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ChrisGraley (29.87)

Acheiving in personal finance means realizing it is war.

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April 28, 2010 – Comments (39) | RELATED TICKERS: AM.DL2 , CRIS

I'm am going to give you a brief guide to personal financial freedom. It works for everyone. It works every time. It doesn't take as much time as you think if you attack it head on...

1) Create a budget. Write down and categorize everything that you spend money on. Use a debit card to pay everything so you have a receipt. Make sure that you account for every reciept.

2) Cut 33% percent from your budget. I don't care how you do it. Just do it! Get rid of the cable or satellite dish. Stop eating out.Clip coupons. Sell the 2nd or 3rd car that you really don't need. Do whatever you have to do to cut your budget.

3) Add 20% to your income. Again I don't care how you do it. Get another part time job. Sell stuff on Ebay. Get a paper route. I don't care how you do it.

4) Most of the gurus suggest that you start building your emergency fund at this point, but I disagree. We are going to attack the first bill. It will probably be a credit card. Pay all that extra new-found wealth to paying off the debt that has the highest interest rate. Keep doing this until that debt is paid.

5) Repeat the process with the debt with the next highest interest rate, until every debt is paid off.

6) Think that you're done? Did you pay off the house?

7) Now it's time to work on the emergency fund. Focus putting aside 6 months worth of income in a high interest savings account.

8) You're not done yet. You still have utility bills don't you? We are going to the highest utility bill first. If you live up North, It's most likely the Gas bill, down South it's probably the Electric bill. Do an energy audit of your home. Find out where your wasting the most energy. Weather-proof your home and buy energy efficient appliances. Start buying DRiP's. Buy enough DRiP's in gas companies to pay your gas bill and account for inflation. Move to the next highest bill and repeat.

9) Still got a grocery bill? Invest in commodities and AG stocks. Again remember inflation. Got a lot of land? Plant a garden.

10) If you have made it this far. You can lose your job and still maintain your lifestyle. You now invest everything that you can to increase your income. I'm not going to tell you how to invest it. There's plenty of info on this site for that.

11) Vow to never ever buy anything on credit, or on payments, ever again! EVER! EVER! EVER!

12) Figure out how to pay cash for everything that you want. If you decide that you need a service that you must pay for monthly, figure out a way to generate the monthly income the same way that you did with the utility bills.

If you honestly attempt the list above, you will succeed. 

 

Chris

 

39 Comments – Post Your Own

#1) On April 28, 2010 at 7:22 PM, simplemts (< 20) wrote:

Your list is how I live my friend.  Except I have already cut my budget to the bare bones (for being married, if I get any cheaper I'll be single!)

Also, I increased my income by approximately 50% over the last two years by going into a new field.  Unfortuantely my current employer has salary freezes this year so getting any higher will be tough...

 I have never had credit card debt but do have an auto loan at 0.9%.  I figure it currently makes more sense to invest and have an emergency fund than paying that thing off in full at such a low rate.  Do you agree?

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#2) On April 28, 2010 at 7:36 PM, SockMarket (46.22) wrote:

good piece. +1

a couple thoughts:

Now it's time to work on the emergency fund. Focus putting aside 6 months worth of income in a high interest savings account.

That and a health savings account, which has some tax advantages...

 

Buy enough DRiP's in gas companies to pay your gas bill and account for inflation. Move to the next highest bill and repeat.

Im a little confused, DRIPS reinvest the dividends, you can never use them to pay your bill. That aside, assuming that you want to offset the possible increases in price you would do better to buy a producer than a utility. Reason being that cost increases will likely come from cost increases in the fuel price, not utilities increasing margins.

Gas producers with "good" dividends usually yield around 2%. Assuming $100/mo cost for gas 5 mos. of the year you must put $25,000 in just to keep even with your costs, not to mention inflation. That is a hefty sum for any household. 

Assuming that you did use utilities your yield would be about 5% so it would still cost $10K, without adjusting for inflation.

Same thing holds true for electricity costs except that they are usually higher (at least from the people around where I live). At $100/mo for 12 mos you would have to invest $60K at 2% or $24K at 5% to cover your monthly costs, ignoring inflation. 

The cheap and lazy way to hedge is to buy pipelines, on which you can probably get 7%, it still costs you 7K and 17K for gas and electricity respectivly. This is an OK hedge for gas because usually they increase rates in tandem with prices but is not effective for electricity because that isn't how they move coal.

