Isn’t being young a fun time in your life? There are numerous reasons why people always say “Man, if I was only young again I would do this “thing” or go to that “place,” but now that I’m too old I can’t do it anymore.” Whenever someone that is older than you says that statement, you should write it down and see if you should go out there and do it. Experiencing things and going to new places is a great way to develop your mind, body and soul. Remember that having a “NO” attitude will end up making you a person that will have numerous regrets in the future. And how can you directly link this perception on life into your finances? Take risks that older people do not have the ability to take. I’ve spoken to numerous twenty year olds about finance and they sound more conservative than fifty year olds that read AARP magazines.

One thing that did please me is the fact that some twenty year olds really do have some financial sense, but are taking the extremely slow and steady approach to money. With interest rates getting cut on a near monthly basis, that savings account and CD won’t look so attractive pretty soon. Are there still conservative investment vehicles out there that won’t open you to a mound of risk? Sure there are, but you still have to do your homework to find them. What’s a few hours of homework if you can retire 10-20 years earlier? If someone told you to do a certain activity every week and that you would retire earlier with a lot more money, wouldn’t you want to know what it is? Well, it’s not a secret and people have been doing it for a very long time. Invest now, let your money compound, and spend it later.

I had a conversation with a particular friend that has accumulated a small fortune for a 25 year old guy. He has about $60,000 in a CD yielding about 4.5% which will be available for withdrawal in a few months. Here’s some more background about my friend: He is looking to purchase a home and a new car in the next year or two and wants to put a nice down payment on both items. What do you think he should be doing with this money? I told him that he is investing like a 50 year old about to purchase their second home. He is a smart individual with a great education (he has an MBA from a great university) and is currently making a big move in his career. With all these tangible and intangible assets he posses, he should be a bigger risk taker.

First, let’s tackle him wanting to purchase a house in the next couple of years. He says he wants to put down a sizable down payment because that’s what his parents told him to do. Well times have certainly changed. In those times, people lived in their first house for more than ten years. That’s incredibly hard to do with the ever changing job market forcing you to relocate on a drop of a dime (especially in your early career). I told him to put less money down and try to find a mortgage that will suit his needs for the next seven to ten years. Why so long if they won’t be living in that house for an extended period of time? Because padding your risk with a few more years will be more beneficial in long run.  Heck, I would tell him to only get 30 year fixed rate mortgages for the rest of his if he wants to be extremely conservative. This will allow him to put less money down and keep money in his pocket to invest in different things. He can also put the money that he saved on his house into purchasing his new car.

His $60,000 has a lot of potential if he used the money in a correct way. I actually told him he has too much savings! You don’t run into an individual like this every day. His money is tied up in savings and not in a retirement account. All the interest he receives is still being taxed. I told him to open a Roth IRA and immediately max it out. What type of investments should be in his Roth? I told him that index funds are his best bet. If it was me, I would find five to six companies that pay a good dividend and let it ride. I always love going to my investment account statements and seeing a nice fat dividend that will be reinvested. It’s a beautiful thing.

No matter what your financial position might be. Always remember that you are only young once and that you should live for the present and invest for the future. Do not limit your present day fun for the dreams of doing it in the future. Because in the future do you want to be the person that says “God, I wish I could be young again so I could have done that” or do you want to be the person that traveled around the world? Be Christopher Columbus he was a bad a$$.

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A lot of people have their own ideas about retirement and savings. There’s also plenty of discussion whether people are saving too much or too little for the future. My mind changes almost everyday on my view on retirement. Should people spend what they have and make the best of their present lives or should people scale back and try to have fun when their old and fragile? I know so many people my age that can’t even plan for their weekends let alone plan for their retirement. Are people that worry about retirement not living their lives to the fullest potential? Maybe a little, but forward thinkers usually plan for a reason. I think retirement is just a proper risk management tactic. People invest to gain wealth so they limit their possibility of having to work till the day they die and ultimately have the financial flexibility to do what they want.

But in defense of the “present day thinkers,” they have the ability to go out one to two more times a week, have a few more drinks at the bar, buy the newest version of the iPod, and maybe order Grey Goose instead of Smirnoff. Having fun and living each day likes it’s your last is a motto most people try to live by, but saving for your retirement contradicts the very essence of the saying. If you save 15% of your paycheck, you are cutting your spending power by 15% too. For example- if you make $3000 dollars (after tax) a month, you are taking away $450 of spending power. That’s the price of two kick ass weekend with your friends. Why would anyone want to do that? Have less fun now to have more fun when you are sixty? That doesn’t sound appealing to me at all.

Is there a common ground on this discussion? Should people save more now or worry about it later? I mean we can’t really forecast the future. What if you saved up a million dollars by the time you were fifty then suddenly died? Was it a waste of money to live below your means? Would you regret living a life of frugality? These are probably some important questions that financial planners probably never talk about. What do you think?

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You know how I feel about college, but what about a view from a Generation X’er? Ben from MoneySmartLife and I decided to talk about how certain view points can change from the perspective of a different generation. I am graduating from college this May (thank God!) and Ben is starting to save for his son to go to college. His son is not even a year old and he is already writing an apology letter to his son.

