The opposition


PDITF is a single author blog. Ninety-five percent of the articles are written by me, the other 5% are guest posts. Today, I thought I’d mix it up even more and allow a few unsuspecting people to hijack today’s post. My article about student loans being forgiven has quickly become one of my most popular. It currently has 87 comments, and counting. I thought I’d share with you a few of them.

Let’s get right to it….

If you forgive one type of debt, you kind of have to forgive all debt. Who’s to say that one debt is greater or more important thus needing forgiving then another. It’s just all so stupid. If in the end you can’t pay for something, don’t sign the paper work in the beginning stating you can.

Pretty reasonable first line right? The banks were bailed out so students should be too. WRONG. The banks shouldn’t have been bailed out, and students shouldn’t be bailed out. Goes back to the age-old adage “Two wrongs don’t make a right.” You do realize if your student loan is forgiven the balance doesn’t disappear in to space. No, instead YOUR student loan balance now becomes MY headache (via taxes). I don’t want to pay for your student loans any more than I wanted to pay for my neighbor’s house.

And then there is my personal favorite, this one came in late last night while I was watching an episode of Pretty Little Liars (warning: the commenter’s thoughts are difficult to follow)

So… back to the Iphone that was made by worker bees in China…. Did you keep it/are you using it? The answer to that question pretty much illustrates the rest of any of your like mentality. You’re either hypocritical or you’re not. Your response to the whole OWS movement seems based from a pretty “world is roses” and overall very ignorant stance. Somewhat parallel but not as dumb as the dirt poor Republicans who keep voting against themselves. You seem to not realise the point that you cannot truly “function” in society without some/most items made in deplorable conditions (even bums use discarded Starbucks cups and wear Nikes). Protesters include nurses, students, all types of professionals. Just because these are again – a function of modern day society – virtually inescapable in Modern Day America – doesn’t mean that you can’t disagree with how they are made. In fact, it should outrage you more. The corporate greed that has gone into their making at the expense of the natural habitat and the 99% if you will for the benefit of the fattest is what people are making a statement against. If you are outraged about the working conditions in China for a product you buy in America, yet seem to think the protesters are silly and infantile you are just another dirt poor Republican voting against yourself (just on a different scale). You seemed more intelligent than that.

First, please for the love of bacon, learn how to use a freakin’ comma. I had to re-read this garbage a handful of times before I could even understand what it was you were trying to say.

Second, yes I did keep the iPhone (which is probably worthy of a blog post in and of itself). Mainly because of these comments. It seems that just about everything, from the TV I watch to the clothes I wear are byproducts of questionable work conditions. Unfortunately, (almost) everything in America was made somewhere else. Anyone know of a cell phone manufacturer that doesn’t outsource? It was a lose-lose situation. Check out this article for more information.

Lastly….what? Are you drunk, high, stupid, or a combination of all three? What does this sentence even mean “Your response to the whole OWS movement seems based from a pretty ‘world is roses’ and overall very ignorant stance.”? If you are going to insult me and call me things like “a dirt poor Republican” please at least have an agenda or reason for doing so. I’m all for people posting their opposing point of views (Stacking Cash and Larry can testify to this), but at least have some meat and potatoes along with your comment. To the anonymous commenter that wrote the above, click here.

I’m totally glad my post got people thinking and brought both sides of the table to discussion. Although, I do particularly enjoy reading comments from people who agree with me (haha, it’s true). Like this one…

Besides, the inherent “unfairness” of forgiving student loan debt, it just doesn’t make sense as a stimulus. I’m an economist, and here’s how that idea stacks up to me:

A Keynesian stimulus is concerned with short-term spending increases – the usual cutoff is about 24 months. So the question that must be asked of anything that is claimed as a stimulus is: “how much marginal (i.e. extra) money will be in the national pockets if it’s implemented?”

Let’s say that Joe Occupier has $60,000 in student loan debt and has payments of $500 a month. If the government forgives his loan, it costs them $60,000. Assuming Joe spends *all* of the money he saves (which is a crazy ambitious assumption), he’ll put an extra ($500*24)=$12,000 in to to economy. So the federal government is paying $60k for $12k in stimulus.

