How do you all handle your finances?
Question: Let’s discount owning a business for the purposes of this >discussion).
>How can Joe Average build some sort of finanical cushion if not >wealth? I’m curious as to where most financial investors, planners or >any of you with experience handling money (that get or have results, >not armchair types) rate the following in order of importance:
>- Paying off Debt >- Regular Savings i.e. savings account >- IRA/401K >- Owning a House >- Investing
>My finances are not good right now, and I figure the first thing I’ll >do is pay off my credit cards. I’m not that much in debt, only $ >1,500 K (didn’t have school loans), but I’m paying for a financed car >(I had to).
>I’m only 25 though. I thought I’d buy a house, but I’m really looking >at renting for another two years while I sort my finances via the >other options listed. My credit is BAD, and I’m just recovering from >6 months of unemployment. Where would you guys start? I’m ok now, but >I’m not “rich” – I don’t know if that’s relevant or not.
>Any of you invest, or have multiple streams of income?
Answer: 1) Pay off all credit cards & NEVER borrow more than you can pay off each month (except perhaps for a true emergency).
2) Buying a house may or may not be the best investment. It depends greatly on your tax bracket & life style. Home ownership is highly subsidized for the wealthy (<28% tax bracket), but may not be such a great deal for someone in the 15% bracket. It can make more sense to rent close to work (minimize commuting costs) and /or rent a small unit (700-1000 ft2) vs. a home which is likely to be much larger. If you need the 1500+ ft2, then home ownership may be the better route (it’s usually better to own the same ft2, but often times you can rent smaller places cheaper than buying a typical home, especially after paying taxes, insurance, upkeep, etc and particularly if you can’t use a long form for deductions. Having a bad credit rating will also likely result in a high interest rate – another negative for ownership.
3) Maximize any employer matching 401k plan.
4) If there is left over cash, investing in a Roth vs. simple IRA will depend on tax bracket. Keep in mind that you can remove what’s paid into a Roth without penalty plus you can remove interest without penalty if used to pay off medical or used as a 1st-time home down payment. See / familiarize yourself with the rules before investing. (I’ve not kept up with the simple IRA concerning removal for medical or home down payment.)
5) Own and use at least two credit cards, but ALWAYS pay them in full each month to build back your credit card rating.
5) The auto loan rate should determine if you should pay it off or save some in a savings account (look for a credit union for a typically higher rate vs. bank). You will likely pay more in loan interest than you will realize by saving, but you do need to have some cash reserve for the unexpected (at least a few months pay).
Related Posts
Filed under: Bad Credit Loan
Leave a Comment
XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
TrackBack URL | RSS feed for comments on this post.