My Bit of Financial Advice

I spent most of my working teenage and young adult life in poverty and in debt. (Ages 16-32).

Take this advice or leave it. I don't care. I'm not going to argue. I've done financial STUPID. I have a Master's in DUMB from the walk of life.

But I learned from it. I'm still paying for my mistakes but I've minimized their impact.

And yes, I follow the Dave Ramsey method for those wondering.

If you're financially well off and out of debt, this isn't for you. You're in a different ballpark. Carry on.

This is for those struggling and living paycheck to paycheck and looking for way to stop the pain and get out of debt and the end of car payments, credit cards and financing junk.

My advice is this.

Baby Step 1
Save up $1,000 for your starter emergency fund.


Baby Step 2
If you have debt, clean it up NOW. Debt snowball it.
https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works


(If you want to do the Debt Avalanche, fine. Just pick one and stick with it. I personally found the Debt Snowball gave a better emotional gain and reward and motivated me to keep going better than the Debt Avalanche. Either one works).


Baby Step 3
Now that you're debt free, Save up your full emergency fund of 6 mos expenses. This is 6 mos of housing, health/car insurance, gas, food, utilities, cell phone, internet. Typically $25K - $30K for the average American. May be higher or lower depending on your monthly expenses.

Guys and gals...this is your EMERGENCY FUND. Not a down payment on a car, or to borrow from to buy furniture or junk with! It's not for tires or brakes. You should be budgeting typical car maintenance.

Emergency = The heater goes out, the water heater bursts, or you get a crack in the foundation. The transmission suddenly goes out. You get a hole in the roof.

Pause what you're doing, take care of the emergency, then REPLENISH THE EMERGENCY FUND. Then resume where you were.


Baby Step 4
Once you have your Fully Funded Emergency Fund, put 10% to your 401K. Take the match and/or ROTH OPTION if available. Put 5% to a ROTH IRA.


Baby Step 5
Open a 529 for the kids college. If you dont have kids, its ok to still do this. If you dont plan to ever have then, skip this step.


Baby Step 6
Payoff the house! Here's how in less than 10 years.

Call your lender, ask what you need to do to get on bi-weekly payments. Make sure they don’t charge any extra fees to do bi-weekly though.

Usually you pay your current payment plus one more up front, then it gets deducted from your account every other Friday. But it saves you tens of thousands of dollars in interest.

https://www.nerdwallet.com/article/mortgages/should-you-make-biweekly-mortgage-payments

- Pay one extra full payment to principal at the end of every December.

- This part you will have to calculate. I divided my home loan balance by 120 payments. (10 years).

My payment is $1,415 a month. I owe $280K. $280,000 \ 120 months (10 years) = $2,333.33 a month. So I would make $1415.00 to the loan plus the difference ($2,333.33 - $1,415.00) = $918.333 to principal every month. Just this part will pay your home off in 10 years.

Doing all three of these will payoff your mortgage in less than 7 years.


Baby Step 7
Now you're debt free...max out your 401K retirement and IRA annually.

Invest in mutual funds. There's 4 kinds.

Growth, Growth and Income, Aggressive Growth and International. 25% to each. Mixed bag.

You can also save up for a second home and property. A beach house. A mountain cabin. Whatever. Just pay cash.


Good luck. That is all.

 

Solid advice.

 

Decent advice-my only caveat is low interest rate home loan be not necessarily in a rush to pay it off. Luck/timing involved but I agree paying debt - especially consumer debt should be high priority

Our home loan is sub 3% our payment is close to $2000. I could pay it off easily but that cash account earns $4000-$6000 depending on what dividends come in that month. It’s a little more complex than that because I could be saving and investing the $2K payment but you get the point.


The most important thing in all this is always always always PAY YOURSELF FIRST. Your savings is the most nasty bill you have. Do not play mental games or give in. Just start at 10% with a goal of growing your savings to at least 25% of every dollar that comes in. Increase it gradually if need be. Save all windfalls. Use autodeduction and it will be less painful and soon you will feel really good about it, as it should be.

