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Stupid questions about Financing/Investing

bert

Enjoying the real world
pilot
Contributor
I thought the theme here was "buy . .and never sell" . .unless you do a "Tax Deferred Exchange (IRS Tax Code 1031)".
Time was I would have agreed with that, but unique circumstances in the last decade changed my mind. I was lucky enough that some of my career choices put me in a position to buy pretty close to the bottom in San Diego. The first house I bought (with 5% down) tripled in price in less than a decade. While it sounds like you might not have agreed with my choice, I did indeed sell that and have since sold others that I initially bought with the intent to hang on to forever. (I am actually down to owning only two - the house I live in and a condo in SD with a great tenant in it).

Again, I'm not disputing any advice you've given, I just wanted to make sure folks were considering all the angles. As much as the market was favorable for me a decade ago, it has probably been tough on folks who bought in the last couple of years. I don't know how easy it is these days for folks to get the loans you or I were getting not many years ago (but if you or anybody else has a good feel for it then I would be curious).

As a side note, I've contemplated starting a "Stupid Financial Questions" thread where people could ask these sorts of questions. We probably have a fair amount of folks on the board who have done pretty well for themselves. This would NOT be a stock tips thread, just a place where people could ask financial/retirement related questions without fear of looking ignorant or behind the curve. Any interest in that?
 

phrogdriver

More humble than you would understand
pilot
Super Moderator
No judgement, just facts, experiences, and advice. A lot of people get turned off from talking about finance, because someone will say,"You have a BALANCE on your credit card?!?" in the same way one would say,"You f-ed your dog in the back pew during church?!?"
 

nittany03

FUBIJAR
pilot
None
Super Moderator
Contributor
No judgement, just facts, experiences, and advice. A lot of people get turned off from talking about finance, because someone will say,"You have a BALANCE on your credit card?!?" in the same way one would say,"You f-ed your dog in the back pew during church?!?"
Well for sure, the first step is to GET RID of that balance and be the kind of customer the credit card companies hate; one who pays in full each month. No use investing at 8-10% if you've got credit card debt eating you up at 16%. Use the money to pay down the debt first!

Oh, and I stuck the thread.
 

phrogdriver

More humble than you would understand
pilot
Super Moderator
Fully agree. I just hate it when people whe aren't where they need to be financially are treated as if they're morally deficient in some way. Sort of like the crazy people screaming "Sinners!" outside Seville Quarter--you aren't helping get people to church.
 

bert

Enjoying the real world
pilot
Contributor
Good points - we can make an unwritten rule for the thread that (unlike stories involving transvestites), you can start your questions with "I have this friend..." and we won't call you on it.
 

MasterBates

Well-Known Member
OTOH, I am carrying about a $5K balance on credit cards right now. $4000 is at 0% until this summer, and I am hammering away at my highest interest rate things right now. When that $4000 becomes interest-accruing, I will jump it to another card, and continue to hammer away at the big ticket high interest stuff, while just chipping away at the 0% card.

I had a $9K balance put on 0% on a AMEX from USAA right after my divorce. It cost me a whopping $11 in interest over the 9 months it took me to pay off (1 month interest, when I had it paid down to a lot less).

Sometimes, you cannot avoid the credit card balance, especially if you get the rug pulled out of from under you in a divorce, or end up stuck with a house that falls thru at closing, etc. The trick is to treat debt like damage control. Do what you can to buy time (bal XFR at 0-low% for 9-12 months) and then hammer away a the big leaks below the waterline and the massive fire on the flight deck. The small fresh water leaks in other places can be dealt with later, as long as you know they are coming.

I've gotten pretty good at doing more with less. I won't slam people who have a balance, sometimes desperate times call for desperate measures. I was living on credit cards for the 1st 6 months of my divorce.

The basic idea is right though, there is no point to investing 10-20% of your income, when your credit card balances are going up and up. I rolled TSP back to 1% until I get all the credit cards and lawyer loans paid off. I should have that, my credit cards, and my motorcycle paid off within a year, and only be left with the following:

$250 for Truck
$260 for PUMA
$700 for Student Loans
$2000 for Manatee Food

After which, I will start ramping up savings/investments. For now, TSP has been my vehicle of choice as it's easy and painless.

