Financial Discussion / Advice

36 posts

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Ok, so this is a little experimental, but I thought I’d try it out and see what happens. This is not a debate topic, but rather a pure discussion topic. The reason I wanted to start this up is that I’ve recently taken some interest in financial planning/strategy and I think it’s always good to have a resource for talking with people and getting/giving advice.

My plan is to have this thread act as a center for financial discussions. If you have any questions about money, post them here. If you know of some good resources or a cool website, post here. Basically, if it has to do with money (spending, savings, retirement, mortgages, etc.), we want to hear it.

I’ll go ahead and kick off with two really cool websites I’ve come across.

GetRichSlowly.org:

The first is a blog / website that is an excellent source of information for both beginner and advanced investors. It is Get Rich Slowly, and specifically the blog that is the top-left link on that page. Anyone who’s fairly familiar with money will probably just want to peruse the categories of posts on the right side of the main page and look for stuff that interests them. For people just getting started (myself included), there’s an excellent series of video tutorials on the blog that introduces a bunch of the basics of various ways to make and save money.

Mint.com:

This is the real impetus (EDIT: Thanks cpasley!) for starting this thread: Mint.com. I stumbled across this website today and have been enthralled by it ever since. In short, it is a financial aggregation website. It lets you collect financial information from all of your financial sources (savings accounts, retirement funds, checking accounts, credit cards, etc.) and pull them all together to see the big picture. And by “let’s you” I mean “automatically does everything for you”. It’s incredibly slick. Basically, if you’ve ever done online banking with your institution before, you can simply pop in your username and password to Mint.com and it will download your available financial history and start making pretty pictures.

When you first get started some of the totals will be off (since you can usually only go back about 30 days or so with many online transactions), but as you continue you’ll be able to track average spending, set up budgets, get email/SMS alerts when things are off, etc. It’s entirely free, very slick, and does probably everything Quicken does and then some. The way it makes money (ever the important question) is by recommending financial products to you. You never have to accept any of these, any they’re not very intrusive, but honestly you may find a good deal in there anyway. :)

So, lemme know what you guys think of these resources, and I look forward to hearing your questions/comments/suggestions.

 
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Nice idea. Those sites look cool and I know of a few budgeting ones that might be of interest to people which i’ll have a dig around for the adresses of.

Just a note to people though, please please be careful what information you put into financial webistes and check the authenticity of the website before you give any information away. There are some which are merely going to be there to get your information and scam you.

 
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I like Mint. I’ve kinda started using it, but haven’t completely filled out my info, which makes it less useful. It’s good for trends tracking, just don’t rely on it to be 100% up to date on your finances, as sometimes it lags behind.

 
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This is the real impotence for starting this thread

…and I’m sorry, but that’s a funny typo. ;) Impetus.

 
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Excellent points from both of you. Mint.com has won numerous reputable awards and has received a fair amount of venture capital money, so I do trust them, but this is certainly not always the case. You are required to give very sensitive information to them and you must trust them with that information. And, as cpasley (and Mint.com’s terms of use) said, they can be out of date, especially if something hasn’t posted to your financial institution (though I would expect them to be as up-to-date as your institution if you hit the Update button).

EDIT: Oh, wow…that actually isn’t a typo as much as a word that I’ve had screwed up in my head for years without knowing it (and is certainly a very funny screw up since it’s practically the opposite meaning!). Thanks for correcting me! :) blushes slightly

 
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I heard about this on the radio, it can send you a newsletter with deals (at least in the UK, you may be able to get it from elsewhere), and has quite a few tips in the forums.

 
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hehehe Phoenix blushing :p

Australian money saving website – Simple savings

How to be frugal How to save $10,000 on your current income

Yes i know i am british and these are Aus sites – don’t ask, just don’t ask.

And finally a huge plug for my friends site, all UK students who don’t already know about it go sign up with studentbeans and get loads of discounts (it’s got all sorts of things, giveaways, discounts, 2-4-1 etc).

