Do any of you adults know WTF you're doing?

As dysfunctional as my parents were, it's threads like this that make me feel thankful for what did manage to teach me as I was growing up.  My father wasn't always a great person and was often a terrible husband, but he wasn't a bad father.  And my mother did a decent job as well, despite the difficulties we had while I was growing up.

When I got my first job at 16 and then had to do my taxes the following year, my mother basically made me do it myself.  I was a high school student with barely a few thousand in gross income, so the 1040EZ was fine. I hemmed and hawed about it, and probably asked her a few questions (my father has literally zero financial ability, so my mother made sure the bills got paid) but in the end, I filled it out, mailed it and some time later got a nominal refund check.  I've done my own taxes ever since for the last 33 years. Likewise, she taught me how to balance a checkbook. 

I went grocery shopping with my mother often as a kid. She would give me coupons for items to go find and bring back to the cart while she bought items that needed more hands-on choosing.  I might have been 10 when she did this.  It gave me something to do rather than hanging off the cart asking when we would be done.

She made me start doing my own laundry when I was 12. 

There were many other of these little "life skills" things they taught me do. Sometimes in the form of chores. Other times just in telling me what they were doing as I was underfoot. 

I had a Home Economics class for one quarter during three years of middle school. I have vague memories of those classes, although by that point much of what they were teaching had already been taught to me by my parents or grandparents. 

To answer the question here... No, I have no clue what I'm doing. I'm not sure anyone ever does. The only advice that I'll give that I will 100% hang my hat on was taught to me by my father, and him from his father: "Live below your means and keep your break-even low." 

Put in another way: "Plan for the worst, hope for the best"

Every day in my job I'm afraid I'm going to get fired. Every day I wonder what they were doing hiring ME for THIS role. And I think that a ton of people feel that way, honestly. Around the house, I can't believe that we bought a berkeleying house! We need to replace the water heater 2 years ago, we need to replace the roof soon, we're running window unit AC's because we need to replace the central AC and it just isn't in the budget right now. But we're doing OK financially, because we live below our means - and sometimes that means patching things instead of fixing them, like putting in window AC's instead of fixing the Central AC. 

Now we're raising a kid. What were we thinking? Oh, and sometimes life throws you a gigantic curve that nails you in the nuts that you can't even plan on in a worst-case scenario situation. 

Ironically, one area where I do feel somewhat confident is managing finances assuming that there is a steady income coming in.  

Another post coming for my manifesto on that. 

Someday, I want to teach a class on personal finance. Here are some of the topics I would cover:

• How much college costs
  • Rent
  • Tuition
  • Room and Board
  • Fun stuff
  • Other stuff
• How to pay for college
  • Save during middle/high school
  • Parental help, if possible
  • Jobs in college
  • Loans
  • Is college the best path for you?
  • Is this major worth it?
• Getting a job
  • What kind of job?
  • What career aspects does it have
  • What training is necessary?
• Loans
  • Student loans, and what they mean and how they impact you
  • Car loans, why they're good, and why they're bad
  • Personal loans
  • Credit Cards
  • Mortgages
    • Rent vs Buy, and everything that goes with it
• Debt - A Powerful and Dangerous Tool
  • Empires have been built using many tools, but they can be destroyed with just one
• Retirement Savings - see below
• Healthcare costs
  • This is the one where I'm completely in over my head, other than to fun an HSA.

