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403(b) Contribution Limit Increases to $19,000 for 2019

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Ed,

Taking a vacation does make financial sense. You cannot separate data and emotions that easy. Vacations domestically or aboard change people, mostly for the better. That to me is worth a lot. 

Similar to taking vacations, paying off a house relieves stress. Stress can be very expensive and shortens life for most people. 

Everybody here knows the pitfalls of timing the market. 

Where are you going on your next vacation?

I am going to Morocco in March for 16 days. I have heard Morocco is a popular vacation goal for 2019. Talk about timing the market! :- ) 

Steve

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Steve

Over the years I've come to realize how much I think like you. I've been on this site about ten years now and you always make a ton of sense to me. I think you have influenced me.

Also

Research shows those who take vacations get promoted more so perhaps it does make economic sense.. Just saw the research the other day. You can google it if interested . Its out there somewhere.  Of course take all research with a grain of salt these days.

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On 11/5/2018 at 10:16 AM, tony said:

Steve

Over the years I've come to realize how much I think like you. I've been on this site about ten years now and you always make a ton of sense to me. I think you have influenced me.

Also

Research shows those who take vacations get promoted more so perhaps it does make economic sense.. Just saw the research the other day. You can google it if interested . Its out there somewhere.  Of course take all research with a grain of salt these days.

Tony,

Most people think that investing in the arts makes no financial sense either. Just ask why people visit NYC, the museums, theater, and music.  Don't forget that food and fashion are a huge part of the arts and are from the greatest artists (and master chefs also considered artists too) of the 20th century. The arts bring in billions of tourist dollars all over the world every year for NYC! 

The qualitative discussion on investments is vital to helping people understand how saving and frugal living reduces stress and makes people a lot more happy than THINGS. There is a ton of research that says material things does not make people happy, but experiences do. The FI community gets this and they also get the spending quality time improving your relationships with family and friends is time well spent. Time is VALUABLE. 

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I guess we are fortunate that we have both qualitative minded and quantatative  minded posters here. I guess it gets us to a better hypothesis if that makes sense.

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I could easily get side tracked arguing that there are free ways to improve/change yourself, that there are free ways to de-stress, and that promotions often beget vacations rather than the other way around. But my point is that owning a house for less than a decade is often an inferior financial decision relative to renting. Even when you own a home long enough to beat the alternative of renting, you're most likely still going to have a net loss, just not as big of a loss as renting would produce.

The collective wisdom that buying a home is an "investment" and is obviously superior because you gain equity and you avoid wasting money on rent...well it is a superficial analysis that ignores math and ignores the reality that a huge percentage of people don't live in their house long enough to offset the large cost of front loaded interest and the costs associated with the purchase and subsequent sale of a home.

...my secondary point is simply that if somebody understands the finances and wants to buy a house for whatever quality of life reasons they may have, fine. However, I bet most people completely misunderstand the financial aspect; I certainly did when I bought my first house.

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Ed

I never purchased a house as an investment. Instead its a place to live. But its nice to know I will at very least get something back if I finally sell it. Not the case with renting.

I agree that home ownership probably needs to be a long term proposition  in order to come out ahead.  I hated having a mortgage. I think thats why even though I added payment each month , I got impatient and just paid the darn thing off. I hated being in debt. Cars are the absolute worst investment.

 

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On 11/2/2018 at 11:30 PM, Imua808 said:

Does anyone on this board max out their 403b contributions?  If so, how?  Spouse with higher income? Side job?  LCOL area & small budget?

Good question Imua808. It tells me if you are asking it, then you are at least considering it. Framing it as a possibility is the first step. You got some great answers so far. Here's mine.

Ever since I discovered from this site the pitfalls and costs of the 403b's I changed in radical ways. And I really mean that. So to answer your question, yes.

We live in a HCOL area. We have 4 kids, the youngest is the fourth one through college and is a junior out of state (well, we are almost through). Academic scholarships, community college, student contributions helped us somewhat. No outstanding student loans for any of them.

My spouse and I earn equally as we are public servants, but I had to pay for two masters degrees to advance my education, levels, credits. He has a BS. 

