"SHOW ME THE MONEY" VIEWS on HOW to make MONEY GR

[the_idle_threat]

Bretsky---

If you become a landlord, be very careful to avoid an appearance of bias in renting the place out. If you express a preference in terms of gender, race, religion, family status, disability, etc. you could be opening yourself up to a discrimination lawsuit.

[Partial]

Bretsky---

If you become a landlord, be very careful to avoid an appearance of bias in renting the place out. If you express a preference in terms of gender, race, religion, family status, disability, etc. you could be opening yourself up to a discrimination lawsuit.

He'll be alright as long as he doesn't make an non-politically correct statements. I think its retarded that a renter has to worry about a lawsuit, they should be able to give their property to whomever they feel comfortable with. Stupid, stupid supposedly progressive but really just a pain in the ass laws.

[Fosco33]

so, i've been running the idea of opening my own business in my mind, does anyone have any tips or books on how to form a solid business plan? I would much rather work for myself then anyone else!!

Problem is, I don't know what there is a huge need in in the milwaukee area!!

I've got experience. PM me if you want some details.

[the_idle_threat]

Bretsky---

If you become a landlord, be very careful to avoid an appearance of bias in renting the place out. If you express a preference in terms of gender, race, religion, family status, disability, etc. you could be opening yourself up to a discrimination lawsuit.

He'll be alright as long as he doesn't make an non-politically correct statements. I think its retarded that a renter has to worry about a lawsuit, they should be able to give their property to whomever they feel comfortable with. Stupid, stupid supposedly progressive but really just a pain in the ass laws.

I agree that these laws can be a pain in the ass, but I wouldn't be so quick to dismiss their reach ...

Jancik v. Dept of Housing and Urban Development was decided the 7th Circuit Court of Appeals in 1995. Wisconsin is part of the 7th circuit, so this ruling is binding precedent in Wisconsin with regard to the Fair Housing Act (FHA).

In this case, an apartment owner in Illinois got nailed to the wall to the tune of over $55,000 in damages, fines and opponent's attorney fees. This does not include his own attorney's fees. His indiscretion? He ran a newspaper ad that contained the phrase "mature person preferred," which led a local watchdog group to set him up with two "test" renters to see if he would discriminate against them. He asked several very politically incorrect questions which touched upon race and family status, and the watchdog group filed the complaint. Aside from a $10,000 civil penalty, the remainder of the damage award went to the watchdog group to pay "damages" and attorney fees.

The legal reasoning in the case held that an advertisement alone violates the FHA even if the offending statement does not "jump out at the reader," and that "the statute is violated by 'any ad that would discourage an ordinary reader of a partiucular [protected group] from answering it.'"
Protected groups under the Act include "race, color, religion, sex, handicap, familial status, or national origin." So he was guilty just for the ad, separately and in addition to his inappropriate questions in the interviews.

So my point is: if you are going to be a landlord, be very careful. Jancik's verbal indiscretions were fairly substantial, but I think the ad was pretty mild. What landlord wants to rent to "immature people?" The situation you guys were describing above (where a gender preference was stated) could be cause for trouble. And as seen in Jancik, you don't even have to go so far as to deny housing to an actual bonafide applicant to be liable. Your newspaper ad could be cause enough, and/or a watchdog group could "test" you and earn a big payday in the process.

This above is not legal advice, by the way, even if I were in a position to give it. :mrgreen:

[woodbuck27]

"They don't have time for parties and if they're older, don't necessarily mix much with the younger students." MJZiggy

Uhh ? Dam right College students find time to party. Big Time Ziggy.

Yes B. Rent out to 'the Ladies' as young men or alot of them - don't know how to wipe their arse. That is 'a fact' I discovered - living with about 55 people in three year's to get my degree.

Young people are a blast of fun though. I have many great memories of those I met at University. :mrgreen:

[retailguy]

I'm strongly considering making my first real estate investment. 2,000 sq foot home on Whitewater Campus that normally is rented out to students for $1200 per month. From what I could pick it up as a FSBO for around 120G and I'm pretty sure it's worth more. The owner just wants to get rid of it after having two wrestlers do serious damage to the place; he's got er looking good again but wants out.

Any landlord's in here ? Anybody want to share good or nightmare experiences ? Or Biases ?

The scary part is that location and house wise it's the ultimate party house everybody would dream of renting in college.

My bias would be to try to rent to chicks; right or wrong it's my view they'd take care of the property better. Stict lease...etc.

Thoughts to share from experience ?

Maybe Retailguy would talk me out of this as a bad idea ?


Cheers,
B

Nah, I wouldn't talk you out of it as a bad idea (it's not), but you better make sure that you're properly capitalized before you leap. I've owned several rental properties (none at the moment), and someone WILL trash your home eventually no matter what you do. The more rentals you have the higher the possibility. The two worst incidents that I've had are: one guy used the kitchen drawers as "boxes" to move his things and left the apartment a complete disaster, and two - the toilet plugged, instead of calling me, the tenant got an axe, cut a hole in the floor and shit in the hole for three months. I had to get a hazmat crew in to clean it up. The odd thing was, he lived there for 18 months and NEVER missed a rent payment. Never paid it late, either.

If you are not capitalized to the point that you can bank some rent money to fix problems, or can afford to have it sit vacant for a couple of months to find the "right" tenant, then it is not the right time for you to buy. I'd probably pass on a rental for "students" unless you are a contractor who can remodel frequently. It is not a market for the fainthearted, although it can be very lucrative. Lots and lots of risk, though.

There is a reason that the bank wants to see 10% down on an investment rental. You know this first-hand, I'm sure.

What concerns me, in my limited vantage point into your life, is that you said you upgraded your home recently, back to a 30 year mortgage, and you couldn't pay it down right now. If that's the case, how will you "fund" the rental? Why put your beautiful new home at risk? There is a time and place for everything, don't put your exisiting home at risk. Your wife will not be impressed when something "goes awry", and she has to move to an apartment.

[Partial]

Great to see you back RG, it's been awhile.

I was wondering if anyone has any opinions on buying a small house versus a condo right after I graduate. My dad was saying buying a one bedroom condo is a really bad idea since its really hard to sell. I posed the point of it I bought anything bigger, I wouldn't be able to pay above the minimum mortgage payment for a few years and would end up paying a lot more for the place than what I would be able to sell it for when I got married and I wouldn't use the space.

I guess I am pretty naive to how much of my money will really be dedicated to a mortgage payment each month, but it just doesn't seem like a good idea to get a bigger place for the added eventual value of it if I have a hard time paying anything above the minimum payment.

If I did go for the one bedroom one bath condo, I would pay it off probably within 5-6 years.

[MJZiggy]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

[retailguy]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.


Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

[Fosco33]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.


Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...


That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

[retailguy]

That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Fosco, So-cal is an "almost" unique anomaly. I owned a home in Camarillo in the Heights. I bought in 1990 for 217,000, I'd suppose that's about an $800,000 home right now.

End of the line, it's all relative. You can buy with less than 20% down, however, it'll delay the formula. Of course, 15 - 18 years is still much better than 35 - 40 years which has to be the median in the LA market right now (it wouldn't surprise me if it's higher). I'd think that most families in Southern California won't ever have a paid for house and just accept that. It is very sad to have to "rely" on appreciation to make it work. Appreciation will end one day, it has to, the only alternative is for income to rise, and that is not likely to happen.

Watch out for PMI no matter what you do.

If you can leave So-Cal, I'd do that. While I recognize it is a wonderful place to live, at least related to weather and activities, there are many other great places out there where you can make a better overall purchasing decision.

[Partial]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.


Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

That sounds like exactly what I want to do, but only build the second house myself. Maybe even buy two and work the system to make money and build my third house as the keeper by the time I am 40 or so.

What is an amortization schedule? Just by looking at the logic behind this it seems like a really good idea because it keeps cutting down the amount you're going to pay in interest on the bigger house that you want. That's not a bad idea at all as a matter of fact.

[Partial]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.


Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...


That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

[Fosco33]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.


Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...


That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

Well, I know there are more millionaires in SoCal than anywhere else in the USA - mainly due to their real estate as part of there overall wealth.

Regarding salaries, even someone making 6 figs could barely afford a half-million dollar condo (trust me). I heard the formula was something like (max property value = 4 X's annual gross salary) - meaning someone making 100K could only afford a $400K home.

I'm in a tough spot right now though - the ladyfriend is a CA native and while she wouldn't mind moving, she's very happy here. In addition, I'll be travelling from LA to NY every week for the forseeable future - so time to research out of state properties is nill.

But this is a great forumula - I'm sending to my bro-in-law who just bought a summer house in WI. Thanks again, RG.

[mngolf19]

If you are not investing for your retirement, you are investing in failure. Social Security will not pay your bills, that is only additional help to what you should already have saved. A simple plan for where your money should go is: Figure your debts and investments by their interest or % gain/loss. Always deal with the highest ones first. If you have high interest rate debts, pay them off first with any extra money. Example-Visa 18% or 401k at 10% ? Pay off your 18% Visa(regardless of matching funds). Then continue the % rate comparisons. Also, you have to have a place to live when you retire. So you better pay that off as well before then. Once you have your mortgage on track to pay off by retirement, and your interest rates comparisons are lined up, then invest in whatever you are most secure with. Stocks are my bet, and I have done very well. I avg. 45% a year. I started out small and have grown. I didn't know alot about stocks until I read a book called "A beginners guide to short term trading". Very easy to understand, I recommend it to all.

[Partial]

bump

[Fosco33]

bump

Nice. I'd second the bump and encourage any new readers to PR and the Romper Room to actually read this whole thread - lots of good stuff here.

[Partial]

bump

Nice. I'd second the bump and encourage any new readers to PR and the Romper Room to actually read this whole thread - lots of good stuff here.

Heh, I was thinking the samething myself, thats why I bumped it. I've got a few questions still but those will all come in due time :wink:

This is by far and away the most useful thread on the forum!!

[Scott Campbell]

What is an amortization schedule?

An amortization shedule is a list showing each loan payment made broken out into the amount going each month towards interest, and the amount going towards paying down the principal of the loan. At the beginning of the loan nearly all of your payment goes towards interest. At the end it's nearly all principal. If you make additional payments on a loan, you want to make sure the extra amount goes towards paying down principal. I've heard of some lenders using the excess to prepay interest.

Here's a little amortization calculator I found that lets you play around with what if scenarios.

http://www.hsh.com/calc-amort.html

[Scott Campbell]

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

The short answer is absolutley not. There are those people there who have incredible amounts of money tied up in there homes if they've been in them long enough. Those people hit the lottery but have to move out of the area to cash out. And then there are those people with stock option plans from the late 90's that made ridiculous amounts of money during the dotcom bubble. Some secretaries made millions. Many of these people lived in California - Bay Area specifically. All that money chasing limited housing options really inflated values. Typical earners can't compete with that.

[Scott Campbell]

That sounds like exactly what I want to do, but only build the second house myself.



This is a great way to build wealth. Any sweat equity you're able to build into the house drops completely to the bottom line of your personal balance sheet. As long as you live in the house 2 years, up to $500K of appreciation (profit) is tax exempt.

The more money you make at your job, the bigger the impact. Lets say your making alot of money and your marginal tax rate is nearly 50%. If you made $100K on your house in 2 years, you'd have to make $200K at your job to clear the same amount of money.

[woodbuck27]

That sounds like exactly what I want to do, but only build the second house myself.



This is a great way to build wealth. Any sweat equity you're able to build into the house drops completely to the bottom line of your personal balance sheet. As long as you live in the house 2 years, up to $500K of appreciation (profit) is tax exempt.

The more money you make at your job, the bigger the impact. Lets say your making alot of money and your marginal tax rate is nearly 50%. If you made $100K on your house in 2 years, you'd have to make $200K at your job to clear the same amount of money.

Yes. Yet... is it right to make that house work so hard?

[Partial]

How would a single-man making 40-50k pay off even a modest house in 5-6 years? I guess I am unaware of how much it costs to live. By modest, I mean like a 180,000 house so it's relatively easy to resell and likely to grow in value over that time.

What sort of tax benefits do you get when purchasing a house?

[Bretsky]

How would a single-man making 40-50k pay off even a modest house in 5-6 years? I guess I am unaware of how much it costs to live. By modest, I mean like a 180,000 house so it's relatively easy to resell and likely to grow in value over that time.

What sort of tax benefits do you get when purchasing a house?


I'm not sure if a single guy making 40G could pay off a house in 5 years; but RG would, I think say, that you should wait until you have a more substantial downpayment then or buy a smaller house.

In terms of tax benefits, every penny you pay on the interest for the year and the annual property taxes you pay are tax deductible....aka...taken off your annual income for tax purposes.

RG, let me know if I'm slightly wrong on this but I'll throw out this example.
You make 40G per year; your taxes are 3G per year and Annual Interest on that mortgage is 9000. That would bring your taxable income down to 28G instead of 40G and good chance you'll get money back at tax time because you overpaid based on the 40G figure.

[Partial]

How would a single-man making 40-50k pay off even a modest house in 5-6 years? I guess I am unaware of how much it costs to live. By modest, I mean like a 180,000 house so it's relatively easy to resell and likely to grow in value over that time.

What sort of tax benefits do you get when purchasing a house?


I'm not sure if a single guy making 40G could pay off a house in 5 years; but RG would, I think say, that you should wait until you have a more substantial downpayment then or buy a smaller house.

In terms of tax benefits, every penny you pay on the interest for the year and the annual property taxes you pay are tax deductible....aka...taken off your annual income for tax purposes.

RG, let me know if I'm slightly wrong on this but I'll throw out this example.
You make 40G per year; your taxes are 3G per year and Annual Interest on that mortgage is 9000. That would bring your taxable income down to 28G instead of 40G and good chance you'll get money back at tax time because you overpaid based on the 40G figure.

Do less valuable houses sell, though? It seems like everyone and there mother is selling there house in my area but no one is buying them.

Ideally, I would convince the GF (who I hope will be a long term GF, but eitehr way its good advice for her) to do the pay off house in 5 year thing, and if I did the same, we could put down like a monsterous payent on a house together someday if we're together then, or she would be able to afford a nice place of her own that way.

[retailguy]

How would a single-man making 40-50k pay off even a modest house in 5-6 years? I guess I am unaware of how much it costs to live. By modest, I mean like a 180,000 house so it's relatively easy to resell and likely to grow in value over that time.

What sort of tax benefits do you get when purchasing a house?


I'm not sure if a single guy making 40G could pay off a house in 5 years; but RG would, I think say, that you should wait until you have a more substantial downpayment then or buy a smaller house.


I don't think a single guy making 40K has any need to buy a 180,000 house, and I'm also not sure that you could qualify for that big of a house without a substantial downpayment.

3x your income is 120K, you could probably buy a small condo for that, and you could pay that off in 5 years, PROVIDED, you put 20% down and you didn't have any other payments (Auto, Furniture)



In terms of tax benefits, every penny you pay on the interest for the year and the annual property taxes you pay are tax deductible....aka...taken off your annual income for tax purposes.

RG, let me know if I'm slightly wrong on this but I'll throw out this example.
You make 40G per year; your taxes are 3G per year and Annual Interest on that mortgage is 9000. That would bring your taxable income down to 28G instead of 40G and good chance you'll get money back at tax time because you overpaid based on the 40G figure.




Spoken like a true mortgage guy.....:wink: Not entirely true however. Now before you beat me, or call me a liar, hear me out. A single guy at 40K does NOT pay taxes on 40K if he doesn't own a house. Don't forget about the standard deduction, or the personal exemption! Those get factored out as well. In 2005, the standard Deduction was 5,000, personal exemption is 3200, so you pay taxes on 31800.... So, in this example, the mortgage interest gives you a $4k deduction over what you'd get as single. (9000-5000) 4k yield is about 800 net (see below) Whoopeee!!! Now before you bash me and "remind" me that you also get a deduction for taxes & charitible contributions, I KNOW THAT, however, you spent $9000 dollars to save $800 on your taxes. You'll spend more on those taxes & contributions to save as well.

Complete numbers - 40000 gross w2 income, yields 31800 taxable income after all deductions (std & pers exemption) - yields a tax bill of $4621.

For simplicity sake, here it is with just the mortgage - 40000 gross w2 income, 9000 itemized, 3200 exempt - yields 27,800 in taxable income and generates a $3809 tax bill.

4621 - 3809 = 812 savings IS IT WORTH IT? The home buyer has to make that call.

So, for a single guy, the mortgage interest doe give you a deduction. Now, do the same calculation for a married couple with 2 kids under the age of 17 making 40-60K. If you crank the numbers there is ZERO benefit of mortgage interest because that family is NOT paying taxes, but are more likely to be making a house payment than a single guy.

Why is this relevant? Simple - you have to look at your UNIQUE situation to see if you are benefiting from the mortgage deduction.

Personally, I don't really give a shit if the IRS has my money or Bank of America has it. If I can't keep it, it really doesn't matter. In the early years of buying a home, appreciation does not offset the amount of interest you pay, and typically the tax benefit is not very great.

As to the refund, Lord, where do I start. Yes, you will get a refund. BUT WHY? Uncle Sam offers the poorest interest rate in the history of the world ZERO PERCENT. You'd do better with a passbook. You should pay $499 each year, EVERY year. That is the way you MAXIMIZE your money related to the IRS.

In summary, I don't want to sound too negative related to the purchase of a home. I love owning a home. There are MANY MANY MANY reasons to do so that have NOTHING to do with money. It is a wonderful experience that I want EVERYONE to have the ability to do. BUT, and a big BUT, circumstances HAVE TO BE RIGHT.

Monetarily, appreciation cannot be ignored. It does work, and it does create wealth. But the home has to be in the right neighborhood, of the righs size, with the right amenities, and it takes TIME.

Please, please, please, NEVER buy a home to "save money" on the interest deduction. Buy it for all the other reasons, and then use the tax benefit as a "freebie"....

[retailguy]

after re-reading what I wrote above, I want to emphasize one more thing.

Home buying is not evil. Being undercapitalized and paying too much interest on a 30 year mortgage without the proper down payment makes the home purchase evil. It totally destroys the investment. Totally.

You have to properly capitalize your purchase. You owe that to yourself.

That's why I stress a MINIMUM of 20% down and a MAXIMUM of a 15 year loan.

If you do it any other way, I can stick money in a mutual fund and blow the doors off of any home you can purchase.... investment wise

[RashanGary]

after re-reading what I wrote above, I want to emphasize one more thing.

Home buying is not evil. Being undercapitalized and paying too much interest on a 30 year mortgage without the proper down payment makes the home purchase evil. It totally destroys the investment. Totally.

You have to properly capitalize your purchase. You owe that to yourself.

That's why I stress a MINIMUM of 20% down and a MAXIMUM of a 15 year loan.

If you do it any other way, I can stick money in a mutual fund and blow the doors off of any home you can purchase.... investment wise

Yeah, but your living in the home so it gains value as well as serves a purpose.

[Partial]

after re-reading what I wrote above, I want to emphasize one more thing.

Home buying is not evil. Being undercapitalized and paying too much interest on a 30 year mortgage without the proper down payment makes the home purchase evil. It totally destroys the investment. Totally.

You have to properly capitalize your purchase. You owe that to yourself.

That's why I stress a MINIMUM of 20% down and a MAXIMUM of a 15 year loan.

If you do it any other way, I can stick money in a mutual fund and blow the doors off of any home you can purchase.... investment wise

So what does one do if they don't have that 20% down payment? Rent? I was told that renting is just throwing money away.

I mean is it worth it to buy a 120,000 condo? Do people still buy those? I guess problem is I live in a fairly wealthy area where taxes are high and property values are even higher. A 150,000 is MODEST, as my 3 bedroom 2 bathroom ranch house with a crappy yard and landscaping is worth like 290,000 evidentally. That's unfortunate.