 Retirement savings

• 401k – Employer-provided defined contribution plan (403b is included in this as well – same rules for any conversion at our level).
  • 2020 limit is $19,500 for those under 50. If you’re over 50, there is a catchup provision that lets you contribute another $6.5k.
  • This is open to anybody that has it through their employer. There are income limitations for highly compensated employees, but that is close to $300k – well above my paygrade
  • Traditionally this will be a pre-tax option, but I’ve now had a Roth (after tax) option for ¾ employers I’ve worked for. Unlike a Roth IRA, there are no income limitations (outside of the highly compensated employee limitations) for contributing to the Roth.
  • Often have a match. In my case, the match goes into whatever account I’m saving to – Roth or Traditional
  • Usually you have limited fund options that you can pick, determined by your employer. Most of them are some sort of target date fund.
• IRA – Individual Retirement Plan. You do this on your own.
  • 2020 limit is $6,000, with an additional $1,000 catchup if you’re over 50
  • Can be Roth or Traditional, or both, but total contribution limit is $6k
  • Contributions to the Roth IRA can be distributed without penalty after 5 years.
  • Depending on the institution you hold it at, it can be in stocks, bonds, mutual funds, etc. For instance, I have one with Vanguard that is all in VTSAX and another with Fidelity that is in individual stocks.
• HSA – Health Savings Account, offered with some health insurance plans
  • $3,550 limit for an individual and $7,100 for a family. As far as I know, it is all pre-tax. You can have it in cash, or in stocks/bonds/mutual funds (i.e. I manage mine through TD Ameritrade)
  • It is the BEST retirement savings account available. Why? Because you can reduce your income with the pre-tax, enjoy tax free growth, but also get tax free distributions – IF you plan it right
    • Designed for health expenses – eyeglasses, dental, doctor visits, hospital visits, prescription meds, along with a bunch of other stuff. The idea is that you use it to pay for those things as they occur, great! That was tax free. But there is currently no expiration date to those distributions. So if I pay for medical bills in 2020 for $5,000, I can pay for them in cash, keep all the receipts (and digital copies too), and in 2025 say that something happens and I need $5k quick – I can then use the receipts from 2020 to get a $5,000 distribution. I doubt this loophole gets fixed, since it is probably a very small user group using it. The contribution wasn’t taxed, the growth wasn’t taxed, the distribution wasn’t taxed. And if you don’t use the loophole and just take it now, it is still a huge tax advantage.
    • After you turn 65, it acts like a traditional IRA. So the distribution will be taxed as income, but you can take it for anything, even if it isn’t health related
• Taxable Brokerage account
  • Buy stocks and mutual funds. Using already taxed income, any growth will be taxed as income for holdings under a year and 15% for over a year.

There are also other options but the main ones that most people will have/need are the 401k, IRA, HSA, and taxable brokerage accounts. With that, I present the world famous mtn savings order (I probably lifted this from Mr Money Mustache or ProDarwin or dCulberson here) (life insurance is not counted in this as I view it as an expense, not savings):

1. Emergency fund to your satisfaction. Could be $1,000 cash, could be $100,000 cash, depends on your station in life
2. 401k up to employer match
3. Pay off any debts with high interest rates (~6% and greater?)
4. Max HSA – even if you’re a healthy 22 year old (obviously ignore this if you’re still on your parents insurance)
5. Depending on which has the lower fees
   1. Max ROTH 401k*
   2. Max ROTH IRA*
6. Max traditional 401k if Roth 401k is not offered
7. Pay off debts with low interest rates (above 3%, below my 3^rd point)
8. Invest in taxable account/house
9. Fishing boats, guitars, cars, tools, stereos,
10. Pay off extremely low interest rate loans.

*You can go either way with the Roth vs. Traditional, but I believe that taxes will only go up in the future, even the 22% and 24% tax brackets are probably lower than what I think we’ll see in the future (I could be completely wrong). For most people, I think the Roth is the better option, or traditional until your taxable income drops a tax bracket… but as always, do the math for yourself.

For 95% of people, the 401k, IRA, and HSA should be invested in an SP500 or total stock market index fund (I prefer Total Stock Market). It is the simple button, and more often than not, the best bet. VTSAX.

For anyone who is trying to figure this stuff out and says “I can’t save anywhere close to that on my salary”… well, I’d challenge them by looking at their daily expenditures. A penny saved is more than a penny earned. The ubiquitous coffee example:

• Let’s say that you spend $2 on a coffee, 250 days a year. $500 a year in coffee. For a 25 year old planning to retire at 67, that means that they need to save $54.20 a year to be in coffee for the rest of their life after retirement. So their annual cost for coffee is $554.20.
• Now let’s say that they kick the Starbucks habit, and brew it at home using Folgers. That cup of coffee is going to cost, at most, about $0.40. Annual cost is about $100, and they'll need to save about $10.84 annually to be in coffee for the rest of their life. So their annual cost is $110.84.
• Seems pretty simple that the savings is $433.36 a year, right? Well, yeah... But the point here that is missed is that you aren't spending that this year, and you aren't spending it EVER. So not only are you spending less, you NEED less. So you have more, but need less. If you invest that $433.36 every year from 25 to 67, when you retire you have an extra $100k, and an extra $4,000 a year to buy... Well, coffee, I guess. But you don't need that coffee, so why not a couple of guided fishing trips, every year of your retirement? Just from switching from Starbucks to Folgers.

