New to Real Estate · Iowa City, IA · Member since 2020 · 30 posts · 13 votes
I'm curious to learn more about personal finance choices that BP members have made in addition to owning real estate. As you build your wealth, what are your "must have" numbers or "must do's" in life? Many recommend maxing out retirement options first before reallocating money into other pockets. Examples-
- Max out Roth IRA (currently $6k max)
- Max out company 401k matching (or the equivalent of 401k)
- Contribute to regular IRA (up to $13.5k)
- Pay off all debts (except mortgage)
What are some personal finance tips you always give to others and why?
@Sharon Ho I don't do any of your top 4 listed there! :) That's a very Dave Ramsey approach to personal finance which is fine and good for many, just not my approach.
Regarding maxing out retirement plans - retirements plans limit my flexibility with their limitations. I don't want to have to ask permission to use my own money in the way I want. IRAs limit what I can do with my money. Since I know real estate, and its tax advantages, I know I can keep 100% control over my money and still get similar tax benefits by investing my way in real estate. So no retirements plans for me.
Regarding debt, I definitely avoid high interest personal debt, but will always be open leveraging financing if it makes sense. It's really hard to have a hard and fast rule around no debt without knowing other details.
1. Have 3 - 6 months cash emergency fund for personal and similar reserves for RE. Lack of liquidity can sink anybody in a pinch. Its literally the easiest way to combat every major hurdle. Job loss, health problems, broken hvac on your rental... adequate cash can cure it all. Do it first.
2. Save / invest / reinvest > 20% of your gross income and you'll be ahead of most people. Its just a rule of thumb, but it gives you a target to hit and that is half the battle.
3. Pay off high interest debt or refinance down to the terrific rates available today.
Its a mixed bag after that. If your employer has a 401k match of some kind, that is basically free money and would be my #4.
As far as whether to max out roth vs 401k vs after tax just depends on how much flexibility you want and where you think you might end up from a tax standpoint at the end of the day. In my opinion, Roth of any kind is especially attractive in light of the historically low tax rates today and the likely tax increases in the future to offset today's fiscal and monetary policy.
A few other random things I like are the triple tax benefits of a HSA / high deductible health insurance plan. If an HSA is an option, you have tax deductible contributions, tax free compounding if its invested and tax free withdrawals for all health related expenses (which can be a ton later in life). I also appreciate the dave ramsey debt snow ball (look it up) for those people that have an aversion to debt. Its not my cup of tea, but its straight forward and helpful for many.
@Ryan Daigle & @Daniel McNulty Thank you so much for your insight! I found this to be very valuable as a new real estate investor starting out! :) Many thanks again~