"GETTING RICH IS SIMPLER THAN YOU THINK"-MSN

[Scott Campbell]

In answering your questions, perhaps you should consider the advice of a fee-based, rather than commission-based, Certified Financial Planner to answer your specific questions. He(she) could provide you with more comprensive answers and guidance than semi-knowledgable guys like me.

I agree to a point. But you don't need a CFP to tell you about the advantages of a Roth, 401K or home equity. Most people can take care of the no brainer stuff by themselves.

Save the professionals for the truly high degree of difficulty stuff.

[retailguy]

There's a difference between becoming a millionaire and becoming rich. The million dollar mark isn't the magical finish line that it used to be. You certainly can't retire at 40 on it.

Partial, I think at your age you should re-calibrate and be shooting for $5M.

While it is true that $1m isn't what it used to be, at a 5% return that's still $50 grand a year in perpetuity. You can easily invest in a mutual fund that'll average 10%, many average more over a 10 year period.

The enemy in american life is NOT INVESTING, or anything else, it's PLAIN and SIMPLE - BORROWING MONEY.

If you didn't have a car payment, and lived in a "common sense" house that you could pay for in 15 years, didn't have credit card debt and paid CASH for anything consumable, THEN how much money could you save?

There is a reason that Bank of America is the 12th largest corporation, and it IS NOT because they look out for the "little guy".

"Gotta have it NOW" has costs.... BIG ONES!

[GrnBay007]

I agree with Patler. It's all about discipline. Save till it hurts, and then save a little more.

All great advise! But then also please be smart enough to retire at an age you can still enjoy yourself. I've seen far too many people that keep staying that extra year for the money....one year leads to an extra 6-7. I've seen so many people retire and then die soon after. What is the sense of all the saving and discipline if you never get to enjoy it? My Dad was lucky enough to enjoy 20+ years of retirement....said he never regretting retiring at a younger age.

[Bretsky]

There's a difference between becoming a millionaire and becoming rich. The million dollar mark isn't the magical finish line that it used to be. You certainly can't retire at 40 on it.

Partial, I think at your age you should re-calibrate and be shooting for $5M.

While it is true that $1m isn't what it used to be, at a 5% return that's still $50 grand a year in perpetuity. You can easily invest in a mutual fund that'll average 10%, many average more over a 10 year period.

The enemy in american life is NOT INVESTING, or anything else, it's PLAIN and SIMPLE - BORROWING MONEY.

If you didn't have a car payment, and lived in a "common sense" house that you could pay for in 15 years, didn't have credit card debt and paid CASH for anything consumable, THEN how much money could you save?

There is a reason that Bank of America is the 12th largest corporation, and it IS NOT because they look out for the "little guy".

"Gotta have it NOW" has costs.... BIG ONES!

To expand on this, in the home industry I see customers with the "gotta have it now" mentality making silly decisions all the time.

Now right or wrong, understand that I am in the school of thought that buying a home is a good investment.

But as many are building their equity, others, instead of paying their home loan down, develop the "gotta have it now" mentality with many goodies that are not necessities.

Gotta have that Name Brand 65" HDTV for the new house
Gotta have the New High End New Washer and Dryer
Gotta get a newer car
Gotta improve this and replace this and that in the house.

But have no excess money and barely enough disposable income to do this

But they gotta have it now...........

So consumers come in and get a Line of Credit at Prime (8.25% or Prime Plus 1 depending on their credit..etc).

Then they find more goodies to get. Up goes the credit cards.

And before they know it they are incapable of saving anything and are buried in debt.

Then they borrow from their 401K; and the revolving circle of troube is in full force.

A few years later they come to see me to consilidate everything. And then they begin all over again.

This is what NOT to do.

Like packing money away in investments (a good habit), this cirle of terror develops into a bad habit for a greater % than those saving.


Cheers,
B

[Bretsky]

Now here is a question that I have been striving to get an answer for for awhile.

I know RG says that he would probably max out the IRA each year before putting that money down on his mortgage when he is young. This seems like a great idea since I just don't see the value of my house going up by 10% a year.

However, what about student loans and stuff? When I consolidate them, what sort of interest rate do you normally get? Should I just put that money down for a year or two and knock those out completely versus putting the money in the stock market? It would likely be less of a headache just to pay them off right away and have one less bill to pay but I would also have less money growing at 10%.

Also, straight out of college is it a better idea to save up money for the down payment versus investing?

What is the order that I should knock out my bills?

First off, if there are any high interest credit cards it's best to knock those off.

To be honest, I don't have a good command on the student loan industry.
I've seen rates from 3.99-7.99 on these and honestly I don't know what differentiated the clients.

