The number one rule for investing is the same as the number one rule for gambling. NEVER use any money you can't afford to lose.
For a lot of us that is all we need to know about either.
The Sock

Good thread, sorry I missed it earlier. I'm one of those debt free guys; I have no loans outstanding. I pay off my credit card each month to keep the interest payments at $zero. I really hate monthly payments.

I've been thinking about getting a new truck; when I looked at the price of a new one in the same model, I realized that it would cost a significant chunk of savings and nothing would change. Then I'd have to fix it up to get the same capabilities of the truck I have. I'm considering getting a new/remanufactured engine and changing the clutch in my old truck. It would cost more than I could sell the truck for today, but it would cost much less than a new truck AND my taxes and insurance stay at the lower rate. I could easily get another 10 years out of it with no car payments and low taxes/insurance.

I hate mortgages. I did a spreadsheet a few years ago comparing tax write-off benefits of a mortgage, with the same funds going to a saving account and gaining interest. Suffice it to say that lowering your mortgage payments saves a huge amount of money. Pay off as much of your principle as early as you can to reduce your interest outlays. I have little pity for any of the folks who got caught up in the sub-prime debacle. There's no free lunch, so if something looks too good to be true, expect it to try and take a bite out of your ass. Now lending institutions are looking to get bailed out and folks are having their homes foreclosed. It's a tough situation all around, brought on by greed.

There's no way I could afford to buy the house I live in. Instead, I pay half my GF's mortgage as rent. She gets her principle paid off earlier and I don't pay increasing rent on the much smaller condo-apartment I was in before. It's better for both of us.

Other than that I live below my means, it keeps me cash-flow positive.

Old news to some — new to others:

Russ touches on an important point. Not only for the reason he cites, but incrementally prepaying one's home mortgage can be an important — and relatively painless — retirement-planning strategy. For most, a mortgage payment represents the single largest monthly expense. It follows that eliminating this expense before retirement is a good thing (unless you're one of those who believes that leveraging is a good thing ).

Hypothetical: $150K mortgage; 30-year term; 6.5% interest rate; P&I payment $948. Paying the equivalent of one extra payment a year by increasing the monthly payment $79 ($948 ÷ 12), the mortgage pays in-full in ~24 years ... ~6 years early ... and eliminating $~66.5K in payments. Increasing the monthly prepay to $150 pays off the mortgage 9 years early.

Use one of the on-line financial calculators to play with "what ifs."

Be sure to specify that the extra is to pay on the principal. Otherwise, they could split it between both interest & principal similar to another payment.

Some basics;

1. no debt. ( house to be the exception)
2. cash/ savings on hand for emergencies, job loss etc
(3. reduce monthly expenses)
4. carry insurance

tro

"4. carry insurance"

Insurance is good but keep the deductible as high as you can. The difference between a no-deductible policy and one with a high deductible is huge. Often enough of a difference to cover the higher deductible in a years worth of payments. Keep the amount of the deductible in an interest bearing account so your still covered.

Once you have the deductible covered further savings can be applied to further raise the deductible.

Beware of taking on debt through loans that require backing by insurance. Taking out a loan for a new car often requires an expensive and wasteful comprehensive insurance policy to protect the value of the loan. This can greatly increase the actual cost of a new car.

Used cars that are a few years old are often much better bargains. The lower price may allow you to pay cash and even if they are financed the required insurance can be much less costly. A double benefit.

How to Survive Hard Times
by Robert Wayne Atkins, P.E.

http://grandpappy.info/indexhar.htm

Excellent point Art. Especially significant with homeowner's insurance.

And speaking of homes, if your home loan carries an interest rate >7%, do an analysis to determine if a refinance would be cost effective. Choosing right lender obviously key, and closing costs need to be factored into the payback analysis, but a typical $200K balance @ 7% should reduce down to ~5.5%, with a ~$200 reduction in payment. Continuing with the original payment retires the loan in 21 years. Despite turmoil in the mortgage markets, if you're creditworthy, can still easily obtain a competitive mortgage.

Finally, with soft/declining RE values pretty much everywhere, look at your home's valuation on the tax rolls. If you bought your home within the last 3-4 years, quite possible you can file a (supported) request to have valuation marked to today's value, thus reducing property tax. I did it in California mid-90s, and dropped property tax by ~$400.

Thanks for the Grand Pappy link. Good stuff.

Another couple of small tips: Contemplate what your paying for 'convenience'.

A coworker would drop by a coffee shop every day before work. Her typical cost was something like $4 for a fancy coffee and $2.50 for a pastry. Five days a week and four weeks a month she spends $130 a month.

An alternative would be to get coffee and the danish at home. Set her coffee machine to start brewing before she gets up and keep pastries on hand the total cost is about $1.50 Or about $30. Saving a smooth $100 every month.

I started bringing my lunch instead of eating out. The difference is about $20 a week or $80 a month.


Look at those cable bills. Used to be you got something for $20. Now most are well over $50 a month for 45 channels of 'nothing on'.

Ask around and see what channels you can get if you have an antenna. Digital TV may provide a good picture even with poor reception. Even if you only get a couple of channels what are you really missing?

I had cable and went to an antenna. I still see most of my favorite shows and I fill in the difference with movies I get free from the county library and the internet. The antenna, amplifier and cables cost about $100. The cost of two months cable. Now I save $50 a month and have for several years.


When running a computer there are a lot of good free programs:

Only a fool would go on the internet without a firewall, anti-virus and an ad-ware remover and pop-up blocker. But why pay money if you don't have to.

One of the better firewalls is Zone Alarm and it's free for personal use. Lavasoft's Ad-Aware is an effective mal-ware remover that is entirely free. Spybot-Search and Destroy is a combined anti-virus and malware remover that is free. Spyware Blaster, an immunity type unit, is another and is also free. For anti-virus AVG is well rated and it is entirely free.

Browsers: Firefox and Opera are free and more secure than IE.

Operating systems: There are many Linux based OSs out there for free. Ubuntu is entirely open sourced and is well supported.

Open Office has many features in common with MS Office. Difference is that it is both more secure and it's free.


A neighbor used to spend $50 a month for a gym membership. He took a few months worth of that membership and invested in some free weights and a stationary bicycle and started walking around the block for exercise. Because the gym is in his home both he and his wife exercise far more often. They are thinking of getting more equipment and because they haven't paid for a gym membership in over a year they can afford to.


Saving money is always good and it is hard to beat free.

Save those nickels because even though each of these suggestions is only a small gain of maybe $20 to $50 the difference between financial security and being in debt is often a matter of a few dollars a month. Every little bit helps.