Financial Thread

[dmclone]

We have ours split now, based on what we read and advice we got from an advisor. Like DM said, we don't know what taxes will be in the future. I know for me, the company match can only go toward pre-tax. I thought that was the way that was some kind of law, but it sounds like DM's is able to go to his Roth. So because of that, my actual contribution goes toward the Roth.

I may have mispoke. If my employer matches 75% up to 8%, that 8% is counted regardless of whether it is put in Roth 401k or standard 401k. So if I do 6% 401k and 2% roth 401k I'm meeting the criteria of 8%.

I think this statement below means the whole 6% is going in pre-tax (standard 401k) regardless of what mix you have?

"The matching contributions from Roth contributions will accumulate in the same account as the matching contributions from your pre-tax contributions. The company matching contributions will be taxed as ordinary income at withdrawal."

 

[Trice]

I understand what you're saying, but it's not really what I meant because like you said, I'd just pick a middle ground. I'm saying I could do 15% regularly and then do a month of 50% and then lower it back to 15% for an extended period of time. It's probably stupid which is why I asked.

Oh gotcha, so you mean a sustained pretty high level and then a one-month REALLY high level. Yeah, why not? I'm all about low-maintenance so that's not for me. But if you're doing 15% regularly, plus whatever employer match you've got, you're doing really well and probably will be just fine without spiking your contributions occasionally.

 

[cowgirl836]

After hearing from you guys, I'll probably split mine as well. I just need to decide what percentage I want both to be.

For the first four years I was all pre-tax, so I just switched it a few months ago. I'm still stuck with the company match going pre-tax, and then my contribution going post. Once we get house stuff done, we'll go back and open the Roth IRA. I think DH was going to split his 50/50 as well - he was also all pre-tax before this. So going forward our contributions will probably be higher post-tax, but what we actually have saved right now is almost all pre-tax.

 

[cowgirl836]

I may have mispoke. If my employer matches 75% up to 8%, that 8% is counted regardless of whether it is put in Roth 401k or standard 401k. So if I do 6% 401k and 2% roth 401k I'm meeting the criteria of 8%.

I think this statement below means the whole 6% is going in pre-tax (standard 401k) regardless of what mix you have?

"The matching contributions from Roth contributions will accumulate in the same account as the matching contributions from your pre-tax contributions. The company matching contributions will be taxed as ordinary income at withdrawal."

ok, gotcha. I had actually wondered about that too when we figured out the whole company match is only pre-tax thing. Did I need to have all of mine going pre-tax as well then, or could we split it to the Roth. It's definitely something that takes a little bit to sort your head around if you aren't familiar with it.


One more reason some type of personal finance class should be mandatory in high school and/or college.

 

[Trice]

this is something we ran into as well. We went because it was a free consult and a coworker likes them quite a bit. I don't think anything they did was straight up dishonest (and it was good to hear that house/other stuff we are just fine) but the funds they came back recommending that we do were not what I had already kinda researched out. All very much the higher expense funds and tried talking about how that doesn't really mean too much if fund A outperforms fund B by more than the expense fee. That's true, but most research right now says the best indicator of performance is how low the expense fee is. So we did not go with their recommendations. Though their advice about opening a Roth IRA to allow more control over our money was good.

Great point. Low expenses and consistent, substantial contributions are more important than chasing returns among funds. That assumes of course that you're invested appropriately for your age.

Your example also serves to illustrate the type of advice most people get. Virtually all of it is on target but if they claim to be financial professionals and ignore the huge impact expenses have, they're crazy. The good news is that thanks to media and Congressional scrutiny, fund choices (particularly in 401ks) are getting better and less expensive.

 

[CycloneGB]

This is a good reminder here. We all want to save money for an intermediate type of purchase, but struggle to find a good vehicle to do it in.

I am struggling because I am hoping to buy farmland in the next 3-5 years. I am not sure where to put this money. I have just been saving up cash because I was leery of putting it in the stock market with the Dow at 17,000+. So is this dip a good buying opportunity for me? Are there other investment vehicles out there that I should be looking at? I hate the idea of cash just eroding in value in my bank account, but I don't think I trust the market at these levels either.

