***OFFICIAL*** Bankroll Management For Real Life, Not Poker

[mrhappy333]

A spin-off from another post I made, let's talk about good ideas on building wealth, saving money, and handling money. I'm a big advocate of Dave Ramsey's program: the Total Money Makeover. He has 7 steps:

Step ---> Goal
Step 1 ---> Emergency fund of $1000 in the bank not to be touched except ONLY for emergencies
Step 2 ---> Debt Snowball - pay off all debts smallest to largest except for the house
Step 3 ---> Fully funded emergency fund of 6 months of bills and expenses not to be touched except ONLY for emergencies
Step 4 ---> Put 15% into retirement fund (Largecap, Midcap, Overseas, Aggressive Growth) & ROTH IRA's
Step 5 ---> College fund for the kids with an ESA
Step 6 ---> Pay off the house
Step 7 ---> Build wealth - have fun, invest, and give
a) Enough money to pay bills (break even) off interest (assumes 08% return)
b) Enough money to make comparable income off interest (assumes 08% return)

I'm almost half-way through step 6. I hope to have my house paid off in the next 3 to 5 years which would have it paid off in less than 11 years from the day I bought it. Then it's time to build wealth!

Some other thoughts: NEVER EVER EVER use credit cards. Don't fall into the trap that EVERYONE needs a credit card - STOP making banks rich! If you can't afford it, don't buy it. Don't buy new cars and save up cash to buy any vehicle - drive a $1000 beater if you have to. Cars go down in value VERY quickly. Don't fall into the trap that EVERYONE has a car payment. Don't run up tons of student debt. Save up or work as you go. Your wealth is your greatest income building tool. Either get a nice high paying job or get several small paying jobs and pile up the cash. Clip coupons. Limit eating out. SELL STUFF! Use EBAY, Craig's List, or have yard sales! I'll think of other ideas later.

Your real life bankroll is a lot like your poker bankroll, when you start off, it seems very small and like it will never grow, but if you stick with it, it will SPIRAL towards wealth similar to how good poker players spiral up the stakes from $2NL to $200NL. By making bad decisions, it's a lot like all the bad players who take shots and constantly make bad decisions and wonder why they keep getting knocked down or think it's rigged.

The average millionaire is not the flashy athlete or Hollywood star. The average millionaire clips coupons, drives a used car, and doesn't borrow money. It is usually someone like your next door neighbor who you wouldn't even think has over a million dollars.

I thought I posted in the right thread. I am on step 5,6,7

[BennyLaRue]

I thought I posted in the right thread. I am on step 5,6,7

Right, and you presented specific investments you think will help you with that. These specific investments are where you need to rethink what you're doing.

You picked an Invesco fund that is:

1) Higher fee than what I've mentioned numerous times; it has ongoing expenses of 1.34% of your investment every year vs. 0.07% for VTI. That doesn't sound like a ton of money at face value but if you think about it, that is 15% of the 9% return that you're targeting. It's serious rake...it could mean retiring or otherwise hitting a savings target months or years later.

2) An actively managed fund, not an index fund (ie. Finance dudes that drive nice cars you paid for pick specific stocks they THINK will perform well instead of investing in the whole market, which is what an index fund does). Managed funds have a history of poorer performance in the long run than index funds because let's face it, most of these guys aren't terribly adept.

More on Index funds from Investopedia: Index Investing: Index Funds

3) Specific to a particular industry (Real Estate), which is not protecting your investment through diversification. You need to spread your risk around so you don't lose everything when one market tanks, and they do and the Real Estate market is not protected from this at all just because it tanked recently. Look at the 3-year return for your Invesco fund...it's -0.09% and over the last 5-years it's only 1.66%. It's even worse if you don't know anything about this particular industry because then you can't time your entrance and exit in that market, which is the only time investing more specifically than an index fund can make sense.

4) Performing more poorly than the stock market as a whole. You have to be careful with the "Since Inception" number without putting it into context. Your Invesco fund has been around since Oct 2003. Put it next to an index fund like IVV, which invests in each of the 500 big companies that make up the Standard & Poors 500 index. What's the return on IVV since Oct 2003? 28.3%.

