All posts by Greenbacks Magnet

I grew up in the Washington DC metropolitan area and have been working in the financial services and lending industry for over a decade. I earned a bachelor's degree in psychology and master's degree in distance education from the University of Maryland University College.
Financial Freedom, Financial Independence, Investing, Retirement, Wealth

Flip of a Coin: How I Decided to Own A $250K 401(K) Vs A $250k Mortgage

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House, Garage, Driveway, Architecture

This is not a post for the faint of heart. So some of you out there may need to do what you did when the nurse swabbed your arm with alcohol right before she gave you the Covid-19 shot, turn your head away and close your eyes!

It was years ago, but I had to make a call. I had to make an executive decision. Would I like to buy a $250,000 home or become a 401(k) Quarter of a Millionaire.

It was almost like flipping a coin. Do you choose heads or tails?

Heads and be a $250k homeowner.

By the way, home values over 30 years have risen about 4% on average but stocks have been able to return 10% over that same time period.

Now back to the coin toss.

Tails and have $250k, that’s right a quarter of a million bucks, in your 401(k).

I chose not to go with the path of least resistance, which is the American dream of being a homeowner, and to put my money in stocks. Best decision I ever made.

After watching the housing crash or 2008-09, it dawned on me to put some money into businesses that pay you dividends instead of a mortgage that you have to pay. Missing even a single payment on a mortgage and never being able to catch up could put you on the short list to foreclosure. Nobody wants that.

Fast forward 10 years later and Covid-19 is not only derailing retirement savings but also increasing the likelihood that many renters will be evicted.

According to CNBC, 20% of renters in America are behind on rent and owe an astounding $57.3 billion. The average amount owed by each renter is $6,000 and they are a minimum of three months behind.

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Once you get that far in arrears, rental companies and landlords are quick to start the eviction process.

Especially, mom and pop landlords that cannot afford the losses. They depend on this income to pay their own bills and fund their retirements. I knew after watching millions of Americans lose their homes to foreclosure in 2009 that I did not want to be in that predicament.

Therefore, I made the conscious decision to keep fixed low housing costs and to put my money into stocks. I put my money into index funds because they consist of thousands of stocks. All those businesses are not going to go bankrupt at the same time so it gives your money some security as opposed to putting all your money in one stock and then you lose everything.

The S&P 500 and other indexes will remove any stock that is not meeting its standards. Therefore, you do not have to do this on your own with stock picking. This also insures that your money stays invested in firms with a good balance sheet as the ones that are not pulling their weight are dropped from the index. Thus, you do not lose all your money as you would being invested with only one stock or placing your bets in speculative investments like cryptocurrency and bitcoin.

I actually know someone who says they invested all their money in bitcoin and lost all of their money! What were they thinking? If you are going to invest in bitcoin, then it with money, you can afford to lose and only invest more than 5% of your savings. That is all the risk that is adequate with bitcoin, in my opinion.

Not enough to money to become a bitcoin millionaire, but also not enough to lose your life savings, your home and all your possession in case you bet the farm on a losing investment.

Let us learn from the recently deceased creator of McAfee software founder who invested $25 million in Lehman Brothers bonds and lost every penny after they collapsed and went bankrupt in 2008.

You can read more about the demise of Lehman Brothers in my post called Don’t Trust the Commission-Based Advisor in Wall St Cubicle 23

I decided to just put my money into the VTSAX because it includes the total stock market. Want some Tesla stock? Drop some money in the VTSAX. It will only cost you $107.

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Instead of buying stocks one by one, you can just get them all for one price. That way you do not have to pay $685 for one share of Tesla.

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Don’t even get me started on the S&P 500. One share in this stock will set you back $4,267.

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If you have that kind of money just burning a hole in your pocket, then be my guest and buy some. However, if you want a piece of the whole market then just start buying the VTSAX.

I sleep like a baby knowing that my money just can’t fall to zero because the every stock in the fund will not blow up overnight. Even if businesses tank, the fund will correct this by replacing them with a better stock, and I still keep making my money.

I think of it like this, a home you have to feed but your 401(k) feeds you.