If I'm at 3.99 and can afford a house, that does not hold me back from going forward or putting that money in investments over the loan. 7.99 is more debateable.

The days of houses going up 10% a year are not around right now; in my area they are still appreciating 3-4%.

RG is not a big fan of buying a house unless you have 20% down and can immediately do a 15Yr Fixed Rate Loan; we just agree to disagree on that one because I don't think that's at all practical in today's world and that strategy would not have worked for me at all.

I keep going back to believing if you have the basic concepts down and develop some sort of plan and execute it, you will be successful.

Because we are all in differing circumstances so there is no exact plan for all


Cheers,
B

[Patler]

However, what about student loans and stuff? When I consolidate them, what sort of interest rate do you normally get?

The interest rate you get for consolidating student loans depends on the interest rates and balances of the loans being consolidated. It's a blended rate calculated from the existing loan terms.

The biggest advantage in consolidating is that the interest rate is then fixed. The original student loans have variable interest rates (which for the last 4-5 years has meant constantly increasing!). For people who were borrowing about 5-8 years ago, the interest rates were extremely low. By consolidating, they were able to lock in the low interest rates for the life of the loans. On of my kids had loans as low as 3% and consolidated about 3-4 years ago at a fixed rate of 4%. I understand current rates are somewhere around 8% on originating loans.

[Scott Campbell]

Gotta have that Name Brand 65" HDTV for the new house
Gotta have the New High End New Washer and Dryer
Gotta get a newer car
Gotta improve this and replace this and that in the house.

Agree with everything your wrote. However I would make a distinction between the first 3 items you list and the last one. I've always catagorized spending as either "consumption" or on a "appreciating asset". In the world of personal finance, all spending is not equally evil. In my home, consumption spending is universally bad. But spending on the purchase of an appreciating asset - not so bad. You may just be rearranging $$$ on your balance sheet. A great example of this is the do it yourselfer purchasing materials for a home remodeling project. If the materials cost $20K, the labor costs $10K, your home appreciates $25K, and you did the labor - you come out $5K ahead on your personal balance sheet. It has nowhere near the negative effect of spending $20K on a car that will depreciate down to 0 over time.

Of course even in the case of good spending, you can't go crazy and create cash flow problems.

[Scott Campbell]

All great advise! But then also please be smart enough to retire at an age you can still enjoy yourself.

Great advice. I tell my Dad all the time that retirement is wasted on old people. He then waves his Social Security check in my face and reminds me that I'll probably never get to cash one.

[Partial]

Now here is a question that I have been striving to get an answer for for awhile.

I know RG says that he would probably max out the IRA each year before putting that money down on his mortgage when he is young. This seems like a great idea since I just don't see the value of my house going up by 10% a year.

However, what about student loans and stuff? When I consolidate them, what sort of interest rate do you normally get? Should I just put that money down for a year or two and knock those out completely versus putting the money in the stock market? It would likely be less of a headache just to pay them off right away and have one less bill to pay but I would also have less money growing at 10%.

Also, straight out of college is it a better idea to save up money for the down payment versus investing?

What is the order that I should knock out my bills?

First off, if there are any high interest credit cards it's best to knock those off.

To be honest, I don't have a good command on the student loan industry.
I've seen rates from 3.99-7.99 on these and honestly I don't know what differentiated the clients.

If I'm at 3.99 and can afford a house, that does not hold me back from going forward or putting that money in investments over the loan. 7.99 is more debateable.

The days of houses going up 10% a year are not around right now; in my area they are still appreciating 3-4%.

RG is not a big fan of buying a house unless you have 20% down and can immediately do a 15Yr Fixed Rate Loan; we just agree to disagree on that one because I don't think that's at all practical in today's world and that strategy would not have worked for me at all.

I keep going back to believing if you have the basic concepts down and develop some sort of plan and execute it, you will be successful.

Because we are all in differing circumstances so there is no exact plan for all


Cheers,
B

Could you explain the bolded more?

[Bretsky]

Now here is a question that I have been striving to get an answer for for awhile.

I know RG says that he would probably max out the IRA each year before putting that money down on his mortgage when he is young. This seems like a great idea since I just don't see the value of my house going up by 10% a year.

However, what about student loans and stuff? When I consolidate them, what sort of interest rate do you normally get? Should I just put that money down for a year or two and knock those out completely versus putting the money in the stock market? It would likely be less of a headache just to pay them off right away and have one less bill to pay but I would also have less money growing at 10%.

Also, straight out of college is it a better idea to save up money for the down payment versus investing?

What is the order that I should knock out my bills?

First off, if there are any high interest credit cards it's best to knock those off.