Now you do this with most of your bills? You won't have much left over to invest with, even if you rake in a good sum of money.

I agree with hedging but I don't think you should do it all the way. Maybe put 1-10% of your income, depending on how much you make (net) into a hedge. 

 

11 is especially good. I wish more people thought like you

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#3) On April 28, 2010 at 7:40 PM, ChrisGraley (29.87) wrote:

If you had the debt before you started this path, I think that you made a good decision. The only problem that I see is that you still have that obligation if you lose your job. Keep in mind that you still lost money in the transaction, because the car depriciated the day you drove it off the lot.

That might force you to dip into your emergency fund more than you need to. If on the other hand, you own enough stock in the Auto company that sold you the car to make the monthly payment, you are debt neutral.

Try to pay cash for the next car or investing in something that can more than make the payment for you. Buy a car that is a year or 2 old over a new car.

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#4) On April 28, 2010 at 7:55 PM, Nickalisk (37.78) wrote:

What are DRIPS?

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#5) On April 28, 2010 at 8:22 PM, ChrisGraley (29.87) wrote:

daniel I agree on the HSA! I should have included that as I have one and it's indispensible.

I definately should explain more about the DRiP's. I'm not actually using the dividend to pay the bill. I still pay the bill out of my income. I'm counting on both dividends and premium growth to be more on average monthly than my monthly payment though. 

Yes, I do this with all of my bills. It's easier once you get rid of debt. You just take it one bill at a time and tackle the highest one first.

If hyper-inflation hits tomorrow, I can still pay all of my bills. I rebalance from time to time and may change the utilities that I invest in, but I try to get as bill specific that I can. That way I'm prepared for anything weird that happens in the industry.

Once you make the initial investment, it's mostly self-sustaining.

 

 

 

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#6) On April 28, 2010 at 8:23 PM, ChrisGraley (29.87) wrote:

Nickalisk

DRiP's stand for 

Direct Re-investment Programs

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#7) On April 28, 2010 at 8:38 PM, SockMarket (46.22) wrote:

chris,

how long did it take you to accumulate the dough for all your hedges? I haven't tried but if I accounted for healthcare, etc. it seems like it would take at least half a decade at best.

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#8) On April 28, 2010 at 9:08 PM, ChrisGraley (29.87) wrote:

daniel

Back when I did it, I started with very little debt and a house that was paid for.

I was making less than $20,000 a year in income at that time, but I had other investments.

I had employer provided healthcare at the time, but didn't get the HSA until much later. I was very young and didn't think about hedging health-care until much later since it came out of my paycheck and I didn't get the actual bill.

I had very little to hedge at that time, but I did it in about 2 years.

And yes, it was the only new investing that I did for those 2 years.

A luxury that I got for myself was Cable television, but I'm the only person that I know that saved up to buy cable TV. Cable stocks were booming at the time so it didn't take me long.

I've added a lot of other hedges since, but I've been able to invest at the same time in most cases.

 

 

 

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#9) On April 28, 2010 at 9:34 PM, MaxTheTerrible (86.33) wrote:

Although I do see rationale behind buying things with cash I think you can do much better if you actually use credit. That is if you have good credit history behind your belt.

Why would you ever want to pay cash for a new car when you can borrow for 5 years at less than 1% APR (very often 0%) and invest that sum in the meantime?

The same goes for everyday purchases. You can purchase everything on a credit card with a rewards program.

The crucial part here is that you have to have enough funds in your checking to cover for your credit purchases. But if you are buying everything with cash I would assume you already have enough financial discipline.

For instance, why would I use cash if I can get 1.5% cash back on any purchase made with my Amex card or Discover card that pays 1% cash back with 5% cash back offers every couple of months or so (this March, for example, was good for 5% cashback on purchases at grocerie stores - guess which form of payment I used at my local supermarket?)

Cheers!

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#10) On April 28, 2010 at 9:42 PM, Robuh (24.11) wrote:

I agree with this post for people in the middle-to-end part of their lives, those with existing responsibilities, or those with modest expectations . But for younger people (under 30) that really want to build wealth I'd stay clear away from this approach.  You need to focus all your energy on setting yourself up for success later on in life and focusing on prudent personal finance while you're young can be a large barrier.  Consider this instead:


1) Learn as much as you can at any expense. Never worry about your salary and never accept work just because of the money. Get yourself in a position where you can learn from the best. Learning from experts is your paycheck. Eat cat food if you have to.