 
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Real estate collapse aside, I’ve recently started questioning society’s logic that buying/owning a home is financially a superior idea to renting indefinitely. My stepmother seemed to think that Alison and I were throwing money away when we moved to the Bay Area and started renting a house for $2,000/month. Everyone always repeats “equity equity equity!” as if it’s the only smart thing to do.

So I did a little research on buying a house that’s smaller and cheaper than the one we’re renting. I’m certainly very new to this, so perhaps I’m calculating things horribly wrong, but I couldn’t figure out a way to buy the cheapest house in our area for less than $4000/month in mortgage payments over 30 years. But I’m building equity, right?

Well, aside from the fact that we can’t afford something like this, I’m only 24, and I’m not sure if I plan to live long enough for this to even make sense. If I’m paying twice as much as rent for 30 years, I’ll be 54 by the time my house is paid off. And even then, I would have to live another 30 years, to 84, for me to BREAK EVEN with the cost of renting!

Now, I know what you’re thinking: “But your mortgage will stay essentially the same over those 30 years, while the cost of renting will continue to rise, along with inflation and the increasing cost of the housing market.”

True, yes, but this essentially means that buying a home is nothing more than an investment no different from any other investment, like stocks and bonds. And by this same logic, with my extra $2000 a month, couldn’t I just invest that money and watch it grow at (theoretically) the same rate that my rent increases, to bring my finances on par at the age of 84 with where they would’ve been had I bitten the bullet and bought a house 60 years before?

I understand that there are benefits to owning a home beyond purely financial ones (tax breaks, being able to do whatever you want with it, not ever being told to leave, etc.), but I’d like to challenge this assertion that building equity is smart while renting is essentially throwing money away. It seems like all you’d have to do is invest the difference between paying rent and paying a mortgage to be just as well off as someone building equity. Plus your gains would be purely liquid, and not dependent on selling your house at some point. If investing in homes were clearly better than investing elsewhere, then everyone would do it, and the market would rise and collapse (hey, sound familiar?).

I’m not claiming to be an expert at all; I actually know very little about this sort of thing. But after a lifetime of having “equity equity equity” drilled into my skull as the #1 financial decision I could possibly make, seeing some rough numbers is making me question it.

Anyone care to explain to me how I might be horribly wrong?

 
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I agree with you Greg. I’m currently trying to sell my house in Atlanta, and being tied to something like that can be really inconvenient. The way the market is now, I can’t even really expect to get much in the way of equity when it finally does sell. I do think that if you can afford a house in the Bay Area it’s a good investment (if you had bought a house 30 years ago here, you’d be a millionaire now) but I agree that there are other investments that could do you just as well.

But hey, I’m not one to advise on this sort of thing. I’m more likely to squander money on gadgets and video games than invest it.

 
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Anyone care to explain to me how I might be horribly wrong?

Easy – you’re living near Silicon Valley. ;) Seriously though, are you sure that you can’t find cheaper? By my calculation, that means you’re looking at houses for no less than $600,000!

Your experience is very different from mine. My mortgage payment is actually less than I was paying in rent at my previous apartment, and is probably minimally more than what rental is near by. So, if you’re talking about either renting or owning for the same monthly payments, or even only slightly higher, then I think you would agree that it makes much more sense to build equity.

Let’s crunch some numbers! Again, in your case, if you’re literally looking at 2000/month more, this might not apply. One major advantage to equity is that you get it back when you sell the house. Of course, the bank hits you with interest charges early on, but you will still be making progress on your principal as well. Let’s do an example. Say you’re looking at buying a house for 1000/month (which at a standard 7% interest rate over 30 years comes out to about a $150,000 house). Using a mortgage rate calculator I found online, we can look at roughly what you’ll be paying in interest vs. principal over the course of the mortgage (if you try it out, make sure you turn on the full amortization table). It turns out that even in week 1 you’re only paying $875 in interest, and that’ll drop each month (though not much for the first 5 years). What this means is that your $1000/month house is cheaper than spending $875/month for an apartment. Yes, it’s not liquid, but you can get it back when you sell, and ideally the value of the house will actually increase over that time, yielding an even higher return (plus all the tax breaks and such).

