Basically another run at the message "Hey saving when you're young is a lot easier than saving when you're old and much more effective." Putting away $1,000 when you're 20 can easily be $4,000 in the bank when you're 50. Plan for that period of time when you're tired of what you have been doing for the last 20 - 30 years, and want to spend time doing a new thing. You'll need savings to cover the burn rate.
I've been putting away in my 401(k) for 10 years. My overall rate of return is ... hmm, it's ~66%. That seems off, so I guess I'll have to research this more.
Root cause: Incessant advertising coupled with lack of financial education.
Public schools need to teach financial literacy in junior and high schools. Maybe there should be an entire semester devoted to it. If I were to design such a course, it would cover the following:
1. Saving and compound interest.
2. Credit. Personal loans, auto loans, mortgages, student loans.
3. Financial products to avoid. Title loans, payday loans, Bail bondsmen.
4. Why asset accumulation is good, and materialism is bad.
5. Investing in stocks, bonds, mutual funds and ETF's. Investment fees.
6. Financial obligations during marriage and divorce. Filial support, child support, alimony. Wills and trusts.
7. Planning for retirement, IRA's, 401K's. Saving money for your kids education.
8. Health insurance. Employer plans, the ACA, Co-pays, co-insurance, maximum out of pocket expenses. Why it's bad in some states to go on medicaid, and why you should get an ACA policy instead.
9. What you need to do to buy a house.
10. Starting your own business. Fictitious business names,
incorporation. Protecting your personal assets if the business is sued. Employment law. Employment at-will, discrimination, whistle-blowing. Unemployment compensation,
workers compensation, disability insurance.
11. Landlord and Tenant law.
12. What you need to do if you are arrested.
When people graduate from high school and turn 18, there's a whole legion of shysters ready to prey on them.
Don't forget the tax rates. Americans are eager to slap a tax increase on anything income-related (Prop 30) while eschewing tax increases on anything property-related (Prop 13), in effect building a rentier state, where decreasing number of working individuals http://data.bls.gov/timeseries/LNS11300000 is responsible for a growing list of expenses.
But you're approaching this in the context of current income tax rates. How would the equation change if there was no income tax, just the property tax, and you could plan your retirement around those numbers?
My situation would be probably worse under a property tax only regime.
The problem with property tax is that is levied whether you have income or not, and not everyone is directly liable for it.
Right now, I'm living off of post-tax savings and investments, so my income taxes are really low (as in almost zero). My property tax however is a significant fraction of the taxes I do pay as I have a main residence and an income property.
The current tax code is set up in such a way that if you have no income from wages, and only non-wage income, you
can pay no taxes on capital gains up to about $70K per year
See http://www.gocurrycracker.com/never-pay-taxes-again/
The problem you mention about property tax, is actually the original purpose behind property tax. So-called 'absentee landlords' were leaving land fallow for generations, impoverishing the nation. Property tax was instituted to make sure land was constantly in use, or the landlord lost it (and somebody more productive got it).
So the pesky US constitution got in the way of a "fallow land tax"? It seems to me if land is being left fallow, then that's something which ought to be discouraged. If land is in service, then the property taxes should be nominal.
Why invest in "financial" investments when the stock market is so volatile and we are indebted to China? To me, buying properties and renting them out are a safer investment than government backed paper. And no, I'm not investing in silver/gold when that whole market is manipulated.
There's risk being a landlord as well. When a bad tenant trashes your rental, you can be out tens of thousands of dollars in addition to the costs to file and process an unlawful detainer.
If anything landlording is riskier than investing in an index fund.
This is not to say that you should not own rental property. Rental property should be owned in addition to stocks and bonds.
It seems very weird to ignore homes people own in this analysis since it is the largest store of wealth for most people and produces ~5% dividends tax free in the form of not having to pay rent.
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[ 3.3 ms ] story [ 50.3 ms ] threadPublic schools need to teach financial literacy in junior and high schools. Maybe there should be an entire semester devoted to it. If I were to design such a course, it would cover the following:
1. Saving and compound interest. 2. Credit. Personal loans, auto loans, mortgages, student loans. 3. Financial products to avoid. Title loans, payday loans, Bail bondsmen. 4. Why asset accumulation is good, and materialism is bad. 5. Investing in stocks, bonds, mutual funds and ETF's. Investment fees. 6. Financial obligations during marriage and divorce. Filial support, child support, alimony. Wills and trusts. 7. Planning for retirement, IRA's, 401K's. Saving money for your kids education. 8. Health insurance. Employer plans, the ACA, Co-pays, co-insurance, maximum out of pocket expenses. Why it's bad in some states to go on medicaid, and why you should get an ACA policy instead. 9. What you need to do to buy a house. 10. Starting your own business. Fictitious business names, incorporation. Protecting your personal assets if the business is sued. Employment law. Employment at-will, discrimination, whistle-blowing. Unemployment compensation, workers compensation, disability insurance. 11. Landlord and Tenant law. 12. What you need to do if you are arrested.
When people graduate from high school and turn 18, there's a whole legion of shysters ready to prey on them.
If you don't see why, you will. When you are retired, you will come round to my side of the argument.
The problem with property tax is that is levied whether you have income or not, and not everyone is directly liable for it.
Right now, I'm living off of post-tax savings and investments, so my income taxes are really low (as in almost zero). My property tax however is a significant fraction of the taxes I do pay as I have a main residence and an income property.
The current tax code is set up in such a way that if you have no income from wages, and only non-wage income, you can pay no taxes on capital gains up to about $70K per year See http://www.gocurrycracker.com/never-pay-taxes-again/
If anything landlording is riskier than investing in an index fund.
This is not to say that you should not own rental property. Rental property should be owned in addition to stocks and bonds.
* It takes 5-7 years to break even on the transaction costs
* You might not have enough equity (or liquid funds) to sell if you need to move for a better/more preferred job
* There is no guarantee real estate will continue to appreciate at the same rate or ahead of inflation in the future