Let's talk about money - The Finance Thread


#1

yeah… it’s a longshot but i figured why not. i’m starting a new job on Tuesday. it’s sorta big for me, and i’ll be making more than i did in previous jobs.

here’s the problem… after fixed expenses (rent, utilities) i’m not sure how to allocate this income. i managed to build up some savings in my previous jobs, but i’d always eat into them due to lack of discipline. i’ve posted the gist of my questions below. i’m a little inexperienced with finances so some of these might be pretty basic:

  • i know there’s a rule out there that 10% of income should go into a risk-free interest bearing investment, like a bank account. do most people put 10%? (note: the rule i know is to save 10% before any expenses, including tax)

  • if you decide to save more than 10%, how do you (personally) divide your savings? for example, 10% can go into a bank account, 10% into a high risk/high interest fund, and 5% under the mattress in cash (25% savings total).

  • do you try to keep your savings above a certain level? say maybe $1000 minimum in the cheque account, $5000 in savings, etc?

  • for the previous question, i figured another strategy would be to build up some reserves in a bank account (a few thousand), then once i reach a certain $ value, stick everything i’d normally save into a high risk/high interest account. good idea? when should a guy feel “comfortable enough” to start thinking about riskier options than a savings account?

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feel free to post any info or questions on organizing finances. being the internet (and SRK), you can’t expect to receive (or be taken as seriously as) an unqualified opinion from a financial advisor… but maybe you’ll get a little help.

i don’t have a mortgage, wife and kids, or car to pay off… obviously some of you guys will. that’s a different ball game to me, but i’d be interested in hearing how you guys juggle things.


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#2

Emigrantdirect.com is a great place to have your savings, 5% interest a year. My wife and I saved up for our house with it; getting a couple hundred a month for no reason is never bad.

My normal saving/spending is divided like this:

Pay everything off; anything I have left, but 50% in the back and 50% in your pocket. Once you put it in the bank, divided it out house savings, car, etc

The main thing is to live within your means, don’t try to buy stuff that you can’t afford and keep your credit inline and correct!


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#3

I’m trying to become more disciplined with my income. I’ve been working for about two years now and I have absolutely nothing to show for it. It’s almost as if i’m living from check to check. Last month I decided that I can’t continue on this path and not have anything to show for when I decide to invest in a house or some other venture.

Right now, i’m trying to save a third of my monthly income each month. It’s been very difficult because i’m naturally inclined to wanton spending. I’ve had to cut back on frivolous spending and eating out. It’s a lifestyle change but i’m slowly getting use to it.

It’s also hard for me to have a gf and be tight with money. She understands what i’m trying to do and i’m thankful for that, because I can’t deal with someone who’s going to eat the floor from under me.

Investment wise, i’m saving up to purchase a home. If I can save atleast 20% of the cost for the house, i’m sure that i’ll be in good standing to get a loan for the bulk of the downpayment. I’d also like to start up a small business, but the risk is very high compared to real estate.

The savings/business path is a constant work in progress my friends.


#4

here’s a post i found on another forum. some good basic stuff… i didn’t read everything on mutual vs indexed funds, but i think this explains the gist of it (mutual funds sound like they rely on arbitrage, while index funds sound like that “market portfolio” finance majors learn about).


#5

The only two pieces of advice I have (I’m a novice):
1.) Seriously try to look at things in an “accumulative” sense. My mom tithes to the church, which runs 4 grand a year for her. But she also buys lottery tickets with at least 10 bucks a day, which is more than 4 grand annually when it all comes out.
Looking at things in a “whole sense” like that will make you think differently. That different road for your brain may lead to a budget, or it may not. Still, try it.

2.) When out shopping, you may venture across what looks like a cool deal. But before your brain gets wet and you run to the front counter, just think of these things:

How much space will this take up?

That’s something simple, but it’s something most people don’t consider when hypnotized by a lower price tag. If it’s not small, like a packet of kool-aid or chili mix, then an item will take up some space in your house. You must consider that space as if it were part of the price, because it will be. No use to getting even an ironing board if you have NO place to put it.

Will I take full advantage of this deal?

Getting more for your money is the whole reason a deal puts you in heat, so are you getting more? I drink soda/pop/whatever all the time. If I see a deal that says “Seven 6-packs of Pepsi for $5,” the only natural reaction is to jump for joy. I will drink all of those. But what if I see 10 boxes of Hamburger Helper for 2 bucks (I know these deals don’t exist; bear with me here)? I don’t make HH often, but it’s always good when I do. Still, its needs meat that will most likely rot/be used for hamburgers by the time I remember I can cook HH with it. The boxes also take up space. Where will they go?
I know HH wasn’t the best example, but people constantly take riskier gambles with things that take up more space or take less time to depreciate in value somehow.

