bloodninja420 Posted July 22, 2014 Report Share Posted July 22, 2014 Where are you averaging 7% return on your investments?I have a pension, and a Roth IRA where all my 401k money was rolled. I will have to check, but I think my return is 5-7%, and it's not compounding the way my interest is. If your loan rates are at 7%, I think you would be hard-pressed to find a better investment in the markets than you would get by paying the loan off. The reason is that you're getting a risk free 7% rate of return by paying down certain liability. The closest thing to a risk free return in the markets is the 30-year t-bond, which yields about 3%. When you start talking about tax effects of a 401k and deductability of your loan interest...that could tip the calculus in favor stocks. But a 7% risk free return is awfully hard to beat. Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 23, 2014 Author Report Share Posted July 23, 2014 Technically the loans are 6.8% and I get it down to 6.625 by setting up automatic payments. But the points above are why I'm considering it. On the bright side, my actual payment is going to be less than the estimate. I should be able to further reduce it by not filing taxes jointly next year. Quote Link to comment Share on other sites More sharing options...
turnone Posted July 23, 2014 Report Share Posted July 23, 2014 I'm still amazed at the $45-60k with a law degree. 7 years post high school for long(ish) hours at work for that kind of money is lower than what I expected. Glad I know how to fix shit for $ It will be a while before we don't need shit fixed by humans. But even that day is coming. Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 23, 2014 Author Report Share Posted July 23, 2014 $45k is the average starting income. I'm not sure if that is limited to "salary."There are $100k+ jobs that pull the average up, and people building their own practice that pull the average down. The problem is that reasonable hustle used to guarantee $75k pretty quickly. Any more, that's hard to reach even when you're busy. Quote Link to comment Share on other sites More sharing options...
magley64 Posted July 23, 2014 Report Share Posted July 23, 2014 (edited) 2.59% of my gross income goes to student loan payments. 21.33% goes to my house payment(Inc taxes, insurance, pmi, and mortgage), 5.98% goes to my car payment, 4.3 for my cell phone, 2.86 for electric bills. Edited July 23, 2014 by magley64 Quote Link to comment Share on other sites More sharing options...
RCBS Posted July 23, 2014 Report Share Posted July 23, 2014 Loans for homes, loans for transportation, loans for education...they have it covered pretty well. Us normal folks aren't allowed to play the game without borrowing money. Quote Link to comment Share on other sites More sharing options...
magley64 Posted July 23, 2014 Report Share Posted July 23, 2014 Loans for homes, loans for transportation, loans for education...they have it covered pretty well. Us normal folks aren't allowed to play the game without borrowing money.Home loans have been around forever, it's the biggest investment most people will make. You can easily purchase a car without a loan. Lots of cars sub $1000 out there. As for college, we've got world renowned schools, if you want a world class education, you're gonna pay for it. Takes money to make money. Quote Link to comment Share on other sites More sharing options...
turnone Posted July 23, 2014 Report Share Posted July 23, 2014 Home loans are complete shit with the high fees and front loaded interest fucking you if you refinance or sell or payoff early. You will pay almost all interest during the early years. I'm axed we put up with that shit. I would advise anyone to start with a cheap house and a short loan. Quote Link to comment Share on other sites More sharing options...
shittygsxr Posted July 23, 2014 Report Share Posted July 23, 2014 Deductible interest of a loan and tax deferred contributions 401k. I have a finance degree and I don't pretend to know the law. So why would you pretend to understand finance? The effects of your decisions down the road will cost you millions. Isn't that worth taking a couple of evenings to get a basic understanding of finance? Quote Link to comment Share on other sites More sharing options...