2) Forget about adding 20% income. Income is irrelevant. Education and networking is everything. Blow all your money on learning and interacting with people in your chosen profession. Get out there and start to understand human nature. Be likeable and learn how to sell. The ability to communicate to a variety of audiences and sell under pressure is what will make you wealthy. 

3) Don't buy a house or take on any unnecessary responsibilities. You're not ready for it and it will just be a weight around your ankle. You'll have the rest of your life to worry about home ownership.

4) Take as many risks as you can. If you lose everything and have to start from scratch you'll probably be one of the more successful people you know later on in life. Just don't quit. Ever.

In short, forget about focusing on personal finance and invest 100% in yourself. Your brain and your network is your true 401K when you're young. Don't worry about money. It will find you later on in life.

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#11) On April 28, 2010 at 10:11 PM, ChrisGraley (29.87) wrote:

"Why would you ever want to pay cash for a new car when you can borrow for 5 years at less than 1% APR (very often 0%) and invest that sum in the meantime?"

A couple of reasons. First off, you lost money on the deal when you bought a new car to begin with. You are paying interest on an asset that depreciates substantially when you drive it off the lot. Second you are still committed to making that payment for the term of the loan even if your circumstances change.

As for the cards, assuming that you have the discipline and aren't paying annual fees, there's nothing wrong with what you are doing, but I prefer my debit card, which pays me 4.75% interest on everything in my checking account as long as I use it 12 times a month. I get rewarded for saving rather than spending and therefore usually spend less.

 

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#12) On April 28, 2010 at 10:31 PM, ChrisGraley (29.87) wrote:

Robuh, I'm not sure why you think the 2 things are mutually exclusive?

I put myself through college at the same time.

I bought a house with 3 other guys while in college as well. It was cheaper than paying rent and I had an assett when I was done. Granted it wasn't much of a house, but it was better than givving money to a landlord and having nothing to show for it.

I agree with learning as much as you can, but I believe that in a lot of cases, the networking is worth more than the degree.

I definitely agree about learning from your mistakes as well.

 

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#13) On April 28, 2010 at 10:44 PM, SockMarket (46.22) wrote:

chris,

wow, that's pretty good. I have never really dealt with personal finance, I am just finishing up high school now, so I really didn't have a good estimate--I was just going off yields I have seen. Heck if it is possible in 2 years it is definitly worth it!

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#14) On April 28, 2010 at 11:06 PM, ChrisGraley (29.87) wrote:

They key is keeping your expenses as low as possible daniel.

That's hard to do at a young age and it took me a while to learn that.

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#15) On April 28, 2010 at 11:37 PM, getrichdietrying (82.25) wrote:

I disagree on having no debt whatsoever. What will you do when you need a little credit to pass by financial trouble spots that NO ONE else in your life will bail you out of?

I say have a decent credit by having a good rate, make cash back on the card, and pay a recommended balance every month.

I learned hard, when you have no money who gives sh** about credit; but, when you have money, you will want it.

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#16) On April 29, 2010 at 3:31 AM, Mstinterestinman (< 20) wrote:

Nicely done I I am working on most of this list just need to do a better job of investing a little more of my income.

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#17) On April 29, 2010 at 10:19 AM, outoffocus (22.91) wrote:

These are all great concepts, but as some pointed out earlier, they are not realistic for the majority of the country (especially those under 30).  Depending on your background, many don't have much choice on what financial situation they end up in when the go to college and when they get out. 

Most people do not have money to invest when they come out of college.  I certainly didn't.  As a result I couldnt take advantage of the runup in stock prices from 2002 to 2007. 

When young people get out of college, they are most likely going to move where the jobs are. Most of these areas have a high cost of living. Combine that with a low starting salary and student loans and you have very little room for savings.  My best suggestion for people in this situation would be to take advantage of 401k match at work (if available).  Its the easiest way to save without starving yourself and theres a tax benefit. Most people can afford to forfeit 5% of their salary (even if many don't realize it).

