NT: Official Personal Finances Thread

[yeah]

This is a great thread.

Im 23 with a solid job (around 50k give or take before taxes) but not doing it anywhere close to some of you guys.

Long story short, i should have a bunch of money saved up from the last few years but instead I have practically nothing and some debt.

This year I plan on attacking the debt head on and eliminating all CC debt. Ill still have my car but it is what it is.

My girl wants to move out around september and i want to too. But this will obviously drastically impact my savings ability so it sucks at the same time.

Was pretty much in the same position as you last year (even down to the age. ) I can't really tell you what I did because I'm still in the process of doing it, but some things for you to consider:

1. Be honest with yourself about your girl. We are both at that age where we have two, maybe three years before we have to decide whether or not they'll be our wives or remain girlfriends. They know this, and regardless of how much she tells you that she won't pressure you into marriage, that is going to be an expectation. If you aren't absolutely certain that she's wife material, you need to start planning for that financially. Having a woman in your life will impact you financially, and it can result in a net loss or a net gain. Be real about it and figure that cost into your budgets.

2. Consider staying at home. My mom and I don't have the best relationship, so staying with her isn't really an option for me. Had it been, I would still be living there and stacking my money. I know the social pressure is telling you that you needed to move years ago, but a LOT of people our age are living at home. Why not knock some debt out of the way and have a 10-15K savings before you move out?

3. Consider buying. Instead of moving into a different rental at the end of my last lease, I decided it'd be better for me to own a home. Depending on your CC debt and savings it might be a stretch, but its worth thinking about. I was paying $1075 to rent a 800 sq ft apartment, not including utilities. My mortgage is $1030, and that includes some other bills. Its nearly $50/mo cheaper for me to own, and I have the added benefit of building equity.

4. Stop putting your lifestyle ahead of your goals. You said in your post that you should have a savings, but instead you have debt. That $50 you dropped at the bar adds up. Add it to the $20 you spent on assorted snacks, the $40 you spent getting fast food, and the $60 you spent on clothes in the last week and you have $170 of money you didn't need to spend. Try to identify all the little ways you leak cash, then limit them. It'll help you save, both now and 15 years from now.

 

[capital sb]

Great post Yeah, I know if I could have stayed home longer I would have as well. I would have eliminated all of my debt before buying a home.

2016 is the year of debt elimination for me, and I will most likely pay my car off in 2017.

 

[yeah]

I wish I could. I even considered moving to Michigan to live with my pops

I'm still amazed I was able to purchase my home, I have a LOT of debt - 10K on credit cards alone. Somehow was able to close on it with less than $1500 total out of pocket. 2016 is going to be dedicated to frugality and debt elimination for me too, after years of living it up. Not gonna be fun.

 

[capital sb]

I wish I could. I even considered moving to Michigan to live with my pops

I'm still amazed I was able to purchase my home, I have a LOT of debt - 10K on credit cards alone. Somehow was able to close on it with less than $1500 total out of pocket. 2016 is going to be dedicated to frugality and debt elimination for me too, after years of living it up. Not gonna be fun.

Lol man who are you telling. My dad and other people ask me how I got the home I always tell em "I don't know honestly, nothing but God". I paid about $3200 out of pocket for my home, but had to give the builder a 10K deposit to start the process.

I have a lot of debt too, surviving off of CCs in college, then spending like crazy the black friday before I graduated

never again.

I am dedicated to frugality too, as long as I stay within my budget and find happiness in things other than material purchases I will be fine.

Everything will be worth it in the long run.

Random: Has the thread post update bar stopped working for anyone else?

 

[jthagreat]

^ Isn't the tax rate/structure the biggest variable of the whole debate though? Who thinks tax rates are going to get any lower than they are now?


With a traditional, say they move the LT capital gains tax to 20-25-30% When you went to withdrawal, wouldn't you be hit with the Cap gains tax + income tax?

Nobody thinks taxes are going lower. That isn't what I am talking about I am talking about paying taxes now and effectively giving up 25% of my investment.

