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Young People can Plan Financially

This topic contains 24 replies, has 0 voices, and was last updated by  Bainc 3 years, 4 months ago.

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  • #177403

    norules
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    This article shows how someone with money sense can succeed. Of course, you have to go to a financial website to hear about these successful stories. I like the part where her friends tried to convince her to move downtown where all the action is, but she did her research and concluded financially it didn’t make sense. She is a thinker. Hope she continues to be successful.

    http://money.cnn.com/2016/05/06/investing/how-i-bought-house-age-25/index.html?iid=hp-stack-dom

    Emily Brown’s phone rings often with friends seeking advice about money.

    Brown is only 26, but she already owns a house and has socked away a nice amount of money for retirement in both a 401(k) and Individual Retirement Account (IRA). Oh, and she has a renter who pays $900 a month, enough to cover her entire mortgage.

    As her friends and family like to say, she’s “got it figured out.”

    Brown doesn’t work on Wall Street or Silicon Valley. She’s an accountant in Cleveland, Ohio, who bought her home at age 25 when she earned about $50,000 a year.

    ‘I didn’t want to live paycheck to paycheck’

    Friends tried to convince her to live closer to “the action” in downtown Cleveland. But she did her research and realized that between the high rent and paying for parking, it wasn’t worth it. So she instead chose to buy a “fixer upper” home for $107,000 in a suburb. A tenant was already living in part of the duplex home. Brown was happy to extend the lease and have her stay.

    Only about 20% of Americans own their home by age 25, according to the Census.

    She credits her financial savvy to three things: Parents who stressed frugality, reading the book “Rich Dad Poor Dad” and going to college during the Great Recession.

    “Living through 2008 and seeing people lose their jobs taught me you have to prepare for anything,” Brown told CNNMoney. “I wanted a game plan, not living paycheck to paycheck.”

    Brown’s advice: Save, save, save

    Her money plan is simple: work hard, save a lot, and buy property you can afford.

    It’s hardly a novel idea. Way back in 1758, American founding father Benjamin Franklin wrote an essay called “The Way to Wealth.” His conclusion: “If you would be wealthy, think of saving as well as getting.”

    She has budgets for everything and works hard not to go over. Much like eating healthy, Brown views money as a choice you make every day. She drives an older car, a 2009 Ford Escape SUV with “a big old dent.” Friends joke that she doesn’t come out for drinks after she’s spent her fun budget.

    And student loans? Brown has those too. She borrowed about $35,000 to attend Baldwin Wallace University in Ohio. She worked jobs in college, managing to pay down about $6,000 of her loans while still in school. Since graduating in 2012, she’s continued to pay more than the amount due every month. Her balance now is just $10,000.

    Open an IRA at a young age

    But Brown says her biggest “a-ha” money moment came from starting an IRA. When she was in high school, she worked at an ice cream shop called Dairy Dock in Vermilion, Ohio. At age 18, she had about $100 saved from her pay.

    Her father suggested putting it in a saving account or certificate of deposit (“CD”), but the interest was so low — nearly 0% — that the bank recommended Brown open an IRA and consider investing the money in a stock market fund.

    “I thought it was the craziest thing I had ever heard,” Brown admits about starting a retirement account at age 18. “But those little amounts have grown immensely.”

    Sacrifices today can pay off big time

    In 2008, as Wall Street was in meltdown mode, Brown started university and majored in finance and accounting. Her professors stressed saving and investing early, so she kept putting money into her IRA from her summer jobs and internships. After graduating college in 2012, she landed a full-time job as an accountant and began to put $250 a month away in her IRA religiously.

    At her current job, she also opened a 401(k) retirement plan and contributes 6% of her salary, which her company matches.

    Brown’s smarts and financial maturity even impresses the pros. When Yvette Butler, president of Capital One Investing, hears of Brown, her reaction is: “She’s my idol … I wish more of us started saving for retirement at 18.”

