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#1 Aetherous

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Posted 09 January 2017 - 01:48 PM

This thread can be for any opinions and tips on how to become better with money.

I'll present one idea that I've currently been looking into, for how a low income or college student can do well...


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#2 Aetherous

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Posted 09 January 2017 - 03:58 PM

One way for the low income worker, or college student to have financial gongfu:

Read Millionaire Teacher while taking notes. It teaches good things about investing money over the long term, and sums up the work of many smart people.

You will be able to start investing now, but not with the method from the book quite yet (that requires having more money).

Use some kind of spreadsheet, like Excel if you have it, to make a budget. I think Google Drive has a free version. You can look online for how to do a budget, but basically you should include: 1) what you currently have and your income, 2) monthly bills and their dates, 3) typical monthly expenses if you know them, 4) what's left over for the month. Estimate your expenses above what you actually pay, so that you never go over your budget.

Spreadsheets are nice because you can plug in new numbers (such as a new checking account balance after you buy things) and all of your numbers will adjust for it...you'll be able to see in a second what you have left to spend.

 

Check your bank account on a daily basis from now on. Know that if you're afraid to look, that's exactly the time you need to look. You should always know what you have left to spend, what you can't spend, and what bills are coming. When numbers change for the day, put them into your spreadsheet.

 

So now you've got a handle on budgeting to some extent, and know how much left over you can invest.

If you have enough income or money to autopay $100/month into investments, use Betterment. Thanks be to another Daobum for suggesting this service. With Betterment, you actually only need $10 to begin...but without the autopay, your account is charged $3/month...not an acceptable fee for low money accounts.

Other than that, Betterment is good because it does fractional shares...every cent you're investing into the Betterment account is reaping the rewards, versus just sitting there like is the case with most services. Excellent for a beginning investor.

 

If you don't have enough to autopay $100/month, you can start with Stash Invest for $5...however, they begin to charge $1/month after the first 3 months...something you'd probably want to avoid with a small account. Wealthfront is another service that a Daobum recommended. They don't charge fees at all for low accounts (up to $10k...great for a beginning investor), but you need $500 to open an account with them (not foolproof to start).

So if Betterment isn't possible, then you could start with a combination of Stash Invest and Wealthfront...put money into Stash Invest $5 at a time, and once you have $500, take it out of Stash and put it into Wealthfront. If you want to avoid the $1/month fee of Stash, just set aside however much you can per month until you reach $500, then put it into Wealthfront.

Tip: with the money you're investing, realize that it could be totally gone in the short term future. This is not a high interest bank account with FDIC insured money. There may come a time when you need extra money in your life, and you shouldn't count on your investments necessarily being there for you. Look into setting aside a little bit into an emergency fund for that purpose. Think of money you're investing as being accessible like 30 years later.

Also, get the Credit Karma app, so you can easily know your credit score and improve it. If you don't have an emergency fund and something big happens, you can use some credit to survive. Also, it builds good credit to pay off your purchases by the due date. There are cards with rewards for those who have good credit, such as getting 1% cash back on all purchases, or airline miles which would allow you to travel for free. These kinds of things mean that you have more money to invest.

 

(EDIT: also get Credit Sesame. It found things that were dragging down my score which Credit Karma didn't find. Both are good apps. And if there is anything on either of these, get your full credit report and then try to get those things off of your record)

If your checking account is greater than $2,500 on a daily basis, you can earn 1% back with a Summit Account (a free checking account with a debit card that works at any ATM) from Aspiration. If it's smaller, you'll earn a smaller percentage.

(EDIT: I've heard from one person that when they had fraudulent charges on their Summit account, Aspiration simply closed their account. That might have been without reimbursement. So this may not be a good idea for a checking account...better to use established banks that have a higher return)

It's good to look at everything in life as being either losing money or gaining money. Those kinds of things (rewards cards, high interest bank accounts) are about gaining money, and are risk free.

So, that's an easy way to get started taking control of your financial present and future.

 

Knowledge isn't power, but applied knowledge is. Compounding interest works best when started earliest...so I think it's good to start investing today, whatever the amount is. If you know about this and don't use it, you later regret it.

I personally knew about this stuff back in 2009, and even earlier...probably the earliest was when I understood the basic principle of how to do well long term in the stock market thanks to a 5th grade teacher of mine, who had us pretend we were investors. But I only finally started investing this year, 2017! I've lost a lot of potential money as a result of having knowledge, but not applying it.

 

...

