The Decision That Transformed My Financial SituationKathleen Celmins
The year was 2005. I had just started working at my first “real” job out of college, and there were decisions to be made. What kind of health insurance plan did I want? Who would I make friends with at work? How would I afford to live in this big new city?
I was overwhelmed, to say the least. I’d just moved across the country to start a job I snagged from Craigslist, at a less-than-perfect fit in the consulting world in DC, when all I wanted to do was work in politics. I didn’t know anybody. I had never been to the city before. I was in over my head.
I wasn’t in debt yet, not really, but I was getting there. I spent more than half of my monthly take-home pay on a very tiny apartment in a fun part of town, and I was eating out way more than I was eating in.
It’s crazy to think that amid this uncertainty and overspending I would make my best financial decision, but I did.
I started investing part of my paycheck in a retirement fund. I remember poring over the sheets, trying to understand expense ratios and portfolio balancing because I was able to pick and choose where my 401(k) retirement money would go. In reality, I think I was looking for the highest return, no matter the risk.
I only stayed at that first job for a year. Like I said, it wasn’t a perfect fit. But I remember calling my best friend and asking what to do with the money that was still with the old company.
“Does your new company have a retirement plan?” she asked. No, they didn’t.
“Okay, no problem. Just roll it into a Traditional IRA. You want the traditional, because it offers benefits like reducing your taxable income, which will result in you paying less in tax, which will mean a higher tax refund when you file your taxes.”
Okay. Some of what she said sounded a little like the “hum de bork bork” of the Swedish Chef, but she is (and always has been) one of my most trusted advisors when it comes to all things, including money.
“But do one more thing,” she added. “Automatically deposit $200/month into that IRA. I promise, you won’t even notice it, but due to the magic power of compound interest, your future self will thank you.”
Without thinking too much about it, I did exactly what she told me to do. And promptly forgot about it. In the ensuing years, my finances got worse — way worse — before they got better, and I thought perhaps acting like an ostrich would be the best way to get better about money.
I was wrong. But in this one case, I was right, too.
Fast forward to 2010. I finally decided to get my head out of the sand and opened a free account at Mint.com. “Do you want to add another account?” it kept asking, after I linked yet another credit card with a balance.
I thought I was done, but on Mint’s account adding screen, there was a list of popular financial institutions. I saw Fidelity listed and a light went off in my head. Hmm, I do recall getting emails every month about trade something or other. I dug around, retrieved my password, and saw, to my complete shock and surprise, there was $10,000 in my account!
I thought I was broke, really broke, but seeing that number adjust my net worth in Mint’s calculation was like seeing a light at the end of the tunnel.
But it gets better. Due mostly to my ignorance, but partially to the convoluted nature of Fidelity’s website, I’d been depositing $200 per month into cash deposits, which meant that when the market was doing all kinds of negative things in 2007, 2008, and 2009, my money was sitting pretty, holding its value.
Depositing money every month into retirement was my best financial decision. Or maybe I just got lucky. Either way, it was nice to see, when I finally got serious about finances, I’d already had one thing in my favor. There were a lot of things going against me (more than $20,000 in consumer debt!), but it was really nice to have one thing in my favor.
What was your best financial decision? Or even your first good financial decision?