Using debit cards is a good way to keep from having high credit card debt.  But to do so requires work. One must keep a tight budget and monitor the budget on at least a weekly basis and monitor the bank account on a daily basis.

Whether or not to buy a new car depends on the situation. Believe it or not there are some situations where its actually better to buy new. If you can afford the payments and you plan on keep the car for a long time, in reality depreciation doesnt really matter. If you are buying a new car, the key do your research ahead of time (so you don't overpay), to put as much down as possible (without breaking the bank), and get the lowest interest rate possible and favorable terms (no prepayment penalties). I ran into that situation a few years ago. My old (fully paid off) car was costing me too much money to repair because I was forced to use franchise repair shops. I didnt know anyone who fixed cars and I do alot of driving on a regular basis which puts alot of wear and tear on the car. I didnt want to get another used car and risk running into the same problems as my old car.  So I bought new. Did I car about depreciation? No not really because I negotiated the care price below invoice and only ended up borrowing 75% of the value of the car.   In return I got a vehicle that I know wont leave me stranded on the highway, where all repairs are covered up until 60000 miles, and major (powertrain) repairs are covered up to 200000 miles, free roadside assistance, etc.

In the end these are all great goals to strive toward, but only a very select few would be able to acheive these goals.

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#18) On April 29, 2010 at 11:33 AM, 100ozRound (29.57) wrote:

11) Vow to never ever buy anything on credit, or on payments, ever again! EVER! EVER! EVER!

I don't completely agree with this one.  I love using my credit card for everyday purchases and ONLY everyday purchases. BUT I pay it off fully when it is due.  Plus I get cash back every year.  I don't recommend it for everyone; I only recommend it if you have incredible discipline and don't go on impulsive buying binges.

Anyways, you have some good stuff here!  Thanks!

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#19) On April 29, 2010 at 11:41 AM, ChrisGraley (29.87) wrote:

getrichdietrying, taking on more debt during a financial hardship is exactly the wrong thing to do. Paying the reccommended balance and not the full balance means your cash back is worthless.

outoffocus that's some great negotiating on the new car, but if you did the same on a low milage car that was a year or 2 old and paid cash you would be farther ahead of the game. You get the balance of the warrenty in those cases as well.

I think that anyone can do this, but you have to start out by living a frugal lifestyle. There are plenty of people living below the poverty level without a choice. They survive, and you can too. Doing so early will make it so you can live a better lifestyle later.

I disagree that it's harder when you are under 30, I actually think that it's easier at that time. Once you are older and established more debt and responsibility, it's harder for you to do.

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#20) On April 29, 2010 at 11:44 AM, ChrisGraley (29.87) wrote:

See my reply to #9 above 100oz round. If you are doing the same then I don't have a problem with that.

 

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#21) On April 29, 2010 at 11:48 AM, outoffocus (22.91) wrote:

outoffocus that's some great negotiating on the new car, but if you did the same on a low milage car that was a year or 2 old and paid cash you would be farther ahead of the game. You get the balance of the warrenty in those cases as well.

And I would have certainly done that if I had the cash at the time. Unfortunately I didnt. I was sort of backed into a corner. I bought the new car because the repair bills on the old car were becoming too much.  My goal now is to pay the loan off before the bumper to bumper warranty runs out.

And you are right. It is war. Its a war I fight everyday. Yes people do live below the poverty line but how many people are willing to do so if they don't have to?  Living below the poverty line in my neck of the woods means living in a neighborhood where you stand the risk of getting robbed or shot (or even beat to death) everyday. Thats a big no thank you in my books.

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#22) On April 29, 2010 at 12:01 PM, 100ozRound (29.57) wrote:

Chris - where do you bank? You don't get that rate at goldmoney do you?

