How to invest and grow wealthy

**97guns** · 07-30-2015, 05:07 PM

i sound like a broken record but i love real estate for building wealth. for your income you should be able to save heavily, be very careful making this kind of wage and not saving.

i have a cousin that makes south of 100K. he lives in my city but has a huge mortgaged house in arizona, he is forced to rent and work here because there is no work there. he cashed out his $200K 401K and bought a new truck, flooring and furniture for his az house. he is 62 and has absolutely no future. the moral of this story is do not over extend yourself because your making great money, stay frugal and reap the rewards later.

**element926** · 07-30-2015, 05:14 PM

Originally posted by 97guns View Post

i sound like a broken record but i love real estate for building wealth. for your income you should be able to save heavily, be very careful making this kind of wage and not saving.

i have a cousin that makes south of 100K. he lives in my city but has a huge mortgaged house in arizona, he is forced to rent and work here because there is no work there. he cashed out his $200K 401K and bought a new truck, flooring and furniture for his az house. he is 62 and has absolutely no future. the moral of this story is do not over extend yourself because your making great money, stay frugal and reap the rewards later.

Great advice, yeah I learned that lesson with the car. Brand new for 45K and it's a total loss :/ Reason for just trying to get it paid off and using it until it dies. The house I believe was a better investment, a little expensive, but ultimately in an area that will continue to develop (same exact house sold for 460K about 3 months later).

**autoxer** · 07-30-2015, 05:23 PM

Originally posted by element926 View Post

My question...if you were in my position - what else could I do to accelerate my wealth based on what you have experienced.

Automate everything so that it doesn't require any extra effort. Just like the how the 401k is automatic (I hope you are maxing this out), as soon as the paycheck hits your checking account, schedule automatic transfers to your savings and brokerage accounts.

Track your spending and keep it under control. It's way too easy to let your spending expand with your income, but doing that doesn't necessarily bring you more happiness. When I started my own cash flow statement, it was easier to cut back on the things that weren't as important and really ramp up my savings rate. Track your net worth too. That snapshot is the sum of all of your previous financial decisions.

**tripods68** · 07-30-2015, 05:42 PM

To build "wealth" faster, most people don't realized DEBT is the biggest obstacle from achieving WEALTH BUILDING. As you get older, you might get married, health issues may arise, divorce, kids, etc DEBT.

If you don't see being married for a long time, maximized your wealth building thru savings and having no debt. Have a monthly budget and stick to it. $130K a year is a great income at 24.

The game plan should be:

1) Pay off your CAR NOTE faster by putting EXTRA money (4 months)
Temporarily put a hold towards 401K contributions. Restart again once car note is fully paid.

2) Save 3-6 months of EF (save 30K might be sufficient).

3) Put at least 5K a month toward the Mortgage debt. (84 months @ 5000 a month = 420K) Debt free after that.

Imagine by age 31 or 32 you will be debt free making $180-200K a year (assuming remain single, no kids). When you have no debt, maximized your retirement contributions. At some point, you may lose your job. Don't worry you have no debt with EF set aside. You'll be Millionaire next door.

**Jluke** · 07-30-2015, 05:42 PM

download an amortization schedule from excel and create one for your mortgage and one for your car loan.

Not knowing the terms and rates for each of the loans, I can't offer detailed suggestions. You'll have to play around with the numbers to see where you benefit the most with extra payments. i.e. you are making extra payments on the mortgage already, but if you want to put even more extra on either the car loan or the mortgage - you need to figure out which gives you the most bang for your buck. I'm guessing the mortgage will.

If you have a 30-yr mortgage, see if you can handle a 15 or 20-yr mortgage. If it's too tight, then just keep paying more each month as you are. Your excel file will tell you how long it will take to pay off the mortgage with your accelerated payments; then you might be close to paying off w/o having to refinance.

You are maxing the 401k. Your AGI is probably too high for a ROTH IRA, but you should determine that for sure. that would be an extra 5500 per year.

