Before I started this blog in late 2004, I didn’t know squat about managing my money besides not to spend it all. Although I’m sure I could have done much worse, let’s see where I was 5 years ago:
1) I didn’t max my IRAs out. Even though I was pretty broke and living on less than $20k a year, I should have tried to max them out. I think I only put $500 in my Traditional IRA for the first year, and $1000 the next.
2) Instead, I paid off my student loans. Even though I was still in grad school and therefore was paying no loan interest at all, I put all my excess money towards student loans even at the expense of not maxing out my IRAs. Think of all the tax-free gains I could have earned!
3) I used a Traditional IRA instead of Roth IRA. I was so focused on the measly tax break that I lost sight that I was barely in the 15% tax bracket. With the standard deduction and tuition credits, I might have even been in the 10% bracket. So I saved 10-15% in taxes back then, only to have to pay 25% in federal taxes this year when I convert it to a Roth. Doh!
If you’re young and in the 15% tax bracket or lower, contribute to a Roth IRA! The principal can be taken out any time penalty-free, and it’s got lots of other nice features.
4) I kept it all in cash. I had the “analysis paralysis”. I was so scared of losing all my money, I just put it in cash. So my IRA just sat there, shrinking with inflation.
All in all, it could have been worse, but it also could have been better. I’m sure I’ll remember more mistakes soon.
By Jonathan Ping | Retirement | 2/4/06, 2:57am