Living With Debt

[quote]usaffirefighter wrote:
Good info so far, thanks a ton guys! As far as taking advantage of my youth subject, I guess I haven’t begun investing much because I’m just not sure about what’s out there and what’s a good idea or not. I realize anything is better than nothing, but do you guys have any specific recommendations? Money market, CDs, stock market? I’m really not sure where to start research for this kind of stuff, but am definitely interested, any help would be greatly appreciated![/quote]

I was the least sophisticated person that I knew!

All I did was simply open a bank account and every week without fail add 20% of my paycheck. Don’t get me wrong on occasion I would have an unforseen expenditure pop up. But, even then I would still save as close to the 20% as possible. I would also record every cost that came up as well.

Basically, just get in the habit of saving and don’t ever stop! You will be far ahead of everyone else just doing this because we are not a nation of savers.

[quote]perfectlycrazy wrote:
Are you self employed?
[/quote]

No, I work for a software company as a sales engineer and my wife is a physical therapist for a burn unit at UCI medical center.

The bottom line message to all the “youngens” out there is you can become debt free as a business owner or a working stiff like myself.

Ditto on the used cars. Usually IMO( and not to sound rude) brand new is often an ego thing. I recently purchased a two yr. old vehicle. It looks new, runs like new, people assume it is new (not like i care but proving a point) and I saved major $$. Unless you’d rather a dealer benefit from your hard earned cash I agree with this great advice!! So many people purchase nice cars and only keep them for a year or two; take advantage!!!

Dan C,

Sounds like you’ve been reading a little Robert Kiyosaki. The advice in this thread are excellent. I don’t think there’s much else to add unless more specific questions are asked.

[quote]Aleksandr wrote:
In terms of mutual funds, I don’t see the point in diversifying them. The point of a mutual fund should be to diversify. At this point, you are diversifying your diversification, and that seems bizzare to me, but there may be reasons I just haven’t considered (never have been a big fan of mutual funds, I say just save up the ~$40,000 you need to diversify your portfolio and go it alone).
[/quote]

If I want exposure to the U.S. equity market, I might buy an index fund that mimics the S&P 500. Is my portfolio then well-diversified? Not necessarily. There are international equity funds, emerging market funds, money market funds, bond funds, gold funds, real estate funds – heck, you name the asset, there is a fund for it.

The point is, mutual funds are not just about U.S. equity. Just because you’ve bought one fund does not mean you are well-diversified.

Great thread! I’d like to add a little on the idea of “paying yourself first.” I own an S-corporation and have finally started investing for myself through the corporation. I understand paying yourself first this way; you deduct all business related expenses from income BEFORE you are taxed. This means any gains made in investing stocks (where I primarily invest) are treated as income and not capitol gains. I can deduct my computer, ISP fees, phone, car, entertainment if with a client, and such from my income. Then I pay taxes on it. So in this way, I pay myself first.

[quote]Panther1015 wrote:
Dan C,

Sounds like you’ve been reading a little Robert Kiyosaki. The advice in this thread are excellent. I don’t think there’s much else to add unless more specific questions are asked.[/quote]

Actually, no. Pardon my ignorance, but who is that guy?

I see a trend of investing in funds and the stock market. Funny thing is, I got into real estate precisely because I a) work in finance, b) NEVER made money whether through stocks, mutual funds or hedge funds, c) tried almost every other strategy (Dollar Cost average, index investing, Value Cost Averaging, you name it), d) figured out that markets come and go, but real estate is more demographically predictible and, like others said, as long as you are making a profit, you`re set.

About funds and registered retirement plans: I think they suck. Yeah, sure they are for the long term. But let us suppose you are in Canada, in the 50% tax bracket, and you have to liquidate your registered assets. To make a long story short, your initial investments must have doubled just to offset the tax bite. And how many of you can boast a 100% return over the last years ??? Registered plans are my LAST investment. I sure prefer cash. And until Pre-Paid Tax Savings Plans come, I am not investing in any registered plan. Cash rules.

(Almost)last thing: taxes. Money market - Tax - Inflation = Getting poorer. Sure, being a landlord is a second job, but it`s far better for my net worth than any investment plan.

Last thing: I try to always buy what`s on sale, grocery included. Since almost every product comes and goes on sale cyclically (?), it pays to load up once in a while.

Thanks for the replies!

[quote]usaffirefighter wrote:
I’m really not sure where to start research for this kind of stuff, but am definitely interested, any help would be greatly appreciated![/quote]

Just a few resources for you:

The only book I’ll list is Personal Finance for Dummies. It’s a fairly highly recommended title for beginners.

This is a radio show, but there are a lot of resources on the site as well.

Great consumer info.

Some articles, lots of resources and rate info.

Your guide to socially responsible investing.

Motley Fool site, which is info-tainment style financial advice. Also a radio show on NPR (www,npr.org)

These are just a few resources for you to look into if like. There is much, much more out there, but this is a decent start.

