Have you tried talking to a Nigerian prince? I hear they know how you can double your investment many times over.
Not a whole lot. But we've got more than enough in savings to put a substantial down payment on a new car and still have 6+ months of income saved. Plus, there's some wiggle room in the monthly budget. It's enough that we should really do something with it instead of just letting it sit around in the savings account.
What I can't figure out what's the best way to "spend" it. My student loans are paid off but my wife still has some, they're ~5% interest but we've been paying them off for ~3 years already. I know loans are interest front loaded, so I don't know if paying extra on loans we're already 30% into is worth it.
We have a mortgage, but it's only 3.75%. It's still in PMI range, but since both PMI and interest are tax deductible, I don't know if that's worth paying off early to get the PMI off.
No car loans, but both our cars are old(2000 and 2003), so we anticipate having to buy a new car relatively soon.
I have a 401k account with Fidelity, would it be best to just put $X/month into that account in a Vanguard index fund? Post tax(so I can pull it out if needed) or pre tax?
Your wife's student loan gets a spreadsheet.
Your mortgage...the same.
Et cetera. Really, there's no way for me to give any kind of advice about your financial position unless I know all the details about it. You shouldn't want to give that out, so learning Excel is your best option, and your best friend.
Just a few things though.
If you must buy a new car, buy a popular model from Toyota or Honda. They have high resale values, virtually across all their offerings. Camry or Accord...VERY safe buys. Buy a low-midrange model, and pay exactly no more for a down payment than you have to if you have good credit. Even the base model Honda Accord is a nicely equipped hot rod these days. The 4-cylinder Accord is a FAST car, and even the base model comes with the stuff you want. AC. Electric this/that. You are not missing out on anything with a base model Accord. Same for the Camry. $23k and change. Your wife will be driving it, so she picks. Just make sure to avoid top option cars unless there's lots of cash off.
Beyond that, save so much that it makes your gums bleed. I'd be royally FUCKED as an early 40's guy if my early 30's self didn't learn to save.
No, that's kinda the advice I'm looking for. For example, I know enough that paying off my house early is stupid because the interest rate is so low, probably below inflation. But my wife's are likely above inflation, so paying those off *might* make sense. I don't know how to calculate those though. I don't know enough about financial mathematics to take X years into a Y term loan at Z percent interest rate, here's your real current interest rate.
Camry is what I drive. It's a great car. I got the V6 fully loaded 2010 model because I bought it during that whole "OMG Toyota cars breaks don't work and gas pedals are haunted!" scare. Got one hell of a deal on that thing including 0% financing for 5 years and no money down. I recommend it. I do mostly highway driving and it's got 96k miles on it and has never had an issue. The thing even still has factory breaks and last oil change they were still at something silly like 50% wear. It's the best vehicle I've ever owned.
But just keep piling it in there. Don't increase your spending to match your income. ALWAYS live below your means. I could literally stop working for 15 years right now and maintain my lifestyle based on investment income and savings. When that time extends to my life expectancy, then no more work.
I like the elegance of that outlook. I was just resolved to work until I couldn't, and if I could retire earlier, that would be a nice surprise.
I'm pretty certain I don't have 15 years worth of investments though. I suspect if I calculated it out, I might be somewhat saddened by the result.
It's financial planning, and anyone can do it...no guesswork involved. Your best counsel is fact based upon math.
You are a smart guy. I've read your posts...you can easily wrap your mind around this in a few nights after work.
Oh, I'm sure of that. I'm being a bit indirect here. The benefit of throwing out an easy question that I could directly solve myself is that others might recommend some solutions or advice that I might not have thought of. Already I have good long term advice and some good recommendations for cars, and I wasn't even looking for those.
I apologize if that's a bit misleading. But in some ways, this is the only way I can have an "organic" conversation about the topic. I'm certainly not going to my friends and family and professing my bank account overfloweth. Well, I could probably have this discussion with my parents, but that's it.
I was going to bake paying down loans into our monthly budget, but Cad made some good advice. I think instead I will wait until savings go above $X, make a single payment, and then exclude it from the budget.
