debt

[NOFX]

Very true about the interest on your money, but in the grand scheme of things, unless you have a significant amount to begin with, it's really not going to make that much difference. I don't see how anyone could possibly get wealthy from working for another company/organization. Well, I take that back somewhat. If you work there 40+ years and get numerous promotions throughout, then you may end up on the very upper level of middle class. But then again, it all depends on the field of work your in also.

 

It also comes down to how you live your life. As my father always told me, "the more you make, the more you spend" is pretty much true. Everyone does this. I saw I was doing it and I changed my ways a few years back and just pretended like I didn't make that much. So what if you are in your mid to late 20's and making 200k a year. You would have a huge house payment and amongst numerous other bills I'm sure.

 

The way to make real money is to fall into it or get lucky with many of the decisions you make in life. We make thousands a day and just one of those could lead to wealth. The thing is, I'm not really concerned with making money and impressing others with it. We all need it to live, but I don't want to live my entire life revolving around it. There's much more out there than making money and buying crap with the money you make.

 

A house payment is something I surely won't have when I'm older. If I do, I will sell my house and get a smaller one before I work as a greeter when I'm 80. If all I have is Social Security checks coming in. I guess thats the quality of life I'm stuck with until I get reincarnated.

 

Yes, my plan is to go sabbatical... The attitude live for today and tomorrow is actually very easy to do once you get in the habit of it. I have been doing it for over 2 years. The longer I do it, the easier it gets. Once you are used to it, you will feel really guilty about buying something expensive. I just bought a roof rack for my car today. I ended up getting part of it used for a total of $300, it made me cringe to click the OK button. I'm just looking at it as something I need when I move this fall(also does good with snowboards and bikes) and is transferable to other vehicles so it will stay with me for a long time.

 

The saying live for today and tomorrow also sits a little different for me. Am I really living for today if I'm just doing boring work that I don't enjoy, living in a city that I don't like? All I'm doing is living for tomorrow.

 

/end rant

Edited June 28, 2010 by .fx

[Unclean]

So what is your retirement plan? And more importantly, at what age do you think you can retire? How did you calculate these numbers?

 

Here's how I do it:

 

I usually check retirement calculators once every 6 months or so. "MyView Retirement Planner" is the one included with my 401k site. I just checked again, and assuming a 6-7% return on investments* and either a pension or partial social security**, 3-4% salary increases each year, I can retire comfortably (80% of preretirement income) at 55. That's 25 years for me. And my current lifestyle allows for me to go on vacations, buy fancy computer and camera gear, drive a luxury car, etc. That seems like the best of both worlds.

 

 

 

 

 

* - the average rate of return for any 10 or 20 year period is 8-12%, even during recessionary times or through the Great Depression. So my 6-7% guess is low.

** - Social Security will only pay something like 76% when we retire, not the full 100% people are getting now.

[YoMamma]

Great points, Unclean. You seem to be making the same type of financial decisions my father has made his whole life. He has been very conservative, but it has paid off, because he gets to live in a large house, have a nice car, go on vacations at least once a year, etc. All the things you mentioned and doing so with no debt.

 

NOFX, you have a lot of great ideas, but the one thing you seem to be missing from them all is investments. I know it's very hard to invest with the economic situation this country is in, but that's the best way to get ahead. That's how people move from "working for the man" to becoming the "man." There is nothing more rewarding than making money off of your own money. Like you mentioned with savings earlier in this post, investing too can become a nice addition.

 

Plain and simply: In your post, you seem to want to know the best way to get rich. You now do. Investing is what separates the rich from the middle class and the poor.

[Unclean]

Your dad sounds like an inspiration YM. It sounds like he has the best of both worlds. Too bad the average American doesn't take the same approach, or we'd be in a much better financial situation.

 

Nice line about investing too. A lot of people don't understand investing, or don't figure it out until later in life when it's harder to build up wealth. Check out this example of how powerful investing earlier can be:

 

http://www.mindyourfinances.com/money-management/savings/081104-04

 

tldr; version:

If you invest $2k/yr for 6 years starting at 22, you'll earn as much as someone that waits until 28 and invests $2k/yr for 37 years.

 

Crazy, huh?

[NOFX]

Well I do have a few investments.. www.lendingclub.com will earn you about 10% return a year. I've had about 2k in there for a couple of months and so far I'm earning about 11.5%. No defaults or anything, but the money is tied up. The majority of my savings are basically in a 2% savings account though, because currently I like it to be liquid. I have been contributing to a 401k for the past 5 years. Putting anywhere between 6%-10% of my paycheck, plus the 3% the company matches. I have fairly substantial amount sitting in there. but as the market drops, so does my money.

