A Guide to Savings and Investing (1 Viewer)

[Archie Bunker]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

My HELOC has averaged a rate of about 7% over the past 4 years. My 401K has averaged a return of well over 12%. I'm not saying that someone should max out their HELOC and dump it into the market. However, the HELOC can be used to finance some big ticket items (new roof, addition, new furnace, etc.) while not eating into retirement or other investments. Long term, the return from investments will outpace the cost of the HELOC.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

See above for two examples. Really the main point is making what you have work for you. Unless you tap the equity in your house with this kind of product then it is not being used until you sell the house. If you have equity- you can use it intelligently to build wealth or better your life (be careful with that though, I think this is where most people get in trouble).

 

[andy_b]

Their advice is a little bit different that what you suggested in the first post. If I'm reading it correctly, you suggest maxing out the 401k, then maxing out the Roth IRA. They suggest investing in the 401k only up to the employer's match. If there's anything left after that, you put it towards a Roth IRA until that's maxed out. If there's anything left after that, you put it towards the 401k until it's maxed out.

I think I do match that.==========5) Invest in your companies 401K/403B up to the point where you can get the full company match. If your company does not match, move on to step 6 before you invest in a 401k (assuming your company offers one).6) If you qualify for a Roth IRA, fund it for the legal limit. If you don't qualify for a Roth, move on to step 7.7) Max out 401k to the legal limit (assuming your company offers one).8) If you don't qualify for a Roth, max out a traditional IRA to the legal limit

That's why I qualified it with "if I'm reading it correctly."

I had to read it 7 times to see if it matched

 

[Archie Bunker]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

Example?

A HELOC is a good tool to use to ride out bumps in cash flow without dipping into investments or having $10K-$20K tied up in a savings account earning 1% interest. At least that's how I use it.

so it helps you build wealth as Chadstroma mentioned by not ever dipping into investments and allowing them the max exposure to the power of compounding interest?

The return (long term) of investments in a S&P index fund (as an example) will outpace the interest cost of a HELOC. I wouldn't max out the HELOC because there will be fluctuations. I'm talking about long term.

 

[andy_b]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

Example?

A HELOC is a good tool to use to ride out bumps in cash flow without dipping into investments or having $10K-$20K tied up in a savings account earning 1% interest. At least that's how I use it.

so it helps you build wealth as Chadstroma mentioned by not ever dipping into investments and allowing them the max exposure to the power of compounding interest?

The return (long term) of investments in a S&P index fund (as an example) will outpace the interest cost of a HELOC. I wouldn't max out the HELOC because there will be fluctuations. I'm talking about long term.

hmm, I must read up more on these. I am very ignorant of HELOC's. I would hate to be leaving a useful tool in the shed on the way to retirement.Thanks to you and Chadstroma for the information.

 

[Archie Bunker]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

See above for two examples. Really the main point is making what you have work for you. Unless you tap the equity in your house with this kind of product then it is not being used until you sell the house. If you have equity- you can use it intelligently to build wealth or better your life (be careful with that though, I think this is where most people get in trouble).

Bingo. Our former neighbors took out a $40K home equity loan (first mistake). They wanted to add onto the house. Turns out, the addition they wanted would cost about twice that. So, instead, they did the smart thing and bought a new SUV and power boat. For lots of reasons, they are now divorced, lost the house and all their retirement savings.

 

[SofaKings]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

My HELOC has averaged a rate of about 7% over the past 4 years. My 401K has averaged a return of well over 12%. I'm not saying that someone should max out their HELOC and dump it into the market. However, the HELOC can be used to finance some big ticket items (new roof, addition, new furnace, etc.) while not eating into retirement or other investments. Long term, the return from investments will outpace the cost of the HELOC.

I would say that using your HELOC for investments in the market is probably a good situation for less than 10% of all homeowners.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

Example?

One example is taking advantage of a situation where a property of some sort is available at a highly discounted rate because they need to sell quickly. With an open line, as long as you have the asking price available, you can close the deal without getting financing etc. Another example would be home improvement. Other than the obvious upgrade of your lifestyle that home improvement often brings it can bring a higher return on money invested when the property is sold.

Two quick one's right off the top of my head.

So you would use it for real estate speculation?Not all home upgrades will bring a higher return on you investment.