Obviously not everyone gets coffee every day and there are often other things that get in the way (medical debt, student loans, rent that is out of control, etc.), but do a pull of every dollar you’ve spent using your credit card or debit card over the last year. How much of it was necessary?

I've given up on being responsible.

Tried it, bought a practice right before the great recession, got burned by Wells Fargo on my practice loan and lost it all.

I'm crowding 65, minimal retirement savings, rented house, still paying student loans, one kid in middle school, one in high school. Cashed out their pre-paid college funds to pay rent after the practice closed.

I've been poor most of my life, so at least I'm used to it.

Bankruptcy won't be over until 2022.

Job pays well, hoping to stay healthy and employable for at least another seven years. Cash only purchases from here on. Don't expect to ever own another home.

I'm not giving up my miata, though. Autocross is the only thing I do outside of work.

Planning to live forever. So far, so good.

In reply to frenchyd :

Which is why I said it depends on how much the principle is and that he has the run the numbers. You really don't like to read an entire post, do you?

mtn (Forum Supporter) said:

SVreX (Forum Supporter) said:

Regarding your mortgage...

Its likely that refinancing will not be much of an improvement over just increasing your monthly payments. 
 

Pay a few hundred dollars extra per month, and get it over with. 

Depends - have you seen how low 15 year refi's are right now?

Hell, I'm in the middle of refinancing a 30 year at 2.75%! Actual APY is just a tick over 3.

I have. I am refinancing right now at 2.5%. 
 

But don't forget the closing costs and origination fees. That will bump the principle up by $3000-5000. 
 

In my case the payment jumps by $330 per month. If I paid the same $330 extra toward principle on my existing 30 year,  I'd knock 11 years off the length, and $47,000 in interest. 
 

That would get me pretty close to the 15 year. 
 

It's simple numbers. I'm as dumb as anyone else, but these are really easy questions to ask a mortgage broker. 

In reply to mtn (Forum Supporter) :

take your $1 saved at 25 and compound the interest on it, and then add in the tax benefits of the standard 401k. That one dollar is like $16 of value 40 years later. This is using after inflation growth rate of 7%

So, a penny saved can actually be more like 17 pennies earned. Every $2 coffee you skip is tossing $35 to yourself 40 years later. I know I'm preaching to the choir here. 

Ian F (Forum Supporter) said:

FWIW, paying a little more towards the principle with each payment can really knock months and even years off your end date.

This is a very, very good point.

If you're not really sure about being able to swing a 15- or 20- year mortgage, another option is to refinance for 30 years IF - and only if - you want to get the cash out.  Otherwise, 3.5% is pretty good and I would leave it alone.  You can do this with your existing mortgage, too:

Look at the amortization table and see how much of each payment goes to principal.  Add that amount on top of your regular payment every month - in the beginning that won't be much.  But every bit of extra principal you add now knocks interest off the back end.  That extra add will edge higher with each payment, but theoretically your income will go up year by year, too.  And if the crap hits the fan and you have a tight month, you can skip the extra without jeopardizing your regular payment.

Doing that let us pay our 30 year mortgage almost completely off in about 18 years.  And by my calculations, we saved about $20,000 in interest.

I have little to contribute, 29 years and a college dropout. I did go to school on full ride and never owed a penny other than parking tickets. Where it all went wrong is a story I won't get into here, but I was in the same boat, I didn't know what I wanted to do. The major I chose was not right for me, and my scholarship was tied to it so I couldn't switch easily. I'm lucky I got out without debt.

A friend of mine finished his second degree just in time for COVID. Now he's unemployed, even though he had a good job before. I also have a friend who finished a second degree online and did get a good job.

Like others have said, it's a gamble. Theres always second chances though, you don't have to get it "right" the first time.

I was raised to be an action hero. Literally, my dad was all about training me. I'm a marksman, tactician, racecar driver, public speaker. Im completely out of my area of expertise doing anything beurocratic (cant even spell it well enough to get autocorrect to take over lol). I'm not made for the world of Human Resources and google classroom. 