I honestly probably would have never thought of that. Or maybe would have after having this "problem" a few more times.
Last edited by Deathwing; 11-03-2014 at 06:07 PM.
Relatively soon. I have a threshold on repairs dollars per month, and if it goes over that number for a given year, we'll start looking for a new car. Hasn't happened yet, but given the age of the cars, we wouldn't be surprised if it does in the near future. Hence why we might put more money aside for a car instead of using that to pay down student loans or invest.
I realize it's popular to not want to pay off your mortgage early because if you have a good rate you might be able to beat that rate on some other return, plus future payments will be cheap in today's dollars, but when you're paying PMI, I have to wonder how that changes the equation, and if getting to the 21% equity mark IS worth jumping ahead on.
Deathwing, do you have an FHA loan? If so I think federal guidelines require you to have paid towards the mortgage for 5 years before you can get PMI removed.
Dollar inflation is above 3.75% or did I understand that wrong?
Google says it's 1.7%
Yea, the new FHA loans seem like a losing prospect unless you plan on buying a rental property and income generated > money lost on PMI for however long it takes to get it removed or you can refi out of it.
I've been in the same situation a few times. Bachelor + car guy means I usually ended up with a sports car/convertible. Been doing the smart thing for the last two years though, knocked out a personal loan and made a substantial extra payment on my student loans for the first time. Feels good man.
I've been reading Mr Money Moustache for the same time, it's pretty good at making you smart with money.
Getting Rich: from Zero to Hero in One Blog Post
Fucking school loans. Wish I was smarter as a 17 year old about those and they weren't so essentially criminal. I would have tried way harder than I did to get scholarships and grants. My parents didn't know shit about it either because I was the first person on both sides of my family to go to college.
If I could stop "wasting money on groceries" and dining out I'd be a goddamn millionaire within 5 years. But I cant... I just can't fuckin do it man!
I remember when I first moved out on my own lo those many years ago, and I lived on ramen, chili and rice, and cereal. I was soooo set on being "a responsible adult" I think I actually saved more money with that shitty damn near minimum wage job than I do today. My "treat" was grabbing a Subway sammich once a week when I went to go do laundry. Man, times have changed, and I really need to find that mindset again.
Retiring that early seems out of place in that guy's overall "doctrine". By retiring that early, aren't you essentially borrowing from your future self by not generating some income? Also, that's a pretty big bet to take. A lot of things could happen after 42 that would greatly affect your income needs. Unless you really hate your job, why not keep working through your prime money making years? If you end up with some extra dough when you croak, I'd assume there will be some loved ones that will benefit.
Retiring at 42 is insanity. Changing careers maybe, but if you actually retire at 42 you will want to kill yourself by 50.
My point is that there's only so much control you can exert over your future expenses. What if your health fails unexpectedly? What if social security is insolvent some point in the future? What if medicare is repealed? What if taxes on investment income increases? I don't think any of those are outlandish "what ifs" either.
Last edited by Deathwing; 11-05-2014 at 03:43 PM.
I agree that it is better to keep working while you can and build more wealth. Early retirement doesn't need to be the goal for the advice to hold. No matter what happens, you will still be in a better position if you have no debt and a source of passive income. If you end up on disability but you own your home outright and have 1-2k/month in interest coming in, you are in a far better position than someone in a paycheck to paycheck lifestyle that doesn't even own their car, let alone their house.
The blog is mostly about cutting expensive bullshit and building wealth instead of spending it all. The initial vibe it gives off is that it's about living like a monk, but it's more about making smart and informed choices.
If Medicare is repealed and SS fails, people who have concentrated on building wealth would hardly be the worst off. Me personally my retirement # is about $3.5M invested not counting my residence equity. I only spend about $80k/yr in expenses/vacations/etc so I don't need a huge amount.
I do have health insurance. I don't take it for granted though. My expectations are that insurance finds a way to not pay my bills instead of the other way around. My experience so far with my newborn have not disappointed that expectation.
no one living off 24k per year gets to call themselves rich.