---

As for Micromet, if you have to ask, you shouldn't even go near it. Taking investment advice from a salesman's email? Honestly, it's horrifically dumb to even consider it. Do you buy Viagra from an email? Do you engage the Prince of Nairobi when he asks for $250? This Micromet tip might not be a spam email and you might even know the guy but it's still the same. He's A SALESPERSON. He wants you to buy this because HE will make money off of it. Can you tell me the company's cash flow situation? It's earnings outlook compared to the industry? Do they have an actual product or just promising lab results? If they have gotten to the product stage, is it government approved or is it $90M in legal fees away from approval and they have $250K in cash and are up to their eyeballs with debt as is?

Do not buy individual stocks you know nothing about, especially in an industry you know nothing about. That isn't investing, it's pure gambling and this would be the investment equivalent of shoving pre with 72o.

[Donachello]

What is everyone's thoughts on the value of the dollar going forward? With rumblings of the possibility that many countries begin or at least try to switch off the USD as a reserve currency in the next 5-10 years where does that leave the USD? If it does tank as would be expected are commodities the way to go as far as "proofing" yourself against that scenario?

I am not too sure about the real probability of the above happening but I am graduating in June and getting off the parents' buck at that point so I have a pretty vested interest in managing my assets starting now.

[BennyLaRue]

What is everyone's thoughts on the value of the dollar going forward? With rumblings of the possibility that many countries begin or at least try to switch off the USD as a reserve currency in the next 5-10 years where does that leave the USD? If it does tank as would be expected are commodities the way to go as far as "proofing" yourself against that scenario?

Do you have a specific concern? In other words, as an individual, what do you feel you need to be proofing against?

A declining US$ isn't all bad as an investor, because it means that foreign demand for American-made goods should increase because it becomes cheaper for me as a Canadian to buy your shit. That's good news for the stockholders of these domestic companies that have strong international markets or for companies in a position to start selling internationally. But I need to re-emphasize AMERICAN-MADE goods. American companies with significant overseas manufacturing operations will be affected in the opposite manner; it becomes more expensive for them to buy the raw goods used in manufacturing in their countries of operation or to import finished goods from foreign companies and this will affect operating margins or possibly demand if there is an effect on the price of the finished good.

As a US-based consumer, you could be facing interest rate hikes as lenders need to make up for decreases in demand. You could also be facing inflation as companies need to pay more to borrow due to the mentioned interest rate hikes, increased prices on foreign goods and increased demand for domestic goods (which also places an upward pressure on prices). The hope would be that the increase in domestic production and the resulting positive impacts would at least offset any negative impacts due to inflation and it could even end up being a good thing for your economy if it can lead to sustained domestic investment on the part of corporations.

As a US taxpayer, the declining dollar isn't necessarily a terrible thing either. If I understand the US situation correctly, inflation would devalue the outstanding debt you have to foreign nations, ie. the value the US owes would be paid back in dollars that are now worth less globally.

So, yeah, there would be some negative aspects but some positive aspects too. This is all somewhat speculative as no one can be sure exactly what the impact of all these variables would mean. That said, I'll believe that China and European countries want to boot the US dollar as the reserve currency when I see it, especially China since they hold so much of the stuff.

[BennyLaRue]

Oh, Donachello is a red square?!?! I shouldn't have responded!

[Donachello]

Oh, Donachello is a red square?!?! I shouldn't have responded!

Don't worry, that's just my street cred. Like, a drug dealer might have a couple arrests on his record but he's got respect on the corners nah mean?

But for real, thanks for the response. I guess my main concern was that I currently only really hold assets in USD form and don't really want to put a lot of hard work into building up a bank account full of USD if it's simply going to tank and make my saving account worth significantly less down the line.

How early would you recommend diversifying your assets? Like if I were to put 10% of every pay check into a savings account and another 10% into some other form of interest gaining account/fund etc. is there a minimum monetary amount that you would recommend for either startup or regular deposits?

[BennyLaRue]

Like if I were to put 10% of every pay check into a savings account

Before I answer...what is this money for and what do you mean by a savings acct?

[Donachello]

Savings account = standard bank savings account that is not connected to a check/debit card. The money is just for like an emergency fund or to start building up some sort of secondary bank roll that is there when I need it but generally unused.

[Roid_Rage]

^Yea this is basically where I'll be getting started out as well, so thanks for the question DC.

[BennyLaRue]

What kind of financial commitments do you guys have...car payment, rent, student debt you have to start paying off?

Do you have full time jobs, ie. not on a fixed-length contract?

You don't have to detail $$$ if you don't want to, just give me an idea of what your situation is.

[mrhappy333]

Right, and you presented specific investments you think will help you with that. These specific investments are where you need to rethink what you're doing.

