Your Best Financial Advice

Have any recommendations? Dom uses Excel for everything, but he is a born accountant. I think I’m going to need something a little more ‘‘hit me over the head with a clue-by-four’’ for my personal expenses.

I am really happy to discover that a lot of these are things I have started to implement–I must be doing something right! My husband and I got a very unexpected very generous monetary gift for our wedding. We used most of it to pay off ALL of our credit card debt ($10,000+), which at the time was just strangling us. I was so overwhelmed by debt (stupid debt, impulse-buy debt) that I was paying over half of my income toward it, and verging on bankruptcy. Paying off that debt was like suddenly getting a magical chance to start over–things have been so much better since we made that decision.

And I vowed not to take that gift for granted–it dawned on me the statistical improbability of anything like that ever happening again. You can’t expect people to suddenly come and rescue you from a lifetime of bad financial decisions. That is why I’ve changed my spending habits tremendously and opened threads like this one. And I am really happy to learn that I’ve been making lots of wise decisions ever since.

It depends. How much did you spend on cars over those 9 years?

My first car (that I paid for. In high school. I used my Mom’s old car) cost me $2200 total. I drove it for a year and a half, put about $1200 of necessary repairs into it (when some asshole hit me while I was parked), and sold it for $2100. Total cost of ownership, about $900/year.

My current car, I bought for $5500. I’ve been driving it about two years, now, and put $2200 of repairs into it. I could probably sell it for $5000+. So, let’s say total cost of ownership (which I expect to go down, since I won’t be replacing the transmission again any time soon) = $1300/year.

Someone who goes and finances $10,000 or $20,000 of a car can easily pay that much in interest every year. Not to mention the fact that more expensive cars depreciate a lot faster than older cars. And that you have more expensive insurance with a more expensive car.

Did you have car payments for nine years?

Most people will have a car loan at some point in time. The recommendation is to keep paying YOURSELF the car loan once you have it paid off. Then, when you need a new car, you’ll be able to take out a much smaller loan on car #2 - if you need a loan at all (hopefully you won’t - but it will depend on if you bought the least expensive junker you could the first time and it died soon after paying off the loan).

What most people do is pay $400 a month for 36 months on their car and then go “whoo-hoo, I have $400 a month to blow on whatever.” Then in three years they want another new car and need another $400 a month loan. Now, they are $400 SHORT a month.

Nope. I mean keeping a car a long time, and saving up so you can afford a used one when you need it. That also means buying what you need, not what you want.

I haven’t explored leasing, but it looks like a bad deal to me. It seems to work for someone wanting to change cars every few years, not someone keeping one for ten.

One way or another, you’re going to pay for your car over time. Isn’t it better to do it before you get the car, when the interest works for you, rather than after, when the interest works for the lender?

I’ve looked at online shopping, and I found that the variety isn’t nearly as good as you can get at the store. We have two very close, so gas isn’t an issue, and we shop the specials and keep tight control of what we buy.

Well, you “leave it behind” in the sense that whatever you do with it, it’s untouchable until you’re retirement age unless you really want to make a BAD financial decision: if you withdraw it early, the government takes 10% in addition to charging taxes. So for example if you’re in a 28% federal tax bracket right now and your state charges 5% income tax, you’re out 33% plus that 10% so you’re out 43% of that money if you withdraw it. However as others have said, you do maintain ownership of it and can control how it’s invested.

IIRC, if the total of your account is small enough (3K or so?) the employer can decide that you have to take it with you - but that just means rolling it into an IRA or a new employer’s 401(k).

Always put at least enough into the 401(k) to get the employer’s match - if you don’t you’re leaving free money on the table.

More general stuff:
Try keeping track of every penny you spend - it can really help you see where the nickels and dimes go, and get a better handle on that sort of spending.

We use Quicken religiously for managing all our finances. MS Money is also supposed to be decent. Quicken tracks all of our retirement accounts, checking, other investments, so we have a very good handle on what we’re spending and what we own. It has a budgeting feature.

