CingularDuality

This is exactly how I understand it. But if the economy goes down the drain, gold could suddenly be worth a whole lot more than what we paid for it. If the economy does well, it doesn't matter, as gold will always have a fairly stable long term value. Right? (This ignores short term fluctuations in the gold market.)

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TacticalGamer TX LAN/BBQ Veteran:

shroompicker

Cig, start with the basics. CASH. You said yourself you were terrible at saving cash, and you said you thought gold or bonds or some other financial gadget will help you save money. They won't.

Getting wealthy is simple. Make more money than you spend. Simple, but hard. Money is 80% behavior and 20% math. As long as you're spending more than you make, you'll have nothing. You're not ready to invest in ANYTHING until you master the ability of keeping cash, and you've Freudian Slipped a few words that tell me you haven't.

Remember those seven steps I told you about? They came from here:

http://www.daveramsey.com/

You can get absolutely all of the advice he sells in his books, tapes, and lectures for free through his radio show, and he podcasts it for free. Start podcasting his shows now.

Here are the seven baby steps again:

1) Save $1,000 to start a baby Emergency Fund
2) Pay off all debt using the Debt Snowball
3) Save three to six months of expenses in savings as a full Emergency Fund
4) Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5) College funding for children
6) Pay off home early
7) Build wealth and give! Invest in mutual funds and real estate

Dave's philosophy is, all debt is bad, kill debt from your life, and a janitor can make millions in his lifetime. We've got a culture of advertising and banking that keeps people in debt. Just stop buying into it, and you'll be a millionaire in ten years, no matter who you are.

The idea of these baby steps is, it's impossible to go on to a higher step without accomplishing all the lower steps first. If you're bad at cash, then a $1,000 gold stash won't help, because you'll probably charge $4,000 instead of $3,000 in credit cards this month. Auto-withdrawing to your retirement from your paychecks when you still have mortgage, credit cards, and car payments also makes no sense, since you'll just have less paycheck and likely more debt. When an emergency happens, you move backwards as many steps as you need to, re-complete it, then move up again. So an exploding air conditioner doesn't stress you out, you just pay cash for it, then re-do your emergency fund, then resume.

The one technique you need to accomplish all of this is a written budget. Spend all of your money on paper on purpose FIRST, and agree on the budget with your wife. Ramsey himself says, he's got a net worth of 9 million, he and his wife still do it.

At the top of the page, write down the date range for this month, mine is always 12-12 (April 12 - May 12), because of the way the bills come in. Then, list all of your expected paychecks, both you and your wife. Total them up. Then, list your necessities. Food and gasoline. Light, gas, and phone bills, and car insurance. Then mortgage or rent. Try this now, for the amounts you spent last month. Be realistic, gasoline is $120 per work-commuting car per month, and food is usually $200 per month per person over 2 years of age (and a bit more for other persons). Subtract the difference. I bet you there are at least four figures left. Where are those thousands of dollars per month going?

Dave calls this "stupid tax". You take responsibility, admit you've done something stupid and know you're not stupid, you've just done something stupid, and fix it. Switching to a system of paying by cash or paper check, with a budget is the first step to getting rid of all stupid tax. It makes you see where all your dollars are going before they go there. You're in control.

Now I could go on for many paragraphs more, but it's not going to do you any good, because many specific factors of your life need to be taken into account. Let me say a few other things about some stuff discussed in this thread:

Credit score, FICO score. You don't need one. Period. Stop. Shut up. Zero score is a GREAT thing. Credit score is an I-Love-Debt score. It is composed of 35 percent payment history, 30 percent amount of debt, 15 percent length of credit history, 10 percent type of debt, 10 percent applying for new credit. So it really is the “I love debt” score because there is no way to have a great FICO score without getting into debt and staying in debt. Your credit score goes up when you go deeper into debt and pay on time for a year or so, since that's 90% of the score formula. If you make $1 million per year and have $10 million in the bank, you will have a _ZERO_ FICO score if you don’t borrow. It's a cheap way of banks approving mortgages, because all they do is look at one number and give you a yes or no, which is why they love it. If you want a mortgage, you can do it through "manual underwriting". Instead of looking at your FICO, they examine your bank records, paycheck stubs, and a few other things manually. You'll need to phone around a lot, of course, and you'll have more luck phoning credit unions rather than big chain banks.

