As a child, I had mixed feelings about our detraction from Christmas. All of my school friends took part in the pomp and circumstance. In class, we sang Christmas carols, our teachers gave us candy canes, and we colored pictures of Rudolph the Red-Nosed Reindeer and Frosty the Snowman. (That’s when I learned the utility of the white-colored crayon.) My cousins openly celebrated the holiday and even gave me presents. I had always felt awkward that my family didn’t reciprocate with presents for them. As I got older, I became more comfortable with my lack of the Christmas spirit. From a financial standpoint, I’m grateful that I don’t celebrate it. I can’t imagine working my way through a crowded mall just to buy gifts for 2 parents, 5 siblings, their spouses, and 12 nephews and nieces, all of whom would probably discard them within a few weeks; or preparing pounds of food and decorating a tree with a hodgepodge of light ornaments for a big holiday party; or sending out 100 Christmas cards to friends and family who would ultimately tuck them in a box loaded with cards from holidays of yore.

Where Christmas does have an effect on me is a retrospective of the previous 12 months and an introspective on past behaviors. What were my successes this year? What were my challenges, and am I still facing them? Did I do anything that might have hurt someone else, and is there a way I can rectify it? Was I the recipient of bad feelings, and can I learn to let go? Christmas also obliges me to ruminate on friendships and family connections, how important they are every day of the year, and how difficult it is sometimes to maintain them meaningfully.

As I write this post, I realize that I probably do celebrate Christmas, just not in the traditional gift-giving or religious sense. It’s a quieter, more reflective day for me, and that is the way I choose to honor this holiday.

I remember the fear and ultimate pride of completing, painstakingly line by line, my first federal and California tax returns in 1998. This was the year that I took advantage of the newest provisions of the tax code- the Lifetime Learning Credit and the Roth IRA. Not surprisingly, my interest in tax planning strategies also took shape at that time. The year 2000 served as my initiation into the unfortunate words “balance due.” I performed a summer teaching stint that year, not realizing I would be considered an independent contractor, i.e. 1099-MISC, and therefore, responsible for the income and FICA taxes. I owed about $1700 in combined federal and state taxes. In 2001, I endured the agony of completing three tax returns due to my move from California to Massachusetts. In 2002, I prepared my first state return via the telephone, not so much because I thought it would be easier than paper filing, but because I simply wanted to try something innovative. In 2003, I took the student loan interest deduction for the last time, because that was the year I made the psychologically satisfying lump sum payment to pay off the original $15,000 loan. Over the years, as attested by my Schedule D forms, I dabbled in individual securities outside of my retirement accounts, only to find myself selling too early, often at a loss.

Simply by reviewing these old tax returns, I learned plenty about my financial habits, successes, and foibles. There is no such thing as perfection in the world of tax planning, let alone financial planning. Perhaps the greatest insight that I gained from this experience is the never-ending process of learning, relearning, adapting, and analyzing. Incidentally, 2006, the last year that I paper filed my returns, was also the year I took up yoga. As I also reminisce about my yoga practice over the last five years, I can’t help but wax nostalgic about the evolution of my financial maturity.

While I would love to have been part of this experiment (I’ve always imagined what I would look like with more wrinkles), I suppose I didn’t need it. In my line of work, I already counsel seniors. Many of them live within a few hundred dollars of the federal poverty level. They access a variety of public assistance programs: food stamps, fuel assistance, Medicaid, a welfare program called EAEDC (Emergency Aid to Elders, Disabled, and Children), and of course, a small amount of Social Security. Some of them still have mortgages, in spite of a low income, and are having a difficult time making the monthly payments. Whenever I speak with one of them face-to-face across my office desk, I can’t help but whisper to myself, “I don’t ever want to live like them when I get to their age.”

To be sure, there are low-income seniors who feel that they live just fine. But I don’t want to wait thirty years to find out whether living poor is feasible, or even tolerable. So I save religiously and allocate funds into my retirement accounts. I take yoga with the hope that I can still tie my shoes and walk straight at age 70. Granted, one’s world can take a catastrophic turn at any moment, no matter how meticulous the planning. My point is that I’m trying to increase my probability of living a lifestyle that I could enjoy at an old age. To be young and poor may be acceptable, because you have time to build a strong financial future. It may even be romantic- think struggling idealistic artists in the opera La Boheme. I’m not so sure many people would say the same thing about being old and poor.

People in my generation, Gen X, and younger don’t need to see images of themselves at 60 years old. They can simply observe how the elders in their lives- their grandparents, perhaps parents- are living today, and then ask “Do I want to live like them?” Their answers to that question should inform them about saving for the people they will eventually become.

