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'13 money lies you should stop telling yourself by age 30'

Discussion in 'Anything goes' started by Dick Whitman, Jan 10, 2013.

  1. Dick Whitman

    Dick Whitman Well-Known Member

    I think this is a really good, breezy piece from Yahoo Finance that makes some great points.


    No. 1 is inapplicable to most people in this field - we have the opposite problem in our 20s. But I think everyone should take No. 2 to heart big-time, because I know that I was extremely, extremely guilty of it:

    2. If I turn a blind eye, somehow my finances will figure themselves out.

    The worst thing I did in my early 20s was ignore financial red flags when I saw them.

    I didn't check my bank account for fear of how low the number would be; I left my credit report untouched for five years; and I didn't realize my first job even offered a matching 401(k) until I quit because I stuffed that folder in my desk and never looked at it.

    Look: If you're broke, you might as well know it and own it. It's the only way you'll ever truly be able to do something about it.
  2. LongTimeListener

    LongTimeListener Well-Known Member

    This is a sub-part of 2: I didn't realize my first job even offered a matching 401(k) until I quit because I stuffed that folder in my desk and never looked at it.

    I have made more than my share of mistakes in the area of money -- most of them involving Vegas. One thing I did right, though, is start putting as much as I possibly could into my 401k when I was 22 years old. That single decision accounts entirely for my optimistic financial outlook 20 years later.

    Do it. Do it now. Your life will form around the lower income you make. And don't even think you're going to start saving for retirement once your kids arrive and you're staring at college. By then your life will form to the money you have coming in and it's going to feel like you're robbing yourself if you do start.

    I would also add:

    14. I can beat the market.

    Don't invest in stocks and get lured by the stories you hear about investments doubling and tripling. Pick a clean, boring mutual fund and take your 9 percent average.
  3. Versatile

    Versatile Active Member

    We've had threads on this, but I still don't understand 401K. Here's where I fall flat: I still have college loans, which are large enough that they may last until my mid- to late 30s. Those loans accrue interest. Shouldn't I be using my extra money to pay those off rather than put aside for the future?

    This is the important caveat: I try to approach life realistically, and every man in my family, on both sides, has died before hitting 70. Moreover, 40 years from now, the standard retirement age is going to be 75. Why should I be saving and planning life after retirement, which I don't honestly expect to have?

    My credit score is fine. I pay off extra on my loans. I am done with car payments. I don't spend frivolously. I don't see the point in planning for the future, though, at the expense of whittling down that debt as fast as possible.

    Also, I think it's bullshit this article was written by someone who isn't even 30.
  4. imjustagirl

    imjustagirl Active Member

    "13 Money Lies ..."

    9. I can still afford to eat like I'm 16.

    Uh ... what?
  5. I'm guessing if you're a fat ass like me who was awfully skinny at 16 means you're going to be spending a lot of money dealing with health problems down the line.
  6. imjustagirl

    imjustagirl Active Member

    I guess, but that's not really what the writeup entailed. More like just "Your metabolism slows down, so watch what you eat!"
  7. LongTimeListener

    LongTimeListener Well-Known Member

    Student loans typically have a pretty low rate, don't they? I haven't dealt with them in at least 10 years, but when I had them I was paying well below 5 percent. And at that time, 401k investments were making a solid 8-12 percent. (Highly subject to change.) There's also a big tax advantage to going the 401k route.

    The old adage is the one thing you can't get a loan for is retirement. Your kids can get student loans and when they're young adults they can get a mortgage or money to start a small business or whatever, but so many people seem to put college and other kid-related savings ahead of retirement.
  8. Versatile

    Versatile Active Member

    I think it was all the filet mignon and caviar the author was eating at 16.
  9. The Big Ragu

    The Big Ragu Moderator Staff Member

    The answer to this kind of question is a giant, "It depends." And it's not the simple answer most people want.

    You have to sit down with a pen and paper and do an analysis to figure out the answer -- given your circumstances.

    The right way to approach money, in my opinion, is in terms of opportunity cost. I have a dollar in my pocket. What is the best way to 1) preserve its value, and 2) grow it? I constantly do this in life. ... to the point where prior to the financial meltdown, I borrowed $25,000 from a credit card, because they gave me an extended rate of 1.99 percent for cash on the card, and I knew I could get a greater return than 1.99 percent annually putting that money to work.

    The biggest benefit of a 401(k) is that it reduces your taxable income. A side benefit, depending on your company's program, might be that it provides matching contributions -- which is free money. The unknown of a 401(k) is what kind of return you are going to earn on your money. That will be depend on the offerings (some plans have sucky offerings) and the way you allocate your contributions. The biggest negative of the 401(k) is that the money is meant only for retirement and there are severe penalties for early withdrawal. You can keep growing the money, but putting it toward the 401(k) limits your use of it until you are a certain age.

    The biggest negative of your student loans, obviously, is that you are paying interest on them.

    What you need to do is sit down with a pen and paper and using reasonable estimates, try to figure out your expected return from your 401(k) over the life of your student loan. The parameters for the 401(K) are: 1) A reasonable rate of return, say 5 percent annualized if you have at least 5 to 10 years of paying back your student loans. 2) Based on your income, how much of a return (money right back into your pocket) you will be getting from tax savings. 3) If there is a matching program, how much the "free money" adds to your expected return (except that this is guaranteed return).

    When you do that, if you can reasonably expect to earn a greater return on your 401(k) -- and it shouldn't be negligible -- than the interest you pay on your loans (based on your payment schedule), you will be ahead monetarily by putting more money toward the 401(k) and taking your time paying off the loans.

    Then the only question left is. ... you won't be able to touch the 401(k) money until you are 59 1/2 without a penalty. How much do you discount the monetary benefit based on the fact that your money will be locked up that way?
  10. KJIM

    KJIM Well-Known Member

    10. I can still pull off the outfits I wore in college.

    Also not too closely related to the topic, at least as written.

    I also never considered marriage to be a "money decision."
  11. Versatile

    Versatile Active Member

    LongTimeListener and The Big Ragu, I appreciate the advice, but you haven't factored in the part about why I should be planning for a retirement that I honestly don't expect to have.
  12. LongTimeListener

    LongTimeListener Well-Known Member

    I had totally forgotten that this was the biggest incentive to me getting into 401k early. But, especially in journalism, this is a thing of the past anyway.

    There is a way to do this for college expenses, which would be most people's #1 concern. If you ever leave the company and roll it into an IRA, you can withdraw the money for qualified college expenses (which is really just about anything except beer money) for yourself, a spouse, a child or a grandchild. You'd have to pay taxes in your normal income bracket, as you would when withdrawing after age 59 1/2, but you don't get hit with the 10 percent penalty.
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