Even after deductions and tax breaks? I imagine that most people, especially those in the 39.6% bracket, are doing all they legally can to minimize their liability. So the actual rate at which they pay taxes is going to be less than that.
Cool, thanks for the book ideas, I will check’em’out
This sounds like something which would be perfect for me. I could learn from the experience a lot, from the people and investing with a group more then I would have alone. Never thought of this, thanks for the advice.
If this list is everything, then yes, but I think there is other info out there I have yet to consider.
This is the kind of stuff I was looking for when I originally started this thread. Ways to generate extra revenue such as having a blog that generates money from ads. (Not that there isn’t a huge amount of (what looks to be) good info so far, but for the record that is the kinda stuff I was looking for. (But I’m not saying I am only looking for this. So far this thread is going pretty well, so as far as that goes I say feel free to keep posting what you will)
(Bold Mine)
REALLY good point. Thanks.
Or go to the library and save yourself $12. I really like All Your Worth. Some people also like Dave Ramsey for the initial “living beneath your means, getting out of debt” step.
There aren’t a lot of ways to raise capital. You can work for it and get paid for your labor - whether you work for someone else or are self employed (in which case, you still work for someone else, its just your customer rather than your employer). You can have your money make money - but that only works effectively in large amounts and you need to have money to do it. You can get someone to give you money - you can apply for a grant or venture capital to start a business - those sorts of opportunities tend to be very competitive and depend on some amount of luck. Or maybe your family will give you money - are your parents wealthy? A distant great uncle with no children in need of an heir? (No?, Well, worth asking). You can marry well - if you find someone rich to marry, that sometimes works. You can steal it, that isn’t ethical and will likely result in a poor outcome.
The issue with an investment club is that you are dependent on others in the club - they might be idiots. The might panic and cash out when the market is down instead of choosing to stay in for a recovery. They might move money all the time second guessing themselves, incurring unnecessary fees and taxes. You might learn something, but you might not.
Why do you recommend I don’t do the club and do index funds instead?
What’s the difference between an investment club and an actively managed mutual fund? The mutual fund is run by an investment professional and uses the pool of money from many investors to invest in many stocks. The investment club is run by amateurs and uses the much smaller pool to invest in a very small number of stocks. So a poor choice of any of the stocks has a bigger impact on the investment club. And both the investment club and the actively managed mutual fund may or may not beat the overall average.
So why not just invest in the average (i.e., the index fund)?
In theory, an investment club will do two things for a person - it will give them the opportunity to learn from others and it will create some discipline to invest - usually you throw money in every month to belong, which is how the club buys its stocks, and usually each member is responsible for researching and tracking at least one holding or potential investment.
However, in my (second hand) experience, its often the blind leading the blind - with a couple of blowhards who will talk definitively about how X is a great investment because its P/E ratio is Y and you’d have to be an idiot not to see how its about to take off and will triple in the next year (and who can’t tell you what a P/E ratio is or answer questions about why having a current ratio of .8 is not a cause for concern).
Top marginal rate in CA is 13.3%. But you can deduct that from your Federal taxes, so it comes out to something like 47%, rather then the 53% you’d get from just adding the two rates togeather.
Some municipalities have local income or payroll taxes. But these are relatively rare, and as far as I can tell top out at 1.5%
So I don’t think it’s possible even for a gajillionaire to pay more then a 50% marginal income tax rate in the US.
I am not a hundred percent sure what’s happening in my thread, but I have recently resolved to look for a chance to plug the budgeting software I currently use, which I think does a very good job at helping a person act intelligently w.r.t. money. You Need a Budget.
Two books: 1)The Millionaire Next Door, 2) The Automatic Millionaire.
Thanks
Do you feel it has increased your ability to budget? Also , why do you feel that this software trumps normal budgeting (like, just using paper?)
Good questions. I hope it’s not too much of a hijack to answer them.
Nothing is for everybody, and I am sure the problems YNAB solves for me are not even problems for many people. And of course you could definitely do what YNAB does all on paper. But for me, the advantages lie in how the way YNAB sets things up has changed the way I think about my money, and in YNAB’s ease of use.
In my case, it has helped in the following ways:
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I do less impulse spending. (Much less.)
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I handle large one-time expenses (both expected and unexpected) more skillfully
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I have a deeper understanding of what actually happens to my money
To explain how it has helped, I have to say a little about how it works.
It’s based on zero-sum budgeting. This means you just take the dollars you actually have and allocate them to particular expense types. (By “dollars you actually have” I mean you don’t ever enter in predicted dollars, but only actual money you have in hand. You don’t even predict paychecks if you’re being strict by YNAB’s method. Of course you can do that–YNAB calls it forecasting–but they emphasize that YNAB is for budgeting, not forecasting) I call these allocated moneys “funds,” and will do so in this post. Then when you spend money on a particular expense type, you subtract the amount you spent from that fund. The goal is to end with zero dollars in each fund (an exception being anything like an “emergency fund.”) Of course, some funds will end at zero every month. Other funds may carry a balance forward each month til they are spent on whatever they were allocated toward.
One outcome of this is, when you look at your budget, you’re looking not at any kind of prediction or plan, but a literal description of how much money you actually have, and what you said it is reserved for.
The way I used to budget was, in an excel spreadsheet, I had a row for each expected expense, with columns for the name of the expense, the expected amount, and finally, the actual amount (which would accrue through the month). Using this, at the end of each month, I’d look it over, and could see at a glance where I had “overspent” and where I had overestimated my expenses. I could look at the overspent columns, and say things to myself like “geez, I need to watch my spending on that.” The problem was, on future occasions, when I was faced with the prospect of spending in that category, I’d probably still overspend because at the time of the actual transaction, it never seemed like overspending. Even if I had a notion I’d be going overbudget with a transaction, it always seemed justifiable. And crucially, it always seemed like the amount I’d be going over was, in the scheme of things, pretty small compared to my overall bank balance.
