This is the sixth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #4 - Investment“.
The next article is “Financial Tools: Net Worth Tracker/Planner“.

Many times, I’ve heard that “401(k) is free money - you’re mad not to take it!” without really understanding what that meant. After all, a “retirement account” is money that you’re not going to see for 30-50 years… bo-ring. One day, though, you’ll want to retire, and doing so requires a significant investment socked away (current estimates hover around the $1m - $1.5m for true retirement comfort). What does a 401(k) plan get you?

Most plans have some form of employer-matching, so, to take a conservative example (my own company is actually more generous), a 15% employer match means that every dollar you put into your 401(k) immediately becomes $1.15. That means that, even if your 401(k) does nothing at all, you’ve already made a 15% return on your investment on day one. In addition, 401(k) deductions are pre-tax, so a contribution of $500/month works out to appear as a much smaller “dent” in your paychecks (somewhere around $360, depending on your tax situation).

In reality, even a fairly conservative 401(k) portfolio should make 8.5% per year, on average (we’re thinking long-term - 30 years or more here, so individual market ups-and-downs should even out to a good growth rate). This means that in just a year of $500/month contributions, with an employer-match of 10%, your $6000 pre-tax contribution (about $4300 in wages you’re no longer seeing) should be worth in the region of $7150. And the real beauty of this is that the interest you earn is compounded, so as the “capital” in the account grows, every cent is re-invested to begin earning its own percentage gains.

This is the fourth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #2 - Online Savings”.
The next article is “5 Accounts, #4 - Investment“.

I think everyone instinctively knows that they should have an emergency fund, but like many other pieces of financial advice and/or common sense, it often gets put off or bypassed. The cause is the same as that of most common financial missteps - the fact that our brains simply aren’t wired to think sensibly about the future - why plan for a financial disaster which may never come, when we can live right now?

There are too many things which might require an immediate financial “bridge” - major car problems (if you commute by car), a sudden medical expense, an unexpected layoff… if any of these things “catch you short” you could be seriously stuck, forced to rely on a credit card or a loan to get by, at which point you end up in a fresh new financial hole full of unwanted interest payments.

So if keeping an “emergency fund” on hand is a good idea, what’s the best way to go about it?

Since this is for emergencies, it needs to be accessible in short order, so we want something like a savings account or a money market account which will allow us to withdraw/transfer money immediately. So why not use our online savings account?

There are two needs an online savings account doesn’t quite meet.

1. We want this money to stay “saved” - mixing it in with all the current account sweeping and discretionary considerations muddies the water, and tempts us to spend “emergency” money on non-emergencies.
2. We should be keeping this money around, unused, for the long term. So we need as good an interest rate as we can get, to protect our money from inflation.

A good alternative is an online-accessible money market or high-interest savings account.

This is the third part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #1 - Checking“.
The next article is “5 Accounts, #3 - Online Savings“.

Last time, we looked at the checking account, and paring it down so that you’re not storing unnecessary money in there. There’s another very good reason for doing this which I didn’t touch on in the last post - practicing frugality.

With only the money needed for your “day to day living” sitting in your checking account, any sudden impulsive purchases have to be planned for. You can’t wander out to the stores and drop $350 on a “spur of the moment” xbox 360 purchase, because the money isn’t available to your debit card (and if you’re seriously impulsive, you’re sensible enough not to carry a credit card around all the time, right?)

Expensive purchases suddenly have to be thought through, weighed against your other financial priorities and then “budgeted” - before you splurge on plane tickets or games consoles, you’ll need to move that money back into your checking account especially.

This is where an online savings account comes in.

This is the second part of a series on setting up a financial plan.
The beginning of the series is here.
The next article is “5 Accounts, #2 - Online Savings“.

Just about everyone has a checking account, and a lot of people (my former self included) misuse it horribly. In the UK, such accounts are generally known as “Current Accounts”, which is actually a far more useful way of thinking about them.

The upside of a checking account is extremely easy access - through cheques, ATM withdrawals or debit-card purchases, you have a ready flow of money available at all time.

Every dollar you keep in that account, though, is losing value over time. This is because the measly interest rate on checking accounts doesn’t match inflation, which generally runs at 3-4% per year. So $100 kept in a checking account for a year will only be worth the equivalent of $96-$97 in “today’s money” a year from now.

Your checking account should be your primary “monetary interface” with the rest of the world - it’s usually where your paycheck goes, and the account that you’ll use to pay for rent/mortgage payments, groceries, meals out and all the other day-to-day transactions involved in just living. You should constantly pare it down, though.

So I’ve armed myself with a brand-new interest in personal finance, and I’ve got a list of sources to feed that interest. Time to start planning the fundamentals of how I’m going to manage and distribute my money in future.

I’m going to break this up into a series of posts because otherwise it’ll just be a long-assed screed that even I get bored of reading.

First off, there’s two main basics to take care of. Number one, determining the right accounts to keep my financial plan running, and secondly, determining a schedule for distributing money between those accounts.

Once that general framework is sorted out, I’ll need two major tools to keep track of progress:

1. A “net worth” tracker (basically, just a spreadsheet)
2. A way of tracking spending, so that I can pare down unnecessary costs and formulate a workable, sensible budget for day-to-day living.

A lot of what I’m going to cover (how to divide your money up; financial tools) can be found elsewhere on personal finance blogs and other sites, but what I hope to lay out here is a distillation of the best concepts I’ve picked up in my reading so far, from the point of view of someone who (as you may well be) is basically new to this game.

Apologies in advance for the multiple threads this site has recently developed - there are 2 active topics which I consider to be “ongoing” right now - productivity and finance, and I’m brewing up more tasty mind-beverages on those topics even as I type this.

