5 Band-Aid fixes that hurt your finances

[Olde Hornet]

There are more in the article, here are two of mine:

1. Never loan money to friends and family that you cannot afford to give to them.
2. NEVER sign or co-sign a loan for someone else, unless can and do make the monthly payments. That's an "and" not "or". There is a reason they have bad credit, dont let them wipe out yours. You pay the loan and let them pay you, but remember, at some point they will stop paying you, you will end up paying off the loan.

http://finance.yahoo.com/news/5-band-aid-fixes-hurt-200037434.html

401(k) loans. It's easy to see why some people borrow from their 401(k) if they're facing a cash shortage or need a cash infusion for, say, a down payment on a home.

"These loans are offered by many corporate-sponsored 401(k) plans at fairly low rates," says Pam Friedman, a certified financial planner and partner at Silicon Hills Wealth Management in Austin, Texas. She adds that you can generally borrow up to 50 percent of your vested balance or sometimes up to a maximum amount, and these loans let consumers pay themselves back over five years.

Borrowing from friends and family. This can be a great idea for you and your creditor, who gets paid. And as Ross says, "A good friend of family member is likely to offer very favorable conditions when lending money."

 

[Tony]

wow! talk about taking options off the table
I mean so like what?

what do they suggest a person do that's in a financial jam :noidea:

 

[Olde Hornet]

wow! talk about taking options off the table
I mean so like what?

what do they suggest a person do that's in a financial jam :noidea:

Are you are talking about 401k loans?

 

[Olde Hornet]

Others on their list.

Deferring loan payments. In this case, you contact your lender and ask permission to stop payments for a period. It's frequently done with student loans but can also apply to car payments and even mortgages.

Payday loans. If you have a family to feed and next to nothing in your bank account, a payday loan may seem tempting. Payday loan centers aren't concerned with your credit -- they will ask for proof of employment, residency and references. Assuming you pass muster, they'll give you cold, hard cash.


Overdrawing your account. This often isn't done on purpose, but some consumers likely overdraw their bank account knowing that while they'll be hit with a fee, at least they've made the electric company happy by paying their bill.

 

[CEE DOG]

I think that 401K loan depends on the situation. Like any other thing you have to take it with a grain of salt and a plan. I know folks who borrowed from their 401K loans and paid off their debt which helped them get ahead better. With no bills they were able to invest more and buy rental property.

 

[Tony]

Most of these articles, seem to me, to be written by people who are already rich, or never been @ rock bottom.

A person loses their job, bills are due, and you tell them not to touch their 401k?? are you serious?

hustling is good, day laboring is good, but when that big mortgage and car payment is staring you in the face,
with no long term employment in the foreseable future I think only the best hustlers can "hustle" their way out of that.
and not touch that 401k.

 

[97JSULEGEND]

So you got 25k or more sitting in a 401k and they want you to let that ride for the future and ruin your current situation...LOL Most companies put a limit on those types of loans so you borrow from yourself and then just up your amounts and pay the loan off fast.. Now you have no debt and peace of mind. You may not live to enjoy that money later anyway...

 

[Tony]

So you got 25k or more sitting in a 401k and they want you to let that ride for the future and ruin your current situation...LOL Most companies put a limit on those types of loans so you borrow from yourself and then just up your amounts and pay the loan off fast.. Now you have no debt and peace of mind. You may not live to enjoy that money later anyway...

generally you can borrow up to half from yourself, or close the whole thing minus taxes and penalties.

I know people living miserable lives, working crappy jobs trying to hold out for a pention.
You might die before you even get the first check. You might die even if your job is great.
I'm not saying don't plan for the future in case you live, but to go down in the present for
something that's not guaranteed isn't wise to me.

 

[Olde Hornet]

Most of these articles, seem to me, to be written by people who are already rich, or never been @ rock bottom.

A person loses their job, bills are due, and you tell them not to touch their 401k?? are you serious?

hustling is good, day laboring is good, but when that big mortgage and car payment is staring you in the face,
with no long term employment in the foreseable future I think only the best hustlers can "hustle" their way out of that.
and not touch that 401k.

Its better to file bankruptcy than touch your 401k. It should be the VERY last resort. Your 401k cant be touched by anyone, not even bankruptcy or lawsuits.

