Thanksgiving: A Personal Finance Story (Chap. 4)

Baked Pie

Authors’ note:

Explaining accounting and finance can be pretty dull. That’s a problem, if you need to learn accounting or finance.

On a plane from St. Louis to Seattle, I decided to try and fix the problem. What if I could wrap some accounting concepts inside of a quirky (funny?) short story? My goal here is to present some information, and then add another step in the story. So, when you get to the end, you’ve been reminded of an accounting concept- but you’ve received the information in a light-hearted way.

Anyway, that’s the goal here. The stories are written in chapter order, so that there is a logical flow for the reader. Enjoy!

Every family is dysfunctional- especially after a Presidential election.

Personal finance ebook: Sample chapters here

Greg chuckled to himself as he walked into the coffee shop. It was the Sunday after Thanksgiving, and the shop was crowded. Lots of families spending a little more time together before heading their separate ways after the holiday. “So, how was Thanksgiving?” Tony took a seat across from Greg and smiled. “Did you manage to avoid talking about the election?”

Greg shrugged as he adding sugar to his coffee. “Yeah- that part was fine. We did have the annual guessing game to decide if some family members would show up or not. This year, two of the four did show up for Thanksgiving dinner.”

He pulled a folder out of his backpack. “I’ve got the stuff for the Paperless Products 401(k) plan. They handed this out after a teleconference on contributions for this year.” Greg was a computer engineer for Paperless Products, a software company. After several years of growing sales and profits, the firm was offering a 401(k) to its workforce.

Tony opened up the folder. “You know, another thing about Thanksgiving. I don’t get pumpkin cheesecake. It should be either pumpkin pie or cheesecake- not both.” He flipped through the material. “Ok- we talked before about how your investments into a 401(k) are with pre-tax dollars.” He took out a pen and flipped the folder over. “If you have $100 in gross pay that you’d like to invest in the 401(k), all $100 are invested. You earn a rate of return on your 401(k), and reinvest earnings.”

He thought for a minute. “Assume that the $100 is invested and becomes $300 in 20 years. None of those dollars have been taxed yet. So, when you start taking money out for retirement, the entire $300 balance is taxed as you make withdrawals.” On the table next to them, Tony noticed a front page story about Black Friday shopping crowds. He picked up the paper. “They could use the same news story every year- is anyone surprised or even interested in Black Friday crowds at the mall?” He laughed. “Anyway, that’s how the taxation works. What else do you need answers on?”

Click Here For Free Report: 10 Great Resources For Personal Finance

Greg reached across the table for the folder. Oh, yeah- they talked about a 5% match on my 401(k) contributions. I wasn’t sure what that meant.” Tony leaned back. “Actually, a company match makes this investment even more attractive, because you can accumulate a bigger account balance even faster. Think about that $100 investment example. A company match means that the firm will invest an additional $5, so your total investment is $105.” He took a bite of his bagel. “If you don’t invest in your 401(k) and get the company matching dollars, you’re leaving money on the table. That extra 5% can make a huge difference between now and retirement.”

Greg and Tony got up to leave the table as “It’s beginning to look a lot like Christmas” played in the coffee shop. Just how many Christmas-only radio stations does one town need?

As always, this information is for educational purposes only. Consult a CPA or a financial advisor for more information.

Action Step To Consider:

Check and see if your company’s retirement plan offers a company match. 

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) http://www.accountingaccidentally.com/

(you tube channel) kenboydstl

Image:

(Visited 64 times, 1 visits today)

Leave a Reply

Your email address will not be published. Required fields are marked *