It’s not easy for me to make friends. My shyness tends to get in the way. Over the years, I’ve tried various methods to force myself to be surrounded by people (and then maybe later, talk to them). I joined Scrabble groups and other game night groups. I took up the gym and, later, became a member of a yoga studio. One time, I attended an Ethiopian dinner night for singles. I even answered Craigslist activity postings. From these attempts, I have secured a healthy, albeit small, group of friends who have made my life that much more interesting.

Recently, my best friend in Boston told me that he and his partner might move to California, perhaps as early as next year. As devastated as I was to hear the news, in the back of my mind, I knew that I couldn’t rely solely on him for all of my social needs. I could join or rejoin activity groups, as I had successfully done in the past. But lately, I’ve applied different tactics. I reconnected with a few old friends, including one who is now my de facto yoga buddy. I have become close friends with a co-worker, with whom I share my love of the performing arts. But my most daring strategy, and perhaps the scariest one for an introvert like me, is simply saying ‘hello’ to people and introducing myself. I did just that today with a fellow yogi whom I have seen umpteen times since last summer.

Three of my friends, in their 50s, 60s, and 70s respectively, have remarked about how much harder it is to make new friends at their ages. That may be true, for all I know. But I am determined to fight against those odds. I used to think of retirement in terms of Social Security, IRAs and 401(k)s, post-career work or volunteering, and health care. I’m adding friendships to that list.

In the world of finance, the word ‘diversification’ conjures up colorful images of pie graphs with sections titled ‘large cap stocks,’ ‘small cap stocks,’ ‘international stocks,’ ‘U.S. bonds,’ ‘international bonds,’ ‘commodities,’ ‘real estate,’ and ‘cash,’ to name a select few. (The ever-growing list can expand for miles, I imagine.) The whole point of carving up the pie into so many asset classes is to insure us against the risk that any one (or two or three) classes will suffer a strong decline in value.

In the short 13 years that I’ve worked to make a living, I learned the value that diversification in skills and knowledge can bring. At any given moment in time, I could be playing the role of financial counselor, tax advisor, math professor, freelance editor, nonprofit volunteer, or any combination of them. There are times when I wish I had just one job. But the memory of being laid off after nearly 7 years working for one company has branded into my skin the benefits of employment diversity.

Many people work several jobs just to make ends meet. Perhaps they can’t find a full-time job due to the tight job market. I empathize with them because I know how challenging it can be to juggle several responsibilities on top of trying to maintain a semblance of a social or family life. The physical demands can also be draining. At the same time, I would remind them of the tools, whether a piece of software or a communication skill, that they are mastering. (Perhaps that ability to create a website using WordPress will come in handy one day when you’re looking for that full-time job.) And I think Leonardo da Vinci, the great polymath of the Rennaisance period, would have bestowed his blessing.

But the rational, financially responsible side of my brain created multiple roadblocks. Would I be able to find a new job in L.A., where the unemployment rate stood above the national average? Would I be able to pay the mortgage on my Boston home? What if our relationship doesn’t work out, and I’m left still jobless? What if he lost his job and couldn’t support the both of us?

In the end, I turned my back from this dream and decided to continue my stay in Boston. From a practical, financial point of view, I think I made the right decision. Yet the emotional regrets linger. A close friend of mine advised me to follow my heart the next time an opportunity like that were to present itself again. Everything else will work itself out, he assured me. But is it really that simple? I suppose it would be if you’re very young and don’t carry a lot of responsibilities. But as many of us get older, we become responsible for someone or something else. We may have reached a point in our careers when starting over may not be the wisest choice at the present moment.

The first time I heard the famous phrase “the only constant is change,” I was in my very second yoga class. No two yoga experiences, like no two snowflakes, are identical. For sure, some changes are outside of our control. But the ones that are within our control can sometimes be the most difficult to direct. Do we resist change out of necessity or convenience, or do we take our chances in spite of the potential setbacks? For me, at least, the answer is not always clear.

Hi Uncle Jr.,
How are you? I hope you’re keeping warm there in Boston! I had a question for you, could you educate me on what is the difference between a Traditional IRA and a Roth IRA? Considering I only make less than $20,000 a year, what should you suggest?

Always,
Reds
********
Hi Reds,

I hope all is well in California. The main difference between a Traditional IRA and a Roth IRA is this: When you contribute to a Traditional IRA, you can take a tax deduction for the contribution (if your income is less than a certain amount), but when you take out the money at retirement (age 59.5 or later), all of it is taxable income. When you contribute to a Roth IRA, you cannot take a tax deduction for the contribution, but when you take out the money at retirement, nothing is taxable. For someone in your age and income level, I think the best option is a Roth IRA. The most you can contribute for the year is $5000.