shittygsxr Posted July 23, 2014 Report Share Posted July 23, 2014 (edited) Just a quick example for someone that has never done a tvm calculation$100 month for 40 years (480 months) at a return of 10% (this is less that the historical market return) would have a future value of 632k So for you 25 year olds that would be a very modest retirement contribution Edited July 23, 2014 by shittygsxr Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 23, 2014 Author Report Share Posted July 23, 2014 Deductible interest of a loan and tax deferred contributions 401k. I have a finance degree and I don't pretend to know the law. So why would you pretend to understand finance?The effects of your decisions down the road will cost you millions. Isn't that worth taking a couple of evenings to get a basic understanding of finance? Are you volunteering to teach me? I'm realistic about my relative lack of financial savvy. The plan was/is to find someone in the field and pay for their guidance regarding how to proceed. As your post suggests, a few hundred (or even a few thousand) dollars well-spent now stands to save me tens of thousands over the next 30 years. Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 23, 2014 Author Report Share Posted July 23, 2014 2.59% of my gross income goes to student loan payments. 21.33% goes to my house payment(Inc taxes, insurance, pmi, and mortgage), 5.98% goes to my car payment, 4.3 for my cell phone, 2.86 for electric bills. The "American Dream" is no longer obtained, it is financed throughout your life, and then liquidated by creditors upon your demise... Quote Link to comment Share on other sites More sharing options...
shittygsxr Posted July 23, 2014 Report Share Posted July 23, 2014 If you want to make a trip down to South Carolina I will teach you everything you need to know. Look for a financial calculator app for your phone and get familiar with it. A little bit of time with a finance book, a real textbook not one of those finance for dummies, and you will see there is more too it than you thought. Word of caution, many stock brokers and financial planners are more salesmen than anything else. It cost most people around $0.70 to put $1.00 in their retirement account. That same $0.70 paid on the principle of your student loan saves you $0.047 in interest. Interest which is tax deductible. Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 23, 2014 Author Report Share Posted July 23, 2014 so you're saying pay down the loans instead of saving for retirement. I currently have a pension plan, so that changes things a bit (I think). Strangely, I think it makes a lot more sense to pay down my student loans than my mortgage. Higher balance, but 2.6% lower interest rate on the mortgage. 1 Quote Link to comment Share on other sites More sharing options...
bloodninja420 Posted July 23, 2014 Report Share Posted July 23, 2014 I don't understand what you're getting at, shittygsxr. Are you talking about the tradeoff Redkow faces by making extra principal payments on his student loan versus investing that same amount of money in 401k stocks? If so, you need to compare the investments over the same time horizon. It comes down to a choice of whether he prefers a 7% risk-free rate of return or an expected market-rate of return of 10%. Personally I'd take the 7% all day long. There is no volatility involved. There is significant volatility associated with your 10% averge market return. Historically the standard deviation has been about 20%. Run the simulations for this and you'll see the median return is well less than the average return. Which obviously it has to be...there are no free lunches out there. Quote Link to comment Share on other sites More sharing options...
shittygsxr Posted July 23, 2014 Report Share Posted July 23, 2014 Market volatility is of little concern with an investment horizon as long as his will be. It not a 7% return, it's not even the 6.625% he quoted. It closer to 4.25% since it's deductible.You can get a better return on investment by upgrading the insulation in your attic Quote Link to comment Share on other sites More sharing options...
RCBS Posted July 23, 2014 Report Share Posted July 23, 2014 Home loans have been around forever, it's the biggest investment most people will make. You can easily purchase a car without a loan. Lots of cars sub $1000 out there. As for college, we've got world renowned schools, if you want a world class education, you're gonna pay for it. Takes money to make money. Just pointing out the fact that most "necessities".... an average home, car or education require a bank. Quote Link to comment Share on other sites More sharing options...
turnone Posted July 23, 2014 Report Share Posted July 23, 2014 (edited) Home loans are complete shit with the high fees and front loaded interest fucking you if you refinance or sell or payoff early. You will pay almost all interest during the early years. I'm axed we put up with that shit. I would advise anyone to start with a cheap house and a short loan.Disregard the front loaded part as it's totally legit but you do mainly pay interest first and therefore you do lose out of you sell, refi or payoff early. Generally you will pay 3 times the value of your home so it would be best to start with a small home and pay it off. If you feel you need more house you can upgrade. Interest is a killer when you are the one paying vs collecting. People talk about the mortgage interest deduction, which does offset some of the pain. But you are still spending a dollar to save $0.25-0.40. Edited July 23, 2014 by turnone Quote Link to comment Share on other sites More sharing options...
magley64 Posted July 23, 2014 Report Share Posted July 23, 2014 Just pointing out the fact that most "necessities".... an average home, car or education require a bank.I think that's because people have raised the "average" by borrowing money. You could purchase a house and a car, and go to school without borrowing money, but you would have to work and save to do it. Quote Link to comment Share on other sites More sharing options...