If you have 2 people investing the same amount of money the person who invested in the tradition ira will have more money.
That is all that I am saying, I want more money to grow long term.

If I wanted to max out a roth it will cost me $6875, to max out a tradition account it will cost $5500 and I can invest the $1375 surplus.
Over a 20 year period that extra $1375 will be worth about 69K over a 20 year period.

People don't have to agree and that is fine, all I am saying is do your own research. Go with what works best for you and your financial plan.

but it doesn't cost $6875 to max out a Roth IRA, its $5500. If it was higher, it would actually be better.

The main concern I have with your logic ( I still have yet to read your article) is that most if not all of us will be making more at retirement then we are now. I have only only known one person to say they are retiring from their career to work part time and that's cause she likes to do arts and crafts.

but besides that, the whole point of starting to plan on retiring early is to take advantage of compounding interests, hence its better to start when you are 20 and not say 35. most 20 year olds are not in the highest tax bracket, thus paying the low taxes up front, is way better than when youre (lawd willing) making ( I forgot the number) making a bunch of money and then no longer eligible for the Roth ira and have to convert.

I could and should pull articles supporting my thoughts, but I don't have the time. I look forward to reading yours as well, but again, everything you stated is the opposite of what I read. all love btw, not a shot.

 

[jthagreat]

Random: Has the thread post update bar stopped working for anyone else?

the legit have to turn it off whenever the Yezzys release.

its cold In Michigan man, you don't wanna live here.

My girl and I are about to be 30, she has some goals, I have some, but I AM NOT ready for that next step...so with that said, I have to pursue my goals with me being the focal point, I told her this, and stated she should do the same...not a fight, but she was not happy to hear that.

I would suggest at your age, you make decisions based on whats best for you, if she has an issue, iterate to her that, whatever is best for ME, will be best for US in the long run.

 

[sundoobie]

^ Isn't the tax rate/structure the biggest variable of the whole debate though? Who thinks tax rates are going to get any lower than they are now?

With a traditional, say they move the LT capital gains tax to 20-25-30% When you went to withdrawal, wouldn't you be hit with the Cap gains tax + income tax?

LT capital gains and Qualified Div tax rates of 0% were made permanent per American Taxpayer Relief Act of 2012

So yeah I guess the entire premise is to not earn any ordinary income when you slowly convert the traditional so that you don't pay any taxes. It wouldn't work for me though cause I rather make money and pay taxes than live frugal year after year just to invest in a volatile market but that's just me. I just don't trust the market when portfolios can easily be reduced to nothing as was seen in 2008. I rather invest in income producing rental properties and partnerships but again everybody is different.

but it doesn't cost $6875 to max out a Roth IRA, its $5500. If it was higher, it would actually be better.

$5,500 max contribution plus $1,375 (25% tax bracket) in taxes is what he meant.

And yeah a lot of old people in retirement are actually paying higher taxes than before because they have so much invested and more income such as pension distributions, taxable social security, K-1 income from investments, rental property income, investment income from dividends/interest, etc.

 

[capital sb]

but it doesn't cost $6875 to max out a Roth IRA, its $5500. If it was higher, it would actually be better.

The main concern I have with your logic ( I still have yet to read your article) is that most if not all of us will be making more at retirement then we are now. I have only only known one person to say they are retiring from their career to work part time and that's cause she likes to do arts and crafts.

but besides that, the whole point of starting to plan on retiring early is to take advantage of compounding interests, hence its better to start when you are 20 and not say 35. most 20 year olds are not in the highest tax bracket, thus paying the low taxes up front, is way better than when youre (lawd willing) making ( I forgot the number) making a bunch of money and then no longer eligible for the Roth ira and have to convert.

I could and should pull articles supporting my thoughts, but I don't have the time. I look forward to reading yours as well, but again, everything you stated is the opposite of what I read. all love btw, not a shot.

Roth is after tax money, not pre tax. So to put money into the roth you must apply the percentage of tax you are paying. This is the factor that most people just ignore. Pre tax and after tax money makes a big difference.

