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

[retailguy]

I think the difference between your 38%, and my 20-25% was that I was able to shave an additional 1/2 point off my interest rate by moving from the 30 year fixed to a 15 year fixed. I'm not sure what the spread is today.

Yes, I assumed that there was no change in rates. You're right that there used to be an advantage, but you don't even see anyone advertise 15 year rates anymore. It's been so long since I've had a mortgage, I just assumed that there is no difference. B?

Even a half percentage difference would put the figure in your 20% range. Maybe less than that.

[Scott Campbell]

Five years of good planning will leave you "set" for life. I'm not kidding.

This is very true. I retired for the first time at 40, and it was primarily due to knowing the basic outline of my financial plan when I graduated college at 25. Well part of it was knowing the plan, and part of it was just being used to living on nothing.

[Scott Campbell]

Check with your financial planner for Roth vs 401K. The decision is dependent upon the type of 401K you have available. I see the 401K as more important than a Roth, provided the employer does some type of "match".

I'm going to divert from conventional wisdom here. I'd max out both the 401K and Roth, and also include a company Employee Stock Purchase Plan if you have access to one of those. And that's for one of the same reasons you love the 401K plans. Companies usually subsidize your purchase, which conceptually gives these plans the same advantage as matching funds, but without the tax advantages. And you can always sell twice yearly if you really need the money for cash flow, or want to invest somewhere else.

I view the Roth as incredibly critical because once your money is in there, it and all of it's earnings will never be taxed again. The first year it was available (98 or 99) they allowed you to roll over any existing amount you had in a conventional IRA into the new Roth plan. The catch? You had to pay taxes on the entire amount as ordinary income. Ouch. They might have let me spread it out over 2 years - I don't exactly remember. I had money from a previous 401K that I had rolled over into a conventional IRA when I left that job. We swallowed hard and came up with all that extra tax money to give to Uncle Sam. The payoff? It was 1999,and I quadrupled the money in less than a year. And Uncle Sam won't get even one red cent of those earnings or any future earnings. Not now. Not ever. Well, unless I tapped it before age 55 and triggered a penalty. Even if you do need the money, you can tap original contributions without penalty. You just can't touch earnings without paying a 10% penalty and treating the withdraw as ordinary income.

In terms of asset allocation, many people will likely have their house, and their 401K which is typically invested in highly diversified mutual funds, and their Roth. The house and the 401K were the "safe" and well diversified portion of my investments. For me, that meant the Roth was the place for owning individual stocks. I can trade there unburdened by tax consequences. I've never owned more than 4 at a time as I just can't follow them adequately enough to take on more than that. That's the part of what I've done that I believe most financial planners would strongly disagree with. It is not for the faint of heart. But the Roth is the best place for your biggest upside investments because Uncle Sam won't demand his cut of your earnings. IMO.

[retailguy]

SC,

Don't disagree with your analysis at all. I just think my point is a bit different.

Partial is 20, maybe 21? Somewhere in that arena. While I see the value of compound interest, I also see that he won't be "using" that money for the next 40 years or so. "using" a small portion to fund the purchase of an asset is not such a bad deal.

From my vantage point, he gets tax free earning with his 401K plus a company match. Yeah, he's gotta pay taxes on that money at some point, however, if done right, those taxes will be at a lower income than they are right now. Also, the larger principal enables the money to "grow" faster since those are "pre-tax" dollars.

But, the stuff you said about the Roth. Agree, totally. Roth's are a wonderful vehicle.

[Scott Campbell]

I've never taken a finance class and don't have to for my major. Would that be a good decision to take that or can I learn what this stuff means/tips on all of this stuff from reading "the millionaire next door"?

I'd skip the classes even if such a class was available, and just use the widely available resources at the library and on the web. A word of caution about Millionairre Next Door - it's very conceptual - 30,000 foot overview type stuff. It helps you understand the mindset and financial culture of people that have done very well. But there's no real detail. It's a great read though, and should help get you excited about doing the right things.

You are beginning to invest in your understanding of personal finance, and that might be the most important investment you'll make. It takes some time and effort, but it's really not that hard. I don't believe in running to professionals for the relatively easy to understand "no brainers" that we are discussing in here. You can and should take the time to figure that stuff out on your own. It'll raise your financial IQ so that when you do need professionals for the high degree of difficulty type stuff like setting up trusts, you'll be better equipped to deal with them. No one will look out for you like you will. There's bad advice and bad people out there sprinkled among the good. Without investing in your own knowledge, you might not be able to spot them.

[Scott Campbell]

SC,

Don't disagree with your analysis at all. I just think my point is a bit different.

Partial is 20, maybe 21? Somewhere in that arena. While I see the value of compound interest, I also see that he won't be "using" that money for the next 40 years or so. "using" a small portion to fund the purchase of an asset is not such a bad deal.

From my vantage point, he gets tax free earning with his 401K plus a company match. Yeah, he's gotta pay taxes on that money at some point, however, if done right, those taxes will be at a lower income than they are right now. Also, the larger principal enables the money to "grow" faster since those are "pre-tax" dollars.

But, the stuff you said about the Roth. Agree, totally. Roth's are a wonderful vehicle.