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#23) On April 29, 2010 at 12:03 PM, Schmacko (68.78) wrote:

"Whether or not to buy a new car depends on the situation. Believe it or not there are some situations where its actually better to buy new. If you can afford the payments and you plan on keep the car for a long time, in reality depreciation doesnt really matter. If you are buying a new car, the key do your research ahead of time (so you don't overpay), to put as much down as possible (without breaking the bank), and get the lowest interest rate possible and favorable terms (no prepayment penalties). I ran into that situation a few years ago. My old (fully paid off) car was costing me too much money to repair because I was forced to use franchise repair shops. I didnt know anyone who fixed cars and I do alot of driving on a regular basis which puts alot of wear and tear on the car. I didnt want to get another used car and risk running into the same problems as my old car.  So I bought new. Did I car about depreciation? No not really because I negotiated the care price below invoice and only ended up borrowing 75% of the value of the car.   In return I got a vehicle that I know wont leave me stranded on the highway, where all repairs are covered up until 60000 miles, and major (powertrain) repairs are covered up to 200000 miles, free roadside assistance, etc. "

I go back and forth on the new vs. used car thing a lot.  I've only ever owned two cars and I bought them both used, both for full price upfront and thus I've never had a car payment.  I currently drive a 99 pontiac grand prix with like 170k miles on it that I've owned for over 6 years.  It's blue book value is theoretically close to 2 grand.  I figure I pay about $3000 a year to keep it running.  I view my car as an asset in the terms of it's an asset in getting me from point a to point b and it makes my life easier to own one.  I could care less about it's overall monetary value.

My wife likes new cars.  It makes her feel safer and you get those warranties and what not rolled up into it.  She bought a civic new in 2006 and then we traded that in last December for a new CRV.  The CRV is really nice and she was actually able to trade in the civic for more than her remaining loan amount, which allowed us to put some money down on the CRV.  Her monthly car payment is something like $450/mo, which equates to $5400/year.

She's always of the opinion that since repairing my car (I usually have one big repair a year) costs more than the value of the car I should just get a new car.  I rationalize not doing so because a) I have no money (that I want to spare) to put down on a new car and my trade in value would be very low, b) my yearly repair costs are still a great deal less than what I would be paying in car payments and I pay less in property taxes, and c) I don't have to burden myself with another debt load.

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#24) On April 29, 2010 at 12:23 PM, ChrisGraley (29.87) wrote:

outoffocus, I've been there as well and I agree. It's not worth your life to live in a bad neighborhood.

If you shop for foreclosure houses in a decent neighborhood, you can often live below your means without risking your life. If you can't find them in your immediate neighborhood, you might need to seek out more rural suburbs.

100oz round no, I get that rate with a local credit union.

Schmako, picking a newer model used car that maintains a high resale value and selling it after a few years may be the happy medium that you are looking for.

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#25) On April 29, 2010 at 1:04 PM, JakilaTheHun (99.94) wrote:

Not bad advice, but just like dietary habits, good advice on personal finance differs from one person to another. 

My basic philosophy has been:

(1) Set a basic standard of living --- this should never be above what you earn and this should never exceed $40,000 per year even if you're a millionaire. 

(2) Never buy anything that does not generate a positive return on investment.  This does not necessarily have to be monetary; if you have a Netflix account, there is a benefit to having entertainment and cultural enrichment.  If you buy a suit, that might be an investment in your career (that can be monetized later).  But one way or another, you should be able to rationally explain to yourself how it will achieve a positive result for yourself. 

(3) Never overspend for what you need. New cars are not a good investment, when a used car can get you where you need to go just as easily.  Luxury cars are terrible investments and you are throwing tons of resources down the drain in a pursuit of "status", that will probably only make people dislike you more.  

(4) Enterainment is OK, but find cost-effective ways to achieve this.  It costs $10+ to see a movie at the theatre, but you can get a Netflix account for not much more than that. 

(5) Buy everything on credit card and immediately pay off the balances each month.  Then collect the bonus rewards. 

(6) Don't carry a debit card.  They are financial poison.  Instead, carry some minimum amount of cash for non-credit purchases. 

(7) Never buy into anything you don't understand.  This is true with investments and consumer purchases.  For instance, I will have to fly a lot over the next two years, so I investigated which airline had the best rewards package.  For my purposes, AirTran seemed to have a good package that was easy to understand; Delta had a complicated package that seemed like a waste of time to even attempt to learn.  If I don't understand it, I can't take advantage of it anyway.  Therefore, I chose AirTran. 

(8) No need to rush into paying back debt if you can earn more money elsewhere.  But if you're not paying  back debt immediately, you should have an investment account with a goal to "cover your debt".  

(9) Live a reasonable lifestyle, no matter how wealthy you are.  This goes along with my 'don't spend over $40K per year standard' and $40K is for someone wealthy.  Think more like $20K or $30K if you are more middle income. 