If I am making more in retirement why would I start withdrawing money from my investment accounts? I will let it sit there and continue to grow. If I happen to pay higher taxes in retirement it will only be a fraction of my net worth, so I guess it wont be too bad.

So you plan to get another job after you retire, or do you think your investments will net you more than what you were making while working full time?

Again, I am talking in my experience I am in the 25% tax bracket at the age of 23, my tax brackets will continue to rise. Look up the difference between pre tax and after tax money, and I think that will clear up some things for people.

@SunDOOBIE My plan is to invest in rental properties and the market. The market has tripled in value since the crash, I believe.

It seems like people think frugal means to live like you are completely broke, to me it just means to live within my means stay within my budget and not be extremely wasteful.

 

[jthagreat]

I use Fidelity.

Traditional vs Roth

They are the same in these aspects

Maximum contribution
For both 2014 and 2015: $5,500 ($6,500 if you are 50 or older) or 100% of employment compensation, whichever is less

Catch-up contribution
Individuals age 50 or older (in the calendar year of their contribution) can contribute an additional $1,000 each year

Contribution deadline
Wednesday, April 15, 2015, for the 2014 tax year

Minimum investments
There is no minimum to open a Fidelity Traditional IRA or Roth IRA but investment minimums will apply (some investment minimums may be waived for rollovers or transfers, or if you sign up for automatic contributions).

Fees
Fidelity IRAs have no set up or maintenance fees, and no transaction fees when trading most Fidelity mutual funds


The differ in the following:



Compare Roth IRA vs. Traditional IRA

The two main types of IRAs that can help you save for retirement are Traditional and Roth. Use this chart to help determine which one may be right for you. Note: A Rollover IRA is a Traditional IRA often used for rollovers from an old workplace plan, such as a 401(k).




Here's what's different: take a look at the link. posting from work is difficult.

https://www.fidelity.com/retirement...23&gclid=CMHmg8KOk8oCFceCgQodS0IG-Q&gclsrc=ds

 

[jthagreat]

So you plan to get another job after you retire, or do you think your investments will net you more than what you were making while working full time?

I plan to retire retire. you brought up working part time and all that.

Ultimately, the point of a roth ira is to not have your growth (earnings )taxedand pay taxes on the $5500. being taxed on your earnings hinders the compounding interests principle.

 

[capital sb]

Lol they don't even say that roth is after tax and traditional is pre tax.

When the government pushes something heavily I always have to look more in depth.

Here you go straight from the IRS website , and you can find this info on any other site as well.

https://www.irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs
[h1]Traditional and Roth IRAs[/h1]
Traditional and Roth IRAs allow you to save money for retirement. This chart highlights some of their similarities and differences.

Features	Traditional IRA	Roth IRA
Who can contribute?	You can contribute if you (or your spouse if filing jointly) have taxable compensation but not after you are age 70½ or older.	You can contribute at any age if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts (see 2015 and 2016 limits).
Are my contributions deductible?	You can deduct your contributions if you qualify.	Your contributions aren’t deductible.
How much can I contribute?	The most you can contribute to all of your traditional and Roth IRAs is the smaller of: $5,500 (for 2015 and 2016), or $6,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
What is the deadline to make contributions?	Your tax return filing deadline (not including extensions). For example, you have until April 18, 2016, to make your 2015 contribution, but please see IRS Publication 509, Tax Calendars, for how statewide holidays may delay this deadline to April 19, 2016.
When can I withdraw money?	You can withdraw money anytime.
Do I have to take required minimum distributions?	You must start taking distributions by April 1 following the year in which you turn age 70½ and by December 31 of later years.	Not required if you are the original owner.
Are my withdrawals and distributions taxable?	Any deductible contributions and earnings you withdraw or that are distributed from your traditional IRA are taxable. Also, if you are under age 59 ½ you may have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.	None if it’s a qualified distribution (or a withdrawal that is a qualified distribution). Otherwise, part of the distribution or withdrawal may be taxable. If you are under age 59 ½, you may also have to pay an additional 10% tax for early withdrawals unless you qualify for an exception.

