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Just turned 30, not sure what to do with my money

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Money Talk > Retirement Planning

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oldguy
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quote:
So now that I better understand the Vanguard / Mutual fund idea, you are essentially stating "Instead of paying off 2.8 and 3.8% and 5.8% loans, put that extra money in a Vanguard Mutual Fund SP500 Index that will statistically grow about 6.8% a year and is still highly liquid


You are mixing apples & oranges with your rates. You are quoting gross costs (2.8%, 3.8%, 5.8%) with your loans and comparing that to 'corrected' investment returns , ie, 6.8%/yr The actual return is about 11%/yr (take a look at the site that I provided earlier). So you will be paying 6.8%/yr to 'rent' that money and getting an average return of 11%/yr. The difference, 4.2%, may not seem like much but it adds up. Eg, A $50k loan at 11%/yr for 30 yrs = $1,150,000. The $50k loan at 6.8% costs $326/m, ie, $118,000 over 30 yrs.


quote:
The only downside to this is that, let's say in X years I have 100k in the account, and the bull market turns into a bear market, and now instead of seeing my money go up it's going down. This will happen, as 6.8% positive average could be one year of 6.4% negative and the next year of 20% positive


Yes, for sure this will happen, the Market has never gone straight up for 30 yrs, it will go up/down every yr, you seldom get an 11% yr, that's an average. But does that affect you? Traders and Market Timers worry about the ups and downs and try to predict them (it makes good TV) - but INVESTERS pay no attention to them, your main concern is what your stocks are worth 30 yrs from now, the roller coaster ride to get there doesn't matter.

Cars - as wino said - average new car buyer/drivers. You have the car-thing well under control, low annual miles, a Toyota (good gas mileage, over 200,000 miles of trouble free service), your car expenses are probably half compared to the "new leased beemer" crowd. (BTW, our Toyota has about 170,000 miles on it, planning on over 200,000)

quote:
In a word, the downside is risk. What I have suggested is that you first minimize risk by eliminating drains on your income, which is your debt.


Risk. I don't see risk as a 'downside', I see it as a management tool. When I want to add risk, I do it by borrowing, I refi one of my rentals and remove equity - then I invest that cash to our SP500 fund.

Every time I do that, the lender asks what I want the 'cash-out' for (it's a question on their form) and I tell them it is to add risk to my overall holdings. lol, I get the funniest looks, apparently it's something that lenders seldom see (or borrowers seldom admit?). Over the past 40 years I've done this on each of our rental, as well as on our home. One rental that I bought in 1979 or 80 is on it's 4th mortgage - and right now it has $90k equity in a $140k house, I probably should refi it again & do something with that $90k.

BTW, I was an engineer on the Apollo Lunar program thru the 1960s. We did exhaustive risk analyses - monte carlo simulations, probable outcomes of every part/systemfailure that we could think of (even the $400 hammer), we applied statistical acceptance to every part that we bought/built (I knew MIL-STD-105 by heart, lol). And we did this with slide rules - hand held scientific calculators weren't invented until after the lunar landing. I wonder if the US could ever put men on the moon again, do we have the heart for it? - we're so PC, litigious - just the environmental study would take a decade, lol.
Post Tue Dec 02, 2014 4:25 pm
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Wino
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quote:
Originally posted by oldguy
Every time I do that, the lender asks what I want the 'cash-out' for (it's a question on their form) and I tell them it is to add risk to my overall holdings. lol, I get the funniest looks, apparently it's something that lenders seldom see (or borrowers seldom admit?). Over the past 40 years I've done this on each of our rental, as well as on our home. One rental that I bought in 1979 or 80 is on it's 4th mortgage - and right now it has $90k equity in a $140k house, I probably should refi it again & do something with that $90k.

BTW, I was an engineer on the Apollo Lunar program thru the 1960s. We did exhaustive risk analyses - monte carlo simulations, probable outcomes of every part/systemfailure that we could think of (even the $400 hammer), we applied statistical acceptance to every part that we bought/built (I knew MIL-STD-105 by heart, lol). And we did this with slide rules - hand held scientific calculators weren't invented until after the lunar landing. I wonder if the US could ever put men on the moon again, do we have the heart for it? - we're so PC, litigious - just the environmental study would take a decade, lol.