I’m by no means an expert, so anyone’s welcome to correct me if I’ve made a mistake somewhere, but that’s how I see it.

 
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By my calculation, that means you’re looking at houses for no less than $600,000!

Yeah, that sounds about right.

One major advantage to equity is that you get it back when you sell the house

Isn’t that the ONLY advantage of equity?

And if I save $2000 per month for 30 years, I’ll have $720,000. So I could essentially just buy a house at the age of 54 for straight cash. Yeah, I know, the house will cost more than $720,000 in 30 years, but my investment will have grown too, theoretically at the same rate as the increasing cost. What this means is that when you’re paying $4000/month for 30 years for a $600,000 home, over half of that payment is going toward interest alone. It seems like that entirely cancels out the financial benefit of equity.

 
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Well there’s also the idea of making money when you sell the house. I’m just selling my house now as I’m moving cities. The idea was that i bought a house that needed a bit of work (not anything like a huge rebuild but just a bit of sprucing up) put some money into doing it up and sold it for more than i payed for the house and the work combined. Whether this is going to come good due to the current state of property in the UK is another matter but that’s the risk i took. It’s actually part of the whole game, the idea is to increase your money by trying to sell when the markets high and buy when its low (although this does admittedly depend greatly on circumstance and when you need to move and what you do in between houses).

Also what about your children/relatives, you may not live long enough to see a return on the money you put on the house but it’s a nice little inheritance to leave.

 
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Yeah, that sounds about right.

Holy crap dude. You could buy roughly a 4000 sq. ft. waterfront mansion in Eastern NC for that… California’s cool and all, but daaaaaamn…

Isn’t that the ONLY advantage of equity?

I would call it the primary advantage, but you can also borrow against it – it’s an asset even before you sell it off again.

By the way, I was simply trying to explain why people usually think it’s better to go for equity. Given equal payments, or the ability to simply pay up-front, it is certainly a better option (as it seems you understood). I don’t think that, in your position, I can really support going the equity route. If your rent was $3500 or so, then the $4000/month equity would be a better choice, but with that large of a gap between the two, combined with the fact that you’ll probably move again sometime in the next 5 years or so, I’m inclined to agree that finding a good mutual fund with the money you save would be a better choice, even if you could afford it.

What’s bothering me is that, given that you could afford it, and were planning on living there for the next 50 years or so, it seems like it should be better to buy than rent (which I realize was your original question). I just don’t see why yet…

 
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Holy crap dude. You could buy roughly a 4000 sq. ft. waterfront mansion in Eastern NC for that… California’s cool and all, but daaaaaamn…

Tell me about it. My mortgage and association fees in Atlanta for my 1600 square foot house are literally half of what I’m currently paying for a 300 sq foot studio apartment in San Francisco. The Bay Area’s brutal.

 
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Holy crap dude. You could buy roughly a 4000 sq. ft. waterfront mansion in Eastern NC for that…

Yeah, but then you’d have to live in NC. Here’s a picture of where Alison and I like to chill on some weekends; note that this picture is taken from a 20-minute walk/bike ride along the coast from our house:
http://www.flickr.com/photos/moheroy/186507891/

Don’t get me wrong; I’m not trying to get sympathy for my living location. :-P I’m just bringing up the financial aspects of renting vs. buying/owning, and the myths that seem to surround them.

It’s actually part of the whole game, the idea is to increase your money by trying to sell when the markets high and buy when its low (although this does admittedly depend greatly on circumstance and when you need to move and what you do in between houses).

Right, so it’s like any other investment. That was my theory.

Also what about your children/relatives, you may not live long enough to see a return on the money you put on the house but it’s a nice little inheritance to leave.

Theoretically, wouldn’t a bundle of cash from investing with money I saved due to not buying a house for my entire life be worth just as much?

