Retirement Savings: Just get the ball rolling ASAP, and keep at it for 5 years

[s0me0nesmind1]

Your emergency fund should not be held in equities.

What if it is say... a ROTH IRA or 401k?

You can take loans from your 401k if the situation is appropriate.

With a ROTH IRA you can freely take out any contributions (or do loans as well, I believe).

With this you theoretically don't need to have a huge emergency fund on-hand, correct? It's something I've been thinking over if it's worth it.

 

[purbeast0]

if i had 60k cash on hand, i would take 10k of that and go on a vacation to the french polynesia for a week or two. wouldn't regret it one bit either. would still have 50k left over. unless you are extremely wealthy or are saving for a down payment on a house or something, that seems like a lot of cash to just have sitting around at your disposal. it's a good "problem" to have though.

 

[s0me0nesmind1]

if i had 60k cash on hand, i would take 10k of that and go on a vacation to the french polynesia for a week or two. wouldn't regret it one bit either. would still have 50k left over. unless you are extremely wealthy or are saving for a down payment on a house or something, that seems like a lot of cash to just have sitting around at your disposal. it's a good "problem" to have though.

$10k of it is going into the remaining amount for our 2015 ROTH contributions as soon I stop telling myself the market is about to go lower.
Another $3k is going towards our 2014 taxes D:

I pumped up my 401k contributions this year to max out. But we are still turning a net income at the end of the months. Just... not much for us to spend on. I don't think we have gotten to the point where we are comfortable with services so we do a lot of things ourselves that most others would hire someone for...

 

[Uppsala9496]

Interesting argument.
In the process of purchasing a new home. Putting about 40% cash down and carry zero monthly recurring debt.
Should have around $75K cash after all is said and done. Will need to buy some new furniture, do some small updates, etc and should have about $60K leftover.

Will probably keep half in cash as an emergency fund and half invested in an ETF or two.
Would be nice to continue to live paycheck to paycheck, keep investing in my 401K and not have to touch any savings at all.

 

[purbeast0]

$10k of it is going into the remaining amount for our 2015 ROTH contributions as soon I stop telling myself the market is about to go lower.
Another $3k is going towards our 2014 taxes D:

I pumped up my 401k contributions this year to max out. But we are still turning a net income at the end of the months. Just... not much for us to spend on. I don't think we have gotten to the point where we are comfortable with services so we do a lot of things ourselves that most others would hire someone for...

and that would still leave you with way more than $10k to splurge on a vacation.

 

[brianmanahan]

Probably closer to 1.5% given the abysmal average 0.1% interest savings accounts are getting these days.

nah, i get about %.6 in my savings, and you can get close to %1 at ally or capital 360

 

[brianmanahan]

if i had 60k cash on hand, i would take 10k of that and go on a vacation to the french polynesia for a week or two. wouldn't regret it one bit either.

i have almost that much laying around, but i think i would regret spending it. there are so many places i would love to go, but spending more than a few hundred at a time on non-essential stuff just makes me feel guilty.

i scrapped the hawaii vacation idea for now, too expensive. maybe i'll wait on it as an incentive for myself to save up 1$ million.

trying to decide if i can swing a trip to england, using norwegian air for cheap flights.

 

[purbeast0]

i have almost that much laying around, but i think i would regret spending it. there are so many places i would love to go, but spending more than a few hundred at a time on non-essential stuff just makes me feel guilty.

i scrapped the hawaii vacation idea for now, too expensive. maybe i'll wait on it as an incentive for myself to save up 1$ million.

trying to decide if i can swing a trip to england, using norwegian air for cheap flights.

by the time you have the money to enjoy it, your youth will be gone and you won't be able to do 1/2 the stuff you could have done had you done it earlier.

from your posts, it's clear you have not traveled just from your attitude towards it. not saying that in a bad way or anything, just that it's pretty obvious you haven't experienced it.

when is the last time you heard someone say "man i went on this terrible vacation to hawaii and wish i hadn't gone and spent money on it" ?