Mr. Money Moustache isn't actually retired. He's "semi retired". He has a home building business. Which is probably what everyone would do in his shoes. He no longer NEEDS income from employment so he can essentially give the middle finger to doing anything except for what he really enjoys and wants to do for income. It's the perfect situation because essentially you can be top tier at whatever it is you want to do, charge premiums for your work, and make out like a bandit simply because you don't actually need the income.
Thanks for linking that by the way. It's changed my train of thought and made me re-think my stance. I've always been able to save but not even close to as much as I should be on my salary. I've also considered my mortgage "appropriate" debt and not done anything outside of make bi-weekly payments to cut it from 30 years to 19 years. I now plan on dumping enough money towards it every year to have it payed off in 4, which I think is feasible.
I've already canceled my cleaning service, decided to stop dining out almost completely, putting my home brewing gear into actual use, and started using betterment.com.
Previously I had been saving over time to purchase another house. The plan was to save a 20% down payment for a high end rental property. Now I'm going to pay off the only debt I have (my mortgage + 31k in school loans) instead. And then buy my next rental property once I have the savings to do so at about 50% down.
Last edited by Khane; 11-06-2014 at 06:50 PM.
Yea, I don't eat out at all. Every time I do, I'm like, what the fuck did I just spend 50-100 dollars on. The food wasn't that great and it's probably making me fat, and the waiter was a dipshit.
I eat out if they can make something I can't. Either because I'm not going to buy the requisite equipment(salamanders for steaks, a smoker for bbq, etc) or the dish itself just takes crazy talent/experience to do correctly. But then that butts heads with my financial dislike for eating out because likely any of those dishes are going to be expensive.
Add that the people touching and handling your food aren't paid well and I'm (maybe?)paranoid about strangers handling my food, and I just would rather not eat out at all. Major point of dissatisfaction between my wife and I.
I really hate how long it takes to go out too. Drive there, wait for a table, wait for food, wait for check, drive home. I can prepare a good meal, eat it, have leftovers, and clean up in that time. And I can fondle my nuts the whole time if I want.
Ok, I might buy a smoker.
The only thing to make sure is that if you send an extra payment (i.e. the same amount as usual, but with a separate check), you have to note that you want to apply it to principal. That has nothing to do with interest/principal, but you have to make sure they don't consider it a pre-payment of your next month's bill.
I'd actually do that, because it's a 5% risk free rate of return, which you're not going to get anywhere else.
You're right, I was confusing "front loaded" interest with extra payments being more effective earlier in the loan. But saving X% per year regardless of when is a good perspective, thanks.
Another thing to remember is that compound interest works in your favor both when saving and when making extra payments on a loan.
Say you have a $50k loan at 5% on a $500/month fixed payment. Do nothing but make payments and you will have paid it all back in just under 11 years, with a total of $14800 interest paid.
Drop an extra 10k on it today, while keeping the monthly payment the same, means you pay back the remainder in 8 years and 2 months and your total interest paid comes to $8750. Over 6k in interest saved.
You need a pretty substantial stock market return to turn 10k into $16k over 8 years, with much greater risk (6% return needed every year over 8 years)
1> pay $10k now and reduce your principle (8 year option)
2> let the loan run its life (11 year option)
In your scenario, the comparison would be investing the money for 11 years (life of loan) or plowing it into the loan to reduce debt; you mixed the two options and are saying you need to get slightly higher than 6% on investments to "beat" paying down a 5% loan...
You only need to beat the interest rate of the loan, which is 5%.
I suppose that's true. Still, it's quite amazing how quickly interest can add up over time. I wouldn't trust myself to not spend the invested money or the interest over that time so I'd probably still go with paying down the loan.
Except that you're literally throwing money away based on risk. Putting the money into paying off the loan early is guaranteed to save you X amount of money. Investing that money is not even close to guaranteed to earn you X%.