In reply to mtn (Forum Supporter) :

We should seriously make one of those you tube instructional series about how to adult to do just that.  Teach a class.  Like one of those "Masterclass" series but with some normal person not a celebrity.

mtn (Forum Supporter) said:

1. Emergency fund to your satisfaction. Could be $1,000 cash, could be $100,000 cash, depends on your station in life
2. 401k up to employer match
3. Pay off any debts with high interest rates (~6% and greater?)
4. Max HSA – even if you’re a healthy 22 year old (obviously ignore this if you’re still on your parents insurance)
5. Depending on which has the lower fees
   1. Max ROTH 401k*
   2. Max ROTH IRA*
6. Max traditional 401k if Roth 401k is not offered
7. Pay off debts with low interest rates (above 3%, below my 3^rd point)
8. Invest in taxable account/house
9. Fishing boats, guitars, cars, tools, stereos,
10. Pay off extremely low interest rate loans.

Good list my comments:

a) switch 7 and 8

b) taxable account and house are 2 very very different things

And yes, the actual # you use for the cutoff can vary on what level of risk is comfortable for you.  Honestly, mortgage, debts under 3%, etc. all fall under the "never pay anything more than the bare minimum" column for me.  Taxable investments have no limit, so if I have extra cash I do want to invest, there is never a situation where I would make it that far down the list.

In reply to Mazdax605 :

The Goal of a mortgage, any debt. Is to get it paid off as fast as possible at the lowest cost possible. 
If you have only 12 years left on your mortgage, you are paying more towards the principle than to the interest. If you start all over you'll be paying more towards the interest than the principle. 
So it's not just the rate of the mortgage plus the cost of the mortgage. It's also how much of your payment applies to the principle.  ( with some attention paid to IRS  deductibility. )  

I'll assume you took out a 30 year mortgage. ( if  a 15 then forget everything and just get the lowest rate at the least cost. Don't be surprised if a broker can get you a better deal than you can get on your own. 

If you are 18 years into a 30 year mortgage  the current interest rates on a 15 year mortgage are around 2&1/2%  Use  your VA qualification and save on closing costs.   If you need a jumbo Loan you can use your VA qualification to escape the hold banks are putting on Jumbo's.  
 

But a 15 year loan at 2&1/2% even a 50% saving over the rate you are now paying has costs that may put you behind the curve.  
 

With the current rate of inflation rates have very little room to go down.  They will only drop if the economy  really slows down worse than it has. Inflation drops to negative numbers, and recession becomes a reality. ( Technically I think we are very close to a recession right now) 

 

ProDarwin said:

mtn (Forum Supporter) said:

1. Emergency fund to your satisfaction. Could be $1,000 cash, could be $100,000 cash, depends on your station in life
2. 401k up to employer match
3. Pay off any debts with high interest rates (~6% and greater?)
4. Max HSA – even if you’re a healthy 22 year old (obviously ignore this if you’re still on your parents insurance)
5. Depending on which has the lower fees
   1. Max ROTH 401k*
   2. Max ROTH IRA*
6. Max traditional 401k if Roth 401k is not offered
7. Pay off debts with low interest rates (above 3%, below my 3^rd point)
8. Invest in taxable account/house
9. Fishing boats, guitars, cars, tools, stereos,
10. Pay off extremely low interest rate loans.

Good list my comments:

a) switch 7 and 8

b) taxable account and house are 2 very very different things

And yes, the actual # you use for the cutoff can vary on what level of risk is comfortable for you.  Honestly, mortgage, debts under 3%, etc. all fall under the "never pay anything more than the bare minimum" column for me.  Taxable investments have no limit, so if I have extra cash I do want to invest, there is never a situation where I would make it that far down the list.

We're getting into the nit-picky stuff at this point, but I love it.

You're right that taxable account and the home are different things, and they should be separated.