To be honest, I don't have a good command on the student loan industry.
I've seen rates from 3.99-7.99 on these and honestly I don't know what differentiated the clients.

If I'm at 3.99 and can afford a house, that does not hold me back from going forward or putting that money in investments over the loan. 7.99 is more debateable.

The days of houses going up 10% a year are not around right now; in my area they are still appreciating 3-4%.

RG is not a big fan of buying a house unless you have 20% down and can immediately do a 15Yr Fixed Rate Loan; we just agree to disagree on that one because I don't think that's at all practical in today's world and that strategy would not have worked for me at all.

I keep going back to believing if you have the basic concepts down and develop some sort of plan and execute it, you will be successful.

Because we are all in differing circumstances so there is no exact plan for all


Cheers,
B

Could you explain the bolded more?

It's certainly ideal if somebody can put 20% down on a home. But that would not have worked as well for me .

It's real simple; when my wife and I were both working before home ownership we were free spenders. We went out to restaurants several times a week, and thought nothing of dropping a loot of money at the bars or entertainment events. Had little to no conscience for spending, and we were still able to set aside some money. Just not what we should have been
And with little or no spending conscience or pride of ownership in a home, we had no responsibilities and no worries.

The way we spended our money, it'd have taken us 3-5 more years to save 20% down for a home and we turned out far better for doing it sooner.

When we bought our first home, it taught us to become more frugal. We put our money into home improvements that allowed the home to appreciate more instead of the care free wining and dining world, and we learned a lot more fiscal responsibility from owning a home. We adjusted our lifestyle and paid attention to where money went.

We bought a very modest first home; paid it down about 40% and then sold that home and used the money made from that home sale to put 20% down on a significantly larger home. This will probably be our last home unless we downsized due to old age.

Buying that first home sooner rather than later was the better decision for us

[retailguy]

Bretsky,

Allow me to explain.... I give you an "A" for effort, but a "C" for execution!


I do believe that EVERY homeowner should put down 20% on a home, and furthermore should carry NO GREATER than a 15 year FIXED rate loan.

Failure to do that ignores RISK and that risk will bite you in the ass when you least expect it. Timing has the "benefit" of making it appear that risk doesn't exist. When Bretsky bought his home, the market was strong, rates were low, at historic lows and headed downward. Those items OFFSET the risk, more luck than plan, and so buying without 20% worked out well for him. He beat the risk. It doesn't always work out that way.

Recently, one of the biggest subprime mortgage lenders (New Century) went bankrupt because they had so many foreclosures that they couldn't service their own debt. Behind that bankruptcy are thousands of foreclosures of good people and good families WHO BOUGHT SOMETHING THEY WERE NOT READY FOR, OR COULD NOT AFFORD. Everyone talks about their home being a "blessing" and the "best investment" they'll every make. Think it is true for those folks who are in foreclosure?

How many of those foreclosures were due to adjustable rate mortgages or high second mortgages? The vast majority of them, of that I am sure. These people believed the American dream was "HAVE IT NOW". You don't need to plan. You don't need to save. There is a loan that I can qualify for.... Therefore, I can afford the house. Then, life happens, and their lives are screwed for the next 10 years, OR LONGER.

Bretsky says he "learned" to save by owning a home, and furthermore that he "learned" the value of building wealth by buying a home. I'd disagree with that, on my belief that the "habits" were present before they bought the home, but weren't being executed. They didn't learn it so much as they began to do it when they bought the house.

Markets change almost overnight, and RISK changes right with it. You have to plan for the future when you make a decision of this magnitude. Thousands of families didn't plan, and as a result went through foreclosure and possibly bankruptcy too. Their dream became a nightmare. Bresky's dream became a blessing. Timing and luck. That's the majority of the difference.

Partial, I firmly believe if you don't have a 20% down payment, and cannot afford a 15 year fixed rate mortage - YOU CANNOT AFFORD THE HOUSE. It may appear that you can, but most likely you cannot. You might get lucky and buy in the right part of town, or in the right market, so that the risk doesn't hit you like a baseball in the forehead, but, if you've got my kind of luck....

A home is a blessing, don't make it a nightmare. Plan and learn to save outside homeownership. Improve your chances of success and minimize your risk.

Hear this very clearly - THERE IS NOTHING IN THIS WORLD THAT YOU HAVE THAT I WANT IF I HAVE TO BORROW MONEY TO GET IT. NOTHING.

[Bretsky]

Failure to do that ignores RISK and that risk will bite you in the ass when you least expect it. Timing has the "benefit" of making it appear that risk doesn't exist. When Bretsky bought his home, the market was strong, rates were low, at historic lows and headed downward. Those items OFFSET the risk, more luck than plan, and so buying without 20% worked out well for him. He beat the risk. It doesn't always work out that way.