I'm in the same exact situation. Have money just sitting in a bank account basically doing nothing. I want to make my money work for me at least a little bit but I have no idea where/how to do it. I can't have it tied up too long, and I can't afford to be TOO risky with it

 

[Ficklone02]

Good discussion. Back when I was just out of school I kept a budget so I could pay the max each month on my student debt & credit cards. Once those were paid off I don't really feel a need to track it so closely, not my style.

I don't use a credit card, everything is paid for out of my checking. Haven't had a car payment in more than 10 years & doubt I ever will again. My focus is generally on eliminating fixed costs each month. If the fixed costs are low, then there's really no need to keep a budget and stress about other expenses because I know I'm bringing in a lot more than what's going out. Good tip on mint.com, think I will sign up.

I also focus on increasing my fixed (passive) income. Once that is greater than your monthly expenses, theoretically you are retired. Have a separate checking for rental units & personal. When the rental checking has enough in it for a down payment, its time to buy another one. One website which is entertaining & useful is Mr. Money Mustache.

 

[cycloneworld]

Good discussion. Back when I was just out of school I kept a budget so I could pay the max each month on my student debt & credit cards. Once those were paid off I don't really feel a need to track it so closely, not my style.

I don't use a credit card, everything is paid for out of my checking. Haven't had a car payment in more than 10 years & doubt I ever will again. My focus is generally on eliminating fixed costs each month. If the fixed costs are low, then there's really no need to keep a budget and stress about other expenses because I know I'm bringing in a lot more than what's going out. Good tip on mint.com, think I will sign up.

I also focus on increasing my fixed (passive) income. Once that is greater than your monthly expenses, theoretically you are retired. Have a separate checking for rental units & personal. When the rental checking has enough in it for a down payment, its time to buy another one. One website which is entertaining & useful is Mr. Money Mustache.

I would HIGHLY recommend setting up a completely separate company (LLC most likely) if you are holding/buying rental properties. Or at the very minimum have a large umbrella policy that protects you personally. Setup and operate (operate is the key) the company completely separate from your personal accounts and you may be afforded some liability protection in case something happens at one of your rentals.

 

[dmclone]

If I was saving money for something and I knew I'd be spending that money within 3 years, I'd have no problem letting it sit in a savings account earning very little interest. The way interest rates are right now, you have to take a decent amount of risk for very little reward.

 

[Bestaluckcy]

I am struggling because I am hoping to buy farmland in the next 3-5 years. I am not sure where to put this money. I have just been saving up cash because I was leery of putting it in the stock market with the Dow at 17,000+. So is this dip a good buying opportunity for me? Are there other investment vehicles out there that I should be looking at? I hate the idea of cash just eroding in value in my bank account, but I don't think I trust the market at these levels either.

The Fed's zero interest rate policy is punishing all savers like yourself. We were looking forward to seeing some light at the end of this tunnel but this stock market selloff will probably delay normalization of interest rates. There are many things to invest in, the problem is each has their own set of hazards and risks. The first question one should ask is how much risk one is willing to assume to reach ones particular goals. If you are not willing to risk losing your money you really only have two choices. One is invest in a ladder of FDIC insured certificates of deposit, the other a ladder of short term treasuries. It sucks to lose money to inflation, but you will gain so long as land prices contract.
Since land has a better long term track record as an investment compared to the current CD rates, you may wish to reach a little in your land purchase more than you originally planned as soon as you can find something you think cash flows.

Another thing you may try is rental of some farm land with your money if you can pencil it. You understand the risks involved and the things you can do to reduce it such as carrying crop insurance or limiting price drops by using options. Along that line is a livestock share arrangement. A caution however is that livestock prices look quite extended at this time too.

A friend of mine always used to tell me "Everyone needs to go out and find their own nickel. If it was easy everyone would be doing it." Markets usually pay people to take risk. The problem is that that is usually a long term situation. It may not be true in the short run. You are talking about a short term proposition. Caution is always the best advice.

 

[Ficklone02]

I would HIGHLY recommend setting up a completely separate company (LLC most likely) if you are holding/buying rental properties. Or at the very minimum have a large umbrella policy that protects you personally. Setup and operate (operate is the key) the company completely separate from your personal accounts and you may be afforded some liability protection in case something happens at one of your rentals.

