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kellen2811
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Consequences  Reply with quote  

Hello again all,

I have had a plan in place to eliminate all of my debt in the next 38 payments. I currently make 120,000 annually from my salary and 5119 after taxes and maxing out my 401k.

My debt to elminate would include my rental mortgage that is currently 80k at 6.25%, my house at 88k at 3.88%. Two school loans which are both 5k at 4.75%. The plan is a rolloverm currently paying 4k a month to the student loans and will be gone in May. After that I will be paying 4400 a month to the rental until payed and rolling that over with my rental profits to 5000 a month to the mortgage on my house.

Here is where I am going with this. If i complete this plan I will only have 500 dollars a month in obligations, TV, electric, heat, life insurance, sewer, cell phone, and taxes and insurance on my personal house. When this happens I am currently thinking of backing off my shifts at the ER from my customary 16 a month to 5-6 a month. My income would still be around 41k a year if I did this not counting my start up business income and rental property income. It would allow me to live my life as I would like, and spend more time on other things. What consequences to my retirement would I end up seeing if I elected to make less money to have more time off?

I would continue to contribute the 16,500 to my retirment account as I would not want to change my retirement goals. I would also take out a loan for 50k on equity for my rental house to place into a mutual fund for another retirment as I have read alot on here by old guy on how he has accomplished this with great success. The rental property would use its income to pay for this loan.


Do you see consequences that I am not seeing? Living on a smaller income would not be a problem for me because I live well within my means. I just see a great lure to having no debt and being able to only have to work 1 week out of a month.

Thanks for any response

Kellen

P.S. I am 26 and have no children currently

P.P.S Do you recommend any specific funds to place the 50k in?
Post Wed Feb 22, 2012 3:27 pm
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kellen2811
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Sorry guys forgot to add at the end of the payments for my debt I would finish out the year in 2015 to build up a 50k emergency fund, starting 2016 is when I would consider cutting back.
Post Wed Feb 22, 2012 3:31 pm
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littleroc02us
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So your going to pay off all of your debt to go right back into debt? Makes no sense to me. I would never ever borrow off my home to invest money with no matter what someone else got their fortune from. To much risk, plus your back to payments again. With your theory why not just borrow 100% of your equity and then take a chance in the market with it. Why not pay off all of your debt, work however many more months it would take to save up 50k and put that into the market? So, IMO what your planning on doing is a bad idea.

Ronald Reagan once noted the basic difference between Democrats and Republicans. “Republicans believe every day is the Fourth of July,” he said. “Democrats believe every day is April 15th.”
Post Wed Feb 22, 2012 3:43 pm
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oldguy
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I see many young people that have heard that the only way to wealth is "your own business". In my experience, the opposite has proven true. About 85% of business start-ups fail, leaving a trail of debt, diescouragement, future failure. Meanwhile, educated professionals (earning $120,000) can easily build several million dollare estates, and with near mathematical certainty.

It is unfortunate that you burned out so early in your career - but your plan is workable - the median wage in the US is about $50,000 so you will be earning less than average, therefore you will need to spend less than average.

As for prepaying loans, the term of the loans is important. Eg, you never prepay a 3.88%, 30 yr fixed rate loan. Conversely, if it is a 3.88%, 10 yr ARM, you would want to get rid of it. Same with the SLs - 4.75% longterm loans are 'keeper', 4.75% 5 yr loans are not.
I agree about the rental loan, not a keeper. Personally, with my houses, I refi them to keep low rate, longterm loans - that cash is worth more to me than real estate equity. Ie, I use the real estate for seed money.
Post Wed Feb 22, 2012 5:52 pm
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JosiahKnows
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I have to say that I love the idea of having no debt. In fact, as little debt as possible is often the way to go. However, I must with oldguy in the "starting your own business" arena. Most businesses do fail, and although hopefully yours is a success, you shouldn't bank your future on it.

Also, don't pay down a loan just to take out a loan. Think instead in terms of your long term goals and structure something else to accomplish them. Leveraging your equity can be useful in this case, but not to invest in a mutual fund. If you do that you are trading a "secure" asset to an "insecure" asset that may incur loss.

Instead think about utilizing an Equity Harvesting program such as defined in the book, "The Home Equity Management Guidebook". It may be a little boring at first, but you owe it to yourself to read it.

It'll teach you how to manage your equity while maximizing the funds you are maxing out in that 401k of yours.

Other than that I truly applaude your efforts to "live your life as you really like". Life is not all about working and should be spent in pursuing the things your richly enjoy. Just be sure to make the right decisions along the way. Very Happy
Post Wed Feb 22, 2012 9:33 pm
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fast
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quote:
Originally posted by littleroc02us
[Too] much risk, plus [you're] back to payments again.
I keep hearing this. I hear it so much that it's the first thing I think of. I'm about to start believing it myself I hear it so much.

But, I'm afraid of taking it to heart without fully understanding what those risks are. I'm sure some of us would be mighty interested in knowing what those risks are if they could be put in quantitative terms we could all grasp with ease.

What would tickle my interest is in understanding the qualitative side of the story. I bet if oldguy was the same age as the original poster, the risk would be laughable (i.e. not very risky at all for him), as I'm beginning to suspect that he has gained sufficient financial knowledge that he could readily identify problems that may arise and effect the necessary changes to solve those problems.

That being said, I am inclined to agree with you that there are risks. What I'm completely unsure of is whether or not it's TOO risky. I do believe it would be MORE risky for the original poster than (oh say) someone NOT lacking the financial savvy to make the appropriate adjustments to his investments.