I forgot I had posted in this thread and didn't check it until today. While my goal is retirement at 42, like Khane said, it's more like what Mr. Money Mustache has which is semi-retirement. I basically want financial independence where if one day I decide I don't want to go to work anymore I can walk away immediately. It's very possible that I'll turn 42 and want to continue working. If I do, there's no issue, right? But if I don't, I can walk away and find something else to do. Or I can sit around and do absolutely nothing.
There are definitely some concerns, and Deathwing covered a few of those.
Health insurance is the big one for me, as my wife has a chronic condition. Hopefully the ACA takes care of that, but I'm unsure of what our future medical expenses will be. But I've taken that into account with my age 42 retirement; by then we should hopefully have enough to pay it out of pocket.
Social Security isn't a concern at all. I believe the latest "we don't do anything differently with SS" report had it paying around 75% of the current rates until I'm into my 100's. I've slashed that even more in my calculations. Really, my wife and I will be throwing a lot of savings into a regular investment account that we can draw from at any time. This will float us until 59. I've run some worst case type scenarios, and in those we basically expend that entire fund by the time we can start drawing from retirement accounts (SS, Roth IRA's, 401k's, government pension). In the non-worst case, that fund basically never goes to 0. I tried to be as pessimistic as possible, so even things like capital gains taxes, I calculated them at current income tax rates. Is that likely? I highly doubt it. But if it happens, our age 42 retirement should be sufficient.
Also, regarding eating out, which is one of those things Americans spend an exhorbitant amount of money on, I agree with Deathwing. I hate eating out because I feel like there's no value there. I can pick up the ingredients to make something myself for a quarter of the cost and more than likely prepare it in the same amount of time I'd spend waiting at the restaurant. It's a bit more work for me, but I'm also not paying the markup on the food, the wait staff, cooks, and overhead of the restaurant. I've actually come to enjoy cooking now, too. Oh, and I don't have to worry about the hygiene of strangers preparing my food.
$34k and nothing left for want? How is that possible when that one cruise is more than 25% of your yearly budget?
If you have no debt $34k is actually a lot of money to spend in a year if you think about it.
$110 car/rental insurance
$350 medical/dental insurance
$300 misc spending (fun shit?)
That's about $33k, plus there's other spending like medical copays that come up often (wife's medical condition) and pet stuff. All in all it's like $33-35k a year. We're looking at moving somewhere cheaper too, which will save quite a lot.
I don't know, maybe you spend significantly more than $300 on random shit a month?
Our combined gross income is about $80k, for reference.
I was just showing how you can easily live on that much money.
My age 42 retirement goal allows us to withdraw $40k a year after taxes, which leaves plenty of room for cars.
As far as a house, that's definitely a goal. As you can see, I said we have $80k gross income right now. What's left over after retirement goes into other savings for a house and car. This is actually a point where I joke with my wife, because she has a fund for everything. We've got a car fund, emergency fund, fun fund (which we never use, but is supposed to be for big trips...I'm trying to convince her to just throw that into our early retirement fund). A larger portion of our extra savings is going to start going towards this early retirement. I feel like we kind of screwed ourselves in our 20's by going with conventional wisdom. We saved a lot of money, but it all went into traditional retirement accounts that we can't touch until our 60's. My viewpoint has shifted now into putting money into something more accessible (not necessarily liquid). I'm willing to sacrifice taxes on earnings for that accessability (although I will say our IRA's are both Roth, so we'll have plenty of tax free money at actual retirement age).
Anyway, back to the housing thing...I will probably end up using a VA loan. While I'd still like a down payment, it's not really necessary (no PMI with VA). Really, I just want the house paid off as fast as possible. But our goal is to move and buy a house for still significantly less than the $1200/mo rent we're currently paying, even factoring in taxes and insurance.
Your numbers seem low. We don't drive that often(90k on a 2000 and 80k on a 2003) and we still manage $110/month on gas. $600 on food, but that includes stuff bought at BJs that almost impossible to categorize correctly. I'm going to assume netflix/internet/trash/water is included in utilities? Car repairs or car payments?
