Beating Broke

Personal Finance from the Broke Perspective

Why I’m Withdrawing Money from an IRA

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I’ve been going back and forth with myself over whether I should write a post about how I am withdrawing money from an IRA.  It’s not something that is recommended, and certainly not something that most people who write personal finance blogs talks about.  In fact, it’s somewhat embarrassing that I am doing it at all.  And, I had decided that I might not talk about it.  Until I saw this post on my friend Sandy’s blog, Yes, I am Cheap.  For those of you who won’t click through the link, I’ll give you the quick rundown.  One of Sandy’s readers lost her job a while back.  Since then, the reader has used all of her savings to pay bills, and her unemployment status is in a sort of limbo.  The reader has 21k in her 401(k), and she asked if she should take that money out to help pay the bills until she can find work.

What that post did for me, and the reason that I’m writing this post, is remind me that I’m not an island in the personal finance ocean.  When I started this blog, I didn’t have a 401(k), or really even know what one was.  I was up to my eyeballs in debt, and contemplating bankruptcy.  As I searched the internet for information about that and other personal finance related topics, I decided that I wanted to share what I was learning, in an effort to help others who might be in a similar situation.  Sometimes, when writing post after post, here, I forget that I’m not the only one who has the same questions, or who is in the same situation.  There are other people who’s circumstances might make them cringe when bills show up at the door.  It’s for those people that I write here and share here.  And it’s for those people that I am writing this post.  I think this may be the longest introduction to a post I’ve ever written. 🙂  Let’s get on with it, shall we?

Withdrawing money from an IRAThose of you who are regular readers will recall that I quit my job in November of 2011.  It was a decision that I had been coming to  for many months, and a decision whose timetable was advanced by several situations at that job.  All of those situations made it very unhealthy for me to be there anymore.  So, I quit.  I didn’t do much planning, and hadn’t done much saving.  I had to quickly cancel the mortgage paperwork we had been trying to push through as we wouldn’t be able to afford the house we had been planning to buy.  All in all, it wasn’t the greatest idea, financially.  Emotionally and mentally, it was the best idea I’d had in a long time.

Why I needed to withdraw from an IRA

I then spent about 7 months working part time while trying to rapidly build my blogs, here and elsewhere, to a point where they might sustain my without having to get another full time job.  I didn’t succeed.  And I ran out of savings about a week and a half after I had taken a new full time job.  It’s a good job, and I enjoy it quite a bit.  But, it doesn’t pay nearly as much as my other job had.  When I started there, our finances were still bleeding.  They continued to as we continued to try and make ends meet.

Sometime last fall, it became apparent that the ends were going to begin to not meet.  If you’ve ever been there, you know that looking forward to a month where you might have to decide which bills to go delinquent on isn’t a very comfortable spot to be in.  It became very apparent, after several hours going over our budget, that we had a cash flow issue.  Too much going out, not enough going in.  The problem wasn’t with discretionary spending, however, although we did find some places to cut there too.  The problem was that we had too many payments taking up too much money.  If we wanted to survive, financially, we needed to find a cash flow solution.

I should say that it wasn’t an easy decision to tap into my IRA.  At  the time, I’d only recently rolled my 401(k) from my old job into it, so I’d just taken a hit by doing that.  But, I needed a way to create some cash flow, and an infusion of money would do it.  So, I called my adviser and had him issue a check for the amount I needed.

It’s my money.

There will surely be a few naysayers who come upon this post.  Most of them will tell me (and you) that what I did was a terrible thing to do.  That I’ve permanently set myself back for retirement, and that there had to be other ways to accomplish the same thing.  But, there weren’t.  Trust me when I say that I know my finances.

Yes, it will set my retirement saving back by quite a bit.  Yes, I’ll have to save more in the future to achieve any sort of retirement nest egg.  I know all that.  But, I feel that remaining current on my bills, and not having to potentially declare bankruptcy is more important than that.

There’s also a rebellious part of me that would like to just say that it’s my money and I’ll do with it what I want. 😉  In all honesty, it is my money.  Just so much as the money in your IRA or 401(k) is your money.  And, in my opinion, our money is only worth anything when it is improving our situation.  My situation needed improving now, not in 40 years.  (not that it likely won’t need improving then too)

Using the withdrawal from my IRA

For those of you who are thinking to yourselves that if I made a withdrawal from my IRA, it’s ok for you to do it too, just stop.  This was a last ditch effort to stop us from going into delinquency on several accounts.  Would it have bankrupted us eventually?  Maybe.  I’ll never know, and I didn’t want to find out.  But, what I will tell you is it took a good deal of thought to make the decision, and it took a good deal of determination to use the money properly when I did get it.

When the check arrived, I cashed it and went to the casino.

Just kidding!  Ya’ll were looking so dang serious!  I deposited it.  Directly into our checking account.  During the decision process, I’d taken a full audit of our bills each month and determined the ones we would need to, and could, eliminate in order to get ourselves back on the right track.  So, even before I asked for the withdrawal from my IRA, I had a list of the things that I was going to pay off.  Over the next several weeks, as those bills came in, I send them payment in full.  Until all but one of them was completely paid off.  The one remaining was a bonus bill.  I didn’t have enough to pay it off in full, but was hoping that I could get them to negotiate the amount down.  I wasn’t able to.  So we still have that payment.  But, once it was done, we eliminated several hundred dollars worth of monthly payments.  More importantly, we cut our monthly payments by enough that we have enough each month to pay the remaining bills while still having enough left over to pay a bit extra. We’re on the right track again, and making strides to keep it that way.