 

[Tony]

Its better to file bankruptcy than touch your 401k. It should be the VERY last resort. Your 401k cant be touched by anyone, not even bankruptcy or lawsuits.

Really no lawsuits of any type can't touch 401ks?

and you're saying filing bankruptcy is better than borrowing say, half the 401k to tie a person over for say 6 months to a year until they
get steady employment again. Once employed hopefullyl still have some of the principal that was borrowed left, throw it back into the 401k
and keep making payments on the 401k loan, thereby avoiding all the down side of filing bankruptcy?

 

[Olde Hornet]

Really no lawsuits of any type can't touch 401ks?

and you're saying filing bankruptcy is better than borrowing say, half the 401k to tie a person over for say 6 months to a year until they
get steady employment again. Once employed hopefullyl still have some of the principal that was borrowed left, throw it back into the 401k
and keep making payments on the 401k loan, thereby avoiding all the down side of filing bankruptcy?

The Brown family could not touch any of OJ Simpson's retirement money, that's how he supported himself and lived a great life after he lost the civil lawsuit.

Your retirement money is protected!

Yes - What if that job does not happen, the person is broke anyway.

People under water with their mortgage and thinking about walking away from their homes, should go rent an apartment / house, before their credit goes to hell. Once you walk away - your credit is shot. A credit check is part of many rental properties.

 

[Tony]

The Brown family could not touch any of OJ Simpson's retirement money, that's how he supported himself and lived a great life after he lost the civil lawsuit.

Your retirement money is protected!

Yes - What if that job does not happen, the person is broke anyway.

People under water with their mortgage and thinking about walking away from their homes, should go rent an apartment / house, before their credit goes to hell. Once you walk away - your credit is shot. A credit check is part of many rental properties.

but doesn't bankruptcy shoot your credit also?

 

[LS Syndicate]

Most of these articles, seem to me, to be written by people who are already rich, or never been @ rock bottom.

A person loses their job, bills are due, and you tell them not to touch their 401k?? are you serious?

hustling is good, day laboring is good, but when that big mortgage and car payment is staring you in the face,
with no long term employment in the foreseable future I think only the best hustlers can "hustle" their way out of that.
and not touch that 401k.

That is true. LOL. You read these articles, and they make good points, but they seem intended for people who are already making money, but have a problem managing it. Very few words of advice for people who have to manage minimum wage budgets.....all they have to say is, "get another job/ make more money". And that's good too, but for a lot of people I know, even that isn't an option.

IMO, though, if you have a 401(k) that's jumping off the stove, it makes no sense to not have an emergency fund/ 3-months expenses in place. I stopped my 401(k) contributions two or three times over the past 10 years to pad my savings account. Why fund retirement if you don't have liquid assets that you can reach out and touch if needed?

 

[Olde Hornet]

but doesn't bankruptcy shoot your credit also?

Yes it does, but you have money in your 401k, you are in a much better place to restart your life.

 

[Olde Hornet]

That is true. LOL. You read these articles, and they make good points, but they seem intended for people who are already making money, but have a problem managing it. Very few words of advice for people who have to manage minimum wage budgets.....all they have to say is, "get another job/ make more money". And that's good too, but for a lot of people I know, even that isn't an option.

IMO, though, if you have a 401(k) that's jumping off the stove, it makes no sense to not have an emergency fund/ 3-months expenses in place. I stopped my 401(k) contributions two or three times over the past 10 years to pad my savings account. Why fund retirement if you don't have liquid assets that you can reach out and touch if needed?

A better decision would have been to put money in a Roth IRA during those periods. The reason being that you can take all of your investment money out of a Roth IRA and not be penalized. You can not take any gains made in your Roth IRA without penalty.

You now have your emergency fund, plus money in a retirement account.

 

[Tony]

That is true. LOL. You read these articles, and they make good points, but they seem intended for people who are already making money, but have a problem managing it. Very few words of advice for people who have to manage minimum wage budgets.....all they have to say is, "get another job/ make more money". And that's good too, but for a lot of people I know, even that isn't an option.

IMO, though, if you have a 401(k) that's jumping off the stove, it makes no sense to not have an emergency fund/ 3-months expenses in place. I stopped my 401(k) contributions two or three times over the past 10 years to pad my savings account. Why fund retirement if you don't have liquid assets that you can reach out and touch if needed?