I'll argue that debts over 3% that aren't your mortgage are probably not an investment, and have the power to sink you should it all turn upside down, and by the time you get to this point (you've maxed your IRA, 401k, and HSA, along with your spouses), you're relatively high income. For me, the only reason that I'm in any taxable accounts right now is that I get a 25% match on my ESPP - that, and it also makes up some of my emergency fund (not recommended for everyone). 

mtn (Forum Supporter) said:

I'll argue that debts over 3% that aren't your mortgage are probably not an investment

The debts may not have been started as an investment, but early payoff is :)

Edit: Response to initial question... No!! This year especially has been facing a load of new situations and trying to figure out how to react to preserve sanity! Lots and lots of research/googling is usually my answer, but only because that usually gets me enough conflicting information to get frustrated and make a call. We've cancelled a wedding, rescheduled a wedding, ended up getting married with just families there months before our rescheduled date because.. it felt like the right thing?? There's no guide, we just kinda talk through options and go with what seems like the most right thing to do based on our experiences so far.

Finances are no different?? There are more structured opinions/"guides" to follow than for all the rest, though.

I doubt I'll have a whole lot to add here, other than much of what i have learned/begun practicing follow with mtn's post above. Very fortunately, I grew up with parents who were each financially savvy, and practiced (and talked about) their habits/reasoning with us from our teens on. Also fortunate, my wife and I have great jobs that allow us the opportunity to plan for how we'll spend/save our money. Our salaries at work were cut substantially (will come back post-COVID), so we have been seeing how low we can get and keep our monthly expenses now so that we can maximize savings when our income does come back up. 

We don't have cable, and cross-shopped internet providers heavily to find the cheapest/best. This year I am going to cross-shop our home/auto insurance and see if we can bundle to knock off costs there - I have also read how sometimes getting a 2nd quote will lead your current provider to drop rates for customer retention (if switching sounds like a hassle). 

We are back to planning meals - at least for a week, sometimes 2. By only buying the groceries we need for planned meals (and a few snacks, chips/salsa), our grocery bill drops tremendously. I think most here are pretty true to form cheap with cars/payments, we're no exception. I am driving my 20yr old Expedition. 

With our monthly excess, we have decided to save ~3 months worth of living expenses as an Emergency Fund that stays untouched. I recently read about Money Mutual Accounts, which we will likely look into for our 3 month savings - it should allow for a higher interest rate without introducing the risk of having money in an investment account that follow the market. 

We have our Employer 401k's match maxed out, and don't contribute beyond that. I have recently begun contributing to HSA as well (through work). Both of these are money we never see/get to choose how to use, which is good.  After that, credit cards come first. The Interest rate can make even small balances hard to get out from under if/when they carry through. You will also see your credit score increase pretty significantly when you clear the balance (happened to me, anyway). We pay student loans next, and are hoping to contribute more and more to that as it's the next highest interest rate. 

We are happily investing in VTI as well (Vanguard  ETF that follows the market, learned about it from someone here), which has already been a great source of growth in the ~3 months we've been contributing to it. 

We're in a 1920 house, so it is also in constant need of updates - we try to plan by priority (can we live with it like it is) and how much value it adds to the house (vs. actual doll-hairs spent). Like everything else, every $ spent on the house could have been invested/saved which would let it grow further.

The name of the game with Finance, as with any big car project, is Goal Setting and Research. We probably spend 2-3 hours a week actively managing finances/looking at our best options, reading articles and online opinions, and discussing what we want our future to look like financially (New car next year? What about a trip in 2 years? When do we think we'll outgrow the house we're in? Can we afford a new AC system if ours goes out, and if so do we want that to come from emergency fund or can we pull from investments?). Starting with some money always helps you find/make more money, but it does take planning, thoughtfulness, and a common goal/set of goals as a household. 

One comment of mtn's that I have to bring up, because it guided my wife's college plan and helped create the life situation we're in now:

How to pay for college

• Save during middle/high school
• Parental help, if possible
• Jobs in college
• Loans (addition mine - you don't have to take the full amount they give you, and can take literal years off your repayments if you don't)
• Is college the best path for you?
• Is this major worth it? (addition mine - Getting a degree in a field that pays well is a godsend when thinking about the future. There is often no need for a college degree, and skipping it can give your kid the opportunity to spend enough years developing a competency in a field to out-earn low-paying college degrees as a 22yr old. The earlier they earn money (and aren't spending it on loans) and put it to work in investment/retirement accounts the more that money will grow by the time they want to retire.)

