Since you're a contractor, save as much as you can. Live on a stricter budget. In the event of layoffs, contractors are typically first to go.

I've been a contractor off and on for years, and I've seen a lot of contractors burned because they didn't anticipate company layoffs.

9/28/2011 8:36:01 AM

This is a great thread with a lot of good advice. I have finally found full-time perm. employment. I am starting to explore my options. Would you say a ROTH IRA is better than a TRADITIONAL IRA. Who is a good service to get your IRA through? I was looking on Mint.com and they list like 5-6 different places you can set up your IRA all with different minimums etc.

9/28/2011 8:57:56 AM

^^trying that. however, I'm certain my position is safe 1) because we both agreed to and signed for for a specific time period 2) my project is huge, well funded, and will last 10 more years, and 3) part of the deal was that I would become a full-time employee after the contract, assuming shit doesn't go horribly wrong... and with the workload here, things look fine. Of course this could all change, but I'm confident


^I'm partial to the Roth because in all likelihood taxes will be higher when you want to retire, thus you're sheltered from that. however, it's also nice to realize tax benefits now via tax-deductible accounts. From what I've seen, it's generally advised to have both, as long as you qualify for both and can deduct your non-Roth contributions. I know many people who have both, mainly because their employer provides a tax-deductible account with matching/contributions which takes care of the tax deductible part; and they have a Roth on their own for future tax sheltering.

9/28/2011 9:30:16 AM

Yeah, at your age, a roth is your best bet. I have one with Vanguard. Their expense ratios seemed the lowest last time I checked.

9/28/2011 11:10:09 AM

Another note - it's essentially a risk based decision...

Future taxes may not be higher (or that much higher) thus you never realize the tax benefits of a Roth (not a huge detriment, but it defeats the purpose of it).

The opposite is sort of true with non-Roth type investments. While you can realize tax benefits now, you may be slammed with high taxes in the future, which essentially means you won't have as much money as you would have with a Roth, even factoring in today's tax benefits.

Also, if the politicians really wanted to, they could always drastically change the way either or both work and end up screwing you.

[Edited on September 28, 2011 at 11:20 AM. Reason : -]

9/28/2011 11:19:35 AM

^ yep, pretty much. That's why I just try and put a good bit into/max both in an attempt to hedge my retirement investing.

9/28/2011 11:22:04 AM

Yeah, I have access to a roth 401k, but most companies still only offer traditional 401k so I always push for roth iras.

9/28/2011 11:26:00 AM

Quote :

" I hate her and Dave Ramsey"

Dave Ramsey is financial advice for dumb, poor, and/or those without much financial self control. For the average american his advice is useful. As an educated professional, his ideas are overly simpleistic and fail to utilize how credit can be used responsibly.

9/29/2011 8:14:31 AM

agreed

9/29/2011 10:46:44 AM

Quote :

"Also, if the politicians really wanted to, they could always drastically change the way either or both work and end up screwing you"

there would be blood in the streets if washington drastically changed roths...political suicide

Roths are also better when you're younger b/c the tax write off generally isn't as important since you're likely in a lower tax bracket to begin with...the write off from a traditional ira becomes alot more important if you're trying to squeeze into a lower bracket later in life when you're income increases.

in addition to being able to pull contributions out penalty free if you need to with a roth.

[Edited on September 29, 2011 at 11:16 AM. Reason : .]

9/29/2011 11:10:34 AM

^agreed; however, that's not how politics work. it's a little change here, a little change there. I could see a situation when this happens. I don't think it's likely, but it's not out of the realm of possibility. Heck, just look at gun control laws. The left are all like "they're not taking your guns" but in reality, that's the motive and that's what things eventually wind down to. A ban on cosmetic features, then a ban on certain magazines, then a ban on certain types of firearms, etc, then registration requirements (which BTW, in other countries, was the first major step to banning ownership and confiscation). anyways, different topic.

9/29/2011 11:18:38 AM

^Yeah, I could see them trying to inch down the contribution levels over time, but it would still be a risky move for a politician to vote for something like that...and easy brownie points across the board for someone to come out and slam a bill for containing something like that.

9/29/2011 11:33:32 AM

The politicians making changes has to be the worst argument not to invest in an IRA that I see brought up all the time.

Quote :

"once I'm swept into office, I'll sell our children's organs to zoos for meat, and I'll go into people's houses at night and wreck up the place."