 

[brianmanahan]

by the time you have the money to enjoy it, your youth will be gone and you won't be able to do 1/2 the stuff you could have done had you done it earlier.

true. part of me wants to go on 2 or 3 vacations per year since i can afford it. the other part of me grew up only going on vacation once every 7-8 years because of the cost.

from your posts, it's clear you have not traveled just from your attitude towards it. not saying that in a bad way or anything, just that it's pretty obvious you haven't experienced it.

yeah, i have never been outside the US. got a passport but it costs more to travel to another country. i have though about driving to canada though - i could get there in 3 hours.

when is the last time you heard someone say "man i went on this terrible vacation to hawaii and wish i hadn't gone and spent money on it" ?

never, a coworker just got back and he was saying how awesome it was :\

 

[xeemzor]

by the time you have the money to enjoy it, your youth will be gone and you won't be able to do 1/2 the stuff you could have done had you done it earlier.

from your posts, it's clear you have not traveled just from your attitude towards it. not saying that in a bad way or anything, just that it's pretty obvious you haven't experienced it.

when is the last time you heard someone say "man i went on this terrible vacation to hawaii and wish i hadn't gone and spent money on it" ?

And that is why you find a job that pays for your travel. Works sends me to a ton of different places throughout the year and I always make sure to bring my brompton bike:

It fits on the airplane as a carry on and I take it everywhere I go. Since I spend ~150 nights in a hotel room per year having a portable bike is amazing. Last summer I spend a ton of time biking and hiking the Cuyahoga Valley National Park.

You don't need to spend a ton of money to travel the world. Just figure out what you want to do and make it happen.

 

[Red Squirrel]

It is time to stop spreading this gibberish. It was valid 5 years ago, but not so much any more.

Layoffs are at at 17 year low: http://www.challengergray.com/press...t-32640-cuts-top-lowest-job-cutting-year-1997

Inflation was negative (just barely) for the last 12 months:
http://www.reuters.com/article/2015/02/26/us-usa-economy-idUSKBN0LU1J220150226
If you haven't noticed, oil prices plunged (so did heating oil and natural gas). That took commodity prices down to the lowest levels in years (gold, silver, and platinum are at multi-year lows, copper isn't far behind). Food is also on its way down. Soybeans, wheat, hogs, sugar, and coffee are all at the lowest point in a year. Cotton is nearly half of what it was last year. Mortgages have extremely low interest rates. I could keep going.

You were correct about the wages though. They were roughly stagnant for decades after you adjust for inflation. But there have been recent hints of change there too. While the last few job reports show that hourly wages were essentialy flat at only a 2% growth, the number of hours worked is increasing leading to more pay per week. http://blogs.wsj.com/economics/2015/03/06/february-jobs-report-wage-growth-is-stuck-around-2/
But now big companies like Walmart are just starting to announce fairly big wage increases:
http://money.cnn.com/2015/03/05/news/economy/wage-growth-february-jobs-report/

Statscan begs to differ:

http://www.tradingeconomics.com/canada/unemployment-rate

If salaries aren't moving, move to a higher salary.

That's my point, there arn't any higher salaries. The few jobs I do see get posted are all minimum wage or near minimum wage these days. Even in my field, most jobs are minimum wage. I got lucky as hell to score this job when I did. I like to keep an eye open and see what my options are if I lost this job, and there's really nothing here. I'd be looking at changing fields, but even those jobs don't quite pay as much. All the jobs seems to be going south...literally. And cost of living there is like 10x what it is here.

 

[slashbinslashbash]

I used to think like this but remember you get to deduct interest payments on your income taxes. It makes more sense unless you mortgage rate is something like 6+ % to not pay it off early and take that cash flow in invest it.