Columnist Michelle Singletary (Washington Post, Sundays and Thursdays) is chock-full of financial common sense. Her column, “The Color Of Money” may have been originally targeted at educating people of color (hence the title; she herself is African-American) but it’s sensible stuff for everyone. Her car advice: “buy used, and keep it until you’ve got your mechanic on speed dial”. Well, we usually buy new… but we only traded our last car (last year) when it let me down in Canada, followed by 2 months of constant problems; the day I phoned the shop - from memory - after I finally got it to start after work, I started shopping for a new car. We kept the old one 10 years, our other car is nearly 9 years old, and we’re hoping for a few more years on it, so we’re following part of her advice :slight_smile:

On the joint vs. yours-mine money philosophy: Singletary always insists “it’s JOINT money once you marry”. Well, that may not work for everyone but I think in general it’s good - one partner will nearly always have a bigger income than the other. We pool all the money. Though I do maintain a separate checking account, I just have “spending cash” transferred there once a month that I use for walking-around money and the occasional bill. That’s an approach that may work for you.

Oh - and I also personally recommend that each person have one account of some sort independent of the other. That way if something happens, you’ve still got access to some funds. I misplaced my wallet once a few years back - the last working day before the Christmas holiday. We were due to travel and I could not get replacement credit cards before the trip. Fortunately, my husband had his own Mastercard, and we were able to use that for the trip (since of course I’d cancelled all the cards in my wallet).

When you make your investments, particularly with things like IRAs where you have complete control, take the time to do the basics right. It isn’t complicated, it isn’t hard. People who are flummoxed by this are a little like mathphobes who think they will have to learn calculus, only to find that they are asked to do basic arithmetic.

Go to the website of the low cost provider of your choice, whether it be Fidelity, T.Rowe, Vanguard, TIAA-CREF or another brokerage. They all have risk tolerance questionaires and will suggest a way to divide your money. Don’t try to outguess the best place to put the funds, follow the suggestions on the website, and use index funds or very low cost investments. Too many people rely on financial advisors who can take thousands of dollars for something you could do in ten minutes on a website. They don’t count it as money spent because it is money that you never make. In the end it all counts. Actually it counts more as you lose the compounding of the money you spent in expenses and fees.

I learned the laddering concept from Jane Bryant Quinn (I read much of her Making the Most of Your Money when I started taking money seriously (in my mid-30s, to my great regret). Ignore the review scores on Amazon - she appears to be the victim of strategic negative reviews. Her book offers good basic advice. It’s the kind of book you should borrow from the library and be familiar with before deciding whether to buy it. Nothing trendy, just basic principles of money-related stuff.

The library is one of my many money-saving strategies, BTW. I only buy books that I really really love and will re-read or reuse (well, I try to do that). I buy DVDs, but only if I’ve already seen the movie and really really liked it and only when the price has gone way down (I always look at the sale DVDs at Target).

I also like Suze Orman’s 9 Steps to Financial Freedom.

I bought Get a Financial Life (which Valgard recommended upthread) for my oldest goddaughter when she graduated from college. I looked pretty thoroughly at personal finance books for that age group (20s-30s) and thought that was one of the most solid but easy to read books.

One more piece of advice: watch for finance threads here on the Dope. I always learn something new, even if it’s just a new Web site. It also makes you think over how you’re doing with finances and gives to an opportunity to re-commit to being financially responsible.

GT

There is a lot of judgemnt in these threads, and for some of us, incurring debt was a choice between the kids wear shoes and eat or pick one from the above. It’s not ideal and I recommend it for no one.

Now, past 50 and out of debt for the first time in my life (except for the mortgage) I’ll give you my advice. There is a lot of great advice in this thread, and some that will make you resemble my mother who came of age in World War II Belgium and can’t throw out the paper.

  1. Avoid debt - it’s really important. Other people make money when you pay interest as many have said. Avoid giving them your money, and remember, you earned it, it’s yours.