[quote]Nate Green wrote:
After reading The Wealthy Barber, I decided to ‘pay myself first.’ Currently, I’m contributing just under 4,000 a year into a Roth IRA, and also have 10% of my monthly income directly deposited into a seperate money market account, until I build a decent foundation.
[/quote]

First, congratulations. You are way ahead of the game and should be proud of yourself. Twenty years old and already saving 4,000 per year in a ROTH IRA and 10% of your income in a money market account? Fabulous. You will be wealthy.

Second, your going along the right track here as well. You have such a long horizon towards retirement absolutely go the more aggressive approach with a small number of no-load mutual funds consisting of 100% stocks. This is where you can make it very easy; investing doesn’t have to be hard. Pick between 3 and 6 mutual funds. Mutual funds can be generally categorized into 9 quadrants: you have large cap, mid cap, and small cap stocks and they’re either growth-oriented, value-oriented, or a blended version. I also like to add in an international fund in this mix, but don’t go crazy by picking a large number of funds because the benefits of diversifying funds level out after 3 or 4 funds and then you just have more funds to keep track of. The key is to pick “no-load” funds with the expense ratios as low as possible; preferably less than 0.8% in fees. The lower, the better. Fund expenses just eat up your money. Great job so far. PM me with any questions.

[quote]DAN C wrote:
I see a trend of investing in funds and the stock market. Funny thing is, I got into real estate precisely because I a) work in finance, b) NEVER made money whether through stocks, mutual funds or hedge funds, c) tried almost every other strategy (Dollar Cost average, index investing, Value Cost Averaging, you name it), d) figured out that markets come and go, but real estate is more demographically predictible and, like others said, as long as you are making a profit, you`re set.
[/quote]

Sorry dude. I call bullshit here. You never made money through stocks. The way you talk about it is like you never made money in Vegas. It’s not gambling. If you are a short term trader, then sure, you have a good chance of losing money. If you dollar cost average (putting money into the stock market regardless of whether its up or down) over the long term in a few, no-load, indexed mutual funds that consist mostly of stocks and you have a long time horizon to let the money grow, there is so little risk in this approach and almost a guaranteed return of approximately 8% per year if you look over any 30 to 40 year period in the stock market.

Markets do come and go, that’s why you dollar cost average over the long term and you will be almost guaranteed a winner. The law of compounding is very powerful indeed. I’m not knocking real estate, I think it’s a fantastic vehicle for also growing money if done intelligently but it also takes a lot more financial acumen, time and effort to become a winner at it. So for you to tout on this thread you did “everything”, dollar-cost averaging, etc. and you didn’t make any money is pure bullshit. If you’re time horizon was 2 weeks or 2 years and you were trading in and out of stocks, then no shit sherlock, you probably lost money.

You said it yourself, they are there for the long term. If you are looking for the quick fix cash, then sure, registered retirement plans suck. But if you are patient and you want to ensure you can actually retire at some point later in life, pre-tax retirement plans are the bomb. Is it the only approach you should take? No. But it is a very powerful one to consider. Letting money grow tax-deferred is very powerful indeed. Yes, you have to pay taxes on it when you start pulling it out but your not pulling it all out at once. Your paying taxes on money every year on what you are required to pull out based on your government’s regulations.

Money market funds - taxes - inflation = getting richer. Stock markets will average you 8% in the long term. Even after subtracting taxes and inflation, your money will compound and you will get richer. But not if your an impatient trader. Again, I think real estate is also an excellent wealth builder if done with intelligence, know-how, and a good team to surround you (mortgage broker, lender, accountant, finance expert, etc.).

Lastly, my point might have been misconstrued before. Yes, buy up on groceries when on sale to your heart’s content. But when your doing it with cash you don’t have, this = stupid.

Randman, you are right, but only up to a point. If you can’t tell the difference between a want and a need, do not use a credit card for cashflow timing. I, however, have lived most of my life on less than $10,000/year. I am also not from a consumer culture, and neither of my parents are either. I do not have a problem differentiating between wants and needs.

Now, buying with money you don’t have? It is stupid, unless you know how much money you’ll be getting and when (and leave a large margin in case things don’t go well). But, if you are smart about it, you can easily create a postive NPV, compared to buying as you get cash. Again, saving 50% and paying 18.5% APR is a damn sweet proposition. The trick is, you only do this for necessities. For example, I buy tuna maybe once a year, and I get it at about half the regular price. The same goes for rice, beans, beef, chicken, and so on.

This is what I mean by cashflow timing. Sure, people got by only using cash before, but credit cards are an awesome tool, and it’s foolish not to use them, if you can do so carefully. That said, I should point out that I have paid in my life $1.40 in interest on my credit card, and that was only because I never got the bill and forgot to pay before the end of the grace period.

I highly recommend checking out www.fool.com. Great site with great info. What ‘T-Nation’ is to the exercise world, the ‘motley fool’ is that of the financial world.