Continually invest in the market - almost blindly. I wish I had done monthly investing in my taxable account; instead I just bought once or twice in 2004, 2007/2008 and stuck with it. Now I do it monthly in my ROTH account and am hoping no market crash any time soon.

Keep your head on straight and live frugally. you should check out bogleheads for investing; mr. money mustache for extreme ways to retire early.

Keep us posted - you have the means to build wealth very quickly with the right moves!

**FLA** · 07-30-2015, 06:58 PM

always, always, max out 401k, IMO if they offer Vanguard Index funds, you're golden. I've heard of a backdoor Roth for higher earners, but know nothing about it, if it is an option, go for it. I never reached this point, lol, but if you've maxed out all retirement savings vehicles, find out the best way to keep investing (no load Index Funds at Vanguard, I am biased) and do this as much as possible. I am an invest and hold 'em type, It's been 23 yrs, I've weathered bad times fine, in fact, I bought more then because it was like the market was on sale, lol. I was and actually still am I suppose a risk taker because I am still in 90% stocks, 10% bonds, that mix did well for someone who was just a nurse. If you can stomach it and you have a long time til retirement, why not?

while you are young and it is cheap, get private short term and long term disability. Long term seemed too expensive for me, so I stuck with the work policy, humongous mistake. If you can afford it, get Own Occupation Long Term disability so your policy won't refuse to pay because you could be a Walmart greeter. I wish I had listened to people on the LTD thing, listen to me, lol.

Please update us on your choices and how it goes, it would be interesting to hear.

**corn18** · 07-31-2015, 01:31 AM

Originally posted by element926 View Post

My question...if you were in my position - what else could I do to accelerate my wealth based on what you have experienced.

Thank you for any feedback!

First and foremost, spend less than you make. You have a great wage, you are young, so you have an opportunity to save a lot of money. I would start with the tried and true (albeit boring) method: Maximize tax advantaged savings: 401k, Roth IRA/traditional IRA. That means $18k / year in the 401k and $5,500 / year into an IRA. You make plenty of money to do this.

Now start attacking the car. What is the interest rate on the car loan? Pay it off and then take the payment and put it in the taxable investment account. Do not spend it.

Any raises you get should go into the taxable account.

As for the EF, unless I am reading it wrong, you have $50k between savings and the Vanguard account. Just designate that as an EF and don't touch it.

Why did you buy a $400,000 house? Do you live in a high cost of living area and that got you a 2 bedroom, 1,400 sq ft house? Or did you buy a McMansion? Just trying to determine if you have too much house. Also, if you bought a fancy car and a McMansion, you have a different issue to deal with that will derail any effort to save more. You need to spend less, not make more. Read the book The Millionaire Next Door.

Also, that $3,200 / month looks high for a $400k mortgage, are you paying PMI? What is the interest rate / term of the mortgage? If you have a 30 year mortgage with no PMI and a low interest rate, paying that off is a personal decision. Financially, it might make sense to just keep paying it on schedule while you max out your tax advantaged space.

This is a very conventional approach that is boring but effective. It requires patience and discipline and won't work if your spending expands at the same rate as your income. It isn't the only way to accumulate wealth, but I can't offer any advise in those areas.

So help us with the details and we can help you more effectively.

Tom

**Fishindude77** · 07-31-2015, 03:59 AM

First, max the 401K and aggressively pay down debt.

Having a $400K house at your age seems ridiculous to me. Having mortgage payments that high at any age seems ridiculous. If you can get out of the house without taking a loss and get into something much more affordable, I think that would be a good idea.

**element926** · 07-31-2015, 04:36 AM

Hello all,

This has been great reading and very insightful, let me see if I can provide some feedback.

-401k is being maxed out automatically, 18K per year.
-I'm unable to contribute to an IRA my AGI is above 71K a year for a single person. So I use my Vanguard S&P 500 index fund for anything over my 401k.
- Car loan is at 1.75%, practically no interest (maybe $1,000 left on the life of the loan). Regardless, I plan on having this paid of aggressively next year.
- House was purchased for 440k (23k down) in March for a 30 year loan @ 4% interest (mortgage insurance is $187 a month) and will expire at 78% LTD ratio. The "required" payment is $2650 a month, I pay $3200 to pay the loan off in 20 years (based on the amortization table) Trips comment was really interesting, never thought about putting THAT much into the house, however it's a very intriguing idea. I only net 6K per month (after 401k) so that is probably not practical though.
- Working on the emergency fund, this WILL be at 20K by the end of the year. Anything over this amount will go towards paying off the car FAST.

