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How to handle money. Save until you can buy your first house. Buy a house as soon as possible because then you save on the rent payments. Then, fund your 401K and IRA to the max. I have to see if using your 401K and IRA to save for a house is a good idea or not. Then, once you have your first house, and you are funding your 401K and IRA to the max, you should spend all the rest of your money however you please. Because there are only a few reasons to save: 1. A house or another big ticket item (that you want) 2. Retirement 3. To be financially independent (but this is unlikely for most people, and requires that you save ALOT each year) 4. To be financial secure - not such an issue IF you have your 401K and IRA funded, and if you have a bunch of credit cards.... Many people might not want to use their 401K or IRA in an 'emergency' and so they might want to save to be financially secure or whatever, but this is mainly for fear. If you have good credit and several credit cards you can easily withdraw $40,000 and keep it on low interest rates. It doesn't matter if you have debt in this case, or if you saved and didn't spend in the years prior, either you lost money that you could have spent in the past, or you lost money in debt you'll have to pay off in the future. Money spent today is worth more then money spent tomorrow. Financially secure how? Buy insurance. Of course, you might want to save in case you didn't have a job, but like I said, you could always use debt if that ever happened. So. Buying a house should be your first priority. It really doesn't matter if you own a house or rent it, because you'll be paying payments every month in either case. You build equity, but you could never spend that equity, unless you gave up on ever having a house. If you sold the house you'd move it into another house. Owning a house only makes a difference for retirement. EXCEPT that living in a house is probably a higher standard of living then in any apartment you'd rent. The sooner you buy a house the closer you are to retirement. You're not really tied down by having a house, because you can travel just as easy, and if you want to move you can always sell cheaply - though hopefully not for less then what you bought it for plus the accumulated interest on the debt plus what you could have made by investing your money in diversified stocks and bonds (8%-10% a year on average). Yet you saved on the rent payments remember. Then, you fund your 401K and IRA to the max, for retirement. You may want to save more, but I don't know if that's necessary. Then, you spend all the rest of the money you make today on whatever you want. Once you get to be at the life_style_ you want to be at, you will be rich. Don't save to be financially independent. If you do save to be financially independent you must save a lot each year, and have a number you're shooting for. However, you'll never really be rich if you're not rich now. Saving to be financially independent is really more like saving to be closer to retirement.... So only do that if you can save a lot I guess. Spend all you have now, and try to make more. Once you're spending money on everything you want you will be set. Of course, if you waste money, you're lame. If you have so much money that you don't know what to do with it, you buy more houses or you put it in the stock market. Your second, third and fourth houses will _not_ allow you to save on rent payments, and you will still have monthly mortgage payments for each of them. However the return on houses is probably better then the return on Stocks and bonds. If you put your extra money into the stock market you should invest in a very diversified portfolio of stocks and bonds that will make an average of 8%-10% a year. If you gamble and try to play the stock market, you have a 50% chance of doing better, and a 50% chance of doing worse. Not bad odds, but it's not a good idea to take a risk with your livelihood. If you want to play stocks do it with other money.... Of course, none of this money makes any difference because you're just saving it because you don't know what else to do with it. However I would put it in houses, because they are a more secure investment. The stock market COULD fluctuate by itself 20%-30% up or down in a year ($10,000 becomes $13,000 or $7,000 in one short year). If you hold a diversified portfolio and are diversified in bonds as well, you should be able to neutralize out some of that possible fluctuation. The only problem with houses, is that you may have to take care of them. However, I say, the way to get rich is to make a lot of money at your job, and then with your extra money buy houses in places you would enjoy vacationing, and rent them for most of the year. With your extra money you could also start another business on the side or invest in friends businesses, venture capital, but then you are getting into more difficult and 'investor savy' issues. I don't know if knowing real estate is all that hard, but I don't think so. Houses are the only place where it makes sense to use ANY debt. If you use credit cards for convenience you should pay them off every month. Now they have bank/check cards so I don't see why not use those. When you buy a house, you borrow money from the bank to pay for the house. You only have to put up a portion of the cost of the house. So now you and the bank both sort of own the house you're living in. The good thing about mortgages is that you have leverage. Let's say you have $100,000 and you want to buy a house that costs $100,000. You can pay for the house upfront, and if it goes up 7% in one year, the house you own is now worth $107,000, so you made $7,000. Alternatively you could put up $10,000 and borrow the other $90,000 from the bank. If the house goes up 7% in one year you still made $7,000, on your $10,000! You could conceivably buy 10 houses for a total of 1 Million, and make $70,000 in one year on your $100,000. Except for the one small problem that you have to pay the bank interest on the $90,000 - $900,000 you've borrowed. So ideally I believe the interest you pay the bank should be exactly equal to the extra profit you make on the $90,000 you borrowed, so that you would only make interest on the money that was really yours: $700 on the $10,000 you put up, or you would make the same $7,000 on if you bought 10 houses with your $100,000. However I'm not sure. You have to check interest rates on mortgages, you may actually make out better with the leverage if the interest you pay on your borrowed debt is less then the appreciation on the entire $90,000 you've borrowed. Considering the fact that the interest payments are tax deductible, using debt to buy houses is probably a good idea. You merely now need to compare [House appreciation - (interest rate - tax on interest) to Stock market appreciation (8%-10% a year]. And see if it makes more sense to invest in houses or stocks.... and also considering the fact that you have to take care of the house, but you get to use it and can rent it out. So, that's how you get rich, I say. No reason else to use debt unless you think you can beat the spread between the interest you pay on the debt, and the amount your money appreciates. And if you do this, you should REALLY know what you're doing.... I thought once that over time it might always be a good idea to always use debt, to increase your return. Pay low interest rate on credit cards, and make 8%-10% in the market. Maybe in the long run, but the short run could always come around and so that's a really stupid plan. However, you're going to be spending all your money anyway and only saving if you're so rich that you have money left over that you don't know what to do with, so it doesn't make a difference. I find it really stupid to sacrifice today in the hopes of being RICH tomorrow. You'll never really be rich, unless you're spending on whatever you want. You can only spend so much a year in my opinion, like $80,000 per person maybe. Of course, this is all dynamic, it might make sense to sacrifice a little to buy another house, but the point is then - Why? Why does it even matter if you have 2, 3, 4, 5, or 10 houses, if you don't have all the money you want now to spend and live life how you want to? And why does it matter if you have $100,000, $200,000, $300,000, $400,000, $500,000, $1 Million in the bank if you aren't spending it? It can only make a difference if you're saving it to retire and be financially independent now. And then how much will you need to retire so that you can make how much interest and be rich every year? You could probably retire on $200,000, but you wouldn't be rich. So basically if you are saving for retirement you are merely forgoing spending money today in the hopes of spending it tomorrow. Let's say you make $300,000 and save $100,000 a year. That's $100,000 you could have spent today that you will spend tomorrow - big deal, except for the compound interest rate, and the interest you will make off it when you live on it, except this should be exactly equal to zero when you subtract inflation and the time value of spending the money today. Maybe you make a little bit more for the future. And there's the compounding. Of course if you have extra money left over and save, you may soon find yourself independently wealthy and able to retire if you want. The question is: what do you want to do? I think it would be cool to have 5-10 houses and travel a lot. I don't know what else to do Loving, Learning, Teaching, Creating. Accomplishment. And do what you enjoy. Try new things to see if you enjoy them. There is no purpose except to be happy and make others happy. So you should buy a house and fund your 401K and IRA to the max, and then spend all the rest of the money you make each month, but you shouldn't spend your savings and
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