The more you make, the more you spend
 

Does this apply to you? Come on, be honest. Can you really reign in your spending if at one time you were making $50K then all of a sudden (in a year's time or less) you doubled your income? What about if you tripled your income, can you really, honestly say you'd save 2/3 of your salary? Can you really go on living your former lifestyle?

I can honestly say that I could. I'm not getting any younger these days, and my own form of personal greed has focused itself on my retirement portfolio. I keep catching myself "stealing" more and more money from my weekly operating budget to stash into savings. I'd LOOOVE to have 300k in income per year and be able to save 200k. (not considering taxes, of course) in this case personal desire is everything, and my desire is that I want to have the option of retiring when I want to, and not have the government and my measly socsec check decide that for me

Totally true. I've doubled my income in the last 3 years, and I still spend it all. I know how to live cheaply, if need be, but I do enjoy owning a Porsche. :)

Dan



PS -- Watch out for the woman who can spend 110% of whatever you make. She's a disaster waiting to happen.

These days, I am still pretty much living the same lifestyle as I was before, with the exception that Im picking up a few more lunch/drink tabs than I was before. :) A 993 or 997 is in the future though.

'Nuff said.

Im with Ronin on this one. Ive been investing my paycheck and living on the wifes salary for the last few years. We have more than enough stuff. Im going to go ahead and payoff the house next spring. You never know when the capital gains taxes may change.

I am planning on retirement next spring at 47. That was my motivation. If only I had started earlier. Max out those 401K and IRA's. You'll be glad you did.

I'm with ronin & dmcummins on this. I started to get an increased income in the mid 90s, which I've managed to put mostly into retirement funds. I also wish I had done it sooner - although I was putting a modest amount away. Same advice here too, do as much as you can as early as you can, & you'll be glad you did!

At 38 I just started having kids (both girls) so I know I'll be working till I drop! I max out the 401K and IRA's and spend the rest keeping the wife and Porsche happy.

mum and pops gave me $1000 each Christmas when I was a little one. The next business day, mum would deposit ten one hundred dollar bills in the savings account. If you considered the $1000, it wasn't a huge sum of money, but when compounded for say 15-20 years, it became a tidy nestegg.

Before being accused of being spoiled or rich, $1000 and a kick in the ass was all I ever got for Christmas. I would say my parents knew a thing or three. I've progressed beyond savings accounts, but the mentality is the same. Oh, and I don't get $1000 any longer. The parents seem to think I need the kick in the rear a lot worse :)

Naturally, you want to spend more as you make more. Funny thing is does that 993 make you MORE happy than a 911SC?

When it comes to money I am one twisted fk.....U can kill the spirit of a person with money as surely as you can kill a vampire with a stake through the heart....

Mother and Daddy were both brought up during the Depression....and they know the value of a dime...The ONLY thing Daddy has ever bought on credit is his house....and that was only a 25% to value loan....EVERYTHING else was for CASH even the RR....Daddy once took me out to dinner, and for desert I ordered a $7.00 Desert....Do U think I have heard the end of that diatribe...NOT A CHANCH....Daddy is so cheap he uses 15 watt Lightbulbs...and uses a flashlight to see the dial on the TV so he can change the channel....yep the dial....

So where does that leave me....Yeah I gotta say that with increased income you increase spending....BUT ON WHAT...U see I can't spend a dime on something unless it's increasing in value.... and believe me on my collection of stuff I know how to whack the check book real good....but on clothes...I might spend $200 a year...it was 17 years between New Cars...the last TV I bought was 14 years ago....the last Referigrator was 14 years ago...and between Espresso makers it was 11 years...but I use it everyday...see how I have to JUSTIFY to myself why I spent the money on an ESPRESSO MAKER....and thats not the fking end of it believe me....

My income is so structured for tax purposes that last year I paid $40 in Federal Income Taxes....U see with Property Tax and Car, Health, Property Insurance and Utilities (Utilities are a big expense) I can make it on about $2000 a month...U see I don't have a real mortgage on my Palace here in LV....the mortgage I have is backed by an equal amount of moneies earning a higher interest rate than I am paying out....

I doubled my income from last year and what did I do, I bought a newer car, starting going out more and subsequently spent more. I have tried to prevent it but subconsciously I realize I have more money so it is ok to spend more. I think I actually spent more over the last few years than I do currently because I have bigger/better goals (house, second Porsche) than I used to.

25% of my pre-tax paycheck goes to investments/savings.

Always has, always will.

25%-50% goes to paying down extra on my mortgage (or into saving when I didn't have a house).

Pay the CC in full every month, and don't carry car debt.

Started doing this at 23, now 30.

It's a personality thing...the old Grasshopper/Ant fable. I guess I'm an Ant.

And now we come to Mother...if U think Daddy was bad...Oh my Gawd....Mother has never spent a dime unless it was using money for it's highest and best use....and to that end my collections don't live up to expectations..while they make a return...the return they make is pitifull compared to investing the money wisely in the stock and bond market....and when it's time to move money from one investment class to another Mother has no mercy and doesn't miss a beat...However after 2000 to 2003 I can now throw it in Mothers face that all the money I put into collecables when the market was still high is still there and has made a positive return while Mothers wise investments have tumbled substantially....now if I were smart as Mother I would sell the collectables and reinvest the money in the stock market.... but I'm not....Oh BTW: after Mother gets done yelling at me for not being smart with money..she says well I guess you do have to diversify your portfolio...