Let me know if this provides a better picture and can be used for more detailed advice.

Thanks all!

**Jluke** · 07-31-2015, 05:24 AM

Originally posted by element926 View Post

Hello all,

- Car loan is at 1.75%, practically no interest (maybe $1,000 left on the life of the loan). Regardless, I plan on having this paid of aggressively next year.

Maybe think of it this way - you are going to take 22K of your free cash to save $1000 in interest? You already "own" the car; it isn't going anywhere. You are in a position where you can leverage low interest loans to work to your advantage IF you "invest" the money wisely.

I get the psychological side of paying off the car, but dollar cost averaging in the stock market with that extra cash (or additional mortgage payments or IRA contributions) should have a better return in the long run.

btw, the roth income limits are For singles and heads of household, the income phase-out range is $116,000 to $131,000. you're probably still over that, but wanted to point that out

**feh** · 07-31-2015, 05:32 AM

It's pretty simple - live below your means and save/invest early. You are definitely on the right track thinking about this at 24, and you make a healthy salary.

As you know, you shouldn't have bought the car. You also bought too much house.

Read The Millionaire Next Door and invest like this:

Attention Required! | Cloudflare

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

**element926** · 07-31-2015, 05:39 AM

Originally posted by Jluke View Post

Maybe think of it this way - you are going to take 22K of your free cash to save $1000 in interest? You already "own" the car; it isn't going anywhere. You are in a position where you can leverage low interest loans to work to your advantage IF you "invest" the money wisely.

I get the psychological side of paying off the car, but dollar cost averaging in the stock market with that extra cash (or additional mortgage payments or IRA contributions) should have a better return in the long run.

btw, the roth income limits are For singles and heads of household, the income phase-out range is $116,000 to $131,000. you're probably still over that, but wanted to point that out

Very valid point, so I'm thinking about maybe changing jobs and I wanted to eliminate that monthly payment.

**corn18** · 07-31-2015, 06:33 AM

You should still consider contributing $5,500 / year to a traditional IRA (after tax contribution, of course) and then doing a back door Roth. That will maximize your tax free earnings.

Other than that, you seem to be doing everything right. If you want to accumulate wealth faster, just save more. Or try something different like starting your own business or real estate. More risk, potentially faster wealth.

**tripods68** · 07-31-2015, 06:55 AM

Originally posted by element926 View Post

never thought about putting THAT much into the house, however it's a very intriguing idea. I only net 6K per month (after 401k) so that is probably not practical though.
- Working on the emergency fund, this WILL be at 20K by the end of the year. Anything over this amount will go towards paying off the car FAST.

Let me know if this provides a better picture and can be used for more detailed advice.

Thanks all!

1) Why hold on a car note when you have enough Savings to Pay it off?

Use it to payoff the car today. Rebuild your savings to 3-6 EF.

Alternatively, you can stop putting money towards EF/savings and re-allocate that resource towards paying off the car as soon as possible. Having a lower interest car note, does not eliminate debt, balance doesn't go down unless its paid down. Its like having toothache for 12 months when you get rid of it now by going to a dentist (I know bad example). Once the car is paid off, just put as much rebuilding your savings balance as if you had car payment.

2) I do agree the home your is EXCESSIVE for your age. I would downsize to smaller home that doesn't take more than 44% of your NET PAY a month in addition. You can save on bills/taxes at the same time. (Dave Ramsey recommend 25% of your income towards a mortgage ONLY)

Alternatively, if you choose to keep the house. Do a REFI for 15 year note instead of 30 years. You can have a lower interest rate (current at 3.10%) and save over "100K plus of interest cost" compared to a 30 year amortization schedule @ 4%.

How to invest and grow wealthy