Credit Cards (in the US)

[javeryh]

Any excess cash I get goes into a capital fund that will eventually be the down payment on investment real estate.  My goal is enough passive rental income each month to make two sets of student loan payments - my two elementary school age kids.  

I've thought about doing this but I'm afraid of deadbeat tenants or having to constantly fix stuff (I don't have the time).  If I could maybe a buy a 4 unit apartment building somewhere and make the combined rents enough to pay down the mortgage and then some that would be sweet.

[JMB]

 My goal is enough passive rental income each month to make two sets of student loan payments - my two elementary school age kids.  

Be sure to talk to a lot of rental property owners in MA beforehand. Lots of headaches. Of the property owners I know personally all have had tenants quit paying rent. In our state it takes forever to get them out.

[Samstag]

FWIW, I'm closer to Fordman's strategy than the credit card folks.  I haven't had a credit card in years.  My only debt is my truck and my house.  Wife's car has no lien.  I pay cash for everything and if I can't it doesn't get bought.  I have a Mastercard ATM card for online transactions.  Sometimes I consider opening up a $750 limit credit card to make it easier to rent cars and make online reservations.  I own a token amount of stock from a former employer and contribute the % of salary to 401k that gets me the maximum employer match (immediate 100% return).

It'd be a good idea to get a real credit card for online purchases for your own safety.  If there's fraud on a debit card you lose the money up front and have to file a fraud complaint to get it back.  If you use a credit card as long as you file a complaint before the interest is due it's pretty painless and there's no risk of bounced check fees.

[ChadTower]

It'd be a good idea to get a real credit card for online purchases for your own safety.  If there's fraud on a debit card you lose the money up front and have to file a fraud complaint to get it back. 

Last year someone stole my wife's Mastercard number (same account).  I found 3 charges that were not ours.  Our bank had them reversed within 24 hours of my phone call.  They handled the rest of the process without my involvement.  It was just as painless as a credit card chargeback. 

I've thought about doing this but I'm afraid of deadbeat tenants or having to constantly fix stuff (I don't have the time).  If I could maybe a buy a 4 unit apartment building somewhere and make the combined rents enough to pay down the mortgage and then some that would be sweet.

Agreed.  I'm still trying to decide if I should buy a townhouse and rent that out to build property management experience.  If I ever get to a place where I have something like a 4 unit building I'll end up hiring a property management company.  It does lower profit but it takes a lot of that time sinking work out of your hands and into the hands of people who get paid on a percentage basis.  It gives them incentive to not only be efficient but help maximize revenue if you choose a quality company to do it.

I'm not saying this approach is any better than any other approach.  It is the approach I am most comfortable with and with which I think I have the greatest chance of success.

[Fordman]

Im 41 years old, I have a $60,000 (US) a year job. My cars (2004 F150, 2005 Escape and 1994 Escort) paid for, my home is 5 months from being paid for (built in 2002), no credit cards, I have a true 30 and out pension plan that I can retire at age 54, a 401 k with NO company match (because we have a pension plan) that now I put 20% of my pay into. I also contribute to United Way and March of Dimes.

Wife, 5 kids, 6 fish and 1 dog.  No health problems (a little over weight), works little to no overtime.

Its all about watching what we spend and what we need vs. what we want. I have found out that if we save our pennies a few weeks, we buy what we want. We dont watch movies in theaters, have very basic cable, we use store brands, shop at yard sales and Im not afraid to ask for a discount.

Now for the hypocritical part of my life, I work for a manufacturer that requires 99% of their sales to John Q. Public be financed.

When my home is paid for, I am going to help my mom get her home paid for. She has been paying on the same home for 49 years now because of all the refinancing over the years. Everytime she re-fi's, it starts her over again. She likes the lower payment, but now she's been paying on the same home for 49 years! 19 years longer than the original pay-off date!

Fordman

[Samstag]

Your information is completely wrong.  

Really?  You didn't contradict anything I said.  All you did was add detail, some of which is wrong (specifically getting charged overage fees on a credit card that were caused by fraud).

Last year someone stole my wife's Mastercard number (same account).  I found 3 charges that were not ours.  Our bank had them reversed within 24 hours of my phone call.  They handled the rest of the process without my involvement.  It was just as painless as a credit card chargeback.  