Yes, it can be used for real estate transactions. When we talk about wealth there are really 3 main ways to get it. 1) Real Estate Investment. 2) Business Owner 3) Equity Ownership (yes, there are other ways like lotto or professionals such as Doctors who are not business owners but make large sums of money). Using a HELOC to make an opportunistic purchase in real estate could have huge returns. The general concept with investing is that the more risk you take on the higher potential rewards you may gain. There is risk everywhere.

Correct with the home improvements. Some home improvements do not add any value or will actually lose value from the amount of money put into the house. However, others can increase the worth of a home.

Yes, I am in the banking industry. Yes, I have a HELOC on my own property. Yes, I use it actively as a financial tool.

 

[wildbill]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

It may be useful, but it's also very risky. If you borrow money against your house, then get hit with an emergency just as the housing market starts to dip, you could find yourself in a lot of trouble.

It is a tool. Just like any other tool- you can use it intelligently or not so much. A hammer is great for when you use it to hit nails into things. But if you turn around and smash your hand- is it the hammer's fault or did you mis-use the hammer? Odds are that you messed up and not the hammer.

But a hammer is a lot simpler to understand and use correctly. And when you make a mistake with a hammer you don't lose your house.

 

[Archie Bunker]

hmm, I must read up more on these. I am very ignorant of HELOC's. I would hate to be leaving a useful tool in the shed on the way to retirement.Thanks to you and Chadstroma for the information.

With excellent credit, which I am sure you have, you should be able to get a line of credit for prime minus .25% (or 0.5%) with no annual fee. There might be a small one-time set up fee. Right now, my HELOC is at 8%. the interest is tax deductible, dropping the effective rate to under 6%. I've used it to finance some home projects. I pay it down on a regular basis. Whenever my wife or I get a bonus, it goes towards that. The big advantage is that it has allowed us to comfortably max out our 401K. As I said earlier, with kids, the 401K gets an almost immediate 5% return by lowering our AGI and allowing use to receive the child tax credit. That 5% basically pays for the HELOC interest.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

Example?

A HELOC is a good tool to use to ride out bumps in cash flow without dipping into investments or having $10K-$20K tied up in a savings account earning 1% interest. At least that's how I use it.

so it helps you build wealth as Chadstroma mentioned by not ever dipping into investments and allowing them the max exposure to the power of compounding interest?

It is a flexable tool. I do not think there is any one specific 'here- do this with your HELOC and make money'. My point is that it is a financial tool that can greatly benefit you financially.

 

[wildbill]

It seems that a lot of this discussion has gotten away from the most important thing you can do to improve your financial health. A lot of the differences we have about where and when and how to invest won't matter one bit if you don't spend less than you make.

 

[Archie Bunker]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

My HELOC has averaged a rate of about 7% over the past 4 years. My 401K has averaged a return of well over 12%. I'm not saying that someone should max out their HELOC and dump it into the market. However, the HELOC can be used to finance some big ticket items (new roof, addition, new furnace, etc.) while not eating into retirement or other investments. Long term, the return from investments will outpace the cost of the HELOC.

I would say that using your HELOC for investments in the market is probably a good situation for less than 10% of all homeowners.

I'm not using it to invest in the market, at least not directly. I am using it to allow me to do things like max out my 401K without incurring short-term cash crunches. I simply use the HELOC to smooth out the bumps.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

How can you build wealth by opening up a home equity line of debt?

My HELOC has averaged a rate of about 7% over the past 4 years. My 401K has averaged a return of well over 12%. I'm not saying that someone should max out their HELOC and dump it into the market. However, the HELOC can be used to finance some big ticket items (new roof, addition, new furnace, etc.) while not eating into retirement or other investments. Long term, the return from investments will outpace the cost of the HELOC.

I would say that using your HELOC for investments in the market is probably a good situation for less than 10% of all homeowners.

I would say 10% is a very high number. I would greatly discourage using a HELOC to buy equities. Using real estate financing to purchase real estate is something that you can regulate risk on. Using real estate financing to purchase equities is a very slippery slope.