Think of an IRA as a vehicle. It can’t go anywhere unless there is a driver. Think of the investment you choose as the driver. You can choose a very conservative investment- it’s very safe, but you probably won’t earn much money. Or you could choose a very risky investment- it could earn you a lot, but you could also lose a lot. Or you could choose something in between. Most people choose mutual funds, but there are so many different kinds of mutual funds. And understanding them takes another email.

I hope this helps. Let me know if you have any other questions. Start learning about IRAs and mutual funds, because the more you read, the more you’ll figure out all this financial stuff. When you’re ready to invest in an IRA, let me know and I can help you get set up.

Love,
Uncle Jr.

Humans that we are, we compare ourselves with friends, family, and strangers in many respects, including finances. We might feel envy toward the person with the iPad 2, the BMW, or the grand mansion with the adjoining swimming pool. Conversely, we might take a guilty pleasure in knowing that we have more money, more travel experiences, or more college degrees on the wall than our peers. I’ve resided on both ends of the inferior-superior complex spectrum, and I can say with near certainty that neither feeling is healthy.

That doesn’t mean, however, that it’s wrong to compare ourselves with others. (Again, we are human.) But perhaps we ought to reframe our intention of the comparison so that we can take stock of our weaknesses and strengths. For example, if you are in credit card debt, then the image of a friend who is debt-free may serve as motivation for you to work toward paying off your credit cards. If you are a successful business owner, then you may want to consider mentoring other would-be entrepreneurs. It’s this kind of comparison- the one that encourages us to improve our own lives and the lives of the people around us- that is the healthy kind.

I’m working on a yoga pose that has always been a challenge for me– the king pigeon. When I see yogis who seem to effortlessly connect their heads to their feet behind them, no longer do I feel pangs of envy or dejection. Instead, I become inspired by them to practice harder. If I ever reach the apex of the pose, then perhaps I, too, can serve as an inspiration for the next yogi.

I could write paragraphs about the different ways to bypass the penalty (health insurance premiums for unemployed workers, medical expenses in excess of 7.5% of AGI, total and permanent disability, substantially equal periodic payments, and the list goes on and on). I could also write about how the early distribution ordering rules of a Roth IRA (first contributions, then conversions, then earnings) can be used to avoid or mitigate the penalty. The Internal Revenue Code is replete with exceptions to the penalty tax, and I believe that this gives some people justification for taking early withdrawals.

At the end of the day, however, we need to understand that raiding our IRAs and 401(k)s before we retire defeats the purpose of these retirement plans. In exchange for the money, we will negate the compounding effect of investing, and we will have to start the accumulation process all over again, but this time with fewer years to catch up. These ramifications are much more serious than the immediate tax hit on the early withdrawals. In light of the difficult employment climate, perhaps we should focus greater attention on saving for emergencies. When an emergency does occur, we should then focus on both cutting back on expenses. We should consider assistance programs like food stamps, unemployment compensation, state-run health insurance, and fuel assistance, even if it means setting aside our pride. If we just do a little more planning, then perhaps we would be less likely to ask the question “How can I prevent the 10% penalty on early retirement withdrawals?”

Yes, I’m talking about those loud South African horns ubiquitous at FIFA soccer matches. At least that’s what I think were blasting along Boylston Street while I and a dozen other people were taking part in a yoga class four floors above. It was 10AM on Saturday, June 11th, and I had conveniently forgotten that a parade honoring the Boston Bruins, the new Stanley Cup winners, was taking shape  in the Back Bay area at that very same hour.

At the beginning of class, our yoga instructor Sarah informed us about her relationship with her beloved Boston and its sports-crazed fans. “We can’t fight them, so we might as well work with them,” she conceded as the noise level of the street below us heightened. So we practiced in earnest, flowing among a sea of downward dogs, navasanas, warriors, and side angle lunges. To my surprise, the annoying noise outside gradually converted into a background hum. I was aware of the boisterous activity below me, but I was not controlled by it.

The Internet, along with its technological accomplices- the smartphone, iPad- invite us to access an exponential amount of noise. We can check our investment portfolios every day or take a peek at the Dow Jones Industrial Average performance at any given moment. We can read numerous commentary from experts and laymen about their viewpoints on the stock market. Society refers to this phenomenon as “information overload,” but it is a psychedelic drug, really. One day, it can make us feel euphoric about our financial status; the next day, it can induce fear of the U.S. stock markets. We buy high, sell low, or freeze in trepidation.

I’ve learned, and relearned, to tune out the noise and focus on the long term. Stock markets may swing like a pendulum, taking investment portfolios along for the ride. I just need to stay disciplined and prudent in my investing habits. Thirteen years after I contributed my first $100 into an IRA, I am already seeing the fruits of my labor. If history has its way, I will be rewarded in a few more decades for staying the course.