Financial stuff

You shouldn’t have all your savings in retirement accounts. You need to keep some of your money outside retirement accounts for emergencies.  There are several reasons for this.  The main one is if you have to pull money out of your retirement accounts for an emergency you will get hit with a large tax bill.  On a 401k you’d have to pay a 10% penalty plus ordinary income tax on the amount you withdraw. This could eat up almost half of your withdrawal.  On a Roth IRA you’d also have a 10% penalty but you’d only owe ordinary income taxes on your withdrawn earnings not your contributions.  There are exceptions that will let you avoid the penalty but they won’t apply to most withdrawals.

The other big reason to avoid pulling money out of your retirement accounts is that you lose the ability to contribute that amount to your retirement accounts.  If you put $5,000 in your Roth IRA and then have to withdraw it you can’t put it back in.  You’ve lost the ability to contribute $5,000 to your Roth IRA for that year and you’ll have to wait until the next year to start contributing again.  Since you are only allowed to put a certain amount in retirement accounts it is important to make full contributions if possible.

Those are just the biggest drawbacks to using your retirement accounts as an emergency fund. Some people think it is worth the risk to keep all of their savings in retirement accounts but I wouldn’t recommend it and it isn’t what I do.  I may not be able to fully fund my Roth IRA this year because I don’t want to bring down the balance of my non-retirement savings too low.  There is a drawback to this too because I’m losing the ability to contribute that amount.  What would you do, keep a fully funded emergency fund or withdraw most of it to contribute to a Roth IRA?

There are a couple of schools of thought on where to keep your emergency fund. Many people like to keep their emergency fund at their local bank so they can get immediate access to their money. Others, including myself, prefer to keep their emergency fund in an online savings account for the higher yield, low minimum balance requirement, and lack of monthly fees. The drawback is that it can take a couple days to transfer your money to your checking account. My solution to this would be to use my credit card for the immediate spending needs and then pay it off when the funds transfer was complete.

Since I have opened a few online savings accounts in order to receive bank bonuses I’ve been able to compare which accounts I like best. My favorite is probably the ING DIRECT Orange Savings Account
(aff link). My affection for this account probably has a lot to do with the fact that I’ve made about $500 in referral bonuses from them. Their yield of 3.0% isn’t the highest but it is much higher than most banks and the referrals have more than made up any interest deficit. If you want to open an account with $250 or more and receive a $25 bonus just click on the link on the Make $$$ With TFM page.

My newest and highest-yielding account is with FNBO Direct. This account currently pays 3.50% and has no minimum or monthly fees. After you open the account you can receive a $25 bonus for opening an online billpay account.

Technically, my Wachovia Way2Save account is my highest-yielding account. I’ve been receiving a promotional 16% interest on this account and when the promotional rate ends I’ll still be receiving 5% . The catch with this account is you’re limited in how much you can deposit in it. There is a $25 referral bonus for this account as well which you can find on the Make $$$ With TFM page.

There are a lot more good online savings accounts out there. These are just my current favorites that I have personal experience with.

Dave Ramsey gets a lot of attention on personal finance blogs.  Some love him while others hate him.  My own opinion is somewhere in between.  His baby steps are a simple way to get your finances in order.  Here is my personal take on the baby steps.

1.  Create a $1,000 emergency fund.- I agree with this one and have done this.

2.  Pay off all debt using the debt snowball.- I have special reasons for not paying off my student loans which I’ll detail in a later post.  I do have all other debt paid off.  I don’t have any problem with people using the debt snowball to pay off their debt but I believe I’m disciplined enough that I could pay off the highest interest debts first.

3. Three to six months expenses in savings.- This one also makes sense.  I haven’t done this yet because I’m concentrating on maximizing my retirement savings.

4. Invest 15% of income into Roth IRAs and pre-tax retirement savings.- I do believe you should be doing this but I don’t believe it should be delayed until step 4.  You are limited in how much you can contribute to these accounts each year and if you miss a year you can’t make it up later.  Plus, the earlier you get money into retirement savings the longer compounding works for you.

5. College funding for children.- This one also makes sense but I don’t have children and don’t plant to so it isn’t a concern for me.  I didn’t have any help paying for my college.

6. Pay off home early.- This one I could go either way on.  There is a lot of psychological comfort in having your home paid off but your mortgage is also cheap money.  I don’t own a home but if I did I’d probably pay it off early even if that isn’t the most advantageous financial move.

7. Build wealth and give. Invest in mutual funds and real estate.-  I agree with this one but  I’d also add investing in your own business.  Of course, that would depend on whether you have the desire and ability to run your own business.

That is my take on the baby steps but I don’t think you should blindly follow anyone’s financial advice.  You should study it and determine how well it works for your personal financial situation.

Over at MyMoneyBlog, Jonathan did a post on delivering pizza to make extra money. Delivering pizza is often mentioned as a good side job to make extra money.  Information about the job isn’t always accurate though.  Since I currently earn most of my money from delivering pizza I’m going to review the post and share what I know about delivering pizza.

Most pizza jobs do pay minimum wage +  ~$0.75 per delivery + tips.  That much is accurate.  Making 6-10 deliveries an hour though is well on the high side.  My average is closer to 3-4.  I believe there has only been once or twice that I made 6 deliveries in an hour.  My experience is that people in the upscale areas do tip better.  My delivery area includes the richest zip code in Kansas City as well as some of the poorest. I get much better tips in the rich area than in the “hood”.  Unfortunately, people in the “hood” order a lot more pizza than people in the upscale areas.  Most of my stiffs come from the “hood” but with a positive attitude you can still make decent money in the hood.

The big pro is flexibility of working hours.  I’ve changed my work schedule several times to accommodate other jobs and school and it was not a problem.  They have never been fully staffed for drivers in the over one year I’ve worked at this job, if I had to quit and come back again I would most likely be able to do so.

The cons are the wear and tear on your car.  I’ve got a hoopty that has already depreciated about as much as it can depreciate.  It also gets 29-30 MPG doing pizza delivery.  That makes a big difference in the profitability of the job.  The cost of gas has reduced my profit a little but not that significantly.  If you figure that I drive 60 miles in a shift that is only 2 gallons.  If gas is $1 a gallon more than last year I’m only out $2.  Even if you double that figure it is only $4 a shift.  That is noticeable but not that big a deal.

The crime is what I consider the bigger drawback.  We had several drivers robbed last year, including one that was carjacked .  His car was even more of a beater than mine which put a big hole in my theory that my car was too crappy for someone to want to steal.  One weekend we had robberies three days in a row. The store was robbed once also. I haven’t been robbed myself but I came close to being robbed once.  I seriously considered quitting at one point but the management cut out the worst part of the delivery area and things have improved quite a bit since then.  There were some complaints of racism but it was a fact that the area was unsafe so I’m glad they stopped delivery there.

As for the fringe benefits of pot and pizza going together that is definitely true.  I’ve worked several pizza places and the pot/pizza connection has always been there.  I’m usually one of the few non-tokers in the store.  I’m guessing that the pot munchies drives a pretty significant percentage of sales too.  The odor can frequently be detected when making a delivery.  At least they’re not driving while high.

I think pizza delivery is a good way to make extra money.  The key is to drive an older car that gets good gas mileage.  I’d also try to work in a slightly upscale area or one with a lot people employed in the service industry if possible.  That would probably get you the best total pay.