Why ROTH doesn't make sense to me

Our AGI is above the Roth contribution phase-out limit, so we can't contribute to a Roth IRA anyway.

The Roth IRA allows you to contribute after-tax money into a retirement account, where future withdrawals after retirement age are income-tax free. The reasoning behind this is that one might expect to be in a higher tax-bracket come retirement age. That argument only holds water if you expect to SPEND as much as you do now.

Most people between the ages of 25-35 will have a rent/mortgage payment, a car loan payment, student loan payments, entertainment spending at bars/restaurants. Those really add up in terms of money being spent. By the time I retire, I don't expect to still be paying off any loans, which means the biggest reason for recurring income is nullified.

What if we move to a Value Added Tax like in Europe? A lot could happen in 30 years. Sure, your Roth withdrawals won't get taxed as income, but what are you going to do with that money? Spend it on goods/services. That pretty much means you've gotten taxed twice -- in 2008 when you put your money into the Roth, and in 2040 after you've retired and you bought a new set of golf clubs + 15% VAT. I don't play golf by the way. I hope I don't do that when I retire either.

So take advantage of the tax savings in a 401k for the NOW especially if your company offers 401k matching contributions, or a traditional IRA if you qualify. The Roth IRA is betting that your life situation will be more income-tax heavy after retirement. Who can see that far into the future? Instant gratification in this case is a good thing.

This post assumes you follow the generally accepted best practices of personal finance which are: Spend less money than you earn. Save the remainder. Grow that savings in dividends, investments, or interest.

Afterthoughts: Roth could make sense for the teenager getting a first-time job. If you have kids, and you've educated them in the merits of saving money, living frugally, etc, then encourage them to put their earnings into a Roth account. A teenager's first-time job is probably going to be taxed minimally anyway, so the Roth is ideal in that situation. Plus, that gives the Roth an investment horizon of at least 40 years.

E*Trade Max Checking: 3.25% APY

I opened up an E*Trade Max Checking account today. It has 3.25% APY if you maintain a balance of over $5000. They also reimburse ATM fees if the withdrawal doesn't put your balance below $5000 as well. The $15 monthly fee is waived if you maintain a balance above $5000 or set up direct deposit of $200 or more monthly.

We'll see how long this 3.25% rate lasts. My credit union has steadily decreased its savings account yields each time the Fed knocked down the interest rate. What's funny is that the E*Trade savings account yield is only 3.01%. I suppose if you don't have $5000 saved to put into the Max Checking account, the 3.01% Savings account is still a good deal.

So far, this is the highest APY checking account that Bankrate.com listed in a search today.

Net worth update: March 31, 2008

Savings / Checking : $ 78,000
Illiquid assets    : $      0
Taxable Investments: $226,000
Retirement Accounts: $218,000
Credit card debts  : $-11,000

Looks like our Net Worth is right around $511,000! The credit card debt is due to a big vacation we're taking in April so expect a reduction in our savings / checking next month. I'm estimating another $2500 extra for vacation spending while we're on the trip.

My Cake Portfolio is only a fraction of my investments and retirement accounts. They don't yet support direct mutual fund accounts. I also haven't included my Scottrade IRA account yet either. When I feel more comfortable publishing that, I will.

I'm tempted to put more of our Savings into stocks in anticipation of the next bull market wave, but I'm still hesitant as the current situation still looks bleak. We're looking into buying a house/condo/townhome within the next 12-18 months, so we probably will keep our cash in cash, and try to save as much as we can.

I'm hoping housing prices continue to trend downward over the next year, and perhaps lenders will be okay with a 10% down payment without a second mortgage. Who knows? I'm even thinking of buying a firearm and stocking up on durable goods and rations. Hahaha.

Mint.com and our net worth: $370,000

After looking for online tools for managing my finances, I found mint.com and loaded a bunch of my accounts. I was surprised that they even support Dodge & Cox, our largest taxable investment account, as well as our local credit union. Apparently they use Yodlee as their backend to access your accounts. I'm still leery about providing the username/password information though.

After loading up all our credit cards, savings, checking, and investment accounts our total net worth is around $370,000. We don't have a house, so no difficult calculations on principal and current value. We do plan on buying a home, but that's another story.

Mint.com is does the job of aggregating finances together on a single site. It does not keep track of individual investment positions, just the total value of your investment accounts. It takes recent purchases and finds possible alternatives, like our Wells Fargo checking account could be making more money if it were instead an Etrade Max Checking account. Or our credit card could be getting a lower interest rate.

We can set up budgets for particular spending categories like Entertainment, Grocery, Gas, Restaurants, and Shopping to begin with and starts with a default budget based on the past transaction history. We can set up E-mail or SMS alerts based on certain criteria such as large purchases, low bank balances, if there are any Fees charged on your accounts.

Update 3/26/2008:
I haven't added everything in Mint.com so our current net worth is probably a lowball figure. Current estimates bring it to around $450,000. Current 401k plans and Employee Stock Purchase Plans add at least another $80,000 to the $370,000 quoted in the title.

Spending Awareness

Check my credit card balances online multiple times weekly
Check my banking savings/checking multiple times weekly
This is something where Microsoft Money or Quicken could probably help, because logging into multiple credit card web sites can get tedious. With finance software, it would aggregate all that information into one application.

I managed to catch credit card fraud within a day with this method. Someone had used my Visa card number for some transactions in Mexico. I called up my bank and explained the situation. They had me come in person to the bank to verify photocopies of the receipts, and I signed in front of a notary with the statement being that I was not the person making said charges on my credit card.

All in all, it was a positive experience. I went and got a credit report next month to ensure my bank reported things were still okay with me.

Checking my balances on a weekly basis also keeps me appraised of how much I've charged on my credit cards, and ensuring I have enough money in my checking account to pay for my charges. That way I can pay my credit cards in full each month.

Pay my credit cards in full each month ONLINE automatically
I first got a credit card in college. Thankfully, my parents had instilled in me a fear of overspending, so I didn't go overboard. However I was late in paying some months, simply because I was lazy and procrastinated a lot, putting off having to actually write a check, lick the envelope and lick the stamp. Yes, back then we had to lick the stamp! Those late payments must have cost me hundreds of dollars in fees and interest payments.

I was lucky to have parents there to bail me out back then, and to dispense some harsh words of wisdom as well. So, now that I'm online basically every day, I schedule my credit card payments automatically by linking my bank account to it -- like a direct-deposit in reverse.

Obtain a free credit report every 4 months
Annualcreditreport.com lets you get 1 free credit report from each of the three agencies per year. Just get it from one reporting agency every 4 months, and you don't have to pay anything. I've still gone and bought a combined 3-in-1 credit report once a year, just to be sure though.

Financial Awareness
Awareness of your current financial condition makes me feel like I'm on top of things, in control, and empowered to reach my goals. What are my goals? I really don't have anything written down yet. I will soon.