Here are some highlighted points from the letter.

I hope you decide to attend college someday and experience all it has to offer, except the loans of course.

 We started saving money in a 529 plan before you were born but I’m afraid it just won’t be enough.

 We’ve been saving heavily in our retirement plans since we were married, at the expense of a college fund, because you can get a loan for college but we can’t get a loan for retirement.

P.S. In state tuition is much cheaper. Go Mizzou!

 

College Tuition Costs Gone Wild – An Apology letter to My Son

I wouldn’t worry Ben. Smart people can find a way to make things happen.

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Previous edition: Change In Politics#1

With the new Congress coming into power shortly, what types of new legislation would you like to see happen? I know you can think of a ton of things you would personally like to see, but what are your main ones that would benefit a lot of people?

Here’s my second proposed change that I would like to see happen with the new government in power.

I know a lot of the things I would like to get accomplished through the new Congress will not happen because it will be a divided government, but I digress. I would love to see the revamp of Bush’s Social Security reform come back into the limelight. I am a huge believer that it should be up to the individual to save for their retirement and not up to the federal government. Why would someone want to trust the federal government to save for THEIR retirement when they can’t balance a yearly budget?

Going to a privatized system will enable the individual investor to capitalize on their wealth through their own risk tolerance. I know many people will argue that most individuals do not have the financial education to make a proper investment decisions, but I think that when everyone will have more money, fees at wealth management firms will decrease by a large amount and they will reduce their inception standards on individuals. It would also put a lot more pressure on businesses, small and large, to have a company 401(k) either through their own company or 3rd party investment firms.

What do you think??

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READ THIS ARTICLE!

Here is a tax code not many people know about. It’s called the Internal Revenue Code 1031. This is a huge money making possibility for real estate investors. The IRC 1031 has a serious tax advantage to land exchanges for commercial and real estate investing. This kind of land exchange, also known as the Starker Exchange, can defer capital gains taxes on �like kind� investments in real estate.

What does “like kind” mean? “Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.” That is pretty broad, leaving the investors with a ton of money making potential.

This is the gist of how a 1031 works. I will show you how you and your spouse can make $250,000 per year with real estate.

Say Jim wants to sell his investment property, a log cabin in North Georgia, to Taylor. Jim purchased the property for $600,000 dollars four years ago, and is now selling it for $900,000. He would have to pay $300,000 on the capital gain from that sale. Jim finds a qualified intermediary, a third party who facilitates an exchange of property, and pays them to harbor his $900,000 from the sale. Jim now has to find another investment property within 45 days and purchase one by 180 days from the exchange. Jim finds a beach house in Florida for $800,000 and throws in the other $100,000 for upgrades. Jim has now differed his taxes and didn’t have to pay a penny right now.

Now this is a wonderful use of our extremely complicated tax system, but I guess the IRS wants us to educate ourselves to become rich. You might be asking yourself “I want to know about making $250,000 per year!” Well here is comes! Let’s just say Jim decides to sell his beach property and purchases three other pieces of real estate that cost him $350,000 each. Jim has the money because he sold the beach property for 1.2 million anyways. Jim goes through another 1031 exchange and buys the three properties. Jim rents the houses for a few years, and then lives in one of them for two. The house has now become a personal residence and can be sold tax free.

Jim’s first property, which he currently lives in with his wife, is now selling for $500,000. That’s a $150,000 gain (Paid 350k and selling for 500k); which he would have to pay taxes on that until the Taxpayer Relief Act of 1997 came into law. He can now sell that house for $500,000 TAX FREE, and move to his other investment property, live in it for two years and do the whole process over again.

Jim turned a $300,000 tax liability to a tax free $250,000 per year income generator. Not a bad deal. Could you deal with earning $250,000 of tax-free money per year?

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Head over to Generation X Finance to check out his recent post on 10 Misconceptions about Retirement Security. It fits in very neatly with FairTax Week, because taxes should be the number one misconception (in my book) about retirement security. Imagine no taxes on retirement accounts. Everything would be one big Roth IRA. What a perfect world it would be.

Another great article to read is over at 2millionBlog, 8 Habits of Successful Wealth Builders. One thing I would also like to add to his post is the ability to have a firm vision and have a good plan for success. Having a detailed plan and Goals will Equal Success.

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Should you be investing in foreign markets to meet your retirement needs? Jim Jubak, a writer for MSN Money, insists that you should “Take your portfolio overseas for 2007.” I am not arguing the fact that owning mutual funds, ETFs, or individual stocks in foreign markets is a bad thing, but I don’t you should rely on one year of speculation to move your WHOLE portfolio or even a majority of your portfolio to foreign funds.

For instance, my friend loves to talk about a foreign fund he has with Fidelity. The Latin America Fund has given incredible returns over the past 5 years even the 10 year isn’t that bad. The problem is that the huge growth period occurred in a three year period. Prior to the blow up, the fund was sinking pretty badly.

Foreign funds are considered even riskier than American small cap stocks. The short term returns always look attractive, but be wary. Your foreign portfolio might have a long and painful long term effects on your portfolio. So that is why you should stick to smaller allocation. Higher risk usually does deliver higher returns. So analyze your risk tolerance before you start boxing up all your investments.

