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|06-07-2012 01:42 PM|
|htin||i think you should pay off your debt first, after you clear your debt buy a investment property. They should be more sufficent enough to cover your thru your retirement.|
|05-29-2012 04:31 PM|
Most people do not, contrary to what they say, invest any extra monthly monies into anything. They simply spend it. Or perhaps they just put it in the bank, where the local interest rate doesn't keep up with inflation, which means they are losing money. Depending on your mortgage, hitting the principle with extra payments could have you paid off in 10 years or sooner depending on what you can afford. I also assume that there is something going to a 401k type vehicle and I am not suggesting that you skip normal investments like 401k/IRA in favor of paying all these monies to a mortgage. If you have to choose one or the other, my first advice is to get a better job/living arrangement, but second would be to fund your 401k/IRA first, and not necessarily to the max. I currently have the minimum 401k that gets the max employer match, which is 6% of my salary. I do send extra to my mortgage and have already shaved off close to 5 years by paying extra principle. My goal is to pay it off in 10-15 years.
If you look at long term investing for most peoples' 401ks, I think you will see that they have not come out very far ahead, if at all ahead, with many losing money and being in the hole. Paying off your house is a guaranteed positive outcome since you will immediately see the benefit as more money in your pocket in the form of the former Mortgage payment (less taxes/insurance and tax benefits) that is no longer being paid. Personally for me, this would be $2300/month in additional NET income to invest/spend/save. That counts in that my 401(k) is funded.
It is only in recent times that banks have brainwashed people (congrats) into believing that having debt it good. People used to have mortgage burning parties where they would have all their friends and family come around to celebrate paying off their house. This made good sense back then and still makes good sense now.
I am having trouble following your scenario. Are you saying that you think she could invest that money better outside of paying off the house and had a pot of money which would be a source of income in retirement? Maybe. But probably not. Again, if she is 35 and pays the house off in 10, she has 20 more years of no mortgage payments to do what she wants with her former mortgage payment. Invest, spend, etc.
Bottom line: The argument to be in perpetual debt with mortgage payments is weak at best. Current anecdotal evidence suggests people do not do better with their money. People are poor money managers and most will not have two nickels to rub together if left to their own devices. At least with my scenario you don't have two nickels but have no mortgage and a paid off house which could be a retirement in the form of a reverse mortgage.
Let's not get into the (very common) whole scenario of refinancing the house, rolling in credit card and other debt, and resetting the mortgage clock back to 30 years.....
FYI: "So when you retire you are selling your house to then finance your retirement? Where you going to live then?" leads me to believe you do not understand how a reverse mortgage works. It is an excellent way for someone that did not plan well for retirement or wants additional income to get it without selling their home or ever having to leave it.
|05-29-2012 03:29 PM|
What money? What savings? No one can work through severe health issues and very few healthy 60 year old's find decent paying jobs if they can find one at all.
I'd rather work, invest and at the same time pay my mortgage. When I retire my house will be paid for AND I will have the cash.
So when you retire you are selling your house to then finance your retirement? Where you going to live then?
Following your advice is just a horrible way to live your final years in retirement.
|05-29-2012 03:25 PM|
I agree with Jeklan on the 401k first, up to the company match.
After #1 and #2, I consider the remaining options relatively equal as far as risk vs benefit, and would add a #8 Roth IRA into the mix. So I would simply take the leftover cash and disburse it relatively equally amongst #3-8.
While I understand the typical SD desire to maximize profit and minimize losses, the reality is you have no idea what your home or 401k will be worth in ten years, so the old standby advice of diversify seems most applicable.
|05-29-2012 02:52 PM|
PS If you are flat in your investments, with inflation you are losing money. A paid for house IS as good as money in the bank. Your explanation makes no sense. If you have no mortgage, then the money you would have used for the mortgage is there for you to use. In your scenario with NO paid for house, how is she supposed to pay for the mortgage? Out of savings which may or may not have even kept up with inflation? With a 100k mortgage she would have paid 200k in interest. One assumes with a paid off house, that the money that would have gone to the mortgage can now be used for other things like savings!
|05-29-2012 01:07 PM|
Yes, I am flat in investments but I still have that same 100k sitting there waiting.