Assuming you're paying enough in interest yearly to reach more than the standard deduction. With a low interest rate mortgage in a low-housing-cost state like Texas, that can be difficult. I think we paid like $3k in mortgage interest last year? Real estate taxes are about the same. So that's $6k. I've got to get that up to like $12k in order to beat the standard deduction. No state income tax in Texas. I could claim state/local sales tax, but that'll be maybe $1k max. Hmmm.... $5k in charitable donations? (I recognize that this doesn't apply to most people in most states. But still paying $10k in interest to the bank so that I can save $3k in taxes to the government seems like.... well, I'm still in the hole $7k, how exactly is this a benefit?)

On the mortgage vs. the stock market, it's easy to compare the average rate of return of the stock market versus the interest rate of your mortgage, and say that it's a no-brainer. But ask most people the question that I asked jlee upthread, and they will give a different answer. Because the pat mathematical answer doesn't quantify the risk involved, or the psychology of homeownership. Your home is, well, your home. It's a security thing, an emotional thing. The stock market has risk. Paying off your mortgage early has no risk. Opportunity cost, yes, but no risk; there's no volatility in it. If your mortgage is $200k then you will end up paying $200k; it's not going to go up or down on you. Your house itself might go up or down in value, but it would do so regardless of whether you had the mortgage on it or not.

 

[Fenixgoon]

i think between growth and contributions, my 401k is worth about 100k

max contribution ftw!

 

[s0me0nesmind1]

That's my point, there arn't any higher salaries. The few jobs I do see get posted are all minimum wage or near minimum wage these days. Even in my field, most jobs are minimum wage. I got lucky as hell to score this job when I did. I like to keep an eye open and see what my options are if I lost this job, and there's really nothing here. I'd be looking at changing fields, but even those jobs don't quite pay as much. All the jobs seems to be going south...literally. And cost of living there is like 10x what it is here.

His point is to start switching fields if you find that yours is limited broceritops.

And really, you should. You are only limited by what you tell yourself. If you have a degree (or a good amount of years of experience), you would be surprised what you can move yourself into if you take a look around.

What field are you in?

 

[s0me0nesmind1]

Assuming you're paying enough in interest yearly to reach more than the standard deduction. With a low interest rate mortgage in a low-housing-cost state like Texas, that can be difficult. I think we paid like $3k in mortgage interest last year? Real estate taxes are about the same. So that's $6k. I've got to get that up to like $12k in order to beat the standard deduction. No state income tax in Texas. I could claim state/local sales tax, but that'll be maybe $1k max. Hmmm.... $5k in charitable donations? (I recognize that this doesn't apply to most people in most states. But still paying $10k in interest to the bank so that I can save $3k in taxes to the government seems like.... well, I'm still in the hole $7k, how exactly is this a benefit?)

Haha this was my EXACT problem last year. I paid even less on our 2.75% 5/5 ARM this year. Something like barely over $2k in mortgage interest.

The sales tax deduction has made me want to start keeping my receipts, because the standard deduction is bullshit. I pay way more than $1.2k in sales tax with our 8.25%.

So now I find myself screwed, having to take the standard deduction for myself and my wife. And that's one of the reasons we owe ~$3k :'(

 

[xeemzor]

His point is to start switching fields if you find that yours is limited broceritops.

And really, you should. You are only limited by what you tell yourself. If you have a degree (or a good amount of years of experience), you would be surprised what you can move yourself into if you take a look around.

What field are you in?

Many times the opportunity is these but requires relocation. Unless you at a very specific point in life it's pretty hard to uproot yourself every 5-7 years for a new career path.

 

[dullard]

Statscan begs to differ:

I missed that you were from Canada in a discussion about investing in US retirement accounts.

 

[s0me0nesmind1]

On the mortgage vs. the stock market, it's easy to compare the average rate of return of the stock market versus the interest rate of your mortgage, and say that it's a no-brainer. But ask most people the question that I asked jlee upthread, and they will give a different answer. Because the pat mathematical answer doesn't quantify the risk involved, or the psychology of homeownership. Your home is, well, your home. It's a security thing, an emotional thing. The stock market has risk. Paying off your mortgage early has no risk. Opportunity cost, yes, but no risk; there's no volatility in it. If your mortgage is $200k then you will end up paying $200k; it's not going to go up or down on you. Your house itself might go up or down in value, but it would do so regardless of whether you had the mortgage on it or not.