As a homeowner, you cannot realize gains until you sell. Therefore, you must feed the beast until you do!

take my money gif - Flywheel Coworking

Considering that most American homeowners only stay in their homes for an average of 9 years, all the money spent on maintenance and repairs is burnt if you are foreclosed on. However, according to Fidelity, many 401(k) millionaires keep their accounts for open for 20-30 years to amass that type of fortune. That means people are holding on to stocks longer than homes!

Therefore, on my path to millionaire status, I decided to go for stocks over real estate. Don’t get me wrong, you can make a fortune in real estate, but you have to maintain the property until you sell. I can make my fortune in index funds simply by breathing and automatic investing.

Seeing and listening to the stress of homeownership versus the ease of index investing I think I made a good choice going with stocks. My low housing costs allow me to invest more. This also allows you to pay off debt faster and travel more. However, it is always your call. This is just my 2 cents.

I mean who wouldn’t want to be a Quarter of a Millionaire. I’ll take that any day of the week over being broke!

And just so you know, if you let that money sit and ride it out in the market, you would have $1,000,000 in 14.5 years with a 10% return. That is without adding another cent.

How many homes that were bought for $250k do you think will be worth one million in the same amount of time? None.

I have no problem at all with being a 401(k) millionaire. None whatsoever!

Budgeting, Retirement

How I Paid Off $85,000 of Debt

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Accounting, Report, Credit Card, Payment

It was a dark and stormy night in the bayou. No wait…I’m just joshing you. Ha ha! This story doesn’t start off like a ghost story you tell beside the campfire or even in a bayou. I mean who do I look like, Bayou Billy?

For those who don’t know who that is, Bayou Billy is a fictional character in an NES game from 1988.

Adventures of Bayou Billy ROM Download for NES

As a 90’s kid, I liked playing all types of Nintendo games. What I loved about video games is that not only are they entertaining and fun to play, but they teach you critical thinking and problem solving skills as well. Nevertheless, I digress. Now back to how I paid off this $85k of debt.

Paying down massive amounts of debt involves sacrifice, effort, planning, hard work and fortitude. It doesn’t really happen by accident or luck It is consistent effort over time to keep paying your debt obligation while at the same time not continuing to borrow more of it. This is what I had to do to make it happen.

The number one thing I had to figure out was how much I owed. Opening up bank and credit card statements showed me this. I had to get this debt off by back: a $20,000 personal loan, $30,000 car loan, various credit card, and other debt of $35,000.

Those credit card statements showing me how much to pay over three years before it is paid in full really motivated me. Therefore, I would just put my head down and work. I worked on paying off one debt at a time.

Then I would go to the next one and concentrate all my time and energy on that one until it was gone. It took more than eight years to pay off all that debt.

I had to pay $448.65 monthly on my car note, $333 monthly on my personal loan, and additional over $500 on the other debt. Paying all that money out every month motivated me to do two things: 1) Not to get any more personal loans; and 2) Not to get anymore car loans.

I paid off my car in 2009. I am happy to report that as of 2021, I have not had another car note since. I kept my old car for 17 years total and then the next car I bought, I paid cash for it.

Instead of siphoning off my money to service debt, I began to invest that money in myself. I went back to school and starting dumping my money in my retirement accounts. Got an extra $5. Put in in the Roth IRA. Got a raise or bonus. Put more money in my 401(k).

All these years later and I am still contributing to my retirement accounts.

I have read more than enough articles on the retirement crisis and the shortage in Americans retirement accounts to know I had better take this seriously. I didn’t want to wake up one day and be 50 with no money saved for my golden years.

I know that those years feel like they’re in a galaxy far, far away, but trust me, no one stays young forever.

Zeit time galaxy GIF - Find on GIFER

I want you to protect your 401(k) as Luke Skywalker protected Princess Leia in Star Wars.

Debt are the storm troopers. Your ability to avoid debt is your use of your strong will over your spending. Your checkbook is your light saber.

Your control over how you wield these funds is your Jedi mind trick over all those who try to part you from your money.

I hope that this post helps awaken the sleeping giant within that lets you choose financial freedom over spending.

May the fiscal force be with you.

