This past week, as I read other bloggers’ year in review posts, I realized that I hadn’t reflected much on the past year. 2017 was actually a big year for me financially, mainly because I took an active role in managing my own finances, expanded my personal finance knowledge, and of course, started this blog. In taking control of my finances, I made quite a few improvements, but I also made several mistakes. Here are my financial wins and losses from the past year.
I increased my salary by 25%
At the end of 2016, I realized that my growth in my job was slowing and opportunities at my company were limited. Fortunately, in the Bay Area, there are a lot of job opportunities for software engineers. So, I decided to find a new job. After rounds of phone screens, technical screens, and onsite interviews, I received a job offer from my current company. The team and company seemed to have what I was looking for: mentorship, structured processes, and opportunities for advancement. On top of that, the offered base salary was 15% more than my current salary. But I knew that I could negotiate for more.
I asked for a 13% increase in the base salary, which was a bit higher than the number I had decided I’d be happy with. This allowed for some wiggle room, in case they couldn’t meet my request. They counter offered with a salary I was pleased with and a $5000 signing bonus. So, I gladly accepted and consequently increased my salary by 25%.
I started investing my money
Right after I left my job, I knew that keeping my old 401k would cost me hidden fees. So, I decided to roll it over into an IRA. I had done this before when I had quit my first job to go to my programming bootcamp two years ago. Back then, I chose a Roth IRA, hoping the fact that I’d be unemployed for part of the year would lower my taxes. However, once I had rolled the money over, I thought that was all I needed to do and never looked at it again.
So, when I started doing research to decide where to rollover my 401k this time, I finally looked at the Roth IRA that I had opened two years ago. Luckily, part of my money had been invested in my first company’s stock… and it had doubled! But the majority of my money was in cash, just sitting there and collecting dust. After seeing how much money can grow by investing it, I knew that I couldn’t just leave my money sitting around, doing nothing for me. I wanted my money to make money for me. This realization sparked me to invest the rest of the money in my IRA and all of my savings, except for my emergency fund. And thanks to the amazing returns of the market in 2017, my money has grown by at least 20%.
I put my emergency fund into a high yield savings account
After realizing that I needed to start investing, I moved nearly all of my savings into a brokerage account. I kept the rest, my emergency fund (about 6 months worth of living expenses), in my bank’s savings account, which had a measly interest rate of 0.01%. Even though I had heard about bank accounts with much higher interest rates, such as Ally Bank (1.25%) and CIT Bank (1.55%), it felt like too much of a hassle to open another account and move my money.
But after reading this post from Millennial Money Diaries and seeing how easy it actually was (plus, they were offering a $100 bonus), I decided to stop being lazy and finally make some money off of my emergency fund. So, I opened a high yield savings account with CIT Bank and transferred over the money. And after nearly three months, my emergency fund has made $61 in interest!
I didn’t max out my 401k
As I mentioned in my last post, I didn’t max out my 401k last year. Even though I was financially able to max it out, I thought it’d be better to contribute a bit more than the company match and keep the rest for short-term savings. But since I wasn’t investing that money, I was missing out on the benefits of compounding. When I finally understood the advantages of maxing out my 401k, it was already halfway through the year. In order to make up for lost time, I significantly increased my contributions and by the end of the year, I had contributed $12k to my 401k.
I contributed to a Roth 401k*
My current company offers employees the choice between a Traditional 401k and a Roth 401k. Since I never had the option of a Roth 401k before, I decided to try it out. When you contribute to a Roth 401k, you’re contributing post-tax money, which means that you’re only putting in money after taxes have been taken out of your salary. It’s usually recommended that people in a low tax bracket or who are early in their careers choose a Roth 401k.
Even though I’m early in my career, I’m actually in a fairly high tax bracket (thanks to being in a lucrative industry). On top of that, I work in a state that has a high income tax rate. Once I had realized just how much of my paycheck goes to taxes, I started re-thinking my choice. As stated in this article from The Financial Buff, by choosing a Roth 401k, I was probably overpaying in taxes, forfeiting the opportunity to reduce my taxable income, and giving up the option for a Roth conversion in the future. After six months of contributing to a Roth 401k, I switched over to a Traditional 401k.
*It’s debatable whether or not this is a financial loss; it mostly depends on what my tax bracket is when I retire. There are definitely advantages to contributing to a Roth 401k, such as tax-free growth and the ability to withdraw money (only what you contributed) penalty and tax free before you’re 59 1/2 years old.
I bought high and sold low
When I started investing, I didn’t really know what I was doing. I tried reading articles on different stocks but they always felt contradictory. One article would say to buy a certain stock and the next would advise against buying it, saying that it was going to drop. As a result, I felt super confused about both what to buy and when to buy.
After watching a certain stock skyrocket on an amazing run for more than a month, I started to experience a bout of FOMO (fear of missing out). I worried that I was going to miss out on the incredible returns, so I bought it right at its peak. Of course, the next week, the stock dropped like a hot potato. My FOMO got the best of me. 🤦
When the market was up, I was ecstatic from seeing my investments go up. However, when my stocks dropped, I got scared. Like most people, I worried that they would keep going down and I would lose my money. So, I decided to sell some of my shares… only to regret my decision the next day or week when the prices went back up. 🤦
After going through these experiences of buying high and selling low, I’ve realized that the “buy and hold” approach is much more suitable for me… and my stress level.
What were your financial wins and losses of 2017? What financial lessons did you learn?