 

https://www.youtube.com/watch?v=aeeZ_iIQG8Y

https://www.youtube.com/watch?v=pSlB5yAHDHs

https://www.ramseysolutions.com/taxes/mortgage-interest-deduction

 

I would add that instead of tackling smallest debt, tackle the debt taken out at the highest rate(s), and pay those down first. If you CAN take advantage of moving Debt A at Rate A to a lower rate, do it. But make sure it makes sense to do so. The fee to move needs to be less than you'd save in interest over the term.

I am WAY ahead on my truck loan, but stopped making payments when my money market's interest rate went higher than the loan on the truck.

Agreed.

Pay cash when you can. Some places will actually give you a cash discount, and this will save you money when it comes to the "average daily balance including new purchases" needs to be calculated. You NEVER want to put things on a credit card that is carrying a balance, since you'll always be paying interest from day one.

 

I actually agree just for the tax deduction makes no sense. But if you are far enough along in life and saving and you are in a low then raising rate environment it CAN make sense

 

nope.

https://www.youtube.com/watch?v=aFhhpahqDx8

 

Paid off my house at 45, dumping $50k of the remaining balance...
Low interest rate so at that point write-offs didnt help my tax scenario.
My financial adviser said pay it off instead of investing the money, best thing ive done...
I was all about investing that money & making it grow.
I invest everything, I dont have an "emergency fund"......
Not having a mortgage trumps any other scenario, atleast in my opinion.
My interest rate was also no more than 3%....

 

Oddly I said nothing about taxes. If anything the new standard deduction makes it even more moot. But for me personally it makes more sense. If rates drop again maybe it won’t make sense.

I knew I would get some pushback on this. That is ok. The comfort factor is huge no doubt about that.

I just enjoy the leverage and the new senior deduction will make it even better. See now I mentioned taxes. Ha!

 

Heres a story im quiet proud of....
As a teen I blew money on cars...
Dad would bitch at me, save your money, youre being stupid, etc...
"Dad, you dont know what youre talking about" was always my response...
They were immigrants from Italy, lived paycheck to paycheck but they did what they can & hard working.

Needless to say, Ive turned into my fathers son, & then some...

When I started my career at the dealer 3 old guys pulled me aside like the first month I was there, they saw how driven I was...
Save your money, there will be no ss when were old, invest now, nobody is going to take care of us broken mechanics when were old, etc...

I was mesmorized by this "invest" concept....
so at 19 im dumping money in 401k,
went to my tax guy cpa back then that majority of the guys at the shop used, still my tax guy & financial adviser today, started a Roth IRA auto withdraw from my checking account $250 a month...
Ide consistently get atleast $8500 back in tax returns & that would always get invested in a cash investement accounts...
As time went on the 401k went from 5% where I started to 27%, by say sept / October I was maxed for the year & getting full checks...
As time went on, I pretty much stopped holding an emergency fund, everything went into the market in one way or another....
AT some point I had a ridiculous amount of vacation time accrued & the dealer owner changed policies & could no longer accumulate more than 3 weeks vacation & he paid everyone out...
I had $20k in vacation time, I was able to roll that over it into a fund instead of paying taxes on it & getting peanuts in return like everyone else at the shop opted for "shopping spree".....
After I paid my house off, that $2k a month I was putting toward the mortgage, went into the market...
Im 52 now, never once bailed the market with all the ups & downs, youre foolish if you try to time the market...
went through my share of recessions, stayed the coarse...
Dollar cost averaging & compounding interest is an amazing snowball effect you dont want to stop.....

Needless to say at 52 im way better off than those guys that were my mentors & got my journey started to "fuck you" money & theyre far older than me 65-70 now, or even when they were my age....

Im passionate about not having to work forever, financial freedom, telling your pee-on clueless manager to pound sand....
Did it all as a blue collar slave.....

I was able to turn that plan into a reality & opted to say "fuck you"......


4 years later & theyre still struggling to replace me with someone that has a clue, work ethic, experience, knowledge, someone that they actually want to stick around & makes a difference...
Im not tooting my own horn here, times have changed im sure...

