This entry was posted on Thursday, January 1st, 2009 at 9:53 pm and is filed under 529, Children, Credit Cards, Debt, Household, Insurance, Planning, Retirement, Rewards, Saving and Investing. Both comments and pings are currently closed.
Happy New Year to all! As we close the chapter on one year and move on to a new one, I find this to be an excellent time to reflect on the state of life in general, and for the purposes of this blog, Personal Finance. If you’re a regular reader of this blog you will know that I am a big fan of automating personal finance:
- Our cash back credit cards get billed directly to our bill-pay account at our bank and the bank automatically pays the full balance every month.
- ING and Vanguard both automatically withdraw pre-set amounts from our checking account monthly to cover various savings goals like increasing the size of our emergency fund, Roth IRA contributions, savings to cover annual payment to insurance, etc.
- Bill-pay automatically pays all of our fixed monthly expenses like our mortgage, student loans, car loans, etc.
The only things that we ever have to really worry about paying on time are utility bills, gas and electric.
Given this level of automation, it’s easy to neglect our finances. They’re not really neglected, but they’re not always getting the attention that they may deserve. Sometimes we’re saving too much or too little. Sometimes we’re spending more than we should and don’t realize it. Sometimes we need to shift saving priorities because goals have been met or circumstances have changed.
I’m apparently such a work-a-holic that I had to take the last several days of the year off in order to burn, rather than lose, vacation time. I spent the better part of one day and small parts of others catching up on our finances — a Personal Finance Holiday of sorts. I’m not by far the first person to propose such a concept, and I’ve thought about taking a Personal Finance Holiday for a long time, but didn’t think that I had enough personal finance “stuff” to do to fill up a whole day. Well, after neglecting to even open Quicken since mid-October, it turns out I did have a whole day of catching up to do.
Usually a Personal Finance Holiday is used to get going on all of the little things that you’ve been meaning to do, but haven’t found the time for (you have been meaning to do these things, haven’t you?):
- creating a Spending Plan
- opening a new Savings Account
- starting an IRA savings account
- buying life and disability insurance
- opening a 529 account for your child(ren)
- writing down or benchmarking your Personal Finance goals
Reading any of the myriad of Personal Finance books available can leave one overwhelmed by the number of things that you realize that you should be doing with your finances. Taking a PF Holiday gives you the perfect opportunity to sit down and bang all of these items out in one shot. It also gives you time when you would otherwise be unavailable to do all of the little things that might distract you from actually getting this stuff done, without feeling guilty about it: Can’t do it on Saturday because you have to spend time with the kids; Can’t do it on a holiday because you have to spend time with grandma; Can’t do it on a vacation day because you have to run all those other errands that you’ve been neglecting; Can’t do it on a sick day because, well, you’re sick (right?).
Maybe you’re thinking that you can’t possibly take a PF Holiday because you don’t have any vacation time. Well, take it unpaid. That’s right, it might not sound very frugal or financially prudent to do so, but let’s look at what a PF Holiday is worth:
- If you use your PF Holiday to open an IRA and put just $100 per month into it, you’ll have $1,227 in one year at a modest 5% average return, and $15,528 in 10 years.
- If you setup a disability insurance policy, you and your family will likely be able to maintain your standard of living should you become disabled. If you can’t work for 10 years, this might be worth a quarter of a million dollars
- If you set up an emergency fund, and use this fund instead of a credit card when a true emergency rolls around, you might save $1,400 in interest on that credit card.
If the average person makes $40,000/year or about $20/hour, then the cost of a PF Holiday on unpaid time is just $320. It’s actually even lower than that since you won’t have to pay taxes on money that you don’t make (or conversely, if you had worked the 8 hours you would have brought home closer to $250). So a small $250 investment could be worth tens or even hundreds of thousands of dollars over the next decade, and even more beyond that — perhaps even enough to vacation at the beautiful looking spot in the photo above!
In our case, we already have most of our Personal Finance stuff under control, or so we’d like to think, so the PF Holiday was used to catch up on what’s been going on, make sure that everything is going the way it should be. It was also used to tweak and steer the various Personal Finance vehicles toward their respective goals.
Have you ever taken a Personal Finance Holiday? Do you need to take a Personal Finance Holiday? Do you have any new or redoubled goals for 2009? Let’s hear about your experience in the Comments Section below!