[retailguy]

Yeah, but your living in the home so it gains value as well as serves a purpose.


Greg, appreciation happens. But typically not very much in the first few years. Plus, you have to add on closing costs, and the various other expenses it takes to move into a home. Even at a 3% appreciation rate, you don't accumulate equity very quickly while making the minimum payment.

Second, you can lease the same home typically cheaper than you can buy, due to all the associated costs that go along with owning a home.

Partial, this example will answer your renting vs. owning statement as well. It is not throwing your money away to rent, provided, you don't "piss away" what you save in the process. You have to, as Greg stated, spend a certain amount of money to live. You can, pay a landlord, or pay a bank, in terms of interest, but you're going to pay someone to have a roof over your head.

Example. - You purchase a 180,000 home with no down at 6.75% and capitalize the 4500 closing costs. Your loan (or loans) are 184500. You take out a 30 year mortgage (or mortgages, one here for simplicity) which costs you 1196.66 or 1200 in round numbers. Unless you live on the west coast, property taxes will probably run you in the area of 4000 per year. Insurance 1000 and the dreaded PMI about 80. a month. These three things tack on another 496 or 500 in round numbers. This puts your house payment including taxes and insurance at 1700 a month.

You can probably lease the same house in most communities from 900 - 1200 a month, saving you a minimum of 5000 per year, not including the cost of upkeep/repairs/remodeling. Homeowners assessments can increase the prices even more, and are becoming very common as most people don't want to live next to Mike Tice's green/gold house....

Now look at the same home with 20% down plus you pay closing. Your loan is now 160000. payment is 1037, or 1040 in round numbers. Other costs are the same, but PMI is gone, so those costs are 416, or 420 in round numbers. Now your "payment" is 1460. Now your "loaded" cost of buying vs. renting is only 250 per month at the minimum. If you take the difference in the payment from 1700 vs. 1460 or $240 per month and apply that to the mortgage (I'd suggest much more) but just with that, you pay off the home in 24 years, saving you almost 6 years of payments or $50.729 in costs over the life of the loan.

So, when you look at how these numbers can change your life, and we're not even talking about moving the mortgage down to a 15 year term, or even less, you are talking about real dollars here. If you got 1400 a month back out of your budget 10 years sooner, that's 168,000 in principal alone over that 10 years.... So, even if you screwed up EVERYTHING ELSE in your life, you could still accumulate a $250000 pension before you retire.

Greg, I'd rather see that money in YOUR pocket, INSTEAD of Bank of America's.... You see it HOWEVER YOU'D LIKE TO....

Partial, what determines a good rental/purchase decision is what you do with the $500 differential in renting vs. buying the house. If you piss it away on wine and women, buy the house, if you can save it, do so, and make a smart purchasing decision.

The only true way to financial independence is to live on less than you make. No one has ever "borrowed their way to riches". Financing is the biggest reason that the "middle class" stays "middle class". You give the MAJORITY of your money to someone else. That 180000 home, purchased with no money down costs you, the homeowner $430798 over the life of the loan, JUST IN INTEREST AND PRINCIPAL. Doesn't include taxes and insurance. You are paying more in interest than you paid for the home... $250.798... That's a "lotta cash" to have the "privilege" of owning a home.

[Partial]

RG, as always, your knowledge and insight you offer on these matters is priceless. Same can be said for SC and B. This stuff is truly gold and I sincerely appreciate it more than my words could ever convey. It's all very, very informative!!

[Scott Campbell]

I quickly read through RG's post and have to say I think I agree with all of it. Solid advice. But I want to re-read it again to think about the finer points. The mortgage interest deduction is an often over emphasized benefit of buying a home.

What I would take away from the discussion is that you need to generate enough excess cash flow to get to your 20% downpayment. And 20% of $150K is going to be less than 20% of $180K, so you can get their quicker. Your ability to generate that excess cash flow also bodes well for your ability to pay down the loan quicker once you do buy the house.

[Scott Campbell]

So what does one do if they don't have that 20% down payment? Rent? I was told that renting is just throwing money away.


Renting is throwing money away. It's just less money than you'd be throwing away if your were under-capatized in your home.

[Scott Campbell]

Ok, here's a variation on the theme that RG threw out there. You buy a house that is somewhat discounted because the yard looks awful and it needs paint and other cheap repairs. But buy in a good location. You can't fix a crappy location.

You put 10% down, and pay your PMI for 3 or 4 months while you're fixing it up. Then you get it re-appraised making sure the appraisor knows exactly where he has to come in so that you meet your 20% threshold. With that appraisal showing 20% equity, you can ask (force) the mortgage company to then drop the PMI. So yeah, you pay the PMI for a few months, but not long enough to screw up the investment return from RG's example.

I bought my first house in a location where prices were going up 10% a year. So in less than 2 years we had our 20% equity and forced the mortgage company to drop the PMI charge. You can't count on being as lucky as I was with appreciation. But you can reduce the luck requirement by buying the right fixer upper.

Work for you RG? Or am I missing something?

[Scott Campbell]

Example. - You purchase a 180,000 home with no down at 6.75% and capitalize the 4500 closing costs. Your loan (or loans) are 184500. You take out a 30 year mortgage (or mortgages, one here for simplicity) which costs you 1196.66 or 1200 in round numbers. Unless you live on the west coast, property taxes will probably run you in the area of 4000 per year.



$4K property taxes on a $180K house is highway robbery. Replace your entire state government immediately.

People in states like Wisconsin have been conditioned to pay these investment crippling property tax amounts. It's absurd. $4K is what you'd expect pay on a $600K home in Utah.

[Partial]

Example. - You purchase a 180,000 home with no down at 6.75% and capitalize the 4500 closing costs. Your loan (or loans) are 184500. You take out a 30 year mortgage (or mortgages, one here for simplicity) which costs you 1196.66 or 1200 in round numbers. Unless you live on the west coast, property taxes will probably run you in the area of 4000 per year.



$4K property taxes on a $180K house is highway robbery. Replace your entire state government immediately.

People in states like Wisconsin have been conditioned to pay these investment crippling property tax amounts. It's absurd. $4K is what you'd expect pay on a $600K home in Utah.

SC, my mom told me we pay 6k a year on our home in the 'burbs of Milwaukee. If there is truth to that I know not, though.

[Bretsky]

I'm going into Patler mode and want to nitpic at a few thoughts. A good point, but not entirely accurate here

""I don't think a single guy making 40K has any need to buy a 180,000 house, and I'm also not sure that you could qualify for that big of a house without a substantial downpayment.""

I'd agree with the Need.

But let's say Partial has excellent credit and is making $3300 per month. Let's say he has a few reserves. A pretty good ballpark payment on a 180G home in our area on a no money down program with PMI is 1550-1650 per month with all of the escrow included.

At a monthly payment of 1650, housing debt to income is around 50%. If there are no other monthly payments, that also leaves total debt to income at around 50%.

Should that person buy the house ? Probably not.

Can that person get approved ? Absolutley.


B

[Scott Campbell]

Should that person buy the house ? Probably not.

Can that person get approved ? Absolutley.


B


B,

In the early 90's when I bought my first, the rule of thumb was you could afford a house equal to roughly 3 times annual earnings. And then in this thread someone said it's now 4 times earnings.Have the lending rules loosened up that much in 15 years?


ABSOLUTELY YES; I'll never forget the deal I got approved in year one of my employment at a bank. 135G house; I had suggested to the couple they should not go higher than 100-110G based on ratios, but that I could get them approved for higher.

Perfect Credit. A few reserves. The total Debt to income ratio was 69% and he was approved.

Wow, I thought. What a terrible decision; but I already advised them and they still wanted to go ahead and find a way.

The loan was approved. Was it a bad decision ? The numbers would say so. But they loved the house and figured they'd fine a way. To this day, and I don't know how, but they have never missed a payment.

Better the credit, the looser the rules.


B

[Scott Campbell]

SC, my mom told me we pay 6k a year on our home in the 'burbs of Milwaukee. If there is truth to that I know not, though.

It doesn't tell me much without knowing what the house is worth. I think Wauwatosa has some of the highest taxes in your metro area.

[Bretsky]

""In summary, I don't want to sound too negative related to the purchase of a home. I love owning a home. There are MANY MANY MANY reasons to do so that have NOTHING to do with money. It is a wonderful experience that I want EVERYONE to have the ability to do. BUT, and a big BUT, circumstances HAVE TO BE RIGHT.

Monetarily, appreciation cannot be ignored. It does work, and it does create wealth. But the home has to be in the right neighborhood, of the righs size, with the right amenities, and it takes TIME. """


A COUPLE MORE POINTS.

First off I would not disagree with a word you wrote regarding the tax analysis or your breakdown of how to get wealthy by paying those mortgages off.

That being said, I offer this.

1. I'm not convinced the solution is practical for a strong majority of people. Saving, or showing the ability to save 20% before the down payment, is a discipline a VERY very small % would have.

2. Again, I'm not arguing with your strategy, but if people would employ this a strong % of the realtors, and home loan officers would be flat out of business.

3. You have offered wonderful strategies for this; that being said there is also this thing called pride of home ownership and happiness. The happiness part plays off against the saving of 20%. It would have been a cold day in hell before my wife was going to live in apts for several several years when we could be happier owning a home and have that pride of ownership thing.

4. I just don't think this strategy is that practical for most people. I look at our own example. My wife and I would be considered, income wise, to be strong middle class. We both started off with good jobs, then had kids so she stayed home a few years, and now we have good jobs again. We're in our 30's. Both good credit and responsible.

We did put 10% down on that first home; but even though we wanted so dearly to save for the downpayment, having all of that disposable income while we were both single led us to piss away money like a guy on a ten minute ticker after drinking a case of beer in a day.

Home ownership, besides adding happiness, pride of ownership...ect...also helped us budget and watch our spending in a much more responsible way (as did kids) than we previously did. And then the kids hit and more expenses.

In reality we had a pretty good model for much of what you are preaching. We had lived in the home for about 7 years and at the pace I was making payments the home would have been paid off in another five. But it was not practical to stay in the home when we had our 2nd rugrat so we largely upgraded.

Ended up buying one of the larger houses in the neighborhood and used my tricks of the trade that could get us approved on a program where our housing debt to income was way too high, yet approvable.

We're not the model anymore for your strategy, but I do think equity wise we are much better than the average in their mid to last 30's.

My point ? We're better off than most and would not have been able to exucute that strategy. Most will not be disciplined enough to do so, or happiness will get in the way.

Truth be told finding a midpoint between your views and combining them with the happiness thing is what everybody faces.

B

[Bretsky]

""Greg, appreciation happens. But typically not very much in the first few years. Plus, you have to add on closing costs, and the various other expenses it takes to move into a home. Even at a 3% appreciation rate, you don't accumulate equity very quickly while making the minimum payment. ""

Apprecation over the last several years in WI has been closer to 5% per year with several areas being in the 7-12% range

""Example. - You purchase a 180,000 home with no down at 6.75% and capitalize the 4500 closing costs. Your loan (or loans) are 184500. You take out a 30 year mortgage (or mortgages, one here for simplicity) which costs you 1196.66 or 1200 in round numbers. Unless you live on the west coast, property taxes will probably run you in the area of 4000 per year. Insurance 1000 and the dreaded PMI about 80. a month. These three things tack on another 496 or 500 in round numbers. This puts your house payment including taxes and insurance at 1700 a month""


First off, if anybody in Wisconsin is charging $4500 for closing costs they are raking the borrower over the coals or the borrower has such horrific credit they should be fixing that up before buying a home through a Mortgage Broker.

Secondly, and I've noted this before, GOOD CREDIT borrowers have all kinds of options for loans WITHOUT PMI if they are speaking with the right banks.

[Scott Campbell]

""Greg, appreciation happens. But typically not very much in the first few years. Plus, you have to add on closing costs, and the various other expenses it takes to move into a home. Even at a 3% appreciation rate, you don't accumulate equity very quickly while making the minimum payment. ""

Apprecation over the last several years in WI has been closer to 5% per year with several areas being in the 7-12% range


I did a calculation shortly before I bought my last house that showed that if my house appreciated 4%/year, that the appreation would be equal to what I had to pay in interest net the mortgage interest deduction.

Those PMI payments, high property tax rates and inflated closing costs in RG's example really skew the ROI calculation downward. IMO

[Partial]

""Greg, appreciation happens. But typically not very much in the first few years. Plus, you have to add on closing costs, and the various other expenses it takes to move into a home. Even at a 3% appreciation rate, you don't accumulate equity very quickly while making the minimum payment. ""

Apprecation over the last several years in WI has been closer to 5% per year with several areas being in the 7-12% range

""Example. - You purchase a 180,000 home with no down at 6.75% and capitalize the 4500 closing costs. Your loan (or loans) are 184500. You take out a 30 year mortgage (or mortgages, one here for simplicity) which costs you 1196.66 or 1200 in round numbers. Unless you live on the west coast, property taxes will probably run you in the area of 4000 per year. Insurance 1000 and the dreaded PMI about 80. a month. These three things tack on another 496 or 500 in round numbers. This puts your house payment including taxes and insurance at 1700 a month""


First off, if anybody in Wisconsin is charging $4500 for closing costs they are raking the borrower over the coals or the borrower has such horrific credit they should be fixing that up before buying a home through a Mortgage Broker.

Secondly, and I've noted this before, GOOD CREDIT borrowers have all kinds of options for loans WITHOUT PMI if they are speaking with the right banks.

Well B, you might be the man when I get out of college. We will have to see how much debt I am in and if you can work the magic like I hope you can. I was talking to my dad about this stuff tonight and he maintains a condo won't sell so I should bust my balls and pay off a house. Unfortunately for him, I don't know that it will be very easy to get a house around here and one that I can sell when I want to start a family and stuff because they're just too darn expensive. I can't even imagine the hell of living in SoCal and getting out of college and trying to deal with housing.

edit - that'll be 2-3 years from now, so hopefully you come up with the way to make it affordable for those of us who don't have a big down payment at the start.

[retailguy]

Ok, you guys are missing my point.

I am not advocating the traditional means to buy a house. I am trying to show you ways that your house becomes an INVESTMENT. I know you think of the traditional manner to purchase a house as an investment, but I don't. Anything that costs you more money to pay for than what it cost you to purchase is NOT an investment from my perspective. If it is one from your perspective, great, keep doing what you're doing. What the "traditional" family does is NOT good enough for me.

So, is this easy? NO. absolutely not. Is it quick? NO, but quicker than trying to pay off that 30 year mortgage.

What I'm trying to do is PAY OFF THE MORTGAGE TO GENERATE CASH.

that cash can change your life. However you have to change your thinking to change the way you're living. Otherwise you get out of it, what you put into it, one month at a time. for 30 years. BofA gets richer, you get a little appreciation but NO CASH. I don't particularly care whether or not the "average" family can do this, I'm not talking about "average" things.

Do your 4% calculation and you'll find that you paid in interest and principal the vast majority if not the total amount of what you find your house worth when it is paid for.

Partial, I respect that your Dad feels that you "can't sell a condo". If that's true, then why do they keep building them? Bretsky says the avg family moves every 7 years, so is that only true of homeowners? Doesn't make sense to me. Are they harder to sell than a house? Yes, I suppose in certain areas, but think of it this way -

If you pay for this condo in 5 years and it takes you a year to sell it, you are living in a PAID FOR HOME. You can continue to save each month and you'll have a boatload of cash when it does sell. You aren't forced to take the first offer you get, because YOU ARE IN NO HURRY to sell.

You have no mortgage to pay off, and if you planned well, you live in a great neighborhood, so what is the rush?

If you insist on buying a house, just drive off 30 minutes into the countryside and find a small town. You keep talking about the Western Suburbs of Milwaukee. Head down the 43 to Mukwanago, its about 40 minutes I think. See the value of a dollar there. The principles will work there too. After you pay for that house, sell it, and move back to the city with your new mortgage. stretch it out for 10 years if you want, you've still paid for your dream home in 15 years and have 15 years OF CASH TO LIVE LIKE NO ONE ELSE DOES.

Night guys....

[Partial]

Ok, you guys are missing my point.

I am not advocating the traditional means to buy a house. I am trying to show you ways that your house becomes an INVESTMENT. I know you think of the traditional manner to purchase a house as an investment, but I don't. Anything that costs you more money to pay for than what it cost you to purchase is NOT an investment from my perspective. If it is one from your perspective, great, keep doing what you're doing. What the "traditional" family does is NOT good enough for me.

So, is this easy? NO. absolutely not. Is it quick? NO, but quicker than trying to pay off that 30 year mortgage.

What I'm trying to do is PAY OFF THE MORTGAGE TO GENERATE CASH.

that cash can change your life. However you have to change your thinking to change the way you're living. Otherwise you get out of it, what you put into it, one month at a time. for 30 years. BofA gets richer, you get a little appreciation but NO CASH. I don't particularly care whether or not the "average" family can do this, I'm not talking about "average" things.

Do your 4% calculation and you'll find that you paid in interest and principal the vast majority if not the total amount of what you find your house worth when it is paid for.

Partial, I respect that your Dad feels that you "can't sell a condo". If that's true, then why do they keep building them? Bretsky says the avg family moves every 7 years, so is that only true of homeowners? Doesn't make sense to me. Are they harder to sell than a house? Yes, I suppose in certain areas, but think of it this way -

If you pay for this condo in 5 years and it takes you a year to sell it, you are living in a PAID FOR HOME. You can continue to save each month and you'll have a boatload of cash when it does sell. You aren't forced to take the first offer you get, because YOU ARE IN NO HURRY to sell.

You have no mortgage to pay off, and if you planned well, you live in a great neighborhood, so what is the rush?

If you insist on buying a house, just drive off 30 minutes into the countryside and find a small town. You keep talking about the Western Suburbs of Milwaukee. Head down the 43 to Mukwanago, its about 40 minutes I think. See the value of a dollar there. The principles will work there too. After you pay for that house, sell it, and move back to the city with your new mortgage. stretch it out for 10 years if you want, you've still paid for your dream home in 15 years and have 15 years OF CASH TO LIVE LIKE NO ONE ELSE DOES.

Night guys....

That's a really good point about taking the time to sell the condo. I guess I never really considered that.

Following your strategy to minimize the money you are paying (the pay home off in 5 years), is there a rule of thumb as to how much you make versus how expensive of a property you can afford? I don't care about going out to eat all the time and fancy stuff like that, I have a hunch I can live like a bum for a few years to be able to put a hefty down payment down on my eventual house. I also have a hunch, though, that I will have a car payment to make as my car is on its last leg right now :sad:

[Bretsky]

Ok, you guys are missing my point.

I am not advocating the traditional means to buy a house. I am trying to show you ways that your house becomes an INVESTMENT. I know you think of the traditional manner to purchase a house as an investment, but I don't. Anything that costs you more money to pay for than what it cost you to purchase is NOT an investment from my perspective. If it is one from your perspective, great, keep doing what you're doing. What the "traditional" family does is NOT good enough for me.

So, is this easy? NO. absolutely not. Is it quick? NO, but quicker than trying to pay off that 30 year mortgage.

What I'm trying to do is PAY OFF THE MORTGAGE TO GENERATE CASH.

that cash can change your life. However you have to change your thinking to change the way you're living. Otherwise you get out of it, what you put into it, one month at a time. for 30 years. BofA gets richer, you get a little appreciation but NO CASH. I don't particularly care whether or not the "average" family can do this, I'm not talking about "average" things.

Do your 4% calculation and you'll find that you paid in interest and principal the vast majority if not the total amount of what you find your house worth when it is paid for.

Partial, I respect that your Dad feels that you "can't sell a condo". If that's true, then why do they keep building them? Bretsky says the avg family moves every 7 years, so is that only true of homeowners? Doesn't make sense to me. Are they harder to sell than a house? Yes, I suppose in certain areas, but think of it this way -

If you pay for this condo in 5 years and it takes you a year to sell it, you are living in a PAID FOR HOME. You can continue to save each month and you'll have a boatload of cash when it does sell. You aren't forced to take the first offer you get, because YOU ARE IN NO HURRY to sell.