 

Nothing wrong with your plan, this has been debated for ages...
I just know for me, I wanted to be mortgage free & with all the standard deduction bs going on, it no longer made financial sense to keep the mortgage going...
Ive always paid an extra $700-1500 a month, I wanted it done....
Part of the long term goal & plan..

 

Excellent

Same for me saving and investing

Maybe it became an addiction but I am also proud I did this working my ass off and wife could watch kids. When they got older she went back to work and rather than getting a bigger house and buying more junk we did pay that house off and still saved her salary plus.

When retired and moved during covid, rates were stupid low. Don’t get me wrong I knew when rates started rising again I needed to be very careful where I invested. Some municipal bonds really took a hit, but held and holding to maturity no issue. MMS and T bills and a cadre of of other funds and the income remains even above what I anticipated and taxes fine.

But back to the core of the advice. Young guys need to learn to not save anything left over. Because there is never anything left over! Your largest bill will always be paying yourself! It has to be.

 

Ough, its an addiction for sure...
The rich get rich by not spending...


I know a service adviser makes a killing.....
$250k a year, lives paycheck to paycheck, contributes the bare minimum to 401k, we have NEVER got a match....
He has alot of really fancy toys though, college isnt in the cards for his kids....

Time & consistency is your only hope & if you blow that, youre fucked!!!!!
Thats the truth...

 

I think funding a company provided 401k is highly conditional.

Some companies plans are dog shit.

0% match or situational match.
Poor preforming allocations. (We have some through our company with a 15 year rate of return sub 3%).
Extremely high management fees.
Etc.

Some people would be better off fully self funding a personal plan than contributing to a shit employer provided plan.

Still fully agree that saving and compounding growth is second to none.

 

I disagree with your "Nope."

The video explains the dilemma that some people experience when attempting to pay-down debt - they take out a personal loan or a HELOC at a lower rate, pay off the credit cards, and then they run up balances on the credit card again. This is what I believe was the main point of that video.

My point about paying off high-rate debt first is that you only have so much money each month to pay off debt. It's in your best interest (pun intended) to reduce interest costs, and use the money you save each month to pay down other principal. Pay off the highest rate stuff, first, then work your way down. That minimizes your interest costs.

If you can't stop / control spending, you're sure remain in debt.

 

One thing you cannot get back is time. Always defer enough to get the full match from your employer. Don't choose trendy investments. Invest in an index fund that mimics say the NASDAQ or S&P500. You goal is to mimic the overall market. If your employer doesn't match, or offers crap in way of investment vehicles (i.e. - funds from which to choose), go the IRA route.

 

I highly advise a good retirement. Absolutely THE BEST time of my life. The only thing that slowed me down is when I blew a hernia. Takes like two months to get healed up after "the patch". Sucked. Don't get a hernia. Hahahahaha

Here’s another tidbit- may need it's own thread. Runs counter to purchases mentioned above given (GOOD ADVICE) for purchases while young (use cash when possible)

Retirement income and spending is not at all what I expected. I thought, oh I will get some income from various sources, save first then live etc

No, it's different. Start with spending. Yeah I know! We buy almost, if not everything using two cards. Fidelity Elan or Costco Visas. Yes we get generous cash back, but don't use that as a driver to buy and yes I ask for certain things if cash price is lower! Of course we pay the balance EVERY MONTH. You shouldn't even be reading this if you don't do that. We easily have enough in the accounts to pay the cards off, just from interest.

Point is, we are not even spending the income from both our SS, pensions, gig jobs, etc that I thought would absolutely be necessary. So we save(d) that. Bought a new van and having it converted, $$$$$.

It's kinda sorta the opposite of when we were working.

 

My former employer did offer a very good 401K however the "company match" was
(sit down )...

1/10 of 1%.

No, that is not a typo.

Yes folks, they "contributed" 10 cents for every 100 dollars I put in.

Great people to work for...
I don't miss them at all.

 

Wow