Financial Advice

[Cheesehead]

One thing I think we don't do well as a society is talking candidly about money. So I thought I'd start up a thread to encourage people to a) provide their real world insights about money (not "I'm worth this much" but more..."this is what I've found that works"), b) encourage the younger crowd to ask dumb questions, understand what is likely/possible and get advice.

-I remember starting out (seems not that long ago) fresh out of college with somewhere around $10k from working a lot of jobs during high school and college, finishing in 2009. My goal was to graduate with $10k to my name, and I just barely cleared this hurdle but then lost most of it when my dad's company gave him the opportunity as a management member to buy preferred shares with a 12% "guaranteed" return. I put $8k in and lost it all in a few months when gas prices skyrocketed and trucking-related companies (my dad's industry) stopped ordering new trucks, and the company went bankrupt = $8k gone. LESSONS LEARNT: if it sounds too good, it probably is + be careful with single-stock risk. Damned if I haven't had to re-learn these lessons a couple times.

Investment thoughts:

-Leapfrogging from house to house each year (keeping the old one and renting it out) is a decent (if sometimes exhausting) way to build wealth. Wifey and I moved 6 summers in a row, buying (and keeping) a house in 5 out of 6 of those, renting them out. Some things we learned there: 1) the big wins come when you do some rehab, 2) the cheap side of town doesn't appreciate like the 'nice but not rich' side, 3) Section 1031 is your friend, 4) buying condos carries extra risk (our condo board decided to forbid renting, so we had to sell 2 condos and buy other houses, adding a lot of transaction cost), 5) while sometimes you come out making some actual 'cashflow', a lot of the time the game is to just break slightly above even with repairs, vacancies, etc, but each year pay down mortgages, take depreciation-based tax writeoffs, and ride rising real estate values, 6) it's easier to make your money on the buy, 7) for multifamily, go big or stay SFH, 8) if you wouldn't live in it, don't buy it.

-Rent vs buy...too many people are afraid to buy. With FHA, etc, you can buy with a small amount down, and your house payment still be less than your rent. Unless you're moving soon, buy. Rates are super low.

-401k money: go big, esp if married. Money unseen is money unspent. Don't borrow from it unless there's a health emergency.

-Don't buy individual stocks. I know you're special. Just don't. Just...don't (sadly, I still do...it's like a drug)

-Celebrate big financial milestones. Finances are part of your (and your partner's) life, and are worth being celebrated. I remember my wife and I celebrating when we hit big meaningful 'financial markers'. We usually blow $50 on a nice bottle of wine to celebrate!

-Warren Buffett is a stock market genius. You're not. You should follow John Bogle. Go to the Bogleheads site and do what they tell you...basically live cheap, index, and avoid paying fees.

-Options are fun but often a distraction. They (often) rely on predicting market TIMING rather than fundamentals. Theta can kill you. Better to own the underlying security and miss the timing by a month, and a year later be rich vs have your options expire worthless.

-Don't neglect the obvious things: your credit card has to be paid in full every month, you should save minimum 10% of your gross income each month (shoot for 20%), if you're young avoid bonds and go mostly into equities (and real estate if you're scrappy). Of course get any free money first (401k match), then think carefully whether you want to bank Roth or 401k (etc)...fundamentally it's a gamble on your future earnings and future tax rates. On balance, I give a nod to the Roth (better optionality as emergency savings, better down the road vs the ACA, better if you ever leave the country, better if tax rates go up, which I deem likely), but that's a larger topic.

-The Index Card investing philosophy is really good. Google it and see below.

-Never stop learning and don't be afraid to take advantage of company help.

-Live cheap but it's easier to raise your topline most of the time than marginally improve your savings rate, once it is reasonably optimized.

-Don't live so cheap that you don't enjoy the ride. Remember what Warren Zevon said, "Enjoy every sandwich".

Look forward to picking up on some collective wisdom.

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[SAJ-99]

- Start early
- Avoid leverage (sorry, this one conflicts with yours)
- figure out what "enough" is for you and how to get there. (This is along of lines of setting milestones and write it down.)
- Don't compare yourself to others and don't spend money on stuff you don't have and don't need. No one is going to be impressed.

 

[JoMo]

Treat contributing to savings as a monthly cost, not an afterthought. Even what seems like small amounts will help over time. When you get a raise, increase your contributions to your savings/investment account. Above all, one thing I took away from a Finance degree in college was Time Value of Money. Start early when time is on your side.

 

[morley.tyler]

- Don't compare yourself to others and don't spend money on stuff you don't have and don't need. No one is going to be impressed.

