My truck is 3.49% and my house is 3.375%. Good points on the car. I seriously doubt I buy anything "NEW off the lot" withing the next 10 years. I am in a good position as I get a company truck next year. My plan is to get rid of my wife's small SUV and put her in the tuck until I can wiggle into a bigger SUV for a good price. One thing I do not have that I read is good to have is a savings of close to a years salary. Right now I just have an emergency fund and then 2 months of salary.
When in doubt . . . try to do it all. Sometimes it works out and when it doesn't it keep you focused in the right direction. The key to wealth is growth and compound interest. That will happen. What is important for a man of your age is to maximize income and diversify your income streams. That produces investment money every month, even if is a low percentage at first. My philosophy has always been to maximize and diversify the investments as well. Obviously, top priority is to maintain payments on mortgages and loans. Don't stretch them out too long an pay big interest, but keep your payments low enough that you have some money left for investing. It is important to have primary job with decent pay and good benefits. Initially this will have to underwrite everything. Then, try to establish retirement funds in every category. 1. Fixed benefit retirement accounts -- A pension for many people and Social Security or both for most others. This will be a fixed amount one can count on in each month of retirement. Risk is on the pension plan or government. 2. Variable benefit retirement accounts -- 401K or 457B deferred compensation plans are tax-advantaged retirement plans that can substitute for or supplement a pension. Retirement income depends on how well the plan is invested. Max your K, bur the Risk is on you. 3. Tax-deferred retirement accounts -- The Individual Retirement Acccount (IRA) is probably the first thing you should invest in. It is tax advantaged and you can contribute 4 to 6K annually depending on your age. The Roth IRA provides benefits that are completely untaxed upon withdrawal. Max your IRA. once you are invested in each of these categories and max our your tax-advantages accounts, then start on . . . 4. An investment portfolio -- Find a good financial advisor/broker and start buying stacks, mutual funds and bonds and diversify your holdings. These accounts don't have the tax advantages of the 401K or IRA but they don't have to be limited to retirement purposes either. When you start generating surplus cash, this is where most of your profits will come from. 5. Annuities -- These accounts have higher costs and lower earnings potential but they provide fixed-benefit or variable-benefit payments and you have a guaranteed return of principal. Essentially you can't lose your money and you get guaranteed payouts when you annuities the account. In return, they get more fees from you and invest your money conservatively. It's good to have annuity or two. You can tailor them to the amount of income you desire in retirement. when you are invested well in those categories, start thinking about alternative sources of income . . . 6. Sole proprietorships -- consulting work, internet stores, fishing guides, Ebay sales, . . . any small business you can do by yourself in the time you have available and requiring small investment. You can direct this income directly back into investments. When you retire your main job (or get laid off for a year) you can upgrade this into a bigger business. 7. Property -- property has always been a good investment if you are wise. You can lose your ass if you are foolish. But rent houses are safe bets with steady income. Commercial property rental can be even better, if riskier. The key is that it is something that doesn't take much of your time. Timber land management is fairly easy with manageable risk and windfall profits. Now and then they find oil and gas on your property. Start educating yourself on property values and patterns of development years before you are prepared to buy property. It will give you confidence in your decisions. 8. Small businesses -- It will take much more time, but if you have it there is money to be made in small businesses if you have the energy and the right mindset. It will require hiring employees that you trust and risking some money. High risk/ high reward. I guarantee that if you get things working for you in 6 or the 8 categories above, you will be on your way to wealth. You must be frugal, especially in your 20s and 30s. It is easy to spend a lot of cash on overpriced housed, swimming pools, hot cars and fancy vacations and never have a dime to invest. Spend early-save later is a recipe for disaster. Save early-spend later is a recipe for success.
At 28 years old, you are doing well. Don't sweat the fact that you don't have a year's salary in savings. You will soon enough. You are still in your 20's for God's sake.
Pay off the truck when you can but the house isn't too bad especially if you itemize. It's tough to borrow money on what is most likely a non depreciating asset at 3.375%. Instead of aggressively paying that down, I would invest that money. Remember, if you can bring in more than 3.375 (or probably closer to 2.75% if you itemize), then you should invest and not pay down the house. Plus it's important to remember we will be entering a higher interest time soon when you may be able to get a cd at 3%-4% in five years. At that point, you may be borrowing at 3.375 and making 6%-7% on your money.
I guess I have never really thought if it like that. In my mind I was always worried about job loss and losing my ass on the home b/c all I had payed on it was interest. I am a new home owner. Will be a year in December.
And it's not like that shouldn't be a concern. But if you don't pay the house down, it's not like the money vanishes. If you can stay disciplined and actually save the money you would normally be putting towards your house then you will be in the same position if that does happen. Most people's problem is that they have to hide the money from themselves so as not to spend it. Another example is with taxes, where people declare no dependents on a w-2 and then celebrate at tax time when they get a $6,000 refund. But really, had they had the discipline to save that money, they wouldn't have lent the government cash interest free and would have been able to derive a couple hundred bucks out of investing it. If you have a 30 year mortgage at 3.375, it will be a huge assett in a few years when interest rates rise. My wife has student debt at 2% interest and while I have the money to pay if off, I may the minimum every monthy. Hell, we were able to defer it while she got her masters. That means no payments and they didn't even charge me interest during that period. It was the greatest deal ever. Even "bad" debt isn't always bad. It's all about being disciplined to save the same amount of money that you would have paid that debt with, and then investing it at higher returns than your paying it at.
This is the hard part IMO. I try to save as much as I can while still rewarding myself and the family. It is a hard balance. The past 3 years I went dictator style on debt. It worked, but there were many unhappy "family" moments if you understand where I am going with this.
In all matters, a balance point must be found. Bachelors have an advantage here. We can splurge on a weekend with a date and they don't realize how frugal we live in between. The long-term girlfriends figure it out, but women that spend that much time with me are essentially compatible and good with my lifestyle. Not having kids has freed up a huge amount of money to invest, I admit. On the other hand it is a major tax disadvantage. Middle class Americans with kids essentially pay no federal income taxes.
