[OT] Personal Finances: Was The perfect MP3 player

Grant Shipley gshipley at gmail.com
Sun Sep 18 18:32:30 MDT 2005


On 9/18/05, Dave Smith <DavidSmith at byu.net> wrote:
> Many financial planners will also advise you to get a second mortgage on
> your home equity to invest. Many financial planners are also mortgage
> brokers. Many people who have taken this advice have foreclosed on their
> homes. You can't foreclose on a house that's paid off. Follow the money
> and don't trust every financial planner.

Really?  I have had three and know several more and none of them would
suggest doing this.  None of them are mortgage brokers either.  What
some do suggest is that you take out a HELOC as a last resort in case
you do lose your job.  But anyone who tells you to borrow money to
invest is a crackpot (a few expemptions, I know)

> By the way, I'm not into mutual funds for the short term, and the S&P
> has averaged 13% over any 50 year period, so your numbers are irrelevant
> to my situation. Personally, I'd rather move retirement closer by a
> couple years than indulge in electronic gadgets right now anyway, but
> that's just me.

I have been heavily invested in the market since I graduated college
and have yet to see 13% return on my money (year 2000).  I did realize
a 4000% increase in my SCO stock when I worked there -- but that was
once in a lifetime.  It may not be electronic gadgets, but in order to
be healthy, humas need to do the following:
1) TAKE VACATION and actually go somewhere.  Stop using it as a
severage package.
2) Find a hobby that you enjoy.
3) Eat well.
 
> Anyway, I know I have uncommon financial opinions, and that I'm a green
> amateur, so I'm interested in the rest of the group's opinions. I
> generally find that IT-type people are pretty darn good with money,
> especially the engineering types. Not sure why, maybe they see it as
> some kind of optimization problem wanting to be solved.

I don't.  Most software engineers I know don't even put away anything
in a 401k because they need the money now.  They bought a huge 400k
home on a modest salary and have to pay the bills.  Granted, their
home could be a nice investement if the prices keep sky rocketing. 
Utah has the highest bankruptcy rate in the nation for a reason. 
People here seem to overspend.  (We also are the 3rd highest in taxes
paid.)
 
> So, anyhoo my plan is basically this, in chronological order: Pay off
> all debt except the house. 

The goal for all people should be to have no debt other than a "modest
home" and a car.  Seems like I heard that somewhere before. :)

>Amass an "emergency fund" of a year of cash.

I suggest two years.

> Save 15-20% of gross income for retirement and children's education in a
> mix of Roth IRAs and 401(k) plans. 

The financial planners suggest 10% but I try to sock away 30%.

>Pay off house as fast as possible.

I believe the money is better saved outside of the home until you have
enough to pay the balance off in full.  If a disaster happened (read
depression), the banks like to go after the homes that have a ton of
equity in them versus someone who still have 20 years on their
mortgage.

> Two months after house is paid off, throw a huge party with the house
> payment money you've saved over the last couple months. Then, spend like
> crazy using all that extra income that's no longer going to Wells Fargo
> Home Mortgage. Retire at 50-55 and enjoy your millions. 

This would be great and is what we should all go for.  However, you
mentioned savings in a ROTH IRA and 401k plans.  If this is the case,
you will not be able to take your money out of these plans at this
time.  You will need to have enough money in cash account to last
until you are at least 62 1/2.

>Yes, there are
> risks: Get life insurance for 10x your salary to help your family in
> case you kick the bucket. 

This is not enough. If you are making 100k a year, I would think that
2 million is enough. (Depending on your age)

>Get long-term disability insurance in case you
> loose all your fingers and can't type C code anymore (many employers
> provide this). 

Another great suggestion.  However, I find that the employers plan is
not good enough and that extra coverage was needed.

>So that's it in a nutshell. What does everyone think?
> Sound or stupid?

Very sound ---- on the surface.  However, it could all blow up in our
faces if the market crashes.  We would lose everything we have saved. 
This is a very REAL possibility.  My parents lost hundreds of
thousands of dollars during the last crash.  However, it is suggested
you have at least 10% of your savings in gold and silver cions to
offset such a crash.



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