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Don't pay yourself first?
Old 02-07-2014, 07:27 AM   #1
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Don't pay yourself first?

I hope the young people reading this article dismiss it quickly as the nonsense it is. The author has no concept of proper planning and the magic of compound interest. She would do well to do a little more research before she writes her next article.

First Person: Why I Fund My Retirement Accounts Last - Yahoo Finance
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Old 02-07-2014, 08:07 AM   #2
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The publishing model for Yahoo is that independent free lance contributors write anything that they want, with minimal supervision or review, then put them up on the site and see how many page views they get. Authors get paid based on traffic.

Taking a novel twist on something, or having a provocative headline is more important to this process than any actual content in the article. The author only needs to get you to click to read it. That's one reason why "Top five reason you need to ..." articles are so common. People click to see what the reasons are. This isn't journalism as we used to know it. Facts and even logic are no longer real requirements for "successful" content.
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Old 02-07-2014, 03:11 PM   #3
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I saw a different but sort of similar article that I kind of agreed with. Emergency fund, saving for a house and car and stuff to put in the house. You can do all that first and then start saving for retirement. Or you can start saving for retirement and delay all that other stuff. Could come out all the same in the end though, with discipline and minimal 401k and Roth funding. And it treats the younger you, your poorest self, a little better.
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Old 02-07-2014, 04:21 PM   #4
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I just read this and did not come away with the same message as the OP did. She advocates saving for a house, a car etc.

401-K and IRA moneys are locked away. In a ROTH, you can only take your principal - the gains are locked away (IIRC) for at least 5 years. And then there is a limitation on how much of your gain you can withdraw for a house.
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Old 02-07-2014, 05:24 PM   #5
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One can overfund retirement to the detriment of other goals. But people don't save enough.

The author puts more emphasis on saving for a home and auto than for a retirement. That may be the balance that is needed with younger adults.

(The article does bring a chuckle, as today a 50-year old at work was telling a younger guy he should "pay himself first," and elicited a nasty response for some reason. I followed this up with advice to put half of his new raise into retirement. Another quick response from the youngster who complains daily of how he can't pay all the bills for his family.)

The saying is a general piece of advice that may not fit all cases. Is there an accepted definition of pay yourself first?

This article by Get Rich Slowly author does a better job of explaining the desired habit. Pay Yourself First
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Old 02-07-2014, 05:34 PM   #6
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Yes-No, Stop-Go, Black-White. Why is it this or that? How about both?
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Old 02-07-2014, 07:08 PM   #7
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My father gave me this book years ago, when I was probably about 12 years old. It's lessons were true then and I believe true today.

https://en.wikipedia.org/wiki/The_Ri...lon_%28book%29


Quote:
“Will power is but the unflinching purpose to carry the task you set for yourself to fulfillment.”

“Learning was of two kinds: the one being the things we learned and knew, and the other being the training that taught us how to find out what we did not know?”

“The hungrier one becomes, the clearer one's mind works— also the more sensitive one becomes to the odors of food.”

“Advice is one thing that is freely given away, but watch that you only take what is worth having.”
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Old 02-07-2014, 07:50 PM   #8
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Gave this book to my son at age 15 after a recommendation from a mentor/ friend. After first semester of college he commented to me how dumb most of his dorm mates are at handling money. I think he gets it.
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Old 02-07-2014, 10:53 PM   #9
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I am kinda like others that have posted....

She did not say NOT to save, but to save for things outside of retirement... IOW, do not put all of your savings into a retirement account first and see what you have left over...


I have to agree with that... when I lost a job many decades ago, almost all of my savings was in a 401(k)... I did have my emergency fund, but I still felt a high degree of stress... if I had more money outside of retirement, I would have had less stress....

Also, I was putting money aside at a low tax rate as I was not making that much... I probably will/have pay/paid more income tax on this money when it is all said and done... (I converted most to ROTH, so have already paid taxes on that amount)...
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Old 02-08-2014, 01:00 PM   #10
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I don't think it takes a rocket scientist to be able to figure out that you're putting sooooo much into retirement savings that you can't save for any of your other goals. This article does not pass the "smell test".

Having an adequate emergency fund for car repairs or to replace an appliance is Personal Finance 101. Did the light bulb not go on the very first time that she found herself in a bind?

She also gives us no insight into where her net income was going - car payments, high rent, expensive fun activities, etc. ?

We do not have the whole picture.
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Old 02-08-2014, 01:04 PM   #11
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LOL. I read some of Laura Quinn's article, she has bi-polar.

