JoeTaxpayer

In a simulcast of publishing both here, and my main web page, where I publish a monthly article, I am happy to offer my List of Lists;

Ever since 1977’s “Book of Lists“, our fascination with lists and sets of rules has grown. David Letterman’s Top Ten List has been going on for decades with no end in sight. These are Rules of Money that I’ve saved over the past few years, enough to post my favorite “List of Lists”. If I missed one of your favorites, please leave a comment and I will add it.

• 25 Rules to Grow Rich By
• 9 money rules to live by
• 16 favorite money rules of thumb
• 5 money rules to live by
• Jim Cramer’s 25 Rules of Investing
• Charlie Munger’s 10 Rules for Investment Success
• The 10 Most-Hated Money Saving Tips
• Eight Secrets of Financial Happiness
• 10 Reasons You are Not Rich
• 20 timeless money rules
• Dilbert’s “Unified Theory of Everything Financial”
• 50 Tips to Help Establish Your Emergency Fund
• Ten Things You Need to Know About Money
• Seven Reasons to Welcome a Recession
• 15 ways to improve your credit score
• 50 Ways To Raise Your FICO Credit Score

Take your time, enjoy the list, and send me your thoughts.
Joe

written by JOE \\ tags: 20 timeless money rules, book of lists, charlie munger, Credit, david letterman, emergency fund, fico, fico credit score, Investing, investment, investment success, jim cramer, money, recession, rich, saving, TIPS, top ten list

Consumer Reports recently offered an article titled “Your Debt; 8 Benchmarks For Borrowing“, which, for the most part, I liked and will consider adding to a List of Rules I’m assembling. Among the warning signs;

• 28% - Monthly Mortgage (including property tax and insurance) should not exceed this number. Really? That’s exactly what I suggested in my post Mortgage 101, so I’m in full agreement there.
• 80% - The first mortgage should not exceed this level. A lower debt to equity ratio is better. Interesting, I made the same comment in Mortgage 101, but that was more to benefit the bank, not the borrower. I’ll maintain that if the payments are still within the guidelines, there’s nothing magic about 80%.
• 6 - month’s worth of income as emergency money. I wrote about this as well, a couple weeks back in my controversial Emergency Funds post. This may be a worthy goal, and right for many, but not at the top of my list. I have been aggressive in retirement savings, well above average, managed the mortgage with serial refinancing to capture a low rate and an amortization that will end the mortgage well before retirement, and funded college in full for a child who is only 10, yet I’ve ignored this rule.

The CR article goes on with guidelines that are still worth reading if not following right to the letter.

Joe

written by JOE \\ tags: amortization, debt, emergency fund, Finance, income, Investing, Retirement, saving

There is a ‘rule of thumb’ out there that one should save 3-6 months salary (net, I assume) and from the near 16,000 Google returns on “emergency fund” “rule of thumb”, it would seem this is a hot topic among financial concerns. At Master Your Card, Kristy on Monday discussed the importance of the emergency fund, and while I agree with her that you shouldn’t put those funds into stocks, which may or may not be down at the very time you need the funds, I am concerned about the priority most attribute to the fund.

You see, most financial rules, are just that, generalizations that may apply to many/most of the readers of such advice. It’s easy, however, to offer examples where the rule(s) need some modification once the rest of the situation is understood.

For emergency funds, first, does your company have, and do they provide any matching contributions, to a 401(k)? If so, this is my highest priority. Some companies match as much as the first 6% of an employees’ salary deposited into their 401(k). On $50,000/yr, that’s $3,000 the company will match against your $3,000 deposit. In the 25% tax bracket, your net cost is only $2,250. Let me spell this out carefully - you are out of pocket $2,250, but now have $6000 in your 401(k)! Do you see why this is my top priority? Should you fund an emergency fund first, or take $2,250 and turn it into $6,000? If you lost your job, and had to take it out next year, you will likely drop to the 15% bracket, and after the 10% penalty for withdrawal, you still take out $4500. A side benefit, also subject to dispute, is that with $6,000 in the 401(k), you now have the ability to borrow $3000 back out, at 7-8%, and use that loan to knock down the high interest credit card debt. Yes, there are those who advise against the 401(k) loan, but in this scenario, it can be part of a kick start to both your retirement savings and debt reduction plan.

From a completely different perspective is an article on MSN titled “The $0 emergency fund“. I think that may be taking it a bit too far.
Joe

written by JOE \\ tags: 401(k), 401(k) loan, emergency fund, Retirement, Savings