This is not true regarding the timing of my first home; I bought my first home 10 years ago. The 30 Yr Fixed Rate at that time was 7.75%.

I don't know about how strong the market was then; I was a teacher.

But the rates were not low at that point.

[Bretsky]

Recently, one of the biggest subprime mortgage lenders (New Century) went bankrupt because they had so many foreclosures that they couldn't service their own debt. Behind that bankruptcy are thousands of foreclosures of good people and good families WHO BOUGHT SOMETHING THEY WERE NOT READY FOR, OR COULD NOT AFFORD. Everyone talks about their home being a "blessing" and the "best investment" they'll every make. Think it is true for those folks who are in foreclosure?


It's not fair to use the example of subprime lenders as an average example IMO. They are lending to high risk people at higher rates than normal.

Often they are lending to people who should not buy a home IMO. You are right in that regard.

But the home is the best or one of the best investments that I and many others have made IMO.

[Bretsky]

Bretsky says he "learned" to save by owning a home, and furthermore that he "learned" the value of building wealth by buying a home. I'd disagree with that, on my belief that the "habits" were present before they bought the home, but weren't being executed. They didn't learn it so much as they began to do it when they bought the house.


This is probably accurate. But I'd add that it wasn't going to get executed until home ownership. We were living the high life and needed added responsibility to watch our spending habits. And we're far ahead of where we would have been by buying a home with far less than twenty percent down IMO

[Bretsky]

Bretsky,

Allow me to explain.... I give you an "A" for effort, but a "C" for execution!


I do believe that EVERY homeowner should put down 20% on a home, and furthermore should carry NO GREATER than a 15 year FIXED rate loan.

Failure to do that ignores RISK and that risk will bite you in the ass when you least expect it. Timing has the "benefit" of making it appear that risk doesn't exist. When Bretsky bought his home, the market was strong, rates were low, at historic lows and headed downward. Those items OFFSET the risk, more luck than plan, and so buying without 20% worked out well for him. He beat the risk. It doesn't always work out that way.

Recently, one of the biggest subprime mortgage lenders (New Century) went bankrupt because they had so many foreclosures that they couldn't service their own debt. Behind that bankruptcy are thousands of foreclosures of good people and good families WHO BOUGHT SOMETHING THEY WERE NOT READY FOR, OR COULD NOT AFFORD. Everyone talks about their home being a "blessing" and the "best investment" they'll every make. Think it is true for those folks who are in foreclosure?

How many of those foreclosures were due to adjustable rate mortgages or high second mortgages? The vast majority of them, of that I am sure. These people believed the American dream was "HAVE IT NOW". You don't need to plan. You don't need to save. There is a loan that I can qualify for.... Therefore, I can afford the house. Then, life happens, and their lives are screwed for the next 10 years, OR LONGER.

Bretsky says he "learned" to save by owning a home, and furthermore that he "learned" the value of building wealth by buying a home. I'd disagree with that, on my belief that the "habits" were present before they bought the home, but weren't being executed. They didn't learn it so much as they began to do it when they bought the house.

Markets change almost overnight, and RISK changes right with it. You have to plan for the future when you make a decision of this magnitude. Thousands of families didn't plan, and as a result went through foreclosure and possibly bankruptcy too. Their dream became a nightmare. Bresky's dream became a blessing. Timing and luck. That's the majority of the difference.

Partial, I firmly believe if you don't have a 20% down payment, and cannot afford a 15 year fixed rate mortage - YOU CANNOT AFFORD THE HOUSE. It may appear that you can, but most likely you cannot. You might get lucky and buy in the right part of town, or in the right market, so that the risk doesn't hit you like a baseball in the forehead, but, if you've got my kind of luck....

A home is a blessing, don't make it a nightmare. Plan and learn to save outside homeownership. Improve your chances of success and minimize your risk.

Hear this very clearly - THERE IS NOTHING IN THIS WORLD THAT YOU HAVE THAT I WANT IF I HAVE TO BORROW MONEY TO GET IT. NOTHING.

Even though I often debate with RG, I want to add that I agree with many of his views. I just don't agree with the 20% down principal and I've personally witnessed many personal situations that would support my views.
I'm sure that RG has also seen bad situations that would support his view as well.

I'd also note that I've been originating home loans for over five years now so I will have a bias view. But I also think facts will back my view up. Less than .5% of the purchases I've closed have resulted in foreclosures, and that was a good deal at the time of closing but a situation that just went bad.