House as expense. Yes and no. When I listen to Dave's show, his rule of thumb for mortgage is, you should have no more than 1/4 of your monthly income in mortgage payments, and on a 15 year fixed mortgage. So if you have a $150,000 mortgage, you and your wife each should be earning at least $15/hr at 40 hours. (I just did some other numbers, that $X0,000/$X/hr rule works really well, actually, with interest rates at 6%, for all houses under a million.) If you have more house than this, you need to sell down. The idea here is, if you have too much house payment, you won't be able to get yourself out of a credit-card and car payment hole, and once you're out of the credit-card-car-payment hole, you can calmly double-pay your mortgage and kill it in 5-7 years. Dave's own personal policy is he doesn't borrow for anything, but he doesn't yell at anyone on the show for real estate borrowing, since real property always goes up in value, and it's unrealistic to run a family with kids out of an appartment until you save enough cash to buy outright. When he councils people who are really deep in the hole, he only advises selling the main residency as a last resort. He tries to allow forclosure on upside-down property which is not their main residence before allowing bankruptcy, which exposes your main house as well.

WHEW! that's all for now!!

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-- Shroom
I tried smoking mushrooms once. Couldn't keep the pizza lit.

CingularDuality

Hmmm... I have had zero debt for the last 4 years, but still don't have any savings... I'll have to look more into this guy's stuff.

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TacticalGamer TX LAN/BBQ Veteran:

shroompicker

Hey, being debt-free for that long means you've got some good habits. You're past baby-step two, which most people when they start listening to Dave's stuff take six months to two years to get there. They spend that time getting harrassed by credit companies, and they sell all of their stuff until the dog is hiding, kill all of their monthly nonsense like clubs and cable service, downgrade to the $8/month plan on their phone, and work three jobs until the debts are done except mortgage. You don't have to do that.

You're just like me, I also "woke up" at step three. I never let myself get in a credit hole or car payment hole, but I didn't appreciate the money I had, and I was always anxious at Wal-Mart, in case I spent "too much" on an item. Even though I never charged on a credit card more than I had, every credit card bill I got was "just awful". That's the kind of stuff Shinji Ikari did to himself. Then I started doing budgets, and it's like, wow, look at all the money I have. I do the budget, and my monthly Wal-Mart spending is $300, and it's like, what else do I get, I haven't spent it all. Ooh, Coke Black, ding. It's fun! And I'm saving more this way. I've got a growing new-car budget, it's just started, but it's getting there, I'm targeting $18,000, but it's uncertain, because I'm mostly funding that with bonus checks from work. But once I hit the mark, here's a new car, pay cash, don't worry about a thing, I'm under budget. Next it's a cruise, then another $20,000 fund for a bare land investment next year. I hear they'll be building an airport in Eloy in ten years or so, I wanna jump on that.

There's another thing. Because of budgeting, I stopped focusing on the cost side of things, and started focusing on my income generating. I know I'm over the hump, and I know by exactly how much. So I focus on how I can get a bigger bonus check. I work for a small company, so if we finish a contract under time, we get the final cut.

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-- Shroom
I tried smoking mushrooms once. Couldn't keep the pizza lit.

Hambergler

I put my emergency liquid into http://home.ingdirect.com/ I have a specific amount direct deposited into the account every payday from my bank automaticly. 4.15% Annual Percentage Yield. FDIC insured. I save my money here for my Roth IRA as well.

Kaine904

Currently, Gold is really really high in the market, but it wont stay that way.
Dont invest in gold at the moment, look at what it has done in the past. You will see it peaks, then it falls sharply, then 10 or 20 years later it peaks above the previous peak, and then falls sharply. What you want to do is to invest just when it is done falling, and about to rise to a new peak. Currently, gold seems to be on the precipice of a price drop. Gold probably wont go over 20 bucks past its current price, but it would be really easy for it to fall a good 50 or 60 bucks.

