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Tax Season 2012: Work No Longer Pays

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  • #61
    Re: Tax Season 2012: Work No Longer Pays

    Originally posted by FlagDUDE08 View Post
    But why pay more in total than you have to? Throw a few extra bucks at the principal, and the total amount of interest you'll have to pay goes down!
    The interest rate on my house if 4.5 percent. There's not that much of an incentive to pay it off early (though we ultimately will), especially when the student loans are at 7-11%. There's absolutely zero incentive to pay our cars off early, since the interest rate is only 1%. At that point, the car company is losing money to inflation alone.

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    • #62
      Re: Tax Season 2012: Work No Longer Pays

      Originally posted by unofan View Post
      The interest rate on my house if 4.5 percent. There's not that much of an incentive to pay it off early (though we ultimately will), especially when the student loans are at 7-11%. There's absolutely zero incentive to pay our cars off early, since the interest rate is only 1%. At that point, the car company is losing money to inflation alone.
      For lenders, it is not only the interest rate, it also is how many times they can lend the same money (due to fractional reserve banking). It is sort of like Walmart, even with lower prices they might make more money if they can turn over their inventory faster.

      That's the one factor missing from every analysis of the crash that I read. The "velocity of money" (the number of times the same dollar is spent while it circulates) has gone way down.
      "Hope is a good thing; maybe the best of things."

      "Beer is a sign that God loves us and wants us to be happy." -- Benjamin Franklin

      "Being Irish, he had an abiding sense of tragedy, which sustained him through temporary periods of joy." -- W. B. Yeats

      "People generally are most impatient with those flaws in others about which they are most ashamed of in themselves." - folk wisdom

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      • #63
        Re: Tax Season 2012: Work No Longer Pays

        Originally posted by unofan View Post
        The interest rate on my house if 4.5 percent. There's not that much of an incentive to pay it off early (though we ultimately will), especially when the student loans are at 7-11%. There's absolutely zero incentive to pay our cars off early, since the interest rate is only 1%. At that point, the car company is losing money to inflation alone.
        I completely agree that your student loans should come first, as those are the highest rate. I love when people throw in variables to refute my point... although perhaps it's payback because I used to do it when I was young...

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        • #64
          Re: Tax Season 2012: Work No Longer Pays

          Originally posted by Twitch Boy View Post
          Kinda reminds me of that guy who files those crazy-*** lawsuits against Tiger Woods and Lady Gaga and other people.

          Apparently this isn't that uncommon in prison - it passes the time, and legal-minded inmates like to do stuff like that for practice and to learn about the system.
          They're bored out of their minds. What else are they going to do in the slammer?

          It keeps Bernie Madoff's mind sharp.

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          • #65
            Re: Tax Season 2012: Work No Longer Pays

            It's certainly true that if a person has much higher interest rate loans, such as student loan or credit cards, those should be the first to get paid off.

            Really, paying off your mortgage versus paying the minimum and investing elsewhere comes down to your perspective on risk and reward. Putting your money in the stock market, you may do very well, or you may lose money. History would tell you over time that you make a good return in the stock market, but one can argue that history may not be a good predictor of what will happen with all the circumstances going on right now (spiralling national debt, European problems, sluggish economy, etc.). Personally, I see a lot of value in paying bills/loans down and becoming as debt free as possible. There is a peace of mind in knowing you're financial future isn't hinged tightly to how the market moves from day to day and that if things go bad, you've paid off your car, house, etc. and can live on significantly less income if necessary. Of course everyone is in different spots in life and has different circumstances, but I'd encourage folks to be fiscally conservative in their personal finances (as I urge our federal government, in vain, to be fiscally conservative).
            Originally posted by Priceless
            Good to see you're so reasonable.
            Originally posted by ScoobyDoo
            Very well, said.
            Originally posted by Rover
            A fair assessment Bob.

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            • #66
              Re: Tax Season 2012: Work No Longer Pays

              Originally posted by Bob Gray View Post
              It's certainly true that if a person has much higher interest rate loans, such as student loan or credit cards, those should be the first to get paid off.

