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Can I do more?


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2014 Feb 2, 5:58am   5,179 views  14 comments

by EastCoastBubbleBoy   ➕follow (2)   💰tip   ignore  

I know what I earn both as an individual, and as a household, relative to my income. I know in many ways I am blessed - for many are far worse off than I. But lately, I have this overwhelming feeling that I can do better...

Below is based on net pay

30% to the mortgage, taxes, insc. (PITI)
19% to retirement (Roth 401k / Roth IRA)
10% to transportation
10% to child care
10% to utilities(including cable & cell phone)
6% to food
5% to savings
3% to student loans
3% out to eat
1% clothes

(leaves about 3% cushion for gifts / donations / overruns / etc.)

I can't help but think I'm not making the most of the hand I've been dealt.

#housing

Comments 1 - 14 of 14        Search these comments

1   New Renter   2014 Feb 2, 6:13am  

If you have free time how about volunteering?

2   Ceffer   2014 Feb 2, 6:41am  

Maybe more seed money for loan sharking if you have the moxie to break some bones.

3   yup1   2014 Feb 2, 11:11am  

Why would you be doing a Roth IRA/401k. Do you have some belief that when you retire your tax rate will go up as your income declines? Go with pretax as you should. If you are saving 18k per year post tax it is costing you almost 26k in earnings. I just put 8k per year in your pocket. Use it to pay off your debt, highest rate to lowest rate.

Cut your expenses. If you are spending 10% on utilities you are a wasteful energy hog, or you don't make much money. 2 smart phones $90, cable with internet $105, electric/gas $100, water/sewer $50, trash $30. Thats $4500 per year, those are my energy numbers in high priced California.

If you are only making net 45k per year, get a better job. If you are netting 100k or more, cut you wasteful spending, and fire whoever told you to do a Roth.

4   mell   2014 Feb 2, 11:11am  

The easiest is usually to cut cell phone and cable expenses, no phone plan should cost more than $40/month. Cable TV I would abandon entirely. Transportation if not too far can be cut by riding a bike for commuting and in general as much as possible. If you do so and put in some runs/crossfit as well, then you can also cancel any gym memberships. If you are in good terms with your neighbor and are wall to wall, you could share your internet connection and halve your bills. Don't buy gifts, people in this country have everything they need and often try to impress people they don't like with stuff they cannot afford. Invite them over instead and spend some quality time with those who you really like. Sell a lot of your belongings that you hardly ever use on ebay. You can invest some money into dividend paying, relatively safe stocks/funds (food/agriculture/healthcare/energy or precious metals), if you don't want to gamble in this already overvalued market. If you are somewhat in demand, always be "passively" in the market for another opportunity and occasionally ace an interview, then go to your boss and demand a raise matching your new offer - tell him the FED forces you to do so by continuously debasing your purchasing power.

5   mell   2014 Feb 2, 11:18am  

yup1 says

Why would you be doing a Roth IRA/401k. Do you have some belief that when you retire your tax rate will go up as your income declines?

A Roth is smart as taxes are likely going to be higher each year, just look at this forum and you know where this is headed. Also, if you can get your money out in time you are safe from possible capital controls or seizure of retirement funds when the next crisis hits that cannot be printed away with another quadrillion Fed bucks. Sure this may sound a bit paranoid at this point, but I think there is a decent chance that we will be seeing changes to Roths in limiting the amounts and free distribution as this is the vehicle the government has least control of. Any money that is freely available and liquid to you as soon as possible without penalties and other government strangleholds is a big plus. For example you could easily buy foreign assets/currencies or precious metals (physical) with it.

6   yup1   2014 Feb 2, 11:25am  

mell says

A Roth is smart as taxes are likely going to be higher each year, just look at this forum and you know where this is headed. Also, if you can get your money out in time you are safe from possible capital controls or seizure of retirement funds when the next crisis hits that cannot be printed away with another quadrillion Fed bucks. Sure this may sound a bit paranoid at this point, but I think there is a decent chance that we will be seeing changes to Roths in limiting the amounts and free distribution as this is the vehicle the government has least control of. Any money that is freely available and liquid to you as soon as possible without penalties and other government strangleholds is a big plus. For example you could easily buy foreign assets/currencies or precious metals (physical) with it.

Lets say you are correct. Do you really believe that if all that happens your Roth will be safe? Do you believe that your gold will not be confiscated? Do you believe that you will not be in Great Depression 2 with the rest of us?

Do the math, a roth 401k is only viable if you take a small amount of money and go uber risk, Hillary Clinton 1k into 100k investment shit and you get it tax free at the end. You are not Clinton and you are not Romney, drop the Roth.....