And herein lies the reason for our contention... I work in the oil patch in a similar position. Part of my job is to eliminate risk as much as possible, rather than minimize or calculate risk. Oldguy suggests you manage risk. I work to remove risk from the equation.

In the early 1980's, people were dying literally daily in the oil patch. As I say it, "At the time, safety is what got in the way of doing the job fast." Nowadays, we don't do things that we did back then, and a lot fewer people die because of it. We still have fatalities, but most of those take place on land rigs out in rural areas. Why is that? Because land rigs accept risk as part of the cost of doing business. To me, that cost is too high.

So, does the OP want to risk financial ruin on a statistically improbable, but avoidable, calamity? I say, "No." Oldguy apparently says, "The odds of it happening are miniscule, so you should multiply your investments, not add to them." In most cases, oldguy's methods will bear fruit. In some cases that could have been avoided, people will lose their investments and be forced to start over, or - worst case - retire broke and in debt.

My counsel is to follow littleroc's suggestion: Pay off your debt, and use your income to build wealth by investing. Another risk oldguy is accepting - "inciting" might be a better word - is that he is effectively putting all of his eggs in the single investment of the S&P 500. Another way of mitigating risk is to spread out your investments in multiple areas. The S&P 500 index funds effectlively spread your risk to 500 different companies. If you add real estate to the mix, you are spreading your investments further. Add bonds and commodities (oil, soybeans, frozen concentrated orange juice [hat tip to Eddie Murphy and Dan Ackroyd]), and your portfolio is about as diversified as you can get. One or another investment might go down, but the others should go up accordingly.

It takes more money to diversify, but that's the reason I give for eliminating debt. It gives you more money to work with and thereby more options for diversification.

One thing that oldguy and I agree on is that you should stay in your investments, and ride through market changes. If you lose 40% in a year, then keep buying! That's the "low" time of "buy low, sell high." If you get out when it drops, you're effectively losing your chance to buy low, which means you'll only be buying high. Worse still is to get OUT of the investment because it is down. That's "selling low," and when you get back in it will be "buying high." That's the opposite of the way to make money. Put your money in Vanguard and keep adding to it periodically (regularly). When you retire, you'll have more than if you try to get in and out as its levels ebb and flow.
Post Wed Dec 03, 2014 4:21 am
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oldguy
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quote:
If you get out when it drops, you're effectively losing your chance to buy low, which means you'll only be buying high. Worse still is to get OUT of the investment because it is down. That's "selling low," and when you get back in it will be "buying high." That's the opposite of the way to make money. Put your money in Vanguard and keep adding to it periodically (regularly).


A comment that I find amusing - "I'm waiting for the Market to recover so that I can get back in." Talk about 'buy high, sell low', lol. Very Happy
Post Wed Dec 03, 2014 1:29 pm
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SyZ
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Interesting to hear both posters have a background in engineering / mathematics / statistics, though most of what was discussed went over my head

I read http://www.daveramsey.com/blog/how-the-debt-snowball-method-works and just based on that I don't know if I would want to take his advice. He's basically advocating losing money in the long term to pay off your lowest principal debt, even if it has low interest, just so you can sort of emotionally trick yourself into thinking you're making progress by seeing debt 1 go, then debt 2, etc. I have the mental discipline to realize that my current and only financial goal is to eliminate my debt, so I'm not sure his snowball method works (assuming this is the "Dave Ramsey Method"?)

Oldguy says I will average 11% in the Vanguard fund, and references a 6.8% 'rent' and thus gain 4.2%. (Oldguy - I will read that link you posted, have been busy lately and wanted to post this before I leave for the night) I'm confused. Is there a 6.8% fee that Vanguard charges? Maybe an example will help. I have $1,000 in a Vanguard account in S&P500. This is a bad year and the market only went up 1%. Do I have $1,010 in my account?