Yes, but as you said the home value can go up or down. Ask the 1M+ people living in underwater mortgages still.

I'll be honest, this is the ONE reason I have to not contribute any extra principle to my home. If things flip on me and all of a sudden I find my home is worth 1/2 of what I took a loan for I would honestly just stop paying and do bankruptcy. There is NO point to EVER pay $300k on a $150k home. This is also why our home is only in my wife's credit. Her credit can take the hit while mine would be clean.

 

[s0me0nesmind1]

Many times the opportunity is these but requires relocation. Unless you at a very specific point in life it's pretty hard to uproot yourself every 5-7 years for a new career path.

Unless you have a wife with a decent paying job, there is NO REASON you can use this as an excuse. Absolutely NO REASON.

When people had problems before, they packed up their shit and left for the horizon. Where? Wherever they needed to go. Now this generation cries if they have to move 50 miles and says "WHY WONT ANYONE HELP ME?" Try helping yourselves first, toolbags.

/Stepsoffsoapbox

 

[dullard]

Assuming you're paying enough in interest yearly to reach more than the standard deduction. With a low interest rate mortgage in a low-housing-cost state like Texas, that can be difficult. I think we paid like $3k in mortgage interest last year? Real estate taxes are about the same. So that's $6k. I've got to get that up to like $12k in order to beat the standard deduction. No state income tax in Texas. I could claim state/local sales tax, but that'll be maybe $1k max. Hmmm.... $5k in charitable donations? (I recognize that this doesn't apply to most people in most states. But still paying $10k in interest to the bank so that I can save $3k in taxes to the government seems like.... well, I'm still in the hole $7k, how exactly is this a benefit?)

As for the mortgage deduction, you are right, it just doesn't apply to much of the middle or lower-middle class at the moment. Either they got in when the prices were low, or interest rates were low, or both. So it can be hard to get over the standard deduction.

That said, just use a little trick. Pay your real estate taxes in January and December of the same year. That December, also prepay all the donations that you planned to donate the next year. Bingo: now you are well over the standard deduction for one year.

Suppose you pay $3k in mortgage interest a year, your real estate taxes are also $3k a year, your donations are $2.5k a year, and your sales taxes are $1k a year (your numbers that you mentioned). Then each year, you'd have $9500 (total for the two years is 2*$9500 = $19,000). That is low enough that you'd be taking the standard deduction of $12,600 (assuming you are married). Total deduction for the two years: 2*$12,600 = $25,200.

Now suppose you pay double the real estate taxes this year and none next year. Also suppose you double your donations this year and none next year. Now you will have $15,000 in deductions this year and $4000 next year (still the same $19,000 total). Itemize $15,000 this year, take the standard $12,600 next year. Total: $27,600. Difference: $2400 more deduction. If you are in the 25% tax bracket, that is a extra $600 in your pocket every other year.

 

[Red Squirrel]

His point is to start switching fields if you find that yours is limited broceritops.

And really, you should. You are only limited by what you tell yourself. If you have a degree (or a good amount of years of experience), you would be surprised what you can move yourself into if you take a look around.

What field are you in?

Technology (took computer science, so, basically IT and similar). Right now I'm actually in telecommunications working at a NOC. Very good job, don't want to change, but if I HAD to, I'd be screwed right now. Mining is pretty big here so that's probably what I'd have to change to, but it would be quite a shock going from desk job to highly physical. But I'd do what I have to do.

Though if I stick to the field of technology I'm probably better off doing my own gig which is kinda what I need to start doing. Mobile apps seem big right now, I really need to get off my ass and learn that. I have started a new hobby of learning electronics too, mostly focusing on micro controllers and power but just in early learning phase now. I imagine that could get me somewhere too. But yeah part of the issue is my own fault since I'm so comfortable at my current cushy job that pays a lot, but when I sit and think of what would happen if they closed our NOC down, it lights a fire under my ass and makes me realize I have to have a backup plan.