Would you withdraw from your IRA?

There are only a handful of reasons that most people will tell you that making a withdrawal from an IRA is a good idea.  Most of them involve exemptions from the tax penalty.  Would you ever take a withdrawal from your IRA?  In my situation?  In any situation?

 

 

 

 

Paying for Services When There’s a Free Alternative

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Sites around the web, including this one, are always pushing free or DIY alternatives to lots of things.  And, in most cases, I think that they (and I) am right.  There are so many things that we pay other people to do that we can just as easily do ourselves.  Just about a year and a half ago, I built my own deck.  It wasn’t necessarily easy, and it certainly wasn’t quicker than hiring someone to do it for me, but boy did it save me some money.

I truly believe that there is little that you and I cannot do ourselves.  With a quick search on Youtube for the DIY project, and a few quick web searches, we can have some pretty detailed instructions on how to do anything.  Well, OK.  Probably not something like brain surgery.  There’s probably a bit more of a skill/knowledge gap there. But, certainly, most everything else.

Occasionally, I find a service that I decide I’d rather outsource to someone else.  Oil Changes are an excellent example.  Can I change my own oil?  Absolutely.  But, for $30, I get someone else to do it for me.  I don’t have to mess around with getting the filter loose, disposing of the waste oil, and I certainly don’t have to crawl around under the car doing it.  For me, it’s well worth the $20 or so difference to have someone else do it.  That’s more of a choice of convenience. Meaning, for me, that it is just more convenient to have someone else do it and save me the time and effort.

There are, however, some services that have less to do with convenience, and more to do with some other factors.

Paying for Services when there are Free AlternativesSaving Time

In the case of my DIY deck, I could have saved a whole lot of time by having someone else do it for me.  For a professional with a crew of a couple of guys, it probably would have only taken 3-4 days.  Maybe less.  It took me several weeks.  Obviously, it saved me a lot of money to do it myself, but if I had been crunched for time, it would have made a lot of sense to factor the time it would save into my choice.  I had the time, so it wasn’t that big of a deal.  (note: I say that now.  At the end of the project, I was seriously wondering why I did it myself)  The choice to have someone else change my oil isn’t weighted so heavily on saving time, but that is a factor.  I can have someone else do the work, and all I have to do is drop the car off.

Motivational

I think this is one that many people discount too often.  In many of those cases, people choose to do something themselves strictly to save themselves some money and then fail at it.  In my case, I’ve tried, for many years, to control my weight.  I used to be an athlete, so I’ve always thought that I had the tools to lose the weight myself.  I’d start by finding some calorie counter that was free and start tracking calories.  But, what inevitably happens is that I forget to count for a day or two and then it stretches to a couple of weeks.  If I had lost any weight, it goes right back on.  Sometimes, paying for a service that has free or DIY alternatives can be motivational.  You’re paying for it, so you better get the most out of it.  I recently joined Weight Watchers Online and that factor has helped a lot.  There are other factors, but you better believe that the fact that I’m paying for the service is playing into it as well and keeping me working at it.

Hate/Fear

How could I write this post without adding this factor.  There are just some things that you hate to do.  For one reason or another, you just hate doing them.  To you, not doing that task is worth the money to have someone else do.  Maybe it’s mowing the lawn.  Maybe it’s changing the oil in your car.  Maybe it’s losing weight.  Wait, maybe not that one.  But, how cool would that be! For me, I tend to avoid major electrical work.  There’s just something about the possibility of electrocuting myself that I don’t like…  Another would be doing anything very high off the ground.  Can’t do it.

Impossible

As much as I (and you), would like to think that there isn’t anything outside of our realm of possibility, we always seem to find something that we just aren’t capable of doing.  While I truly believe that you can learn to do many of the things that you think are impossible, I recognize that sometimes there are things that are physically impossible.  It doesn’t happen very often, but it does happen.

Saving money by doing things ourselves is a good trait to have.  It helps us keep our budgets from overrunning. It keeps us learning new things.  It gives us a sense of self worth by developing new skills and knowledge.  But, sometimes, there are other factors at work and we make the choice to have someone else do the work for us.  Maybe the cost difference isn’t worth the time you’d put into it.  Maybe the extra time you’d spend on it isn’t worth the savings.  Or, maybe you need some monetary motivation.  Whatever it is, we develop our own factors that go into the decision, and make a choice over whether to do something ourselves, or to hire someone to do it for us.

What are your factors in deciding whether you DIY or not?

The Joneses and Jealousy

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We spend a lot of time, while talking about finances, talking about the Joneses. We often talk about how most of us make the mistake of trying to keep up with the Joneses by buying cars that are new, houses that are bigger, and generally spending our way into oblivion.  What we seldom talk about is what really is motivating us to keep up with them.