 

[andy_b]

With excellent credit, which I am sure you have, you should be able to get a line of credit for prime minus .25% (or 0.5%) with no annual fee. There might be a small one-time set up fee. Right now, my HELOC is at 8%. the interest is tax deductible, dropping the effective rate to under 6%. I've used it to finance some home projects. I pay it down on a regular basis. Whenever my wife or I get a bonus, it goes towards that. The big advantage is that it has allowed us to comfortably max out our 401K. As I said earlier, with kids, the 401K gets an almost immediate 5% return by lowering our AGI and allowing use to receive the child tax credit. That 5% basically pays for the HELOC interest.

This is a nice example, thank you.I need to think about how this could help my situtation, if at all.

 

[andy_b]

It seems that a lot of this discussion has gotten away from the most important thing you can do to improve your financial health. A lot of the differences we have about where and when and how to invest won't matter one bit if you don't spend less than you make.

Ding ding ding!Of course this does not fit into all too many Americans thoughts of "buy now, worry later, junior needs a PS3 today" mentality.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

It may be useful, but it's also very risky. If you borrow money against your house, then get hit with an emergency just as the housing market starts to dip, you could find yourself in a lot of trouble.

It is a tool. Just like any other tool- you can use it intelligently or not so much. A hammer is great for when you use it to hit nails into things. But if you turn around and smash your hand- is it the hammer's fault or did you mis-use the hammer? Odds are that you messed up and not the hammer.

But a hammer is a lot simpler to understand and use correctly. And when you make a mistake with a hammer you don't lose your house.

A HELOC is not rocket science. Would you say a credit card was hard to understand? You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand. Let's not confuse the issue here- the point is not about how easy or hard it is to use a hammer or HELOC. The point is that both are tools- not enough people respect a HELOC enough to look at it as a tool and use it properly. My point is that just because some dolt or some goofball goes off and gets a HELOC to take a year long vacation to Istanbul and then week long trips to strip clubs paying strippers $1,000 a lap dance and pisses all that away- does not mean a HELOC is a not a valuable tool that can better your financial lives. That same dolt or goofball could have gone to Istanbul and the strip clubs by closing out his 401k and spending it all. Would you say that a 401k is bad or that it was hard to understand or use properly?

 

[Chadstroma]

It seems that a lot of this discussion has gotten away from the most important thing you can do to improve your financial health. A lot of the differences we have about where and when and how to invest won't matter one bit if you don't spend less than you make.

Agree. I have many clients who make three times more than myself but have nothing to show for it because they keep spending. The more they make- the more they spend.

 

[Chadstroma]

hmm, I must read up more on these. I am very ignorant of HELOC's. I would hate to be leaving a useful tool in the shed on the way to retirement.Thanks to you and Chadstroma for the information.

With excellent credit, which I am sure you have, you should be able to get a line of credit for prime minus .25% (or 0.5%) with no annual fee. There might be a small one-time set up fee. Right now, my HELOC is at 8%. the interest is tax deductible, dropping the effective rate to under 6%. I've used it to finance some home projects. I pay it down on a regular basis. Whenever my wife or I get a bonus, it goes towards that. The big advantage is that it has allowed us to comfortably max out our 401K. As I said earlier, with kids, the 401K gets an almost immediate 5% return by lowering our AGI and allowing use to receive the child tax credit. That 5% basically pays for the HELOC interest.

You should be able to find a HELOC with no closing cost and no annual fee with below prime rate. If not, contact me and I can see if I can steer you in the right direction.

 

[andy_b]

You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand.

totally off topic but what a fascinating question....If it was my strong hand, I might agree with you, but if it was my weak hand, knowing what my house is worth and knowing how good my companies disability is, I would actually take some time to think about this

 

[andy_b]

It seems that a lot of this discussion has gotten away from the most important thing you can do to improve your financial health. A lot of the differences we have about where and when and how to invest won't matter one bit if you don't spend less than you make.

Agree. I have many clients who make three times more than myself but have nothing to show for it because they keep spending. The more they make- the more they spend.

this is specifically why I have tracking what you spend each month as the #1 item on my guide.I can always upset people off in my office who come by for "investing advice" and I always emphasize to figure out what they are spending first before we worry about investing.Seems like people would much rather invest than track what they spend, probably because it would force them into realizations they don't want to make.

 

[wildbill]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

It may be useful, but it's also very risky. If you borrow money against your house, then get hit with an emergency just as the housing market starts to dip, you could find yourself in a lot of trouble.