I feel like I am still not 100% grasping the point of this Vanguard account, as well. I am putting 15% towards my retirement, in the form of the pre-tax 401k with the company match. I then broke down my loans and discussed saving in an emergency fund and aggressively paying off the debts versus saving for real estate / other investing. The discussion of which is best ensued, but everyone is telling me to use Vanguard as my main 'savings' area, IE reach a certain threshold in my checking and everything over goes in this account. Is this where, once debt free, I will just be putting the majority of my extra money as a second type of retirement plan, with the option of removing if necessary? An example being, if I had no debt, and 100k in the account, I could take out 30k to buy a new car. The confusion is coming from the fact that I have allocated money towards my retirement planning - specifically, the 15% pre tax 401k contribution

As mentioned, I work in Insurance. I had a claim this week involving 4 vehicles, and I spoke to all drivers. The car in front of us states she hit the car in front of her at strength 8 of 10, and it pushed the first car through the intersection never to be hit again. She then felt an impact from behind with my Insured, at strength 6 of 10. She then felt an impact from behind at strength 4 of 10.

I spoke to my Insured. She saw the car in front hit the car in front of that and so slammed on the breaks. She's not sure if she hit the car in front of her before she was hit from behind and pushed into the car in front of her.

I spoke to the car behind my Insured. She saw my Insured slam on the breaks and hit the car in front, so this person slammed on the breaks and then hit my Insured from behind, and she's not sure if this pushed my Insured into the car in front

My conclusion? The car in front of my Insured felt two distinct rear impacts. The car behind us states she saw us hit the car in front of us first. My insured admits she is not sure if she hit the car in front. I advised her we needed to accept liability as the statements support she impacted the car in front of us, which has 2 injured passengers. Needless to say, she wasn't happy

My point? Car 1 led me to think we were liable. Car 2 didn't lead me one way or another. Car 3 led me to think we were liable

One person (Wino) leads me to believe I should eliminate my debt first. One person (me) wasn't sure if I should eliminate my debt first or aggressively invest. One person (littleroc02us) leads me to believe I should eliminate my debt first

I'm not discounting anything Oldguy says, but I think getting rid of my liabilities first is ultimately the right call. I don't know if I'll be married to my girlfriend and a kid will be on the way in a few years. If that's the case, I'd rather be out of debt and able to afford what I need to support my family

I don't know if I'll be single in 2 years and relying on myself. If that's the case, I'd rather be out of debt with the mobility to relocate anywhere and have nothing to worry about but investing for retirement and perhaps trying to make it in real estate

Maybe there is a compromise, though. My car loan is 1.9% and matures in 3 years. Some of my loans are 2.8% interest and mature in 2020. Perhaps the best option is to aggressively pay down all my 4.8, 5.8, 6.8% loans, until I'm left with nothing but the 1.9% and 2.8%ers. At this point, I would just pay the minimums until the debt is gone (this will actually happen, right? I won't be in debt till I'm 70 with these suckers? I've seen diagrams showing that if you have something like $10,000 CC debt and pay the minimum, it takes 30 years to get out and you end up paying like $50,000. If you pay 50% over the minimum, you're out in 4 years and pay $15,000 - not specific but you get the idea)

(And random aside - did I read correctly that both Oldguy and Wino would just flat out buy a new car with $30k cash instead of taking a loan out on it? Doesn't this go against the entire concept of 'Take a loan out for $30k at 1.9% and then use your 30k capital to average 11% in the S&P500?)
Post Sat Dec 06, 2014 9:35 am
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Wino
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I won't do all the quotes, but in a nutshell:

Yes, if you have the emotional discipline, then mathematically, the Dave Ramsey method is not necessary. The method you advocate is called the debt avalanche and is mathematically the best way to pay off debt. The main thing is that you MUST pay off the debt with either of these plans by sticking to them. They both take time and it is hard for many folks to keep the discipline going for the period of time required.

I suggested buying a car outright for cash, but I wouldn't buy a $30K car. I would buy a 2 to 4 year old car originally costing $30K, but I'd pay about $10K to $18K for it, depending on its age. Oldguy suggests you save up the $30K and invest it in Vanguard (more on that in a second). You buy the car at a very low interest rate, and reap the interest difference over time. You can expect to reasonably make 11% on the money that is invested, while paying 2% or less, assuming past trends are constant and continue.