Without savings he will have to work any job he wants to. Don't be house rich and cash poor. There is a happy medium here. Don't go 80% in either direction.
My gf's mom put everything she could to paying off the house. Now her business is almost done and she has no savings and a paid for house. How is she suppoed to pay the electricity, water and heat at 60 years old with no cash? The house sits in the middle of100 acres of family land. Most likely between living expenses and eventual health costs she will have to sell it and lose land and house that has been in the family for generations.
Paying everything you have into your house with no retirement savings is as smart as marrying a hooker.
Such horrible advice.
|05-28-2012 09:56 AM|
- If you take $100 and the company has a match, your balance increases by $200. If you make 5%, then it's $210. The interest rate on that is 110%. I know the guy writing this thought 7.5% is high, but it's not even in the same ballpark as 110% (or 100% if you don't earn any interest).
- Here's another reason you want to take the match. Let's say you take $100, and it's matched $100. Then you have $200 in the account. Your employer may allow you to borrow against your 401k--typically half of it subject to various minimums and other criteria. You could borrow (once it's vested) the original $100 and pay off your car loan. In this case, the obligation to the bank serving your car loan has been replaced with a similar obligation--but to yourself instead. And you still have the $100 contribution you originally made to your 401k.
Anyway, I don't know if that made sense, but if you're not availing yourself of an employer match, please do. It's really hard to justify ignoring that match except under some rather exceptional circumstances. I agree with the rest of the list though I don't think you're going to get too far with #4--the PMI suggestion. Can't hurt to check, though.
|05-28-2012 07:00 AM|
Conventional wisdom would indicate the 401k first.
Most people that will advise you to do that are broke.
|05-26-2012 02:30 PM|
Not having a mortgage trumps theoretical returns in my opinion.....
|05-25-2012 10:39 AM|
Absolutely, I know the statistics.
I think the problem starts with student loans. The government guarantee behind education loans shouldn't be in place and never should have. More risk for lenders = less loans = lower education prices. The big gap in net worth is the "mortgage" the students graduate with that doesn't provide them with a house.
When I buy a house later this year, my net worth (without the mortgage / house asset) will be -$55,000. There is no incentive to me to continue to wait until I pay off student debt to start my life.
Sure, changing the system right now would lead to less people getting a college education - but it would also quickly cause colleges and universities to re-structure and we'd all be in a better place.
My only real response is that the wake up call you're mentioning is going to the wrong people. the X,Y and Z'ers are all in the same boat because someone decided to help them take on huge debts while they had little or no income. They were set up to fail by the powers that be and have no easy way out. Help them, don't offend them.
I'll end my rant now.
|05-25-2012 10:25 AM|
|05-25-2012 10:09 AM|
At this rate, generation X, Y, and Z are screwed even if SS is fixed.
|05-25-2012 05:37 AM|
I applaud the OP for asking. I work with people on their finances every day - and I agree that most people don't have much clarity in regards to managing their finances. I do, however, think that most people are concerned with not being sure they're taking the best course of action.
Many people don't have the time or energy to commit to studying a second trade (such as the financial industry) and do not know what products are available and the costs/benefits of each one. Some people, such as in this thread, ask for help. Educated peer input is a very positive way to develop any skill set.
Also, OP, don't count on Social Security. Only a fool would think this Ponzi scheme system will carry them through retirement like it does for many current retirees. If it is still available when you qualify, it won't be the large amounts currently collected.
|05-24-2012 04:03 PM|
I don't know why anyone would pay off a low interest tax deductible loan before a high interest car loan.
Good thing we have Social Security, because it seems like most people are more incompetent than the government when it comes to managing money.
|05-24-2012 12:00 PM|
Agreed on the rest of your post.
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