It is a tool. Just like any other tool- you can use it intelligently or not so much. A hammer is great for when you use it to hit nails into things. But if you turn around and smash your hand- is it the hammer's fault or did you mis-use the hammer? Odds are that you messed up and not the hammer.

But a hammer is a lot simpler to understand and use correctly. And when you make a mistake with a hammer you don't lose your house.

A HELOC is not rocket science. Would you say a credit card was hard to understand? You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand. Let's not confuse the issue here- the point is not about how easy or hard it is to use a hammer or HELOC. The point is that both are tools- not enough people respect a HELOC enough to look at it as a tool and use it properly. My point is that just because some dolt or some goofball goes off and gets a HELOC to take a year long vacation to Istanbul and then week long trips to strip clubs paying strippers $1,000 a lap dance and pisses all that away- does not mean a HELOC is a not a valuable tool that can better your financial lives. That same dolt or goofball could have gone to Istanbul and the strip clubs by closing out his 401k and spending it all. Would you say that a 401k is bad or that it was hard to understand or use properly?

One difference between a HELOC and a credit card is that you don't lose your house when you make a mistake with a credit card. It may be a useful tool for folks like you who have some understanding of how to use it, but it's probably too risky a tool for most people, especially people whose main goal is to get out of debt.

 

[wildbill]

You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand.

totally off topic but what a fascinating question....If it was my strong hand, I might agree with you, but if it was my weak hand, knowing what my house is worth and knowing how good my companies disability is, I would actually take some time to think about this

This is the kind of penny-pinching attitude that allows a man to pay off his mortgage at 31.

 

[Chadstroma]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

It may be useful, but it's also very risky. If you borrow money against your house, then get hit with an emergency just as the housing market starts to dip, you could find yourself in a lot of trouble.

It is a tool. Just like any other tool- you can use it intelligently or not so much. A hammer is great for when you use it to hit nails into things. But if you turn around and smash your hand- is it the hammer's fault or did you mis-use the hammer? Odds are that you messed up and not the hammer.

But a hammer is a lot simpler to understand and use correctly. And when you make a mistake with a hammer you don't lose your house.

A HELOC is not rocket science. Would you say a credit card was hard to understand? You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand. Let's not confuse the issue here- the point is not about how easy or hard it is to use a hammer or HELOC. The point is that both are tools- not enough people respect a HELOC enough to look at it as a tool and use it properly. My point is that just because some dolt or some goofball goes off and gets a HELOC to take a year long vacation to Istanbul and then week long trips to strip clubs paying strippers $1,000 a lap dance and pisses all that away- does not mean a HELOC is a not a valuable tool that can better your financial lives. That same dolt or goofball could have gone to Istanbul and the strip clubs by closing out his 401k and spending it all. Would you say that a 401k is bad or that it was hard to understand or use properly?

One difference between a HELOC and a credit card is that you don't lose your house when you make a mistake with a credit card. It may be a useful tool for folks like you who have some understanding of how to use it, but it's probably too risky a tool for most people, especially people whose main goal is to get out of debt.

I think you are over estimating the risk in a HELOC or under estimating your average person. If a person is of average intelligence and a responsable person then there is very little further risk in a HELOC than what you already have on your regular mortgage.

 

[andy_b]

You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand.

totally off topic but what a fascinating question....If it was my strong hand, I might agree with you, but if it was my weak hand, knowing what my house is worth and knowing how good my companies disability is, I would actually take some time to think about this

This is the kind of penny-pinching attitude that allows a man to pay off his mortgage at 31.

het have you seen the new technolgy today?As long as I could still eat my ribs I think I could deal with this

 

[Chadstroma]

You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand.

totally off topic but what a fascinating question....If it was my strong hand, I might agree with you, but if it was my weak hand, knowing what my house is worth and knowing how good my companies disability is, I would actually take some time to think about this

Ok then.

 

[Gordo]

I would add setting up a Home Equity Line of Credit (no closing cost, no annual fee, etc) to have available as a financial tool to use for those who own and have equity built into their house. Used properly this can be a very useful tool to build wealth and protect you financially.

It may be useful, but it's also very risky. If you borrow money against your house, then get hit with an emergency just as the housing market starts to dip, you could find yourself in a lot of trouble.