You have no mortgage to pay off, and if you planned well, you live in a great neighborhood, so what is the rush?

If you insist on buying a house, just drive off 30 minutes into the countryside and find a small town. You keep talking about the Western Suburbs of Milwaukee. Head down the 43 to Mukwanago, its about 40 minutes I think. See the value of a dollar there. The principles will work there too. After you pay for that house, sell it, and move back to the city with your new mortgage. stretch it out for 10 years if you want, you've still paid for your dream home in 15 years and have 15 years OF CASH TO LIVE LIKE NO ONE ELSE DOES.

Night guys....

That's a really good point about taking the time to sell the condo. I guess I never really considered that.

Following your strategy to minimize the money you are paying (the pay home off in 5 years), is there a rule of thumb as to how much you make versus how expensive of a property you can afford? I don't care about going out to eat all the time and fancy stuff like that, I have a hunch I can live like a bum for a few years to be able to put a hefty down payment down on my eventual house. I also have a hunch, though, that I will have a car payment to make as my car is on its last leg right now :sad:


First off buy a used car and get a good deal with affordable payments if you want to buy a home soon.

Secondly, there is no sure fire proof ratio for the home you can afford. The better the credit the higher you can get approved for. Old banking rules use to try to keep you to a back end ratio (total debt to income ratio) of 36%.

If you make 50G, that would mean that you take 50G x .36 to get the traditional total of the monthly debts you can get approved for. That total would be around $1800. So your student loans plus credit cards plus total housing payment should equal about 1800. If your monthly obligations are about $400 that would give you about 1400 on a home payment ...roughly $150,000 on a 30 Yr Fixed if you do have PMI. Now if you go 15Yr, then you are talking about a much cheaper home since payment are spread over 15 years instead of 30.

But those rules are out the window now. Better credit will allow you to get approved for much higher ratios; but as RG would point out overextending yourself can be a very bad mistake to make as well.


B

[Partial]

bump, I want to learn more but don't have any questions to ask at the time being.

[Bretsky]

Yes, this was a monster of a thread and a fun read.

On the mortgage side the interest rates have moved up sharply the past month. The 30 Year Fixed Rate is currently at 6.875%, up about a full percentage point since times last year.

Foreclosures will continue to go up and home buyers will find more deals than in the past.

I feel bad for realtors; with rates going up and the struggling market many are looking for new professions.

[Patler]

Yes, this was a monster of a thread and a fun read.

On the mortgage side the interest rates have moved up sharply the past month. The 30 Year Fixed Rate is currently at 6.875%, up about a full percentage point since times last year.

Foreclosures will continue to go up and home buyers will find more deals than in the past.

I feel bad for realtors; with rates going up and the struggling market many are looking for new professions.

Even so, from a long-range historical perspective, 6.875% on a 30 year fixed rate mortgage is not a bad rate. I'm sure for first time buyers, or for those who entered the real estate market in the last 5 years it seems like a high rate, but from the perspective of 40 years it doesn't look so bad.

I remember being thrilled when a 20 year fixed dropped below 9%! Heck, I can remember when finding ANY rate for ANYy type of loan at less than 12% felt pretty good.

[Bretsky]

Yes, this was a monster of a thread and a fun read.

On the mortgage side the interest rates have moved up sharply the past month. The 30 Year Fixed Rate is currently at 6.875%, up about a full percentage point since times last year.

Foreclosures will continue to go up and home buyers will find more deals than in the past.

I feel bad for realtors; with rates going up and the struggling market many are looking for new professions.

Even so, from a long-range historical perspective, 6.875% on a 30 year fixed rate mortgage is not a bad rate. I'm sure for first time buyers, or for those who entered the real estate market in the last 5 years it seems like a high rate, but from the perspective of 40 years it doesn't look so bad.

I remember being thrilled when a 20 year fixed dropped below 9%! Heck, I can remember when finding ANY rate for ANYy type of loan at less than 12% felt pretty good.


That is very true; much of this is perception. I started at 7.75%.

But the power of the media is the soft market is nothing short of amazing. I have a pretty good client following so it doesn't effect me as much.

But overall, at banks, the number of calls received is dramatically reduced when the media goes nuts hyping interest rate increases.

And if the pre-approvals dip hard, it hits the realtor's harder

[Partial]

I was just thinking about efficient ways to purchase cars today.

How do you guys feel about buying a three year old car, keeping it three years, selling it, repeat?

It seems like a good idea because you'll avoid maintenance costs, always getting newer technology as gas efficiency improves, avoiding the mark-up of a new car, etc.

It seems like a good plan. What do you older, more experienced folk thing?

[MJZiggy]

Getting cars used is a very good idea. You do have to know what to look for in a used car though. I would start with Consumer Reports and see how the cars you're interested in tested out. With today's technology though, unless there is a significant improvement, there is no real need to trade it in after three years. Many cars these days are built to last longer than you'd expect, so unless there's some great advance like when second generation air bags were introduced, there's no reason to trade. There are also articles and such that will tell you that they really haven't made that many advances in mileage, etc. and diesels and hybrids have their own concerns. You have to research it and find the balance you're comfortable with.

I bought my car used, and not only did I save a bundle of cash on it, I also don't have to park my car at the far end of every parking lot.

[Bretsky]

I was just thinking about efficient ways to purchase cars today.

How do you guys feel about buying a three year old car, keeping it three years, selling it, repeat?

It seems like a good idea because you'll avoid maintenance costs, always getting newer technology as gas efficiency improves, avoiding the mark-up of a new car, etc.

It seems like a good plan. What do you older, more experienced folk thing?


I don't consider myself an expert at all here, but I always buy used. Remember that dealers typically take a huge markup for used auto's if you do not do your homework. Markups can be 3G to 8G; these are money makers for dealers. So personally I don't like the every three year plan; but I could be wrong.

I try to get a bang for your buck auto, and then drive it to it's grave or until I start seeing major issues.

My best car up to this point was a 95 GEO Prizm. Bought it from a friend for 8500 when it was one year old; Kelly Blue book indicated that wholesale price should have been a full grand more. But the dealer offered them that price for a trade in and they offered it to us for exact same.

It had 42,000 miles. Was a bright green car; wife and normally everybody hated the color. Called it the Green Bean. The Bean lasted to 235,000 miles with nothing but normal upkeep. Then it died hard 10 years later (last year). Those Honda engines are awesome. I wish all my cars could perform like the Bean.

Great Auto, and I could only hope to have the same longevity out of other auto's.

Going back to RG or SC, the value of cars go down. So go cost effective. Too many have to get that glory car with that $500-$600 monthly payment. Worst decision one can make IMO.

[Partial]

I was just thinking about efficient ways to purchase cars today.

How do you guys feel about buying a three year old car, keeping it three years, selling it, repeat?

It seems like a good idea because you'll avoid maintenance costs, always getting newer technology as gas efficiency improves, avoiding the mark-up of a new car, etc.

It seems like a good plan. What do you older, more experienced folk thing?


I don't consider myself an expert at all here, but I always buy used. Remember that dealers typically take a huge markup for used auto's if you do not do your homework. Markups can be 3G to 8G; these are money makers for dealers. So personally I don't like the every three year plan; but I could be wrong.

I try to get a bang for your buck auto, and then drive it to it's grave or until I start seeing major issues.

My best car up to this point was a 95 GEO Prizm. Bought it from a friend for 8500 when it was one year old; Kelly Blue book indicated that wholesale price should have been a full grand more. But the dealer offered them that price for a trade in and they offered it to us for exact same.

It had 42,000 miles. Was a bright green car; wife and normally everybody hated the color. Called it the Green Bean. The Bean lasted to 235,000 miles with nothing but normal upkeep. Then it died hard 10 years later (last year). Those Honda engines are awesome. I wish all my cars could perform like the Bean.

Great Auto, and I could only hope to have the same longevity out of other auto's.

Going back to RG or SC, the value of cars go down. So go cost effective. Too many have to get that glory car with that $500-$600 monthly payment. Worst decision one can make IMO.

See I would love to do that with the civic because it is definitely the type of car that will run forever.

Problem is I need more storage space. I am always taking my bike places which is a pain without a bigger vehicle, and impossible when I keep my hopper of tennis balls in the car.

I wish someone would make a fuel efficient SUV. I really don't need any towing power or anything like that(I would get an out beater pick-up for that off craigslist), I just want something that gets decent gas mileage and is 3-4 years old.

[MJZiggy]

bike rack? My neighbor drives a Civic and takes his bike all over on a rear mounted rack.

[retailguy]

I was just thinking about efficient ways to purchase cars today.

How do you guys feel about buying a three year old car, keeping it three years, selling it, repeat?

It seems like a good idea because you'll avoid maintenance costs, always getting newer technology as gas efficiency improves, avoiding the mark-up of a new car, etc.

It seems like a good plan. What do you older, more experienced folk thing?

The typical car loses 60% of it's value in the first 4 years. That means a 28000 car becomes an 11000 car.

I don't understand what you're trying to achieve by "cycling" cars every 3 years, but that civic you have will run for the next 10 years virtually free. At the end of that time, if you've done what we've told you to do, you can pay cash for whatever you want....

As to the bike, you can get a hitch for the car you've got for a couple hundred dollars, then get a hitch mounted removable bike rack and take your bike wherever you want. We do it with my Mercedes all the time.

[oregonpackfan]

I was just thinking about efficient ways to purchase cars today.

How do you guys feel about buying a three year old car, keeping it three years, selling it, repeat?

It seems like a good idea because you'll avoid maintenance costs, always getting newer technology as gas efficiency improves, avoiding the mark-up of a new car, etc.

It seems like a good plan. What do you older, more experienced folk thing?

Consumer advocate Clark Howard recommends buying a good used car that is 2-3 years old, maintaining it well, and driving it until the wheels fall off.

Of course, as other posters have mentioned, research the car type thoroughly through Consumer Reports, etc. before you buy it.

I am a BIG believer in Honda Civics. They just last and last with little financial upkeep. We did buy our '93 Honda Civic new but the thing still runs great 14 years later with 168,000 miles on it. It still gets 32 mpg around town and has NEVER needed a repair except for scheduled maintenance.

My 19 year old now drives it. Having her drive that car gives me a fatherly, protective, feeling of confidence as I know it will perform well and safely for an economy car.

Get the bike rack for the rear of the Civic and drive that thing until it croaks.

[GrnBay007]

I was reading some articles on real estate. Came across this...pretty shocking....


NEW YORK (Reuters) -- Home foreclosures in May jumped 90 percent from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007, real estate data firm RealtyTrac said Tuesday.

The May foreclosures -- a sum of default notices, auction sale notices and bank repossessions -- totaled 176,137, up 19 percent from April, the firm said in its May 2007 U.S. Foreclosure Market Report.


Now, for those with lots of cash laying around and interested in rental properties, it would seem this would be the time to buy, right?

[Partial]

I don't understand what you're trying to achieve by "cycling" cars every 3 years, but that civic you have will run for the next 10 years virtually free. At the end of that time, if you've done what we've told you to do, you can pay cash for whatever you want.....

Well, being the type of person who gets bored of things relatively quickly, I would probably cycle purely for my own enjoyment of driving different vehicles.

Anna's parents took away her Pathfinder and replaced it with a Ford Ranger, which has now been replaced with a year old Mazda 6. So, I've lost out on the big vehicle borrowing of hers, so I was eyeing up the Honda element as well as a few other smaller suvs.

[retailguy]

I was reading some articles on real estate. Came across this...pretty shocking....


NEW YORK (Reuters) -- Home foreclosures in May jumped 90 percent from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007, real estate data firm RealtyTrac said Tuesday.

The May foreclosures -- a sum of default notices, auction sale notices and bank repossessions -- totaled 176,137, up 19 percent from April, the firm said in its May 2007 U.S. Foreclosure Market Report.


Now, for those with lots of cash laying around and interested in rental properties, it would seem this would be the time to buy, right?


Exactly. It is a good time for cash buyers when it is a bad time for everyone else.

'course it's a good time for cash buyers all the time. :wink:

if buying with "no money" down is not a bad thing, why are foreclosures up? Maybe because prices are down while interest rates are up, and these fools have little to no equity to ride out the storm? makes you think, huh?

[MJZiggy]

I don't understand that part. What does the equity have anything to do with the foreclosures? I would think that would have more to do with increasing arms and funky terms that cause the payment to explode unexpectedly.

[Bretsky]

On the subject of credit cards, I read somewhere about signing up for those 0% APR for a year type of deals and then when the year is almost up transferring all your balance to another offer for 0% interest. Does anyone do this?


I have a number of clients who do this; I'm not overly bias one way or the other. It's a good idea in principal as long as you have a plan with the end result to get them to a zero balance.

Sometimes people do this, their credit gets damaged, and they can't transfer the money to another card. If that occurs then the CC company whacks you with all the back interest from the months you were paying zero percent.

My wife has did this a few times with a Menards card; with her side biz she pays it off before the offer expires. That's the good way to use it.

Flipping from card to card; as long as you do do responsibly with a plan I'm OK with it.

[Partial]

If you had a small company that sells insurance in Milwaukee right now, what would could be done to improve business and get more customers? With all the advertising progressive and geico do(despite them being terrible insurance companies), it is tough to gain and keep clients these days. What are some good ways to increase traffic?

[Bretsky]

If you had a small company that sells insurance in Milwaukee right now, what would could be done to improve business and get more customers? With all the advertising progressive and geico do(despite them being terrible insurance companies), it is tough to gain and keep clients these days. What are some good ways to increase traffic?


Cold calls; more cold calls. And more cold calls. It's not fun, but that's the way to build an insurance company......well that..along with being reliable and getting people to trust in you

[Partial]

If you had a small company that sells insurance in Milwaukee right now, what would could be done to improve business and get more customers? With all the advertising progressive and geico do(despite them being terrible insurance companies), it is tough to gain and keep clients these days. What are some good ways to increase traffic?


Cold calls; more cold calls. And more cold calls. It's not fun, but that's the way to build an insurance company......well that..along with being reliable and getting people to trust in you

What is a cold call? How did you build your client base for mortgages? I would imagine in sales you would want to start as young as you can to get as many clients as you can.

[MJZiggy]

I need a new credit card. Is there any type of site anywhere that you can compare the terms, fees, rates, etc. of different companies? I'm mainly interested in the fees and I usually don't carry a balance.

[BallHawk]

I need a new credit card. Is there any type of site anywhere that you can compare the terms, fees, rates, etc. of different companies? I'm mainly interested in the fees and I usually don't carry a balance.

Hope this site helps.

http://www.e-wisdom.com/credit_cards/

[Bretsky]

If you had a small company that sells insurance in Milwaukee right now, what would could be done to improve business and get more customers? With all the advertising progressive and geico do(despite them being terrible insurance companies), it is tough to gain and keep clients these days. What are some good ways to increase traffic?


Cold calls; more cold calls. And more cold calls. It's not fun, but that's the way to build an insurance company......well that..along with being reliable and getting people to trust in you

What is a cold call? How did you build your client base for mortgages? I would imagine in sales you would want to start as young as you can to get as many clients as you can.

For insurance I'd consider a cold call to call people you know, or don't, and try to solicit business.

For my client base in mortgages, I've did my best to tell everybody who knows me on a personal level that I'm the home loan guy in the area. Then I've introduced myself to business community leaders and market to real estate agents on a consistent basis.

But most importantly, I've established a reputation for being an honest guy who is fair with people and that gets me referrals from past clients.

[Bretsky]

If you had a small company that sells insurance in Milwaukee right now, what would could be done to improve business and get more customers? With all the advertising progressive and geico do(despite them being terrible insurance companies), it is tough to gain and keep clients these days. What are some good ways to increase traffic?


Cold calls; more cold calls. And more cold calls. It's not fun, but that's the way to build an insurance company......well that..along with being reliable and getting people to trust in you

What is a cold call? How did you build your client base for mortgages? I would imagine in sales you would want to start as young as you can to get as many clients as you can.

In my first sales job, fresh out of college, I was a part time insurance agent.

My first assignment was to list 200 adults I knew. Then I called them at home and introduced myself as

Brett ......... from ..........name of insurance company, and I'd like to talk with you about a unique way of accumulating money...etc....would an afternoon or evening meeting work best for you.


THAT IS A TRUE COLD CALL; NOT A LOT OF FUN if you think about it.

But many companies are out there doing this.

[Partial]

Do you guys think small market insurance agency's are going to be around in 15 years (or even 30,40,50 etc)?

I think like everything else it is just a matter of time before the big business gets to them.

I am in line to take over the family insurance agency but with business slowing down over the past 2-3 years I think it is starting to go the way of the buffalo.

I was thinking running that and maybe building and managing an apartment building(5-10 apts) would be a sweet deal. However, then I thought about the cost of buying that much land and building that big of a building, and realized I don't have a few million sitting around.

[Partial]

So, I am thinking about opening up a no interest credit card for a year. I would have no problem paying off whatever I put on it, so I am not at all concerned about that.

What am I concerned about is cancelling the card. I have a few active cards right now (all cut up, I don't pay in credit, I simply used them for the interest free financing in the past). Will it negatively affect me by canceling them? Will it negatively affect me to have 10-12k in available credit? In theory, with how many cards there are like this available, couldn't I do this repeatedly and essentially get free money by keeping my money in the bank accumulating interest (albeit a small amount)?

I want to have the best possible credit a few years from now when house and engagement ring buying time comes around.

[the_idle_threat]

A large part of your credit score is determined by a ratio of the amount of credit you are using vs. how much available credit you have. It figures that if you have a lot of available credit line and you use relatively little of it, you must be responsible with credit. Since old, unused credit accounts are extra available credit, they help your credit score. Closing them hurts your credit score by reducing the denominator in the ratio.

You credit score also takes into account (to a lesser degree) the age of your accounts, including an average age of credit accounts. So opening one new account will lower the average, and your score, but as the new account gets to be an old account this effect will fade. If you were to open a lot of new accounts in a short time, though, or continually open new accounts, your score would drop much more.

All this I know from listening to Clark Howard, and also by going to this site (which I found linked from clarkhoward.com):

http://www.myfico.com/Downloads/Brochures.aspx#uycs

[MadtownPacker]

IDLE gots it right. The more that is available to you and you dont use makes you look good. It sounds like you are trying to crank up your score then you should get the no interest card and pay everything you can with it (gas, phone, etc) then pay it off every month.

[Freak Out]

IDLE gots it right. The more that is available to you and you dont use makes you look good. It sounds like you are trying to crank up your score then you should get the no interest card and pay everything you can with it (gas, phone, etc) then pay it off every month.

The thing you have to remember about available credit is it can stop you from getting a traditional loan/mortgage until you cancel the cards/accounts.

[MadtownPacker]

This chump aint buying a house anytime soon. He is waiting on his girllfriend to come back from Florida. But by now she has found some rich Florida stud who doesnt wear glasses and has good credit. :lol:

[Freak Out]

This chump aint buying a house anytime soon. He is waiting on his girllfriend to come back from Florida. But by now she has found some rich Florida stud who doesnt wear glasses and has good credit. :lol:

:lol:

I know this is just your way of showing you care about him.

[Partial]

What are the tax benefits of a single-person llc?

From what I gather, I would pay tax up front at 15.3% of my income.

From that, I can deduct the 7.6% from my taxes, and then deduct any llc related expenses, so if I had to buy a computer, or a big screen for presentations, etc.

I've been researching and I'm not really seeing the benefit myself, but I hear there are some loopholes. Any thoughts?

[retailguy]

What are the tax benefits of a single-person llc?

There aren't any. The main benefit of a single owner LLC is limited liability. In fact, you file a single owner LLC on a schedule C, just like a sole proprietor.



From what I gather, I would pay tax up front at 15.3% of my income.

Yes, after the 1st $430 or so, up to the 2009 maximum which is $106,800. Please note that this is Social Security tax. You would pay income tax above and beyond this 15.3%.



From that, I can deduct the 7.6% from my taxes, and then deduct any llc related expenses, so if I had to buy a computer, or a big screen for presentations, etc.

This is not a valid reason to start an LLC. Not sure what you mean by 7.6% from your taxes.

You would start an LLC to form a business, but trying to deduct a big screen or computer without any bonified income stream is just asking for problems.



I've been researching and I'm not really seeing the benefit myself, but I hear there are some loopholes. Any thoughts?

Give up on the idea of "loopholes". If you want to start a business, yes, you can do that, but trying to find ways to not pay taxes is in most cases illegal, and will just wind up with you spending more money in the long run.

Keep this in mind - many have come before you and what you are "thinking of" has already been tried.

If you want to start a legitimate business and you want to give yourself limited liability, I usually suggest an s-corp. I like that vehicle much better for a single owner business than an LLC. Some do, some don't, but that's what I prefer.

[Partial]

I have a job offer right now that is based on a 1099 so I'm trying to learn the facts. When one factors in the lack of bennies, it isn't a very competitive offer :(

[retailguy]

I have a job offer right now that is based on a 1099 so I'm trying to learn the facts. When one factors in the lack of bennies, it isn't a very competitive offer :(

I would not work like that right now. After you have some experience it will be a better deal because your billing rate will be higher.

The time will come when you can "consult". It isn't right now.

Just be patient, good jobs are out there despite what the naysayers are saying.

Just stay positive.

[Tyrone Bigguns]

I have a job offer right now that is based on a 1099 so I'm trying to learn the facts. When one factors in the lack of bennies, it isn't a very competitive offer :(

In the past I worked 1099. If you are aggressive it can work for you..but, it is work.

I deducted quite a bit: Home office, supplies, furniture, cell phone, meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz), office equipment, software, mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation), travel (100% for hotel...50% for meals), etc.

[arcilite]

I'm a 1099 worker... it takes someone thats ..... not lazy... to really make it work.

[Partial]

I have a job offer right now that is based on a 1099 so I'm trying to learn the facts. When one factors in the lack of bennies, it isn't a very competitive offer :(

In the past I worked 1099. If you are aggressive it can work for you..but, it is work.

I deducted quite a bit: Home office, supplies, furniture, cell phone, meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz), office equipment, software, mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation), travel (100% for hotel...50% for meals), etc.

Yeah, it sounds like a sweet deal if you're in a position where you have some cash built up and have a big enough network to find work.

If I could get 45 an hour I think I'd do it. Maybe 40.

How much were you paying in health insurance for one person? I don't even have the slightest clue as to how to go about doing that. Would need to do some Googling.

[retailguy]

meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz),

partial, this is an example of what I'm talking about. THIS IS NOT LEGAL. Those that have gone before you have f'ed it up for all of us. This type of meal has been specifically exempted by the IRS because it has been abused so much.



mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation)

Here's another example... You can do either, but not both. It should be common sense that you can't both depreciate your auto PLUS claim mileage, but people don't think. You have choice, you can depreciate and take actual expenses, or you can take the mileage deduction, but you CANNOT do both.

I deleted the other stuff but it doesn't mean that I agree with it, I just didn't want to refute everything.

It is more than likely that Tyrone just googled some website and copied the content.

whatever you do, don't listen to what others are doing. It isn't worth it. You need a QUALIFIED tax professional if you do this, not some idiot with a copy of turbo tax.

[HowardRoark]

Page 5 of Obama’s Novaya Ekonomicheskaya Politika….er, um, Budget:

"While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."

"Prudent investments in education, clean energy, health care and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected."

"There's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few. . . It's a legacy of irresponsibility, and it is our duty to change it."

Instead of devising Byzantine tax dodging strategies, you might want to either: 1) practice bending forward and grabbing your ankles, or 2) don’t work so hard.

[Patler]

meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz),

partial, this is an example of what I'm talking about. THIS IS NOT LEGAL. Those that have gone before you have f'ed it up for all of us. This type of meal has been specifically exempted by the IRS because it has been abused so much.



mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation)

Here's another example... You can do either, but not both. It should be common sense that you can't both depreciate your auto PLUS claim mileage, but people don't think. You have choice, you can depreciate and take actual expenses, or you can take the mileage deduction, but you CANNOT do both.

I deleted the other stuff but it doesn't mean that I agree with it, I just didn't want to refute everything.

It is more than likely that Tyrone just googled some website and copied the content.

whatever you do, don't listen to what others are doing. It isn't worth it. You need a QUALIFIED tax professional if you do this, not some idiot with a copy of turbo tax.

Partial;
Retail is right. Deductions for meals, entertainment etc. have changed a lot in recent years and are not even close to what the uninformed think they are. Even when you travel, there are limits on what you can do with meal expenses.

Home office? - Not that easy to deduct any more. It must be used exclusively and regularly for business operations. If the area has a dual use, both business and personal, it is not deductible. What you get to deduct, generally a percentage of expenses, taxes etc. based on square footage of the office area to the overall square footage of the home is very small. I know many independent contractors (1099ers) who gave up their home office deductions because they either no longer qualified because of the dual use aspect, or the deduction was so small as to not be worth it. Home office expenses have been an IRS target for audits.

Mileage expenses? - Be prepared to document at the time of travel your odometer reading at the start and the end of the trip and the business purpose of the trip. A contemporaneous record is essential.

If you are considering this, go to the IRS website and get some of their Publications on business expenses, home office expenses, etc. They are not that difficult to read and understand. Unlike the IRS tax forms and instructions, their Publications are usually short and to the point, with lots of examples. You need to have an understanding of it even if you use a tax professional.

I highly recommend using a person who does taxes full time, not just one of the seasonal temps that so many "tax services" use. You may only need them once a year, but it is better to develop a relationship with someone who will understand your business operation.

[retailguy]

Patler - :clap:

well said.

Partial, you can do this if you really want to. But don't kid yourself, you will pay taxes. You'll have valid expenses, but you'll run into a lot of people who'll offer you advice, and that advice will probably be wrong.

Many people think that self employed workers get "all the benefits", but they come at a cost. documentation is one, time is another, and increased scrutiny from the IRS is a third.

Don't use anything except a trusted tax professional or the IRS to get advice from, and Patler is right. If you spend some time on the IRS website, you'll find the ruling you need.

Biggest issues that I see for you right now, is, lack of benefits. Insurance is important, but you're young and can afford private high deductible policies with an HSA. 401k match hurts, as well as no retirement plan. no paid vacation or sick time when you work on a 1099 either.

Also, you are gaining experience working for someone else, without the "resume" benefit. If later, you decide to go to work for someone else, they won't value your "independent contractor" work in the same way as if you were on the payroll. that's not a decision not to work on a 1099, but be prepared to "start at the bottom" if you switch to a w-2 based job in a few years.

Even with all my experience, having "self employment" lines on a resume was another thing to overcome. I did it, and do quite well, but in no way was my experience as valued as it should have been.

[GrnBay007]

Biggest issues that I see for you right now, is, lack of benefits. Insurance is important, but you're young and can afford private high deductible policies with an HSA. 401k match hurts, as well as no retirement plan. no paid vacation or sick time when you work on a 1099 either.



Just curious. I've been at the same job a long time so not so sure what's out there anymore in terms of benefits. Do many jobs even offer a retirement plan anymore?

[Patler]

Biggest issues that I see for you right now, is, lack of benefits. Insurance is important, but you're young and can afford private high deductible policies with an HSA. 401k match hurts, as well as no retirement plan. no paid vacation or sick time when you work on a 1099 either.



Just curious. I've been at the same job a long time so not so sure what's out there anymore in terms of benefits. Do many jobs even offer a retirement plan anymore?

There are fewer and fewer with the conventional old retirement plans that old guys like me think of. It seems most now use some sort of transferable plan, like a 401k or the like, with some combination of fixed contributions, matching contributions and/or profit sharing contributions paid into it by the employer. Eligibility periods and vesting periods are much lower than old type retirement plans had, but most have direct employee contributions making up a large portion of it and that always goes with you.

[Partial]

I'm not looking to cheat the IRS or see the big benefits. That's why I asked, as it seemed pretty similiar to regular employment when all was said and done. Since I'm in a big apartment and only have a bedroom, I can't deduct it.


The point is if I can get him to go up in income, it will be a pretty good opportunity. It's going to be for one legit company, and in all likelyhood, the 1099 payment would only be for the first few months while everything gets set up. I'd be employee two. The guy running things has run successful businesses in the past, though, so I trust that we'd at the very least have jobs for 6 months.

Unless there is a lot more cash, the job isn't at all appealing since you don't really have any protection if you get laid off, etc. However, like I said, if I can 40-45 dollars an hour, thats 80-90k. That's about 20 thousand more than I could see any w-2 job matching, and even with health insurance and the extra 7.5 % in taxes, it is like a nice chunk of money more, which will go a long way towards establishing a nest egg.

[Patler]

I'm not looking to cheat the IRS or see the big benefits. That's why I asked, as it seemed pretty similiar to regular employment when all was said and done. Since I'm in a big apartment and only have a bedroom, I can't deduct it.


The point is if I can get him to go up in income, it will be a pretty good opportunity. It's going to be for one legit company, and in all likelyhood, the 1099 payment would only be for the first few months while everything gets set up. I'd be employee two. The guy running things has run successful businesses in the past, though, so I trust that we'd at the very least have jobs for 6 months.

Unless there is a lot more cash, the job isn't at all appealing since you don't really have any protection if you get laid off, etc. However, like I said, if I can 40-45 dollars an hour, thats 80-90k. That's about 20 thousand more than I could see any w-2 job matching, and even with health insurance and the extra 7.5 % in taxes, it is like a nice chunk of money more, which will go a long way towards establishing a nest egg.

There is another issue that comes up, and that is whether the job even meets the definition for an independent contractor. There is a list of something like 11 criteria that must be met. The biggest and simplest one that many 1099ers don't meet is independent control over their work time (when they work) and projects (what they work on that day). Companies used to hire rafts of people as independent contractors, but specified their work schedules, told them where to work, what to work on, etc. just like with an employee. The IRS considers many of those to be employees, even if they are paid on 1099s.

Again, you can get the definition from the IRS website, and decide if the job will really meet the definition or not.

[retailguy]

I'm not looking to cheat the IRS or see the big benefits. That's why I asked, .

sorry partial, I owe you an apology. I see/hear words like "loophole", and then read things like "it's a business meal, b/c we talk about biz", it hits my "hot" button. that's my issue, not yours, and I apologize.

Working with those clients who thought they were smarter than the IRS, and that their "interpretation" had validity just because they thought of it was frustrating. While those clients were lucrative for me, because the IRS had their nuts in a vise (usually), they were a pain in the ass to deal with.

Partial, just be careful in what you ask for, if you make the hourly rate too high, it would be cheaper for them to hire you. The reality is, it isn't that expensive to hire someone, it gets expensive with the benefits, etc. He's probably not going to "save" as much as he thinks. If he doesn't want to pay state unemployment, or file the appropriate paperwork, then what else doesn't he want to do legitimately?

My worry is that this guy is just trying to save a few $'s at your expense. When you sit down with him, ask him what he "thinks" he's saving by not hiring you as an employee. The answer to that question will give you an idea of what the goal really is. If there is a legitimate reason, then when you both put your concerns on the table you'll work it out.

Otherwise, you bear the risk, and if it doesn't work, you have no unemployment benefits to fall back on, or, if his relationship with you is improper, then you've got to fight the unemployment folks to get benefits. It isn't a good place to be in especially if your only motivation is a few extra bucks.

Improper 1099 worker relationships happen all the time, and Patler has given you the basic tests. He probably doesn't qualify, but even then it is still done all the time. If it is short term, and in conjunction with a new business, it may escape scrutiny, however, know the rules to protect yourself.

[Bretsky]

could take the job while spending all your spare time looking for a better job

Long term............not a good gig IMO

[Partial]

He shot down my updated figures. Probably not going to go that route as it doesn't seem to be financially beneficial.

[GrnBay007]

He shot down my updated figures. Probably not going to go that route as it doesn't seem to be financially beneficial.

Are you completely done with school now?

[Tyrone Bigguns]

I'm a 1099 worker... it takes someone thats ..... not lazy... to really make it work.

True.

And, hiring a good accountant.

[Tyrone Bigguns]

meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz),

partial, this is an example of what I'm talking about. THIS IS NOT LEGAL. Those that have gone before you have f'ed it up for all of us. This type of meal has been specifically exempted by the IRS because it has been abused so much.



mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation)

Here's another example... You can do either, but not both. It should be common sense that you can't both depreciate your auto PLUS claim mileage, but people don't think. You have choice, you can depreciate and take actual expenses, or you can take the mileage deduction, but you CANNOT do both.

I deleted the other stuff but it doesn't mean that I agree with it, I just didn't want to refute everything.

It is more than likely that Tyrone just googled some website and copied the content.

whatever you do, don't listen to what others are doing. It isn't worth it. You need a QUALIFIED tax professional if you do this, not some idiot with a copy of turbo tax.

Find one instance where i hinted/suggested this was what i was doing currently.

Lunches: I have no idea what is legal..now or back then, but i trust my accountant who I hired to advise me..not you. Since, it was in the late 90s..i'm inclined to believe it was legal. And, if it wasn't...great for me. So, piss off.

But, more importantly..that wasn't a narrative to be followed. I was giving some things i did and some things to consider. I certainly didn't lease a car and buy a car.

[Tyrone Bigguns]

meals (i had at the minimum 3 business lunches a week...eating with coworkers..of course we were talking biz),

partial, this is an example of what I'm talking about. THIS IS NOT LEGAL. Those that have gone before you have f'ed it up for all of us. This type of meal has been specifically exempted by the IRS because it has been abused so much.



mileage (notebook), car (leasing..deduct it)...bought a car (interest..depreciation)

Here's another example... You can do either, but not both. It should be common sense that you can't both depreciate your auto PLUS claim mileage, but people don't think. You have choice, you can depreciate and take actual expenses, or you can take the mileage deduction, but you CANNOT do both.

I deleted the other stuff but it doesn't mean that I agree with it, I just didn't want to refute everything.

It is more than likely that Tyrone just googled some website and copied the content.

whatever you do, don't listen to what others are doing. It isn't worth it. You need a QUALIFIED tax professional if you do this, not some idiot with a copy of turbo tax.

Partial;
Retail is right. Deductions for meals, entertainment etc. have changed a lot in recent years and are not even close to what the uninformed think they are. Even when you travel, there are limits on what you can do with meal expenses.

Home office? - Not that easy to deduct any more. It must be used exclusively and regularly for business operations. If the area has a dual use, both business and personal, it is not deductible. What you get to deduct, generally a percentage of expenses, taxes etc. based on square footage of the office area to the overall square footage of the home is very small. I know many independent contractors (1099ers) who gave up their home office deductions because they either no longer qualified because of the dual use aspect, or the deduction was so small as to not be worth it. Home office expenses have been an IRS target for audits.

Mileage expenses? - Be prepared to document at the time of travel your odometer reading at the start and the end of the trip and the business purpose of the trip. A contemporaneous record is essential.

If you are considering this, go to the IRS website and get some of their Publications on business expenses, home office expenses, etc. They are not that difficult to read and understand. Unlike the IRS tax forms and instructions, their Publications are usually short and to the point, with lots of examples. You need to have an understanding of it even if you use a tax professional.

I highly recommend using a person who does taxes full time, not just one of the seasonal temps that so many "tax services" use. You may only need them once a year, but it is better to develop a relationship with someone who will understand your business operation.

I'm sure they have...as "in the past" referred to the late 90s.

Meals: I don't know what is current.

Office: Sounds about the same. For me, it was a way to furnish a second bedroom. And, i had the exact measurement of the room and wrote off that percent on my total payments. Made it an office: desk, computer, lamp, small stereo, futon. Now, was it only used as such? Legit question. :wink:

Mileage: Same. I had a notebook. This was pretty common. More importantly, for me, I also had a 2nd job..so i had to keep track of mileage from 1 to the other...and i seem to recall that i had to subtract that..as it couldn't be deducted.

Tax: Couldn't agree more. And, i would say that within that profession there is a wide spectrum. I found one that was highly aggressive.

[Tyrone Bigguns]

I'm not looking to cheat the IRS or see the big benefits. That's why I asked, as it seemed pretty similiar to regular employment when all was said and done. Since I'm in a big apartment and only have a bedroom, I can't deduct it.


The point is if I can get him to go up in income, it will be a pretty good opportunity. It's going to be for one legit company, and in all likelyhood, the 1099 payment would only be for the first few months while everything gets set up. I'd be employee two. The guy running things has run successful businesses in the past, though, so I trust that we'd at the very least have jobs for 6 months.

Unless there is a lot more cash, the job isn't at all appealing since you don't really have any protection if you get laid off, etc. However, like I said, if I can 40-45 dollars an hour, thats 80-90k. That's about 20 thousand more than I could see any w-2 job matching, and even with health insurance and the extra 7.5 % in taxes, it is like a nice chunk of money more, which will go a long way towards establishing a nest egg.

There is another issue that comes up, and that is whether the job even meets the definition for an independent contractor. There is a list of something like 11 criteria that must be met. The biggest and simplest one that many 1099ers don't meet is independent control over their work time (when they work) and projects (what they work on that day). Companies used to hire rafts of people as independent contractors, but specified their work schedules, told them where to work, what to work on, etc. just like with an employee. The IRS considers many of those to be employees, even if they are paid on 1099s.

Again, you can get the definition from the IRS website, and decide if the job will really meet the definition or not.

This is not an issue that he should worry about. We all know the reality of the situation.

[Tyrone Bigguns]

He shot down my updated figures. Probably not going to go that route as it doesn't seem to be financially beneficial.

If you dont' have anything else..then take it.

But, you shouldn't have any loyalty. You are a 1099.

And, you should be looking for perm...and if done right..you keep the old position as free lance.

[Patler]

There is another issue that comes up, and that is whether the job even meets the definition for an independent contractor. There is a list of something like 11 criteria that must be met. The biggest and simplest one that many 1099ers don't meet is independent control over their work time (when they work) and projects (what they work on that day). Companies used to hire rafts of people as independent contractors, but specified their work schedules, told them where to work, what to work on, etc. just like with an employee. The IRS considers many of those to be employees, even if they are paid on 1099s.

Again, you can get the definition from the IRS website, and decide if the job will really meet the definition or not.

This is not an issue that he should worry about. We all know the reality of the situation.

Of course it is something he should be concerned with, and understand. Anyone who sets themselves up in a nontraditional employer/employee situation should know what it is that they are doing.

[Tyrone Bigguns]

There is another issue that comes up, and that is whether the job even meets the definition for an independent contractor. There is a list of something like 11 criteria that must be met. The biggest and simplest one that many 1099ers don't meet is independent control over their work time (when they work) and projects (what they work on that day). Companies used to hire rafts of people as independent contractors, but specified their work schedules, told them where to work, what to work on, etc. just like with an employee. The IRS considers many of those to be employees, even if they are paid on 1099s.

Again, you can get the definition from the IRS website, and decide if the job will really meet the definition or not.

This is not an issue that he should worry about. We all know the reality of the situation.

Of course it is something he should be concerned with, and understand. Anyone who sets themselves up in a nontraditional employer/employee situation should know what it is that they are doing.

I don't care who you are, where you work, etc...1099 employees are never treated as independent contractors.

The rules of 1099 are no different than regular employee...keep your head down and your mouth shut. :wink:

[retailguy]

I don't care who you are, where you work, etc...1099 employees are never treated as independent contractors.