  • #293696

    EGL Admin
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    I did all those things as a using adult. I used CD’s, opened up an IRA. Then got married and bought a house and it kind of stopped. 🙂

  • #293701

    LC
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    @EGL Admin 125749 wrote:

    I did all those things as a using adult. I used CD’s, opened up an IRA. Then got married and bought a house and it kind of stopped. 🙂

    Funny how that works! I think at least having a non-California 529 college plan in place is smart–I didn’t do that but just saved for it. But I got her through college for $100K. That’s laughable now for a four year.

  • #293715

    Bainc
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    These articles are always funny when they mention person X bought a home in Ohio for $107k. No wonder they have some extra money to save.

  • #293708

    norules
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    @bainc 125751 wrote:

    These articles are always funny when they mention person X bought a home in Ohio for $107k. No wonder they have some extra money to save.

    You are missing the point of the article. It is about good planning. As an accountant in California, she probably could make more. Of course, the houses would be more expensive. However, her salary in Ohio is probably good for the area. How many of us even thought of owning house at 25? She looked at moving downtown area that her friends were trying to get her to do for convenience and being where near the action. She decided against that due to cost and didn’t want to deviate from her financial plan. She bought a fixer upper in the suburbs and it has a tenant in the duplex. It may not be in the best area of town though.

    You can use the same argument on why we all live in EG and not downtown Sacramento.

  • #293716

    Bainc
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    Sacramento is cheap compared to much of CA. You can plan all you want to how do you buy something in the OC or the bay area?

    We bought our first home at age 24/23 within 5 months of graduating college. We planned like crazy living in a single wide mobile home the first two years we were married. It was a quarter of the price of an apartment. In doing so we cash flowed school and had a small down payment and almost zero debt. All with little help from parents/family. 16 years later we are still reaping the benefits from the mobile home decision which was tough to make.

  • #293709

    norules
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    So, you essentially did the same thing she did when you were 25 and yet it is funny that she did it in Ohio? Kudos to you on buying your first home when you were so young and in college. Most people that age are thinking of clubbing, new cars, etc. I think we are along the same lines in financial thinking from previous discussions, so I don’t want to spin wheels.

    “Sacramento is cheap compared to much of CA. You can plan all you want to how do you buy something in the OC or the bay area?

    That is the thing, I can only plan the financial living for myself of where I live. I am not planning my finances based on San Francisco, I am planning it on the Sacramento area. It is your choice to live where you live and you have to deal with the financial choice. The lady in the article made the choice to not live in the downtown area.

    I lived in the bay area 20 years ago and back then I knew there was no way I was going to buy a house there. Just no friggin way to afford it, so that is why I tried like hell to get back to Sacramento area.

    Don’t kid yourself on Sacramento is cheap compared to much of CA. Yes, cheap compared to OC and Bay Area, but have you seen the prices for houses in EG? Over $450K for a 2500 sq ft. house in EG? That is about $2,000/month. That ain’t cheap for people living and working in Sacramento. Someone working in San Francisco and living in EG, that may be cheap.

  • #293706

    newmom
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    My husband and I purchased our first house when we were both 25, a few months after he graduated from law school and a few weeks after he started at his first law firm. I had squirreled away a large nest egg in the year before he graduated, concerned about what would happen if his loans went into repayment and he hadn’t found a job yet. He had no idea I had saved 1/3 of my meager salary, so when got a fantastic job and got his first check, I told him what I had done and said we were buying a house.

    Housing prices are driven by demand and the cost of living in an area, and compensation packages are also based on the cost of living in an area and demand for each profession. Comp packages are far higher in areas like SF and OC for professional jobs than in areas like Sac (unless you are talking something commission based, as those are usually structured very different).
    People often forget that if they buy a house in less expensive area, they can’t move to the less expensive area and expect to find a job earning as much as when they lived in the more expensive area. A lot of people found that out when the housing market was hot and they couldn’t afford to buy in the Bay Area and purchased here instead. They purchased a larger house filled with amenities, then expected to move here and eventually find a job paying the same wages they earned in the Bay. They were insulted and frustrated to learn jobs here paid a lot less for the same skills and experience.

    Yes, the woman in the article was smart to live outside the downtown core and buy a more affordable home in an affordable area. She was thinking farther ahead than where her next party was.