You picked an Invesco fund that is:

1) Higher fee than what I've mentioned numerous times; it has ongoing expenses of 1.34% of your investment every year vs. 0.07% for VTI. That doesn't sound like a ton of money at face value but if you think about it, that is 15% of the 9% return that you're targeting. It's serious rake...it could mean retiring or otherwise hitting a savings target months or years later.

2) An actively managed fund, not an index fund (ie. Finance dudes that drive nice cars you paid for pick specific stocks they THINK will perform well instead of investing in the whole market, which is what an index fund does). Managed funds have a history of poorer performance in the long run than index funds because let's face it, most of these guys aren't terribly adept.

More on Index funds from Investopedia: Index Investing: Index Funds

3) Specific to a particular industry (Real Estate), which is not protecting your investment through diversification. You need to spread your risk around so you don't lose everything when one market tanks, and they do and the Real Estate market is not protected from this at all just because it tanked recently. Look at the 3-year return for your Invesco fund...it's -0.09% and over the last 5-years it's only 1.66%. It's even worse if you don't know anything about this particular industry because then you can't time your entrance and exit in that market, which is the only time investing more specifically than an index fund can make sense.

4) Performing more poorly than the stock market as a whole. You have to be careful with the "Since Inception" number without putting it into context. Your Invesco fund has been around since Oct 2003. Put it next to an index fund like IVV, which invests in each of the 500 big companies that make up the Standard & Poors 500 index. What's the return on IVV since Oct 2003? 28.3%.

---

As for Micromet, if you have to ask, you shouldn't even go near it. Taking investment advice from a salesman's email? Honestly, it's horrifically dumb to even consider it. Do you buy Viagra from an email? Do you engage the Prince of Nairobi when he asks for $250? This Micromet tip might not be a spam email and you might even know the guy but it's still the same. He's A SALESPERSON. He wants you to buy this because HE will make money off of it. Can you tell me the company's cash flow situation? It's earnings outlook compared to the industry? Do they have an actual product or just promising lab results? If they have gotten to the product stage, is it government approved or is it $90M in legal fees away from approval and they have $250K in cash and are up to their eyeballs with debt as is?

Do not buy individual stocks you know nothing about, especially in an industry you know nothing about. That isn't investing, it's pure gambling and this would be the investment equivalent of shoving pre with 72o.

Benny, thanks for the response. This was just the reason I posted here.
I did want to gamble a little with some speculative stuff, but the kids money and all my other monies, I want to be diversified and building some $$.

I bought some CPST capstone turbine recently at 1.40 and it went to 2.10 and I sold it at 1.90 and made some nice $ with my Gambling Bank Roll.
Im a total noob at this and that is probly my equivalent of shoving Pre with 72o and hitting 772 on the flop.
Your sound Advice is very much apreciated.

[Donachello]

Yeah, for now the main expenses starting after graduation are going to be rent, student loans and food/gas. Job situation currently is not a salary position but looks to be a mix of part-time jobs to equal a pretty much full time position for the foreseeable future. I have 6 months until I need to start paying off the debt but I'd like to start putting a dent into it asap to avoid interest and just to get out from under it and I am willing to sacrifice some quality of living to do so.

[Roid_Rage]

I just got a job that will provide steady, consistent income for as long as I want/need to stay there. I only have car insurance ($106/mo) (car is paid off), phone bill (like $50/mo), internet ($60/mo) and a single student loan payment which the min is like $70-80/mo.

After gas and whatnot I should have easily $250+ to stash away. Not a lot, but its a start, especially since I'm 21.

[CBAT]

I just got a job that will provide steady, consistent income for as long as I want/need to stay there. I only have car insurance ($106/mo) (car is paid off), phone bill (like $50/mo), internet ($60/mo) and a single student loan payment which the min is like $70-80/mo.

After gas and whatnot I should have easily $250+ to stash away. Not a lot, but its a start, especially since I'm 21.

McDonalds ftw.

[BennyLaRue]

Sorry, will have to wait a bit for my thoughts...the kid has been born.

[bode]

CONGRATS BENNY!

[a500lbgorilla]

The world rejoices.

[Roid_Rage]

[Vi-Zer0Skill]

I talked with my dad this weekend (he's a banker, and I assume you are also Benny?) and asked him about moving some money into my IRA fund. We had a good chat about the long term future of market returns and my personally pessimistic investor attitude -- potential energy crises and critical resource shortages etc could greatly lessen the pace of economic growth seen over the last 100 years for the next 50. Just in case the global financial system doesn't collapse before I reach retirement age I still shipped to my IRA early this week. Although I am in a uniquely advantageous financial position atm I don't think I would've done anything if I hadn't found this thread.

compound interest ftw

[BooG690]

This deserves a bump.