The rules of 1099 are no different than regular employee...keep your head down and your mouth shut. :wink:

This should prove beyond a shadow of a doubt that you have no clue about what you're talking about.

[Tyrone Bigguns]

I don't care who you are, where you work, etc...1099 employees are never treated as independent contractors.

The rules of 1099 are no different than regular employee...keep your head down and your mouth shut. :wink:

This should prove beyond a shadow of a doubt that you have no clue about what you're talking about.

Really?

I have been a 1099, regular employee, contractor and consultant. You are the one that hasnt' been in the IT field working like i did..and as partial wishes.

Any 1099/contracted employee that thinks they are going to determine their hours is a 1099/contractor employee soon to be let go...or not rehired for another contract. And, that is the bottom line....getting to stay on or being rehired.

The whole point of companies using 1099/contracted employes is the ability to let them go at any point in time..with no repercussions. As a contracted employee your primary job is to REMAIN EMPLOYED. You do so by: doing good work, doing whatever they ask, working whatever amount of hours are needed to get the work done, keeping your mouth shut, etc....THAT IS WHAT THEY ARE PAYING YOU FOR!

The more to you post, the dumber you look.

[Patler]

I don't care who you are, where you work, etc...1099 employees are never treated as independent contractors.

The rules of 1099 are no different than regular employee...keep your head down and your mouth shut. :wink:

This should prove beyond a shadow of a doubt that you have no clue about what you're talking about.

Really?

I have been a 1099, regular employee, contractor and consultant. You are the one that hasnt' been in the IT field working like i did..and as partial wishes.

Any 1099/contracted employee that thinks they are going to determine their hours is a 1099/contractor employee soon to be let go...or not rehired for another contract. And, that is the bottom line....getting to stay on or being rehired.

The whole point of companies using 1099/contracted employes is the ability to let them go at any point in time..with no repercussions. As a contracted employee your primary job is to REMAIN EMPLOYED. You do so by: doing good work, doing whatever they ask, working whatever amount of hours are needed to get the work done, keeping your mouth shut, etc....THAT IS WHAT THEY ARE PAYING YOU FOR!

The more to you post, the dumber you look.

Ty, let it go. Your advice or commentary is way of base in this string. Maybe that's what happened to you, but it is not the norm of a 1099 worker, nor should it be, especially under today's rules.

[Tyrone Bigguns]

I don't care who you are, where you work, etc...1099 employees are never treated as independent contractors.

The rules of 1099 are no different than regular employee...keep your head down and your mouth shut. :wink:

This should prove beyond a shadow of a doubt that you have no clue about what you're talking about.

Really?

I have been a 1099, regular employee, contractor and consultant. You are the one that hasnt' been in the IT field working like i did..and as partial wishes.

Any 1099/contracted employee that thinks they are going to determine their hours is a 1099/contractor employee soon to be let go...or not rehired for another contract. And, that is the bottom line....getting to stay on or being rehired.

The whole point of companies using 1099/contracted employes is the ability to let them go at any point in time..with no repercussions. As a contracted employee your primary job is to REMAIN EMPLOYED. You do so by: doing good work, doing whatever they ask, working whatever amount of hours are needed to get the work done, keeping your mouth shut, etc....THAT IS WHAT THEY ARE PAYING YOU FOR!

The more to you post, the dumber you look.

Ty, let it go. Your advice or commentary is way of base in this string. Maybe that's what happened to you, but it is not the norm of a 1099 worker, nor should it be, especially under today's rules.

Who was holding on? I certainly didn't criticize anyone's view...nor did i talk about something i know little of.

My commentary is closer to reality than anyone else's. I have been a 1099 working in IT. Retail hasn't. Partial hasn't. Perhaps you have. My experience includes work at Siemens, Disney, Harcourt, etc.

And, your comment about corps requiring 1099s/contractors to work as reg employees..and then got in trouble...nothing changed. The only signficant change was that after X amount of time you were let go..only to be rehired after X amount of time.

What is without dispute is that any employee's purpose is to remain employed. And, "enforcing" your 1099/independent status by not being available for meetings, asking for meetings to accomodate your sked, etc...is asking to be let go. Or for them to start looking around for a more compliant contractor.

That is one of the reasons contractors get paid..and often paid more than reg employees...so that they can be treated like dirt. You can't do that with reg employees..HR, etc. And, as opposed to a problematic employee...contractors are just let go...not assigned to another group, who then have to discover their new member is worthless.

If a PM told me to photocopy for 8 hours a day for 8 weeks...then, that is what i did. They met my bill rate....i do what i'm told.

[Partial]

Alright Gents, I have some questions on how a 23 year old (24 in August) should handle their money.

I've got an income of 57k before taxes as a W-2 employee.

I have 14k in debt. I have 2.5k in the bank.

My living situation is free of charge.

I will have about 500 a month in fixed expenses every month. This includes food, health insurance, living situation (I'm squatting free of charge), gas, etc.

My parents want me to get outta debt asap so they're covering my cell phone and car insurance.

With that said, how would you guys go about attacking this to maximize the earnings?

RG, Bretsky, Freakout, etc, any thoughts?

[Partial]

Nothing? When I actually need some financial planning none of the money gurus are around? :D

[retailguy]

My parents want me to get outta debt asap so they're covering my cell phone and car insurance.


Partial, I saw this yesterday and was going to respond, but I've been swamped lately....

The sentence that I quoted really answers all of your questions.

If you agree to take this money from your folks, you owe it to them to get your bills paid off. If you don't want to do that, then don't take their money.

Assuming that you approach eliminating the debt, you can get out fast with your income, and limited living expenses. You should be debt free in less than a year.

Dave Ramsey would recommend that you do the following: 1 - establish a $1k emergency fund. 2 - organize your debt from largest debt to the smallest debt, 3 - make minimum payments on all bills, except the smallest and pay every dime of the monies against that debt. When you pay it off, you attack the next one. In your case, Dave would advocate that you take that extra $1500 out of savings and use it to pay down debt.

Dave advocates that you stop all unnecessary spending. You stop 401K contributions, even if there is a match, you stop eating out, and keep a very small, but reasonable spending money budget. That is the ONLY way it makes sense to stop your 401k contributions.

For your situation, I think this is a great plan. You have a lot of debt for a 23 year old (I assume a good chunk of this is student loan debt), but your folks are right. If you get debt free now, you will change your life. Hope you do this and start tomorrow.

[Partial]

Would you recommend given that this is supposedly a "once in a lifetime" opportunity for investing? At the very least should I do the roth?

It's all student loans, so I'm considering consolidating. That's what my parents recommend. What do you think?

State tax: 6.25% + 1042 =3855
Federal tax: 11250 :(
Fica: 3465
total taxes: 18570

After taxes should have about 35k left over. Absolutely no reason that I can't pay off debt and save 8-10k easily this year I would think.

[retailguy]

Would you recommend given that this is supposedly a "once in a lifetime" opportunity for investing? At the very least should I do the roth?

It's all student loans, so I'm considering consolidating. That's what my parents recommend. What do you think?

State tax: 6.25% + 1042 =3855
Federal tax: 11250 :(
Fica: 3465
total taxes: 18570

After taxes should have about 35k left over. Absolutely no reason that I can't pay off debt and save 8-10k easily this year I would think.

Do the roth after you pay off the debt. Just get rid of it.

Welcome to the wonderful world of taxes... they get the little guy first. :wink:

If there are any fees at all, don't consolidate. You'll pay it off in less than a year, what's the point? Just start paying, and paying quick. Then save and invest. Follow Dave's plan, don't deviate.

[MJZiggy]

I thought you were supposed to arrange the debts from highest interest rate to lowest, not biggest to smallest?

[Patler]

Alright Gents, I have some questions on how a 23 year old (24 in August) should handle their money.

I've got an income of 57k before taxes as a W-2 employee.

I have 14k in debt. I have 2.5k in the bank.

My living situation is free of charge.

I will have about 500 a month in fixed expenses every month. This includes food, health insurance, living situation (I'm squatting free of charge), gas, etc.

My parents want me to get outta debt asap so they're covering my cell phone and car insurance.

With that said, how would you guys go about attacking this to maximize the earnings?

RG, Bretsky, Freakout, etc, any thoughts?

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses. This is a no brainer, pay off all your debt, AND contribute to an IRA/Roth

Monthly income - $4,750
Monthly tax liab.- $1,550 (I think your Fed calc. might be just a little high, check it.)
Monthly expenses-$ 500

Net disposable income - $2,700/month.

I don't know when your job starts, but there is absolutely no reason not to make the IRA/Roth contributions in 2009 and 2010 while still paying off the debt within 12 months.

Student loan consolidation costs nothing (at least it has not in the past) and includes the added benefit of establishing a fixed interest at a blended rate of your existing loans at the time of consolidation. I assume your loans have adjustable rates? Even though you should have them payed off in a year, there could be a rate adjustment late this summer or early fall. If you expect a rate increase later this year, consolidate now. If your best guess is a decrease, don't consolidate. It won't make a lot of difference for you because you will pay the loans off quickly, but a dollar saved is a dollar you wouldn't have otherwise.

Time to grow up. Tell Mom and Dad, "Thanks" but you want to pay your own cell phone and insurance. Accept the gracious offer of a place to live, but pay your own expenses. Take Mom and Dad out for dinner, lunch or brunch at least once during each pay check cycle. Insist on it. Make it a habit or ritual. After all they are paying your rent, utilities, etc. They will appreciate it more than you will ever know, even if they try to talk you out of it.

Make reasonable contributions to help others, whether through your church if you have one or charities you believe in and support. Helping those in need, who aren't as fortunate as you have been, is a good habit to get into even in just a moderate way.

[Scott Campbell]

Alright Gents, I have some questions on how a 23 year old (24 in August) should handle their money.

I've got an income of 57k before taxes as a W-2 employee.

I have 14k in debt. I have 2.5k in the bank.

My living situation is free of charge.

I will have about 500 a month in fixed expenses every month. This includes food, health insurance, living situation (I'm squatting free of charge), gas, etc.

My parents want me to get outta debt asap so they're covering my cell phone and car insurance.

With that said, how would you guys go about attacking this to maximize the earnings?

RG, Bretsky, Freakout, etc, any thoughts?

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses. This is a no brainer, pay off all your debt, AND contribute to an IRA/Roth

Monthly income - $4,750
Monthly tax liab.- $1,550 (I think your Fed calc. might be just a little high, check it.)
Monthly expenses-$ 500

Net disposable income - $2,700/month.

I don't know when your job starts, but there is absolutely no reason not to make the IRA/Roth contributions in 2009 and 2010 while still paying off the debt within 12 months.

Student loan consolidation costs nothing (at least it has not in the past) and includes the added benefit of establishing a fixed interest at a blended rate of your existing loans at the time of consolidation. I assume your loans have adjustable rates? Even though you should have them payed off in a year, there could be a rate adjustment late this summer or early fall. If you expect a rate increase later this year, consolidate now. If your best guess is a decrease, don't consolidate. It won't make a lot of difference for you because you will pay the loans off quickly, but a dollar saved is a dollar you wouldn't have otherwise.

Time to grow up. Tell Mom and Dad, "Thanks" but you want to pay your own cell phone and insurance. Accept the gracious offer of a place to live, but pay your own expenses. Take Mom and Dad out for dinner, lunch or brunch at least once during each pay check cycle. Insist on it. Make it a habit or ritual. After all they are paying your rent, utilities, etc. They will appreciate it more than you will ever know, even if they try to talk you out of it.

Make reasonable contributions to help others, whether through your church if you have one or charities you believe in and support. Helping those in need, who aren't as fortunate as you have been, is a good habit to get into even in just a moderate way.



Terrific. I agree with all of Patler's advice - especially on the Roth. The IRS will let you make your contribution for 2009 as late as April 15 2010. So you could pay the debt off and still have plenty of time to work your Roth magic.

It's all about discipline at this point in your financial life. For someone your age, you are off to a great start.

My nephew is your age and has $120K of student loan debt. Ouch.

[Scott Campbell]

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses.


This I disagree with. I think Partial will do just fine when it comes to personal finance. He's certainly well ahead of where I was at that age.

[retailguy]

I thought you were supposed to arrange the debts from highest interest rate to lowest, not biggest to smallest?

Sometimes you can make the math too fancy. We're not talking about a long enough timeframe that the savings are even meaningful. I would build a case that rarely does focusing on the interest rate matter, but that's another discussion.

Plus the "sense of accomplishment" is more important than the few dollars of interest savings. You want the person working towards a goal to experience success as soon as possible. Paying off that smallest balance debt is very important to the overall "feeling" of progress.

[Scott Campbell]

One more thing P. Start using Quicken.

[retailguy]

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses.


This I disagree with. I think Partial will do just fine when it comes to personal finance. He's certainly well ahead of where I was at that age.

Scott, I agree with you. Seeking advice is never a bad thing, even when you think you know the answer. Partial is on his way, I think. I wasn't even thinking about paying off my student loans when I was his age. I was just grateful to be done with school and working.

Those days came later, in my later 20's.

[Patler]

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses.


This I disagree with. I think Partial will do just fine when it comes to personal finance. He's certainly well ahead of where I was at that age.


Perhaps my sentence was poorly worded, but I think isolating a single sentence from a lengthy post is a bit misleading as well.

What I was trying to state was that he really shouldn't have any indecision based on his situation. If he can't see what to do now, in this highly advantaged situation, how will he know what to do when he has real expenses, obligations and needs? I'm not sure why he thought he needed help or advice, given his situation. If he really felt he needed advice now, he needs to study and learn because it is likely to get a lot more complicated in the very near future. If he was just looking for confirmation, fine. If that were the case, I would have liked to see a detailed plan from him, asking for comment. I almost suggested that to him.

Asking for help in his situation now is kind of like having to ask for help on how to fry an egg today when you will have to prepare a full dinner party menu in the very near future. I was just trying to warn him and make him think for himself. I didn't mean for it to sound like a criticism for asking for advice, just a firm warning about the future.

That is also why I didn't recalculate his tax obligations for him, even though I think he might be off a bit. I encouraged him to look at it himself.

[Scott Campbell]

Geeze Partial, if you actually have questions about "what to do" given your situation you will really be in trouble when you have to manage a real budget with real expenses.


This I disagree with. I think Partial will do just fine when it comes to personal finance. He's certainly well ahead of where I was at that age.


Perhaps my sentence was poorly worded, but I think isolating a single sentence from a lengthy post is a bit misleading as well.

What I was trying to state was that he really shouldn't have any indecision based on his situation. If he can't see what to do now, in this highly advantaged situation, how will he know what to do when he has real expenses, obligations and needs? I'm not sure why he thought he needed help or advice, given his situation. If he really felt he needed advice now, he needs to study and learn because it is likely to get a lot more complicated in the very near future. If he was just looking for confirmation, fine. If that were the case, I would have liked to see a detailed plan from him, asking for comment. I almost suggested that to him.

Asking for help in his situation now is kind of like having to ask for help on how to fry an egg today when you will have to prepare a full dinner party menu in the very near future. I was just trying to warn him and make him think for himself. I didn't mean for it to sound like a criticism for asking for advice, just a firm warning about the future.

That is also why I didn't recalculate his tax obligations for him, even though I think he might be off a bit. I encouraged him to look at it himself.


I guess my point was that he'll be just fine. My own deep thoughts on personal finance at his age were pretty much confined to "How much beer can I get for $7?"


Again, I agreed with 99% of what you wrote.

[retailguy]

Patler - It is good to see you back here, I missed your contributions earlier in the month...

I think Partial is looking at his expected paycheck witholdings, not necessarily his net tax after refund....

I also agree with most of what you wrote, I think it may just be a generational difference. Most of us wouldn't ask for help until the wheels were about to fall off, especially when it comes to personal finance, but I have found that my younger tax clientele are much more willing to ask "what if" questions than the older ones.... Maybe it's just my clientele? Not sure, but I still have a few clients that hold their info very close to the vest, and wouldn't even show me their w-2's if they didn't have to do that.

[Patler]

Patler - It is good to see you back here, I missed your contributions earlier in the month...

I think Partial is looking at his expected paycheck witholdings, not necessarily his net tax after refund....

I also agree with most of what you wrote, I think it may just be a generational difference. Most of us wouldn't ask for help until the wheels were about to fall off, especially when it comes to personal finance, but I have found that my younger tax clientele are much more willing to ask "what if" questions than the older ones.... Maybe it's just my clientele? Not sure, but I still have a few clients that hold their info very close to the vest, and wouldn't even show me their w-2's if they didn't have to do that.

Thanks RG. I have been posting on the Brewers and other boards here at PackerRats, I just haven't been too active on the Packers part of it. I guess I need an off season too!

Sometimes my "old goatedness" makes me a bit gruff with those who have very simple situations! Then too, when I was his age, I literally had to count my pocket change on a daily basis to make sure I met my obligations (which I always did). That perhaps has made me less tolerant than I should be.

I figured Partial was probably looking at withholdings on his taxes, but he can adjust those to anything he wants, even a defined amount (at least you could in the past). For years I have looked at it as a game of "The Price is Right" both when I had withholdings and when I have been paying quarterly estimated tax payments. How close can I get to the actual tax due when the return is filed without underpaying so as to invoke penalties or interest?!

I should probably edit my first post about it, because I really didn't intend to discourage or ridicule him for asking questions. But I wanted to impress on him that he really has an extremely uncomplicated, simple financial situation. He has a very good net income after withholdings, and basically just two items of expense, "miscellaneous" of $500/mo and his loan payments. There aren't a lot of decisions to make in his situation. He should really understand why it is good to eliminate debt, but also why a single "extra" year in the beginning for an IRA can mean so much 35 years from now. It should be fairly clear to him that with his situation he can do both. Its not a question of one or the other. If he can't see that, I would encourage him to do some studying, because his financial world may not always be so rosy, and there are a lot of schmucks out there who will give advice, but very bad advice; and he needs to have a feel for that as well.

The next time I will ask him to propose his own plan, then we can critique it for him. That is how I have always trained those under me (after an initial instructional period) and I find it gets most people up to speed very quickly. Continually relying on others to propose the solutions for you slows the process. Asking for verification, and modifying if necessary is well and good, and should be encouraged.

[Scott Campbell]

There aren't a lot of decisions to make in his situation.


When it comes to personal finance, this is very often the case. The first 4 or 5 moves are typically "no brainers". You don't get into the high degree of difficulty stuff until after you've taken advantage of the easy no brainers. Unfortunately, most people haven't yet mastered the easy stuff. I think you can make a pretty strong case that all you ever really have to do is master the easy stuff. Do that, and you'll end up wealthy enough in the vast majority of situations.

[Scott Campbell]

Sometimes my "old goatedness" makes me a bit gruff with those who have very simple situations!


I've noticed that you can be a little prickly. You should try being more nurturing like me. :lol:

[Scott Campbell]

Most of us wouldn't ask for help until the wheels were about to fall off, especially when it comes to personal finance, but I have found that my younger tax clientele are much more willing to ask "what if" questions than the older ones.... Maybe it's just my clientele?


I don't think it's just your clientele. People treat is too personally, and I think they worry about being judged. It's just math.

I wish they did a better job teaching this stuff in school.

[Patler]

There aren't a lot of decisions to make in his situation.


When it comes to personal finance, this is very often the case. The first 4 or 5 moves are typically "no brainers". You don't get into the high degree of difficulty stuff until after you've taken advantage of the easy no brainers. Unfortunately, most people haven't yet mastered the easy stuff. I think you can make a pretty strong case that all you ever really have to do is master the easy stuff. Do that, and you'll end up wealthy enough in the vast majority of situations.