This is massively important. Do you want to retire well or be car/house poor?
Live within your means or lower. Keep your eyes on the horizon, not your feet.

 

[Sytes]

Long game... Diversified portfolio.

Short game... Trend's your friend.

Life is a game... enjoy the game.

As Charles Franklin says,

Live it now, or you will miss it!
We have time to spend and no time to waste.

Another version exists by Morrison though Franklin quotes suits my contribution.

 

[Irrelevant]

It's just really not that hard to do good. But can be quite challenging if your goal is to maximize. I waffle between the two. Easy is just put 12-15% a month into the vanguard general stock index. Own a house that's less than you can afford. Always have some cash around for "emergencies" and pay off you cc every month.

If you want to maximum then it gets a little harder and there's a million ways to skin that cat.

The worst thing a 20-something can do is not save and live an extravagant life style. However, I know plenty of reason to do just that and work later in life, and have known plenty of people who very happily did just that...

Which really gets down to the nuts and bolts of it, figure out what makes you happy and go that direction. If it's money, or early retirement, or working for a non-profit, or traveling, whatever it is, try to figure it out and actively steer you're life that direction. Everything else takes a back row seat to happiness.

 

[Steelsearchin]

Best advice I got at an early age was from my mother and my old boss.

My mom was Dave Ramsey before Dave was cool, and taught us to be happy living below our means.

My first boss pulled me aside in high school when I was helping him with payroll one day. He said, "I want to show you something. Technically its illegal to show you this stuff, but you'll get the point. This is how much you make...(peanuts)...this is how much Joe makes (2-3x my wages). This is what you take home...this is what Joe takes home. (The number was roughly the same). Joe has kids with two ex-wives. People say buying a house is your biggest investment, thats bull$h!t. Don't have kids with or marry somebody who will take half your stuff!!!"

We paid the house off early, oversave, put money away for our kids' college, and generally live a frugal live, but now we can splurge for a trip to Maui or Montana once in a while.

I married a saver, not a spender. We have plenty of differences and arguments about stupid (and not so stupid) stuff, but at least i'll be able to retire early! What seemed like not much in my 20s and 30s turned into "real money" now that I'm entering my 40s.

 

[cusecat04]

Pay yourself first: - save something for a rainy day beause it will come for you, Murphy is waiting in the wings, how much power he will have over your life will be dependent on how you manage him.
I see this all the time with a friend who sees such things as buying tires for his truck as an emergency.... things wear out, consumables get consumed. Plan for this when buying things that will be with you for a while (big tires and trendy rifle calibers come to mind... he’s also always short on ammo to hit the range...)

Don’t compare yourself to other’s based on what they shoot, drive, or live in: have seen too many spots where people get impressed by how much someone is willling to sell their soul to a lender. This was driven home when my wife and I were house hunting back in 2005, lenders were more than willing to give us a mortgage that would have made me sweat everyday. I like to have beer/pretzel/and ammo money. Just because they are willing to lend it to you doesn’t mean its a wise idea.

Trust your gut: if it sounds too good to be true it is... have a father in-law that is always working a new way to make some easy money. My experience is this is always fraught with not looking at the big picture and factoring in risk. If someone comes to you with a business idea that can’t miss walk through it with #s and factor in when things go sideways, not if they do.

Write down a budget: bills don’t get paid with happy thoughts.

Don’t take financial advice from broke people: self explanatory

Be charitable, be it with your time/ money/ or both: this was impressed on me at an early age by a great uncle, he grew up in the depression era, helps give you perspective on what’s important, what problems others have/may be dealing with, can be humbling.

 

[ashersdad]

A lot of great advice already given. I’ll add a few others.

Start young and never stop saving. I love showing my teenagers what monthly savings looks like compounded over 40 or more years. Pretty easy to be a multimillionaire if you start early enough.

For the love of God, if people depend on you financially, get some inexpensive term insurance. Seems every time I open Facebook there is a go fund me set up for some poor family that lost the breadwinner.

Diversification is your friend. All your eggs in one basket can be very risky.

Live a balanced life. I know people that saved all their lives for retirement and never did much and then tragedy hits and one dies right before or shortly after retiring. On the flip side, I know alot of people that live it up thinking retirement or old age will never come and when it does, they have nothing. I try to combine a little of both mentalities so either way, you’ve prepared but also lived and enjoyed the ride.

This has already been mentioned but generosity comes back many times over. Abundance mentality is a great attribute.