Investing, Taxes and Insurance, Wealth

Taco Tuesdays and Capital Gains Wednesdays

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Taco, Time, Again, Taco, Taco, Taco

“I am going to keep having fun every day I have left, because there is no other way of life. You just have to decide whether you are a Tigger or an Eeyore.” – Randy Pausch

One thing most people know about me is that I like to have fun. I am constantly telling jokes and laughing. Life is too short feel bad. Therefore, I choose to be happy.

I make sure to always stop and smell the roses and live life to the fullest with the time I have on earth.

I also like the silly things that are all around us like fried Twinkies, s’mores, or drinking Pina coladas and getting caught in the rain. I mean come on what’s life without a little whimsy.

I also like things that have themes.

There are two reasons why I like Taco Tuesdays: 1. the free tacos and; 2. how festive the day is.

Tacos, Mexican, Eat, Delicious, Lunch

What is Taco Tuesday? Taco Tuesday is a custom in many US cities of going out to eat tacos or in some cases select Mexican dishes typically served in a tortilla on Tuesday nights. Restaurants will often offer special prices, for example, “$1 fish tacos every Tuesday night”. Places like California Tortilla even have specials for BOGO (buy one, get one).

Mango Catfish Taco, Taco, Cooking

You just can’t beat free food and saving money. And whenever I save money, I invest money.

I know lots of folks like to build wealth in real estate, but the problem with that is that you have to sell the home in order to get access to the gains. Even though stocks are the same way, I do like the fact that they involve no maintenance, repairs, or cleaning.

Indexing is also the best form of stocks investing, as they are self-cleansing. Meaning that if company goes out of business the stock is removed from the index and automatically replaced with a company with a stronger balance sheet that is not bankrupt.

You could lose your home to foreclosure, but not index funds. They go on to make money long after other companies have perished and even if you lose or have a decrease in your income. Stocks keep working for you 365/24/7.

Independence-Budgeting Make It Rain GIF - PDiddy Money Dollars - Discover & Share GIFs | Make it rain money, Make it rain gif, Raining money

Capital gains make me happy.

They don’t stop coming in unless you sell your index fund. So as long as you are invested, the money keeps on rolling in.

Thinking back on the quote at the start of this blog post, I have always felt like I am like Tigger from Winnie the Pooh. Even Tigger likes Tuesdays! He is known for saying have a Tiggerific Tuesday and Happy Tuesday rise and shine, put a smile on your face and love in your heart.

Eeyore, on the other hand, will mention things like he was so upset that he forgot to be happy. Let’s not do that.

I always take some time out to be happy and grateful. I believe in helping my fellow man. That’s one of the reasons I started this blog; to help people improve the quality of their fiscal lives. For example, let’s discuss what capital gains are.

Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. How much of these gains are taxed depends on how long you held the asset before selling.

In 2020 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%). Therefore, you have incentive to invest for the long-term.

Short-Term And Long-Term Capital Gains Tax Rates By Income

The government charges less for capital gains than they do on ordinary income. That is why you must invest because inflation erodes the dollar over time. What cost $1.00 10 years ago, now cost $1.30 today.

If you hold on to a stock for over a year, then you can possibly pay just 15% in taxes on the gain after you sell. In contrast, income taxes are much higher on wages.

2021 Capital Gains Tax Rates: How They Apply, Tips to Minimize What You Owe

This lets you know that America rewards capital not labor.

I even heard rapper and entrepreneur Master P talking about this on a podcast. He said that he realized “product outweighs talent.” You got that right.

A business can keep making money long after a basketball player retires and stops earning those million-dollar paychecks. A shoe deal with Nike can pay you more than the physical hard work you put in on the court over years!

My way of building up my portfolio is to invest. I may not have a shoe deal, but I can own stock in Nike.

Therefore, what I do occasionally is do a BOGO somewhere like a Taco Tuesday and then the next day buy some stock. I call that my Capital Gains Wednesdays.

I try to keep at least $10,000 in my brokerage account just so that at any moment or Wednesday, I can buy stock in any company I want within a certain cap. I may give myself a $2,500 cap for the day or even $25. Doesn’t really matter. The point is to keep me motivated toward my goals and to get in the habit of investing.

I can never say I have no money to invest, if I keep money in my brokerage account at all times.

You should put money in there when times are flush. That way when they aren’t, you can still be purchasing stock no matter what.

This is how I stay happy. I plan and create my own happiness myself.