And do any of U think I havn't been hurt by Mothers investing of money...My poor trust fund is way down because of the 3 year beating I took in the Stock Market...enough so that I WANT MY LIQUIDITY BACK....MOTHER WHAT HAVE YOU DONE WITH MY LIQUIDITY....I am so loath to take a dime outa the accounts I walk around broke...I want to leave every dollar I can in those accounts to grow..back to what they once were...the only thing I spend money on is food..my beloved Buffets...U see I see them as being a good deal.. It's all you can eat...and if perchanch I want to add something to my collection I now trade out something...before I just used to hoard...he has the most toys when he dies wins.....None of U have a chanch against me... sorry...

Some of the best advice I ever got
"Save as much as you can when you are young and spend as much as you can when you are older"

The trick is knowing when to shift modes.

Damn, I envy the discipline of some of you guys. I did not inherit that "thrifty" gene and my parents & siblings are far better at it than me. (Although I make more than them.)

The wife and I are (hopefully) getting both of our small businesses set up to the point where can can rapidly pay-down debt and build net worth. My personal goal is to be able to "retire" by the time my son graduates from high school in ~15 years but I would -really- like to pull it off in < 10 years instead. We will be 48 at that time. I think it is doable. Sleep is overrated...

well thank you, tabs. and here, folks, we have the second secret to becoming wealthy. the key? don't be in such a rush to buy everything cash even if you have the money, because in many instances your money can earn more for you in interest than the interest you will pay on some purchases, like tabby's hooch for example. you earn the difference between the two interest rates and actually make money by borrowing

campbellcj, listen to ronin. Paying down debts is good, but it shouldn't always be your primary goal. Pay down bad debts like credit cards (or anything with high interest). Invest the rest. Let the money work for you.

For example, let's say your mortgage has been refinanced to 6.125%, and you have some extra cash after working 81 hours for 6 weeks in a row. ;) If you send this extra dough to the mortgage company, you are giving them an interest free loan in return for lowering the principal. Your mortgage payments stay the same. The only return you get is equity in your house (all on paper) and piece of mind. You can't trade piece of mind for food on the table. Instead, you might invest your extra cash in a stock paying a good dividend. At one time, Altria Group (Phillip Morris) paid a hefty dividend (4,5,6%), and it was only trading around $32/share. There are others http://www.dogsofthedow.com/doggish.htm . Anyway, when you buy an asset you win in several ways:
1) you are allowing your money to compound (instead of sitting as dead equity)
2) you get a dividend (income), which can be reinvested
3) If the stock goes up, you stand to make a nice gain. The value of your home is not dependent on the equity.
4) Liquidity: if junior needs braces, you can cash in the stock with a phone call or click of a mouse button. Try asking the mortgage company if they will please send you the $6000 you sent last March.

exactly, it's not as much a game of net worth, but of cash flow. many families make the mistake of paying off the house and debts when the primary income provider dies instead of investing the money for income. this is a time when the household needs cashflow the most

On paying off or down on the mortgage I think it depends on where you are financialy. If you can find a guaranteed investment paying more than your loan it an easy choice. I don't think thats possible. You can get close but show me where I can invest and get 5%-6% guaranteed.

Now everyone's situation is going to be different. I have no other debt currently and a fair amount of other investments. I look at paying off my mortgage as part of my bond allocation.

It also reduces the amount that I will need to withdraw to get by. Some of my investments have increased alot faster than I imagined and I have been selling them off. Im taking advantage of the 15% Capital Gains rate. Every 5% helps.

By reducing your debt you decrease the amount of cashflow you need. If junior does need braces you could probably pay for them with the interest you saved or with a home equity loan if you had too.

I have guys that work for me that are drowning in debt and don't know it. One guy working for me just purchased a new 2800 sq.ft. home. His first. He was complaining that with the interest rates dropping that he could have bought a bigger home. He also went out and bought a new Suburban for $45000 and still owes on a full size Dodge 4X4. Pretty bold for a guy that was close to getting fired earlier in the year. He will be in big trouble if something unexpected comes up, or misses a few paychecks.

Now Im not saying that you guys should not get some of the toys and homes that you want. Im just saying if you get a raise or bonus to put some of it away.

Ronin.....it all amounts to the same net worth...figure

500K house minus 200K debt = 300K equity + 200K liquid assets.

What you have is 2 appreciating or deprecaiting assets and one debt at a fixed interest rate...your using the banks money to invest and reap the reward of the risk U take...

Meanwhile your living in your house and if your investing the Liquid portion conservativily your risk is low... as we all know the value of any asset can go up or down even the value of cash...try buying any German Porsche parts lately....