  2. 401(k)s are great and their relatives the 403(b) I think, for the not for profits. But that money is not usable, not unless you want to pay penalties and taxes. So, save up a buffer first, and use it only if it keeps you from going into debt. Somebody said 1000 bucks, to me it’s two full paychecks for each of you. Probably more than a grand.

  3. If you need a car to keep your job, buy the car. Go into debt if you have to. Buy what you need to get there but no more.

  4. It matters not whether you and your hubby pool your finances. It can work either way. What is important is to know where you stand. It’s where I messed up. I was a sinlge dad and managing, even saved up enough to buy a house with my fiance. After the wedding she said that she would take care of everything, and heck, I was tired of sweating every penny. Turned the money over to her. Worst mistake ever. We separated over it, and man, let me tell you, she went through money like Homer Simpson goes through doughnuts. We are back together, and separate finances have gotten us both on better ground. I’ll never share again.

  5. Buy good. Others have hinted at it, but I’l say it. What you buy should be for the long haul. Yes, food tastes better off of silver, and buying 3 rounds of stainless will cost more than one of plate. That sounds snobbish, but it’s true for us. Even if you forget that, a used futon from Value Village probably won’t last as long as a couch from IKEA, although you may want to pass on Ethan Allen, even knowing it starts clean.

  6. Remember you are alive. You are in your mid 20s. If you live your life like it won’t change till you retire, you will miss a lot of fun. Stop, smell the roses, and sometimes buy one. There are too many folk on the wrong side of the grass that never lived because they were saving for tomorrow. Saddly, tomorrow never came.

In summary, live for ballance, enjoy today while looking to to tomorrow, but dont let tomorrow make every decission for you.

How do I get started on this? Opening an IRA is my goal for the month, but I do not have the means to put down a hefty initial deposit. Do you have any links that break down the differences between types of accounts and drawbacks/benefits? Suggested companies? Thanks.

Sure thing. I would go to either Vanguard or Fidelity. Both are great companies with plenty of low cost options. Part of the problem people run into is that there are a ton of choices and they get bogged down, so I would choose one company and go for it. Generally Vanguard is lower cost, but its minimum investment sizes are a bit higher. Fidelity has many more funds, but at a generally higher cost and choosing them can be more confusing.

Next you need to choose whether you will open a Roth IRA or a Traditional. The Roth gives you no tax break now, but whatever you earn you will be able to take out tax free in retirement. The Traditional may give you a tax break now, but you will pay taxes on everything when you take it out. Again don’t agonize over this decision. If your income is low now and you expect it to rise significantly over the years the Roth may be better. If you think you will be taking a significant income cut in retirement the Traditional might be better.

Ok now go to www.vanguard.com or www.fidelity.com and find the investments with a year after them. For Fideity these are the Freedom funds, for Vanguard the Target Retirement funds. They will choose the investments based on when you will need the money, and they do a fine job. You can then open the account online and indicate the find you want, either with an initial investment or by having a bank draft every month.

Good luck and its a great step.

That, and scrounge from nearby the dumpster. I’m 34 and have 2 beds, a couch, a TV, 2 computer desks, 1 table, 2 decent computer chairs, and many regular chairs/stools. Of these, I’ve bought 1 bed and a computer desk. The rest were given to me or taken from what people were throwing away. They don’t last as long as quality stuff (only 1 chair and one computer chair have gone bad), but on average they last as long as bad stuff, and they’re free!

Well, actually, we use a program my husband wrote for our personal requirements (he’s a software engineer) so luckily it was free for us. Obviously that won’t work for you, though. I’ve briefly looked into MS Money, and a close friend uses it for his budget and likes it–if you go to Microsoft’s site you can download a free trial and check it out for a couple months. The cheapest version is something like $20, so it’s not a huge investment.

The most important idea of living below one’s means has been said forever. Charles Dickens did it this way:

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Ed

Thank you SO much for your great advice and direction. I can’t wait to get started. I really appreciate you taking the time.

Don’t spend more than you can afford, and all of the ramifications of that statement.

Don’t eBay while drinking.