What would the gurus here recommend? Roth/Standard IRA? Get a brokerage account and start getting stocks/bonds?

Right now I have more or less earmarked my 1st DH bonus check to pay off the PUMA and Truck, leaving me with only Student Loans, Manatee, and living expenses. I want to save up myself a pretty good retirement fund, but I don't want to be that guy in the squadron that invests every last dime while eating brown bag and driving a 1982 VW Rabbit that needs to be push started once a week. You all know who he is.. And he is not me.
 

bert

Enjoying the real world
pilot
Contributor
My advice is Roth IRA first, TSP second for tax-advantaged accounts unless you are DINK or otherwise need the pre-tax advantage of the TSP.

EDIT - For those that don't know, withdrawals from a Roth IRA are not taxed but the contributions cannot be deducted from your income. Withdrawals from TSP (essentially the government's 401k) are taxed as income, but the contributions are pre-tax and lower your taxable income.
 

phrogdriver

More humble than you would understand
pilot
Super Moderator
Fill the Roth first, before going to TSP. TSP is good to park a bonus or special payments in, if you don't need to use them right away.
 

bert

Enjoying the real world
pilot
Contributor
I want to save up myself a pretty good retirement fund, but I don't want to be that guy in the squadron that invests every last dime while eating brown bag and driving a 1982 VW Rabbit that needs to be push started once a week. You all know who he is.. And he is not me.
If you max your ROTH and 401k right now you would be saving $20.5k/year. Way more than the vast majority of your peers, but you have to factor in your retirement goals/timing to decide if that is more than you really need.
 

Tickle

Member
Concur with previous. Roth is great for monthly investing and TSP probably for lump sum money. If TSP ever has a matching component that will probably change. Juggle the 0% credit card offers but make sure you shred the actual card so you can't dig your hole any deeper. Keep in mind that when you cancel a credit card, it dings your credit score slightly.

Look at some version of an Index fund if you don't want to think about your investments. They usually have low fees and will plug along with the market. Nothing sexy but they get the job done until you have more time to be active with your investments.
 

bert

Enjoying the real world
pilot
Contributor
^ Fees really do matter - you should know what the fees are on any fund you own and how it compares to similar funds.
 

a2b2c3

Mmmm Poundcake
pilot
Contributor
What's the deal with closing credit cards? Is it worse to just leave a $4000 card open that you never use or close it out and take the small score dip?
 

bert

Enjoying the real world
pilot
Contributor
Unfortunately, the answer is "it depends". First off, different bureaus (and different banks) weigh factors differently. In your example, that unused $4k still hurts you to some lenders even without a balance on it because it affects your ratio of income to available credit but if the account was open for a long time with no hits then it might be helping you by adding to the length of your credit history.

Long story short, the below is a decent overview:

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
 
I am probably among the minority around here, but I believe in never closing a credit card unless you're forced by the creditor to do so in order to consolidate lines. Closing an account will have little to no effect on your overall credit score (unless it's one of your oldest cards that has a large proportion of your overall available credit). One of the most important factors in the credit score models is utilization, so the more lines you have available (and the larger those lines), the lower your utilization will appear.

Another interesting note about credit reports/scores is business credit. Overwhelmingly, these lines will not be reported to your credit report (some exceptions such as the Citi Professional card) and are a good means of 'hiding' credit usage. Now, I'm not advocating irresponsible credit usage. However, I do think it's a great means of keeping your score high while coping with whatever financial situation has arisen. Business credit offers flexibility.

For example, if you happen to have a $5000 credit card that you've recently charged $4000 worth of moving expenses to, this will significantly impact your credit score because your showing 80% utilization on that line. If you're hoping to purchase property in the new community to which you have just moved, that lower credit score may cost you several thousand dollars in interest over your lifetime. It's not a bad idea to float those moving expenses on an unreported business line.
 
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