You’ll never find an economist to back this plan up.

Am I terrible blogger for calling out some of the very people who read my blog? Perhaps. But if you really believe I’m a “dirt poor Republican” I’d rather you just not read my blog at all. At least then it’s a win-win for both of us 🙂

Ninja answers.

Got an email from a lost soul yesterday and I thought we could help put her on the path to eternal riches. Check it…

Hi!

I’m a long-time reader of your blog. I want to start a retirement account for myself. I’m a 23 year-old, soon-to-be-married female with a full-time job. My employer does not provide any type of retirement savings of any sort, and I haven’t been making any contributions to my retirement in my lifetime so far. I’m ready to change that.

I’m not sure where to being and am not really that “seasoned” in stocks/bonds/etc. If you have any tips, words of wisdom, or a direction I could head in, I would appreciate it.

Thanks!
Rachel

Well, first of all I would personally like to thank Rachel McAdams for reading my blog. Loved you in Mean Girls…

Anywhoozle, on to your question. How do you get started with investing when you know nothing about it? Easy. Get out your checkbook. Write a check to Ninja@punchdebtintheface.com. Send on over about $10,000. And I’ll mail you back $5,000 in two weeks. BOOM! You just got $5k. Pretty sweet right?

Okay, now it’s time to get serious. Investing, especially for something like retirement, can seem both daunting and unimportant. Stocks, bonds, REITS, Options, blah, blah, blah. Not only is the subject matter rather boring, but retirement is like eleventy bajallion years away, why the heck should we give it any thought? Answer: Because Ninja said so.

Unfortunately Rachel, I know almost nothing about you except that you are 23, employed, and your name is, well… Rachel. Since I don’t know you, I can’t really recommend an investment strategy for you. That said, I can tell you what I do and if you think it sounds sexy, feel free to copy me.

I invest 5% of my gross income to a 401K plan each month because my employer matches that dollar for dollar. Next I take $5,000 of my take home pay each year and invest in a Roth IRA. Roth’s have some pretty epic long term tax advantages for us younger peeps. Since you don’t get an employer match in a 401k plan, I would focus on starting a Roth. I can’t tell you who to open up this account with. Just make sure pick a company (like Vanguard) that won’t fee you to death.

Since I am relatively young (25), I am fairly aggressive in my retirement investing. That is to say, I only invest in the stock market. No bonds for this Ninja. I go the way of Dave Ramsey and invest in a few different mutual funds. 50% of my cash goes to VTSMX (Big US Companies), 25% goes to NAESX (Small-Mid sized US companies), and 25% goes to VGTSX (Foreign Companies). This investment strategy helps diversify my investments across the entire market. If one company collapses (I’m talking about you Radio Shack), it doesn’t really effect me. It’s also important to invest at least a little in international markets. If the US goes to hell in a hand-basket, it will be nice having something that’s still of value.

I don’t like to get super technical when it comes to investing. My mom messes around with individual stocks, options, etc. She’s crazy to me, but it seems to work out just fine for her. A good place to get familiar with solid mutual funds, stocks, etc is MorningStar. They’ll tell ya just about everything you could ever want to know about a specific stock or fund.

Oh man. I’m pooped this was way more “finance” than I am use to in a one blog post. Moral of the story…

Help a reader out

Got this letter from a fellow PDITF reader….

My husband and I own a condo in the SF Bay Area. We bought a 1bd condo at what (we thought) was the bottom of the market (sad face). We’re currently under water on the place about $30-$40K. We recently started snowballing our debt and the only remaining debt is about $3k of student loans due to be paid off in the next 2 months or so. Here’s our dilemma: after building 6 mo. of expenses in savings, should we:

1) start paying off the condo? Keeping with our current snowball amount ($3k) we could have the joint paid off in 2016! Problem is, we also plan on having children in the next few years and the maximum time we’ll live here is about 4 more years (although we’re open to using as a rental property), but we will likely stay in the area.