To do the smart method of the book I recommended, you need Vanguard accounts, which have a minimum investment of $3,000 (I think for each one...keep in mind that I've only begun and haven't had experience with Vanguard yet...also, this advice is primarily for US investors. The author of the book has more information for people around the globe at his website).

Using Betterment or Wealthfront, you can work up to $3,000. Once you're there, here are the indexes you want:

Total US: VTSMX

Total International: VGTSX
Total US Bonds: VBMFX

The book recommends to keep your portfolio in these percentages:
US and International roughly equal, and bonds percentage should be roughly the same as your age.
So if you're 28 years old, the US bonds is 28%, and the other two are each at 36%.

What made that book worth every penny for me was in how it helped me realize that you can actually beat the market without taking extra risks. Maybe this is a basic concept to seasoned investors, but I was under the impression that you can't beat the roughly 10% that the S&P500 returns on average, on a consistent basis.

With "dollar cost averaging" (investing the exact same amount at the exact time each month), you get roughly the same return as the market on average.

However...you can take advantage of when the market is fluctuating. This is one of the reasons for investing in bonds, which don't perform as well as stocks (why would you want less returns in your portfolio? This is why). When the market crashes, you want to buy as much stocks as you can because the value of the stocks is really great...you end up getting more shares for your dollar, which will amplify your investment returns when the market rises again. It's too bad that you can only invest a certain amount per month from your income during those times...but you can sell your bonds and buy more stocks when it happens. More money to wisely invest.

Also, for way down the road when you're reaching retirement...you want the bonds to match your age so that you can rely on it for living expenses. What if the stock market crashed and you relied only on stocks in your porfolio? You might have no money.

So, having this portfolio is smart. If you want to be convinced, read the book...I'm just summing up what's involved here, for the benefit of the Bums.

 

...

With some more research, I think I've discovered the better way of going about this...

Start out from day one with buying Vanguard ETFs. To begin, you just pay the current price of a share, and you can control your own portfolio from day one (instead of Betterment or Wealthfront, which have some strange things in their portfolios, probably there to make year to year seem more stable).

I've been reading Paul Merriman's articles, and he recommends a certain portfolio that has subdivisions of things like small cap value, etc...apparently making the portfolio have slightly better returns than the market, with about the same risk. It can be a difference of millions of dollars by retirement. Good idea to look into his work in depth...while at the same time, keeping in mind that most experts suggest it's hard for anyone to beat the market's returns.

In terms of starting investing late (for instance, I'm starting at 32 years old)...it's a good idea to not even worry about bonds, which would just lower the returns. Do all stocks at first.

"Risk" in a portfolio just means that it can fluctate more from year to year...it doesn't mean "risk" in the same sense as gambling, where there are odds that you'll lose your money (which would be the case with investing in individual companies...but 99.99% unlikely with investing in the broad market...which would also be the case if you end up selling any shares, which should not be done). Because this type of investing is looking at decades down the road, risk is irrelevant in the beginning, and just sounds misleading.

About market timing...no one know what's going to happen in the future. It looks like the market is high right now, and that it could go down. But it could also go up.

So, in this situation it seems like a good idea to dollar cost average...investing some each month, rather than any large amount. At least this way you're starting, and even if the market crashes shortly after, decades down the road the investments will still be worth a return. While investing some each month, watch where the market goes. If it's a bear market (it drops quite a bit for a period of time), or especially if it crashes, then invest as much as you're able to at that time. When it rises again, you'll be happy.

About rebalancing a portfolio...to me it seems like a bad idea for beginners, with what I've been reading. Consider this simple concept: the market rises over time. We want to buy when it's low, and sell when it's high. If we're looking at a span of decades, rebalancing the portfolio (selling some stocks) halfway through our investing career (lets say a decade from now) means that in the long run we're actually selling low...because the market tends to keep rising. So an idea: rebalance/sell stocks when the market is said to be very high, at a time slightly before retirement. Not prior to that point. In the meantime, just buy stocks and don't sell any. The longer a share in the overall market is held, the more it makes.

So for the beginner: consider Merriman's ideas for a portfolio, get only stock indexes for now, no bonds, use Vanguard ETFs, invest some each month for now but be able to invest a lot more if the market crashes, and don't sell your shares because they're worth a lot later on.


Edited by Aetherous, 17 January 2017 - 07:03 PM.