We think alike. I have an umbrella, & although I haven't pulled the trigger I have had thoughts of creating an LLC for each rental.

 

[NATEizKING]

If I was saving money for something and I knew I'd be spending that money within 3 years, I'd have no problem letting it sit in a savings account earning very little interest. The way interest rates are right now, you have to take a decent amount of risk for very little reward.

I think I've asked this before but do you know much about money market accounts?

 

[cycloneworld]

We think alike. I have an umbrella, & although I haven't pulled the trigger I have had thoughts of creating an LLC for each rental.

You don't necessarily need a separate LLC for each rental unless you really want to isolate each property. If you do have one for each, you will need separate bank accounts, etc. for each. We do all of ours in one LLC with an umbrella policy covering the company.

 

[capitalcityguy]

Which is why I said you need to be smart about it. Loading up on debt is definitely not recommended but people saying you can't go out and buy a car at 0% unless you can pay 100% cash isn't necessarily accurate either.

I could go out and buy my next car with cash but doing so would take away my ability to continue to invest in real estate at the level I want to. So leveraging debt for me is huge and brings me more income long term. So saying "don't take out any debt outside of a mortgage" can be just as foolish as well.

But the problem is, 95% of the public isn't financing their car so they can otherwise invest in investment property or invest, in general. They are instead financing to buy more car than they can really afford . There IS no other money they are keeping on the side for investing.

Your argument has merit, but it doesn't apply to the vast majority of people that need to heed the warning about not financing autos.

 

[Ficklone02]

You don't necessarily need a separate LLC for each rental unless you really want to isolate each property. If you do have one for each, you will need separate bank accounts, etc. for each. We do all of ours in one LLC with an umbrella policy covering the company.

Yeah, I mean I won't go in to the reasons why I would do it that way for the LLCs but I can see arguments on both sides.

 

[Tony]

Here's what I do and highly recommend, in an excel spreadsheet list your net income(s) after taxes, health premiums, retirement, etc are taken out. Then below that make a list of weekly, bi-weekly, monthly and yearly expenses (everything you can plan for such as property taxes, season tickets, gas, car registration, insurance, utilities, cell phones, etc.) and convert everything to a yearly expense, then take the total and divide by 26 pay periods (or however you are paid, won't work well for people without set incomes) and have that portion of your pay go directly to a "bill checking" account and set up everything as auto-pay. Start off with a large buffer and overestimate on anything that may fluctuate (like gas), it will eventually be a very solid account and you never have to worry about bills, ever. (Goal for this account would be a 3-6 month buffer for bills) Just check the account once in awhile to make sure all the charges are correct. Oh and get a credit card with points for gas and purchases and use that for any expenses out of the bill account and set it up to auto-pay off out of the bill account every month. Shows credit history and you get some perks. For example I use an Amazon card, 1% on all purchases, 2% on gas and 3% on Amazon purchases, racks up points quick. Use what works for you, airline miles or whateves.

Then I take the left over and divide up into:

Several savings accounts tied to the bill checking for car maintenance, household maintenance, and misc (unexpected future expenses, like a hot water heater or whatever) with set amounts transferred to each of these each pay check based on projected need, for example if you take a car in for service you pay with the bill account and transfer from the car maintenance fund to cover it. If one account is not getting enough and another one is getting too much, adjust as necessary. One thing to keep in mind it it's all your money, it's just how you are earmarking it but it keeps me honest and splurge purchases in check having it divided out.

On the opposite side, I have a "Spending Checking" account, which gets a set amount every two weeks and that's my allotment for the two weeks, can't spend it if you don't have it and nothing auto-deducts so you know exactly what you have, get groceries, clothes, target trips etc out of this one.

Then tied to the spending checking are a few more savings accounts with a set deposit every pay check as well, use one for charity and another for frivolous purchases and another to save for 'somethin real nice'.