I guess what I'm getting at is how are you tracking this? I use mint.com and my misc is over $800. Believe me, I would like to shrink that but I watch each transaction for possible fraud. Anything I don't recognize, I ask my wife. If she was spending money on shit we didn't need, she knows I'm going to find out about it. This category contains everything that's too small to have its own category on mint.com. Clothing, computer electronics, books, kitchen items, etc.
I live about 3 miles from work, and the wife about 1. The $60 for gas is pretty bang on. Food we pretty much shop once a week and it averages $100.
Our utilities average about, electric: $120, water: $60, trash: $15, gas: $15 (in the winter, our gas goes up to around $80, but our electric goes down significantly), internet: $50. I cancelled DirecTV a few months ago and got an HD antenna and download everything else.
I should make a correction on the car thing, which I posted above. We have a car fund, so basically anything car related comes out of that. It's essentially savings, but it could probably be budgeted as an actual item. I'd be guessing on this number though, so I'd go with $50 a month or so.
Vacations he was semi-correct about. For my work, I do a good amount of travel (about 6 weeks the last 2 years, 3+ months next), so I've got an assload of hotel rewards. That's where a lot of our miscellaneous money goes, however. We're not big consumers. We go clothes shopping maybe once a year, and maybe spend $150-200 each. We drive high mileage used cars. I'm big on Priceline. For our Alaskan cruise, I booked a 4* hotel in Vancouver for about $100 (plus taxes and whatnot). I'd say one of our biggest expenses is travel, but that's where most of that $3600 a year goes. We just do it smart. For instance camping in the Sierras. Basically just cost for a camp site, food, and gas.
My wife put together a budget for us a few weeks ago (after I brought up the Mr Money Mustache stuff) and she came out to about $40k a year in expenses. But she also went retarded on it with stuff like $166/mo for co-pays, $100/mo for the dog, $500 for random bullshit, and bumped our food budget up to $500 just in case. She did the budget to figure out how much we could actually save per year into the early retirement fund. I let her have her budget and just said let's try to shoot for significantly less than that. I know we'll come in under because she way overshot some of those things.
Last edited by Elurin; 11-12-2014 at 09:09 PM.
I went into mint to look at some of my transactions in the 'misc' category. We just bought new pillows for the bed, the old ones were flat and yellow and gross, so it was needed. But no one buys pillows every month, so where does that go in the budget? Start looking at some of the stuff around your house, including the computer/phone/tablet you're typing the response on and ask if that's properly budgeted. Odds are, you buy a lot of things regularly, but not regularly enough for you to establish a reliable category and budget.
This problem bugged this shit out of me when trying to do an accurate budget. So, I went about it the opposite way. We buy what we need, we buy what we want that is reasonable, and we discuss large purchases(large being relative based on the need). I then create the budget based on categorized purchases going back 2 years. If one is too high, I can address it then. You might find that your average monthly food spending is higher than what you usually spend in a week * 4.345 because of increased spending around holidays.
Another problem this will account for is "one time" purchases that should still be budgeted under a category. I fucked up my mower last year by running over the water main cap. The repair is essentially a one time cost, I don't plan on needing to repair the mower again. But that cost should go under "home" or whatever for a certain amount of time(that's why I go back 2 years) to reflect the cost as if you had budgeted it.
but yeah I still max out a roth, deferred comp contributions, put away 40% of my paycheck and still spend over 20k a year drinking for the last 3 years.
Yes, I had a child recently. Don't worry, I don't compare obvious budget categories like daycare, and I adjust others where I think there might be heavy influence from baby spending. Overall, aside from daycare, the 2-year budget hasn't been largely affected. Food(which contains diapers) and misc(which contains clothing) have increased a bit though.
Wait till you hit that education and extracaricular activities that's where all the people I know start to complain.
Jumping on the Mr. MoneyMoustache train I put some money into Lending Club and so far the returns have been what was expected. About 12-13% after adjusting for certain loans having to be written off. Not as much as when MMM first started his experiment but can't complain so far.
Another blog that I've been reading is the Uncommon Financial Wisdom blog by a guy named David Shafer, pretty interesting stuff.