 

[Xennial]

retire at 40?  You planning to retire in southeast asia or south america or something?

 

[sundoobie]

@SunDOOBIE
My plan is to invest in rental properties and the market. The market has tripled in value since the crash, I believe.

It seems like people think frugal means to live like you are completely broke, to me it just means to live within my means stay within my budget and not be extremely wasteful.

First let me just say... your posts are very educational because it actually made me think and analyze for a second which is a rarity on NT

Oh I am living frugal and I can understand the strategy would work if you're single but when you have a family and need to pay for summer vacations, soccer cleats, mortgage, utilities, etc.. being frugal goes out the window and that's just real life.

 

[slicknick951]

@SunDOOBIE
My plan is to invest in rental properties and the market. The market has tripled in value since the crash, I believe.

It seems like people think frugal means to live like you are completely broke, to me it just means to live within my means stay within my budget and not be extremely wasteful.

First let me just say... your posts are very educational because it actually made me think and analyze for a second which is a rarity on NT

Oh I am living frugal and I can understand the strategy would work if you're single but when you have a family and need to pay for summer vacations, soccer cleats, mortgage, utilities, etc.. being frugal goes out the window and that's just real life.

Yup so thats why everyone in here that is young you need to save and set yourself up in the best position to be successful before having kids and getting married.

 

[capital sb]

I plan to retire retire. you brought up working part time and all that.

Ultimately, the point of a roth ira is to not have your growth (earnings )taxedand pay taxes on the $5500. being taxed on your earnings hinders the compounding interests principle.

I didn't bring up working part time, you must have seen that in someone else's post. I don't plan on working at all in retirement.

*SIgh* no point in going back and forth really, the information I have posted has been ignored. Everything you are saying has been explained.

Traditional ira to roth ira conversion, recharacterization , backdoor roth, mega backdoor roth (high income earners only) some things people should research.

 

[based mod]

@SunDOOBIE
My plan is to invest in rental properties and the market. The market has tripled in value since the crash, I believe.

It seems like people think frugal means to live like you are completely broke, to me it just means to live within my means stay within my budget and not be extremely wasteful.

First let me just say... your posts are very educational because it actually made me think and analyze for a second which is a rarity on NT

Oh I am living frugal and I can understand the strategy would work if you're single but when you have a family and need to pay for summer vacations, soccer cleats, mortgage, utilities, etc.. being frugal goes out the window and that's just real life.

Truth. Not only will you be spending money for your leisure, but also for your spouse, your kids and grandkids, cousins, nephews & nieces, etc.

$37k isn't getting you anywhere. I mean I'd barely be skirting by with that money now as a single person with no kids who drives a 16 year old Honda Accord and no expensive hobbies.

 

[capital sb]

First let me just say... your posts are very educational because it actually made me think and analyze for a second which is a rarity on NT

Oh I am living frugal and I can understand the strategy would work if you're single but when you have a family and need to pay for summer vacations, soccer cleats, mortgage, utilities, etc.. being frugal goes out the window and that's just real life.

Lol thank you, I am just trying to get people to really take a deeper look into their investment strategies. Make sure what someone has told you about investing is true, and make sure your plan aligns with your goals.

I almost made the mistake of opening a whole life insurance plan paying $350/mo as an investment strategy because my dad told me it was the best way to go.

Did my research and learned that would have been a terrible mistake. He also recommended I invest into my Roth 401k another mistake for me, but it is okay.

I am trying to stick to my plan, hopefully having kids won't throw it off too much

 
retire at 40?  You planning to retire in southeast asia or south america or something?

Nope, here in the DMV.

 

[jthagreat]

 


How can you predict if your income will be lower or higher in the future tho

Very easy, at time of retirement will you be working full time? I assume no, and if you are working full time do you believe you will still be making the same amount or more. I would guess about 90% of people will be making much less in retirement.

I'd much rather pay taxes later on my retirement investments, hopefully pay no taxes at all on my investments at time of withdrawal. When you put money in a roth you have to pay taxes now, which also mean it cost more to max out a roth compared to a traditional ira.