It is a tool. Just like any other tool- you can use it intelligently or not so much. A hammer is great for when you use it to hit nails into things. But if you turn around and smash your hand- is it the hammer's fault or did you mis-use the hammer? Odds are that you messed up and not the hammer.

But a hammer is a lot simpler to understand and use correctly. And when you make a mistake with a hammer you don't lose your house.

A HELOC is not rocket science. Would you say a credit card was hard to understand? You know, you can make a mistake with a hammer that is big enough and with enough force to mangle your hand beyond use. I rather lose my house than my hand. Let's not confuse the issue here- the point is not about how easy or hard it is to use a hammer or HELOC. The point is that both are tools- not enough people respect a HELOC enough to look at it as a tool and use it properly. My point is that just because some dolt or some goofball goes off and gets a HELOC to take a year long vacation to Istanbul and then week long trips to strip clubs paying strippers $1,000 a lap dance and pisses all that away- does not mean a HELOC is a not a valuable tool that can better your financial lives. That same dolt or goofball could have gone to Istanbul and the strip clubs by closing out his 401k and spending it all. Would you say that a 401k is bad or that it was hard to understand or use properly?

One difference between a HELOC and a credit card is that you don't lose your house when you make a mistake with a credit card. It may be a useful tool for folks like you who have some understanding of how to use it, but it's probably too risky a tool for most people, especially people whose main goal is to get out of debt.

I am sure that there are numerous examples of people that have racked up credit card debt, and ended up losing their house because of the financial distress that resulted once it got out of control.

 

[Dentist]

Why would you suggest funding the Roth to the hilt before maxing out the 401K?I still barely qualify for the Roth, but after maxing out my 401K, maintaining my emergency fund, and having enough to blow on booze and strippers (a step you totally skipped).. there just isn't enough for the Roth.Seems like saving money tax-free would be the way to go over investing taxed money.I mean.. to invest that $4000 Roth I probably had to earn $6000... it's going to take awhile to make that money back.. but instead I can invest the full $6000 in the 401k...Discuss.

Are you self employed?

No, i work for my dad

 

[BigJohn]

Why would you suggest funding the Roth to the hilt before maxing out the 401K?

I still barely qualify for the Roth, but after maxing out my 401K, maintaining my emergency fund, and having enough to blow on booze and strippers (a step you totally skipped).. there just isn't enough for the Roth.

Seems like saving money tax-free would be the way to go over investing taxed money.

I mean.. to invest that $4000 Roth I probably had to earn $6000... it's going to take awhile to make that money back.. but instead I can invest the full $6000 in the 401k...

Discuss.

Dave Ramsey and Clark Howard both recommend contributing up to the company match in your 401k, then maxing out the Roth IRA, then maxing out the 401k. Most folks can't afford to max out both, but that's the order they suggest following if you're able.

Who are Ramsey and Clark? I am unfamiliar with their names. If I am reading this correctly, it seems to match the order I posted in the original post.

http://www.daveramsey.com/Dave has a very specific plan for helping people control their finances. His programs are designed for people who don't know what they are doing, and helps them get control. More advanced financial peeps will probably not agree with most of DR's tactics. But they are not his target market.

I am a member of his Total Money Makeover, and it has changed my situation drastically in just 3 months since I started it.

 

[Warehouse Nasty]

I don't see the point of saving while you're paying a whole lot more in interest on your CC. Why can't you use your credit card for emergency fund purposes?

I didn't realize that credit cards carried the limits needed for 6-9 months worth of bills (which for the average family can range anywhere from $36k to $45k).

I suppose you and I put different values on having 6-9 months worth of bills in an emergency fund.

 

[andy_b]

I don't see the point of saving while you're paying a whole lot more in interest on your CC. Why can't you use your credit card for emergency fund purposes?

I didn't realize that credit cards carried the limits needed for 6-9 months worth of bills (which for the average family can range anywhere from $36k to $45k).

I suppose you and I put different values on having 6-9 months worth of bills in an emergency fund.

Probably and there is nothing wrong with either approach. I have said numerous times I am very conservative. It has served my needs well so far so I don't see a need to change yet.

 

[avoiding injuries]

Best thread I've read in a while! Keep it coming.