 

[TN2shot07]

For the love of God, if people depend on you financially, get some inexpensive term insurance. Seems every time I open Facebook there is a go fund me set up for some poor family that lost the breadwinner.

Having seen the effects of this first hand, there is no excuse for this and a will not to be part of your plan. There’s no better way to tell your family I love you then making sure they will be taken care of when you’re gone!

I also shoot for the living below your means and avoid debt like the plague. My degrees are in accounting and finance and I sat through several classes with broke finance professors talking about the advantages of using other people’s money... don’t!

Side note for this thread, because I know there are some folks here who have done very well financially. Do you guys currently use a financial advisor? I’ve been debating on interviewing a couple just to get a second opinion and make sure we stay on track.

 

[SAJ-99]

Side note for this thread, because I know there are some folks here who have done very well financially. Do you guys currently use a financial advisor? I’ve been debating on interviewing a couple just to get a second opinion and make sure we stay on track.

I don't, but that comes with qualifying statements. There are about 13k RIA (registered investment advisors), but an estimated 300,000 FAs. I think FAs are the present-day equivalent of used car salespeople. It is too easy to be one and most of them can't do any other truly productive job. Good ones can be worth it if they are fixed fee, but can be hard to find. A good FA firm can be a one-stop shop- Investing, accounting/tax, insurance, legal (wills, trusts, etc). I have found the price they charge can be too steep, especially if they charge as a % of your assets. If you set up a 70/30 portfolio and your estimated future return is about 6.5% (8% eq, 3% bnds) then the FA takes 1% and you are down to 5.5%. Compound that for 25yrs and it adds up to real money. I prefer to get those services separately. I will pay an accountant to do my taxes, a lawyer to do my will, insurance agent to find a policy, and I do the investing myself. I do NOT want my insurance agent managing my investments. Most people have pretty simple and straightforward finances and can do it themselves with a little research and work each year (couple of hours). If you are rich enough you need all the services, go for it. There is a reason the rich don't pay taxes.

I'm sure this post may offend some people on this board, so I acknowledge that opinions can differ.

 

[SAJ-99]

Having seen the effects of this first hand, there is no excuse for this and a will not to be part of your plan.

Also, on this, there is often a good excuse. Insurance companies will exclude you from getting life insurance if you have a preexisting condition.

 

[TN2shot07]

Also, on this, there is often a good excuse. Insurance companies will exclude you from getting life insurance if you have a preexisting condition.

That’s true, but not my intent. There are a lot of perfectly healthy people who pass away unexpectedly and leave a giant mess and a hole in people’s lives that could have been avoided. For people with a preexisting condition I would recommend that as inspiration to work toward financial security. I don’t mean that to upset anyone, both of my parents fall into that category. There is also the option (although expensive compared to term) of one of the small guaranteed policies i.e. you open a bank account sometimes that offer 10k in life insurance, which would cover a funeral. Also, when I was offered mortgage life insurance it was more expensive than my term but there were no medical checks and your mortgage would be covered.

 

[TN2shot07]

I don't, but that comes with qualifying statements. There are about 13k RIA (registered investment advisors), but an estimated 300,000 FAs. I think FAs are the present-day equivalent of used car salespeople. It is too easy to be one and most of them can't do any other truly productive job. Good ones can be worth it if they are fixed fee, but can be hard to find. A good FA firm can be a one-stop shop- Investing, accounting/tax, insurance, legal (wills, trusts, etc). I have found the price they charge can be too steep, especially if they charge as a % of your assets. If you set up a 70/30 portfolio and your estimated future return is about 6.5% (8% eq, 3% bnds) then the FA takes 1% and you are down to 5.5%. Compound that for 25yrs and it adds up to real money. I prefer to get those services separately. I will pay an accountant to do my taxes, a lawyer to do my will, insurance agent to find a policy, and I do the investing myself. I do NOT want my insurance agent managing my investments. Most people have pretty simple and straightforward finances and can do it themselves with a little research and work each year (couple of hours). If you are rich enough you need all the services, go for it. There is a reason the rich don't pay taxes.

I'm sure this post may offend some people on this board, so I acknowledge that opinions can differ.

Couldn’t agree more, those one stop shops should be avoided at all costs! I moved on from a previous insurance agent because they wouldn’t stop trying to sell me on how great an investment a whole life policy would be for my retirement goals.

 

[Bowfisher]

This is a great thread, as a 23 yr old who considers himself pretty financially savy (for my age), I love advice from similar people with more experience than myself.