Now you all go out there and have a Tiggerific Tuesday!!!

Financial Freedom

How I became a 401(k) Quarter of a millionaire

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Glasses, Sparkling Wine, Cheers, Sun Set

I remember it like it was yesterday. I was just starting out and knew I needed to look into saving for my future. I was beginning at ground zero with $0 saved for retirement.

This was in line with the average 401(k) balance for a young person starting out in their 20s. My employer was offering 50% for every dollar we contributed up to 6% of our salary. I was all set to start making some moves into investing for my future so I got started right away. Then boom! Barely into starting out on my journey, the housing market crashed in 2008.

The Great Recession rolled in and people were losing homes and jobs left and right. I got my pink slip in 2009. I felt like I had just put $2 in my account. Not only did I lose my job, but also my employer contributions including thousands of dollars due to the fact you had to be an employee for 5 years to be fully vested. I was discouraged, but not defeated.

I always keep an up to date resume so I started sending it out. It took months, but I finally got a new gig that allowed me to be 100% vested from Day 1. This has helped me grow my nest age from $6,500 in 2010 to past a quarter of a million ($250,000) over a fairly short time later thanks to a raging stock market!

Total Vanguard Assets beginning from 2010

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After I read a Fidelity report that stated 401(k) millionaires are on the rise, I figured I could be one of them too.

Retirement Savings Balances, Numbers Of Fidelity Investments 401k And IRA Millionaires Set Records | Investor's Business Daily

According to numerous financial pundits, it is recommended that you even need a minimum of $1 million to retire.

The Latest 401(k) Balance By Age Versus The Recommended Amount

First, I had to get to $100k and that put me on the path to eventually passing the $250,000 mark. So you see, you have to have a goal. This is what I did to make it happen.

1) Set a goal

You can’t get anywhere without first knowing where you want to go. Therefore, I set a goal for myself of $100,000. I did this because after doing some research, I found that the first $100k is the hardest.

However, once you reach this milestone you can stop contributing completely to your 401(k) and still become a millionaire in 30 years without adding another penny.

As long as the stock market continues what it has done over the last 40 years (1980-2020), then you can expect returns of 10% a year. This will get you where you want to go over the long term. I’ll show you.

In 2012, I had $25,000 invested and by 2015, I reached my goal of $100,000. I have more than doubled my money since that time. You see how much faster your retirement accounts go up once you reach $100k. That money is doing all the heavy lifting for me.

It can take 5-10 years to reach the first $100k, but the next $100k may take only 3 years. Therefore, every year the next $100k takes less time.

Why Saving Your First $100k is a Big Deal - Four Pillar Freedom
Fourpillarfreedom.com

2) Cut expenses

I learned about house hacking from listening to a podcast on Bigger Pockets years ago. House hacking allows you to cut your housing expenses by 25% or more. Basically, you rent out your property and decrease your mortgage payment by having renters and becoming a landlord.

The other thing you can do is move to a less expensive location in order to save and invest the difference. You can also do this with a partner or roommate as you will have shared expenses that lower your living expenses.

I got my expenses down very low which allowed me to go from a savings rate of $1 to $5 dollars a day or 3% of my income to eventually working my way up to saving and investing 40% of my income.

Around 2013, my savings rate was 15%. Then it went to 25% in 2015. And I got it to around 40% by 2018.

I would incrementally increase my savings rate by 1% a month or a year depending on what I had going on. This is one of the best ways to give yourself a raise without feeling like you are being deprived.

Confessions of a Shopaholic: How to Stop Impulse Buying! – THE FASHION HALL

Sacrificing when you are young and loose like a mongoose is best. Limiting your expenses during the lean years are well worth it.

Consider this. According to Vanguard, while the average 401(k) savings balance is over $100,000, the median account balance is much less at $25,775.

Age Average 401(k) balanceMedian 401(k) balance
Under 25$5,419$1,817
25 to 34$26,839$10,402
35 to 44$72,578$26,188
45 to 54$135,777$46,363
55 to 64$197,322$69,097
65 and up$216,720$64,548
Source: How America Saves 2020

3) Pay off debt

There was a time I was paying $448.65 a month for a car payment. I also had a $20,000 personal loan at $333 a month. Talk about a money suck!