I believe this is where the confusion of working part time/making less come retirement came from.

your posts and what you have posted are not being ignored, I actually have your first article up on both my desktop at home and here at work. I legit don't feel like reading that right now, but intend to when I have the want. I am actually interested in what youre stating cause either my previous way of thinking/reading is flawed (and I would want to correct it.)

I actually had this discussion in class...nvm, Ill read your article. You good people man, like I said, its all love.

 

[slicknick951]

I think the word retire throws people off maybe you should say at the age of 40 you wont be working for someone anymore. Which is my goal at the moment as well.

 

[nrg1604]

After reading that article, there's nothing wrong with that strategy. The basis of it is sound. The issue is in order for that strategy to work, you have to be meticulous in financial planning/budgeting and adhering to the guidelines. It fails to take into account real life situations where unplanned expenses, stock markets performance, family expenses are concern. But if you can live exactly like he wrote it up, don't see how it wouldn't work. I just don't see myself being able to live off 18k a year or retiring at 40 to live with that type of return. Doesn't leave a lot for starting a family, owning a good home, exploring the world. Cost benefit of earned income/life experience you're surrendering to save on tax differences between Roth and traditional makes it an easy decision for me.

 

[capital sb]

I think the word retire throws people off maybe you should say at the age of 40 you wont be working for someone anymore. Which is my goal at the moment as well.

Yes, financially independent. That is also my goal.

I believe this is where the confusion of working part time/making less come retirement came from.

your posts and what you have posted are not being ignored, I actually have your first article up on both my desktop at home and here at work. I legit don't feel like reading that right now, but intend to when I have the want. I am actually interested in what youre stating cause either my previous way of thinking/reading is flawed (and I would want to correct it.)

I actually had this discussion in class...nvm, Ill read your article. You good people man, like I said, its all love.

You good people too man, just do some research and then lets talk about it.

If you look at the articles I posted don't take the examples too literal. People got caught up on the 18K/yr spending then ignored the fact that two people with the same exact income, same exact investment time frame, and the same investments had very different account outcomes by the age 40. Proof is in the numbers (graph as well).

@nrg1604 ignore the 18K/yr spending. It is extreme, if he bumped up the salaries and the spending levels you would still get the same outcome.

 

[capital sb]

If you have a time take a look at real life experiment that The MadFIentist is doing. He applies advanced tax strategies to one account, and taxable investment strategies to another account. It is very interesting IMO if you want to see the difference in portfolio size/outcome.
[h1]Guinea Pig Experiment[/h1][h2]Normal Scenario[/h2][h2]Optimized Scenario[/h2][h1]Net Worth Values[/h1]

• Normal Scenario: $60,324
• Optimized Scenario: $79,115

 

[pdino]

I'll try to clear it up: beezy is going to invest in a traditional and recharacterize (funnel it slowly) to a Roth IRA because in retirement she plans to be not making money anymore through her full time job and will be retired. Here's an example with easy numbers : makes 100k a year the year before she retires, 33% tax bracket (currently).

She retires the next year and is no longer working. With no income and just investments she "makes" 20k in through investments and funnels 10k per year of retirement from traditional to Roth. This additional 10k puts her at 30k and the 15% tax bracket. Meanwhile if you put into a Roth you were taxed at most likely 25% or 33%.

However, it isn't sound in several scenarios. One example is my pops, worked for the government for most of his life, got six-figure pension. This strategy would just add 10k to his 100k+ salary, getting him taxed more.

The other worry is that tax rates will be substantially higher in the future, 20 years from now, they can be significantly different. Tax rates historically have been getting higher and higher.

 

[CrownRoyalDaddy]

Would you be able to convince your girl to wait a year that way you can knock out all of your debt this year (im not sure how much you have). Then next year reallocate the money you were using to knock out your debt to save for a down payment for something to buy.

If i could go back to a couple years ago I would have never left my parents house without buying something first. I wasted 4 years paying rent to realize that renting just isn't for me.

If you feel you have to get out by September don't over extend yourself and pay a lot for rent. Get something that is comfortable but don't over pay because in the end you want financial freedom to use your money on things that you choose to.

I should be able to be free of CC debt within 6 months, so that part wont be an issue. Convincing her to wait till around that time was hard as it is lol shes miserable where shes at now.

Was pretty much in the same position as you last year (even down to the age. ) I can't really tell you what I did because I'm still in the process of doing it, but some things for you to consider:

1. Be honest with yourself about your girl. We are both at that age where we have two, maybe three years before we have to decide whether or not they'll be our wives or remain girlfriends. They know this, and regardless of how much she tells you that she won't pressure you into marriage, that is going to be an expectation. If you aren't absolutely certain that she's wife material, you need to start planning for that financially. Having a woman in your life will impact you financially, and it can result in a net loss or a net gain. Be real about it and figure that cost into your budgets.

2. Consider staying at home. My mom and I don't have the best relationship, so staying with her isn't really an option for me. Had it been, I would still be living there and stacking my money. I know the social pressure is telling you that you needed to move years ago, but a LOT of people our age are living at home. Why not knock some debt out of the way and have a 10-15K savings before you move out?

3. Consider buying. Instead of moving into a different rental at the end of my last lease, I decided it'd be better for me to own a home. Depending on your CC debt and savings it might be a stretch, but its worth thinking about. I was paying $1075 to rent a 800 sq ft apartment, not including utilities. My mortgage is $1030, and that includes some other bills. Its nearly $50/mo cheaper for me to own, and I have the added benefit of building equity.

4. Stop putting your lifestyle ahead of your goals. You said in your post that you should have a savings, but instead you have debt. That $50 you dropped at the bar adds up. Add it to the $20 you spent on assorted snacks, the $40 you spent getting fast food, and the $60 you spent on clothes in the last week and you have $170 of money you didn't need to spend. Try to identify all the little ways you leak cash, then limit them. It'll help you save, both now and 15 years from now.

1. Might sound crazy to a lot of the older guys, but im 98% sure shes wife material. Good girls are hard to find these days lol

2. I'd be fine stsying at home even though, like you said, i feel like i probably shouldve moved out already. My girl cant take it where shes at any more though. Her mom moved to florida when she turned 18 and left her out to dry living with her crazy *** sister snd brother in law. They treat her like ****.

3. We kind of feel like its best to rent first. Neither of us have lived on our own and the extra costs and emergencies that come with a house arent something im sure were ready for at this point. She just got a half decent job and in a year or two she should be doing a lot better for herself. Id love to buy and know it would be smart in a way, but its risky. Plus its hard to find something in a nice area for an affordable price around here.

4. This is very true and was my biggest problem. I was buying **** for my car, a crazy amount of eating out, etc etc. but 2016 is my year. Ive already set a strict budget for myself.

Repped both of you

 

[capital sb]

I'll try to clear it up: beezy is going to invest in a traditional and recharacterize (funnel it slowly) to a Roth IRA because in retirement she plans to be not making money anymore through her full time job and will be retired. Here's an example with easy numbers : makes 100k a year the year before she retires, 33% tax bracket (currently).

She retires the next year and is no longer working. With no income and just investments she "makes" 20k in through investments and funnels 10k per year of retirement from traditional to Roth. This additional 10k puts her at 30k and the 15% tax bracket. Meanwhile if you put into a Roth you were taxed at most likely 25% or 33%.

However, it isn't sound in several scenarios. One example is my pops, worked for the government for most of his life, got six-figure pension. This strategy would just add 10k to his 100k+ salary, getting him taxed more.

The other worry is that tax rates will be substantially higher in the future, 20 years from now, they can be significantly different. Tax rates historically have been getting higher and higher.

I would pay $0 in taxes on investment income at the 15% tax bracket as long as I make under $72,500 in investment income (married filing status). First 20K is tax free due to the married filing $12,200 standard deduction and personal exemptions of $7,800. So I could pull in 90K from investments and still pay $0 in taxes.

Thank you for simplifying it, I just directed people to the articles to learn about it for themselves if interested.