              Really, paying off your mortgage versus paying the minimum and investing elsewhere comes down to your perspective on risk and reward. Putting your money in the stock market, you may do very well, or you may lose money. History would tell you over time that you make a good return in the stock market, but one can argue that history may not be a good predictor of what will happen with all the circumstances going on right now (spiralling national debt, European problems, sluggish economy, etc.). Personally, I see a lot of value in paying bills/loans down and becoming as debt free as possible. There is a peace of mind in knowing you're financial future isn't hinged tightly to how the market moves from day to day and that if things go bad, you've paid off your car, house, etc. and can live on significantly less income if necessary. Of course everyone is in different spots in life and has different circumstances, but I'd encourage folks to be fiscally conservative in their personal finances (as I urge our federal government, in vain, to be fiscally conservative).
              I don't think anyone can make a wrong choice when choosing between paying down debt or saving/investing. Personally I agree with Bob that paying down debt is a better choice over investing the money for the simple reason of cash flow (as Bob states). I also don't think that the return over the debt payments is enough to compensate for the risk that one must take on to get that return.

              Even if you think that you can earn a return of 3% over your mortgage (after accounting for all the tax implications with regards to both the taxes on the investment and the mortgage interest) would that really be enough to justify the risk that is associated with the stock market? Would you invest in the stock market knowing that on average you would only get a 3% return (on average)?

              I understand about leverage and the velocity of money and fully admit that the person who invest over paying off his mortgage will come out ahead of me provided that nothing goes two wrong, I've seen enough to recognize that expecting nothing to ever go wrong isn't a realistic way to view the world.

              While I don't agree with everything that Dave Ramsey says, I do think that he has the order of steps (even if the specific details may not fit your specific situation) that most people should follow down:
              1.) Save a small emergency fund
              2.) Pay off all non-mortgage debt
              3.) Save a large catastrophe fund (2 months of expenses, plus 2 month for every person in the household)
              4.) Put 15% of income in tax advantage retirement funds
              5.) Save ~10% for children's education and other intermediate goals
              6.) Pay off any mortgage debt remaining.
              7.) Save, invest, and build wealth.

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              • #67
                Re: Tax Season 2012: Work No Longer Pays

                Also one thing to remember is that an investment is not a loss until you cash it out below the price at which you bought. The gain/loss your brokerage tells you is if you were to sell your stock at that minute.

                I remember my ex-girlfriend had a HUGE problem with me even putting money into the stock market, or any sort of retirement account for that matter. That's not why we broke up, though.

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                • #68
                  Re: Tax Season 2012: Work No Longer Pays

                  Originally posted by FlagDUDE08 View Post
                  Also one thing to remember is that an investment is not a loss until you cash it out below the price at which you bought. The gain/loss your brokerage tells you is if you were to sell your stock at that minute.

                  I remember my ex-girlfriend had a HUGE problem with me even putting money into the stock market, or any sort of retirement account for that matter. That's not why we broke up, though.
                  Or to say it more fully, it's neither a loss or a gain until you cash it out. Many people had huge gains when the market was much higher, but didn't cash out at the right time (which of course is impossible to predict), and lost a lot of paper gains.
                  Originally posted by Priceless
                  Good to see you're so reasonable.
                  Originally posted by ScoobyDoo
                  Very well, said.
                  Originally posted by Rover
                  A fair assessment Bob.

                  Comment


                  • #69
                    Re: Tax Season 2012: Work No Longer Pays

                    Originally posted by Bob Gray View Post
                    Or to say it more fully, it's neither a loss or a gain until you cash it out. Many people had huge gains when the market was much higher, but didn't cash out at the right time (which of course is impossible to predict), and lost a lot of paper gains.
                    Very true, and something I know all too well. Of course, I also typically only invest in dividend-paying stocks, so that helps when factoring in gains. Sadly I don't invest enough to be able to automatically re-invest, but at least it gives me some options as to where to invest.

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                    • #70
                      Re: Tax Season 2012: Work No Longer Pays

                      Originally posted by FlagDUDE08 View Post
                      Also one thing to remember is that an investment is not a loss until you cash it out below the price at which you bought. The gain/loss your brokerage tells you is if you were to sell your stock at that minute.

                      I remember my ex-girlfriend had a HUGE problem with me even putting money into the stock market, or any sort of retirement account for that matter. That's not why we broke up, though.
                      But if you invest that money you couldn't spend it on her! I think that your ex and my ex were reading from the same playbook.