Any left-overs take another look at your retirement/savings plans. Get it set up and get used to living on whatever you have going into your spending account and any raises or additional income put into retirement or savings. (or obviously pay down debt if you have any)

 

[CprE84]

I have some basic pieces of financial advice in addition to budgeting:
1. Your 401k contribution needs to be at minimum to the point the company match maxes out.
2. Whether you dump monthly savings into eliminating debt or into other retirement investing, if you do either consistently and aggressively you'll be in great shape.
3. If you invest on your own it is tough to nearly impossible to beat Vanguard index funds
4. Early retirement is MUCH closer to reality than most people think. The best way for most people to get there is through minimizing costs in an aggressive, yet sustainable way.
5. Most people, especially financial planners DRASTICALLY overestimate the amount needed for retirement. The Trinity study on stock ROI basically concludes that 4% after inflation is a very conservative expected return. In other words, if you save 25x your annual expenses, you could actually probably retire. Also, most people simply spend way more money than they need to get by.
6. Don't get caught up in comparing your house, trips, cars, etc. to other people. Most people are overleveraged and are very stressed about money.
7. Don't buy a depreciating asset on credit.
8. Learn to do hands-on things like home repair, car maintenance, etc. on your own. Not only does it save you a ton of $, you'll feel good about learning new skills.

Hats off to the youngsters on here starting jobs and already thinking about finances in such a serious way. I wish I had been smart enough to take it that seriously when I was in my early 20s.

I agree with Goldwater, but would add that even before the 401K, it is a good idea to establish an emergency fund with 2-3 months of expenses. I agree with the other posters about car loans, generally. When I was first getting out of college, I bought a car and definitely needed a loan to make that happen (I was completely broke). However, I have not had a car loan for many, many year, probably more than 20 years.

I think building wealth for most people requires a mindset of paying yourself first - automatic savings - retirement and otherwise. The other way is to really maximize your income. If you can build up your own business or really climb the corporate ladder and earn millions, then you don't have to worry so much about budgeting. For the rest of us, it's really important to keep the frugal mindset.

Good luck to you!

 

[dmclone]

I think I've asked this before but do you know much about money market accounts?

Tdameritrade automatically puts your un-invested money into a money market account which right now is .04%

 

[0u812]

Lots of good discussion here....many of my thoughts/practices here...

1. Keep track of what you earn/spend/have. This can be done a bunch of ways....spreadsheets are what I do.
2. Live within your means.....simple concept. I live by this, and a lot of people I know/see fail horribly in this manner.
3. At least invest in 401k to your company match.....if thats not an option, do a Roth. I take any raise I get and add to my percentage....do it early in life, as time is your friend with this sort of plan.
4. Read books on what to do, and how to do it. I have read a lot of basic books on money over the years.....I like "Rich Dad, Poor Dad". Try that one to start...
5. Used cars. I have a car fetish, yet have only gotten a loan a couple times. Both times was a bad decision. You can have reliable transportation without having to pay a huge sum. Best cars in my opinion for necessity are basic transportation. I recommend used 4 cylinder Camry or Accord, about ten years old with proper maintenance. With that said, I have a 7 series bmw, multiple classic cadillacs, a couple sports cars, and a couple pickups. I only really need my 99 camry if I was a regular person in this manner.
6. Have a side business or two. I have rental properties, plus work on and sell cars. Do what you enjoy and have expertise in. I chose these....they can be either cash income or tax shelters.
7. I use Amazon Prime. Best $99 I spend every year. Free tv service, music, and shipping on "stuff". I rarely go to the walmart, sears, etc as thats a huge waste of time and $$. Gas isnt cheap to drive around shopping, and I prefer to sit on my pc, get the best price, and have it show up a couple days later. If I could get milk, beer, and gas delivered via Amazon I would only leave the house for work and fun.

Lots of ways to be responsible. I spend money on foolish things often, but more than make up for it by being responsible on a larger scale. I typically go to Las Vegas a couple times of year, Texas once a year, multiple concerts, etc. You got to live a little obviously.....

 

[NATEizKING]

Next question, we have a new option for an HSA account this year that I think I want to go with over the traditional plan. Anyone have recommendations on this, especially for someone getting married next summer and starting a family in the next few years? HSA is cheaper than the traditional, has a seed amount paid by my employer and they also match up to a certain amount. Not sure if the match is first year or every year but I think it is an annual match. I haven't been to the doctor in my year and a half here so I don't see any negatives about it.