 
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Greg, you struck on a very real chord that I have been pondering over myself lately. In fact, you’ve brought up some very good points that I hadn’t thought of as well.

 
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Well, North Carolina does have some nice pictures too (right near where my wife grew up) (not to diminish your picture – that’s gorgeous!) (sometimes I think I overdo the parentheticals…and elipses…). However, the climate’s a little nicer over where you are, and I’ll take Californian people over Bible Belt people any day of the week, but that’s a different story…

I think my answer for you is this: if your interest payments on your mortgage for the time you’ll be there are equal to the money spent on rent, then you can pretty much do a 1:1 comparison of investing in real-estate vs. investing your extra money elsewhere. Real estate is fairly safe, though certainly not bulletproof. A good mutual fund can gather 10%/year over the long haul, which is probably better than most real estate. In your case, your interest would far exceed your rent (you’d average $2325 in interest per month if you stayed the full 30 years, and far more than that if you get out early) , so no, it would not make sense to buy.

It’s very interesting to me though, since over here this isn’t even really a debate, and I had always wondered why renting was so popular on the West coast. Here, you can get a nice two-bedroom two-bath townhouse for under $100k, and in that type of situation it will almost always work out far better to purchase.

 
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You can get a nice two-bedroom two-bath townhouse for under $100k, and in that type of situation it will almost always work out far better to purchase.

You could get a cardboard box for that price in my town. Renting for a year at my house is over $20k, which is why I have roommates.

Location, location, location :/

 
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Right, which means you apparently have a really good location. ;)

 
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You could get a cardboard box for that price in my town.

To those outside the Bay Area, note that arcaneCoder is only referring to the cardboard box itself, not the land that such a box would occupy.

 
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That actually made me laugh, Greg.

And yeah, your house that you could buy at 1600 square feet costs twice as much as our house cost, and IIRC ours was something around 3500 square feet plus yard space. Of course, we do live in South west Louisiana, so we have no advantages (that aren’t cost based) over you. Except we have better (_non-sushi) seafood than California, and better sausauge, and we have… (elpses, eh Phoenix) well, better of most foods (at least meat products) (from personal experience eating there. You guys have some good food, but on average, an average priced California meal ($$$$$) compared to an average priced Louisiana meal (-$-), Lousiana edged out).

 
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Right, so it’s like any other investment. That was my theory.

Uh huh but with the added option of increasing sale price by doing the house up.

Theoretically, wouldn’t a bundle of cash from investing with money I saved due to not buying a house for my entire life be worth just as much?

Could be again i suppose it depends on rate of interest on mortgage vs rate of rent and rate of interest on your bank account vs inflation of house prices.

 
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Well I’m probably moving to California by the end of this year, rents gonna be way more than here it seems :( , were paying $560 a month for my current 3 bedroom house (sharing with 2 friends). You’re paying about $2000 a month Greg? What’s the cheapest rent prices for houses over there that isn’t gonna be a total bomb of a house. Also is there many renting houses around, is it hard to find one or very easy, or in between.

 
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There is an emotional factor in land ownership. You’re not supposed to mix emotions with investments, but owning land is an important goal in my life. My parents were never able to acquire land, so because I’m obsessed with accomplishing what they could not, I feel driven to do it. And while I’m at it, acquire some land for them too. I want to have a house to raise a family in, to have somewhere where everyone comes back to for years and years on Christmas and Thanksgiving. I guess renting can accomplish that, but its just… not the same.

Regardless this is a financial thread, and my finances need to go up if I ever want a house, so: I currently have investments in commodities that I physically own and am able to sell at will — but I’d like to get into more traditional investments like stocks, ETFs, options, etc. Looking for advice on online brokers who won’t rip me off! thx!

 
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I got impatient and went with TD Ameritrade for several reasons. 1) Sam Waterston. 2) Scottrade turned me down for lack of credit history. They think I’m some sort of terrerest.