Would it have been as painless if your mortgage check bounced before you noticed the charges?

[ChadTower]

Would it have been as painless if your mortgage check bounced before you noticed the charges?

It's a fair point.  That's part of why I am often tempted to set up a low limit credit card.

[javeryh]

Im 41 years old, I have a $60,000 (US) a year job. My cars (2004 F150, 2005 Escape and 1994 Escort) paid for, my home is 5 months from being paid for (built in 2002), no credit cards, I have a true 30 and out pension plan that I can retire at age 54, a 401 k with NO company match (because we have a pension plan) that now I put 20% of my pay into. I also contribute to United Way and March of Dimes.

Wife, 5 kids, 6 fish and 1 dog.  No health problems (a little over weight), works little to no overtime.

Its all about watching what we spend and what we need vs. what we want. I have found out that if we save our pennies a few weeks, we buy what we want. We dont watch movies in theaters, have very basic cable, we use store brands, shop at yard sales and Im not afraid to ask for a discount.

Now for the hypocritical part of my life, I work for a manufacturer that requires 99% of their sales to John Q. Public be financed.

When my home is paid for, I am going to help my mom get her home paid for. She has been paying on the same home for 49 years now because of all the refinancing over the years. Everytime she re-fi's, it starts her over again. She likes the lower payment, but now she's been paying on the same home for 49 years! 19 years longer than the original pay-off date!

Fordman

This is insane.  How are you doing this on $60,000 a year???    If you don't mind me asking, how much did your house cost?  I guess that is a huge factor in all of this but even still, 5 kids aren't cheap.  Do you have any savings?  Kids' college funds?  I am super strict about spending but it is still hard to get ahead of things and we do pretty good with our combined jobs...

[Donkbaca]

depressing.  I drive a 2008 bmw, my wife has 2006 bmw, we live in a gated community on a golf course in a house way too big for us.  I have enough money and credit stashed away for a rainy day, we have equity in our home, I have a 401k, a 529 for my daughter, and we barely make over 100k a year.  How can we have all of this?  Through the smart use of leverage.  For example, the cars are financed for as long as they will let me finance them out, why?  because I am paying 1.9% interest.  Why would I plunk down cash for our cars, that are depreciating every day, when I could instead put that money towards my daughters 529 that has returned around 9%?  You don't pay cash for assets that depreciate in value, especially when you can finance them at a rate that is lower than inflation, its throwing away money.

[javeryh]

depressing.  I drive a 2008 bmw, my wife has 2006 bmw, we live in a gated community on a golf course in a house way too big for us.  I have enough money and credit stashed away for a rainy day, we have equity in our home, I have a 401k, a 529 for my daughter, and we barely make over 100k a year.  How can we have all of this?  Through the smart use of leverage.  For example, the cars are financed for as long as they will let me finance them out, why?  because I am paying 1.9% interest.  Why would I plunk down cash for our cars, that are depreciating every day, when I could instead put that money towards my daughters 529 that has returned around 9%?  You don't pay cash for assets that depreciate in value, especially when you can finance them at a rate that is lower than inflation, its throwing away money.

Where do you live?  To me this makes all the difference in the world.  I live in a 1,250 sqft. house with the wife and 2 kids (it's way too small) and we could easily sell it tomorrow for $600k-$650k.  A good chunk of our money goes towards the mortgage - it's all relative to where you live, I think. 

[Fordman]

This is insane.  How are you doing this on $60,000 a year???    If you don't mind me asking, how much did your house cost?  I guess that is a huge factor in all of this but even still, 5 kids aren't cheap.  Do you have any savings?  Kids' college funds?  I am super strict about spending but it is still hard to get ahead of things and we do pretty good with our combined jobs...

We dont always buy new. We use coupons at the grocery and make a menu prior to shopping. My house (2250 sq ft in a rural area east of Cincinnati, OH) was $152,000 when we signed for it. We pay a 1/2 payment on our home every 14 days. The interest cycle is a 14 day cycle instead of a 30 day cycle. We dont eat out in restaurants except 2 times per month. We have a Christmas club account with a set dollar amount and when the money is gone, its gone, we dont spend another cent on Christmas. Our kids use alot of hand me downs. Play video games that are 2-3 years old and used.