How much more, I do not know. I’d like to have a better appreciation of the risks you’re talking about.
Post Thu Feb 23, 2012 12:24 am
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coaster
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"Risk" is such an emotion-laden word, and means different things to different people depending on their psychological makeup and their life experiences. I think that when assessing risk it's better to put it in numbers as a probability of a certain percentage of loss over a defined time period. As an example, and making up numbers out of my head (though you'll have to imagine the cartoon bear characters):

1) in any one year a 25% chance of a 25% loss,
2) over any five-year period a 15% chance of a 25% loss
3) over a ten-year period a 5% chance of a 25% loss,
4) over a 15-year period a zero percent chance of a 25% loss;
where the probabilities and the loss amounts are derived from actual historical data.

When that's done, and the word "risk" is removed from the discussion, the psychological element is removed, and allows the individual to make a decision based on the data and not the fear.

~Tim~
Post Thu Feb 23, 2012 12:43 am
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kellen2811
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Alright guys thanks for the advice.

The business I am currently in is a trucking industry, the risk is very minimal. Our gross income last year was 70k with a 9k net profit. I have one truck and that truck has a note of only 4k left, the original purchase price was 22k. The business has only been in opertation for 1 year come in April. So the risk of the financial loss of this business is almost null, I have used profits to pay down the only debt I have on the business that way if the work went out from under it, the only thing I am left holding is a truck that is worth more then what I owe. I anticipate paying off the truck in the next few months as the business has been more profitable year to date then last year. I have considered expansion to a second truck but have curtailed that idea until seeing how this season plays out. This business I have is not for personal gain as of yet I have not taken a cut of the profits as to make it more secure. When the truck is payed off if it fails it is an asset that I can move. When I talk about cutting back on working I am not depending on any income from this business.

Oldguy- I have def not burnt out. I love the ER and what I am doing, part of my reasoning is that my father who is my idol is getting old and I would like to be able to spend more time with him and possibly help him in his excavation business. If things changed I could easily go back to working. Mentally I am fine, I have always approached work as a business. I go to work to make money not to have fun and this mentality has always helped me so far. Granted I am only 4.5 years into my career so we will see if I can continue to win the war of attrition.

LittleRoc- I see what you are saying, I was just forward thinking on what I would possibly do when out of debt and to try and get some advice on what other posters may do if presented with the same situation. Actually your advice in a differnt thread is what set me on this course.

Thanks

Kellen
Post Sat Feb 25, 2012 8:46 pm
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oldguy
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Is your truck hired out to your father's excavation business? If so, when business is slow, will your father hire your truck or use one of his own?
Don't know how many months your $70,000 gross represents - but you can easily put >$80,000 worth of diesel thru a truck in a year, plus insurance, permits, inspections, tags, maintenance, tires, yada.

quote:
The U.S. trucking industry will need to hire about 200000 drivers by the end of this year, and will need to add another 200000 by the end of ...

I saw this headline a few days ago - getting harder to find drivers. In AZ we have a 77 yr old retired guy driving 18-wheeler OTR, the young drivers are unable to show a clean MVD sheet (& pass a drug test).
Post Sat Feb 25, 2012 10:20 pm
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kellen2811
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No we live in the heart of the marcellus shale boom and haul for the gas pads being built around the area. No OTR hauling all within 60 mile radius usually. So the business is predicated on the gas industry in the area, which in all honestly could go for years or slow down which is why I see the need to minimize risk with this business.

The 70k gross from last year was from April to December. April is when the truck was purchased. The 9k net profit we turned was after diesel, labor, registration, insurance, maintainence and repairs and loan costs.

It is absolutely getting harder to find drivers, they are in great demand we have trained our drivers from scratch and so far it has paid off with good loyalty. Other companies around the area require experience. We will work with a driver more then they will. The downside is increased insurance but we are not sitting like others are while looking for a driver.
Post Sat Feb 25, 2012 10:32 pm
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oldguy
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quote:
which in all honestly could go for years or slow down which is why I see the need to minimize risk with this business.


Or, you might want to add risk to your business plan with the idea 'to make it while it's there'. True, it's a single industry play, eggs in one basket, and it could be gone in a decade - but you might become wealthy in a decade. And your inventory is fairly generic - 'trucks'.
The dangers are probably from environmental group over-reach - ie, danger to water aguifirs, wildlife, etc. Some fears will be real and need solutions, some will be false - but the law suits on the false claims can derail things for a while.

The Ice Road Truckers are on TV for 7 hrs today - lol.
Post Sun Feb 26, 2012 6:09 pm
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littleroc02us
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quote:
Originally posted by fast
quote:
Originally posted by littleroc02us
[Too] much risk, plus [you're] back to payments again.
I keep hearing this. I hear it so much that it's the first thing I think of. I'm about to start believing it myself I hear it so much.

B


The reason you hear it so often is because it's mathematically and philosophically correct. Let's say there are two Entrepeneurer's with different mindsets. Business man #1 takes his time planning a business idea and saves 50k in cash and has no debt due to living a conservative lifestyle and his business fails. He is in no serious trouble, because most likely this guy has an emerency fund and has no debt so all he has lost is his savings. If he needs to he could sell his home or his investments.

Now take Business man #2, who has never seen a debt he didn't like and borrows against his homes equity of 50k and then his business goes belly up. Guess what now his home is underwater, he gets foreclosed on, his credit now stinks and he doesn't have a dime except some investments he could sell to survive. And most likely someone who tends to leverage things have other debt such as credit card debt.

So this the difference in risk you take when you borrow money to start up a business. 70% of all businesses fail.

Ronald Reagan once noted the basic difference between Democrats and Republicans. “Republicans believe every day is the Fourth of July,” he said. “Democrats believe every day is April 15th.”
Post Mon Feb 27, 2012 4:47 pm
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