The Vanguard account is simple. Let's simplify it:

1. Open the Vanguard account.
2. Connect it to a bank account that you will use to draw your investments from.
3. Transfer money from account in 2 to Vanguard.
4. Your money in Vanguard is in a "holding" account, doing nothing.
5. Decide where to invest your money inside Vanguard for returns.
6. Tell Vanguard to move the money to the mutual fund selected in step 5.
7. Option: Set up periodic transfer from step two account to Vanguard fund in step 6, or you can transfer to Vanguard account in step 1, and manually transfer it to any mutual fund. (Easy course, do it to the step 6 fund. We suggest the S&P 500 fund, but that's your call).

Your 401K won't have good options, usually. If the 401K has an S&P 500 fund, and the 401K has low fees (remember, no up-front fees for Vanguard and very low annual fees), then that would work. As far as tax implications go, you can set up a Roth IRA or individual IRA at Vanguard which is a question for another day.

Yes, you should max out your retirement, but where and how to invest the money is dependent on your personal finances. The main point, though, is to invest your money SOMEWHERE, and keep doing it. In the long run, most folks just don't invest, so that's why they have no retirement. Whether your fund is 401K, Vanguard Roth/IRA, or Vanguard taxable, it matters less than the fact you contribute regularly.


Last edited by Wino on Sat Dec 06, 2014 3:33 pm; edited 2 times in total
Post Sat Dec 06, 2014 2:43 pm
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oldguy
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did I read correctly that both Oldguy and Wino would just flat out buy a new car with $30k cash instead of taking a loan out on it?


No way - I 100% finance our cars, my DP is zero plus I finance the tax & license. Plus I sell our old car privately and add that $4000 or so to our SP500 Fund.

If I paid cash I would need to sell about $33000 of my SP500, use $3000 to pay cap gains tax on my profits and use $30,000 for the car. Instead I leave that $33,000 in the SP500 plus the $4000 from the old car - and, using the Rule of 72, I expect to double that $37,000 to $74,000 in about 7 yrs.

quote:
Is this where, once debt free, I will just be putting the majority of my extra money as a second type of retirement plan, with the option of removing if necessary? An example being, if I had no debt, and 100k in the account, I could take out 30k to buy a new car. The confusion is coming from the fact that I have allocated money towards my retirement planning - specifically, the 15% pre tax 401k contribution


Your emotional fix on 'debt' and 'debt free' are clouding your math. Forget using 'debt' as your measurement and use Net Worth. Here's an example - say that Guy A has a $200,000 house, a $30,000 car, a $50,000 401k, and has a $150,000 mortgage and a $25k car loan. So his NW is $200,000 + $30,000 + $50,000 - $150,000 - $25,000 = $105,000.
GuyB rents, has a paid-for $30,000 car and a $75,000 401k.
Who is wealthier - A or B?

quote:
I won't be in debt till I'm 70 with these suckers?


I'm well over 70 - and wealthy - and I have loans. And I plan on keeping them. And when we need a new car I'll finance it 100%.
Be careful about following conventional wisdom and being safe - most people do that - and very few people are multi-millionaires. Very Happy
Post Sat Dec 06, 2014 3:22 pm
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SyZ
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Guy B is wealthier, as they both have a net worth of 105k but his 401k is larger

However, most people would argue Guy A is better off as he has an 'asset', his home

Is this then the agreed upon plan?

1) Remove my 4.8%, 5.8%, 6.8% student loans
2) Keep the 1.9% car loan and 2.8% student loans and pay the minimum until maturity (2018 for the car loan, 2020 for the student loans)
3) Keep my $4,800 CC balance at $0 (side question, now that I have no CC balance should I be looking for a new CC or just keep the balance at $0?), but recognize if I absolutely NEEDED to I could charge up to that
4) Keep X amount in my checking account (still not sure what the agreed upon number is as if I lost my job (the only emergency I can think of at this time ..) I would have unemployment which alone almost covers all my monthly debts
5) Keep the 15% contribution into a very aggressive 401k, which is NOT the S&P500
6) Whatever extra I don't need for every day expenses goes into the Vanguard account, into the S&P500 fund they have
7) Enjoy life, keep rent down, have fun with my girlfriend but don't blow $3,000 on vacation every year, and in a few years start looking at real estate

Here are some questions I was thinking about yesterday and today:

- Are there any good programs out there I can use to track my finances? I've tried to make Excel documents but none of them are good and there's got to be something out there that I'm sure you both use to easily see where you're losing money you shouldn't be. I'd like to be able to do a month running and then post it here for people to analyze, and it would help myself as well

- Dave Ramsey advocates NO debt including NO mortgage. I'm a little confused. Is he against buying a home and wants me to rent forever? Is he only willing to purhase a home if he can afford 100% of the cost (seems HIGHLY unlikely for 99% of Americans ..)