Secondly, I was thinking of starting a personal finance kind of chat for FlopTurnRiver members. Would there be enough interest in this? If so, would the best avenue be Skype or IRC?

[kiwiMark]

IRC in

[kiwiMark]

(paying off a large debt atm then really need to start thinking about this sorta thiiing)

[Illfavor]

IRC in

People still use this?

Boog, I'm in.

[bjsaust]

Do something. You're immediately ahead of the majority of folks out there.

[boost]

Glad this thread was bumped. It can be really easy to fall into a financial "here and now" mentality. I'm fairly stable currently, but need to work on paying off some decent sized cc debt.

Looking to the future I'd like invest, but I'm not sure I want to dump money into a fund that I can't cash until I'm 55. Therefore EFT's seem like the best option? IRA's seem like the tried and true method of long term investment, but I just get a bad taste in my mouth from their lack of liquidity.

[daven]

nice thread
i'm mostly focused on paying down some mortgage for the next year i guess. But have some other ideas too.

boog - irc

[BennyLaRue]

Look at me, I'm wufuwgy but practical!

lol, so true

[supa]

In.

Between the economy taking a dump and breaking my leg a couple years ago my finances have been in the crapper. Looks like things are gonna be way better for the next couple of years so hopefully I'll be working consistently.

[BennyLaRue]

I'm not sure how many people know this, but the OP died. Didn't hear much about it but yeah, he's totally dead.

[boost]

I'm not sure how many people know this, but the OP died. Didn't hear much about it but yeah, he's totally dead.

lol,what?

[BennyLaRue]

Yeah, it was sad. I even mentioned this thread to his Mom at the wake, suggesting that the personal finance thread he started on a poker forum was a legacy of sorts because who knows all the lives and family and children he would have touched. I might have confused her though because he face all scrunched up and she was all like, "Poker? Children?"

I don't mean to be insensitive, but in retrospect, the huge rainy day fund seems kind of pointless now, doesn't it? Keep that in mind, people.

[jyms]

Dead and buried or dead and married? Same thing but different.

[boost]

Yeah, it was sad. I even mentioned this thread to his Mom at the wake, suggesting that the personal finance thread he started on a poker forum was a legacy of sorts because who knows all the lives and family and children he would have touched. I might have confused her though because he face all scrunched up and she was all like, "Poker? Children?"

I don't mean to be insensitive, but in retrospect, the huge rainy day fund seems kind of pointless now, doesn't it? Keep that in mind, people.

Wait, so this guy is really dead? How do you know? Also, are you suggesting that fatality is a justification for not saving, but not a justification for not investing? This seems retarded.

[boost]

Are you retarded?

[bjsaust]

Lol.

On an OT note, I assume you guys have redraw loans, offset accts, stuff like that. So whilst a $1k buffer and 6 months expenses is a lot to save, it really should just make up part of the paying off your mortgage part.

[bjsaust]

Oh, and the bit about paying off the smallest loans first, its so that the principal part of the current repayment can be applied to the next loan faster (so its not just the interest amount that you move to the next targeted debt). Theres obviously some point at which one becomes better than the other, but hopefully you have no more than 3 or so debts to work this stuff out for.

[boost]

Oh, and the bit about paying off the smallest loans first, its so that the principal part of the current repayment can be applied to the next loan faster (so its not just the interest amount that you move to the next targeted debt). Theres obviously some point at which one becomes better than the other, but hopefully you have no more than 3 or so debts to work this stuff out for.

You seem to have explained why it can be preferable to pay off the smaller debts first irregardless of interest rates, or at least you think you have explained it, but I am personally still confused as to how this can ever be the right choice.

[bjsaust]

No, I explained why it can sometimes be preferable, depending upon interest rates and required repayment amounts. Which I still expect is true in some cases, but looks like generally the higher interest one is better: Debt-snowball method - Wikipedia, the free encyclopedia

Essentially it doesn't seem like theres a big difference in most cases, and theres the psychological aspect to actually getting some of your debts cleared earlier as encouragement.

Personally I've never had debts beyond mortgages and CC's which always get fully repaid monthly (so no interest), with a couple interest free deals which always get paid before interest is due. I can imagine that for people who have got themselves into financial distress, taking the psychological aspect into account is worthwhile. Also the point that by reducing overall interest sooner you reduce risk in case something adverse happens is worthwhile. If one reason you're focusing on your debt is job insecurity, you may want to minimize repayments asap rather than just minimize total interest paid.