One thing I always recommend is doing your homework so you don’t even have to go into ETFs and mutual funds. Warren Buffett, Donald Trump and many other great investors say that diversifying is for the “uneducated.” I’m not going to take it that far, but if you do your homework and study individual funds you will usually succeed.

I recommend sticking with mutual funds, and ETFs for small cap, foreign and sector markets. I do not recommend it for large cap stocks. To achieve a better return than most large cap mutual funds, all you have to do is go to the grocery store and pick the most popular products. Ask the manager at your convenience store about the most popular items and buy stock with that company.

I like having some foreign funds inside my overall portfolio. Check out 2million’s portfolio for his allocations. My Current Retirement Investment Holdings

Further eFIPO readings about this topic

• eFIPO.com- Market Return>Your Return

• eFIPO.com- Things You Can Control#1

• AllFinancialMatters- 5 Ways to Recession-Proof Your Portfolio

• Generation X Finance- Is Growth Ready to Outperform Value?

• 2million- My Current Taxable Stock Holdings

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Want more money and your investments to grow tax free forever? What could the FairTax do for you? Well this is straight out of the book “The FairTax Book” by authors Neal Boortz and John Linder. I’ve highlighted the ones that I feel are extremely important for the younger generation.

• We start collecting 100 percent of our earnings in every paycheck.-Kinda.

• We all get virtual raises, since payroll taxes are no longer siphoned from our checks.

• We all start receiving monthly prebates equal to the amount of consumption tax we would be expected to pay on life’s basic necessities.

• We all start saving and investing without any tax consequences.

• The prices of consumer goods and services remain essentially the same, with the removal of the embedded taxes compensating for the added consumption tax.

• American businesses return operations to their home turf.

• The richest Americans bring their money back home where it helps fuel the economy.

• Those operating in the underground and shadow economies finally start paying taxes.

• You hear the unmistakable voice of the IRA agent who audited you three years ago asking if you’d like fries with that.

Now I know how amazing some of those changes might sound, but could it really happen? Yes it can! With more and more people educating themselves and taking an active position on our current tax system, this reform could happen. I love America and want to keep our economy and our country strong and I truly feel like this will be the savior of our nation.

I will be spending most of the week discussing how the FairTax will be enormously important for the future of America. If you would like more information please visit the website and sign the petition and email your Congressman or Congresswoman.

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I received an email today with a great question. Here it is “Hey Jeremie I’ve been reading your blog for about 2 months now and I have a question. I just ran into a pretty large amount of money. Well to me it’s big money. My grandmother gave me $2,500 and I am trying to decide what to use it for. I don’t have any debt, I’ve already maxed out my IRA for this year, and I have six months savings already built up. What should I do?”

First, I would like to congratulate you on your successful savings habits. It seems you are on the right on track to a very early retirement. I would love to be in your position right now! There are a few recommendations that I would do based on the information you sent me.

Do you own a home?
Yes- See if you need to purchase anything around the house that might need to be replaced. Small home improvements are always a great investment too.
No- Open a separate savings account for your home. Try to save around 20% of the down payment. I know it seems high but that’s just a target. Use a high interest online savings account.

Are you currently married?
Yes- Consider taking a small vacation with your wife. It’s always nice just taking a quick getaway before the holiday season.
No- Save for a ring so you don’t have to go in a huge amount of debt when you decide to pop the question. It’s always good to have some sort of down payment on the ring.

Do you have kids?
Yes- Start saving for their education. As you know even a little can go a long way with compound interest. “Compound interest is the most powerful force in the universe.” - Albert Einstein
No- Put more money into your online savings account and save it for the holidays or an extra rainy day fund.

You can also invest some into something that will create passive income. These are just a few suggestions I would consider doing.

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(Congratulations…now you’re
down to only one boss!
Happy Retirement!)

Are you worried about retirement? Probably not… I mean you’re young and you don’t have to worry about it for such a long time. I don’t think so. The “Are you worried about retirement” question is so vague. A better question would like “When do you want to retire, and how much money do you want when you retire at that specific age?” Personally, I want the ability to retire around the age of 40 and then dedicate my life to public service. What are your retirement goals?

Everyone has their own ideas about retirement. Do you want to live lavishly or comfortably? The real question is - how do you plan to fund your retirement? There are so many options out there such as: 401(k), IRA’s, real estate, investing in business, owning your own business, ect. I plan to use pretty much all of the above.

According to the U.S. News & World Report, there are 5 keys to resting easy concerning retirement. Beside the key points are some articles that may interest you concerning that precise topic

• 1. Plan for the financial transition. Couldn’t find any, which means I will be writing on this very soon. If you find an article on this subject please leave it in the comments!

• 2. Pay down debt before you retire. Jeremie (me!) from eFIPO.com article on Why save when you’re Broke.

• 3. Evaluate your assets. 2million article on Asset Allocation

• 4. Health insurance is a must. Jeremy from Generation X Finance article on Why do I Need Insurance? - Part 2

• 5. Take care of your health. JLP from AllFinancialMatters article on Health Care.

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