Jay z holy grail shopaholic GIF - Find on GIFER

This was draining my ability to save more. Once I got those items paid off, I started redirecting that money to my savings and investments.

That allowed me to put money into an emergency fund, brokerage account, 401(k) and my Roth IRA.

4) Start an emergency fund

The only way to stay out of debt is to have money in the bank so you will not need credit in the first place. Access to credit can become a nightmare when you have to start paying a large percentage of your income toward managing it. Therefore, I found a good number to start with is $1,000.

Then I worked my way up to $5,000. Again, I moved this number up to $10,000.

My personal suggestion is for people to have at least a minimum 3-6 month emergency fund. You can keep the credit card debt off you, if you can have money set aside for car and home repairs that tend to pop up at exactly the wrong time.

5) Be consistent

No matter what, I made sure to put money in my retirement accounts . If the choice was between having fun on a vacation or saving $10,000 first, I choose to save. Responsibility first, fun later. That is what my dad always used to say.

I save and pay myself first before doing anything else. That includes paying the rent! After my 401(k) and Roth IRA contributions are made, then I pay the bills.

6) Keep increasing your income

I increased my income through both annual cost of living increases, asking for and receiving pay raises, or getting a promotion. I was able to increase my income by 50% from my early 20s.

Every time I earned more money, I increased my contributions. However, please know that income is not enough alone to build wealth. It’s what you save. Notice the Vanguard chart below shows that higher income does not correlate with a higher 401(k) balance.

Annual income Average 401(k) balanceMedian 401(k) balance
Less than $15,000$8,260$1,356
$15,000 to $29,999$13,069$4,020
$30,000 to $49,999$29,740$10,439
$50,000 to $74,999$66,033$27,630
$75,000 to $99,999$113,143$54,020
$100,000 to $149,999$177,597$91,470
$150,000 and above$298,851$154,989

7) Live on cash

I know you hear this all the time, but cash is king and it is best to stay away from plastic. Debt just weighs you down. That money could be put to work for you in Mr. Market.

America likes to reward investors and shareholders by paying dividends. The more you invest the more you earn. Without doing any additional work, you are making money from income you already earned years ago. That is truly how you work smarter and not harder.

8) Invest in growth stocks

I started with a few thousand bucks and put it into Amazon and Apple back in May 2013. You can see from below that was the prices they were selling for back then. Amazon was going for $258 a share.

AMAZON.COM INCBuy5.0000$258.84
APPLE INCBuy3.0000$463.66

After investing more with both companies, as you should not only buy the product but the stock as well, the stock splits and appreciation has caused my investments to go up. I remember being amazed that Amazon had gone up to almost $2k a share. I even took a picture of it. Cause you know, seeing is believing. Back then it was going for $1,897 a share.

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Amazon is now $3,300 a share! That is inching closer to the S&P 500 price of $4,000. Keep in mind the S&P 500 is made up of over 500 stocks.

Amazon is just one company. Its evaluation is pushing closer to what the evaluation is for 500 companies. Amazing! That is when I learned growth stocks can make you rich.

9) Invest in index funds

I invest with Vanguard because they have the lowest expense ratios I have seen. You can invest in the VITSX or VTSAX and get a low expense ration of around 0.003% and 0.04%, respectively.

The goal is to keep maintenance costs low as this will eat into your money later when you take those required monthly distributions (RMD) .

That is a good reason open up a Roth.

10) Have a Roth IRA

The Roth has no RMDs. You can let it ride forever or whenever you do take money out it is tax-free. Instead of paying interest on distributions with your 401(k), you could get access to them for free with a Roth.

If you are unable to do a Roth due to income limitations, then you can do a backdoor Roth. This allows you to convert your 401(k) into a Roth with a conversion ladder. Due to the Roth allowing you to make after-tax contributions, this is the superior investment vehicle.

Find a way to get one and watch that money go in after-tax and come out tax-free because you have already paid taxes on it.

And there you have it folks.

As of this writing, I have continued to watch my investments go up and continue to invest regularly. It has been awesome to watch my money grow. It has been very rewarding making those early sacrifices in exchange for building more wealth.

I have more money and freedom than I have ever had. All the sacrifice was worth it in the end.