And thats my opinion, dont invest based on anything i have said, do some online research for yourself!!!
-Kaine

ScratchMonkey

Any opinions on mortgage-as-tax-avoidance? I'm single with a comfortable income and my mortgage is pretty much my only serious deduction. (But I'd prefer getting rid of that deduction in the tax code to eliminate its distortion of the housing market.)

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Addict

Any more on this distortion? I mean, I'm assuming you mean that people can afford more house than they would if the interest were NOT deductable, and that this has driven up home prices(I'm curious, not particularly challenging here)? I hadn't heard anyone say they wanted to get rid of it before, even during the most recent tax reform talk...

Practically, it would be an aweful painful adjustment(as I bet a large number of people would have to move if they are riding the edge too closely, and there would not be buyers able to buy the house leaving a LOT of people facing foreclosure?).

And really, it seems to me, the tax code would just adjust anyway, if there weren't that deduction the tax revenue would soar. Then they could probably reduce the tax bracket, and net-net nothing would really change. But it helps the middle class the most, doesn't it? Poor don't own a house(and don't pay much in taxes), rich it is a much smaller % of their take. Just seems like removing that deduction has the potential to shift more of the tax burden from the rich to the middle class?

I suppose the argument against it is that it artificially raises home prices, making the bar to get into a home higher. And the people really
benifiting are the loan companies collecting all the interest. not sure how to transition things back down though...

ScratchMonkey

I would say that the deduction makes homes more affordable only temporarily, until demand bids the prices back up. (The same mechanism happens with student loans. That's one reason why college is so expensive.) And it's actually the price of the loan, not the house, that's being made more affordable. So if you pay cash, the deduction doesn't help you.

I suppose one way to ratchet it down is to base the deduction on when you took out the loan. No loans after a cutoff date would be eligible. Or you could reduce the size of the deduction over time, again based on the loan date.

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leejo

I saw that some lenders are offering 50 year mortgages. Must be in CA, like those houses need to be any more grossly overpriced.

Stupid california....hate you guys...

xTYBALTx

The transition is quite simple. All existing loans are grandfathered in. All new loans don't recieve the deduction. Housing prices will be wierd for a while, as new buyers can't afford the houses old buyers purchased, but it will work out eventually.

Practically and morally speaking, though, elimination of the interest deduction should be coupled with a massive overhaul of the tax code. It'd be the only way to gain support for such a measure and would also offset the money "lost" to the elimination. I am rather fond of Forbes' flat tax plan,* but there are other options out there as well.



*IIRC, the plan is a ~21-24% flat tax on all income over $24,000. Make less than $24,000 and you pay no income taxes. Make $48,000 and pay 24% on just the latter half of your income for a 12% total rate. Make $96,000, pay income tax on $72,000 of it, and your rate is actually a bit higher than the other fellows mentioned.

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leejo

Stop right there. Now imagine how many representatives are interested in pissing off every single home-owning constituent in his or her district by legislating away what is, for most of them, the main part of their savings. Now imagine the headlines: New Law Evaporates $2 trillion In Homeowner Wealth (I just made that number up but I bet it's a very big number).

Why would I want to own? By renting I hand responsibility for upkeep and improvements to someone else, and free up my cash flow from having to hedge against a HVAC unit, floor, fridge, etc.

I don't want to debate the merits of the idea, which I think is a few steps left of completely nutty, but I think it's totally impossible that the House would ever pass such a bill, much less the Senate. So moving on...

xTYBALTx

You should try reading the whole post.

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A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

leejo

I did. Wazzup? Hey folks we can give you a tax break if you'll tolerate having your house drop in value by x%? Old folks, rich people, and the poor might dig that, but it would spank the middle class, many of whom haven't owned their homes long enough not to be upside down on the loans, untolerably hard.

I also don't understand why I would buy a house in that system. Why force myself to save enough to buy an HVAC unit or a fridge when I can rent without giving up a tax break? Why own?

And if you can't answer that question, what sort of society do we wind up having when a very few own land and very many rent?

Sorry I just think it's a bad idea.

xTYBALTx

You're not thinking critically about it.

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A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek