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Posted: 2/13/2006 3:51:28 AM EDT
[Last Edit: 2/13/2006 3:53:07 AM EDT by corwin1968]
The following situation is hypothetical but could become reality around 2 years from now.

Current salary is in the low 40's with very little yearly increase.

Student loan debt in the low 70's at 5.25% (will likely drop to 4.0% in five years) fixed rate for 30 years.

No mortgage yet but likely will be a 30 year note in the $70,000-120,000 range.

Retirement plan so far consists solely of employer's retirement plan which is decent but not great.


If an extra $10,000 per year (before taxes) paid once a year in a lump sum is available for seven consecutive years where should the money be spent? Why?

Link Posted: 2/13/2006 3:55:54 AM EDT

Originally Posted By corwin1968:
Current salary is in the low 40's with very little yearly increase.


Buy a suit, hit the pavement, and find a better paying job. You'll be in debt forever if you have 200K in long term debt and only make 40K in salary.
Link Posted: 2/13/2006 3:58:17 AM EDT
[Last Edit: 2/13/2006 3:59:14 AM EDT by Oslow]

Originally Posted By TheCynic:

Originally Posted By corwin1968:
Current salary is in the low 40's with very little yearly increase.


Buy a suit, hit the pavement, and find a better paying job. You'll be in debt forever if you have 200K in long term debt and only make 40K in salary.




Ouch


reality check
Link Posted: 2/13/2006 4:08:41 AM EDT
I'm in a similar situation, but I don't have as much debt.

A make about $50, have $17 in student loans, and About $70 in condo debt.

I'm paying off my condo in additional payments until I don't have to pay mortgage insurance anymore (about another 6 months). Then I will be saving to buy another house. Real-estate goes up in value about 10% a year. Few investment portfolios do that well. Some do, but you can't rely on it.

My condo has gone up in value at least $25,000, since I purchased it in August '05. I could turn around tomorrow and rent it, covering my entire mortgage and getting a couple of hundred extra each month. I plan on rental properties being my retirement.
Link Posted: 2/13/2006 4:24:35 AM EDT

Originally Posted By TheCynic:

Originally Posted By corwin1968:
Current salary is in the low 40's with very little yearly increase.


Buy a suit, hit the pavement, and find a better paying job. You'll be in debt forever if you have 200K in long term debt and only make 40K in salary.



I've pretty much accepted the fact that I'll always have debt. I'm not counting potential spousal income but if I marry the current missus the income will almost double.
Link Posted: 2/13/2006 4:34:50 AM EDT
Invest the $10k. Consider your mortgage as an investment payment as owning your own home is one of the best investments you can make. If you put away $10k a year in savings and didn't even invest it, but kept it in a savings a count or a CD you would have millions set aside by the time of retirment thanks to compound intrest. If I were you I would shop around for a good financial advisor. Personally I would slit it put some into a general savings around/money market, rotate some in CD's and the rest in corporate bonds/mutual funds and individual stocks.. You do it right you will be one of those people retired at age 60 driving a nice $60k luxury car living in some retirement comunity in Florida.

You don't have to have a huge salary to become wealthy. Save money, cut spending and make smart investments.
Link Posted: 2/13/2006 5:13:30 AM EDT
Invest it.

Your mortgage and student loans (assuming you make less than the max allowed by law) are usually tax-deductible. On an after-tax basis, you're probably not paying more than 3% on those student loans (after it drops to 4% as you said). With your mortgage, if you get a 30 year fixed at 6%, your cost is probably 4% or less. You will not likely see money purchased this cheaply in any other medium.

In general, you will make more money by taking the difference (i.e. the extra you would have used to pay down your debt) and investing it.

In fact, Ric Edelman, in his book "The New Rules of Money" says that no one ever got rich by paying off their mortgage.
Link Posted: 2/13/2006 6:21:33 AM EDT
If your financial plan includes paying off your student loans over the course of 30 years, you need a new financial plan.

Do you really want to be paying for college in 2035? By then, you'll probably have kids that've gone off to college themselves, gotten married, and had their own children.

I would set aside a $1,500 "emergency fund," and drop the remainder on the principal of whichever loan has the highest interest rate. Get that debt paid off and then start investing. Make interest work for you, not against you.

-James
Link Posted: 2/13/2006 6:28:30 AM EDT

Originally Posted By jthuang:
Invest it.

Your mortgage and student loans (assuming you make less than the max allowed by law) are usually tax-deductible. On an after-tax basis, you're probably not paying more than 3% on those student loans (after it drops to 4% as you said). With your mortgage, if you get a 30 year fixed at 6%, your cost is probably 4% or less. You will not likely see money purchased this cheaply in any other medium.

In general, you will make more money by taking the difference (i.e. the extra you would have used to pay down your debt) and investing it.

In fact, Ric Edelman, in his book "The New Rules of Money" says that no one ever got rich by paying off their mortgage.



This is the correct answer.
Link Posted: 2/13/2006 6:38:07 AM EDT
[Last Edit: 2/13/2006 6:38:25 AM EDT by macman37]
1: Get debt free or as close to it as possible (it's tough to get away from car and house, insurance payments...)

2: Set yourself up for retirement.

3: Research and buy a battery of firearms with all that goes with it... Spare parts, mags, and ammo. Ammo carriers and whatnot as well.

This is if you're not concerned with survival. If you were, then I'd intersperse things like "buying water and food and plan on survival shelter etc." in between all the above.
Link Posted: 2/13/2006 6:40:12 AM EDT

Originally Posted By corwin1968:
The following situation is hypothetical but could become reality around 2 years from now.

Current salary is in the low 40's with very little yearly increase.

Student loan debt in the low 70's at 5.25% (will likely drop to 4.0% in five years) fixed rate for 30 years.

No mortgage yet but likely will be a 30 year note in the $70,000-120,000 range.

Retirement plan so far consists solely of employer's retirement plan which is decent but not great.


If an extra $10,000 per year (before taxes) paid once a year in a lump sum is available for seven consecutive years where should the money be spent? Why?




I haven't read the rest of the posters yet, but here is my advice:

1. If you employeer has a 401K and matches, you should put the max in that the employeer will match. It's free money. My employeer matches 50% of the first 6%.
2. You need an emergency fund of 3 months of expenses.
3. Then open a Roth IRA and contribut the max you can. Fidelity can open an account for you at $0. It will give you over 700 mutual fund choices. The max this year is $4k.
4. If there is any left, split it between the 401k and non-retirement savings.
Link Posted: 2/13/2006 6:42:22 AM EDT

Originally Posted By corwin1968:

Originally Posted By TheCynic:

Originally Posted By corwin1968:
Current salary is in the low 40's with very little yearly increase.


Buy a suit, hit the pavement, and find a better paying job. You'll be in debt forever if you have 200K in long term debt and only make 40K in salary.



I've pretty much accepted the fact that I'll always have debt. I'm not counting potential spousal income but if I marry the current missus the income will almost double.



Read two books with conflicting advice:

1. Ric Edelman's newest book
2. Life or Debt

Then read:
The Millionaire Next Door
Link Posted: 2/13/2006 6:44:50 AM EDT

Originally Posted By macman37:
1: Get debt free or as close to it as possible (it's tough to get away from car and house, insurance payments...)

2: Set yourself up for retirement.

3: Research and buy a battery of firearms with all that goes with it... Spare parts, mags, and ammo. Ammo carriers and whatnot as well.

This is if you're not concerned with survival. If you were, then I'd intersperse things like "buying water and food and plan on survival shelter etc." in between all the above.



Swap 1 and 2.
Link Posted: 2/13/2006 6:46:59 AM EDT
Link Posted: 2/13/2006 6:54:08 AM EDT
Time is either your frind or enemy for retirement. If you are young and save alot early you will be MUCU MUCH better off than someone who is mid aged and just starts and saves a TON. To see my example read the free articles on Fool.com

Link Posted: 2/13/2006 6:55:32 AM EDT
1.)buy a cheaper house then you qualify for.

2.)buy good used cars.

3.)stop eating out as much.

4.)the mentality of "but I deserve it" gets you into a big hole.

5.)marry someone who makes more than you.

you can ignore the above advice if you get hooked up with an mature, wealthy lady
Link Posted: 2/13/2006 6:58:54 AM EDT
Buy ammo
Link Posted: 2/13/2006 6:59:05 AM EDT

Originally Posted By Q3131A:

Originally Posted By macman37:
1: Get debt free or as close to it as possible (it's tough to get away from car and house, insurance payments...)

2: Set yourself up for retirement.

3: Research and buy a battery of firearms with all that goes with it... Spare parts, mags, and ammo. Ammo carriers and whatnot as well.

This is if you're not concerned with survival. If you were, then I'd intersperse things like "buying water and food and plan on survival shelter etc." in between all the above.



Swap 1 and 2.



'least I was close
Link Posted: 2/13/2006 7:00:01 AM EDT
[Last Edit: 2/13/2006 7:01:44 AM EDT by corwin1968]

Originally Posted By Meta4:
If your financial plan includes paying off your student loans over the course of 30 years, you need a new financial plan.



Unfortunately, I don't have a financial plan.

But I'm working on it and I know there are plenty of financial savy posters here from whom I can learn some basic principles and get some good book recommendations.

I'm very interested in what people recommend I do with this extra income but I'm even more interested in WHY?

Link Posted: 2/13/2006 7:00:35 AM EDT
[Last Edit: 2/13/2006 7:02:49 AM EDT by BigAKFan]
www.mortgages.interest.com/content/calculators/compoundmonthly.asp

Money will double every 7 years at 10%. If you have $100,000 and it gets 10% interest at:

25 years: 1.2 million

30 years: 1.98 million

35 years: 3.26 million

40 years: 5.37 million

This is just an example of how your interest will compound over time. When saving money, time is your friend.I would say get your money in a good mutual fund. I would also say pay off that student loan. You will feel much better out of debt. BigAKFan
Link Posted: 2/13/2006 7:26:54 AM EDT

Originally Posted By Tactical_Jew:
1.)buy a cheaper house then you qualify for.

2.)buy good used cars.

3.)stop eating out!.

4.)the mentality of "but I deserve it" gets you into a big hole. Only buy items that apprieciate in value

5.)marry someone who makes more than you.
this used to be womens ploybut works for us guys now also.Why marry someone thats a constantly a debit?

you can ignore the above advice if you get hooked up with an mature, wealthy lady

YEP!
Link Posted: 2/13/2006 7:35:38 AM EDT
Hookers and blow.
Link Posted: 2/13/2006 7:43:15 AM EDT
[Last Edit: 2/13/2006 7:44:31 AM EDT by Q3131A]

Originally Posted By Meta4:
If your financial plan includes paying off your student loans over the course of 30 years, you need a new financial plan.


I completely disagree. Don't use after tax money to pay off tax deductable debt.


Do you really want to be paying for college in 2035? By then, you'll probably have kids that've gone off to college themselves, gotten married, and had their own children.

Absolutely! Let's say his payment is $200 per month. That payment will be fixed. It is budgetable, deductable and easy to make. As inflation rises and his income increases, the payment will be even easier to make. The $200 a month in 2035 will probably be less than his cable is today.

By paying off his student loan today, he has a large opportunity cost. Invest today's dollars to take advantage of compound interest. The $200 in extra payment today could be over $10k in 30 years.


I would set aside a $1,500 "emergency fund," and drop the remainder on the principal of whichever loan has the highest interest rate. Get that debt paid off and then start investing. Make interest work for you, not against you.
-James


Student loans and Mortgage are not bad debt. Credit card, car, boat etc debt are bad debt. The emergency fund should be 3 months of expenses.

1. Free money from employeer matched 401k
2. Make an emergency fund
3. Invest in Roth IRA
4. Pay off bad debt
5. Invest for retirement and non-retirement
6. Pay off good debt on a the regular schedule
Link Posted: 2/13/2006 7:53:55 AM EDT

Originally Posted By Tactical_Jew:
1.)buy a cheaper house then you qualify for.


I disagree. Buy the biggest house you can when you are young. It's easy to be house poor when you are in your 20s without kids.


2.)buy good used cars.

Absolutely! NEVER buy a new car or boat.


3.)stop eating out as much.

Take the money you would have spent and put it in the emergency fund. It is surprising how much money you can save by eating in and extra meal or two a week.


4.)the mentality of "but I deserve it" gets you into a big hole.

Yep.


5.)marry someone who makes more than you.

No. Marry someone who spends less than you.


you can ignore the above advice if you get hooked up with an mature, wealthy lady

Link Posted: 2/13/2006 7:57:26 AM EDT

Originally Posted By Q3131A:
I completely disagree. Don't use after tax money to pay off tax deductable debt.



+1 ... student loan interest, IF IT IS DEDUCTIBLE (if you make too much $ then it is not!) should be treated like mortgage debt. Pay it off, on schedule ... and take the "extra" and invest it! I made that mistake in the late 1990s when I was paying off my mountain of law school debt ... could have invested in the stock market and came out a rich man during the dot com boom.

Also, +1 on the emergency fund. You never know when something in your home will break (e.g. water heater, dishwasher, etc.) or somebody plows into your car, or you just need $500 really quickly. Without a stable, liquid emergency fund you're not gonna be happy. Sock away 3-6 months worth of expenses into a money market fund and you'll be set.
Link Posted: 2/13/2006 1:40:11 PM EDT

Originally Posted By Tactical_Jew:

2.)buy good used cars.

3.)stop eating out as much.

4.)the mentality of "but I deserve it" gets you into a big hole.



Great advice here. I have a bad habit of eating out. I went 3 weeks cooking all my meals at home eating leftovers and brown bagging it. I ended up with$245 MORE money. Cars are nothing but status symbols. By something good and reliable. Not something to show off to your friends (thats what guns are for)
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