That last sentence expresses one of the big mistakes I was making, and using YNAB has helped me stop making that mistake completely.
Because now I don’t compare overbudget expenses to my overall balance, thinking “Hey, a couple of dollars doesn’t matter because I have thousands and thousands in the bank, and I’m expecting even more soon.” Instead I compare prospective overbudget expenses with *the amount of money I actually have in the relevant fund." The way YNAB organizes things reminds me very concretely that when I overspend a fund, I’m literally taking money away from some other fund. And not just reshuffling how I will have to spend future funds. (In YNAB, future funds don’t exist.) Rather, I’m literally taking actual dollars away from another fund. (Zero-sum budgeting… everything has to zero out, so if I am going negative in one fund, I have to do something to bring it up to zero. And since all I can do is allocate or reallocate money I actually really have, I’m literally taking money away from something else I want to fund. Of course, that was always true, but it was never so concrete and clear before, because the way I was mathing it all out kind of hid this fact, or anyway, made it easy for me to hide it from myself.)
You can probably see how this would tend to curb impulse spending. It has also made it easier for me to handle large one time expenses. Previously, I’d set up my spending categories, and one of those would be what I expected to be “left over” after all expenses. As long as that was sufficiently high, I felt like I was “saving” for “emergencies.” Of course, I was failing to predict what would actually happen–that various seemingly-important-or-justifiable bits of overbudgeting would shrink that “saving” down. A few dollars here and there would add up. (Of course I knew this, but I never saw it happening as it happened the way I do now with YNAB. It was always something I had to just deal with after the fact, and “resolve” to do better next time.) Using YNAB, what I can do instead (and again, I always could have, and anyone could on paper, but YNAB is well set-up to make all this easy and automatic) is have funds for the various one time expenses I know will happen throughout the year. Christmas, car registration, etc. And of course, there’s the emergency fund, and the “saving for a down payment on a house” fund, etc. And each of these gets an amount allocated to it whenever I receive income. And if I’m tempted to go overbudget on some daily expense, I am now much less likely to do it because I now know I’m going to have to take that money away from Christmas, or car registration, or whatever–not just away from some vague “savings” amount.
So anyway, these have been the advantages I’ve gotten from it. It’s both a computer program and a smartphone app. With the app (you have to have the program to use the app) you can, on the spot, enter any money you spend into its relevant allocated fund. This all syncs up so wherever you go, you have access to the budget. So in our house we don’t say “hey, we’ve got plenty saved up, it’ll be okay to order a pizza tonight.” Instead it’s “Let me look at YNAB app–yes, actual money actually exists in our ‘eating out’ fund for a pizza. Let’s get one.”
Well… did all that seem to communicate sense?
Its functionally the computerized version of the envelope method of budgeting - where you put $50 a week into the envelope for “rent” and $20 for “groceries” (ok, I used the envelope method in the 1980s and shared a place - I lived really cheap), etc. and spent out of that envelope. If you were taking money out of the rent envelope to buy beer - you knew there was a problem.
The other important thing about YNAB is the idea that you want to be spending last months income this month, not spending this Friday’s paycheck on Thursday hoping that the bank can’t clear checks that fast.
That’s right. This aspect of it isn’t something I tend to emphasize to myself because I’ve been lucky enough to land enough extra work in the past few years to be able to naturally build that kind of paycheck buffer.
But if I’d had YNAB while in grad school, when we were living check to check, YNAB would have helped me stop doing that without having to get a windfall to put me ahead.
Get rid of debt -> get “free” money through 401-k matching -> Stockpile your savings until you have a good safety net -> Look to own rather than rent -> minimize recurring payments (car, cable, phone, etc) -> invest.
This is a pipe dream. You need to lower your expectations and understand that what investments are, and what the reasonable returns on them are. It’s hard enough to save enough to retire at 65. To live a retirement lifestyle before retirement age on passive income alone requires millions invested.
I agree. Anyone who’s qualified to dispense investment advice can’t invest themselves. Then those who are self-taught can try to navigate their way through the world of finance, but it’s exponentially trickier when other people’s money is involved. I think real estate is different than securities because nothing precludes those in the RE industry from being investors themselves but then again buying real estate is really expensive.
I use Mint.com. It’s free and has an app for ipad/phone.
I was wondering about mint.com. Does it let you enter transactions through the app, then later match up transactions you entered to entries from your bank statement? That’s been a surprisingly helpful feature in YNAB–it keeps me thinking about what I’m doing with my money right now (by entering the transaction here and now as I spend the money) rather than letting me focus on what I did with my money in retrospect.
You can add transactions, but I never have so I’m not sure if it matches them up later. I would think so. What I really love about Mint is that it downloads all transactions for all my accounts automatically - sort of the opposite of what you like. The “add transaction” option lets you deduct against a checking account, automatically take it out of your last ATM withdrawal, or mark it “pending”. Without having actually used that feature I’d say it’s similar to the YNAB feature.
The ATM withdrawal thing actually sounds pretty neat. If sounds like if Mint finds a $200 ATM withdrawal and you decide to input that you bought groceries for $60 cash, it’ll create a $60 cash transaction and modify the $200 ATM to $140. My greatest annoyance with my financial records is not having a better record of where my cash goes.