Goes with what Verberg says: take chances when you're young. 6% is chickenfeed. MO is paying 6.28% dividend. Add the upside potential and liquidity into the mix. You get ZERO return on your investment if you send a check to the mortgage company. You ONLY reap a return when you sell the house or pay off the mortgage. Until then, you are getting ZERO% return + NO use of the funds. Remember, on a fixed rate mortgage, your P&I is amortized for the original loan balance and not the remainaing principal.

dm, you're in a special situation, wherein you're winding down. Few will reach your place. Paying off a mortgage is great insurance and cuts expenses.

Ohh..lets go one step further...if you really want to screw with things...like your amortization table on your house...

If you must start making extra payments on the house start with the first payments...your loan balance is at it's highest and your paying the most interest....thus if you just made a $100 extra principle payment every month for the first 3 years ..you really chop of time on the mortgage....you might say just putting back into the house the extra income your making from keeping your liquidity.

I don't see how my situation is special. And I don't agree that you get Zero return. I agree that you wont see the cash flow. Also the dividends are not guaranteed. I have several stocks that are paying in excess of 10% dividends, but the NAV can drop and the dividend can be reduced or eliminated.

You may or may not come out better by investing instead of paying off the mortgage. The problem is most people spend the extra instead of investing it. I think before anyone starts paying extra on the mortgage or investing in stocks they should have some set aside incase an emergency comes up.

For most people if they could just keep their credit cards paid off they would be way ahead. Why someone would want to pay extra for everything they buy is beyond me.

And I hope that at 47 I still have a few years left to wind down. Ive just made some choices. I realized that I would rather do with alittle less and have time to enjoy what I have, instead of working day and night to get things that I would'nt have time to use.

I enjoy sailing. I could go out and buy a nice new 40 footer for around 500K. Id have to work anouther 4 or 5 years to pay for it though. I can go out now and get a used 35-40 footer for around 100K. And I could be out cruising in it now. I could buy the new boat but I wouldn't be able to use it much because I would have to continue working to pay for it. I could be dead at 50. You never know.

The problem is people arnt just spending the increase in their income. They are looking at it in their increased borrowing. It's not how much it cost's but how much per month.

As to the original post. If youve been making it on 50k and suddenly your up to 100k, I say go ahead and enjoy some of the gains. Just put some of it back. Split the difference and save half. You would still get something for your efforts and long term you would be in better shape. Just don't blow it all. At least buy an early 911. Hopefully they will go up in value.

If you do not pay off the mortgage, how is return greater than zero. Sure, you reduce the total number of payments, but you're trading today's dollars for future dollars which have been devalued via inflation.

Dividends are not guaranteed, but neither is a job paying the mortgage. Nothing is guaranteed. What if the RE market crashes, and your house devalues by 35%? The equity you thought you had is now gone. I'm not knocking RE, because it's my livelihood.

Peace out.

I guess were just looking at it differently. Im not saying its the best investment, but it is an investment. I assume at some point the mortgage will be paid off. If the RE crashes I still owe the money. I made a deal.

Would you borrow additional money against your house to invest? You may or may not do better. Im not against investing in the stock market. I have more in the market than my house is worth. I just think paying alittle extra each month on the mortgage is alot easier for most people and will help them in the long run.

I hope RE and Stock's both do great. I don't think there is a right or wrong decision here. Hopefully they are both appreaciating assets.

good luck

That's what I was driving. Each situation is different. If you're winding towards retirement, reducing expenses is good. If you're me (age 28 and growing), take more risks. I'd rather take extra cash, invest in rental properties, and earn 25-35% cash-on-cash return than pay off relatively low interest rate mortgages. In my opinion, there exists good debt. Risking good debt for potential big gains is worth it, depending on your goals. Each must evaluate their risk tolerance, goals, and financials to determine what's best.

OK, have I managed to totally destroy this thread, yet, already, eh? :p

I still subscribe the have no dept school of money management.

If I pay off my mortgage in 7 years instead of 30, I own the house and it doesn't own me.

Granted, if I was not putting an additional chunk of money into investments, I probably would invest before settling the mortgage.

The way I figure, by 36 I will own the house, have no debt, a healthy 401k and plenty of cash (knock wood).

Does anyone recommend I change my plan?

356a, if it fits your goals, run with it. One thing you might consider is a 5 or 7 yr mortgage amortized for 30 yrs. This gives you a lower fixed interest rate for 5 or 7 years. Then, you either refi or pay off the mortgage. The lower interest rate allows you to pay off the mortgage quicker. Or, if you're really aggressive, consider an interest-first mortgage. The rate floats with the market. The advantage to this is you can get crazy low rates (2.5-3.5%), and you'd then use the savings to pay down principal really fast. The downside is when (not if) rates go skyward. The 30 yr mortgage is the safe bet. The other mortgages require discipline, but the savings can be drastic.

You really have to compare your existing mortgage's principal paydown vs. alternative mortgages to figure out if it's worth the jump. I run the numbers on rental properties a dozen times, and the answer always changes. There is no perfect solution for everyone.

Ask yourself this: can you get a better return on your money if you invested elsewhere? Are you willing to take calculated risks to make good investments? What will you do when the mortgage is paid? Reduce your income? Spend more? Buy a junkyard specializing in 924s?