Do I already have this?

Sometimes, things you already have are just as good or better than what you’re looking at. That’s… about it.

Where are the strings?

Besides the stuff about space and frequency of usage up above, does this deal come with any other strings? Think of components that don’t come with a device such as an MP3 player, or things that would make said item much easier to use. If you still have to get that other item after the deal, it’s not much of a deal.

If there are no deals around, you could always apply this stuff to regular items. I can’t fully express just how much money I’ve saved by just crossing shit off my list.


#6

Watch this docu:


#7

I work in Finance and so does my girlfriend but we are always looking for better ways to make our money work.
My advice is simple,
First: Set up a retirement account, I dont care how old or young you are, start it now! ( 401K, or IRA) 22 year old male with an IRA putting away 100 a month will have close to 200k when he is 47. Not too bad, especially if you have that come out automatically you wont even notice it after a while.

Second: Open several high yield online savings accounts like HSBC or Orange, they pay around 5 % and can do automatic withdrawels weekly. After your retirement contribution put in another 15% of your weekly income and scatter it into these two or three savings account.

Third: IF YOU WANT TO BE RICHER THAN MOST AMERICANS PAY DOWN YOUR DEBT.
If youve got savings use it to pay down your debt. It doesnt make sense to earn 5% on money that is sitting in a savings account when your credit cards have a balance and are charging you 9-25% interest. (Your losing money) I know it feels good to have money saved but if youve got debt, its better to use your savings to pay it down.

Fourth: The most important. Buy a HOUSE! Improve your home slightly for 3 years, wait till capital gains are no longer a problem and when the market looks like its up SELL! Dont sit around, normal people can flip houses too. Just dont get too attached and always be on the look out for a good property.

I wont get into Financial planning items like Mutual Funds, stocks, Insurances because its too risky to give advice on these topics to people without intimatley knowing your financial situation.


#8

I dont got anythign to contribute, just wanted to say that this is a great thread!!!


#9

Co-signing on the 401(k) thing. If you’re lucky enough to get a job with some awesome retirement benefits, grab as much knowledge on it as you possibly can. The sooner the start, the better. I figure – it’s money I won’t see, then it will be money I won’t immediately spend. I made a mistake of contributing the bare minimum when I started and my amounts weren’t maturing fast enough. So the next quarter, I went ahead and maxed out how much I could contribute (15%), and my company contributes 3% of what I contribute. I picked a pretty conservative setup for my plan. I didn’t pick an aggressive plan, when I know I should’ve. I wanted something safer, I guess.

Can someone explain the whole IRA thing? I have this giant shopping bag full of rolled coins in the corner of my room and I just want to be able to bring that to the bank and drop it into an IRA. Is that possible?


#10

Sort of. . . The most you can put into an IRA any given year is 4500. So that means the most you can start an IRA with is 4500 and you wont be able to contribute any more that year. So yes, you can definatly take your coins to the bank and start one, as long as its not more than $4500.

Mastermind, I dont know how old you are but if you are younger than 35 you might want to consider putting your risk level as high as it can go. When your young is the time to do it because when you get older you wont be able to afford the risk. When your young you can still make it up. Going high risk can make your yield rise from 4-6% to 10-15%. . .Not bad.

Contribute as much as you can unless you have a lot of credit card debt. If your debt is high see my above post.


#11

I was curious to know how US residents are responding to a rapidly dropping Greenback? As of this morning, the Canadian dollar was 94.3 to the dollar and with the impending hurricane season coupled with the Canadian dollar being very commidity based, there are projections of actual parity. Any thoughts on the subject?

T8 IS COMING!


#12

The thing about .personal. finance, like your situation, is that what you “should” do is basically contigent on your .personal. situation. You sound like you’re young. That implies that you have a higher tolerance for risk. I don’t know about any liabilities you may have, how much money you’re making, the stability of your job, etc. But the main concept of personal finance is weighing your own tolerance for risk versus the return you’re seeking.

Any finance major will tell you that’s the basic thing.

Risk, versus return.

There are millions of investors out there. The market is close to efficient, at least if we’re talking something like stocks on the Dow Jones. Essentially, what that’ll effectively mean for you is that all investments (well, all investments you should be making) have the same RATIO of risk to return. That’s because should any investment be returning at a better ratio, other investors will jump on it. That’s the essential idea, and it isn’t perfectly, perfectly efficient.