Never heard of Lending Club. How is better returns for the investor than an index ETF? And how are you getting 12-13% when their website claims 4-7%?
I don't know that it will be any better than an index ETF in the long run but if you want to diversify your portfolio a bit definitely check it out.
I'm way too lazy for that lending club stuff. Betterment.com is my go to at this point.
I still need to set the parameters, and decide what those parameters should be.
I'm currently in the process of deciding if it's worth it to refi my mortgage to a 5 or 7 year ARM. I plan on having it paid off within 5 years anyway but the numbers these companies are giving me seem dubious.
My current rate is 4.5% on a $219k loan, and the principle + interest portion of my payments is $1241/mo.
My credit union gave me a quote on a 5/5 ARM at 2.75% that puts principle + interest at $849/mo.
My current mortgage company gave me a quote on a 5/5 arm at 3.25% that puts principle + interest at $865/mo.
In other words one or both of them is giving me bad information. Either regarding actual interest rate, or actual principle + interest on that loan amount at that interest rate.
Interest rates on adjustable loans have been pretty low the last week or two. Those numbers do not seem wrong.
Woops that was a typo, the 5/5 ARM from my credit union at 2.75% was quoted as $894/mo, not $849.
Maybe one of them is rolling re-financing fees into the loan and adding that to principal? Or it includes escrow payments for taxes?
However, there's something off more generally. A $219k loan over 5 years at 2.750% is $3,910 per month.
edit: yet another explanation could be a teaser introduction rate. Mortgage companies used to have a special rate for the first month, which they could prominently display on disclosure forms, before hiking your rate in the second month, as disclosed somewhere in the small print. I don't know if the CFPB ever got around to making that illegal.
Last edited by Soriak; 11-27-2014 at 09:35 PM.
Also, your teaser introduction rate theory sounds illegal and is definitely not the case with these mortgages.
Been with Betterment Since May this year. Looking at 2.2% .. And thats from dividends. In the red in regards to performance. Ill keep throwing money in there every month but not looking to see huge returns.
Are they actually providing value, or are they good at making it seem like they provide value? Take, for example, the betterment front page. There, they have investments in VTI (US Total Stock Market), but then also invest separately in US Large cap, US Mid cap, and US Small cap. Not to be Captain Obvious here, but VTI is pretty much a combination of the other three... there's no reason to invest in all those 4 funds.
They are big on their ability to do tax loss harvesting (for which you need to have a decently large minimum deposit)... which I don't understand in a long-term investment portfolio. First, you actually need to have a loss -- which is not that likely over longer periods. But more importantly, suppose you buy stocks at $100k and they lose 10% of their value, so you sell at $90k. Then, you have to wait 30 days before buying the stock again in order to claim the deduction on your taxes. Let's suppose that after 30 days, the value is unchanged at $90k. Now, you make some gains and sell at $110k.
Without tax loss harvesting: bought at $100k, sold at $110k -> pay taxes on $10k
With tax loss harvesting: bought at $100k, sold at $90k, bought at $90k, sold at $110k. -> 20k gains, offset by 10k losses -> pay taxes on $10k.
What am I missing here? You can play around with the timing of when you get taxed. But as long as your income is between 37k and 405k for an individual or 74k and 460k for a married couple, your long-term capital gain tax rate is the same at 15%. If your income is below that, your long-term capital gain rate is 0 so this is a non-issue. So the only way this makes sense is if your income is above this range right now and you expect it to be less down the road, so that you can take a larger deduction than you would pay in taxes in the future. If, however, you think capital gains tax rates would increase in the future, then you would NOT want to do tax loss harvesting -- in fact, you'd want to do the opposite and pay capital gains tax sooner.
Is this like donating to charity for the tax deduction?
Last edited by Soriak; 11-30-2014 at 12:31 AM.
Betterment vs Sharebuilder? Perhaps I should move. I wouldn't mind seeing something better than just dividends being positive. My 401k is doing 13% this year.