-Robot Nixon

9/29/2011 11:52:41 AM

^it's probably the worst argument against them, but still an argument, if you truly want to consider all sides

9/29/2011 1:11:52 PM

ugh. need to look into investment banks/investments. i just have no clue where to start and how to compare.

i've also shopped around other interest rates on my auto loan and no one comes close to my current rate... oh well... though i believe it was already pretty low.

and two very financially smart people in my family have suggested paying off the auto loan asap to clear that debt (assuming I keep emergency funds) in case SHTF in the next few years or in case I get into a wreck.

10/27/2011 10:53:03 PM

^Yes, even though 3.44% seems low, you're losing more in paying that interest than you are gaining in your 2% investment account. I agree you should pay off the car if you can do it while maintaining your emergency fund, then focus on building wealth.

I don't care much for Dave Ramsey, either, but I've also seen many smart, well-educated people get burned by their "responsible use of credit." He is right that you should avoid debt, even debt that seems like a good deal or is tax deductible. It's a good deal for the lender, not you, and the tax "savings" are never really savings at all. Even with the current credit crunch, banks still seem eager to loan people more than they can afford to pay back in a reasonable amount of time, and little fees and penalties are looming there just waiting for you to slip up.

On the mortgage note, bear in mind that a larger down payment will sometimes translate into a lower fixed rate on a mortgage and might allow you to have a shorter term. 15 year mortgages can be had for less that 3% right now with a reasonable down payment. My advice would be shoot for at least a 10% down payment along with having additional money set aside for home repairs and upgrades.

Here is where some people chime in that a 30 year mortgage is the same as a 15 year because you can "pay extra" and it ends up the same without the pressure of a higher required payment. I've heard this over and over, and I call BS on this. It's not linear, the 15 year mortgages are lower rate, and I've seen almost every one of my friends and family members say they were going to pay off their 30 year faster, but then blow their money on shit they don't need instead.

10/28/2011 1:34:14 AM

Quote :

"and I've seen almost every one of my friends and family members say they were going to pay off their 30 year faster, but then blow their money on shit they don't need instead."

And they're idiots the banks love. My grandfather paid off his 30 year mortgage in 12 years using extra payments. Banks hate people like him

10/28/2011 7:04:10 AM

Quote :

"It's a good deal for the lender, not you, and the tax "savings" are never really savings at all."

Do you even understand how taxes/mortgages work?

10/28/2011 10:19:57 AM

Quote :

"It's a good deal for the lender, not you, and the tax "savings" are never really savings at all.""

I had to go back and look to see if that was something I typed. Because it's right and it's being criticized.

10/28/2011 10:22:32 AM

It's pretty simple math. Instead of paying with taxed money I'm paying with money which has not been taxed.

10/28/2011 10:34:47 AM

Paying is an outflow of money.

Saving is an inflow.

Simpler math.

10/28/2011 11:28:31 AM

Well clearly I'm going to have to pay for some sort of residence and spending less money, due to the tax break, allows me to save more.

10/28/2011 11:31:02 AM

^you don't get free money for having a mortgage. You get a tax deduction on the interest you pay to the bank, not the amount you put into the house.

Here's a generalized example:
With a mortgage, you pay $2500 in interest a year, you take a tax deduction, end up getting $750 off your taxes.

With no mortgage, you aren't paying shit to the bank, and end up $2500 ahead.


If you are trying to argue that you are going to pay $1200 for a house or pay $1200 for an apartment and you might as well get the $750 back a year for owning a house, that only seems valid on the surface. I definitely spend more than the tax savings on my house in upkeep and improvements to the house.

10/28/2011 4:34:06 PM

Quote :

"Do you even understand how taxes/mortgages work?"

Yes, I do.

Suppose you pay $10K in interest on your mortgage. You then get to deduct that $10K from your "taxable income." Well, on $10K in taxable income, you would have paid about $3K in taxes (give or take depending on your bracket.) So, you pay the bank $10K to avoid paying $3K to Uncle Sam. It's just stupidity to call it a "savings." It's $7K in the red. Yes, it's better than nothing, but not good justification for paying interest to the bank unless you need to do it to have a place to live.

On edit: I'm glad so many of you see this already. It restores my faith in the education system.

[Edited on October 29, 2011 at 8:14 PM. Reason : .]

10/29/2011 8:03:59 PM

^^

I have a mortgage. I'm well aware how a mortgage works, however given your completely unrealistic example I'm guessing you do not. If you only paid $2500 in interest a year you'd take the standard ~5K deduction and not itemize. What sized mortgage do you only pay $2500 in interest a year? Yes, I am attempting to argue that it would be better to pay $X for a house vs $X for an apt. As 24carat points out in his far more realistic scenario you'd get back about 3K in taxes which is far less than I pay each year on upkeep and improvements.