We arnt cheapskates, we just want our home to be paid for so NO ONE can make us move if we dont make payments.

It has taken us alot of dicipline to achieve a debt free lifestyle. We pay cash so we know its ours.

When the house is paid for, we plan on doing alot of redecorating and doing alot of the things we have been putting off for the last 10 years. And we're gonna pay cash for it all!

Fordman

[danny_galaga]

depressing.  I drive a 2008 bmw, my wife has 2006 bmw, we live in a gated community on a golf course in a house way too big for us.  I have enough money and credit stashed away for a rainy day, we have equity in our home, I have a 401k, a 529 for my daughter, and we barely make over 100k a year.  How can we have all of this?  Through the smart use of leverage.  For example, the cars are financed for as long as they will let me finance them out, why?  because I am paying 1.9% interest.  Why would I plunk down cash for our cars, that are depreciating every day, when I could instead put that money towards my daughters 529 that has returned around 9%?  You don't pay cash for assets that depreciate in value, especially when you can finance them at a rate that is lower than inflation, its throwing away money.

See, I'm in the 'if you didn't buy it with cash, you don't own it' camp. There's absolutely no joy in borrowing money for a car to me. You turn X dollars into X/2 dollars in five years. Now THAT is depressing!

I paid $2500 for my car, and that makes me much happier than pretending to own a luxury car. For you, obviously pretending to own a luxury car makes you happier. Horses for courses. I won't criticise you. Give me the figures for your car finance. See which is cheaper. Who is able to put away more for investments, super annuation etc? You can't really say your way is the right way and that's that.

Reading Fordmans post rings true with me. And it reminds me that there is little pride nowadays in owning anything. I'm going to sound like Gramps, but when I was young, if you didn't have the money, you didn't buy the thing. You saved, and then you bought it, and it felt good to have WORKED to buy this object. Now everyone wants the instant gratification that credit gives. But buying stuff on credit is just not a very satisfying feeling for some people, like me and Fordman. The only thing that you might have to borrow money for is a house, which I have.

My house is paid off next year by the way. Bought at 200K, now pushing 600k. Took maybe ten years of not driving BMW's  

There is absolutely no way you would convince someone who is going to have paid off their house in the next year or so that no, it's better to let 'the man' keep owning it...

[HaRuMaN]

student loans are low interest

Not necessarily.  I had federal student loans, APR was close to 7%, so I payed them off in 3 years...  saved myself over $50K in interest payments.

[javeryh]

This is insane.  How are you doing this on $60,000 a year???    If you don't mind me asking, how much did your house cost?  I guess that is a huge factor in all of this but even still, 5 kids aren't cheap.  Do you have any savings?  Kids' college funds?  I am super strict about spending but it is still hard to get ahead of things and we do pretty good with our combined jobs...

We dont always buy new. We use coupons at the grocery and make a menu prior to shopping. My house (2250 sq ft in a rural area east of Cincinnati, OH) was $152,000 when we signed for it. We pay a 1/2 payment on our home every 14 days. The interest cycle is a 14 day cycle instead of a 30 day cycle. We dont eat out in restaurants except 2 times per month. We have a Christmas club account with a set dollar amount and when the money is gone, its gone, we dont spend another cent on Christmas. Our kids use alot of hand me downs. Play video games that are 2-3 years old and used.

We arnt cheapskates, we just want our home to be paid for so NO ONE can make us move if we dont make payments.

It has taken us alot of dicipline to achieve a debt free lifestyle. We pay cash so we know its ours.

When the house is paid for, we plan on doing alot of redecorating and doing alot of the things we have been putting off for the last 10 years. And we're gonna pay cash for it all!

Fordman

Ahhh, makes more sense now.  $152,000 is crazy!  I think I need to move to Cincinnati (although I don't think I could stand having to watch and read about the Bengals all the time - yuck).  Unless I want to commute 2 hours to work each way moving really isn't an option.  The real estate prices around me are out of control.  Plus, the kids are in school and we don't want to uproot them and our entire family is on the east coast.  I guess I just have to accept that life in and around NYC is ridiculously expensive.