My next money goal is 401(k) millionaire.

Keeping track of my net worth, investment portfolio, spending habits and increasing my savings have all helped me get here.

So my advice to you all is to keep stacking that dough.

Budgeting

15 items or less

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Shopping, Spending, Till Slip, Purchase

When I think of 15 items or less it always reminds me of being in line at grocery store. However, it has more meaning to it than that for me. It is not just a line at the grocery store.

That number represents the amount of ingredients I prefer to have in my food or any meals I prepare, the amount of items in my Amazon cart I like to have, and the number of stocks I like to have in my portfolio.

Many financial experts will tell you that you need no more than 20 individual stocks in your retirement and investment accounts to build wealth. Personally, I am an index investor. I put my money in these funds because a single stock can go bust and you could lose every penny.

An index fund can’t go to zero because it is made up of hundreds or thousands of stocks and if one business goes belly up, then it is replaced with another one that is in good standing. Thereby, making sure your investment never goes to zero.

One of the reasons I stick to a budget and adhere to strict investing rules is because I know money is not always so easy to come by. Even though you can earn more money and not time, money is still an important commodity that cannot be overstated.

During COVID-19 lockdown, I got to see up close and personal just how important it is to keep your head down and stay focused on your money goals.

After losing my job during the Great Recession in 2009, I do not take anything for granted. I always try to keep a 3-6 month emergency fund, money in savings and brokerage accounts just in case. At the very least, I try to keep $5,000-$10,000 cash for a rainy day.

Imagine my surprise when the pandemic hit and I was yet again shown numerous cautionary tales of why it is important to have these things in place.

Living on a budget can help save you from going hungry when times are lean. This always gives me perspective. Stay disciplined, save and keep your feet firmly planted in reality and on the ground. Plan for the long term.

Your personal savings account is your own version of having Geico insurance; it is there just in case something bad happens.

These stories reminded me why I save so much. I don’t ever want to be caught out in the rain or a heavy storm without an umbrella.

I’m going to share with you just a few of the things I heard while standing in lines to buy food and other shopping items over the last few months.

The following are some of the things I overheard while millions had lost their jobs and income in 2020:

Cashier: “That will be $8.64.” Customer: Exasperatingly said, “There goes all the money.”

Customer in line on the phone that looked 50ish: “Hopefully, my mother will be able to pay my car payment this month for me.”

Woman shopping for furniture: “I just bought a house at 64. I hope they can finance this for cheap.”

Cashier gives customer total to pay. Grocery store customer to cashier: “I don’t have any money.” The cashier then decides to pay for the customer’s groceries herself out of her own pocket.

A landlord calling a tenant: “Can you pay your rent a little earlier because I need to pay the property taxes on the 31st?”

Why not just have the property taxes wrapped up in the mortgage? Just a thought, but okay, I digress.

A gentlemen speaking with his coworkers: “I’m trying to buy a home. It will cost about $900,000.” His coworkers reply: “But you’re in your 50’s. Why not stay where you are and leave some money to your kids.” His reply to that: “They have to struggle like I did and fend for themselves. This is for me. It’s time to shine.”

Woman talking to her folks : “Private school costs like $1,200 a month. It’s expensive and I have a lot of student loan debt, but I want the best for my kid.”

Workers discussing an overpayment they received from their employer: “If they are going to take back the money they just gave us by accident on our next check, they got to give us a payment plan right?”

A payment plan for a lump sum payment they just got. Why not just set the funds aside that they received by accident? You would only want a payment plan if you already spent the money.

All these stories tell me that these folks are broke and living on the financial edge. I knew I did not want to ever be on the side of a financial cliff ever again. Therefore, I had to get my fiscal act together.

I cut my living expenses to the bare necessities; got my housing costs to under $1,000 a month, paid off my car and got rid of my $450 car payment, and started tracking my net worth.

I felt like Smokey the Bear would always say, “Only you can prevent forest fires.” In my case, it was financial fires that would burn up all my money and leave you broke. I didn’t want that.

I know times are hard, but I hope as I did all those years ago, that people learn some very important lessons from all this tragedy. And that is, the government is not going to save you. No one is coming to save you. We are all on our own out here. You must fend for yourself or be broke.