OR

2) start saving the 3k/investing the 3k? We are embarrassingly naive about investing in general and have no stocks/bonds/MM accounts other than our 401K…

We just don’t want to pour money into a house when we know it’s not our long term home, but we also want to make a savvy financial decision.

Advice from you/your readers would be hugely appreciated! Many, many thanks!

Courtney

The first thing that stood out to me about Courtney’s letter was this: “We are embarrassingly naive about investing in general and have no stocks/bonds/MM accounts other than our 401K”. Girl, it’s time to get educated and start investing. You need to have, at minimum, a basic understanding of the different investment vehicles available to you. That way YOU can decide if you’d rather invest or pay down the mortgage. You can’t make a decision until you know what all your options are.

I’m a fan of Vanguard mutual funds. Some love bonds. Others invest in individual stocks. I’d recommend scowering some PF blogs that really dive in to the ‘meat and potatoes’ of investing, so you and your hubby can choose the plan that’s best for you.

How much should you be investing? The general rule is at least 10% of your gross income, but probably some where closer to 15% if possible. I don’t know how much of your gross income is going in to your 401k plans, but if you’re investing less than 10%, I’d say your first plan of action (once your free of the student loan) should be to up your retirement contributions.

Unfortunately, I can’t really tell you what you should do with your discretionary income (save or pay down mortgage), because I have no clue what the real estate market in S.F. will look like in four years. If you think the markets are going up, up, up…it makes sense to pay down the mortgage a bit and let your equity appreciate. If you think the market is going down, down, down…it’s probably better to put your cash in the bank so it doesn’t lose value.

It doesn’t really sound like you are too sure what your life is going to look like 2-5 years from now. You may have a kid (you might not), your condo might go up in value (it might not), you might rent out your place (you might not). Until you really have a solid idea when you’ll be moving and when you’ll be having kids, I’d recommend putting your discretionary income in the bank. Cash gives you flexibility. If at any point down the road you decide you’d rather pay down your mortgage, you can always pull cash from your savings to do so.

I’m just one man though, and I’m definitely no real estate (or investing) expert. Let’s see what other PDITF readers would recommend doing in your situation. How bout it y’all, what do you think Courtney should do? Pay down the mortgage or build up cash savings?

Should you save before paying down debt?

I love getting mail from PDITF readers. It makes me feel like I’m important, even though I’m really not. Well, it’s time we help another Debt Puncher out and share our two cents on his situation. His email says…

I just paid off the first of my 9 (yes…credit+retail) cards. It’s a huge achievement. I’m currently following the high-interest method to keep motivation high. My top priorities are:

*Paying off credit card debt
*Establishing a buffer in checking

Would you apply all your monies to paying credit card debt first or vice versa? Or set-up a plan so both can be achieved albeit at a slower pace. According to my projections, I can reach both these goals within a year.

Well, Mr. Anonymous Reader Guy, if I were you I would stop paying your credit cards, forget about savings, head to Vegas, and bet it all on black. Thanks for stopping by, hope I helped 🙂

Haha, I’m only kidding (unless you’re feeling lucky then GO FOR IT!). I’ll answer your question by sharing a little bit about my journey. As you may already know, I started my PF journey with $28,000 in student loan debt, and just a few hundred dollars to my name. Making the decision to save vs pay down debt is not an easy one. In fact, I wrote this post, this post, and this post about it.

Personally, I hated the idea of not having any liquidity. Dave Ramsey suggests saving up $1,000 in a checking account and throwing all discretionary income at your debt. It’s not bad advice, but it’s not what made me feel comfortable. I totally would have lost sleep knowing I couldn’t even write a check for next months rent if crap hit the fan. You can’t pay rent with a credit card so I needed to have money in the bank.

That said, I would not recommend doing what I did and OVER save. At one point I had $20,000 in the bank,  but only $17,000 in student loans (you can read about it here). If I could go back in time, I would give myself a swift backhand to the face for that one. I totally perverted my enthusiasm for saving and kept that student loan around longer than I should have. I was a very bad Ninja.