Agreed, but for most there are at least some that require some sort of balance:
"Do I rent a little nicer apartment in a better area, or pay more on my student loans?"
"Do I nurse the old rust bucket with inevitable repair bills, or get a different used car?"
"Do I pay extra on debt with a smaller IRA contribution, or max the IRA?"
"Do I buy porterhouse or flank steak?"
"Do I buy a fancy microbrew, or Budweiser? :lol:

The simply fact is Partial does not even have 4 or 5 of those no brainers you mentioned. He can meet or exceed his two no brainers very easily without financial discomfort.

[mraynrand]

I guess my point was that he'll be just fine. My own deep thoughts on personal finance at his age were pretty much confined to "How much beer can I get for $7?"

The extent of advice I got at his age was "people don't plan to fail, they fail to plan." But at that point, I was getting about a 15K stipend and my planning consisted of how many days I could string out a tuna casserole.

[Patler]

Sometimes my "old goatedness" makes me a bit gruff with those who have very simple situations!


I've noticed that you can be a little prickly. You should try being more nurturing like me. :lol:

I'm trying, I'm trying! :lol:

[Scott Campbell]

There aren't a lot of decisions to make in his situation.


When it comes to personal finance, this is very often the case. The first 4 or 5 moves are typically "no brainers". You don't get into the high degree of difficulty stuff until after you've taken advantage of the easy no brainers. Unfortunately, most people haven't yet mastered the easy stuff. I think you can make a pretty strong case that all you ever really have to do is master the easy stuff. Do that, and you'll end up wealthy enough in the vast majority of situations.

Agreed, but for most there are at least some that require some sort of balance:
"Do I rent a little nicer apartment in a better area, or pay more on my student loans?"
"Do I nurse the old rust bucket with inevitable repair bills, or get a different used car?"
"Do I pay extra on debt with a smaller IRA contribution, or max the IRA?"
"Do I buy porterhouse or flank steak?"
"Do I buy a fancy microbrew, or Budweiser? :lol:

The simply fact is Partial does not even have 4 or 5 of those no brainers you mentioned. He can meet or exceed his two no brainers very easily without financial discomfort.


Also agreed. In terms of critical success factors, I think were talking 1 part math to 100 parts discipline.

[Patler]

I guess my point was that he'll be just fine. My own deep thoughts on personal finance at his age were pretty much confined to "How much beer can I get for $7?"

The extent of advice I got at his age was "people don't plan to fail, they fail to plan." But at that point, I was getting about a 15K stipend and my planning consisted of how many days I could string out a tuna casserole.

During grad school our planning was around tomato soup at $.10/can with rice added for bulk, or macaroni and chess at about $.10/box. I hate tuna!

We had a very dear neighbor whom I will never forget. They usually ate early, before we would get home in the evenings. She routinely showed up at our door with the rest of a pan of this or a pot of that "because her husband and kids hated leftovers, and she would have to throw it out anyway." But we knew her real motive, and we tried to repay them with any help we could ever provide. I think of her very often.

[Scott Campbell]

But we knew her real motive, and we tried to repay them with any help we could ever provide. I think of her very often.


Ahhh yes - memories.

I have a similar story - only it wasn't pot roast that she brought over.



http://msnbcmedia.msn.com/j/msnbc/Components/Photos/050610/050610_hampson_graduate_hmed_9a.hmedium.jpg

[mraynrand]

But we knew her real motive, and we tried to repay them with any help we could ever provide. I think of her very often.


Ahhh yes - memories.

I have a similar story - only it wasn't pot roast that she brought over.



http://msnbcmedia.msn.com/j/msnbc/Components/Photos/050610/050610_hampson_graduate_hmed_9a.hmedium.jpg

I have to admit - a similar thought crossed my mind, but I let it go. Leave it to SC to pull the trigger - so to speak!

BTW, completely OT - who was more pathetic - Dustin Hoffman in The Graduate or Charles Grodin in The Heartbreak Kid? I have to give Grodin some slack, because if you have a chance at Cybil Shepherd, it would be hard to say no. I should point out that the all-time most pathetic character ever was played by Charles Grodin in 'The Lonely Guy.' I recall this line where Grodin's character is saying that he doesn't like to take naps because every time he wakes up there is that shock of realization of who and what he is and that he can't take that more than once a day. PAINFUL!

OK, back to your regularly scheduled program with Clark Howard.

[Patler]

But we knew her real motive, and we tried to repay them with any help we could ever provide. I think of her very often.

Ahhh yes - memories.

I have a similar story - only it wasn't pot roast that she brought over.

http://msnbcmedia.msn.com/j/msnbc/Components/Photos/050610/050610_hampson_graduate_hmed_9a.hmedium.jpg

Gee, thanks for spoiling the memory of a very helpful and considerate neighbor! Given an option, I would have taken the pot roast in my situation; and not just because my wife would have insisted on it! :lol: :lol:

[Freak Out]

Alright Gents, I have some questions on how a 23 year old (24 in August) should handle their money.

I've got an income of 57k before taxes as a W-2 employee.

I have 14k in debt. I have 2.5k in the bank.

My living situation is free of charge.

I will have about 500 a month in fixed expenses every month. This includes food, health insurance, living situation (I'm squatting free of charge), gas, etc.

My parents want me to get outta debt asap so they're covering my cell phone and car insurance.

With that said, how would you guys go about attacking this to maximize the earnings?

RG, Bretsky, Freakout, etc, any thoughts?

What's the interest on the debt? I'm sure you stated it somewhere but I'm late to this game...sorry.

You're living in the basement, with that income and you still have that debt...wtf man? Plus the folks are paying for cell and car insurance? 1st....you are a spoiled brat! You should stop taking their money for cell and such...free rent is good enough...and you still should easily be able to pay off that debt in a year. Once that is done you can focus on investing some in real estate or the markets.

[Bretsky]

OOPS; Sorry Partial........just saw this.

OK, my answer will support much of what's posted here but seeing as all I seem to be doing is witnessing serious high interest debt lately there may be a few twists.

1. List your debts in order of the highest interest debt to the lowest interest debt

2. Buy a cheap dayplanner

3. Write down your goals for this year and hold youself to them, At bare minimal I think you should have quarterly, semi annual, and annual goals for the next twelve months. Get use to committing yourself to something financially and make it happen.

4. As for what the goals entail. Get rid of the debt. Start with the highest interest crap first. Pay minimal payments on the lowest interest and start knocking off the higher interest debts one by one like Favre use to knock of the Chicago Bears with victories back in the old days

5. If your employer contrubutes to your 401K, put in the minimal that would allow you to get the maximum free $$ from your employer.

5. Start a ROTH IRA today; start one that does not require a huge amount of funds to open. Have $100 a month automatically taken out of your savings accout to go into the ROTH. You won't miss it. This becomes habit. We are creatures of habit; the earlier you start the better. If this delays your full debt getting paid off a month or two, Bretsky doesn't give a rats ass. Start the lifelong process of getting yourself ahead :!:

[Partial]

When making a preliminary budget a few weeks back, I could pay down 400 bucks of debt a week and put the 79 bucks a week into the roth to reach 4k by the end of the year.

RG, any reason that I shouldn't do this? Especially given that there is likely a lot of money to be made in the next year in stocks.

[Bretsky]

When making a preliminary budget a few weeks back, I could pay down 400 bucks of debt a week and put the 79 bucks a week into the roth to reach 4k by the end of the year.

RG, any reason that I shouldn't do this? Especially given that there is likely a lot of money to be made in the next year in stocks.

RG is more about paying off the debt first

I take a combo approach and think the Market offers an oppurtune time for the long termer.

[retailguy]

When making a preliminary budget a few weeks back, I could pay down 400 bucks of debt a week and put the 79 bucks a week into the roth to reach 4k by the end of the year.

RG, any reason that I shouldn't do this? Especially given that there is likely a lot of money to be made in the next year in stocks.

Partial - if you applied the 79 bucks to the debt, and then, when the debt was paid off, you applied the entire 479 to the Roth, you'd end up in the same place, at the same time.

You have enough income that you can fully fund the Roth by April 2010 AND pay off the debt.

Bretsky is right. I hate debt. ALL DEBT. I don't believe that there is any "good debt".

Get rid of it as fast as you can.

[Scott Campbell]

Bretsky is right. I hate debt. ALL DEBT. I don't believe that there is any "good debt".

Get rid of it as fast as you can.


I'll disagree with that one. Debt may be bad, but there are varying degrees of bad. If you borrow to fund consumption, that 's really bad. If you borrow to fund investment, that's not nearly so bad. The real problem with debt is that most people misuse it.

[retailguy]

Bretsky is right. I hate debt. ALL DEBT. I don't believe that there is any "good debt".

Get rid of it as fast as you can.


I'll disagree with that one. Debt may be bad, but there are varying degrees of bad. If you borrow to fund consumption, that 's really bad. If you borrow to fund investment, that's not nearly so bad. The real problem with debt is that most people misuse it.

Your point ignores risk. Debt creates risk. Sometimes the risk pays off, and as many Americans have recently found out, sometimes even "safe" risk doesn't pay off.

[Scott Campbell]

Your point ignores risk. Debt creates risk. Sometimes the risk pays off, and as many Americans have recently found out, sometimes even "safe" risk doesn't pay off.


I wouldn't argue that. But debt is a tool that that can be used properly to make calculated leveraged bets. Many successful businesses would have never seen the light of day without the prudent use of debt. Most companies utilize debt or issue bonds to fund further investment in their businesses. It should be paid back quickly. It should not be used to fund consumption. Again, the biggest problem with debt in this country is that it is used improperly far too often, IMO.

"All debt is bad" ignores the degrees of badness.

I say this even though I haven't had any debt myself since I was 37 years old.

[retailguy]

I wouldn't argue that. But debt is a tool that that can be used properly to make calculated leveraged bets. Many successful businesses would have never seen the light of day without the prudent use of debt. Most companies utilize debt or issue bonds to fund further investment in their businesses. It should be paid back quickly. It should not be used to fund consumption. Again, the biggest problem with debt in this country is that it is used improperly far too often, IMO.

"All debt is bad" ignores the degrees of badness.

I say this even though I haven't had any debt myself since I was 37 years old.

I would submit that "business debt" is different than "personal debt" although not by much.

Personal finances are very difficult to control with a budget. If I had a dollar for every tax client that I had who stuck to their busines budget like glue, but their personal finances were a mess... Well, you know the rest.

Also, this recession should show people that it doesn't have to be your debt that causes you problems, just ask joemailman's brother in law....

I understand the point you're making regarding degrees of badness, but, well it doesn't much matter to me.

[Partial]

With the 8k in tax credits this year for buying a home, I can wipe out a nice chunk of student loans. Should I start saving my money like crazy to buy a home and use that 8k to pay off loans?

I'm kicking this idea around. My dad is strongly advocating that I buy a house ASAP as inflation is coming big time and home prices are going to sky rocket up within a year or two supposedly.

[MJZiggy]

If you can afford to buy a house, it's a serious buyers market right now. It won't be forever. They are trying to liquidate foreclosed homes still.

[Scott Campbell]

If you can afford to buy a house, it's a serious buyers market right now. It won't be forever. They are trying to liquidate foreclosed homes still.


There are a lot of people who believe we are set to see a second wave of foreclosures.

[Partial]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?

[Tyrone Bigguns]

ty thinks you should buy a house.

Ty can't wait for the litany of issues that follow detailed in your blog.

[MJZiggy]

Fixer upper. Those are cheap.

[Bretsky]

Fixer upper. Those are cheap.



Need serious down payment for a serious fixer upper

[Bretsky]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?


I'd warn you that RG and I will not agree on this one

Tons of value out there in the housing market

I'd consider buying a home if the right property came through

I know a dam good home loan officer :wink:

[GrnBay007]

There are a lot of people who believe we are set to see a second wave of foreclosures.

Like when?

What does this mean for someone that has been in their home 4 years and is thinking of selling?

I like my house (and love my neighborhood) but there are a few things missing in this house that I would really like, so I suppose it would be an upgrade....not a lot though. Just a little fine tuning to make it the house I will keep.

[Bretsky]

There are a lot of people who believe we are set to see a second wave of foreclosures.

Like when?

What does this mean for someone that has been in their home 4 years and is thinking of selling?

I like my house (and love my neighborhood) but there are a few things missing in this house that I would really like, so I suppose it would be an upgrade....not a lot though. Just a little fine tuning to make it the house I will keep.


It probably means you will get less money than you think your house is worth but you will also be able to find a bargain out there

[GrnBay007]

It probably means you will get less money than you think your house is worth but you will also be able to find a bargain out there

Like less than the assessed value? Or less than what a house should appreciate per year?

[Tyrone Bigguns]

I'd warn you that RG and I will not agree on this one

Tons of value out there in the housing market

I'd consider buying a home if the right property came through

I know a dam good home loan officer :wink:

If you dance with the devil, the devil don't change. The devil changes you.

[Patler]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?

Is buying a house a good idea? Maybe.

Buying a house at a good price, a price that you can afford including everything that will be associated with it is generally a good idea. For now I would add another caveat, its a good idea if and only if you will be content to live there or at least continue to own it and pay for it for a reasonable period of time (at least 5 years, perhaps even a little longer). There could still be some uncomfortable swings in house prices in the short term.

If your intent is to buy now and sell in a year or two, it might work out, but it also might not. I would not buy with that intention right now.

Buying an overpriced house, or a house you can not afford at your present income is never a good idea.

How stable is your job?

[Partial]

Not sure how stable the job is, but in my field I'd be able to find another job in the area within a few weeks I'd think. That's my biggest concern.. how I would handle payments if I was laid off.

[Patler]

Not sure how stable the job is, but in my field I'd be able to find another job in the area within a few weeks I'd think. That's my biggest concern.. how I would handle payments if I was laid off.

I know a bunch of people who thought they were in fields that had perpetual shortages, and that finding another job would never be a problem....but now it is.

Is your job considered a permanent position, or temporary but full time?
You went the straight employee route, correct? Not the independent contractor status that you were considering?

[Partial]

Not sure how stable the job is, but in my field I'd be able to find another job in the area within a few weeks I'd think. That's my biggest concern.. how I would handle payments if I was laid off.

I know a bunch of people who thought they were in fields that had perpetual shortages, and that finding another job would never be a problem....but now it is.

Is your job considered a permanent position, or temporary but full time?
You went the straight employee route, correct? Not the independent contractor status that you were considering?

W-2 so I'd at least get unemployment if I got laid off

[Bretsky]

It probably means you will get less money than you think your house is worth but you will also be able to find a bargain out there

Like less than the assessed value? Or less than what a house should appreciate per year?

In most places homes are worth less now than they were 12-18 months ago

The assessment...often depends on how recent somebody has come through your place to evaluate it

In two of my four regions, the annual appreciation the cities tack on each year has exceeded the actual values of the homes.

[Bretsky]

Not sure how stable the job is, but in my field I'd be able to find another job in the area within a few weeks I'd think. That's my biggest concern.. how I would handle payments if I was laid off.

I know a bunch of people who thought they were in fields that had perpetual shortages, and that finding another job would never be a problem....but now it is.

Is your job considered a permanent position, or temporary but full time?
You went the straight employee route, correct? Not the independent contractor status that you were considering?


all good points by Patler; I'd agree your window for staying there should be a while.

If a job is temporary, part time, or you are contracting your services lending instituations will be unable to use your income due to lack of work history.

If you are a full time employee then they can.

[retailguy]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?


I'd warn you that RG and I will not agree on this one

Tons of value out there in the housing market

I'd consider buying a home if the right property came through

I know a dam good home loan officer :wink:

So, if you paid off your debt first and then bought a house, and after buying the house you got laid off and had difficulty finding another job; then would it be easier or harder to pay your living expenses until you found a new job?

[Scott Campbell]

There are a lot of people who believe we are set to see a second wave of foreclosures.

Like when?

What does this mean for someone that has been in their home 4 years and is thinking of selling?

I like my house (and love my neighborhood) but there are a few things missing in this house that I would really like, so I suppose it would be an upgrade....not a lot though. Just a little fine tuning to make it the house I will keep.


Soon. The first wave of foreclosures were sub prime loans and people living check to check. Now people that had rainy day funds and decent credit are beginning to teeter. I think it means that there is no guarantee that we've hit the bottom. But I'm not sure.

We may have bottomed out, but you can't be certain. I bristle when I hear people say that now is the perfect time to buy a home - implying that they're certain that we've hit the bottom.

In terms of your own situation, if you really want to move - you should. I'd probably ask B how much the transaction costs are likely to set you back. Once you know what it's going to cost, you can decide whether its worth it or not. It's typically expensive, and usually comes out of your home equity which impacts your personal balance sheet - whether you formally keep one or not. We've considered building, but our kids are out of the house in 8-10 years, and our housing needs will be different at that point. So were holding off until then.

You can get a rough idea of your homes value by punching in your address at www.zillow.com. I'd probably council against taking on a lot of additional debt at this time. But you can't take my advice to the bank anymore than anyone elses. These are uncertain times.

[Scott Campbell]

It probably means you will get less money than you think your house is worth but you will also be able to find a bargain out there

Like less than the assessed value? Or less than what a house should appreciate per year?

In most places homes are worth less now than they were 12-18 months ago

The assessment...often depends on how recent somebody has come through your place to evaluate it

In two of my four regions, the annual appreciation the cities tack on each year has exceeded the actual values of the homes.


How accurate is zillow in your experience? Out here, it's pretty damn accurate.

[Scott Campbell]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?


I'd warn you that RG and I will not agree on this one

Tons of value out there in the housing market

I'd consider buying a home if the right property came through

I know a dam good home loan officer :wink:


B,

I really bristle at the bolded comment. There is a ton of "value" out there in the housing market IF we've bottomed out. I know of lot of really, REALLY smart people that are not so certain about that. That doesn't mean I'd suggest staying out of the market. It means I'd suggest being prepared for the market to swing in either direction.

There are speculators who will make a killing by calling the bottom. There are other speculators who will get killed trying to call the bottom. Most of us financial mortals won't be able to differentiate between the winners and losers until 24 months after the fact.

In general, RG (and it looks like Patler too) gives advice that will work in either an up or a down market. I get the impression that you're a bit more of a gambler (higher risk/higher reward). There's nothing wrong with that, but people that you're giving advice to need to understand that.

[SkinBasket]

Zillow isn't really that accurate where we are. For the most part, the properties are under market by anywhere from 20-60k, while the occasional property that has a flag of "model" or some other generic modifier is grossly overvalued. Been using it for a few years, and it's gotten better as far as accuracy, but still isn't a good representation of market or what the homes are selling for.

[Bretsky]

RG, Bretsky, Patler, any thoughts? I'm sure RG will say to get out of debt first, but I have already paid down 3k, so I'm at 11k debt. That 8k will knock off a nice chunk of the remaining debt. Almost too good to be true?


I'd warn you that RG and I will not agree on this one

Tons of value out there in the housing market

I'd consider buying a home if the right property came through

I know a dam good home loan officer :wink:


B,

I really bristle at the bolded comment. There is a ton of "value" out there in the housing market IF we've bottomed out. I know of lot of really, REALLY smart people that are not so certain about that. That doesn't mean I'd suggest staying out of the market. It means I'd suggest being prepared for the market to swing in either direction.

There are speculators who will make a killing by calling the bottom. There are other speculators who will get killed trying to call the bottom. Most of us financial mortals won't be able to differentiate between the winners and losers until 24 months after the fact.

In general, RG (and it looks like Patler too) gives advice that will work in either an up or a down market. I get the impression that you're a bit more of a gambler (higher risk/higher reward). There's nothing wrong with that, but people that you're giving advice to need to understand that.



Gambler........hmmm

when I'm speaking with loan clients I describe myself like this

My wife plays .25 slots. That is too boring and not rewarding enough. Ditto with Dollar slots

So I play blackjack; but I won't touch the $20 table. Often at the $5 table, and sometimes at the $10 table. So I'd categorize myself being slightly above average in terms of risk tolerance.