I see what you're saying and agree,
But if you stopped the 401k a couple of times didn't you lose out on the company match for that time?

 

[Tony]

A better decision would have been to put money in a Roth IRA during those periods. The reason being that you can take all of your investment money out of a Roth IRA and not be penalized. You can not take any gains made in your Roth IRA.

You now have your emergency fund, plus money in a retirement account.

Now this is good, great in fact, except I want that company matching money also, that the Roth doesn't provide and I'm not so comfortable,
having all my money exposed to the market.

 

[Olde Hornet]

Now this is good, great in fact, except I want that company matching money also, that the Roth doesn't provide and I'm not so comfortable,
having all my money exposed to the market.

he said he stopped. I agree you don't turn down free money. instead of stopping and building an emergency fund. my suggestion was to put it in ROTH IRA. He would have his emergency fund and Investment in one.

a Roth does not have to be in the market.

 

[LS Syndicate]

I see what you're saying and agree,
But if you stopped the 401k a couple of times didn't you lose out on the company match for that time?

Yes, that was the opportunity cost. I hated that I missed out on that (my company was mathing dollar for dollar up to 6%), but I had more peace of mind having an emergency fund in place.

 

[LS Syndicate]

he said he stopped. I agree you don't turn down free money. instead of stopping and building an emergency fund. my suggestion was to put it in ROTH IRA. He would have his emergency fund and Investment in one.

a Roth does not have to be in the market.

I still wouldn't have had the match in a Roth. My company did not offer Roth plans at the time. What do you mean by it doesn't have to be in the market? Are you referring to products that aren't mutual funds, i.e. bonds and whatnot?

 

[Tony]

a Roth does not have to be in the market.

are you sure about that?

oh and what is the minimal cost to start a Roth?

Yes, that was the opportunity cost. I hated that I missed out on that (my company was mathing dollar for dollar up to 6%), but I had more peace of mind having an emergency fund in place.

Good ole opportunity cost I see someone was paying attention in those business classes :lol:

I wonder should a person take a loan out from their 401k equal to maybe 6 months income, put it in a savings account
and just start paying themselves back? you got ya emergency money and the 401k keeps rolling.

 

[Olde Hornet]

Roth Facts - most of this information was pulled from Vanguard:

A type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes.

Roth IRA: this type of IRA plan is slightly different than the traditional IRA plan because contributions are taxed before deposit. However, earnings within the IRA are also allowed to grow exempt of tax and withdrawals after retirement are tax-free. The funds within this account may not be withdrawn for the first 5 years after establishment. In essence, this account is very similar to the traditional IRA; the difference is contributions are taxed before they are deposited rather than later when it is withdrawn.


If you're under age 50, the maximum IRA contribution amount for the 2014 tax year is $5,500. You can save even more if you're age 50 or older by making a $1,000 "catch-up" contribution (for a maximum contribution of $6,500 for the 2014 tax year). The limits apply to the combined contributions you make to all the IRAs you hold, whether traditional or Roth.

 

[Olde Hornet]

http://www.investopedia.com/articles/retirement/11/impermissable-retirement-investments.asp

These are the only investment that you cant make with a Roth:

Life Insurance
Types of Derivative Positions
Antiques/Collectibles
Real Estate
Coins

The Bottom Line
The list of investments that cannot be held inside IRAs and other retirement plans is miniscule compared to the vast assortment of vehicles that can be used. However, it is useful to know what cannot be held inside these accounts in some cases. For more information on impermissible investments inside IRAs or other retirement plans, consult your retirement or financial advisor.

 

[Olde Hornet]

If you want to know options - I strongly suggest you talk to a discount broker like Charles Schwab or talk to someone at Vanguard.

You do not have to go into the market with a ROTH IRA.

Historically you are better off in the market for long term investments.

 

[Olde Hornet]

If you dont have a lot of money, DRIPS are an excellent place to start.

Dividend Reinvestment Plan - DRIP

http://www.investopedia.com/terms/d/dividendreinvestmentplan.asp


DEFINITION of 'Dividend Reinvestment Plan - DRIP'

A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.