So my advice to you is probably going to be the most incredible advice you have ever heard in your entire life. Go get a pen so you can write it down. Ready? Don’t Drink and Bike, you might spill your beer. Oh wait, that was advice I gave to my alcoholic friend.

What I meant was, you should probably save some predetermined amount ($2K, $5K, or whatever) while making minimum payments on your C.C. But the second, and I mean the second, you’ve accomplished that goal, pay down those CC’s like there’s no tomorrow. It may not make the most financial sense to keep your CC balances a little longer, but if you’re like me it makes a lot of PERSONAL sense. Besides, it sounds like you are gonna knock out both goals pretty quickly anyway, so the difference in interest paid is probably relatively small.

That said, I realize I am only one voice in this PF world, so I’d like to turn the soapbox over to the PDITF readers and see what they would do. How much did you put in savings before attacking your debt? Anyone else out there like me and OVER save? How do you balance financial sense (paying down the CC ASAP) with personal comfort levels (saving up a decent chunk in savings)?

If you have any questions, comments, or just a funny YouTube video you want me to check out, feel free to shoot me an email.

Help a young grad out :)

Got an email from a loyal PDITFer. Here’s what it said…

I have a bit of a decision to make and heard from a birdie that you are the man for financial/life questions…i kinda just need a wall to bounce ideas off of.  Here’s some background info first. I just graduated, have a great job lined up with the company I want to work for, doing what i want to do, and in the right ballpark money wise ($55-60k)…not a home run but definitely a solid single/double, and great benefits plus a 6% 401k match (great right).

Problem…just got some info on a possible job working in a different city as an entry level civil engineer for that city STARTING out at $70-$75k which could easily jump a year later. Now I don’t want to toot my own horn but I think I am a great candidate for the job and have better than a 50/50 chance of nailing it…not exactly the job i want to do though.  My questions are these, should I at the very least apply for it, take it if i get it, or stick to my guns (the job i already have lined up, since it is very much what i want to do and has a lucrative career path of its own)?

Ahhh, To be a whore to money, or not to be, that is the question. One that you already know the answer to. Being that you are a recent college student I am going to assume you were either not working, or only working part time while in school. This means you have been use to living a minimalist lifestyle (hopefully). Although making $70K/yr would be awesome, I think you’d find a $55-$60K salary will afford you virtually the same lifestyle. Heck I graduated college making $38K/yr and let me tell you, I felt like a millionaire.

Let’s look at two statements you made to describe these jobs. For the first position you said…

“I just graduated, have a great job lined up with the company I want to work for, doing what i want to do

And for the civil engineering position you said…

“…NOT exactly the job i want to do though”

That puts the nail in the coffin as far as I’m concerned. The lower (but still adequate) paying position sounds like a great gig, with great benefits, and great potential. The higher paying position sounds like the only thing it has going for it is the pay.

I personally made a commitment to myself to never work a job I didn’t love. I mean come on, we are WAAAAAY to young to be miserable in our respective careers. Not even money can make a crappy job fun. All it can do is make a crappy job a little less miserable. Besides, you can always find another miserable position down the road if you want, but the good jobs are few and far between.

Nonetheless, I would still encourage you to apply for the higher paying gig. If nothing else it will give you some more interviewing experience and a chance to learn more about the position. I’m totally convinced options are a good thing, so I say open as many doors as possible. But for now I’d stick with the job you’d enjoy doing. Oh and I need you to pinky promise me you will live well within your means, regardless of your pay?!

What would your advice be to our recent college grad? Would you sacrifice a great job, for a mediocre one that has better pay?

Is this “good” debt?

It’s time to help another PDITF reader out. Jane sent me an email. It says…

You’re all about debt reduction and I can get on board with that, but we (hubby and I) are contemplating getting into business for ourselves.  Would this be acceptable debt (in your eyes)??  We’re looking at possibly $50k with the potential to recoup in the first year (or two if we actually want a salary in that first year, which is what I’m leaning towards).  We DO have some savings, but that would leave us with NO emergency fund (and me, VERY uncomfortable).