- Are there other sources of income I can pursue from home on time off? Hour surveys while watching Netflix to bring in $25? Things of this nature that you guys do which are safe and proven

Thanks for all responses, much appreciated
Post Mon Dec 08, 2014 1:04 am
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Wino
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quote:
Originally posted by SyZ
Is this then the agreed upon plan?

You are the only one who has to "agree" with the plan. Do you know WHY you want to do each step? If yes, then that's YOUR plan. What oldguy or I think is irrelevant.

quote:
Originally posted by SyZ
Are there any good programs out there I can use to track my finances?
I don't track them nearly as close as you might think. I look at monthly expenses and balances. Also, I have a memory that elephants talk about. You must remember that I have no debt, so my only tracking is my mutual funds which I can watch using the Vanguard and Fidelity tools. I have not yet started buying rental real estate. I am saving up a down payment, as I don't want to risk my personal home to the vagaries of the economy and markets. I plan to use Excel for each rental house to track all income and out-go separately for each of them.

quote:
Originally posted by SyZ
Dave Ramsey advocates NO debt including NO mortgage. I'm a little confused. Is he against buying a home and wants me to rent forever? Is he only willing to purhase a home if he can afford 100% of the cost (seems HIGHLY unlikely for 99% of Americans ..)
His mortgage advice is to have no debt, a completely-funded emergency fund, a 20% down payment, and to get a mortgage with a payment that is less than 25% of your monthly income. His advice is very conservative, but if you follow it, you can be relatively assured that you will not lose your house to problems in your life that are not permanently disabling.

quote:
Originally posted by SyZ
Are there other sources of income I can pursue from home on time off? Hour surveys while watching Netflix to bring in $25? Things of this nature that you guys do which are safe and proven
My job gives me bonuses according to my results. It makes more sense for me to do my job better and get a larger bonus than to do outside jobs for low pay. There are many jobs others suggest: Pizza delivery being one of the most common suggestions. PaymentProof, one of our regular posters, has a web site where he details how he makes money online. Many folks find ways to earn $100 or $200 per month doing different things, but I have tried none of these methods.
Post Mon Dec 08, 2014 5:25 am
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oldguy
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5) Keep the 15% contribution into a very aggressive 401k, which is NOT the S&P500


IMO, the SP500 is close to optimal. Professional fund managers try 'very aggressive' funds to beat the market. About 85% fail - and the 15% who do it are usually successful for only 5 or 10 yrs. So why try to win at that game? Just accept the 11%/yr that the Market gives you, no trading, no selling, no market timing, just accumulate forever. The risk is moderate (not aggressive) and the result is adequate - not home runs but adequate. Eg, $5000/yr at 11%/yr for 30 yrs = $1,100,000. Pick your goal for age 60 and factor it - eg, if you want $2M, invest $10,000/yr. If you want $3M invest $15,000/yr.
Post Mon Dec 08, 2014 5:17 pm
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SyZ
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I made the mistake of looking at a random home in the area: http://www.homes.com/property/1602-autumn-oak-dr-livermore-ca-94551/id-100000929232/

It's not even that fantastic of a starter home, and the loan amount off a 90% down payment is $360k, with a mortgage of $2,326. Assuming this is 28% of my income, I would need to be salaried at $100,000

Yea, not happening

It makes me want to find a $1,200 apartment in the area and just rent forever with the knowledge that I can retire early and be more than financially stable

I was speaking with a coworker today, she's 60 and retiring next year. Never been married, no kids, her house has been paid off, and she puts 50% (50%) into her 401k. She said two things, one I knew, one I didn't know. The first, which I knew: your social security continues to grow the longer you work and contributes to how much of an annuity it will be. The second, which I didn't know: you can retire long before 62, and even when you hit 62 you don't have to start collecting social security. You can wait until 72, at which point the government makes you start collecting.