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#3 dawei

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Posted 09 January 2017 - 04:38 PM

Great topic :)

 

All my financial wisdom comes from my wife...   I've learned more from her than 40 years on my own... in no particular order

 

1. If you have any skill at stocks...  give it a whirl

2. Groceries... buy one get one...  focus first on that.  If it ain't on sale, find it cheaper.  We frequent four different stores and rarely buy more than $30 on any trip.   

3. If your store has a gas card bonus, always get it.  I think we've done it more than 100 times.

4. Improve your cooking in... and save eating out for something like lunch which is cheaper.

5. Buy a house...   then buy a second for renting

6. Always consider where you would go next if fired... be aware of how your skills can earn you more somewhere else.  Not as a stress factor concept, but be informed.

7. Stop buying trash bags... use the store plastic bags as your trash... they already fit all your bathroom trashcans anyways.

8. If you work has you travel, get registered to an airline program and try to stick to flying it.  Consider a credit card based on that airline.  Consider Hotels.com to get free hotel stays for personal use.   

9. Consider what you are near and learn to enjoy visiting local, free things... must be many around.

10. Grow something...   we only grow incredibly hot peppers...  you will love the little you can plant...


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#4 Aetherous

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Posted 09 January 2017 - 05:33 PM

I'll definitely use some of those tips!


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#5 Aetherous

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Posted 09 January 2017 - 05:46 PM

The Millionaire Fast Lane was a paradigm shifting book for me a few years ago (although not life changing, since I haven't been able to implement it yet).

It basically discusses how it's wise to create passive (or nearly passive) income streams. For instance, writing a book that sells well would mean you're getting paid during a time that you're not working at all for the money. Same with writing songs for famous performers. Another example, for wealthier people, would be to own rental property.

 

The book is more convincing than me.

 

...

Mindset: a friend and I were talking recently, and we both came to a conclusion.

 

Throughout probably much of human history, survival was about having certain skills - being able to build a fire, construct or find shelter, have a clean water source, and to hunt and gather food. With those skills, you could survive.

In the modern world, the equivalent skill is managing your money.


Edited by Aetherous, 09 January 2017 - 05:46 PM.

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#6 zanshin

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Posted 10 January 2017 - 02:22 PM

I use an app called expense tracker for everything I spend on and also track the income. You can sort by categories and understand area that need work and also simply typing everything into it makes me more accountable and less likely to spend on dumb or impulsive things.
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#7 zanshin

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Posted 10 January 2017 - 02:25 PM

Also, if you work somewhere with 401k or 403b start contributing as much as you can while you're young.
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#8 SeekerOfHealing

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Posted 10 January 2017 - 11:06 PM

Look what is needed on the market.

Try to get it cheap = try to sell it with higher price.

The idea is of business is this. Try to get what brings happiness to people and well being or comfort. Or what is needed. Or develop something which they will need.


The mechanics of business is general simple, but conducting is not that so. If you are student maybe try to sell food or your campus or start with little steps here and there and see where it will take you.


This depends on the country but buying a house is not good idea. You need to calculate this if it's really worth. The best time to buy a house is developer crisis time when the houses are cheap. It's better to buy a ground because one way or another some people would rebuy it from you as space will be worth more and more with our development.

Edited by SeekerOfHealing, 10 January 2017 - 11:12 PM.

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#9 Golden Dragon Shining

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Posted 11 January 2017 - 04:12 AM


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#10 dawei

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Posted 11 January 2017 - 09:12 AM

8. If you work has you travel, get registered to an airline program and try to stick to flying it.  Consider a credit card based on that airline.  Consider Hotels.com to get free hotel stays for personal use.   

 

I'll expand on this.    

 

A frequent flyer program is free... so anyone can really do this.   Benefits have changed over the years to be less beneficial to the flyer so just be aware of your accrued mile status.  You can lose your miles if you don't fly within a certain time... let's say within a year of the last flight.    Some airlines, like United, you can transfer the miles to someone else for a fee; others like Southwest will not charge you to do that (my memory).

 

A mileage credit card:  There are at least two options.  

1. There are free ones that will allow you to fly on most any airline and accrue miles but the trick is you only get miles on the purchase, not on the flying.  Spend $400 and you'll get the corresponding benefit of somewhere between 1:1 (400 miles) to 1:2 (800 miles).

2. Dedicated mileage cards usually only accrue miles when you fly that airline (or a partner) and usually have an annual fee.  But you get to double dip:  You can get miles for the purchase AND for the actual flying distance.   If you get to some higher flyer status in the program, the ratios can change too so you get more miles for the same distance.  They in effect make it easier for you to maintain that higher status.    As a rough idea of what you can do with those accrued miles: For United, 26,000 miles is a free roundtrip in the US.   70,000 to china.   There is usually a small fee but well worth it.