I am getting married in September(27) and having a house built that will be ready in January. I just got my fiance to come back down stairs to read this thread and get a better understanding of finances and what my thought process is. The only major difference I have is rental properties that have not been talked about yet for the most part.

andy b, I bought my first house right out of school(across from the University) and had some friends who ad just graduated move in with me. Their rent paid for my mortgage and then some, allowing me to save money and build equity. Essentially, this worked out better financially than living with my parents. I was then able to take some equity out(the place appreciated very well) to buy another rental down the street and the money I was saving while living with my friends was used to buy my current primary residence.

I hope this post didn't come across the wrong way, I just wanted to point out an example of a finacial investment that allowed me to save/make money without "sacrificing" my 20's by living with MY ultra conservative parents.

On a side note, I also met my fiance at the house warming party I threw when I bought that first house. Funny how things work out.

Anyways, keep up the good posts.

 

[andy_b]

andy b, I bought my first house right out of school(across from the University) and had some friends who ad just graduated move in with me. Their rent paid for my mortgage and then some, allowing me to save money and build equity. Essentially, this worked out better financially than living with my parents. I was then able to take some equity out(the place appreciated very well) to buy another rental down the street and the money I was saving while living with my friends was used to buy my current primary residence.

This is awesome!!I have much love for anyone who does well in real estate. I had no balls nor real estate acumen when I was young and stuck to mutual funds.

 

[wildbill]

There's a nice article at thestreet.com today about pitfalls to avoid if you want to retire rich. I've highlighted the ten items, you can read the article for more details.

Don't Retire Poor -- Avoid These 10 PitfallsBy Jeffrey Strain

Special to TheStreet.com

5/16/2007 10:53 AM EDT

1. Setting money aside for college ahead of retirement

2. Believing it's OK to wait

3. Not taking advantage of 401(k) matches

4. Accumulating credit card debt

5. Counting on an inheritance

6. Buying more house than you can afford

7. Neglecting insurance

8. Failing to take advantage of IRAs

9. Investing too conservatively

10. Investing too aggressively

 

[Chadstroma]

Best thread I've read in a while! Keep it coming.I am getting married in September(27) and having a house built that will be ready in January. I just got my fiance to come back down stairs to read this thread and get a better understanding of finances and what my thought process is. The only major difference I have is rental properties that have not been talked about yet for the most part.andy b, I bought my first house right out of school(across from the University) and had some friends who ad just graduated move in with me. Their rent paid for my mortgage and then some, allowing me to save money and build equity. Essentially, this worked out better financially than living with my parents. I was then able to take some equity out(the place appreciated very well) to buy another rental down the street and the money I was saving while living with my friends was used to buy my current primary residence.I hope this post didn't come across the wrong way, I just wanted to point out an example of a finacial investment that allowed me to save/make money without "sacrificing" my 20's by living with MY ultra conservative parents.On a side note, I also met my fiance at the house warming party I threw when I bought that first house. Funny how things work out.Anyways, keep up the good posts.

Like I said before, real estate investment is a great way to build wealth- it can be done in many different ways and with many different tools. There is risk but the rewards can be great. Buying and renting real estate is not for everyone but it is a wonderful way to build wealth. Way to go Avoiding Injuries! I only wish I started earlier doing as you have.

 

[Chadstroma]

Best thread I've read in a while! Keep it coming.I am getting married in September(27) and having a house built that will be ready in January. I just got my fiance to come back down stairs to read this thread and get a better understanding of finances and what my thought process is. The only major difference I have is rental properties that have not been talked about yet for the most part.andy b, I bought my first house right out of school(across from the University) and had some friends who ad just graduated move in with me. Their rent paid for my mortgage and then some, allowing me to save money and build equity. Essentially, this worked out better financially than living with my parents. I was then able to take some equity out(the place appreciated very well) to buy another rental down the street and the money I was saving while living with my friends was used to buy my current primary residence.I hope this post didn't come across the wrong way, I just wanted to point out an example of a finacial investment that allowed me to save/make money without "sacrificing" my 20's by living with MY ultra conservative parents.On a side note, I also met my fiance at the house warming party I threw when I bought that first house. Funny how things work out.Anyways, keep up the good posts.