So, essentially, if I have enough in investments by, say, 55, I could retire then and not even collect Social Security until 70 as I live off my investments

Has anybody used powerpay.org? Should I use it and post what it's telling me to do?
Post Sat Dec 13, 2014 5:16 am
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oldguy
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SS is tied to age - you can start drawing as early as 62 or as late as 70 - your work status isn't a factor. Ie, you can stop working at 50, 60, 80, whenever you like. And start your SS checks at any point from 62 to 70. (I retired at 59, started SS at 62).

I'm astonished at the price of Livermore real estate, $469/foot, I had no idea. I made two business trips there (I think one was Tracy, we did some warhead testing out on the ranges).
As for your idea to rent - that is also a function of RE prices. Eg, if a landlord owned some $469/foot houses, he would need to charge commensurate rent to cover costs & earn a profit. Costs are always passed thru to the renter.

You're in insurance, there is an insurance office on nearly every cornier across the entire US - why live/work in Livermore?

'powerpay' No, that will just tell you how to get out of debt, not how to build wealth and manage money.
Post Sat Dec 13, 2014 3:29 pm
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SyZ
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Here are my eight loans:

Navient 1 2410.96 27.26 2.33
Navient 2 2148.36 24.29 2.33
Navient 3 4824.92 53.07 2.33
Navient 4 1671.54 50.15 6.80
Navient 5 5434.77 72.18 6.80
MyFedLoan 1 4805.94 54.38 3.40
MyFedLoan 2 6359.46 88.75 6.80
Toyota 7266.17 181.10 1.90

According to that site, this is the amount I would ultimately pay if I only did minimums:

Payoff Time:
8 years 6 months Jun 2023
Total paid:
$40519.98
Total Interest:
$5597.86

Assuming I did everything correctly, it's telling me that with $500 extra a month towards my highest interest and principal loan, I'd be out of debt in 35 months:

http://i.imgur.com/qsRSakv.png

Here's the breakdown:

Creditor # of payments Total paid Int Paid
Navient 1 30 $2528.53 $117.57
Navient 2 28 $2246.64 $98.28
Navient 3 34 $5082.53 $257.61
Navient 4 21 $1815.51 $143.97
Navient 5 19 $5888.25 $453.48
MyFedLoan 1 26 $5092.17 $286.23
MyFedLoan2 12 $6581.25 $221.79
Toyota 35 $7505.70 $239.53

Payoff Time:
2 years 11 months Nov 2017
Total paid:
$36740.58
Total Interest:
$1818.46

$600 extra month, it would take 32 months: http://i.imgur.com/GVNJYKJ.png

Creditor # of payments Total paid Int Paid
Navient 1 27 $2517.01 $106.05
Navient 2 25 $2236.53 $88.17
Navient 3 30 $5058.59 $233.67
Navient 4 18 $1802.52 $130.98
Navient 5 17 $5829.19 $394.42
MyFedLoan 1 23 $5060.35 $254.41
MyFedLoan2 10 $6550.85 $191.39
Toyota 32 $7497.32 $231.15

Payoff Time:
2 years 8 months Aug 2017
Total paid:
$36552.36
Total Interest:
$1630.24

$750 extra a month, it would take 28 months: http://i.imgur.com/iDNXucE.png

With Power Payments Without Power Payments
Creditor # of payments Total paid Int Paid
Navient 1 23 $2503.35 $92.39
Navient 2 21 $2224.94 $76.58
Navient 3 26 $5030.08 $205.16
Navient 4 15 $1786.16 $114.62
Navient 5 14 $5765.67 $330.90
MyFedLoan 1 19 $5024.30 $218.36
MyFedLoan2 8 $6518.94 $159.48
Toyota 28 $7482.78 $216.61


Payoff Time:
2 years 4 months Apr 2017
Total paid:
$36336.22
Total Interest:
$1414.1


$1,000 extra a month, it would take 24 months: http://i.imgur.com/LRpccm8.png

With Power Payments Without Power Payments
Creditor # of payments Total paid Int Paid
Navient 1 18 $2486.91 $75.95
Navient 2 17 $2211.27 $62.91
Navient 3 21 $4995.49 $170.57
Navient 4 12 $1766.37 $94.83
Navient 5 11 $5697.02 $262.25
MyFedLoan 1 15 $4982.64 $176.70
MyFedLoan2 6 $6485.52 $126.06
Toyota 24 $7460.11 $193.94