 

Rental & Hotel programs:    These are also often free and instead of accruing points to that company program, you can often re-direct the points into miles to a mileage program.  My Hertz program re-directs miles to my mileage program.

 

In my case, I decided to use Hotels.com instead of say Marriott program (that I do have).    I believe that if I used the Marriott program, I can re-direct it to miles program... but personally I made an exception to use Hotels.com as I won't always stay at a Marriott.  So with Hotels.com, I can book through them and stay anywhere and always accrue points towards an eventual free stay.

 

So for me, here is how it works:

1. I use my mileage credit card to purchase the airline ticket, the rental car and the hotel.  All of those purchases result in mileage points.  If that totals to $1000 then I get 1000 points.   Sometimes there are specials where the rental gives me more if I rent from my rental program, which I do 99.9% of the time.

2. Then I fly, say 1500 miles.   So I get 1500 mileage points (sometimes more or less depending on certain issues). 

3. Then I get reimbursed by my company for all expenses :)  

 

Not everyone can do this but it illustrates how I leveraged this.


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#11 dawei

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Posted 11 January 2017 - 11:29 AM

5. Buy a house...   then buy a second for renting

 

I'll expand on this... and it will be longer than I expect as I need to explain several things but I think it will be worth it.  

 

What I'll touch on is how to 'make' money by 'saving' on paying early.  Also on the benefits of a Home Equity Line of Credit (HELOC) over a mortgage.  I'm a lay person talking here with no expertise in advice so what I share is purely my experience.

 

1. Home over an apartment seems like the greatest duh of all times... but the fact is, many just don't make the attempt and maybe unsure about how credit works, whether they qualify, or just comfortable with where they are.  I lived in apartments my whole growing up so that never entered my mind as necessary.    Of course one has to navigate the financial qualifications, possible down payments, years of loan, interest, etc...   

 

There are various rules of thumb out there: How much you should expect to pay towards a house, how much down payment is best given your goals, etc.  I can't offer that stuff so much.  Talking to your local bank mortgage officer is a lesson you will likely find insightful.

 

My feeling is: if you're paying more than $800/month on rent, I would bet money that you can actually get a mortgage payment for less... and you'll have an asset in the neighborhood of $160,000.  If you're paying $1000/month in rent, you can get a $200,000 house.   Most 30 years mortgages are intended to squeeze lots of interest money out of the homeowner and a rough, round number is somewhat close to double the cost of the house as the final, total payment.   You can keep that down with a large down payment and paying of earlier.   That is what I want to share.

 

We put enough down to get a loan of $100,000 and then began to pay it down as fast as we could.  One catch with mortgages is that your payment amount is fixed and will not change as you pay early amounts.  There are calculations on how much you can save by paying early and I'd recommend finding that.    I prefer ones in excel so I can manipulate calculations if needed:

 

Excel Template

 

Loan Schedule Excel

 

I'm more talking about the decision to pay it completely off as soon as possible; within 5-10 years.   The amount of interest payment you'll save.   So that $160,000 house will cost over 30 years, ~ $292,000.    If you pay an extra $200 each month, the final cost will be $243,000.  By paying $72,000 extra over 30 years ($200 each month), you saved almost $50,000 in interest.  The big question would be whether after 20 years (only 20 years as you paid it off early with the extra payments), is worth it.  To pay it off in 10 years would require double payments:  $800+$800.  The final cost would be $200,000.  I can only hope my numbers are correct, but one can use a spreadsheet and vary payments.

 

Payment - Years - Final Payout:

$800   - 30 - $292K

$1000 - 20 - $243K

$1600 - 10 - $200K

 

After we quickly paid off our house, we decided we needed another method as our develop is tough to buy into.  They don't accept traditional mortgages and only cash or VA loans are a surety.  We got lucky with our realtor how had someone who could get us an non-conventional loan and it was accepted.    This lead me to look at HELOC. 

 

HELOC:

 

The pro to this is it works more like a credit card balance and you use it forever you want.  If you pay down, then your payment amount reflects what is actually owed, whereas with the mortgage, you have the same payment amount regardless of how you much you pay extra.  This means that you are getting lower payments and have money back to you as if someone wrote you a check.  What one can do is put that money towards the principal, as extra payment and continue to get lower payments.   Or at least you have some liquidity on hand.    