[HaRuMaN]

student loans are low interest

Not necessarily.  I had federal student loans, APR was close to 7%, so I payed them off in 3 years...  saved myself over $50K in interest payments.

Right, and what was the market rate on loans when you got 7%?

 

Hell if I know, but I wouldn't call 7% low interest

[Hoopz]

One nice thing about the recent changes for student loans is that the interest is now deductible for the first year or two.  That's different than when I started paying for mine.

I think the bottom line is that everyone's situation is different accounting for income, family, housing, risk tolerance, long and short term goals, etc.  What's good for some isn't the answer for others.  That's why it helps to work with professionals to see the various options and strategies available.

[Hoopz]

Hell if I know, but I wouldn't call 7% low interest

It's all relative.  What year did you graduate?  That'll put it in perspective.

For now, 7% sucks for paying interest but in the 70s and early 80's, that would be an incredible rate.

[HaRuMaN]

Hell if I know, but I wouldn't call 7% low interest

It's all relative.  What year did you graduate?  That'll put it in perspective.

For now, 7% sucks for paying interest but in the 70s and early 80's, that would be an incredible rate.

2007

[Hoopz]

2007

Damn kids....   


 

[HaRuMaN]

2007

Damn kids....   


 

Hey, I'm 32...   I was a late bloomer...  (got tired of working in restaurants, so I decided to get my engineering degree)

[javeryh]

One thing I've found kind of interesting is a few of you have bragged about all your financial decisions and then say something like, "and going to pay for my kid's college, too."  While that's nice and all, college is quickly turning into one of your worst possible investments and all these parents saving up all this money is doing nothing but driving tuition and fees up with all this artificial demand.  Beyond that, student loans are low interest and your kid will have the rest of his life to pay it off.  That $50k you saved up isn't going to be much help if he decides he wants to be a drama major and go to some fancy liberal arts college for a low paid career.

You aren't looking at it properly - college is not a financial investment.  It is an investment in your kids' lives.  No matter the cost, college is an experience I want my kids to have.   It is out of control expensive though - only a select few will ever really earn it back.  I'm guessing college will be between $250k-$300k PER KID by the time mine are ready to go.

[Hoopz]

2007

Damn kids....   


 

Hey, I'm 32...   I was a late bloomer...  (got tired of working in restaurants, so I decided to get my engineering degree)

I'm just busting your balls.  I graduated in 92 but have no idea what my interest rate was.  I only borrow a couple of grand so I wasn't overly worked up about it.

My wife just finished her nursing degree last spring (2010) and I think she (yeah, right....WE) now have 20-25k in student loans to payback.  Based on her salary, we'll cover the cost of that by the end of this year. 

[ChadTower]

Actually, Jim, I addressed all of that with my plan.  I am not putting money away strictly for college.  I'm putting it away to set up an income stream to pay for college loans.  This way if the kids decide not to go to college I have a strong passive income for my own use.  If they decide to study something useless I'm good.  If they screw off college and waste the money I'm a lot less stuck resenting them because I didn't spend 15 years socking away cash just to write checks to the University.  College loans are by far the lowest interest nonsecured loans you can get so why not use them?  Any why not use a passive income stream to make the monthly payments?  This way I'm using someone else's money to generate the income that I'm using to pay off a set of super low interest loans for education.  Win/win and the contingencies are positive too so long as the original investment was sound.

[Vigo]

I for one am not setting up a college fund for my kid, if he wants to go to college, he has to work for it the same way I did, get scholarships, get grants, get loans. If the remaining difference to be paid is reasonable, I figure I could easily pay the rest out of pocket.

While he's still a young'un, I'm saving up most of his gift money from the grandparents and family and will be investing that for him over the years. That will be a "---steaming pile of meadow muffin--- Creek" fund in case he does something stupid and needs cash. I am not gonna tell him about the money so he expects nothing.

Am I cheap? Yeah...but I am incredibly self sufficient, and need to pass that ability on the hard way.

[ChadTower]

There is something to be said for that.  I paid for my 4+ years of college myself and my wife's 4 years of college too.  It taught me a lot of things.

There is also something to be said for being able to start your own post college life without $100k in debt and ten years of payments crippling your finances.  I am setting my kids up so hopefully they won't have to do that but am not going to give them the choice of any college they want.  If they want my ride they're going to go to a good state college probably in our state so we're using in state rates.  Anything over that will be loans they pay off themselves.