So do I think taking on debt to start a business is a good move? Not knowing all of the details (interest rate on loan, type of business, success of similar companies, amount in savings, annual income, etc) it’s hard to give Jane a completely detailed response, but I’m gonna do my best….

Jane, DON’T FREAKIN DO IT! In fact, I’d rather squirt lemon juice in my eyes than start a business with credit.  Why you ask?

Well according to the U.S. Small Business Administration, three out of ten new businesses fail within two years, and only half survive five years. If you could cash flow the business, I’d say go for it. But financing a business that is just as likely to fail as succeed, is no bueno in my opinion.

Honestly, I think Jane answered her question with the information she provided in her last sentence. By starting a new business she would deplete what little savings she has, she would have NO cash in the event of an emergency, and she would be the proud new owner of a crapload of debt. There is no way I can, in good conscience, recommend she put herself in such a stressful situation.

Obviously I don’t know what type of business she is looking to start. If it’s going to be the next Microsoft or Facebook, then she should probably ignore my advice and take on the debt. But let’s be real, the chances of that happening are the same chances that Ricky Martin was ever straight.

Here’s my advice Jane: Keep working hard. Save up as much money as you can. Build your business slowly. And pay cash as you go. If you do this, you’ll have a lot less stress and a ton more freedom when it comes time to open your business. And if said business does in fact fail, you at least can walk away with no financial obligations. I couldn’t imagine a worse feeling than being $50K in debt, 3 years out of the workforce, and have NOTHING to show for it.

So PDITFers what’s your recommendation to Jane? Would you ever take on debt to finance a business? Is it too risky? Anyone out there think she should go for it? Help a sista out!

Procrastinators unite….tomorrow

One of my favorite things about authoring this blog is getting to read the various emails people send me from time to time. Yesterday, I received a simple, one question email…

I am fairly new to being financially savy and PF blogs. I just wanted to get your opinion. At what age/income should you open a IRA?

My response….

Never. Haven’t you watched the news in the last two years!? Quit your job, sell your assets, and move to Antarctica. America is doomed. Oh wait, what? The market is actually up 47.2% since this time last year? Fudge! I knew I should have invested in a Roth IRA instead of The Foxhole…

In all serious, the time to invest was yesterday. Don’t procrastinate, it’s time to get the retirement ball rolling. That is, assuming: you have income, you don’t have crazy amounts of high interest debt, you’re okay taking on some risk, and you don’t want to work until you are 120.

I really can’t tell you when you should begin investing, you have to make that decision for yourself, but I can share with you some pretty popular investment strategies for people under 40.

Step 1: Adjust your lifestyle so your expenses fall below your income. You have to be spending less than you make each month!

Step 2: Pay down any and all high interest debt (credit card, bank loans, etc) before you begin investing.

Step 3: If your employer matches a percentage of 401k investing, make sure you get that match. It’s free money and you have to be CRAZY to pass up free money. (If you don’t get a match proceed to step 4.)

Step 4: Look in to opening a Roth IRA. You can contribute up to $5,000 in it this year and it is a great investment vehicle for the younger crowd.

Step 5: If you were able to max out your Roth, then you should look in to going back and upping your contributions in your 401k from, say 5% to 10% (or whatever the heck you want).

That is the general order I come across in most books/PF blogs, but how you manage your money is really your call. If you want to live it up while you are young, contributing to retirement may not be the best idea. If you don’t want to be on welfare when you are in your 60’s then you may want to buckle down and begin growing your nest egg.

I personally began contributing to my 401K and Roth IRA as soon as I graduated college and got my first job, making $38k/yr. The earlier you start, the richer you will be.

I think her question is interesting and I’m curious, when all of you peeps started contributing to retirement. How old were you? What was your income? If you haven’t started yet, why not (debt, fear, stupidity)? Is there anything you would change in my “guidelines to follow” for retirement.