Like I said before, real estate investment is a great way to build wealth- it can be done in many different ways and with many different tools. There is risk but the rewards can be great. Buying and renting real estate is not for everyone but it is a wonderful way to build wealth. Way to go Avoiding Injuries! I only wish I started earlier doing as you have.

 

[andy_b]

There's a nice article at thestreet.com today about pitfalls to avoid if you want to retire rich. I've highlighted the ten items, you can read the article for more details.

Don't Retire Poor -- Avoid These 10 PitfallsBy Jeffrey Strain

Special to TheStreet.com

5/16/2007 10:53 AM EDT

1. Setting money aside for college ahead of retirement

2. Believing it's OK to wait

3. Not taking advantage of 401(k) matches

4. Accumulating credit card debt

5. Counting on an inheritance

6. Buying more house than you can afford

7. Neglecting insurance

8. Failing to take advantage of IRAs

9. Investing too conservatively

10. Investing too aggressively

Wow reading this makes me feel good. I think in this thread we have hit many of these topics.I am happy to say I am 9 for 10 in avoiding these pitfalls. I may invest a little more conservatively than I should.

#1 on this list is very important. I touched on this in #9 of my original post. Its so ingrained in Americans to "save for college" that many do forget about their own retirement and the financial affect of screwing that up can have on their children.

 

[DolphinsPhan]

HUGE

 

[fatkid]

You don't pay taxes on the appreciation until you sell. As long as you don't plan on doing a lot of trading, you won't pay taxes until you cash out, presumably at retirement. I guess the IRA does give you the option of exchanging between funds without having to declare a gain. However, with a regular account, if your funds have a bad year, you can cash out, take the deduction, and reinvest (after 30 days to avoid wash rules).

I don't think you answered my question.How do you avoid paying taxes on capital gains distributions and dividends that most mutual funds generate multiple times a year?

Don't confuse this will selling your mutual fund, it has nothing to do with that.

I have been holding some mutual funds for a deace now, have never sold them but I pay taxes on the distributions (1099) every year.

Can you tell me how you are getting around this?

That's why I put the line in there about having a DRIP. Dividends are directly reinvested so as to avoid defer paying taxes on the gains.

I am still confused.I reinvest all capital gains and dividends immediately in all mutual funds I own.

In all of my non retirement mutual funds, I get taxed forms at the end of the year showing what I owe.

Can you provide me a link that will explain to me how I should ignore the 1099 forms I get so that I can defer the taxes?

Thank you for your help!

Hi Andy,Here is a way you can invest money into the Stock Market or a Mutual fund and not pay much if any taxes on a yearly basis. Invest your money into an Index Fund. The one I use is the Spartan Equity Fund offered by Fidelity, but there are a number of ones out there, some probably better than this one.

An Index fund seeks to aquire equal shares in every company in a particular Index. I.E. the S&P 500, or Nasdaq, or the Dow. They only sell shares if one of the companies on that index falls off. Since they rarely sell shares, the rarely get charged for Captial Gains, and thus you rarely get charged for Capital Gains. You will get a tax hit in the event that the companies in the Index pay dividens. Those you do need to declare as income, even if you re-invest them.

The other advantage of this type of fund is it has very low fees. The Spartan Equity Fund has an expense ration of .1%. The reason it is so low is it takes very little effort to manage. The companies don't change, the allocations to those companies don't change regardless of how well they do.

The final advantage in this is that you are inherantly diversified in your stock portfolio if you choose a broad index like the S&P or the Wilshire 5000.

 

[wildbill]

This thread prompted me to pull out my old copy of The Millionaire Next Door. The two authors studied the wealthy for many years and determined seven factors for how wealthy people get that way.

1. They live well below their means.2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.3. They believe that financial independence is more important than displaying high social status.4. Their parents did not provide economic outpatient care.5. Their adult children are economically self-sufficient.6. They are proficient in targeting market opportunities.7. They chose the right occupation.

Factors 1 and 3 are things that anyone can do immediately. Factors 4 and 5 involve other people, so while they can be done they might require some time.Factors 2, 6 and 7 are things that require some time and effort to achieve. I'd be interested in hearing from some FBGs who have been able to do this and how they did it.

 

[wildbill]

Bump for the Monday crowd.