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

[Scott Campbell]

so essentially, the jist that I am getting is as soon as you're out of college, max out your Roth IRA and put as much into your 401k that your company will match. Then, while I'm still young and in the process of getting settled, live in a craphole for a few years, and avoid having kids until I am 30.

Not having kids till your 30 is probably very good financial advice. But that may or may not work for you on a personal level, so that's your call.

I suggest that you don't stop contributing to your 401K at the company match limit. Go ahead and max it out for the remaining tax advantage. One of the best features of the 401K is the payroll deduction. It takes the discipline requirement completely out of the equation, as you never see the money.

[retailguy]

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

Yeah, I guess I am. Assuming that he's got the funds available, or is disciplined enough to do both, AND save for a house. Great. Just don't see that on $50K a year in today's world.

[Scott Campbell]

One more opinion seeing that I'm on a roll.

I've heard a few of you state "do what you love, the money will follow". I kind of agree with that up to a point. But my primary role in life is not to be a happy employee. I am first and foremost the provider for my family, and that takes precedence over everything else. So I'd modify that saying to "Do what you love, and make damned sure they're paying you well for it."

Most of us spend 40-80 hours a week working for someone else so that they will pay us the money we need to survive. Yet very few will spend nearly the amount of time figuring out what to do with that money as they have to earn it. It's just as important to manage the money on the way out as it is on the way in. So why is so little effort typically made to understand personal finance, when so much effort has been made to earn that money in the first place? At best it's misguided logic, and at worst it's stupid and tragic.

Sorry for the rant.

[Partial]

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

Yeah, I guess I am. Assuming that he's got the funds available, or is disciplined enough to do both, AND save for a house. Great. Just don't see that on $50K a year in today's world.

isn't 50k damn good for someone who is single and very young with plenty of room to grow?

[Scott Campbell]

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

Yeah, I guess I am. Assuming that he's got the funds available, or is disciplined enough to do both, AND save for a house. Great. Just don't see that on $50K a year in today's world.

isn't 50k damn good for someone who is single and very young with plenty of room to grow?

Yeah, it's damned good. But what you'll find as a single guy with a decent income and no deductions is that $100K isn't all that much once the government is done bending you over. If you max out all your investment opportunities like we've talked about, there won't be much left to live on. That's the discipline part that we've been talking about.

[Fosco33]

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

Yeah, I guess I am. Assuming that he's got the funds available, or is disciplined enough to do both, AND save for a house. Great. Just don't see that on $50K a year in today's world.

isn't 50k damn good for someone who is single and very young with plenty of room to grow?

Yeah, it's damned good. But what you'll find as a single guy with a decent income and no deductions is that $100K isn't all that much once the government is done bending you over. If you max out all your investment opportunities like we've talked about, there won't be much left to live on. That's the discipline part that we've been talking about.

Word.

Back to the MBA discussion - check out this video on BusinessWeek link....

http://www.businessweek.com/mediacenter/video/bwweekend/8a0eac595b84e841e7eb566140b52e908b2be8ae.html

[retailguy]

I think your taking a "if I had to pick one over the other" point of view. I never really got that far. I maxed em both.

Yeah, I guess I am. Assuming that he's got the funds available, or is disciplined enough to do both, AND save for a house. Great. Just don't see that on $50K a year in today's world.

isn't 50k damn good for someone who is single and very young with plenty of room to grow?

Yeah, it's damned good. But what you'll find as a single guy with a decent income and no deductions is that $100K isn't all that much once the government is done bending you over. If you max out all your investment opportunities like we've talked about, there won't be much left to live on. That's the discipline part that we've been talking about.

Partial - 50K is a great income to start at. But, if you max out the 401K, say that's 15% and put 10% in a Roth (may be limited to 4K depending on the 401K plan you have available), plus pay taxes at 15% (maybe more) plus state taxes at 7%, that equals 47%. Now your income is about 28K give or take. Thats $2333 per month to live and save for a house...., it just stretches the time it takes to save a "suitable" down payment, that's all.

[Partial]

Would it better to rent when you don't have the money for a suitable down payment, or to buy something cheap and do some minor fixes yourself and sell it? I mean you always risk losing money, but if you break even you essentially lived somewhere for free, that to me seems like a good deal.

What about buying a duplex right out of school and living in half and renting the other section to someone?

Are there any things I can do to decrease the amount I am taxed when single, straight out of school?

If the first 5 years are so important and could make me much wealthier and better off in the long run, I am considering the thought of living at home. It's essentially saving probably 1000 a month that way. That would be brutal, but I could deal with it for a year or two if it gives me a much better life in the long run.

[Scott Campbell]

Partial - 50K is a great income to start at. But, if you max out the 401K, say that's 15% and put 10% in a Roth (may be limited to 4K depending on the 401K plan you have available), plus pay taxes at 15% (maybe more) plus state taxes at 7%, that equals 47%. Now your income is about 28K give or take. Thats $2333 per month to live and save for a house...., it just stretches the time it takes to save a "suitable" down payment, that's all.

Does that count 7.5% for FICA (Social Security) and whatever they steal now for Medicare?