I haven’t progressed enough in my education, probably, so don’t listen to me over say a real investment manager. But here’s another principle: it isn’t necessarily better to pay off your debt. If the return on your investments is higher than the interest on your debt, then you are winning. The thing is, most debt has very high interest, like some of the other posters have mentioned, and as such odds are your rate of return on your investment will be less, and that’s when you need to pay off that debt.

An example of when paying off debt isn’t necessarily a good idea-- up here in Canada at least, student loans. It isn’t always a good idea to pay them off; the rate of interest on them is low. So if you can take that money you would have used to pay them off and use it to invest in something with a higher rate of return than the interest, you’re making money.

Oh, here’s a tip: currency arbitrage, like where you try to take advantage of short term pricing errors in foreign exchange rates, doesn’t actually work. It gets a lot of hype, I think there’s infomercials on it. The REASON it doesn’t work is that banks, investment houses, etc. have computers that pick up on foreign exchange pricing inefficiencies right away, faster than you can, and trade all that gain away for themselves (the inefficiency corrects as a result).

You could invest in longer term foreign currency speculation. Here’s another (Canadian) example. Canadian investors who invested in the American stock market in American dollars, in, say, 2002, would have theoretically realized a big gain: look at, say, this: http://finance.google.com/finance?q=ETSPX. Those annual / annualized returns are essentially what you’d get each year as rate of return; when you compound that for a couple of years… that’s a big return. But the thing is, if you’re investing from Canada, intend to spend your money in Canada, but your investments have all been in American dollars the last 5 or so years, your investments would’ve been ROCKED by the exchange rate changes in the market; the Canadian dollar has gone from about 62 cents US to about 94 cents, and it’s probably going to keep going up.

Let’s say it’s the other way around, you’re in America, using American dollars for your consumption. If you had purchased CAD at ~62 cents USD, and held it until now, at about ~94 cents USD, less the time value of money and inflation, you’d be up that percentage difference.


#13

I’m 25. I’ll definitely look into changing my risk level because this is the turn of the quarter.

I also definitely want to look into those online savings accounts. I want to move out of the folks’ house and into an apartment before the end of the year. Saving up for a house with one of those accounts seems really ideal.


#14

Trust me, it works, my future wife and I put 1500 a month into an ED account and it worked out nicely. Got everything we wanted towards our house minus the finished attic.

After my 3 months probation, I am going to contribute 2-4% into my 401(k). My wifey is doing it also, thats my savings towards my Ferrari when we kick the kids out the house in 25 years:rofl:


#15

Nagata, I would write forever on this topic but I have got to get some work done today.

The U.S dollar will begin to fail more and more over the next 20-50 years unless the U.S. changes their financial policies in a major way. Like I said, I could type all day about this but to put it simply check this: Remember 2 months ago when all the major Chinese corporations sold off. Remember what happened to the Dow and the S and P and NAsdaq? They fell apart and people thought it was the end of the US economy. This can happen again and at anytime. We are dependent on foreign everything. We import many times more than we export and China just surpassed us as the Number 1 exporter in the world.
Bottom line, China will determine the world market for the next 50-100 years and Canada will overtake the US dollar.
China WILL BE the world Super power in finance, exporting, and military.

Terracaota’s article is great, I love it all except for the 529 plan thing. Seriousley research these products, They can only be used for college! So if your kid doesnt go for some reason youve wasted all that time because the money is no longer tax deffered.


#16

This is another important idea people forget about. You want to have money? Kick those kids out no later than age 20. Other wise have them contribute in a major way to the houshold.


#17

great post… someone with premium rep him for me :tup:


#18

lol don’t rep me, i didn’t write it. but i’ll pass the message on.

glad the thread’s being helpful to some people. [media=youtube]_mDsCUOGCS0&mode=related&search="[/media]


#19

Repp you cuz I wanna!

…I use percentages for that.

…that went well.


#20

right now i got all my monies in savings

im thinking about buying a condo soon so thats why. if i dont, i will make my portfolio something like this:

10% CDs (ing offers 5% or so which is way better than bonds or money market or brickmortar banks)

50% vanguard s&p 500 (i forget the name)

20% REIT (vanguard has one)

20% foreign index fund (vanguard has one)

basically, i want fees as low as possible. vanguard has the lowest fees. i also want indexes, because nobody beats the market in the long run. low fees + indexes = win. high fees + mutual funds = LOSE.