Get started early is good advice. I am 23 and have a 401k and Roth IRA I am contributing to. With what I am putting in and with the profit-sharing where I work, I invest 20-25% of what I make.

I did some figuring and I should easily have over 2 million when I retire by doing this…behold the power of compound interest.

What to invest in? For longer term I say nothing beats stocks. You just have to make sure you are getting the right ones. Which is the hard part. An easy way that someone said is get a low-load index fund and invest in that.

A big thing I’ve been debating recently is getting a new car (the new mustang caught my eye). This will make things tight for me and i’m still debating it. “treat yourself dk” is arguing with “be responsible dk”. At 23 I think I am too anal about these things. At least I know I am not alone by what I am hearing on this post.

Oh, and for you recent graduates, I hope you consolidated your loans like I did. I have a 2.875% fixed rate for 15 years on mine. :slight_smile:

Oh, One thing to remember, its not what you make, its what you spend.

Great words of wisdom from Zeb.

[quote]ZEB wrote:

  1. Live below your means
  2. Save everything that you can
  3. Be patient and look for a good opportunity.
    Oh…and don’t forget to stay in shape so you can live long enough to enjoy the fruits of your work!
    [/quote]

Awesome work DK! Don’t give into the voice saying that “you must have this car”. Or get the same car a couple of years used from someone else. You get the car you want but your not paying full price.

[quote]Aleksandr wrote:
But, if you are smart about it, you can easily create a postive NPV, compared to buying as you get cash. Again, saving 50% and paying 18.5% APR is a damn sweet proposition.
[/quote]

I guess we’re going to have to agree to disagree on this one. It’s too easy to take this mentality and apply to all 50% of sales you see. Wow, those filets are 50% off, I gotta buy them then. Wow, 60% off of those shirts, I must have them. Meanwhile your facing a credit card bill at the end of the month paying the 18.5% APR which I consider to be a horrible proposition.

[quote]
That said, I should point out that I have paid in my life $1.40 in interest on my credit card, and that was only because I never got the bill and forgot to pay before the end of the grace period.[/quote]

It seems to work for you because you appear to still have money by the next month to pay off what you bought considering the miniscule interest payments you have made thus far. But for 99% of people that try this game, they will lose. And that’s why I still think it is not good advice to be touting on a thread that has morphed into a sound financial advice thread.

Don’t mortgage your future for your present.
Thats about as far as I’ve gotten with money handling. As soon as I start making more though, I’m going to need a plan for saving more and using it to make more.
Thanks for the resources guys.

This is a great thread. Good comments all around.

Right from when I first started working part time in my early teens, I’ve been living well below my means and saving as much as possible. Might be the only smart thing I’ve done!

It is interesting that so much of our society is geared towards getting people to spend money they don’t have to buy things they don’t need.

To Dan C:
Great thread. As a physician, I have accumulated my share of debt as I had to borrow my way throught medical school. The average medical school graduate has 100,000 worth of debt when graduating, I am no exception. I know society thinks physicians make alot of money, but my six figure debt requires a six figure salary.

I have recently read the book the Millionaire next door. I highly recommend this book, it will not really answer any investment questions but it goes into great detail about the characteristics of today’s millioniaires. It talks about living below your means.

[quote]randman wrote:
Sorry dude. I call bullshit here. You never made money through stocks. The way you talk about it is like you never made money in Vegas. It’s not gambling. If you are a short term trader, then sure, you have a good chance of losing money. (…). If you’re time horizon was 2 weeks or 2 years and you were trading in and out of stocks, then no shit sherlock, you probably lost money.
[/quote]

Last thing: I try to always buy what`s on sale, grocery included. Since almost every product comes and goes on sale cyclically (?), it pays to load up once in a while.

FYI, I said money market funds, the stuff that pays 3-4% a year. I know fully well that 8% / 2 (taxes) - inflation = still a winner for THE market. But money markets are a sure loss.

[quote]DAN C wrote:
randman wrote:
Sorry dude. I call bullshit here. You never made money through stocks. The way you talk about it is like you never made money in Vegas. It’s not gambling. If you are a short term trader, then sure, you have a good chance of losing money. (…). If you’re time horizon was 2 weeks or 2 years and you were trading in and out of stocks, then no shit sherlock, you probably lost money.[/quote]

Woops. My time horizon was more or less 2 years … about 6 monts after the 2000 peak. I thought, hey market had a good drop + DCA + time = money. I got out of the market because of stop losses (-30%). I do have a limit on risk tolerance, and this was the only spare money I had. As for the rest, not luckier. The hedge fund I got in is now in trouble (Univest). Luckily I got out before the scandal, but bizarrely that 14% a year compound return fund that never goes down (see its graph, almost a straight line) started tanking the year I got in it.

Anyway. Got me in Real Estate, and I love it. The entrepreneur side of it has its perks.