(10) Invest money in the stock market that you don't need for a modest lifestyle.  Don't worry if you lose it, because it's not money you need to survive.  Have fun with your investments and learn as much as you can from them.

(11) Renting gives you much greater flexibility than buying a home.  Only buy a home if you want to stay in one place for more than 5-10 years. 

 

Just like Robuh, my general approach is probably a bit more risk-oriented than yours, but I'm still in my 20's.  

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#26) On April 29, 2010 at 1:40 PM, ChrisGraley (29.87) wrote:

(5) Buy everything on credit card and immediately pay off the balances each month.  Then collect the bonus rewards. 

(6) Don't carry a debit card.  They are financial poison.  Instead, carry some minimum amount of cash for non-credit purchases. 

Jakila

I agree that there are different ways of going about it, and it's more important to have a plan for sucess, but I'm struggling with #5 and #6 in your post.

If you don't have the fortitude to use a debit card wisely, then you don't have the fortitude to use a credit card wisely and your troubles are compounded with interest.

I use mostly cash myself, but I commit to using the debit card 12 times a month to get my high interest rate. 

I also use it to rent cars or hotel rooms.

LOL, I keep hearing that try something more risky when you are younger, but when I started this I was still in my 20's. It seemed to work fine for me.

 

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#27) On April 29, 2010 at 2:04 PM, JakilaTheHun (99.94) wrote:

#5 is more for those who know they are financially responsible.  I do it and I know others that do, but that's why I said, I wouldn't recommend a "universal" approach for anybody.

From my perspective, using a credit card to make all my purchases achieves a few good objectives:

(1) I don't need to carry as much cash

(2) I can delay expenses for one month --- one shouldn't come to rely on this, but generally, it's better to delay payments if you don't have to pay interest on them.  So long as you pay the balance off immediately, there won't be interest. 

(3) I earn cash-back rewards on my credit card, so once it builds up, I use that cash to help pay off my balance.

(4) I have a ready-made accounting system for my expenses.  Credit cards generally have excellent spending tools that allow you to see your purchases and even analyze them over time. 

Credit cards are great if you use them responsibly.  They're terrible if you don't.  You have to know your own limitations on that one. 

 

As far as #6 goes, I'd argue that debit cards are actually far more problematic than credit cards.  Cash is better.  

There are very few consumer protections on debit cards; whereas, there are a lot of protections for credit cards.  If someone fraudently charges your account with a CC, you have a lot of recourses and you won't be held for much liability.

Whereas, if someone fraudently uses your debit card, you are normally S.O.L.  If you have a few thousand bucks in your account, all of it could be wiped out in an instant and you may have no recourse, even if it was ultimately the bank's fault.  (Unless you can prove it in a court of law --- which is very difficut --- not much you can do).  

This actually happened to me when I was 19 --- I never even used my debit card; the bank issued it to me when I started an account and I kept it in a locked box in my drawer that no one had access to.  Someone fraudently made about $1500 worth of purchases on shady Eastern European websites.  I recovered $0 of it. 

 

When I say "risky", I guess I mean not to be afraid to take risks.  I've actually always been very conservative with my own finances (in terms of spending and keeping cash around), but I have made risky moves that could've ruined me.  If I hadn't made those moves, I'd still be living in poverty.  

When I was 23, I moved to Washington DC in hopes of finding a job.  If I failed, I would've basically been bankrupt.  Sometimes, you don't have very good choices in life and the decision is between staying at home and never amounting to anything, or taking a big risk that could cost you everything.  But I thought of more like, "I have nothing, so there's nothing to lose."  You've got to take risks, if you want rewards.  

If I hadn't taken that major risk several years ago, I'd still probably be dirt poor.

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#28) On April 29, 2010 at 2:19 PM, GenericInvestor (86.11) wrote:

i make 32k a year, have about 50-60k in savings (including 15k in roth) and a car loan @ 3.99%, 9k, a mortgage of 125k @ 4.75%.

 

Should I really pay those off when I may get a higher return in the market?

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#29) On April 29, 2010 at 2:19 PM, ChrisGraley (29.87) wrote:

It's all good Jakila,

A lot of simalar stuff on both lists.

It's too late now, but if you would have appealed to the OCC about the debit card fraud, the burden of proof is on the financial institution to prove it was authorized.