Either way, as I said before, as long as people are doing something, that's the main thing. Optimal is good, but just doing something is more than most people get around to doing.

[boost]

Ah, ok, I think it makes sense now. It seems to be optimal if you only can afford to allot a small sum over the combined minimum payments, and on top of that you have several debts to pay down.

But ya, thanks for being patient with me, even though I wasn't particularly patient with you. The wiki also helped a ton.

[kiwiMark]

Are you retarded?

running joke from Jason's blogs and ops thread

[bjsaust]

I was interested myself. A few wealth creation seminars I've been to have recommended that process for that reason, but they were years ago and I couldn't remember if they did figures or just advice.

Benny makes a good point too. It can be interesting considering the optimal way to do things, but we should consider lifestyle too. Now some people might be in a situation where they really need to focus on the absolute optimum way to get in control of their finances, but a lot of people just need to tweak their lifestyle balance a bit. Do you really want to be rich in retirement if it means you don't enjoy the 40 years it takes you to get there? On the other hand, most people go too far the other way, and spend not only all their income, but their future income satisfying lifestyle choices for today. I think most people should be about finding the right balance. So a lot of it is about choices.

- Dinner at home v's restaurants?
- DVDs v's the theatre?
- Quality/Quantity of wine?
- Cost of various hobbies?
- Income v's study?

[boost]

good points bj.

[rpm]

Do you really want to be rich in retirement if it means you don't enjoy the 40 years it takes you to get there?

fuck no. wouldn't take this option if it was 10 years of work then rich in retirement. but i'm really short-sighted, and i hate money. so i probably have no place in this thread.


as you were...

[ensign_lee]

Glad this thread was bumped. It can be really easy to fall into a financial "here and now" mentality. I'm fairly stable currently, but need to work on paying off some decent sized cc debt.

Looking to the future I'd like invest, but I'm not sure I want to dump money into a fund that I can't cash until I'm 55. Therefore EFT's seem like the best option? IRA's seem like the tried and true method of long term investment, but I just get a bad taste in my mouth from their lack of liquidity.

If liquidity is a concern, you do know that you can always take contributions out of your ROth IRA penalty free right?

Example: You put in $5k today. It grows to $6.5k in 3 years. In 3 years, you want some of your money back.

You can take out your $5k with no penalties or anything (not hte remaining $1.5k, but ya).

[ensign_lee]

You seem to have explained why it can be preferable to pay off the smaller debts first irregardless of interest rates, or at least you think you have explained it, but I am personally still confused as to how this can ever be the right choice.

For most people, I think it's more motivational; they can see that they're making progress. So even though they may end up paying more in interest in the end assuming they went through the entire process, it is valuable because without the "snowball" effect, most people would lose motivation for paying off their debts.

[boost]

If liquidity is a concern, you do know that you can always take contributions out of your ROth IRA penalty free right?

Example: You put in $5k today. It grows to $6.5k in 3 years. In 3 years, you want some of your money back.

You can take out your $5k with no penalties or anything (not hte remaining $1.5k, but ya).

I did not know this. So if I take out the initial investment, the accrued interest remains and continues to accrue interest?

[BennyLaRue]

Are you retarded?

Maybe. Probably. But my points about the huge emergency fund for young independents being excessive are super intelligent.

[boost]

Maybe. Probably. But my points about the huge emergency fund for young independents being excessive are super intelligent.

Ya, I forget why I called you a retard, but I def agree on it being silly for a person in their mid 20's to hold $10,000+ in a low return savings account, especially when they have no long term investments.

[ensign_lee]

I did not know this. So if I take out the initial investment, the accrued interest remains and continues to accrue interest?

Ya, which is why any year that you don't contribute to a Roth is wasted. And it sucks.

[L_Clan_Sup3rMaN]

+1 to thread being bumped...sry to hear about OP

I'm a pessimist when it comes to long term investment. I always feel like there are shorter, better things you can do with your money where you can make more than investing for a 5-10% yearly return. A simple example would be trading for poker funds on 2+2. Ofcourse one upside to investing is that its passive income.

2nd ninja edit: Wrote a buncha shits about my real life situation and advice on it....then felt weird about having it posted on a public forum so decided to delete it.

Would be more comfy on a private FTR chat thing like boog suggested.