  • #293717

    Bainc
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    Yeah, prices in Sac and EG have climbed a ton but $450k gets you a really nice place here. In Irvine $450 gets you a one bedroom condo. Wages are better but not that much better.

  • #293697

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    Elk Grove is cheap compared to the region though. Cheaper than Folsom, EDH, Roseville and Rocklin. We bought our first home I was 29. My wife was 21. $118K here in Elk Grove for a new house. 7 years later we sold it I think for $135K. Our next house is where we made some money. Bought a new home by Miwok Park for $161K in summer of 1999. Put in a pool that first winter for $22K. Sold it in summer of 2002 for $315K. My wife also bought a house she was using as an office for Real Estate across from where the new Costco will go. We bought it for $160K in 2000 and sold it for $300K in 2003 or 2004 I think. I wish we would have had the cash to buy homes 5 years ago. Could have made a mint buying homes for $150K and flipping them a year or two later for $250k+. Or just renting them out for a positive cash flow. That’s how it works though.

  • #293718

    Bainc
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    @EGL Admin 125759 wrote:

    I wish we would have had the cash to buy homes 5 years ago. Could have made a mint buying homes for $150K and flipping them a year or two later for $250k+. Or just renting them out for a positive cash flow. That’s how it works though.

    Ditto!

  • #293707

    newmom
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    Our first house in Laguna West was $114k without upgrades (didn’t put in many-maybe 10k?) in 1997, we sold it in 2004 for 330k.

  • #293719

    Bainc
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    Timing is everything: Purchased our first house in Laguna for 220k in 2002, sold for 235k in 2013. In eleven years we made only 15k. Could be worse though, we could have bought in 2006. But if we did in sure we’d been foreclosed.

  • #293702

    LC
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    @bainc 125751 wrote:

    These articles are always funny when they mention person X bought a home in Ohio for $107k. No wonder they have some extra money to save.

    We were in a small town in Kansas recently, and saw a number of craftsman homes, similar to those in East Sac, for $45-$50K. They were very small, most under 1000SF with a 2/1 configuration. Very temped to drop $500K and get 10 of them and rent them, until I checked the rents–$550 per month average. If you factor in a loan constant of 6.4% and normal expenses, and add that appreciation in Salina, KS will likely be nil or even negative, it’s not worth the bother unless you lived in the area. I always calculate ROI with 100% financing to allow for opportunity costs.

  • #293703

    LC
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    @bainc 125768 wrote:

    Timing is everything: Purchased our first house in Laguna for 220k in 2002, sold for 235k in 2013. In eleven years we made only 15k. Could be worse though, we could have bought in 2006. But if we did in sure we’d been foreclosed.

    Less selling/closing costs, less taxes, less insurance, less mortgage expense, less maintenance, less capital/chattel improvements. That’s why home ownership is not usually the investment some would like us to think it is. Our home has barely tripled since we bought it 30 years ago. Its not been that great of an investment at all when the costs of ownership and selling are factored in–which most people don’t do when they are calculating their returns.

  • #293720

    Bainc
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    @lc 125770 wrote:

    Less selling/closing costs, less taxes, less insurance, less mortgage expense, less maintenance, less capital/chattel improvements. That’s why home ownership is not usually the investment some would like us to think it is. Our home has barely tripled since we bought it 30 years ago. Its not been that great of an investment at all when the costs of ownership and selling are factored in–which most people don’t do when they are calculating their returns.

    Absolutely but you also need to factor in other things like cost of renting an equivalent home, principal reduction, and the value that comes with knowing your landlord isn’t selling, increasing your rent, or making you move. Primary residences are consumed not investments but you can make a few bucks while living there.

  • #293704

    LC
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    I think the old school rule before inflation that the primary goal of home ownership should be rent free living after all expenses still applies, maybe now more than for a long time. Any thing above that is gravy. That’s the way I’ve learned looked at it, but I’ve focused on business properties rather than residential.

  • #293699

    adiffer
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    Heh. Home ownership is skin in the game. That’s its real value and why I consider subsidizing it.
    It helps make the distinction between proletariat and bourgeoisie. 8)

  • #293710

    norules
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    I laugh when I am told or read to not pay off your house early so you get the tax write off on the interest. We paid off our house in nine years and have been mortgage free for eight years. It has been great. The interest payments go straight to the banks for profit. Any tax write off is less than the interest you paid, so you have lost a chunk of money.