One article say she needs to save for retirement. The next will say she shouldn't have saved for retirement. Then the next article will say how bad stock investments are. 1 month later, she will put out an article that say she should have invested in stocks instead of buying a house.

Besides being bi-polar, she has zero fiance knowledge.

You can take your principal from your Roth IRA at all time without penalty. I have done that twice when I thought my offer for a house would be accepted. In a TRADITIONAL IRA, you can take $10k for first time homebuyer.

I read her article for laughzzz
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Old 02-08-2014, 01:06 PM   #12
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Quote:
Originally Posted by growing_older View Post
The publishing model for Yahoo is that independent free lance contributors write anything that they want, with minimal supervision or review, then put them up on the site and see how many page views they get. Authors get paid based on traffic.

Taking a novel twist on something, or having a provocative headline is more important to this process than any actual content in the article. The author only needs to get you to click to read it. That's one reason why "Top five reason you need to ..." articles are so common. People click to see what the reasons are. This isn't journalism as we used to know it. Facts and even logic are no longer real requirements for "successful" content.
I noticed that about most Yahoo contributor. I think I'm going to see if I can be a Yahoo contributor too and just write completely opposite of what is true so I can get more clicks.
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Old 02-08-2014, 04:55 PM   #13
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Quote:
Originally Posted by comicbookgujy View Post
I noticed that about most Yahoo contributor. I think I'm going to see if I can be a Yahoo contributor too and just write completely opposite of what is true so I can get more clicks.
I can see the titles now:

Why annuities are a good investment

Beat the market in four easy steps

Why you should spend all your money as soon as you get it

How whole life insurance is the best kind for everyone

Financial advisers always have your best interests in mind. Here's why
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Old 02-08-2014, 07:51 PM   #14
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I agree with the general idea of the article, even if the details may be sketchy.

Sure, "build an emergency fund first" may be old news to the people who post here, but not necessarily to the young person being bombarded by "financial advisers" telling them to save for retirement at the same time they're paying interest on car loans.

One important consideration is discipline. Some people will spend every dime in their paychecks, and borrow as much as the credit card company will let them. These people need to set up automatic savings plans and "pay themselves first".

Others have the discipline to pay down loans first, and then save when they are out of debt. These people can do a more robust analysis.
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Old 02-10-2014, 11:52 PM   #15
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I recently had occasion to point out the advantages of a 401k to some younger folks. In our case the company matches up to 3% at a 50/50 matching. So if they put aside 6%, the company gives 3, so you end up with 9%, since the withdrawals are pre-tax, about 1/3 of the 6% comes fromUncle Sam. The end result is that for the price of 4% you get 9%, seems like easy math to me.
As for the author, while there is value in saving money towards a down payment, most 20 somethings I know, don't have the will power to save without direct deposit and the threat of early withdrawal penalties.
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Old 02-11-2014, 02:05 PM   #16
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Originally Posted by Socal Tom View Post
I recently had occasion to point out the advantages of a 401k to some younger folks. In our case the company matches up to 3% at a 50/50 matching. So if they put aside 6%, the company gives 3, so you end up with 9%, since the withdrawals are pre-tax, about 1/3 of the 6% comes fromUncle Sam. The end result is that for the price of 4% you get 9%, seems like easy math to me.
As for the author, while there is value in saving money towards a down payment, most 20 somethings I know, don't have the will power to save without direct deposit and the threat of early withdrawal penalties.
Tom
Did you mean "since the contributions are pre-tax"?

That's relevant to the 4% vs. 9%. To me, the math isn't so easy because the 4% is spendable and the 9% is embedded in a tax deferred account. If this worker has a financial crisis and wants to access that 9%, he'll pay his ordinary tax rate (your assumption is 33%) plus the 10% penalty. That leaves 5.1%. Still better than 4%, but not as dramatically.

Even if he can avoid the penalty, it's 6% vs. 4%.
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Old 02-11-2014, 05:41 PM   #17
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Still, the math says it makes sense, and the fact that it's in a tax deferred account means it won't be spent on the new xbox, but instead saved for a real need.

When I was twenty something I spent everything I got, unless it was direct deposited into my 401k. So in my case it was 9% vs 0%
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Old 02-11-2014, 10:54 PM   #18
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Any article where the author makes recommendations based on their own personal experience, rather than data, is harmful to readers. The author did not havea proper emergency fund if she had to take money out of retirement accounts to pay for car repairs. Terrible advice all around.

I sincerely hope that all 1300+ viewers of this thread didn't give Yahoo! the same click that I did. That's advertising money for them and will only encourage more of the same harmful drivel.
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