As long as you report to the bank within 48 hours of the time that you became aware of the fraud, they have to prove it was an authorized purchase or give you your money back.

 

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#30) On April 29, 2010 at 2:33 PM, ChrisGraley (29.87) wrote:

On April 29, 2010 at 2:19 PM, GenericInvestor (26.41) wrote:

i make 32k a year, have about 50-60k in savings (including 15k in roth) and a car loan @ 3.99%, 9k, a mortgage of 125k @ 4.75%.

 

Should I really pay those off when I may get a higher return in the market?

 

You have more than twice as much debt as you do in savings. What happens if something financially devasting occurrs?

 

 

 

 

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#31) On April 29, 2010 at 3:37 PM, simplemts (< 20) wrote:

"Keep in mind that you still lost money in the transaction, because the car depriciated the day you drove it off the lot."

 "Try to pay cash for the next car or investing in something that can more than make the payment for you. Buy a car that is a year or 2 old over a new car."

 I believe that is the wrong way to look at it.  The fact is, a car is simply a vessel that transports me from Point A to Point B.  I am not "losing money" when I drive it off the lot.  Using your logic, the same could be said when you buy a new computer.  It is depreciating daily and will be obsolete in a few years, however, it should not be looked at that you "lost money" since it serves a purpose. 

In addition, the same can be said that by buying a used car you are losing money too as you drive it within a month, year, etc.  Even if you purchase it at a steep discount, unless you flip it, you will have "lost money" on the transaction eventually when the car no longer runs or costs more to maintain.

In regards to the financing, if I can get a loan at .9% but invest in a safer alternative and earn 3+% it doesn't make any sense, in my opinion, to pay cash when I could yeild over a 2% return otherwise.  I understand your arguement about being concerned about losing a job, but if you have a wide enough safety stock of money, you should not be concerned with this obligation.

Anyways, I appreciate the food for thought on your blog.  I personally hate debt like no other and see you are primarily focused on emphasizing this issue.

 As of today, I have no credit card debt, or outstanding debt, except for a car loan balance of approximately $10,000.  I have an emergency fund that can cover over one year of unemployment, including my car loan, and am focused on earning a positive return that significantly outpaces my lost cash on the .9% loan.

 In regards to JakiaTheHuns post:

"When I was 23, I moved to Washington DC in hopes of finding a job.  If I failed, I would've basically been bankrupt.  Sometimes, you don't have very good choices in life and the decision is between staying at home and never amounting to anything, or taking a big risk that could cost you everything.  But I thought of more like, "I have nothing, so there's nothing to lose."  You've got to take risks, if you want rewards. " 

I did a similar thing with my Wife when I quit my job to move to San Diego.  I was "unemployed" for a few weeks while down here but very quickly landed a job.  That job yielded me a 30% pay raise, in which I also received a promotion in 6 months for another 4.5% raise.  In total by taking a huge financial risk, I was able to increase my income earned annually by ~35%.  I also built the foundation for the rest of my career to be focused on growing from this new, higher income, than my previous lower income.  Over a 25 year span, I will have the potential to outearn the "old me" by approximately $1,000,000.  The risk was well worth it, even though I too could have bankrupted myself and even my wife.

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#32) On April 29, 2010 at 4:09 PM, ChrisGraley (29.87) wrote:

simplemts,

We don't disagree here as much as you might think.

You do lose money on a new car the day you drive it off the lot though. Let's say You finance a $20,000 new car and it's value goes down to $15,000. Unless you made a $5,000 down payment, you are already in the hole for the difference. However, if you buy a used car of the same year, someone else has already paid the depreciation for you.

If you can get 0.9% financing and can invest the same amount of money safely @ 3%, I don't have a problem with that, as long as you dedicate that investment to paying the car note. You are debt neutral at this point. If you lose your job, the car payments still get paid.

The problem occurrs when you mix this into your other investments that may not give you the same safety. Once you forget the reason that you took on the debt to begin with, you lose control of paying for it later.

 As of today, I have no credit card debt, or outstanding debt, except for a car loan balance of approximately $10,000.  I have an emergency fund that can cover over one year of unemployment, including my car loan, and am focused on earning a positive return that significantly outpaces my lost cash on the .9% loan.

You don't need any advice from me, you already understand the point I'm making.