On the other hand, if there are several hotties over at the Craps table I'll roll with them as well :lol:

I think we are near the bottom; I've never been good calling the bottom. But I'm happy to get near it.

When I say there are deals out there....a lot of buyers, unemotional ones, go to several properties and lowball the offers. Eventually somebody caves.

They are the cut throat smart ones

It's the buyers that fall in love with a house, set X as their price, and end up paying 10-15,000 more than what they wanted to pay due to emotions that will IMO get burned.

[Bretsky]

Zillow isn't really that accurate where we are. For the most part, the properties are under market by anywhere from 20-60k, while the occasional property that has a flag of "model" or some other generic modifier is grossly overvalued. Been using it for a few years, and it's gotten better as far as accuracy, but still isn't a good representation of market or what the homes are selling for.


I'd agree with this

[Freak Out]

It probably means you will get less money than you think your house is worth but you will also be able to find a bargain out there

Like less than the assessed value? Or less than what a house should appreciate per year?

In most places homes are worth less now than they were 12-18 months ago

The assessment...often depends on how recent somebody has come through your place to evaluate it

In two of my four regions, the annual appreciation the cities tack on each year has exceeded the actual values of the homes.


How accurate is zillow in your experience? Out here, it's pretty damn accurate.

zillow didn't recognize my zip. 99501

[Partial]

Well, I took a new job today. Significantly more money. I'm hoping this tax credit for first time home buyers get extended. I probably could buy a place right before Dec 1st, but its looking like it will be very difficult and would really spread myself thin if something were to happen.

[Bretsky]

I'm ready for you if you need financing

Still thinking it's 50-50 but I'd bet it gets extended

[Patler]

Bretsky;

I have a question about the tax credit. I haven't bothered looking into it much, because it doesn't impact me. I was recently asked how it would affect joint buyers who aren't married, and I have no idea. Is it a credit "per property" or per taxed entities, in which case each of the joint buyers could be entitled to a full credit?

[retailguy]

Bretsky;

I have a question about the tax credit. I haven't bothered looking into it much, because it doesn't impact me. I was recently asked how it would affect joint buyers who aren't married, and I have no idea. Is it a credit "per property" or per taxed entities, in which case each of the joint buyers could be entitled to a full credit?

It is allocated between them. You can see the rules here:

http://www.irs.gov/irb/2009-06_IRB/ar07.html

[Patler]

Bretsky;

I have a question about the tax credit. I haven't bothered looking into it much, because it doesn't impact me. I was recently asked how it would affect joint buyers who aren't married, and I have no idea. Is it a credit "per property" or per taxed entities, in which case each of the joint buyers could be entitled to a full credit?

It is allocated between them. You can see the rules here:

http://www.irs.gov/irb/2009-06_IRB/ar07.html

Thanks. I figured that would be the case,

[Scott Campbell]

I was surprised to find out that you didn't really have to be a first time home buyer to qualify. If you've sold and rented for 3 (or 2 - can't remember) years, you qualify.

I told my brother in law this 6 hours after he renewed his lease for 14 months. He's not happy.

[Partial]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

[SkinBasket]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

Too late. I've already reported you for even considering it.

[retailguy]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

Who told you to set up an LLC? You should have created an scorp.

Don't deduct your xbox. You're asking for trouble, even if you are right. No IRS agent in the world is going to believe that the only use for your xbox is "research". You sound like Ty and all his fancy deductions.

It just isn't worth it P. don't try to "out think" the IRS. Just work your ass off.

[MJZiggy]

^^What he said.

[Tyrone Bigguns]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

Who told you to set up an LLC? You should have created an scorp.

Don't deduct your xbox. You're asking for trouble, even if you are right. No IRS agent in the world is going to believe that the only use for your xbox is "research". You sound like Ty and all his fancy deductions.

It just isn't worth it P. don't try to "out think" the IRS. Just work your ass off.

Ty never had any fancy deductions. Sorry, but all deductions Ty took were vetted, approved and suggested by his CPA. But, i'm sure she didn't know what she was doing.

[retailguy]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

Who told you to set up an LLC? You should have created an scorp.

Don't deduct your xbox. You're asking for trouble, even if you are right. No IRS agent in the world is going to believe that the only use for your xbox is "research". You sound like Ty and all his fancy deductions.

It just isn't worth it P. don't try to "out think" the IRS. Just work your ass off.

Ty never had any fancy deductions. Sorry, but all deductions Ty took were vetted, approved and suggested by his CPA. But, i'm sure she didn't know what she was doing.

Yeah, yeah, yeah. Of course.

[Tyrone Bigguns]

Since I moonlight as a freelance contractor and have a federal tax id and an LLC, I have purchased a computer as a business expense.

Since I'm in the software industry, would it be ethical to deduct the cost of an Xbox 360, since they have that Xbox arcade (which allows homebrew games to be sold, I believe) and I would use it for strictly research into potential money making opportunities.

I'm a little fuzzy on what is considered ethical since the expense has to be "ordinary". Though it seems like a reasonable thing for a software developer to want to research a platform and an avenue to opportunity and money.

Who told you to set up an LLC? You should have created an scorp.

Don't deduct your xbox. You're asking for trouble, even if you are right. No IRS agent in the world is going to believe that the only use for your xbox is "research". You sound like Ty and all his fancy deductions.

It just isn't worth it P. don't try to "out think" the IRS. Just work your ass off.

Ty never had any fancy deductions. Sorry, but all deductions Ty took were vetted, approved and suggested by his CPA. But, i'm sure she didn't know what she was doing.

Yeah, yeah, yeah. Of course.

It is beyond your comprehension that a CPA might suggest the deductions i made.

the rest of the world will try to conform to your limited view. we apologize.

[Scott Campbell]

It is beyond your comprehension that a mob CPA might suggest the deductions i made.



Fixed.

[mraynrand]

When is an S-corp better than an LLC?

[Tyrone Bigguns]

It is beyond your comprehension that a mob CPA might suggest the deductions i made.



Fixed.

That would explain why she her office always smelled like sausage and peppers.

[Tyrone Bigguns]

When is an S-corp better than an LLC?

When RG says so.

[retailguy]

When is an S-corp better than an LLC?

In several situations, but especially in the situation that Partial finds himself in.

http://www.businessknowhow.com/startup/llc-scorp.htm


# Self-Employment Tax Break: Profits of the S-Corp which pass through to the shareholders are not subject to self-employment tax (Social Security and Medicare which is approximately 15%). Rather, self-employment is only taxed on the portion classified as a "reasonable salary". LLCs and sole-proprietorships must pay self-employment tax on all income. The ability to minimize self-employment tax is deemed to be one of the greatest benefits of a s-corporation.

# Corporate Losses: losses in the corporation can be deducted from the individual tax returns of the shareholder thereby allowing them to offset other sources of income such as their W-2 income.

Also, a single owner LLC is done on a schedule C on your 1040, just like a sole proprietorship. An Scorp files form 1120s, and the income/loss passes through to the 1040 on schedule K-1 as a one line entry on the schedule E.

Guess which form of business is audited most frequently? Yep, the "sole proprietor", on the schedule C. Guess which form of business is audited least frequently? Yep, a "small" corporation with less than $250k in receipts.

Edit - The only time I've ever recommended an LLC or an LLP was to a "professional" organization, such as an Attorney or a CPA, who cannot practice as an scorporation.

There are probably a few other circumstances that I can't recall off the top of my head where an LLC is better, but 90% of the time, I'd never recommend one.

[Partial]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?

[HowardRoark]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?

I don't feel about this.

Seriously, just throw as much as you can in when you are your age. Run the numbers on if you put a bunch of money in now and stop vs. starting later in life and how much you would have to put in later in life in order to get to the same amount upon retirement. Go get a financial calculator and play with the numbers.

Listen to your mum.

[Partial]

I get that part. It's all about balancing out buying a property eventually, either a condo or a house sooner rather than later.

With that said, it clearly is a good time to invest, but with the crashes on 2001 and 2009 did you guys still come out way ahead investing over the past 12 years or so?

[Scott Campbell]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

[Partial]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

I thought the limit was 4k?

See, if I do both of these, I won't have any cash for a down payment on any sort of property. What should I do?

14.5k into 401k + 4k for roth = 20k, so very little disposable income to save up for a home.

[Scott Campbell]

I get that part. It's all about balancing out buying a property eventually, either a condo or a house sooner rather than later.

With that said, it clearly is a good time to invest, but with the crashes on 2001 and 2009 did you guys still come out way ahead investing over the past 12 years or so?


Any time period that includes 98 and 99 is going to look pretty sweet.

I don't know that now is any better time to invest than any other time. P, your critical success factor is not timing. It's discipline.

[Partial]

I get that part. It's all about balancing out buying a property eventually, either a condo or a house sooner rather than later.

With that said, it clearly is a good time to invest, but with the crashes on 2001 and 2009 did you guys still come out way ahead investing over the past 12 years or so?


Any time period that includes 98 and 99 is going to look pretty sweet.

I don't know that now is any better time to invest than any other time. P, your critical success factor is not timing. It's discipline.

I don't know what that means. I would probably invest in some sort of set and forget it thing as I don't follow the market very closely.

I've been debating for awhile about purchasing Apple stock. They're growing and growing but there stock is uber expensive right now and one has to wonder how much they can keep up their growth.

[Scott Campbell]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

I thought the limit was 4k?

See, if I do both of these, I won't have any cash for a down payment on any sort of property. What should I do?


They moved it up to $5K this year. $6K for old farts like Harlan.

[Partial]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

I thought the limit was 4k?

See, if I do both of these, I won't have any cash for a down payment on any sort of property. What should I do?


They moved it up to $5K this year. $6K for old farts like Harlan.

With home prices and that 8 grand credit, would you do this over buying an 80ish k condo (to get the 8k back)

[Scott Campbell]

I get that part. It's all about balancing out buying a property eventually, either a condo or a house sooner rather than later.

With that said, it clearly is a good time to invest, but with the crashes on 2001 and 2009 did you guys still come out way ahead investing over the past 12 years or so?


Any time period that includes 98 and 99 is going to look pretty sweet.

I don't know that now is any better time to invest than any other time. P, your critical success factor is not timing. It's discipline.

I don't know what that means.


Discipline - it means that what you invest in isn't nearly as important as the discipline to save.

[Scott Campbell]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

I thought the limit was 4k?

See, if I do both of these, I won't have any cash for a down payment on any sort of property. What should I do?


They moved it up to $5K this year. $6K for old farts like Harlan.

With home prices and that 8 grand credit, would you do this over buying an 80ish k condo (to get the 8k back)



I've done really well on my homes, but nothing has impacted me more than that Roth. Yeah, the new buyer tax credit makes that pretty compelling too.

Uncle Sam is going to make you very wealthy if you keep taking him up on his offers.

[Scott Campbell]

My parents are now encouraging me to put 20% of my paycheck (72k salary) into a 401k to avoid paying taxes on such a big amount without any deductions.

How do you feel about this?


Great advice. That's what I've always done. This is why they say the first few financial moves you make are no brainers. It's because the goverment is going to subsidize your savings. Once you do the math, the logic becomes pretty compelling.

And then make sure you have enough saved to fully fund your Roth for the year. $5K of after tax dollars.

I thought the limit was 4k?

See, if I do both of these, I won't have any cash for a down payment on any sort of property. What should I do?


They moved it up to $5K this year. $6K for old farts like Harlan.

With home prices and that 8 grand credit, would you do this over buying an 80ish k condo (to get the 8k back)


In your shoes I'd be angling to pull off all 3. Not sure if that is practical for you.

[retailguy]

Partial,

I'll probably be in the minority view here, and that's fine with me. First off, get yourself a good financial guy to help you. (one that you're willing to pay for advice) A CPA type. No one on an internet forum can completely advise you because we don't have all the details of your life. So, any advice we give is automatically tainted by what we did. Those decisions might be great for us and only "ok" for you.

Scott's general advice is spot on. The more you save now, the less you'll need to save later. Also, as an early 20's single guy, you've got more disposable income now then you'll probably ever have.

Max out the 401K and then if you have the discipline to save an additional $5k in a Roth, you'll be very weathly very early in your adult life.

I'm not a fan of condo's for "investment purposes". Never have been, never will be. We talked about a condo for you to "live in", I figured for more than 5 years. I certainly don't think you should buy a condo to get an 8k check. Some condos appreciate, depending on location, but most don't and some can be damn hard to sell. Again, I don't know what your plans are. Are you staying in the area where you live? Do you want to get married? Do you like your new job and intend to stay for a long time? All these factors are relevant. Buying a home is not just a monetary exercise. Trying to "invest" in a home on a "short term basis" is very risky and rarely successful, not even considering the current market conditions.

It is rarely a good idea to buy something because of the "gov't check" you'll get. If you're going to do it anyways, it can become a good deal, but if you're doing it because of the govt check it probably isn't.

You know I believe in 20% down, so you know where I'm at related to purchasing a home, but aside from that, when you get married, will you really want to live in an 80K condo? You'll need to sell at that point and if it's within 5 years it's very doubtful you'll make much money. The 401k and Roth are safer investments for you at this point.

Don't let someone talk to you about "tax savings" either. What difference does it make if Bank of America has your cash (through interest payments) or the IRS has your cash? (through taxes), you don't have your cash so there really isn't any difference.

Again, if you're planning to stay indefinitely in the home/area, this discussion is different. Where you're at in your life, it's relevant.

Good luck.

[Partial]

The difference in BOA having my money is eventually I will get it back.

Due to recession the company doesn't match on the 401k, but I can still put as much in as I want.

I've got 72k of income, live in a basement, and have next to nothing in expenses right now. I'm putting my entire paycheck towards debt so I'm basically out of that.

What would you do, RG, given that I intend to get a place of my own (I'm comfortable getting a 300-400ish studio - as a matter of fact this sounds ideal outside of a condo as I don't like throwing money away).

[retailguy]

The difference in BOA having my money is eventually I will get it back.

Due to recession the company doesn't match on the 401k, but I can still put as much in as I want.

I've got 72k of income, live in a basement, and have next to nothing in expenses right now. I'm putting my entire paycheck towards debt so I'm basically out of that.

What would you do, RG, given that I intend to get a place of my own (I'm comfortable getting a 300-400ish studio - as a matter of fact this sounds ideal outside of a condo as I don't like throwing money away).

Run an amortization schedule and see how much of that money goes to interest and how much goes to principal. In the early years, and for short term deals I maintain that you typically DO NOT get your money back. If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house. Do you think you get that money back on sale? Not typically. You get some appreciation, but double? Doubtful in most cases. Interest is really the same thing as rent, or mostly anyhow in the early years. There is definitely a significant portion of that interest payment that you don't get back, nor should you expect to get back. Yes, there is a small principal component, but, really it's insignificant in the short term.

Are you talkin about a rental studio or some type of a purchased apartment? Truthfully, you need to understand your resale market. Milwaukee is not New York. What is the marketability of a property like that? If you can't sell it, what is the value of your investment?

You probably don't want another roommate, but honestly a nice two bedroom apartment for a year or two with an adult roommate might be what I'd advise. You make enough money that you don't have to live in a basement. You could just rent a one bedroom aparment too, that'd be a little more expensive but you'd have peace and quiet.

I worked with a guy, who lived in a small one bedroom apartment for 10 years. Took a transfer to Houston about 2 years ago and paid $150k cash for a home... He showed discipline and sacrifice for a long period of time, invested well, and now will never make a house payment.

You think he "wasted" his rent money by helping pay for someone elses apartment building? Perspective. Gotta keep what you're doing in perspective.

[Partial]

So you would rent something very cheap? That's something I'm considering. I won't rent something that will cost more than 500 total. 400 a month for the whole package (heat, internet, tv, etc) would be ideal.

[Scott Campbell]

I'm 98% on board with RG, but with a couple of additional points.

It's a good idea to get some pro help. I'm just an internet hack. While I don't think you need professional advice to know that you need to sock away as much as you can in your 401K and Roth, my advice on how to invest it once it's there would be much more suspect.

I agree in general with RG on condos. Unless you're talking about a high rise in NYC or Maui, houses usually do better. And if you're thinking about buying for just a couple of years, I'd rent instead. Transaction costs will wipe out $8K pretty quickly.

I'd love to see the math on the 401K vs. the Roth to see which should get priority. I have a feeling that it might be mixed, as you want some taxable income in retirement. I've never had to choose between them as I've fully funded both when I've qualified. The Roth is somewhat of a hedge against higher future income tax rates, and offers some protection from the increasing deficit spending going on right now.

I don't differentiate much between Uncle Sams new home tax credits and the tax advantages of the 401K/Roths. They're all government subsidies that significantly inflate your rate of return. It's just that the investment vehicles are different. I get the feeling that RG is not comfortable with the idea of a home as an investment. I understand that logic. And recent history is definitely on his side.

I think your parents were spot on. But you don't have to stop there.

[Scott Campbell]

So you would rent something very cheap? That's something I'm considering. I won't rent something that will cost more than 500 total. 400 a month for the whole package (heat, internet, tv, etc) would be ideal.


By all means, live frugally.


Your on pace to earn more than $5M of income in your lifetime. That's a decent sized business in itself, and worthy of some management effort. Here's what your managing.

Income. (self explanitory)
Burn Rate. ($$$ you consume/spend each month)
Savings Rate. (Income - Burn Rate = Savings Rate)
Return on Investment. (Growth of your savings)


You're young. Return on investment means almost nothing to you now, because you have little or no net worth to invest. 4% vs. 12% ROI? Who cares. The difference is chump change at this point in your life. So your critical success factor for right now is Burn Rate. Minimize that, and you'll maximize savings. Over time, your net worth will grow as you sock more and more away. Your critical success factor will shift as your net worth grows, placing more and more emphasis on Return on Investment, and less and less on the other things listed. Eventually you'll arrive at a point where Return on Investment can easily cover your Burn Rate. And then you won't need to work anymore - unless you really want to.

The best thing about maintaining a meager burn rate is that you don't get conditioned to needing more to live on. That can become a heavy burden, especially in a crappy economy.

[Scott Campbell]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

[retailguy]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Absolutely. But that takes long term discipline and he isn't there yet. Plus, in the early years he should maximize those "extra dollars" into the 401K and the Roth. House should be 3rd priority at this stage.... until his wife comes along and priorities change. :wink:

Partial - more later. swamped at work today.

[retailguy]

In looking at this again, with what I know, I think in the short term your money is safer and has more opportunity to grow in your 401K and the Roth, if you invest it wisely.

I like real estate and see that our latest correction may have undervalued things (in some areas), but have always been bearish on condos as an investment and am especially there right now. Are there areas where condos are flourishing? Perhaps. That's where you need to educate yourself about your particular market. For me, if home values are down, which they are in most areas of the country, I'd look at putting my money there first, as they are more desirable and more likely to bounce back in value sooner. (I still see four or five years of realatively flat market, (this is my opinion))

You mentioned Apple stock earlier. I have never, in 15 years of tax work, have ever recommended that my clients buy "single stocks", other than situations where 401k's match in company stock.

Single stocks typically have too much risk for your retirement funds. My advice, without knowing your situation, is to find a good performing mutual fund with at least a 15 year track record of solid returns and put your money there. If thats tech, fine. Make sure you know something about the fund, and the companies that comprise the fund, and that you understand the business. Don't blindly put your money there because joe somebody at work suggested it. Either do the research or find a professional. Use the one that your parents use. Someone who has a track record of success with someone close to you, that won't rip you off by having you move your money every six months to glean a commission off your investments.

A $400 place would be ideal, provided you are comfortable living there. You have a great income for your age. You don't have to live in a dump or live like a hermit. Spend as little as feasible and invest the rest. The sacrifice you make now will seem small 15 years from now, and will pay you many times the dividends in those retirement funds.