 

I really can't see putting 20k into an account earning 6-7% a year as GREAT investment. I know it's better than nothing, but having that money locked up for a measly 6% doesn't seem worth it to me. I only earn $1200 after a year of just letting it sit. I'm more of a risk taker and I feel like you have a much better chance of earning GREAT returns on your money if you invest in something that you actually have to work at.

Starting your own business?

Finding good deals on property, fixing it up and reselling.

 

Not only do you have the potential to get GREAT returns, you have the opportunity of working for yourself.

 

Things along these lines seem like much better ways to get decent returns. Investing without really putting any work into it seems like it was designed to benefit the person holding your money more so than yourself. Sure you might end up with a lot of money when your 60, but the person/company taking 1-2% of the top of a couple hundred accounts probably earns as much a year as you will have when you are 60. Even self-taught investment in the stock market would seem like a better option, but some people don't really want to learn. Did Warren Buffet make his initial investment with Charles Swab or did he do his homework?

 

Well the thing is that I have liquid assets. Although I didn't invest 2k a year starting at 22. I would be able to invest the same amount at 28 as what Daryl has at 28. So theoretically I could have 1.2 million if I can earn 12% a year on it. I'm not sure I like this, it sounds great, but realistically I'll earn 7% tops and who knows, the dollar could be worthless when I'm 60. I like having control of my funds and I'm sort of sitting back and waiting for the right opportunity. People say some people are lucky with investments/financial decisions. Luck is nothing more than being prepared for the opportunity.

 

I do have conflicting ideas. On one hand, I'd like to figure out how to make money and not work for the man. I'd like to make smart financial decisions and stay ahead of the pack. I would like to just live life doing the things that make me happy and not have to worry about money. On the other hand, I really don't care about money that much. I don't care about owning a big house or a really nice car. The last thing I care about is impressing someone I don't know or don't even care about. I really have a nonchalant attitude toward most things in life. So I'm stuck somewhere between these view points. I'd rather live for today and do the things I want than spend 40 years investing working a job I hate just so that I can eventually be happy when I'm old. There is a happy medium somewhere in there and that is what I'm searching for.

[YoMamma]

Unclean, yeah he has been a good role model for me financially. I've taken his financial advice most my life and I've been debt free my whole life. Heck, I didn't even buy my car until I had the money saved up first. The only problem with living this life style is that moving out from my parent's house is taking longer than for most people. The reason is because I want to avoid renting. So, instead I'm trying to save up as much as I can for a down payment for a townhouse or house before I take that step out of the house. It sucks now because myself and my girlfriend of 7 years can't live together, but in the long run I think it'll be the better decision.

 

NOFX, You are correct that with larger risk comes larger reward. Unclean's idea of investing small over a long period of time is great, but it's not for everyone. That's the conservative way to do it. That's the way my dad did it. You seem, however, to want to live for today, etc. So, that method might not be best suited for you. If you want to live your life with the bare minimums in terms of possessions, that's perfectly fine. That might actually be a more rewarding life for you in the long run in terms of not being tied to your possessions. My only concern is that you hopefully don't neglect the essentials like a roof over your head. You mentioned paying rent over owning a property. I would be wiry of this decision only because you are basically paying your landlord's mortgage with the same money that you could be using toward paying off your own mortgage.

[NOFX]

NOFX, You are correct that with larger risk comes larger reward. Unclean's idea of investing small over a long period of time is great, but it's not for everyone. That's the conservative way to do it. That's the way my dad did it. You seem, however, to want to live for today, etc. So, that method might not be best suited for you. If you want to live your life with the bare minimums in terms of possessions, that's perfectly fine. That might actually be a more rewarding life for you in the long run in terms of not being tied to your possessions. My only concern is that you hopefully don't neglect the essentials like a roof over your head. You mentioned paying rent over owning a property. I would be wiry of this decision only because you are basically paying your landlord's mortgage with the same money that you could be using toward paying off your own mortgage.

 

Whenever I first got out of school everyone (except family) preached to me that I needed to own and not rent. This is solely my experience, but buying was the worst decision I ever made being 24 years old. Not only does it keep me trapped in one location in my early 20's, but it doesn't even work out mathematically or logically. The much smarter thing I could have done was just rent until I hit my early-mid 30's. Get cheap rent and put the difference between rent and mortgage in the bank for a huge down payment.

 

Example. I bought a town house for $172,000. Mortgage alone was about $950, but with taxes, insurances my "rent" payment from the bank was about $1200. In 30 years I will have paid roughly $432,000 to own that place.

