Who here is good with money?

alfadriver wrote: With the same initial investment, what if you put that somewhere else to make a moderate amount of money? 20-30 years later, a good investment can lead to lots of money as well. in other words, do your math. If you can get a 10% return on a rental property (rent+capital vs. interest, maintenence, taxes, etc), you are doing well- far better than any investment. If you can only get 5%, you may want to look into different options.

We did the math when our old house had been sitting on the market for over a year, and a well bought rental definitely gets you better than 5% return. The problem for us was the neighborhood and the emotional investment I had in the house - I replaced everything with my two hands, that's not the kind of house you want to rent out!

The difference between selling versus renting was pretty significant. After 14 years, the house would have been paid off with the rental and still had a value of around $80,000 (depreciated due to wear). Selling the house right away would have netted us $24,600 cash after commissions, and so growing that at 5% per year would have us at around $47,700 after 14 years. Renting the house would have had us at $1,068/year net to cover expenses with (meaning take no income from it, just put that in an account to cover repairs) and then the full $80,000 in value paid for, so selling the house would have netted us close to $74,600 after commissions, etc. A difference of $26,900!

In reply to 93EXCivic:

By definition, emergency is for something that should happen very very infrequently. But can be devastating.

Putting money is a savings account to expect to use, well, hopefully never, you are losing money- since interest rates are less than inflation. You can put that into a CD or market following mutual fund- neither of which are easy to get out- and make money.

One must know where you put your money so that the value does not go down over time.

In reply to dculberson:

EXCELLENT math.

(5% was just a number thrown out, BTW- it's important to know the real numbers like you ran out)

Alfadriver: Yes, I misunderstood your first post. My apologies. Your clarification I agree with.

Now, go buy a superior Fiat and stop playing with Alfas.

ddavidv wrote: Alfadriver: Yes, I misunderstood your first post. My apologies. Your clarification I agree with. Now, go buy a superior Fiat and stop playing with Alfas.

I don't need Tony to Always Look For Another....

mguar brings up 401k's etc. Those are excellent tools to build up a retirement fund. The trick is to start early; even if you can only swing $10-$15 a week at age 20 or so, interest will work in your favor.

The way it's invested will be a personal decision, but the part that doesn't change is to have as long a time horizon as you can get. The 401k rules are specifically written to encourage long term planning, so if they seem draconian keep in mind the intent.

401's are currently not 'portable', i.e. if you change employers your new employer cannot contribute to the old employer's plan. In that case, you can either let the vested amount sit in that plan, or it can be rolled over into an IRA (individual retirement account) without tax penalty. The good thing about an IRA is that you can contribute to it regardless of employer. There is the question of contributing pre-tax dollars, for that you need to consult with the IRA management.

Not overly direct at all. In fact, I have done exactly what you mentioned: 75% of my 401's are now in a self directed IRA. I'm getting ready to move the last 25% this quarter coming up, that damn thing rollercoasters like you would not believe, and as you say the options in that fund family are limited. Having watched the trend over the last few years it tends to peak in October, then slide again.

The company match for many 401's dwindled to a minimum and in some cases disappeared in the last economic twitch which makes them not as attractive as they were. It's still not a bad deal even if it's only the employee's contributions, the trick is the long time horizon and forgetting it's there, i.e. don't tap it for anything that's not life threatening.

It's possible to use 401 funds for a down payment on a house (the tax penalties are lower than an outright withdrawal but there are still some) but the problem is, if, say, $20k is pulled and put into a house, then you lose the interest earnings of that $20k. That may not sound like a big deal, but if that power is lost over, say, a 25 year period yes it's substantial.

Quick calculation: $20,000 at 3.5% annual return for 10 years becomes $28,366.00. So if you think you might have to tap the fund to buy that house, be sure to consider the long term effects.

Another thing about long term investments: if you see a big drop, panic and pull the money out, you have just turned a paper loss into a real one. Sometimes (as with the last 401 I have out there) it takes nerves of steel, ice water in the veins etc to not snatch it out immediately.

nicksta43 wrote: What are some of the lessons you think every young person should know about money?

Go hang out with rich people, you will learn 2 main things; 1/ How easy it is to get it but more importantly, 2/ You learn how to value yourself instead of letting other people value you.

Fortunately for rich people, 99% of the entire World's population suffer accutely from number 2.

There is another obvious tip of course, stop playing around with cars!!

Curmudgeon wrote: Another thing about long term investments:..

...you will still be a nobody at the end.

but you will ( if you start earlier enough) have enough to retire on .... I started with an IRA in my early 30's, that plus the max'ed out 401k contributions has left me able to retire by the end of this yr with net income greater than what I've been making while working .... and yes I DO know how hard it is to deposit that $2000 each yr .... for that matter it's even harder to put away the "makeup" deposits that the gument has allowed us old farts these last few yrs.... ( this past yr it was $6000 ) but with SS and without depleting my investments I'll net nearly 2x my working net income ... so like Kram said "I'll still be nobody" but I'll be ok

wbjones wrote: ... so like Kram said "I'll still be nobody" but I'll be ok

Just to clarify, I meant that from a finacial point of view, not a personal one.

Kram wrote:

wbjones wrote: ... so like Kram said "I'll still be nobody" but I'll be ok

Just to clarify, I meant that from a finacial point of view, not a personal one.

Lots of people think the financial is the personal. 'Life is like a E36 M3 sandwich, the more bread you have the less E36 M3 you eat'.