7   yup1   2014 Feb 2, 11:31am  

Roth is for the Uber wealthy to transfer undervalued securities into the Roth, so when they sell them they do not have to pay taxes on the gains. It is a Ruse. Kind of like a "blind trust"

http://www.youtube.com/embed/Q9DVKWhPibw

8   yup1   2014 Feb 2, 11:44am  

Lets do some simple Roth vs traditional 401k math.

Assuming your are at a 33% marginal tax rate.

Invest 10000/year pretax and you make an 8% rate of return for 30 years. In the Roth you invest the same 10000/year, after you pay taxes it is only 6700/year at 8% return.

Traditional 401k value = $551,459
Roth 401k value = $369,477

Now here comes the part that most people miss. When you start to withdraw you will be being taxed at your effective tax rate not your marginal tax rate.

Only put money in a Roth if you believe that you future effective tax rate will be higher than your current marginal tax rate.

9   mell   2014 Feb 2, 11:48am  

yup1 says

Lets say you are correct. Do you really believe that if all that happens your Roth will be safe? Do you believe that your gold will not be confiscated? Do you believe that you will not be in Great Depression 2 with the rest of us?

It's a valid concern, everybody has decide that for themselves.

yup1 says

Do the math, a roth 401k is only viable if you take a small amount of money and go uber risk, Hillary Clinton 1k into 100k investment shit and you get it tax free at the end. You are not Clinton and you are not Romney, drop the Roth.....

It is more useful for the wealthier wouldn't say just for the uber-wealthy, And for those continuing to generate income and/or working till they drop (or planning to do so).

10   TheOriginalSBH   2014 Feb 2, 11:49am  

i don't see teething on your list.
teethe to your local church to give yourself happiness..

11   ttsmyf   2014 Feb 2, 11:54am  

Be better informed, see The Public Be Suckered, here:
http://patrick.net/?p=1230886

12   Eman   2014 Feb 2, 3:53pm  

What are the interest on the student loans? Paying them at 3% pace, how long does it take for you to pay them off?

Unfortunately, I'm not a big fan of 401K and IRA. I think they're scams. I would only contribute enough to get the maximum company match, not a penny more. If there's no match, I wouldn't contribute anything.

I would work on paying off one debt at a time to give you more disposable income so you can start snowballing and paying off other debt. I believe paying off your student loans is a start. Once you have more disposable income, I would build up a decent size emergency fund. The rest of the money can then be invested or put in your 401K beyond the match or your IRA.

13   EastCoastBubbleBoy   2014 Feb 2, 5:23pm  

yup1 says

Now here comes the part that most people miss.

I follow your math, but I must be "most people", since I missed something.

traditional 401(k). Invest $10000 pre tax. Pay taxes when money is withdrawn during retirement at who knows what rate

Roth 401(k). Invest that same $10,000 after tax. (Keeping in mind you need to earn more than that to cover the taxes). Pay no taxes when the money is withdrawn during retirement.

(presuming no changes to the applicable tax law between now and then)

Seems to be I'm better off paying now rather than paying later.

****
@E-man - The bulk of the student loan debt is at 2% so I'm in no hurry. The running joke is that they'll be paid off about the same time my kids are ready to go off to college.
I have about a 6 months emergency fund at the moment.

***
@KennethCrass - Perhaps that's what bugging me. To whom much is given, much is expected. With some reprioritizing, I could probably be more charitable.
***
@mell - cutting cable keeps coming up as a viable option. One day we just might pull the plug on that one.

14   yup1   2014 Feb 2, 7:49pm  

EastCoastBubbleBoy says

I follow your math, but I must be "most people", since I missed something.

traditional 401(k). Invest $10000 pre tax. Pay taxes when money is withdrawn during retirement at who knows what rate

Roth 401(k). Invest that same $10,000 after tax. (Keeping in mind you need to earn more than that to cover the taxes). Pay no taxes when the money is withdrawn during retirement.

(presuming no changes to the applicable tax law between now and then)

Seems to be I'm better off paying now rather than paying later.

I guess you are most people.

On the 10k example you would need to earn 15k to fund it. You are investing money after paying the highest tax rate that you will ever pay in your life during your peak earning years.

Lets assume federal and state taxes at the margin are 33%. When you retire, if your 401k is your primary source of retirement funds you will be collecting it and paying your effective tax rate, which is much lower than your marginal rate now.

You will have an extra 5k per year each year in your pocket which you have not accounted for in your assumptions. You are comparing apples and oranges when you assume you put the same 10k in per year. The extra 5k per year that you would be taking home after taxes would grow to 178k in the 30 years and you are failing to account for it.

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