 

The only con I can tell so far is that it can take up to 8 weeks to get approval and if you really have a house you wanted during that time, you'll likely not be able to get it as the approval has not completed.   

 

We did do this through our local bank, BOA.  I first talked to a loan officer who was more like a saleman for HELOC but he completely schooled me over a few hours on how to fully leverage an HELOC for our situation.  

1. Our goal was to pay it off as fast as possible.  So once again, we looked at healthy down payment to keep the loan smaller.

2. We received various small deductions in the interest for various things... higher checking account status, etc... our first year was set at 1.99%.   Thereafter it raises a little but all subject to the fluctuations of the prime rate as well.

3. We allowed auto-payments and the first three are to be without any extra payments to take advanced of all the discounted rates... so we did that.  Thereafter, we were to pay down as fast as we wanted.

4. As the third month arrived, I called the customer service to make sure I understand what was previously told me to by another... I read off my plan and she remarked it was rather incredible how well I understand this...  I said I work with data and so tend to keep it organized when dealing with numbers... now it was $$ and it suddenly felt important :)

 

So the way this works is, you have a HELOC of say $100,000 and then a payment of around $370...  You have 10 year to use the money as you see fit and 20 years to pay it back...  The down payment and low interest alone makes for a shockingly low monthly payment, no ?   Once the fourth month kicked in, we kicked in $20,000 and the payments went down to $295... then periodically kept kicking in $10,000 till our balance was $40,000 and payments were down to $135 a month...  

 

So from the perspective of the HELOC, we only owned them $40,000 and paid $135/month, yet we still had another $60,000 as a credit line to use on anything, anywhere.  The difference from the start = ~$240.   We could use that to put against the principal (and lower the payments again), or we at least have some immediate liquidity that a mortgage would not of provided.

 

One big lesson was that having extra money in the bank balance to get a better checking account or small deductions in interest rate were not really producing any real 'savings'.  First off, there is almost nothing to be gained from interest on the balance.   Instead, as shown above, putting in $20,000 towards the principal lowered our payments by $75 a month...  we were never going to get $75 a month in interest nor any benefit from having that in the bank balance.  That realization was a game changer...


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#12 MooNiNite

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Posted 11 January 2017 - 11:31 AM

ONline school is pretty legit. Saves tons of money. 


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#13 MooNiNite

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Posted 11 January 2017 - 11:41 AM

1.The idea of ownership is what generates the most money. 

 

2. Believe it or not: Meditation. The creative mind is what has ownership.

 

Also, Tax laws in the USA are set up to help entrepreneurs, so creating your own business can be fast track to millions. 

 

 

 

that guy is like glowing 


Edited by MooNiNite, 11 January 2017 - 11:47 AM.

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I am the light I see in others.

I am the sun so high above.

I am the sky rich with color.

I am the roots of the earth.


#14 Aetherous

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Posted 11 January 2017 - 02:38 PM

HELOC etc

 

That was really cool, and something I'm going to look into in a few years.

 

...

Another idea about owning your own home: renting out a spare room.

Let's say renting a lower end apartment is about $700/month locally...by renting out one of the rooms, one can easily get nearly that much in extra cash each month (minus the additional use of electricity, water, etc). If a mortgage or HELOC were lower monthly payments than renting, perhaps you could basically own a house for free.


Edited by Aetherous, 11 January 2017 - 02:43 PM.

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#15 liminal_luke

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Posted 11 January 2017 - 02:52 PM

Savor.  Better one fragrant organic heirloom tomato consciously enjoyed than a whole chef`s salad`s worth of ingredients unconsciously wolfed down.  Better a quiet walk in a local park alive to the beauty around you, than a distracted luxury cruise to Tahiti.  Better figuring out what`s really important to you, rather than assuming something is better because it costs more and everybody else seems to want it.


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#16 Rishi Das

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Posted 11 January 2017 - 02:55 PM

If a mortgage or HELOC were lower monthly payments than renting, perhaps you could basically own a house for free.

 

I don't have experience with HELOC but as far as a mortgage is concerned, you do have to think about the down payment, interest over time, and cost of upkeep to things like HVAC/water heater/etc. - assuming one can afford upfront costs and cash expenses for random/nonrandom upkeep then renting a room in a home that one owns can be a great way to save cash.

 

Assuming you have the upfront resources, renting a home you own and don't live in can 'feel' like owning a home for free; at least on a month to month basis. Assuming the market doesn't fluctuate to much and your able to find consistent renters then your return on investment would likely end up panning out over a much longer period of time.


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