Veering onto another topic entirely, though, today’s major preoccupation is international in nature. Right now I’m working n a talk I’ll be giving soon to a bunch of Korean developers in Seoul, regarding Flickr’s API. What’s interesting about this is the peculiar challenges it raises.

Firstly, I’m not 100% confident that my inevitably-slightly-manic English presentation will be all that understandable to a diverse group of Korean speakers. I’ve brewed up something of a defense against this - designing slides for the presentation which contain both an English component (so that the presentation matches the talk, and I know what’s going on, more-or-less), and a Korean translation. Hence the hurry to get the slides done - so that a Korean co-worker can translate! Nevertheless, it means that every design has to be somewhat “symmetrical”; and that there’s half the usual space per slide for any given concept.

But the really weird thing is how much uncertainty a foreign culture injects into the process of building entertaining presentations. In the circles I move in (amongst my fellow Flickr-ites, for example, and other talented presenters such as the lovely Mr Coates), the Done Thing these days is to illustrate one’s slides with somewhat-relevant photographs, usually as a background to the slide.

The approach makes a lot of sense for the Flickr team (we are, after all, in the business of hosting awesome photos), and has taken off in general due to the ease with which anyone can find good creative-commons licensed imagery through Flickr.

Using photography in this way also has the advantage of making the presentation immediately more visually appealing, and allows for a host of sly (or not so sly) jokes in the form of tangentially-related imagery, or flat-out visual punnery.

I’ve been meaning to post this recipe for about 2 years, but somehow it’s never actually happened before now. It’s become a favourite old standby, the only condiment I always have in my fridge, and the recipe I most frequently pass on to friends (usually after rifling extensively through age-old email archives - another excellent reason for sharing it on the web.)

It’s based loosely on a recipe that Simon posted to london.food a couple of years back, but has been through several cycles of, uh, “maturation” (mostly simplification) since then.

The Boring Bits

• Makes 2 medium jam jars’ worth
• Preparation time: 30-40 minutes
• Cooking time: approx. 1 1/2 hours

I’m still trying to work out if the first comment on my post about finance a few days back was a helpful hint, or spam. I let it through because it seemed pretty genuine, although it raises quite a few doubts in my mind. I’ll repeat the main point here so you don’t have to bounce around the site.

If you are starting out investing in stocks and shares, you might want to use a share tipping service. They point you in the right direction, and then it is down to you to decide if you want to invest in what they suggest or not. You might decide not to invest in everything, but it tends to broaden your horizon and show you companies you would never have looked at before. If it is good, it will also keep you up to date with what the stock market is doing.

The site link which followed is useless to me, being a UK share tipping site (I live in California, for anyone late to the game). And even so, there are a couple more reasons why it doesn’t help much.

I promised a post on productivity when I resumed writing last month, but as I’ve been gathering notes and writing drafts I’ve realised that it’s a really huge topic, and probably better treated in chunks. I’m starting here because procrastination is one of the most serious common roadblocks to productivity - no matter how robust your task-tracking methods or efficient your “inboxes”, if you regularly balk at certain tasks then progress is impossible.

So what are we up against?

Procrastination has one major root cause - fear. There are many sources of fear; some (fear of death, fear of pain) are hard-wired into all of us; others (fear of embarassment, fear of inconvenience, fear of failure) are learned responses to past conditions. All fears originate in the subconscious, and herein lies the problem.

Our subconscious has a highly vivid imagination - it’s always looking out for the wildest, worst scenario that could befall us, and steering us clear. Sometimes that’s good - it’s what stops us accepting rides home with drunks and playing with matches. Other times, it’s disastrous, holding us back from speaking in public, paying a bill or asking that cute stranger if they fancy a coffee. Our subconscious, designed to keep us safe from harm, has a hard time differentiating between Real Harm (certain death) and Not Actually Harm (”sorry, I’m dating someone”).

The very thing which makes us human - the ability to spot patterns, imagine scenarios and weigh up alternatives - can be a crippling burden if left in the control of the subconscious. Luckily, all those things also combine to afford us a defence against ourselves - rationality.

Fighting fear with rationality takes some practice, but it’s a useful skill to have. Training yourself to fight your subconscious knee-jerk reaction against getting something done provides you with a better chance of fighting stronger, more primally-driven fears (fear of flying, or spiders, or clowns).

I just caught myself doing something extremely odd; something that I’ve done habitually for years. It’s in the general class of little quirks which we tend to notice especially in generations older than us. I suspect that’s because the original underlying cause of their habit is obscured by time and “progress” and made to seem all the more out-of-place as a consequence.

My specific quirk concerns those plastic rings which hold together multipacks of cans and bottles. Whenever I’m about to dispose of one, I always take a pair of scissors and snip through every closed loop in the plastic so that none of them are joined together. I can remember very clearly why I do this, although I couldn’t tell you when it started.

At some point in the past, I heard a story about scavenger birds (seagulls and the like) who were getting their heads caught in the loops of plastic can-holders and then slowly choking themselves to death. I believe that the story specifically mentioned cutting the loops apart to avoid their suffering. I wouldn’t class myself as a rampant “animal lover” exactly, but something about the story hit home. Et voila, many years later I find myself standing in my kitchen cutting up plastic rings. Each time I do it, I remember the original story and ponder its veracity, even as I snip snip snip away.

The really crazy thing is that I then hopefully deposit the plastic in with the recycling, telling myself “well, I snipped it in case they reject and landfill it regardless.”

I fully expect, many years from now, to be standing in some kitchen snipping away whilst incredulous offspring or offspring-offspring (should such people ever exist) ask me “why the heck are you doing that?”

“Seagulls, dear. Seagulls.”

I’m not even particularly fond of seagulls…