The Joneses and Acceptance

The reasoning that most people assume is really being put to work is that of acceptance.  And, surely, it does play a part.  Humans are, at our most basic, a tribal animal.  We’ve long been conditioned to be that way.  Historically, we lived in tribes, and what was good for the tribe was also good for the individual.  If any individual of the tribe stepped out of the accepted norms, it was likely to get that individual killed, or other members of the tribe killed.

In more modern times, we talk about it taking a village to raise a child.  We talk about how we’re all “in this together.”  We, as children, are thrown into sub-tribes (classes in school) where we quickly learn that it’s easier to get along with the majority of the other children and not be one of the children that’s ostracized for being a bit “weird.”  As we get older, that need for acceptance grows.  We get to college, and the further splitting of our peers into sub-tribes begins.  Graduates from college quickly find that their college tribe has broken up, and they must find a new tribe.  We begin in the place we spend the most time; at work.  In true tribal fashion, we quickly begin attempting to appease those with the most power in order to gain favor, and thus, not be cast out from the tribe.  We call it getting fired.

And, in trying to appease those with the most power (perceived, real, or otherwise), we learn to buy cars that are similar to theirs.  We learn to buy houses that are as big as theirs.  We learn to eat at the same restaurants, drink the same drinks, and hang out in the same social circles.  All because we have a deep rooted desire to be accepted in our “tribe.”  And because we know that humans have a natural attraction to people who are most like us.  We accept them.

The Joneses and Jealousy

The issue of tribal acceptance is almost a genetic issue.  It’s been conditioned into the human psyche for centuries.  But, there’s another, equally powerful reason that we all try and keep up with the Joneses.  Jealousy.

Masquerade BallThe very same urge that we feel to try and gain the acceptance of those with power (again, perceived, real, or otherwise), also is driven by jealousy.  Survival depends on our acceptance.  And our acceptance is given by those we see as having the power.  And the power we see them with is one that we’d love to wield.  For two reasons.  One, we want the power because those with the power aren’t thrown out of the tribe.  And, two, because those with the power have the ability to throw out those they are enemies with.

It’s a story we’ve seen played out in the news many times.  Some guy (or girl) climbs the corporate ladder and finds him or herself at the top (or near it).  Years later, they have some event that brings them down.  Corruption, greed, or some other malfeasance.  On their way down, we start hearing stories about how all those years they were at the top, they were taking the ideas of those below them and claiming them for their own. Their friends got all the promotions. People who disagreed with them would suddenly find themselves the subject of an internal inquiry and then were summarily fired.  In short, they held the power.  They dismissed their enemies from the tribe.  And, while they eventually fell from power, they wielded it to their advantage for a long time.

Few among us haven’t tasted the desire to have that power.  Whether we intend to use it in a bad manner or not, we’ve felt it.  That desire to have the power.  That jealousy of those that do have it.  And, through our jealousy (and need for acceptance), we learn to buy cars that are similar to the car that those that do have the power have.  And we learn to buy homes that are as big as theirs.  And we learn to eat at the same restaurants, drink the same drinks, and hang out in the same social circles as they do.  All because, you guessed it, we have a deep rooted desire to be accepted in our “tribe.” And what better way to guarantee our acceptance than to be the one who does the deciding?

Replacing the Joneses

Whether it’s through a desire for acceptance, or jealousy of their power, we try to be the Joneses.  We try to be the ones with power.  I’ve felt it.  I’ve done it.  Sometimes I managed to accomplish it too.  Maybe not financially, but socially.  Heck, I’ve still got some of the debt to prove it.  And, I’d bet that there are plenty of you who do too.

Replace the Joneses.  – click here to tweet this.

The only real cure, as many of my fellow personal finance bloggers will attest, is to give up chasing the Joneses.  To stop trying to gain their acceptance, and to let the jealousy go.  But, something that deeply ingrained into our human nature isn’t easy to do.  I’ve gone through times where I’ve done really well with not caring what the Joneses are doing.  And the next thing I know, I walk around the corner, and there’s one of them.  And it comes flooding back in a momentary flash of natural instinct.  Before I know it, I’m looking at big fancy houses that I don’t need, eating at restaurants all the time, and buying gadgets like crazy.  And then my senses return, I realize what I’m doing, and the remorse comes.  Remorse for forgetting that I don’t need that big fancy house.  Remorse at the money I’ve squandered.  And remorse at the lack of will power I displayed.  In times like that, I try to remember that it’s only natural to feel those pangs of jealousy and the need for acceptance.  And I try again.

Giving up the Joneses isn’t an easy thing to do.  In fact, it’s nearly impossible to do.  What you’ve got to do is to replace them instead.  Get a different tribe.  That ladder climbing, socialite-ing, money spending tribe isn’t the only one out there!  Just like our ancestors, the modern human race is divided into many tribes.  Find one you want to be in.  Find one whose leaders are living the life you really want to be living, and gain your acceptance there.  Surround yourself with people who have the same passions as you do, and make them your tribe.

Replace the Joneses.

img credit: Jaguar Ahlan! Masquerade Ball 2012 by jaguarcarsmena on Flickr.