If you know you would rather be rich, then keep reading the blog posts on this page to stay motivated to leave the rat race sooner rather than later.

You will do it by attracting one dollar at a time and then investing it to turn it into two.

Happy reading and good luck on your road to wealth.

Credit Cards, Retirement

Credit Cards the silent wealth sucker

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Credit Card, Master Card, Visa Card

The world is in love with credit cards. – Warren Buffet

I’ve heard it so many times before.

Your favorite sports team is coming to town. You have wanted to go see them play live for years, but you don’t want the nosebleed seats. You want to be close to where the action is.

Tunnel Celtics GIF by NBA - Find & Share on GIPHY

So close that you can almost touch your favorite player and shake their hands or pat them on the back while their names are announced as they come out of the tunnel.

Lebron James Running GIF by NBA - Find & Share on GIPHY

This year you have decided to treat yourself and will go see your team play.

However, tickets aren’t cheap.

After reviewing information on ESPN.com, you will see that watching James Harden dunk on LeBron James comes at a hefty price.

Lebron James Running GIF by NBA - Find & Share on GIPHY

The average ticket in the NBA now costs $51.02, according to the Team Marketing Report, which monitors the business of sports leagues. Add charges for food, drinks and parking, and that cost rises to $72.53 per person.

And if you want to sit front row, the range for a courtside seat in the NBA is generally anywhere from $300-$20,000 just from a quick price check on Ticketmaster.

See my post How buying Super Bowl tickets could cost you $2 million dollars

Since almost everything in America costs more than the federal minimum wage of $7.25 that millions of low-wage workers are earning; Americans are turning to plastic to fund clothing, doctor fees, college, medical bills, furniture, cars, excursions, and jewelry. You name it, then folks are dropping down their American Express to make a purchase faster than The Rock can put out another film!

The problem with that is pretty obvious. You don’t have the money to go to the game so you put it on plastic instead. This can have serious consequences down the line. If you are unable to pay off the balance, now you have to pay interest on this purchase.

With the average credit card interest rate hovering around 18 percent, you could end up paying double or triple the cost of this little excursion to go see the LA Lakers play at Staples Center over the next several years!

In the book American Plastic, the author stated she saw consumers going into debt to pay for cosmetic surgery, which could cost you $7,000 for one procedure. Putting many Americans further behind in their wealth building.

The book Credit Card Nation by economist Robert D. Manning, published in 2000, provides a comprehensive overview of a social and economic crisis going on in America-escalating dependence on credit. The deregulation of financial services in 1980 paved the wave for Americans to become dependent on credit cards.

According to CNBC and USA Today, the average credit card debt in Americans held is approximately $6,200. And Alaska topped the 50 United States with the most credit card debt at $8,026. This is also the state that gives all its residents annual checks from its rich oil supply. Just something to chew on right there.

Meanwhile, the average credit card debt is now becoming a major wealth killer. Those households with it and more likely to have lower 401(k) balances, less in savings and investments, and less home equity.

Billionaire investor Warren Buffet says you should avoid using credit cards like a piggybank; it doesn’t work because a piggybank is filled with cash and credit cards are not cash. Credit cards funnel all your cash that should be used for wealth building into the banks coffers. Banks are now making a billion dollars a month thanks to easy credit access!

The credit card love affair usually ends in trail of past due bills.

Game, Game Over, End, Hand

Once the minimum payment (usually a paltry one percent of the balance) becomes unmanageable, you can get into serious trouble. Instead of making minimum payments are paying interest, you should be earning it instead in Mr. Market.

The one percent you are paying could be going to your retirement accounts or toward the down-payment of a home. How important is once percent really? It is enough that if you subtract that amount from the expense ratio of a mutual fund, then that one percent difference can be enough to fund 10 years of retirement. Very important in my book.

Forget credit card debt. Go max out that 401(k) at $19,500 annually and/or a Roth IRA at $6,000 per year and $7,000 if you are 50 and over.

This will of course take discipline, but so what. If you are willing to fork over $10,000 for season tickets to see the San Francisco 49’s play, why can’t you put away $100 a month for your future?

Maxing out a 401(k) over 20 years with a 9 percent return would net you 1,087,408.34. Don’t let credit card debt take this away.

Just my 2 cents.