Payoff Time:
2 years 0 months Dec 2016
Total paid:
$36085.33
Total Interest:
$1163.21

$1,000 is more than likely not doable
$750 might be
$600 is
$500 is

But I'm sure oldguy will say I should do the minimum, because I'd end up making more than $5,597.86 on putting an extra $500/$600/$750/$1,000 into investments

Which is true, so I don't know why I still want to eliminate the debt
Post Sun Dec 14, 2014 5:05 am
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Wino
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quote:
Originally posted by SyZ
But I'm sure oldguy will say I should do the minimum, because I'd end up making more than $5,597.86 on putting an extra $500/$600/$750/$1,000 into investments

Which is true, so I don't know why I still want to eliminate the debt

It is called "peace of mind." When you have no debt, you don't have to worry about making the payments. Oldguy's method should work, but there is a lot of risk involved. By paying off your debt, everything you have is yours.

I second oldguy's suggestion to move if you want a house right away. A better idea might be to save up for a house/down payment, and wait for the market prices to subside. We're likely in a bubble again, so I expect to see houses drop in price. Of course, my domicile is in Houston, TX, so that's where I'm focusing. With oil down below $60 bbl, I expect to have some bargains in Houston within the next year.
Post Sun Dec 14, 2014 6:54 am
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oldguy
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quote:
But I'm sure oldguy will say I should do the minimum, because I'd end up making more than $5,597.86 on putting an extra $500/$600/$750/$1,000 into investments



LOL - exactly! You have $21,500 @ 3.4% and below. In my world that is useful capital, I would not prepay a dime of it. As for the $13.5k at 6.8% - I would not go out and borrow 6.8% money on purpose for investing (5.5% is about my high limit, and then only if I can get 20 or 30 yrs). But if I had it I might keep it.

It seems to me that people pick the wrong goals, usually based on emotion -

Debt-free? OK if you mean cc's, store cards, consumption. But for wealth-building, leveraged capital has worked very well for me.

Minimize interest costs? I have 30 yr loans where I have paid as much or more in interest than the loan amount - and I've earned >10X that amount by carefully investing that money elsewhere - ie, I'm happy to pay interest for the use of that capital.

The "peace of mind" cuts both ways - when I focused on paying off houses & was not invested, I felt uneasy because I was missing years of compounding, I felt out of the loop, not building wealth. It turns out that I am way more at ease with the world when I have borrowed capital working for me. Fortunately I learned that about myself when I was fairly young - and it's worked out great for me.

I know people who always have "one more thing" to payoff, then they plan to invest in their 401k, lol. The car, a HELOC, wife's car, new bathroom, kid's teeth. That list never ends - in most cases they would have been much better off to put the priority on the monthly investment - and borrow for the bills. After 30 years they might still have a car loan and $25k on their cc'c - but they'd also have a million or two in the 401k. IMO, it is key to set up a life investment plan and then never derail that plan. Ie, turn the budget inside out - focus on what you keep, not what you spend.
LOL - when we were about age 30 or 35, we sat on the floor with colored pencils and sketched out 30-yr compound-interest curves on yellow pads - that was before hand-held calculators & computers, I used a sliderule & a logbook. Kinda funny - we put Man on the Moon using sliderules & log tables.
Post Sun Dec 14, 2014 3:10 pm
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SyZ
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Oldguy,

If I put $1,000 extra a month for the next year, I would have the three loans at high interest paid off: http://i.imgur.com/LRpccm8.png

One year from now, if I did that, I would only have the 1.9% and the 2.33% and the 3.4% loans

At that point, you would start putting the $1,000 a month extra into a Vanguard account, ideally the S&P500, and continue with minimum payments on the debt until they're all paid off?

What next? Just save for a down payment? Continue to rent if I can continue to find a great deal and build up my retirement and investments?

Do you recommend I read any books / guides?

What about a foreclosure? http://www.homes.com/property/address-not-disclosed-pleasanton-ca-94566/id-214437724/

That property would easily be a million in the area, but my understanding is if I can give this person $160,000 cash, they will sell the home to me. Which makes no sense, because a 20% down payment on a similar property would be $200,000. Am I not understanding?
Post Mon Dec 15, 2014 1:42 am
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