[ChadTower]

$10 says they go off and get a degree in English.

 

Their mother's main degree is in French.     That said it did become the base degree she built on to become a teacher.

[HaRuMaN]

Chad needs to follow this two step plan:

1) Just let them play MK and then they'll become juvenile delinquents, and won't want to go to college, and you can use the savings to by more arcade games...
2) Profit!

[ChadTower]

These days my kids are spending all their gaming time on the N64, the Vectrex, and the 2600.  Clearly we spend a ton of money on cutting edge gaming tech.   

[Gray_Area]

I think the best financial move is to leverage to the max and blow it all on cristal and hookers in Barbados.

This is the type of comment I read these kinds of threads for.

[Cakemeister]

Why pay cash when the banks are willing to pay you to use their card?

I use a rewards card to pay for practically everything, including all my monthly bills.  Then I pay the balance off a month later (free loan from the bank behind the card) and every time I hit 5000 points I turn it in for a $50 credit on my statement.

It's not a lot of money (1-3% depending on where I use the card) but as long as they're willing to pay me I'll keep taking it.

I do the same thing (Charge on Discover and pay off by automatic bank payment), but paying cash is better.

The reason is that people who pay with credit cards tend to buy 15% more stuff than people who don't. Now, Dave Ramsey may have pulled that statistic out of his butt, but I believe it to be true.

[Samstag]

I do the same thing (Charge on Discover and pay off by automatic bank payment), but paying cash is better.

The reason is that people who pay with credit cards tend to buy 15% more stuff than people who don't. Now, Dave Ramsey may have pulled that statistic out of his butt, but I believe it to be true.

I believe he's right that average person spends more when paying by credit.  I would argue that I'm nowhere near the average.

It helps to evaluate your spending on a monthly basis and categorize where the money is going, even if you don't set budgets.  But you also need goals.  If you don't have any plan for savings then any extra money at the end of a pay period looks like "free money" to a lot of people.  I know plenty of people who will spend that money like it's going to expire, and they pay in cash.

[ChadTower]

I know I'm sick of hearing about how tight money is from people who run up $150 bar tabs regularly and drive a car $20k more than they need.

[Hoopz]

I do the same thing (Charge on Discover and pay off by automatic bank payment), but paying cash is better.

The reason is that people who pay with credit cards tend to buy 15% more stuff than people who don't. Now, Dave Ramsey may have pulled that statistic out of his butt, but I believe it to be true.

I believe he's right that average person spends more when paying by credit.  I would argue that I'm nowhere near the average.

It helps to evaluate your spending on a monthly basis and categorize where the money is going, even if you don't set budgets.  But you also need goals.  If you don't have any plan for savings then any extra money at the end of a pay period looks like "free money" to a lot of people.  I know plenty of people who will spend that money like it's going to expire, and they pay in cash.

Spot on.  And you are always supposed to "pay yourself" first.  Set a goal of how much you want to save on a monthly basis and put that much away so it's not spent on discretionary spending. 

[ChadTower]

Spot on.  And you are always supposed to "pay yourself" first.  Set a goal of how much you want to save on a monthly basis and put that much away so it's not spent on discretionary spending. 

I put it away away.  It's in a separate account at a separate bank in a fairly inconvenient location.  No debit card.  I'm not even sure where I put the checkbook.  No way of transferring money out electronically.  It's local, but the only way to get the cash in or out is to drive over during office hours, so I rarely make a withdrawal.

[Gray_Area]

Spot on.  And you are always supposed to "pay yourself" first.  Set a goal of how much you want to save on a monthly basis and put that much away so it's not spent on discretionary spending. 

I put it away away.  It's in a separate account at a separate bank in a fairly inconvenient location.  No debit card.  I'm not even sure where I put the checkbook.  No way of transferring money out electronically.  It's local, but the only way to get the cash in or out is to drive over during office hours, so I rarely make a withdrawal.

This thread is on the fringe of becoming a 12-step, self-help group.....

[Samstag]

I put it away away.  It's in a separate account at a separate bank in a fairly inconvenient location. 

You mean like the back of a volkswagon?