RCBS Posted July 24, 2014 Report Share Posted July 24, 2014 (edited) I think that's because people have raised the "average" by borrowing money. You could purchase a house and a car, and go to school without borrowing money, but you would have to work and save to do it. That's all quite relative really. And yes, the American standard of living has climbed quite high. When I speak of an average home I'm talking 100k and less, car...15-20k and education....I haven't really got a base figure to work with as I could never afford to go....and I'm talking University...not Bumfuck Tech U and not private school. I could always move into a cave on a hill, drive an 87 Yugo, get my education from Encyclopedia Britannica and eat my own toe-jam and small rodents for sustenance....but that would hardly be average. Edited July 24, 2014 by RCBS Quote Link to comment Share on other sites More sharing options...
magley64 Posted July 24, 2014 Report Share Posted July 24, 2014 That's all quite relative really. And yes, the American standard of living has climbed quite high. When I speak of an average home I'm talking 100k and less, car...15-20k and education....I haven't really got a base figure to work with as I could never afford to go....and I'm talking University...not Bumfuck Tech U and not private school.I could always move into a cave on a hill, drive an 87 Yugo, get my education from Encyclopedia Britannica and eat my own toe-jam and small rodents for sustenance....but that would hardly be average.You could also purchase a small home for less than 40k, drive a 97 grand am for 1000, and eat pasta. Work hard at a factory, you make near 30k per year. My student loans were only 25,000 and I have 2 degrees. Quote Link to comment Share on other sites More sharing options...
RCBS Posted July 24, 2014 Report Share Posted July 24, 2014 You could also purchase a small home for less than 40k, drive a 97 grand am for 1000, and eat pasta. Work hard at a factory, you make near 30k per year.My student loans were only 25,000 and I have 2 degrees. Ramen to the rescue! The homes in my area for that kind of money are not what I would call "the american dream". Congratulations on the degrees. I hope they are serving you well. Some of my friends from high school went to college and got degrees and now work in totally unrelated fields for more money than they could make in their "chosen profession". Not saying that there aren't plenty of grads that are making bank doing just what they studied for, but that's not always the case. I'm getting off on a tangent... A quicker way to prove my point would be to ask any adult if they have taken out a loan. What percentage will say no? Does that infer that the majority of folks never worked hard or saved money or that they are living "too good"? The banking industry has its tentacles in everything these days...just how they want it. "only" 25 g's? lol You Sir, are on a different level than I. 1 Quote Link to comment Share on other sites More sharing options...
redkow97 Posted July 24, 2014 Author Report Share Posted July 24, 2014 A quicker way to prove my point would be to ask any adult if they have taken out a loan. What percentage will say no? Does that infer that the majority of folks never worked hard or saved money or that they are living "too good"? The banking industry has its tentacles in everything these days...just how they want it. That's what I'm saying, and where I'd like to escape from. As much as I want to move in 5 years and drive new(er) vehicles, I hate financing things. Quote Link to comment Share on other sites More sharing options...
magley64 Posted July 24, 2014 Report Share Posted July 24, 2014 Ramen to the rescue! The homes in my area for that kind of money are not what I would call "the american dream". Congratulations on the degrees. I hope they are serving you well. Some of my friends from high school went to college and got degrees and now work in totally unrelated fields for more money than they could make in their "chosen profession". Not saying that there aren't plenty of grads that are making bank doing just what they studied for, but that's not always the case. I'm getting off on a tangent...A quicker way to prove my point would be to ask any adult if they have taken out a loan. What percentage will say no? Does that infer that the majority of folks never worked hard or saved money or that they are living "too good"? The banking industry has its tentacles in everything these days...just how they want it."only" 25 g's? lol You Sir, are on a different level than I.So since most people use credit, it's not possible to get by without it? Nay I say. And yes, only 25k, less than a new midsized car. I have a friend who is over 200k in debt on student loans. He makes great money, but a big chunk of it goes to pay those loans. Quote Link to comment Share on other sites More sharing options...
bloodninja420 Posted July 24, 2014 Report Share Posted July 24, 2014 I hope to hell he's a doctor in a high paying specialty. That's a chunk of change for schooling. Quote Link to comment Share on other sites More sharing options...
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