depending on how the new tax code affects you), after that, it will just become the new normal.

So if your New Year’s resolution is for better financial health in the coming year, make sure you’re doing the things that will really make a difference. That way, you can buy your morning latte with a clear conscience (and maybe a little extra whipped cream), knowing you’ve already taken care of your savings goals.

 

Please note: Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

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blooom’s Year-End Checklist

The end of the year is a great time to reflect on your financial situation and plan ahead for next year. Here are some tips from one of our advisors:

  1. Update wills/trusts and beneficiaries.
    Get married this year? Have kids? Get divorced? Big life events mean it’s time to make sure legal docs like your will or trust, powers of attorney, life insurance policies, and account beneficiaries are all up-to-date. Forgetting to make these updates can be disastrous for families at some of the worst possible moments in their lives. Get in the habit of reviewing these things annually so nothing is missed.
  2. Get a handle on your debt and plan ahead for next holiday shopping season.
    Lay it all out there to get ready to tackle debt in the new year. If you’re like most Americans, you probably racked up some credit card debt you aren’t proud of this holiday season. What can you learn from that going into next year? Figure out how much of a holiday spending budget you need to plan for, divide that by 10 or 11 months and automate your savings into a savings account dedicated to holiday spending.
  3. Use your raise (and possibly your bonus) to increase your 401k contributions.
    Starting this year, get into the habit of taking a portion of any raise you receive and dedicating it to your 401k. For example, if you get a 5% raise, consider bumping up your contributions by 1% or more. Your paycheck still goes up, but your 401k also gets a boost. This habit can help you work toward maximizing your contributions over time, while having no real impact on your cash flow or budget. Also, see if your employer will allow you to contribute all or part of any year-end bonus you may receive toward your 401k. This can help reduce your taxable income come tax season and it also means you avoid the extra tax withholding on bonuses for that money.
  4. Set aside time for a year-end financial review.
    Look back on the year and take note of what you were able to accomplish financially and what setbacks you may have had. Use this past year as an opportunity to continue making smart financial decisions in the new year and learn from any of the times you may have stumbled. If you have a family, talk about upcoming trips, savings goals, and any other things you need to focus on next year. Set goals and even plan to celebrate financial accomplishments as a family throughout the year. Make money fun and before you know it, you’ll feel the freedom that comes along with financial security and eventually, financial independence!
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Keep searching for better option than TSP?

Leaving Public Service? TSP = Red Tape You Might Not Cut

Government service is often thankless. I saw firsthand bouncing around the country from town-to-town as the son of a life-long USDA employee. But in comparing notes between my Dad’s Thrift Savings Plan (TSP) and what I know of 401ks, the TSP might be one area where the public sector got it right. How so?

If you’re a person with a 401k, we at blooom often start with a simple question. Know what you’re paying in investment fees? Generally, the answer is no. And the cost of what they’re invested in often surprises them. That’s where we come in to help 401k clients. For people in a TSP, the fee discussion is a little different – on the surface.

And that has more to do with predatory Wall Street practices than the plans themselves.

Investment selection, rebalancing and fiduciary services could help federal employees achieve a better retirement. So, let’s explore why current and former federal employees should consider those services before cutting that last bit of government red tape known as the TSP.

Thrift Savings Plans (TSP) Have Few Investment Fees

TSP participants have access to one of most inexpensive employer-sponsored retirement plans, but only 40% of military service members take advantage of this benefit.

A TSP is a lot like a 401k, but the investment expenses are generally better in the former. Say 20 times better. Compare the average expense ratio of 0.03% for a TSP to the median 401k expense ratio of 0.60% we see pre-blooom rebalance.

Millions of federal workers are in the plans. A 2014 CNN Money article surmised why many millions more are bypassing these low-fee plans (or opting out when they leave their federal job) and perhaps paying thousands more in fees in other retirement savings vehicles.

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Beware the Bull in Retirement Yellow Brick Road

How to Travel Safely Down Retirement Yellow Brick Road

The past few years, we’ve seen a lot of people happily talking about the gains they have been seeing in their 401k accounts. They’re sharing return numbers with others online and in the grocery store. It would seem like the kind of talk you’d want to hear.

Please don’t get me wrong. It’s great to see so many people happy that their retirement accounts are increasing in value. But there is a very important message to convey concerning these high returns.

Like the Lollipop Guild in the Wizard of Oz – IT AIN’T ALWAYS GONNA BE THIS GOOD!

The Facts About Returns Since blooom’s launch

Blooom launched its 401k management service in late-September of 2014. Since that time, the stock market (as measured by the S&P 500*) has had a cumulative return of roughly 28% and has averaged almost 10% per year.  In addition, the Vanguard Total World Stock ETF – a better proxy for blooom clients given its allocation to global equities – is up over 15% year-to-date! The point here is that these past three years have been a good time to be a stock market investor. Hell, it has been a GREAT time to be a stock market investor since the Great Recession (stock market collapse) of 2008-2009.

With all of these happy people, we want to make sure everyone understands that this is not always how things will go. In reality, the market will go down periodically.  In fact – It NEEDS to go down periodically. That is precisely why investing in the market carries risk and this same risk is exactly why investors who have stayed in the market for long periods of time and weathered this risk have been rewarded with much higher returns than “risk-free” investments like CDs, Government Bonds, and money market funds have produced.

4 Key Characteristics of a blooom-managed 401k

If you’re a blooom client, your managed 401k has four key characteristics that other 401k investors may not receive:

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Thanks 1 Billion Clients

Blooom Reaches $1 Billion in Assets Under Management

“Wall Street has made a habit of running in the opposite direction of investors with small accounts…maybe we should build something and run towards them.”

This was written in email from Kevin Conard, my co-founder to me late one night back in January 2013. Four-and-a-half years later that idea has evolved into a company – blooom – and we are proud to announce that we have grown faster than virtually any other robo-advisor. Blooom now manages more than $1 billion of retirement accounts for our clients.

Specifically, thousands of people from all across this country have trusted blooom with what is likely their most important and potentially most valuable financial asset – their employer-sponsored retirement account, or 401ks/403bs, as they are so strangely named.

If you’re a blooom client, I want to thank you for believing in us and starting this journey of bettering your retirement and financial situation together. The entire blooom team works hard every day to help you reach your financial goals.

Every time we receive a message of gratitude from one of our clients, we share it with the team and … everyone gets to work the next day with a sense of pride that they are truly helping people and striving to achieve greatness. Thanks to everyone once again. We will continue to provide our helpful service to all of you — in good times and bad.

Speaking of pride. We also take pride that this Kansas-based company reached the milestone faster than both Betterment or Weathfront – while doing so on a fraction of the capital. They’re peers not so much from a comparable service offering but in that they’re a benchmark for other robo-advisors. In other words, out of the gates, we have grown faster on fewer resources, as one should expect from someone managing their money.

Blooom was started in 2013 to help the traditionally un-helped.

We felt – and continue to feel — that it isn’t fair that the people who needed the help from the financial services industry the most were the least likely segment of the population get it.

You’ve done the hard part: You started saving for you retirement. Thanks for letting us do the rest.

If you haven’t already read blooom’s manifesto — here’s WHY this is all so important to us:

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