I always had a side gig of some kind, nothing major. (indoor cycling instructors, both my husband and I, 2-3 times/week. We started that when we closed our indoor cycling studio business.) But we did have a few big setbacks too which I learned from. We call them tuition. (See previous business). Because of them, I taught myself strategies which pushed me into a place I don't think I'd be in if I didn't experience those setbacks. Buying real estate, for example, for investments. Long term and short term and out of state. Networking with people who invest to learn from. I opened up to options I didn't consider before. (Learning for me is fun and I learn as a hobby.) We moved and downsized. Pushing for better 403b options. Digging deep to find out about the 457 (we had it all along, nobody knew...). Our kids aren't handed things. They pay expenses that other parents might provide. Cars, car insurance, cell phones, partial college costs, etc. We call it responsibility and growing up. If they're going to spend money on food and bars, I'm taking some from them first.

I was so perturbed by the bad 403b experience and business experience (but I learned so many skills by running that) that I was determined to "catch-up". The last few years we maxed out my 457, (including the catch-up), maxed out my 403b, (including the age 50+ catchup, maxed out husband's 457 plus catch-up, both Roth IRA's, 529 to get the state tax break.  The point is, though I am naturally resourceful and frugal, it didn't manifest itself into our bank accounts until I found out that it could. Until I became intentional and took control of our checkbook.

This is the only place (and with FI groups, such as Camp FI) that I would share so much but you asked! And I do so to demonstrate what is possible and what some people do (quietly). People like those right here. 

If you try to max out your 403b, what's the worst thing that could happen???

 

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Lots of great information out of this thread!  Thank you truly to all that took the time to reply and offer up experiences and insights.  I do have a mortgage & am in a HCOL area.  I've been playing around with calculators trying to figure out what I can truly afford when it comes to contributions to 403b, 457... I don't have an IRA, and there is no state tax benefit for 529.   I'm not retiring any time soon, but I know it'll be here before I realize it.

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On 11/5/2018 at 3:16 PM, EdLaFave said:

I could easily get side tracked arguing that there are free ways to improve/change yourself, that there are free ways to de-stress, and that promotions often beget vacations rather than the other way around. But my point is that owning a house for less than a decade is often an inferior financial decision relative to renting. Even when you own a home long enough to beat the alternative of renting, you're most likely still going to have a net loss, just not as big of a loss as renting would produce.

The collective wisdom that buying a home is an "investment" and is obviously superior because you gain equity and you avoid wasting money on rent...well it is a superficial analysis that ignores math and ignores the reality that a huge percentage of people don't live in their house long enough to offset the large cost of front loaded interest and the costs associated with the purchase and subsequent sale of a home.

...my secondary point is simply that if somebody understands the finances and wants to buy a house for whatever quality of life reasons they may have, fine. However, I bet most people completely misunderstand the financial aspect; I certainly did when I bought my first house.

Hey Ed, go ahead get sidetracked! - ) 

There are a couple of items you left out in your analysis that makes purchasing a home an investment. 1. My hubby and I rented out half of our primary house for 14 years bringing in income. Young people in FI community are doing this with their "house hacking" strategy. Nothing new. And 2. Upon selling our Los Angeles home and the Palm Springs condo, we saved $60000 in real estate agent commissions by selling these homes ourselves without real estate agents. We owned both properties for almost 3 decades. I think you would agree about adhering to the buy and hold for investments but it is for real estate too. 

Interesting how adamant you are that most people make a mistake buying homes because of misunderstanding the financial aspect. I agree that it's not the best investment, but I cannot think of another way to house yourself. Even you own a primary home, so why discourage others? Where do you get your data the most people do not live in their house long enough? Of all that I read, people generally don't move much. Here is one medium that says that the average is about 13 years: https://www.valuepenguin.com/how-long-homeowners-stay-in-their-homes (half owned their homes longer and half owned their homes less than 13 years). 

If people are disciplined enough to take advantage of renting, perhaps renting might be a better option according to this article: https://www.marketwatch.com/story/renting-is-better-than-owning-to-build-wealth-if-youre-disciplined-to-invest-as-well-2017-11-17. I wonder if there are any articles on wealth building by renting over one's entire working years instead of owning a primary house. I have read many money-related books and I do not recall a study on renting vs. home ownership. You are talking about a primary house? (not commercial buildings or rental apartments where one can get very wealthy over the years). But I think about the much worst-case scenario than owning a home, and that's purchasing new cars every 4-5 years, now that's a discussion where the vast majority of people fail to understand the financial aspect of new car ownership, or leasing (good grief!). 