                      True that only by selling are any losses/gains realize, but you REALLY don't want to end up in a situation where circumstances are forcing a sale when you don't want to.

                      Comment


                      • #71
                        Re: Tax Season 2012: Work No Longer Pays

                        Originally posted by Almington View Post
                        But if you invest that money you couldn't spend it on her! I think that your ex and my ex were reading from the same playbook.

                        True that only by selling are any losses/gains realize, but you REALLY don't want to end up in a situation where circumstances are forcing a sale when you don't want to.
                        I don't think so; she was cheaper than me! She actually didn't seem like I should spend it on her (although that may have been her motive). Plus, I'm absolutely terrible when it comes to gifts.

                        Obviously you don't want to force yourself into a sale. Hence why it is important to DIVERSIFY!!! Not only with which stocks/funds you pick, but also where your money is invested.
                        Last edited by FlagDUDE08; 02-01-2012, 10:03 AM.

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                        • #72
                          Re: Tax Season 2012: Work No Longer Pays

                          Originally posted by Almington View Post
                          you REALLY don't want to end up in a situation where circumstances are forcing a sale when you don't want to.
                          exactly my point on paying down debt. you don't want to pay down debt to such an extent that you have no access to cash when you absolutely must have it. Also my point on contributing prematurely to a 401k plan (or 403b plan). you first have to spend less than you make, then you can think about contributing to those plans. I've seen too many people rolling over credit card debt from month to month so that they can contribute to a retirement plan. that makes no sense even if you have an employer match (if you actually do a detailed numerical analysis). step-by-step from basics to more advanced. no one else's rule of thumb works better than Charles Dickens:

                          "Income 20 pounds, expenses 19 pounds sixpence: happiness. Income 20 pounds, expenses 20 pounds sixpence: misery."
                          "Hope is a good thing; maybe the best of things."

                          "Beer is a sign that God loves us and wants us to be happy." -- Benjamin Franklin

                          "Being Irish, he had an abiding sense of tragedy, which sustained him through temporary periods of joy." -- W. B. Yeats

                          "People generally are most impatient with those flaws in others about which they are most ashamed of in themselves." - folk wisdom

                          Comment


                          • #73
                            Re: Tax Season 2012: Work No Longer Pays

                            Three rules before starting to invest:

                            1. Eliminate all high yield (or potentially high-yielding) debt. This includes credit cards, your light bill, your rent (if you're in an apartment), and all associated payments.
                            2. Obtain health insurance. Whether it's through work, a state low-income plan, or independently, you need to have it.
                            3. Obtain long-term disability insurance. Same deal with the health insurance.

                            Now you're ready to invest.

                            Comment


                            • #74
                              Re: Tax Season 2012: Work No Longer Pays

                              So, I want to stab someone with a pencil...

                              I didn't get any Federal Income Tax Withheld from either of my two jobs... That means a $0 Federal refund right? Should I even calculate Loan Interest into all this then? I mean, it seems pointless... It's gonna be $0 any way I figure this, right?
                              It's never too early to start the Pre-game festivities

                              Go Cats!!! GO BLACKHAWKS!

                              Cuck the Fubs... Let's Go WHITE SOX!!!

                              Wildcat Born, Wildcat Bred....

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                              • #75
                                Re: Tax Season 2012: Work No Longer Pays

                                Originally posted by RaceBoarder View Post
                                So, I want to stab someone with a pencil...

                                I didn't get any Federal Income Tax Withheld from either of my two jobs... That means a $0 Federal refund right? Should I even calculate Loan Interest into all this then? I mean, it seems pointless... It's gonna be $0 any way I figure this, right?
                                If you didn't get any withheld then wouldn't you be the one writing the check? Unless of course it falls under a certain amount. I think you need to file regardless. Unless you want issues with the IRS for the rest of your life.
                                **NOTE: The misleading post above was brought to you by Reynold's Wrap and American Steeples, makers of Crosses.

                                Originally Posted by dropthatpuck-Scooby's a lost cause.
                                Originally Posted by First Time, Long Time-Always knew you were nothing but a troll.

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