 

[recurveman]

Well it isn't hard. Be debt free. Have a written down (spreadsheet) budget and follow it. This will allow you to have money and save. Start early and keep adding. It will get fun once you have your money making more money than you make. It changes everything.

Don't be afraid to own a business. Probably the best way to create wealth in this country is from owning a business.

FYI - if your house is your biggest asset you have a financial problem. Investments need to be your biggest asset.

For goodness sake spend more time working on your financial plan than your plan for your next vacation. If people in their 20's sat down and decided that they wanted to be worth 5 million it wouldn't be hard to achieve those results. Unfortunately most don't have a solid financial plan.

 

[Irrelevant]

FYI - if your house is your biggest asset you have a financial problem. Investments need to be your biggest asset.

If you value having a house in your life then there's a lot of communities in the west where it will be your biggest asset for the majority of your life. It's not until the end when you're assets really start taking off that they'll surpass your home. Especially if you want more the a sh!thole for a house.

 

[RobG]

I agree with most of what you said and really like the Bogleheads, but before you get into rentals assess your ability to take on the risks (rents do go down) and also consult with a tax person. If you make a lot of money some of the benefits go away. They also eventually produce taxable income which wastes money compared to tax deferred investments. In most circumstances converting your home to a rental is a bad idea because you will lose your "free" capital gains if you don't live in it for a certain number of years. On the other hand, you can borrow at a lower rate for a personal home instead of a rental so whether or not this is a good idea depends on your personal circumstances. Bottom line is be informed before jumping into rentals.

I'd add to your list open up an HSA if possible and let the money grow. Which is to say don't cash it out to pay your medical bills each year. Just save the receipts and cash it out in the far future. HSAs used this way are a tax deductible Roth and a disgusting giveaway to those wealthy enough to be able abuse the supposed purpose of this investment are a good deal for everyone.

 

[Art Vandeley]

Can you guys check me out on some math I've been running this morning? The goal is to see if it makes sense to take the extra $300/Month I can put towards paying down my mortgage quicker, or invest it.

Investing the $300/MO for 30 years, assuming a 6% return, I come up with $294,076 after 30 years.

Paying down the $200,000 (3.75% interest rate) mortgage I come up with $236,879 after 30 years in interest saved, and money invested after early payoff.
-Interest saved I come up with $53,338 - Mortgage is paid off 10 years, 11 months early.
-Investing $1,000/MO for the 10 years 11 months at 6% return is $183,541

I understand this is a pretty simple scenario so if there is something I'm overlooking, please let me know. I have been putting an extra $300/MO towards my mortgage since I bought my house (2 years ago) but I'm beginning to wonder if it would make more sense in mutual funds/index funds. I'm sure there are tax implications that I'm not aware of as well.

Thanks for any advise in advance. I discovered this thread last night and have been reading the bogleheads advise, I'm digging it.

 

[SAJ-99]

Can you guys check me out on some math I've been running this morning? The goal is to see if it makes sense to take the extra $300/Month I can put towards paying down my mortgage quicker, or invest it.

Investing the $300/MO for 30 years, assuming a 6% return, I come up with $294,076 after 30 years.

Paying down the $200,000 (3.75% interest rate) mortgage I come up with $236,879 after 30 years in interest saved, and money invested after early payoff.
-Interest saved I come up with $53,338 - Mortgage is paid off 10 years, 11 months early.
-Investing $1,000/MO for the 10 years 11 months at 6% return is $183,541

I understand this is a pretty simple scenario so if there is something I'm overlooking, please let me know. I have been putting an extra $300/MO towards my mortgage since I bought my house (2 years ago) but I'm beginning to wonder if it would make more sense in mutual funds/index funds. I'm sure there are tax implications that I'm not aware of as well.

Thanks for any advise in advance. I discovered this thread last night and have been reading the bogleheads advise, I'm digging it.

Try this
https://www.bankrate.com/calculators/mortgages/mortgage-loan-payoff-calculator.aspx
I'm not sure I completely understand correctly, but I tried. The interest savings I got was the same ($53,338), but I got a little higher amount for the investing of $300 per month for 360mo at 6%. My result was $302,861 in Excel. The thing that confuses the situation is that you are really calculating the alternative use for the $300 and that period might only be 20yrs, not 30yrs. For 20yrs I get a value of $139,305.
You are essentially investing the $300 at the difference between 6% and 3.75% for 20yrs. At the end of the 20yrs, you could pay off the mortgage with the extra earnings. Some banker who does this on a daily basis can correct me if I am thinking about this wrong.