 

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10 hours ago, sschullo said:

There are a couple of items you left out in your analysis that makes purchasing a home an investment. My hubby and I rented out half of our primary house for 14 years bringing in income. Young people in FI community are doing this with their "house hacking" strategy.

Renting out rooms in your house is a fantastic financial decision.

However, with that partial income I remain skeptical that it can be considered an investment when the S&P 500 is historically delivering 7% real returns. A few considerations about renting rooms in your primary residence: 

  1. It is a decision very few will make. I've found that living alone is literally the first "luxury" my college friends/acquaintances purchased and they purchased it with glee. They seemed to view it as a measure of their success and/or "adulthood". I believe many of them feel bringing in roommates would represent a failure akin to having to move back in with their parents.
  2. Living with roommates is also possible when renting.
  3. Having roommates creates a steady of work for you because it almost guarantees high turnover and therefore a constant search for roommates.
  4. It introduces risk. I don't fully understand the law, but I'm under the impression it takes a while to remove somebody from a property once they've stopped paying for it. There is also the risk of a spoiled relationship and all that it entails.
  5. It is a decision that complicates your taxes.
10 hours ago, sschullo said:

we saved $60000 in real estate agent commissions by selling these homes ourselves without real estate agents

I couldn't support that decision more strongly. I have used real estate agents up until this point, but if I'm involved in any further transactions then I will take this advice.

I suspect some folks aren't really aware that this is an option. I suspect some folks feel incapable and I suspect some may very well be.

10 hours ago, sschullo said:

We owned both properties for almost 3 decades. I think you would agree about adhering to the buy and hold for investments but it is for real estate too. 

I couldn't agree more strongly and coincidentally I believe they have the same minimum required time frame. If you don't intend to own stocks for a decade(s) then don't buy them. If you don't intend to own a home for a decade(s) then don't buy one.

I suspect after 10 years of home ownership most people will at least break even relative to renting.

10 hours ago, sschullo said:

Interesting how adamant you are that most people make a mistake buying homes because of misunderstanding the financial aspect. I agree that it's not the best investment, but I cannot think of another way to house yourself. Even you own a primary home, so why discourage others?

I'm not suggesting that ignorance/misunderstanding make home ownership a mistake.

I'm not suggesting that owning a home is a mistake.

I'm saying that an unacceptably large percentage of people don't understand:

  1. How much they'll pay to buy and then sell the home.
  2. How much they'll pay in interest.
  3. The fact that they'll pay most of the interest in the earlier years of the loan, which means their principal won't change much.
  4. How much they'll pay in taxes or that it'll increase over time.
  5. How much they'll pay in insurance or that it'll increase over time.
  6. How much they'll pay to maintain the home.

I'm saying that perhaps because of that ignorance, lots of people buy and sell homes within 5 years and have no idea that they just spent more during that time window than they would have if they remained renters. In fact, most of these people likely believe they actually made money because the sale price was greater than the purchase price.

If anybody wants to buy a home and live in for a decade(s) then I say go for it, you'll probably save money relative to renting. However, understand you may still end up at a net loss. Home ownership isn't a cash machine and simply reducing your expenses relative to the alternative is a win.

10 hours ago, sschullo said:

Where do you get your data the most people do not live in their house long enough?

My understanding of the data may be incorrect. I've read somewhere, maybe multiple places, that a good chunk of people sell their home before a decade has passed.

Anecdotally I've observed that behavior as well. Remember, I'm 34 so a lot of the folks buying homes that I know are young. They get into a home either realize it isn't right for them or their life changes. I suspect if we're talking about folks in their 40s and 50s you see more long term thinking/behavior.

10 hours ago, sschullo said:

I wonder if there are any articles on wealth building by renting over one's entire working years instead of owning a primary house.

I believe the best financial decision is to buy the cheapest/smallest house in an area that you'll want to live for the rest of your life. Then stay there.

I'd advise renting for people who aren't ready to make a decade(s) commitment.

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Ed, you are right about not realizing the expenses incurred with just the transactional costs of home buying and ownership. But like Tony, we bought our homes to house our family. Now even my husband and I are house-hacking a portion of the unused part our down-sized house. We live in one of the top ten places on Tony's shared USA Today article. 

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