Carbon (Forum Supporter) said:

I was raised to be an action hero. Literally, my dad was all about training me. I'm a marksman, tactician, racecar driver, public speaker. Im completely out of my area of expertise doing anything beurocratic (cant even spell it well enough to get autocorrect to take over lol). I'm not made for the world of Human Resources and google classroom. 

Yeah, my childhood on a farm and young adult years in the army have prepared me for.....the fall of civilization.   My skills would be so much more useful in TWD than they are climbing a corporate ladder.

I suspect that's why escapism entertainment is so popular.  

This is getting away from the question of do we know WTF we're doing, but here are two simple phrases that should NOT be a source of shame, and should be said when necessary: 

1. I cannot afford it
2. It isn't in the budget

ProDarwin said:

mtn (Forum Supporter) said:

I'll argue that debts over 3% that aren't your mortgage are probably not an investment

The debts may not have been started as an investment, but early payoff is :)

And it's very easy to argue that a mortgage isn't an investment, outside of a few real estate markets. Once you factor in all the other costs, you're retirement account would look much better renting well below your means and investing the insurance, repair and maintenance, costs, etc. 

Ian F (Forum Supporter) said:

In reply to frenchyd :

Which is why I said it depends on how much the principle is and that he has the run the numbers. You really don't like to read an entire post, do you?

Yep. The desire to post either personal experience and claim it pertains to all, or just patently stating the obvious is strong.

In reality, as you, I and many others mentioned, speaking to a mortgage broker and then a fiduciary and determining your personal goals is the only way to come to an informed answer. 

We went over the math for high school jobs with my kids. Many, if not most, schools will offer in state tuition to out of state kids that meet certain GPA/test marks. The difference between in state and out of state tuition at the school my daughter is going to is $13k a year. So she's getting the equivalent of a $52k discount for focusing and doing well in school. Bagging groceries and getting B's doesn't save up $52k. They could have stayed in state or even gone to community college, but by doing things the way they did they had a much wider array of opportunities education wise. Instead of picking from the best school in the state for her major, my daughter was able to pick from the best schools in the country for the same cost. The world is different than when I went to college and MUCH different than when my parents did. Giving my kids advice based on my experience or the same advice my parents gave me instead of the reality of today is giving bad advice. 

In reply to mazdeuce - Seth :

True, but it sounds like your daughter is fairly driven and knows what she wants out of college.  Even if she ends up changing her mind halfway through like so many do, it doesn't seem like she'll be going there to "find herself".  According to the OP, his son doesn't know what he wants to do. Going to college to figure that out can be rather expensive.

I turn 37 later this year, and I'm pretty firmly in the "not much of an adult camp". Everyone had to learn their own lessons though, so I feel like a fair majority of people are feeling their way through life much like I am (at least that's what I like to tell myself so I don't feel terrible about being a crappy adulty)

Financially, we've done fairly well, but how much of that comes down to good luck vs good management is very open to debate.

Probably the biggest challenges facing my partner and I from here is finding new career/employment/purpose directions and trying to make sure that we don't throw away the position we've been able to get to. Other than that, the whole "do we or don't we have kids" thing will have to be permanently settled in the fairly short future.

Outside of that, there's plenty of life that is beyond control, so I just tend to go along for the ride and see what happens next and hope like hell there's a way to deal with things as they happen.

Why don't we know what we're doing?  The rules of the game keep changing.  

1987 - buy a house with 20% down and a fixed 30 year mortgage.  Everyone congratulated us that we got a 9.5% loan. What a great rate.  

2010 (I think) - coworker buys a foreclosure house with 5% down, refinances 6 months later, real estate dad helps, gets a better appraisal where it now has more equity over 20% so payment goes down due to not paying that mortgage insurance.  

I don't have a berkeleying clue. It's weird.  I've had responsible full time jobs since I was 14. I've managed businesses, made payrolls, and manage transportation in one of the busiest areas of one of the busiest cities but I clearly cannot adult.  I had been getting the same $100/week allowance since I started at transit almost 20 years ago and if I wanted more Jodi would tell me if we could afford it or not. I paid no bills, handled nothing with banking, just went to work and took care of the house. Thank God she left a cheat sheet in our lockbox with all the important papers so I know somewhat what to do. I still really have no grasp of what I'm doing.