 

[s0me0nesmind1]

As for the mortgage deduction, you are right, it just doesn't apply to much of the middle or lower-middle class at the moment. Either they got in when the prices were low, or interest rates were low, or both. So it can be hard to get over the standard deduction.

That said, just use a little trick. Pay your real estate taxes in January and December of the same year. That December, also prepay all the donations that you planned to donate the next year. Bingo: now you are well over the standard deduction for one year.

Suppose you pay $3k in mortgage interest a year, your real estate taxes are also $3k a year, your donations are $2.5k a year, and your sales taxes are $1k a year (your numbers that you mentioned). Then each year, you'd have $9500 (total for the two years is 2*$9500 = $19,000). That is low enough that you'd be taking the standard deduction of $12,600 (assuming you are married). Total deduction for the two years: 2*$12,600 = $25,200.

Now suppose you pay double the real estate taxes this year and none next year. Also suppose you double your donations this year and none next year. Now you will have $15,000 in deductions this year and $4000 next year (still the same $19,000 total). Itemize $15,000 this year, take the standard $12,600 next year. Total: $27,600. Difference: $2400 more deduction. If you are in the 25% tax bracket, that is a extra $600 in your pocket every other year.

Probably a stupid question, but how do you pay your next year taxes when you haven't been billed for them yet? Also, is it possible to do that when your home is on an escrow account?

I knew you can simply pay your January mortgage in December, but didn't know much more outside of that...

 

[Exterous]

Probably a stupid question, but how do you pay your next year taxes when you haven't been billed for them yet? Also, is it possible to do that when your home is on an escrow account?

I knew you can simply pay your January mortgage in December, but didn't know much more outside of that...

Property tax is usually billed a year behind its assessment although this does vary by state. It may be possible to pay if you are on an escrow account but that is usually only the case when the mortgage company lets you pay it out of an accumulated fund. For those that pay it for you (Most I believe) you likely won't be able to do this because the mortgage company controls the payment process. YMMV

 

[jlee]

Unless you have a wife with a decent paying job, there is NO REASON you can use this as an excuse. Absolutely NO REASON.

When people had problems before, they packed up their shit and left for the horizon. Where? Wherever they needed to go. Now this generation cries if they have to move 50 miles and says "WHY WONT ANYONE HELP ME?" Try helping yourselves first, toolbags.

/Stepsoffsoapbox

Hell I moved cross-country without a job lined up because I was tired of the weather. If you want something bad enough, you can make it happen.

 

[dullard]

Probably a stupid question, but how do you pay your next year taxes when you haven't been billed for them yet? Also, is it possible to do that when your home is on an escrow account?

I knew you can simply pay your January mortgage in December, but didn't know much more outside of that...

Most states (I can't speak for all states) bill you for the real estate taxes well ahead of time. I will get my next estate tax bill around November of 2015 and half of it will be due in April 2016 and the other half in August 2016. So with bill in hand, it is easy for me to choose to pay it in 2015 or 2016. If your state doesn't give you much warning then it would be more tricky. Escrow complicates the matter. But it still doesn't prevent you from paying the bill ahead of time. It just means that your escrow payments will jump around a lot as their formulas aren't set up for you paying bills. Escrow is a really bad deal for customers (banks control your money and for that priviledge banks keep the interest, it is lose-lose for you).

The one thing that you can't reliably do is pay your mortage payment earlier. Many banks will accept all payments in December that are above and beyond the December 1st payment as extra principal paid in December (your mortgage balance will drop so you can pay off your mortgage earlier). Then you still owe the whole January amount on January 1st, even if you just paid it December 31st. They won't just automatically assign extra payments to pre-paid interest. So I don't recommend that on public forums. It might work for you, but you have to specificaly ensure that the bank will accept both pre-payments AND apply those pre-payments to interest.