 

[Dentist]

Why would you suggest funding the Roth to the hilt before maxing out the 401K?I still barely qualify for the Roth, but after maxing out my 401K, maintaining my emergency fund, and having enough to blow on booze and strippers (a step you totally skipped).. there just isn't enough for the Roth.Seems like saving money tax-free would be the way to go over investing taxed money.I mean.. to invest that $4000 Roth I probably had to earn $6000... it's going to take awhile to make that money back.. but instead I can invest the full $6000 in the 401k...Discuss.

Hey 2007 self, you're a dumasyou should've just jacked the 4000 roth in. you had the money, and this would be the last year you'd qualify for it until you got married.Also 2007 you were a effing idiot for putting your 2003, 2004, and 2005 roth money into a CD... sure it was earning 5% at the time, but it was dumb.you should've learned more about the market and bought during these boom years and then sold at the '07 peak before the crash.At any rate, you did fairly well for yourself, but you should regret not putting the roth money in there.

 

[gmbacm]

 

[NewlyRetired]

Hmm, since this got bumped I should edit the first post slightly.

 

[Dexter Manley]

Riggins

 

[Exit 1]

Marry rich or at least have a woman that works. Having a housewife is for suckers. Better hope you don't get a divorce.

 

[Grady Wilson]

bump...

 

[Cliff Clavin]

Question for you smart folks.

Current setup investments:

-Work pension which I contribute 6% and get an 8% match (MER .25)

-Mutual funds bought through an adviser (who doesn't charge me anything) on a bi-weekly basis. MERs between 2-2.5% :X

-No debt other than mortgage

I see my options as:

1) Get rid of the mutual funds and put everything into my works pension. Only downside is I can't use a TFSA for this.

2) Stop contributing to through my adviser and get into ETFs. Am I able to do this without a large lump sum? I don't have a big chunk of change sitting around to use for investing but I'd like to contribute bi-weekly ($300ish).

3) Keep with what I'm doing

4) Other?

 

[Dentist]

Question for you smart folks. Current setup investments: -Work pension which I contribute 6% and get an 8% match (MER .25)-Mutual funds bought through an adviser (who doesn't charge me anything) on a bi-weekly basis. MERs between 2-2.5% :X -No debt other than mortgageI see my options as:1) Get rid of the mutual funds and put everything into my works pension. Only downside is I can't use a TFSA for this.2) Stop contributing to through my adviser and get into ETFs. Am I able to do this without a large lump sum? I don't have a big chunk of change sitting around to use for investing but I'd like to contribute bi-weekly ($300ish). 3) Keep with what I'm doing4) Other?

ETFs are bad for people contributing on a bi-weekly basis because you will incur a lot of transaction fees.An index mutual fund from Vanguard would be a far better choice.ETFs are only good if you have lump sums to invest, or you work with a discount brokerage and get either Free ETF trades or X number of free trades per month.If you use vanguard brokerage, then their ETFs are free to invest in, so then it's a good option.. same with Fidelity and their Free ETFs.. E-Trade has some toowhat is MERs?

 

[Cliff Clavin]

Question for you smart folks. Current setup investments: -Work pension which I contribute 6% and get an 8% match (MER .25)-Mutual funds bought through an adviser (who doesn't charge me anything) on a bi-weekly basis. MERs between 2-2.5% :X -No debt other than mortgageI see my options as:1) Get rid of the mutual funds and put everything into my works pension. Only downside is I can't use a TFSA for this.2) Stop contributing to through my adviser and get into ETFs. Am I able to do this without a large lump sum? I don't have a big chunk of change sitting around to use for investing but I'd like to contribute bi-weekly ($300ish). 3) Keep with what I'm doing4) Other?

ETFs are bad for people contributing on a bi-weekly basis because you will incur a lot of transaction fees.An index mutual fund from Vanguard would be a far better choice.ETFs are only good if you have lump sums to invest, or you work with a discount brokerage and get either Free ETF trades or X number of free trades per month.If you use vanguard brokerage, then their ETFs are free to invest in, so then it's a good option.. same with Fidelity and their Free ETFs.. E-Trade has some toowhat is MERs?

MER = Management Expense Ratio. The cut the management firm takes off the top. Looks like Vanguard MERs come in between .09% and .45%. I don't use any brokerage right now. If, for example, I signed up with Vanguard, I could purchase any of their ETFs for free? No fees at all?