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#33) On April 29, 2010 at 4:29 PM, simplemts (< 20) wrote:

"You don't need any advice from me, you already understand the point I'm making."

 This is true, I suppose we just differ in some of the minor points behind your main thesis.  Excellent blog by the way.  I always appreciate hearing about other intelligent individuals perspectives on personal finances and investing.

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#34) On April 29, 2010 at 5:15 PM, ChrisGraley (29.87) wrote:

I think I should state the overall point of my approach, I can lose my income forever and maintain my lifestyle.

I have investments just like the rest of you, but I call some of them "The phone bill", "The cable bill", "groceries", etc...

I also invest a heavy amount in precious metals to control inflation.

Am I rich? No, I don't think that I'm even close. Am I ready for whatever comes? Absolutely.

I have other investments to to expand my future income. I prefer to reinvest most of those and live below my means.

One last caveat. I have determined that our own economy may get screwed up to the point that I have to move to another country. When that time comes I might take a huge one time tax hit, but I've ran the numbers and I can still live about the same without an income forever if needed.

There are too many people in this country that think that they know what is better for you than you do. They are determined to legislate your life. The only way that they can do it is to spend more borrowed money. If they actually paid for their proposals, no one would vote for them. They will erode your future with inflation and make your children slaves to a currupt economy.

I think most of you know how I feel about living off of debt. I know how it's gonna end for both them and us. We can only tempt fate for so long.

Alstry always tells you to get prepared. This is my way of doing just that.

You don't have to agree with me, but at least take some time to validate my perspective and compare it to what you are doing.

If you don't agree, that's fine. If you don't want to listen to me think about the reason why.

I'm not posting this to help me. Well, maybe I am posting this to help me. We need more people in this country to wake up and realize what's happening. You are our only hope. So, in that case, I'm selfish.

 

 

 

 

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#35) On April 29, 2010 at 5:26 PM, kdakota630 (29.66) wrote:

ChrisGraley

Loved the summation.  

If you do have to move out of the U.S., what countries would you consider.  I'm sure you've given it thought already.

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#36) On April 29, 2010 at 6:00 PM, ChrisGraley (29.87) wrote:

kdakota, I have several places set-up, but...

1) Campione D'Italia - I experience the beauty of Italy and the stability of Switzerland without the taxes of either country.

2) Austria - They don't bother anyone that doesn't bother them.

I've bought a houseboat that I can decide to dock anywhere. I have a few passports. Once you realize that most countries treat tourists and guests better than their own citizens, it becomes easy.

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#37) On May 04, 2010 at 11:14 AM, USNHR (32.73) wrote:

#28) On April 29, 2010 at 2:19 PM, GenericInvestor (28.21) wrote:

i make 32k a year, have about 50-60k in savings (including 15k in roth) and a car loan @ 3.99%, 9k, a mortgage of 125k @ 4.75%.

Should I really pay those off when I may get a higher return in the market?

________________________________________

There are all kinds of ways to look at this, however... think of the payment you are making on the house, the car, or the RV or whatever, and think of how much more free cash flow you would have if you didn't have to make those payments, how much more would you be investing in the market each year? Yes you might have an extra $50 you invest in the market now, but wouldn't you rather put that on your car an get it paid off and then when the car is paid, be able to put your $300 car payment and the $50 into the market or savings or your IRA. Without that car payment, house payment, or other payment you accumulate wealth a lot faster.

It is easy to argue that debt that is at lower interest rates than inflation or what I can get for a return in the market is debt I can "afford to keep". My student loans are at 2.25%. However if I didn't have to pay $200 a month to them I would be investing that money.  Plus I don't have to worry about them if I loose my job if they are paid off.

No debt is good debt. It leeches money from you that you can use elsewhere to improve your financial situation.

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#38) On May 04, 2010 at 11:48 PM, Mstinterestinman (< 20) wrote:

Chris is right I only make 12000 a year and my net worth is nearly three time that and Im 25. The key is to invest aggressively in yourself be frugal and also save and invest aggressively as well.

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#39) On May 04, 2010 at 11:55 PM, Mstinterestinman (< 20) wrote:

With the used car /New car point hes trying to explain that it makes more sense financially to get a used one that you can pay more quickly and in decent shape than to buy a new one that depreciates automatically. I dont own a car I use public transit or walk and my apartment is right across the street from the college.

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