If you haven't been making any gains this year, outside of dividends, then there's definitely something wrong with that particular account. Since this is savings outside of your retirement savings, you can probably take on slightly higher risk there. Depending on your age, you may even want to go all stocks -- e.g. something along the lines of 50% VTSMX and 50% VGTSX (total US and International stock market indices).Betterment vs Sharebuilder? Perhaps I should move. I wouldn't mind seeing something better than just dividends being positive. My 401k is doing 13% this year.
Not sure how you were invested but the bond funds are the culprit in my Betterment account as far as why it's down. Why pull out so fast from a long term investment account?
For what it's worth I just want to beat the "pay off all debt" drum one more time. I'm 37, I came from a poor family my net worth coming out of college like all of us was negative as I borrowed to pay for my education. I have a degree in Finance and I completely understand the issues of opportunity cost of investing vs paying debt. However, life has taught me about human nature that those calculations ignore. It is difficult to place a value on being debt free, it is such an amazing wealth builder, people don't do it because for the first 10 yrs you feel poorer than the neighbor who is borrowing to support his/her life style. I have been debt free for a good number of years now and my net worth keeps climbing at a rate far beyond what I had planned out. I am a financially independent millionaire at the age of 37. I have around $300,000 in cash at any given time, I own commercial property, i have no debt, I have ample retirement and non retirement savings. I don't say that to brag but to tell you that I would unequivocally tell anyone (and I'm often asked by friends and family for financial advice) that living a debt free life style is the #1 most important thing I did.
It helps you redirect your energy towards wealth building and make better financial decisions in all aspects of your life. Have you ever met someone debt free who tells you that it sucks, and regrets having done it? I haven't.
To be fair, meeting debt free people is quite the rarity. More than likely you meet people that would like to be debt free. Paying off a 30 year mortgage early is really hard, even if you are actively doing it.
300k in cash at any moment? Why?
I think you make a good point. There's more to being debt free than just your interest rate vs. the expected rate of return on your 401k. Buying on time distorts the value of things. If you think of a new car as $35,000 rather than just $50 a month more than your current car payment, you are a lot more likely to keep driving your old car. I payed off my last loan in about 2005. Granted it's tough to buy a house without going into debt, but for anything else pay that shit off.
Also highly highly recommend Vanguard to anyone.
My first home was a Condo and I did a 15 yr mortgage instead of a 30 even though at the time it really hurt to do that. I paid it off in 7 yrs, took t he money from condo and some additional savings and bought my house.
Paying off your mortgage early shouldn't be difficult if you didn't borrow more than you should have. I have $219k left on my loan. I really wish at this point I hadn't gone with an FHA. The big saving grace for me is that it's a duplex and almost the entirety of the mortgage payment is covered by my tenants. I plan on having the loan paid off completely in 5 years. I just refinanced to a 7/1 ARM which dropped my payment over $300/mo to help facilitate that. It creates a reason for me to also pay it off early as well, since I could potentially be screwing myself if I don't pay it off.
Borrowing for a house is a necessary evil not really viable option to never have a mortgage when you are first starting out. I just think too many people trust their bank when the bank tells them "you can afford X amount" . That amount is often significantly more than a person should be spending and won't leave enough wiggle room to get out from underneath the mortgage in a reasonable time frame. I don't think people should borrow money for a car though, cars are incredible wealth destroyers and I absolutely love cars but they are probably the number one bad financial choice I see people making. I use the rule of thumb of 5-10% of your current net worth in vehicles, but there are lots of people who are at 70-100% of their net worth in vehicles which is financially insane.
edit.. and to add I have made some horrible choices with cars overs the years, spending way more than I should have at the time. I get the urge to do it.
Bankers can give you good advice, but you need to keep in mind that their incentive is to get you as far in debt as they can without breaking you. My banker for my business calls me from time to time saying "Do you need some operating money? You remember that you have that line of credit right?" and I know that a lot of farmers and ranchers run their business 100% on credit and then basically sign over their entire check over to the bank every year when they sell their crops. As a banker that is what you would like everyone to do but that doesn't mean it's what is best for them.
My betterment account rebounded pretty strong today.
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