^ But I do need to do it to have a place to live. If you are going to pay 10K to live somewhere vs 7K wouldn't you say you "saved" 3K by picking the second scenario? I mean, I get it, you are still spending 7K, it's still a net loss, and obviously I don't enjoy paying interest to the bank, but it's far better than paying a larger sum to some crappy apt complex.

10/30/2011 11:20:19 PM

I have 2 student loans (6% and 7%) totaling a little more than 20k. My wife and I would like to buy a house sometime in the next 1-2 years, but I'm wondering if it'd be smarter to pay off the student loans first. On one hand, we're currently paying rent that could be going towards a mortgage if we had a house. On the other hand, the interest and amounts of the student loans tend to make me want to pay them off ASAP before anything other new debt is aquired. Anyone else been here before? What would make the moat financial sense?

10/31/2011 11:05:35 AM

Assumed you aren't strapped for cash I'd go ahead and buy a house in the next 1-2 years. 20K is a relatively small amount for a student loan and the interest rates aren't horrible.

10/31/2011 11:21:43 AM

Quote :

"I have a mortgage. I'm well aware how a mortgage works, however given your completely unrealistic example I'm guessing you do not"

you still have a little to learn I see. $75k at 3.5% interest is $2500 the first year, and then cheaper after that. Just because you have a $150k mortgage, doesn't mean the rest of us do. Perhaps you should have "saved" a little more money to make a larger down payment.

10/31/2011 11:52:19 AM

I put down 20%. $75K @ 3.5% is not in any way close to an average mortgage. Why stop there? Why don't you explain to me about the lack of tax savings on a $10K mortgage at 0%

10/31/2011 12:13:06 PM

Is 20% a pretty standard down payment?

Also, would you recommend paying extra per month to pay down the student loan vs saving/investing? I guess I'm struggling with the question of at which point I should save or pay off debt. Should I put most of my spare money into paying it down, or just pay a little bit extra to save some interest? Is it wise to just pay the amounts each month that will pay it off in 10 years or is that a waste of money when I can be placing my money elsewhere for more longterm investments?

10/31/2011 1:12:57 PM

20% used to be standard. I don't think it is any more. You have to pay 20% to avoid PMI or a piggy back loan so that's may be why you've seen that specific % tossed around.

I'd probably worry about maxing out retirement accounts before you prepay the student loan.

10/31/2011 1:17:00 PM

Quote :

"3.5% is not in any way close to an average mortgage"

You are a fucking moron. 3.5% is above average for a 15 year loan. A 160k house with 20% down is 128k loan, which is 75k after 7 years of making the base payment.

10/31/2011 1:31:20 PM

So, even using your underestimated figures, you still admit that paying a mortgage makes perfect sense the first 7 years.

10/31/2011 1:39:35 PM

Quote :

"I'd probably worry about maxing out retirement accounts before you prepay the student loan."

agreed.

Last year when we bought our house I think I had ~$15,000 left in my student loans (at ~5% then). I made sure we were each maxing out our Roth IRAs and at least contributing to the 401k up to the company match (I was almost to the full allowable max myself, she was farther away from the $16,500 but contributing like 14% I think). I was paying just a little extra on my student loans but that's it. I wanted to make sure we could do all that and still put the 10% down and afford a mortgage before we dove into buying a house.

After buying the house I've worked toward each of us maxing our 401ks as well. I definitely do not like debt either, but the student loan debt hasn't weighed too much on me. I plan to pay off the remainder lump sum by no later than this time next year.

I don't know if you got anything from that rambling Basically I was in a similar situation to you just last year and decided to buy the house and max out retirement avenues before worrying about the student loans.

10/31/2011 2:02:14 PM

Got $100? Buy a house now!

http://www.dsnews.com/articles/hud-offers-reo-homes-for-100-down-in-select-states-2011-10-24

10/31/2011 2:45:08 PM

You know, they say they want people buying repossessed homes but the one time we tried to do it they did everything in their power to make it as complicated and annoying as possible. I'm kind of glad we didn't end up buying a fixer upper though.

10/31/2011 2:56:34 PM

about to max my Roth (woot)
i think i'm just gonna take the remainder of my savings and do 40% auto loan, 40% money market (to be used for investing as soon as I have enough worthy of investing), and 20% HSA.


[Edited on October 31, 2011 at 3:02 PM. Reason : -]

10/31/2011 3:02:12 PM