 

Now If I can rent w/ a roomate for $500 a month. That means I can put the other $700 in the bank. In about 20 years I will have enough saved up to buy the place out right. ((700*12)*20.4)=172,000. So rent plus the $700 a month for 20 years only cost about $293,000. Now that $140,000 over the next ten years could be spent on beer and hookers instead of the bankers pocket. I know the housing market will go up and that it really isn't practical to do that for 20 years to save every penny. But just by looking at the numbers, the longer I could rent and save $700 a month, the cheaper it's going to be in the end. Plus, it gives a young person flexibility and when they are ready to stay in one spot and own, they will be in the perfect position to put down a huge down payment. Maybe even half...

 

I really don't like the "your paying someone else's mortgage" trick. That was also what I was told by the salesman. Whether you are paying your mortgage or someone elses, it only makes a difference if Renting and the mortgage cost about the same. In the end you are still paying a mortgage either way. Currently, I'd rather be able to walk away from your mortgage than spend half a life time paying mine. If we want to get real clever, we need someone else to pay our mortgage then you can say "Why would you pay your own mortgage when you can get someone else to"

Edited July 12, 2010 by .fx

[Unclean]

It sounds like you have some financial ideals in there that sound great on paper. I have a few comments on them. After reading these comments I wrote, they seem like criticisms. Please don't take them that way, maybe I'm not seeing something rationally, and you can help me understand them. But here goes:

 

1. You're talking about back-loading your payments. It sounds like a great idea, but you're forgetting about appreciation. Do you think you'll be able to get the same townhouse for $172,000 in 20 years? Home appreciation averages around the same as inflation (4%), so your home will end up costing $362,378 in 20 years. So your home value increased by $190,378. Or if you didn't go that route, you lost out on that potential appreciation. Your $140,000 cash could have been $190,378. Or if you look at it the other way, $172k in today's dollars will be like the equivalent of $81k 20 years from now. You just wouldn't get the same bang for your buck 20 years from now.

 

2. Do you think you'll have the same attitude in 10 or 20 years as you do today, financially? I wonder about this myself... kids and changing incomes can change a lot. It sounds like you have a bit of wanderlust right now - nothing wrong with that, travel while you're not "tied down". Do you think you can keep that up for the next 10 or 20 years though? Will there be a point where that wanderlust isn't practical anymore? Would your decisions today affect your options if your living needs changed?

 

I also showed this post to my evil twin at work (we're both tall weird guys born on the same day), and he noted a few other things:

 

1. Rent goes up, you won't be able to stay at that $500/mo arrangement for long.

2. There are tax benefits to owning a home. Say you get $200/mo back from that interest that was subsidized, that's $48k over 20 years.

 

So what do you think? Does your plan still make sense? Do my (or my evil twin's) comments make sense?

[NOFX]

well, I haven't been lurking around much, but I'll go ahead and reply if anyone's still reading. I understand that houses appreciate, but you should never rely on that as a deciding factor. Housing does have trend of going up, but occasionally it goes down. It seems like we have all been trained to go with a mortgage because you will come out ahead in 30 years. Banks and those with money have pushed this and because everyone has a mortgage, houses are way more expensive than what they should be. What's an extra $20k when I'm already borrowing $250k right? Also, I view a house different than most people. I don't think your house should be your investment. We all need a place to live. Are you going to sell it and become homeless? Whats the point of your house's value going up if you don't have another place to live? Sell it and buy another?

 

With all that said, I do understand you could have made bank if you buy and sell at the right time, such as bought in 1995 and sold in 2005.

 

Of course I'm going to be thinking differently in 10 or 20 years. I will own a place within 10 or 20 years.

 

I'm not sure if I agree about the tax benefits argument. Sure you get more back in taxes, but that is because you are flushing money down the toilet in interest. I was paying 11k a year in interest on my townhouse. I would get XXXX amount back in taxes. I pay 7k a year for rent. Unless I was getting more than 4k back, it's not much different.

 

Everyone's situation is different. I'm an only child and so is my father. I'll be the 5th generation to inherit our 100 acre farm. I'll build a place back there, own it and not give a $#% about the status of the housing market.

Edited August 10, 2010 by .fx

[Unclean]

From a numbers perspective, most people are better off buying a home than renting. Does that mean banks get richer? Sure. Does that mean the government collects more from property taxes? Yep! But you're coming out ahead too. It's a win-win-win situation.

 

Just out of curiosity, have you tried plugging your own numbers in a rent-or-own calculator like this one?

http://realestate.yahoo.com/calculators/rent_vs_own.html

You may be making the best decision by renting. Or your decision could be costing you more.

 

Just for kicks, I put in some of my own numbers. I bought a house @ $400k back in March. Renting a 1000sq ft apartment is about $1100/mo here plus utilities. I averaged the savings at about 3% return over 10 years, since right now it's like 1%, but it may be as high as 4%. Over 10 years, I'm saving $52,559 by owning a home rather than renting (and that's after property taxes down the toilet, not buying/selling to maximize profits, etc).

 

So I'm curious - how do your numbers work out?