Start a small savings account for a house, when you get 1k or 2k, use a money market fund, or a short term CD if you can find one to earn a little interest, even above what you're saving for retirement. When the time is right to buy, you'll know, but just because Obama is tossing around 8k doesn't make it the "right time". As Scott indicated, closing costs, and other things would eat up that money quickly in the event you had to sell. If you buy a "cheap" condo now, you will have to sell it when life circumstances hit, and then, some well meaning soul will tell you to rent it out, and then you'll compound the mess.

Sounds like your parents are advising you well, I've seen nothing at all in their advice that I would find troubling. I'd follow it if I were you.

[Scott Campbell]

You mentioned Apple stock earlier. I have never, in 15 years of tax work, have ever recommended that my clients buy "single stocks", other than situations where 401k's match in company stock.



How bout an ESPP plan where the employer sells to you at a discount?

[retailguy]

You mentioned Apple stock earlier. I have never, in 15 years of tax work, have ever recommended that my clients buy "single stocks", other than situations where 401k's match in company stock.



How bout an ESPP plan where the employer sells to you at a discount?

That'd work, too. How long do you have to keep it?

My point is, and was, if it makes sense. Most of the time it is just blind homerism and underperforms a solid mutual fund.

[Scott Campbell]

You mentioned Apple stock earlier. I have never, in 15 years of tax work, have ever recommended that my clients buy "single stocks", other than situations where 401k's match in company stock.



How bout an ESPP plan where the employer sells to you at a discount?

That'd work, too. How long do you have to keep it?

My point is, and was, if it makes sense. Most of the time it is just blind homerism and underperforms a solid mutual fund.


You could flip it the day they bought the shares and just pocket the 15% discount.

[retailguy]

You mentioned Apple stock earlier. I have never, in 15 years of tax work, have ever recommended that my clients buy "single stocks", other than situations where 401k's match in company stock.



How bout an ESPP plan where the employer sells to you at a discount?

That'd work, too. How long do you have to keep it?

My point is, and was, if it makes sense. Most of the time it is just blind homerism and underperforms a solid mutual fund.


You could flip it the day they bought the shares and just pocket the 15% discount.

That would be tempting. Usually isn't worth the risk to hold single stocks. 15% is a pretty good return! Take it and run. :D

[Partial]

So I put 20% in the 401k plus the 5k in the roth. What if an emergency comes up and I need money? How does one build up a decent emergency reserve, invest, and save for a down payment on a house?!?

[retailguy]

So I put 20% in the 401k plus the 5k in the roth. What if an emergency comes up and I need money? How does one build up a decent emergency reserve, invest, and save for a down payment on a house?!?

Discipline. :)

It isn't easy Partial, no matter how much you make. I guess I thought you had an emergency fund. You need that before you start. 3 to 6 months of expenses. Since you have no bills it shouldn't take long to do that.

Then max the 401K, you have until April to fund the Roth if you need extra time. Building a fund for a house will probably have to wait until after that. and really, you've got time for that. dont forget charity either.

Thank God PR is still free. If it wasn't, you probably couldn't afford it. :P

[falco]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

[HowardRoark]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

Why an index fund? Why not one that adds alpha?

[retailguy]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

Many have tried things like this, few succeed. When you understand why, you'll have your answer.

[falco]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

Why an index fund? Why not one that adds alpha?

Ahh, Alpha is a myth. Very few can outperform an index fund year after year, except when accounting for the higher expense ratios.

EDIT: should read, "especially when accounting"

[falco]

Many have tried things like this, few succeed. When you understand why, you'll have your answer.

But, oh wise one, I did not ask a question...

[Scott Campbell]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.


How'd your index fund do in Q4 of 2008?

[Bretsky]

Valuations on condo's are going through the floor around here and and as a result sometimes a borrower will have to put 20% down on a condo based on the condo associations specifications. They are not holding value. Doing a loan for a first time homebuyer and the appraisal on that condo came up 6G short and it looks very nice. They just are not selling and many of these condo projects are unfinished and going back to banks so the rules and guidelines are getting worse.

Go single family when you are ready or rent cheap and pack the loot away.

[falco]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

How'd your index fund do in Q4 of 2008?

About the same as my house... :lol:

In all seriousness, its a long term strategy. The benefit of dollar cost averaging is that you are continuing to poor money in while it is low. In fact, the extra principal you would have put on your house during Q4 of 2008 has now already returned you 30% or more, instead of the 5-6% you are earning in interest.

For the record, I don't partake in this approach - although I do believe it has merit.

[HowardRoark]

If you run an amortization schedule for the full 30 years, you typically pay double in interest and principal than what you paid for a house.


I know it was an old discussion, but I thought pretty much everyone in this thread agreed that 30 years is a horrid term, and that 15 is what people need to be shooting for.

Interesting. One could argue that, depending on the interest rate your paying, you'd be much better off paying the extra principal into an index fund... over the course of 30 years, you'd come out much ahead.

Why an index fund? Why not one that adds alpha?

Ahh, Alpha is a myth. Very few can outperform an index fund year after year, except when accounting for the higher expense ratios.

EDIT: should read, "especially when accounting"

"Very few" is stretching it......there are many that have over long periods of time added alpha and lower beta. Your premise is a myth that index funds have spoon fed the investing public.

How did those index funds do over the past 12 years? Low fees, but, as of this spring, 0% return over 12 years.

[Partial]

Valuations on condo's are going through the floor around here and and as a result sometimes a borrower will have to put 20% down on a condo based on the condo associations specifications. They are not holding value. Doing a loan for a first time homebuyer and the appraisal on that condo came up 6G short and it looks very nice. They just are not selling and many of these condo projects are unfinished and going back to banks so the rules and guidelines are getting worse.

Go single family when you are ready or rent cheap and pack the loot away.

How much is renting cheap? I'm finding it tough to find single person units for less than 500, and that just seems like too much to pay in rent :( My last apartment was about 380ish and super nice but I don't want to live with roomates again I don't think.

[Little Whiskey]

So I put 20% in the 401k plus the 5k in the roth. What if an emergency comes up and I need money? How does one build up a decent emergency reserve, invest, and save for a down payment on a house?!?

Discipline. :)

It isn't easy Partial, no matter how much you make. I guess I thought you had an emergency fund. You need that before you start. 3 to 6 months of expenses. Since you have no bills it shouldn't take long to do that.

Then max the 401K, you have until April to fund the Roth if you need extra time. Building a fund for a house will probably have to wait until after that. and really, you've got time for that. dont forget charity either.

Thank God PR is still free. If it wasn't, you probably couldn't afford it. :P

sorry if this was mentioned earlier. but this sounds alot like Dave Ramsey's plan. (not that he was the first to think of it, he's just the most popular now) baby steps. $1000 in the bank, 3-6months emergency fund. pay everything off but the house, 15% towards retirement, and so on.

[MadtownPacker]

Youre a fucking sorry bitch. If you get paid bank like you said you should be living in a pimp place. Instead you actin like a little bitch. Live the high life just so you can taste it once before you die.

[Bretsky]

Valuations on condo's are going through the floor around here and and as a result sometimes a borrower will have to put 20% down on a condo based on the condo associations specifications. They are not holding value. Doing a loan for a first time homebuyer and the appraisal on that condo came up 6G short and it looks very nice. They just are not selling and many of these condo projects are unfinished and going back to banks so the rules and guidelines are getting worse.

Go single family when you are ready or rent cheap and pack the loot away.

How much is renting cheap? I'm finding it tough to find single person units for less than 500, and that just seems like too much to pay in rent :( My last apartment was about 380ish and super nice but I don't want to live with roomates again I don't think.



I think what is cheap is relative; I'd say cheap would be around 15% of your monthly wage. Then I'd hope you can pack away the extra for a down payment. Given a figure, I'd probably say a decent place for 500 or less is a good deal

[Partial]

It takes far too long to become a mogul.

I've got about 15 grand sitting in the bank and could either A) pay down all debt or B) keep saving and buy a duplex to rent w/ 20% down before the home buyer tax dealy runs out.

Growing up sucks. All I do is worry about how I'm going to get ahead. I don't know how some of you guys have the patience and nerves of steal to take on the risk of buying homes, etc.

I need to get married. I will have much more money coming in then and will be able to do much more to put my money to work. If the lady is going to rent a place, I know she isn't going to rent a dump, so she will be paying 650-800 a month minimum I would think. I cannot fathom us each having an apartment for a 1200 a month rent + each person having internet, etc. Just seems ridiculous.

One parent is strongly advocating paying back my debt, but they also recommend continuing to live in the basement to save a down payment. Living in the basement has to stop asap as far as I'm concerned.

Other parent is advocating saving money over the new few months and buying a duplex before the tax credit expires.

What do the rats advocate? I take home about 1500 in cash every other week and then have typical expenses like car insurance, etc.

[GrnBay007]

I need to get married. I will have much more money coming in then and will be able to do much more to put my money to work.


What do the rats advocate?

Marriage is difficult enough when you get married for the right reason.

You might find yourself living in your parents basement again when your 30 something if you get married for the wrong reason....have a few kids....marriage ends up a bust, blah, blah blah.

[Partial]

I need to get married. I will have much more money coming in then and will be able to do much more to put my money to work.


What do the rats advocate?

Marriage is difficult enough when you get married for the right reason.

You might find yourself living in your parents basement again when your 30 something if you get married for the wrong reason....have a few kids....marriage ends up a bust, blah, blah blah.

Bah we're going to eventually it is just a matter of when. We've been dating like 7 years.

[Scott Campbell]

It takes far too long to become a mogul.

I've got about 15 grand sitting in the bank and could either A) pay down all debt or B) keep saving and buy a duplex to rent w/ 20% down before the home buyer tax dealy runs out.

Growing up sucks. All I do is worry about how I'm going to get ahead. I don't know how some of you guys have the patience and nerves of steal to take on the risk of buying homes, etc.

I need to get married. I will have much more money coming in then and will be able to do much more to put my money to work. If the lady is going to rent a place, I know she isn't going to rent a dump, so she will be paying 650-800 a month minimum I would think. I cannot fathom us each having an apartment for a 1200 a month rent + each person having internet, etc. Just seems ridiculous.

One parent is strongly advocating paying back my debt, but they also recommend continuing to live in the basement to save a down payment. Living in the basement has to stop asap as far as I'm concerned.

Other parent is advocating saving money over the new few months and buying a duplex before the tax credit expires.

What do the rats advocate? I take home about 1500 in cash every other week and then have typical expenses like car insurance, etc.


I advocate that you quit worrying so much. The boys here have been telling you for years that it's the power of savings, time and compound interest that will get you where you want to be financially. You're gainfully employed with very little debt during one of the worst recessions in the history of this country. Keep your situation in perspective.

And then do the math.

Making great financial decisions can often be no more complex than avoiding the really stupid move. And it looks like you're there already. You're not going to buy a car you can't afford. You're not going to live beyond your means. You're going to systematically save. You'll be fine.

[mraynrand]

I don't know how some of you guys have the patience and nerves of steal to take on the risk of buying homes, etc.

I need to get married.

The risk of home buying is nothing compared to the risk of marriage.


Nerves of Steal. I kinda like that.

[Bretsky]

There is no exact answer here; it really depends on your plans going forward P. Duplexes are a great idea in concept but they can be scary as well. Lots of defaults right now because it's tough to judge who is renting the other side. Very hard to get fixed rates on duplexes as well since the comparables are very very limited. And maybe this is me...but IMO a lot of chicks don't like duplexes at

As for that marriage thing, don't do that for the money unless you are smart enough to fall for a rich sugar mama :lol: For the guy who is cost effective and trying to get ahead, it's VERY hard to find a gal who has the same fiscal values. Chicks can often make the whole money process harder

[Partial]

I ran the idea of buying a house and renting it to her past her. She didn't seem too opposed. She doesn't want to live together until a knot is tied, but I do not want to be paying individual rent in two places as that seems foolish.

I would buy house, stay there most of the time and come home to sleep some nights so we technically would not be living together.

Seems reasonable. We'll see in May when and where she gets a job. She wants to do gyno and evidently illinois has a better job market for this.

I've lucked out with my chick. She's very frugal. She gets on my case for spending too much money out on the town and going out for lunches at work. She packs a lunch every day, etc. She's into the fancy clothes but only off of the clearance rack and with coupons. Definitely a Slickdealer much like myself.

[call_me_ishmael]

How much does it cost to live? Other than for 18 months in my early twenties, I lived at my parents house until I got married, so I have plenty of cash now, but I have no idea how much it actually costs to live and do stuff because I've never really kept track of bills. I ate my parent's food, etc. I've tried to set up budgets in the past but they've never been very accurate.

Both of us max out our 401Ks right now, which is good. The cost of our home + taxes + insurance is 31% of our take home pay (after taxes, health insurance, 401K, etc). It is reasonable to expect that our total obligatory expenses will be 42% of our take home pay I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).

I'm looking for legitimate grown up advice here. Is 58% of your take home pay enough to live on? Are we over extending ourselves?

I worry about our ability to build up an emergency fund, pay off the house, etc. I don't think we will have any big expenses such as cars in the next 5 years. She has a 2006 and I have a 2007 and both are paid off.

I would like to have the money in an account to pay the house off in 5 years. I know my wife wants to work part time at the most when our children at young, so it would be really nice to NOT have a housing payment due each month by then.


---- EDIT -----

Also, what do you guys make of life insurance? I'm thinking about taking out a 500K policy on my wife and I of term insurance. I've considered taking our 1M, but that just seems overkill as our jobs both pay out 1.5x salary as a benefit in case of death. 500K would be plenty to pay off mortgage and cover significant medical expenses. We need to decide this soon as we want our insurance lined up before we close on our house. I was thinking about locking in the 30 year term now because the premium only gets higher and higher as you get older. Even though you're paying more up front, I wonder if you'd come out ahead if you opted to go for three ten year terms, etc. Does anyone know anything about this?

At some point, I think I will likely convert it to a full life plan in order to take advantage of some of the tax saving features to pass money on. I don't think I need to worry about that, yet, though, so term seems like a more viable option. Whole life is quite a bit more per month.

[HowardRoark]

How many kids are you going to have? That's why you need life insurance. That, and estate planning....but that's not your issue. Figure out when your last kid will be out of college and buy enough life insurance to run your family (with you dead) on a monthly basis with a 5% rate of return (exhaust the money on the day he/she graduates)...buy that much life insurance.

If you plan on your kids hanging around the house after they graduate like a bunch of ne'er do wells, then buy more.

Also, assume your wife can figure out things over the next 35 years to take care of her retirement.

500K seems rather arbitrary.

Also, get more than less.....you never know when you'll have a stroke or something. That happened to me, and I'm finally able to even have them look at me again.

[SkinBasket]

We mix our life and term. I would recommend finding a financial adviser who sells insurance as PART of his services. This is a lot different than insurance salesmen who call themselves financial advisers. After a discussion, they'll be able to weigh your risk tolerance against your assets and your financial goals to give you a good idea of how much and what type of insurance you should carry. Of course, that's easier said than done and took us 3 or 4 tries to find someone capable who we felt comfortable with and who wasn't misrepresenting their services.

Protip: Cut weight for a week before the nurse comes out to take your blood and measurements. They're going to use that awesome 1950s chart to plot your height against your weight for BMI, taking no account of your actual physical condition or how much of that weight is muscle instead of fat, and a higher BMI means higher prices. Since you like saving money and being fit, this should be a win win for you.

[Patler]

I never had anything other than simple "bet against death" life insurance. Basic term insurance, initially enough to bury me and help my wife out, later increased significantly while my herd of kids needed to be cared for, then decreased after they were grown and on their own. I always looked at life insurance as only that, money to be received in case of my death, to help those who relied on my income. In my opinion, it is an inefficient financial vehicle to use for wealth building, retirement planing, etc.

For me, term insurance was cheap, and bought through a professional organization plan that let me increase or decrease the face amount of the policy without another physical, re-qualification or re-rating of any kind after I had the initial policy. The premium increased periodically as I aged, but was cheap for the protection it provided.

[Patler]

I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).


We can't tell you if $800 is reasonable, but it should be easy for you to figure out:

Car insurance - you have the bills and know exactly what it is. We don't know your and your wife's driving histories, vehicle types, coverage limits, deductibles, etc. You know the amount exactly.

Phones - cell only, or land line too? What type of phone and calling plan. Again, you know what you are paying exactly, why are you asking us?

Cable/Internet - basic cable, or everything offered? Which internet plan? Look at what your provider offers, pick the plan and know the amount exactly.

Electricity.utilities - call the power company and get the past year or two useage statements for the house you are buying or already bought. Your useage likely will be similar.

Food - can be a lot or a little depending on your eating habits. But, you eat now. so keep track of it for a month.

You are asking us things we are not in a position to answer for YOU, but you should be able to figure out for yourself very easily.

[Bretsky]

How much does it cost to live? Other than for 18 months in my early twenties, I lived at my parents house until I got married, so I have plenty of cash now, but I have no idea how much it actually costs to live and do stuff because I've never really kept track of bills. I ate my parent's food, etc. I've tried to set up budgets in the past but they've never been very accurate.

Both of us max out our 401Ks right now, which is good. The cost of our home + taxes + insurance is 31% of our take home pay (after taxes, health insurance, 401K, etc). It is reasonable to expect that our total obligatory expenses will be 42% of our take home pay I estimate (800$ for car insurance, phones, cable/internet, food, electricity - is this reasonable?).

I'm looking for legitimate grown up advice here. Is 58% of your take home pay enough to live on? Are we over extending ourselves?

I worry about our ability to build up an emergency fund, pay off the house, etc. I don't think we will have any big expenses such as cars in the next 5 years. She has a 2006 and I have a 2007 and both are paid off.

I would like to have the money in an account to pay the house off in 5 years. I know my wife wants to work part time at the most when our children at young, so it would be really nice to NOT have a housing payment due each month by then.


---- EDIT -----

Also, what do you guys make of life insurance? I'm thinking about taking out a 500K policy on my wife and I of term insurance. I've considered taking our 1M, but that just seems overkill as our jobs both pay out 1.5x salary as a benefit in case of death. 500K would be plenty to pay off mortgage and cover significant medical expenses. We need to decide this soon as we want our insurance lined up before we close on our house. I was thinking about locking in the 30 year term now because the premium only gets higher and higher as you get older. Even though you're paying more up front, I wonder if you'd come out ahead if you opted to go for three ten year terms, etc. Does anyone know anything about this?

At some point, I think I will likely convert it to a full life plan in order to take advantage of some of the tax saving features to pass money on. I don't think I need to worry about that, yet, though, so term seems like a more viable option. Whole life is quite a bit more per month.


I'll give this one a shot; I've been working for banks or credit unions as a mortgage lender the past 10 years so I work with ratios and the types of things you are pondering on a daily basis

The answers to your questions are yes, and yes.

Back twenty years ago, when underwriting guidelines were more strict ragarding the debt to income ratios you are pondering.........the suggested total housing to income ratio was 28 percent and the total debt to income ratio was 36 percent. But that was BEFORE things were deducted out of your paystub. By using take home pay....as one should.....you are taking a much more conservative approach than most guidelines.

Today, lending guidelines will allow the total debt to income ratios....BEFORE anything is netted off that paystub, to go to 45 percent. With that being said, the people that are at that area struggle...aka....stress out week to week....paycheck to paycheck.

Regarding insurance, I'm a fan of term life . The amount you get it up to you, but if your intention is to have several kids it would be good to get more. I regret not insuring myself for more when I was young and it was cheap. I do have my retirement plans fairly well built up and when I was younger I looked at insurance as a waste of money since I was going to grow old and have a ton of investements. Not having three kids...well...I just hope I grow old so my strategey works. If you are having three kids....my bias....if it's cheap enough...is to go toward the higher end of your debate