    Easy math: 30 year 4.5% loan on a $300,000 you will end up paying $550,000 for the whole 30 years. Apply $200 extra a month to your montly payment, you will pay off your house in 24 years and pay only $487,000. That is a savings of about $60,000. Apply even more every month, you will pay it off sooner.

  • #293713

    Anonymous
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    Bought a house in 2003 at 21. Went from $272,000 to $450,000 in about a year. Should’ve sold. Dropped to about $170,000. Didn’t bail out on it like many others. Just sold it for $280ish. Since I owned it for 12 years I was able to pay down a lot of the principal and made a decent amount of money. Put 20% on a new house, plus was able to buy new floors, appliances, and other upgrades.

    For my first 5 years in the house I had roommates. Paid for most of my mortgage.

  • #293700

    adiffer
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    Yah. There are other, better ways to reduce taxes and better ways to pay the mortgage. Creativity counts. 8)

  • #293712

    kindrlindr
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    I was just 20, and put $5k down for my first house. It was through some first time homebuyers program. I was in CSUS and had a full time job and it was easy to do back then. The house cost only $63,000 in Rancho Cordova…2222 Bota Court. I loved that house. The lot was big and it had fruit trees galore……

  • #293705

    LC
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    Our first house was in Rosemont, which at the time was one of the areas where young people would start out, along with Citrus Heights. The house was $42K. Held it for 18 months and sold for $79K. Moved to Carmichael which I never liked, then out here which is much better. Only 3 houses in nearly 40 years.

  • #293698

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    @norules 125787 wrote:

    I laugh when I am told or read to not pay off your house early so you get the tax write off on the interest. We paid off our house in nine years and have been mortgage free for eight years. It has been great. The interest payments go straight to the banks for profit. Any tax write off is less than the interest you paid, so you have lost a chunk of money.

    Easy math: 30 year 4.5% loan on a $300,000 you will end up paying $550,000 for the whole 30 years. Apply $200 extra a month to your montly payment, you will pay off your house in 24 years and pay only $487,000. That is a savings of about $60,000. Apply even more every month, you will pay it off sooner.

    I agree. I’ve heard that same thing. People don’t understand taxes. They think they save $1 in taxes for every dollar spent. I hear self employed people say this a lot. “I need to buy something or spend some money because I owe on taxes.” That’s great but only if it’s something you need. Let’s say you spend $10K. It only reduces your taxes by the % you pay. So if you pay 30% then you saved $3000 in taxes but now you’re out $10K in savings. So instead of paying $10K in taxes you just spent $10k and now you owe $7k. You’re out $17K total now. The key is maximize your tax write offs for business.

  • #293714

    Anonymous
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    @norules 125787 wrote:

    I laugh when I am told or read to not pay off your house early so you get the tax write off on the interest. We paid off our house in nine years and have been mortgage free for eight years. It has been great. The interest payments go straight to the banks for profit. Any tax write off is less than the interest you paid, so you have lost a chunk of money.

    Easy math: 30 year 4.5% loan on a $300,000 you will end up paying $550,000 for the whole 30 years. Apply $200 extra a month to your montly payment, you will pay off your house in 24 years and pay only $487,000. That is a savings of about $60,000. Apply even more every month, you will pay it off sooner.

    I think the formula is… Pay 13 mortgage payments a year and you will pay off your 30 year mortgage in about 22-23 years. It has been awhile since I was in real estate but its close to that.

  • #293711

    norules
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    We started by putting in $100/ month for a bit. We figured why go out to dinner when we could put an extra money into house loan. We then upped it up to $200, then kept upping it up. Some months we didn’t put any extra money to loan if we needed the cash. Take a look at your bills for the month and see if you can make an extra payment. If you can’t make an extra payment, just pay the minimum and wait till the next month to pay extra money to your loan. Sure, the extra $50 you have could buy a new video game, it could also help pay off your house.

    Let me tell you though, not having to make payments after the loan is paid off is pretty nice.

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