Regardless, wbjones is proof that starting early is the key. You young whippersnappers out there can go 'aw, there's plenty of time' and keep putting it off but you'd be wrong.

mguar wrote: One other possibility with 401K funds is to use those funds as a loan source.. Not all companies allow it but enough to make asking worthwhile. It becomes a low interest loan which you are required to pay back in a stated time..

As soon as my 401K allowed that I jumped on it. Although it was only about a $40K payoff on my mortgage I borrowed from myself and paid the (about) 8% interest back to me. Win-win.

In reply to mguar:

Very good point. It's possible to borrow against your 401k and when you repay it, you are paying yourself interest. So that's a good deal. There are a couple of pitfalls; it can't be over a certain percentage of your 401's balance (IIRC 30%, but I am probably wrong) and if you lose or change jobs the outstanding balance of the loan is due immediately.

edit: fasted58 beat me to it.

Lots of people think the financial is the personal.

Not me, plenty of happy, content people out there regardless of finacial situation who know they have made it in regards to family, friends and other satisfactions. A walk along the beach is free as is a joke with your children, wonderful life's pleasures.

Borrow for what you need, save for what you want and stay married.

bearmtnmartin wrote: Borrow for what you need, save for what you want and stay married.

Go kill someone, you'll only do 25 years of inprisonment.

What if you don't want to save for retirement, what if I want to save for age 40?

Kram wrote:

wbjones wrote: ... so like Kram said "I'll still be nobody" but I'll be ok

Just to clarify, I meant that from a finacial point of view, not a personal one.

that's what I figured ... and I was trying to rebut in the sense that ... while I won't be "rich", I'll be better off after I retire than while I'm working ... you just have to start early enough and not be stupid with your investments

mguar wrote: In reply to Curmudgeon: One other possibility with 401K funds is to use those funds as a loan source.. Not all companies allow it but enough to make asking worthwhile. It becomes a low interest loan which you are required to pay back in a stated time..

one HUGE downside to borrowing against a 401k ... if you loose your job you then have to pay back immediately or you face the penalties and the tax ...

something to think about

edit: Curmudgeon beat me to it

Keven wrote: What if you don't want to save for retirement, what if I want to save for age 40?

same thing .... the earlier you start .....

there was a story about this.. I'm sure I won't get the "facts" exactly right, but the gist is .. a young couple started investing ( age 21) the $2000 each person, each and every year for ( this is where I don't remember the exact sequence ) 15yrs ??? something like that .. and another couple didn't start until they were .. what ever age the first couple stopped investing .. call it 35, and they put in the same $4000 each yr until age 65 ( several more yrs than the first couple)

and you guessed it the first couple had MUCH MUCH more money at retirement than the second .... ahhhh .. the wonder of compounding interest

Money as a topic is a lot like automobiles in North America. Everyone interacts with it at some level. There is huge amounts of misinformation, beliefs rooted in what was 30 to 50 years ago, as well as widely varying opinions on what safe, prudent and responsible to the do with it.

Like cars, I think the vast majority of people just use it oblivious to a lot of the risks they are taking, what they could do what they have, and really thinking about what they really need. I don't claim to be in anyway above this. Like my cars, I am trying learn more, and do more with it.

Keven wrote: What if you don't want to save for retirement, what if I want to save for age 40?

Then your horizon is nowhere near long enough. Seriously. You need to think really long term. There is simply not enough time to build up a really big cash cushion in your 20's to help out in your 40's unless you have a really high paying job, are willing to live like a monk so you can sock away 80% of your income and have a windfall inheritance or hit the lottery. That's not exactly a common set of circumstances.

But the opposite is true all too often. As in:

Too many people buy a house/car/etc (maybe all at the same time) looking only at what a buddy of mine called the 'muntlies' (monthly payments). I saw a friend buy a $7500 boat and trailer on a TEN YEAR NOTE. Let that sink in for a moment. The payments were, IIRC, $119 a month for TEN YEARS. That's 120 months. That's $14,280 in payments and does not include the 20% downstroke, that jumps it to $17,280 for a $7500 boat and trailer. The biggest part of the payment at the outset is interest, very little to principal.

That means due to depreciation in the first year he owed WAY more on the boat than it was worth and it only got worse as time went on. He'd still be making payments on something he couldn't give away. Not no but HELL no. Last I heard he and his wife split up and they were squabbling about how to pay off the bills on all the stuff they'd racked up during the marriage.

That's the kind of short term thinking which gets people way screwed up financially in their 40's; they are trying to live with the poor decisions of their 20's.

To toot my own horn for a second: I bought new bikes when I was racing, trying to stay on the bleeding edge and I'd sometimes finance them, but always for the shortest period they could offer. I would often use my side money from car sales etc to pay them down quickly. That's because I knew today's hot $6000 dirt bike would be worth maybe $3000 at the end of the year- if I was lucky. The average life of the bleeding edge bike was 3 years, then it wasn't competitive any more (even if it was only Bold New Graphics, but that's a subject for another time). I did not want a millstone around my neck in 3 years, as in I owed more than it was worth at that point.

Plan ahead, as in past next weekend.

So I shouldnt continue with my plan of high risk/high yield lottery tickets?

no time to read entire thread. has anyone recommended reading "the millionaire next door" and then living it?

AngryCorvair wrote: no time to read entire thread. has anyone recommended reading "the millionaire next door" and then living it?

Too late I aintgot 30 years left