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March 10, 2008


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Good post!

" strongly recommend waiting six years before having children."
Why are you completely ignoring the health aspect as if health of mother/child is less important than money? If a woman marries at 24, waiting six years after that brings her to 30 where many risks start to increase slightly. Just because you were lucky and still managed to have a healthy child after 30 doesn't mean your readers would be. Your advice can cause heartbreak for those who find themselves unable to have children, have a child with Dawn or miscarriage. Learn about health aspects of waiting. Look up fertility charts for women by age, risk of miscarriage and risk of having a baby with Dawn. Then talk. Oh, and while you are at that look up future breast cancer risk based on the age at which a woman had her first baby:(

This is assuming one gets married after college. What if someone gets married at 29. Then waiting 6 years would bring one to 35, when fertility starts falling very quickly, and risk of Dawn grows up exponentially.

Waiting can work for some. For others - it can bring a lifetime of regret.

I liked the general information, but I think some of the interest rate assumptions are unrealistic.

And I struggle mightily to take advice from someone who doesn't know the difference between "eloquent" and "elegant."

I'm actually curious about the invest semi-monthly / monthly portion of this post. The author completely ignores the transaction costs that are incumbent with frequent investment contributions.

FMF, have you run any posts that discuss the advantages of investing frequently vs investing once or twice annually? On the face of it frequent small contributions makes sense, but do the transaction costs eat away at this advantage?

Nice thoughts, and fair advice tradionalists who want to marry, start a family, and work for an employer that offers a 401(k). Just remember that not everyone chooses to have children (and there are couples in this country that cannot legally wed - think of all the money they are saving!).

And I also question some of your return assumptions.

Dan --

As an index fund investor, I don't see transaction costs varying based on size/frequency of investment. Am I missing something?

How can I get a perpetual $40k interest and dividends from a $261k lump sum?

Maybe I'm using the wrong terminology, but I'm talking about the cost per trade. My impression is that even if you're buying index funds, you still need to pay the online broker a fixed amount for each purchase. If you contribute twice a month, you're paying that trade cost 2x a month. Am I just horribly misinformed?

Dan - most index funds let you invest periodically with no cost.

Other than that, some good advice but some of his numbers are pretty wacky.

Cut your taxes in half! - that sounds like a line from a late-night infomercial.

Dan - why would you buy index funds from a broker when you can invest directly - (usually through their website)?

Good Post, but I would agree that the numbers seem out of whack. The thing I don't like about skewed numbers is that it takes credibility from the article. 39K on 216k ,that 15% return. Seems realistic in a fantasy world. I do agree with the wedding point. My wife and I had a very nice wedding with 100 guests and it wasn't anywhere near those costs. 40k on a wedding is crazy in my humble opinion.

Some good ideas in this article, but questionable numbers in the examples detract from the message. What investment gives a "perpetual" 15% return from interest and dividends? As for the $5,700/year 401k - assuming a standard 50%-of-first-6% employer match, you'd have to make over $166k to get a $5000 employer match; the vast majority of folks would need to contribute well over $5700/year to max their 401k.

Dan --

As others have said, no-load index funds don't charge a per purchase fee.

These comments are exactly why I love this website (and others like it)! 92% of all people would take it at face value (if he can make up numbers, why can't i?).

The comments show the analytical nature of FMF readers, it is great!

Great post. I definitely don't see the point of spending so much on a wedding. I was thinking about just having a big barbecue for the reception when I get married.

"First, assume you fully contribute to a 401(k)... Remember, you are not out-of-pocket the full $15,000. Your employer contributes $5,000 per year. And, if you are in the 43% federal and state income tax bracket, the government reduces your taxes by $4,300 a year. So, instead of $15,000, you are only out of pocket $5,700 per year. "
Actually, that isn't true. To fully contribute to a 401(k), you are out of pocket the full 15k, less the tax deduction. The employer match is on top of that. You can get to $15k between you and your employer, but you wouldn't be fully contributing. Please fix to make sure people aren't misinformed. Thanks.
Also, I think there is something funky going on with the state and federal income tax rate. Remember, you get a federal income tax deduction for state income taxes paid. So if you're in the 35% marginal federal rate, an incremental 8% at the state level only actually costs you 5.2%. I guess the AMT would throw a monkey wrench in all this, but the AMT rate is lower, so I don't think the impact would be all that big.

"The comments show the analytical nature of FMF readers, it is great!"
I'm actually somewhat concerned that there are so many comments to be made. I would like it to be right the first time around.

We had 75-100 people at our wedding. My wife got a dress at David's Bridal on the cheap... I think total cost was somewhere in the $8,000 range. It can definitely be done...

I think the point of "wait six years for children" was to demonstrate how much money you can save by minimizing family expenses and investing a second salary for the first several years of marriage. I don't think it was a dictum that everyone wait six years or any set amount of time. Women's health and the richness of family life should be considered.

Advice should always be considered in light of your circumstances, just as if a blogger told you to max out your 401(k) and Roth IRA, that's good advice, but not if you've got $20,000 in credit card debt.

Personally, I plan to live on my own for a few years, investing as much as possible and paying down debt. If and when marriage happens, I'll have a sizable nest egg and emergency fund built and will be teaming up with someone who's equally responsible with their finances.

So, Kurt, you're saying you're not going to be buying the book? ;-)

As the many comments have stated, some of the numbers (as well as the assumptions) are to be questioned. But the underlying conclusions are valid:

1. If you spend less on your wedding, take the difference and invest it, you'll have a lot of extra money as a result when you retire.

2. You should do all you can to reduce your taxes. This not only includes personal income taxes, but taxes associated with investments (another reason to like index funds), businesses you may own, etc.

3. I don't think anyone thinks credit card and other consumer debt is a good idea.

4. If you can invest a second salary for a good period of time, you can make tremendous financial progress. We did this (in effect) by using much of my wife's salary to pay off our house.

5. There's no doubt that a 401k with an employer match is a great deal.

6. The concept of investing sooner rather than later is a good one as it gives your money more time to compound.

There. Can we all at least generally agree on these?

I agree about weddings. They are generally too expensive for what you get...usually crappy food, a bad DJ and terrible mixed drinks.

My wife and I spent a couple thousand and got a great location...a historic little church that was moved to Daniel Boone's former homestead here in Missouri, a great reception at a place overlooking a lake, wonderful food and an awesome band that even learned the song we danced to...Elton John's "Your Song" even though they are more of a rock band.

Granted, we lucked into the band since my wife knew them from college and the caterer was my mom's cousin, but overall it was a great success and we heard the same from every guest we talked to.

I just couldn't fathom spending over $5k of mommy and daddy's money on one day. In fact, I would feel embarrassed to even ask them to do so.

I hope by "eloquent" he meant "elegant." I'm not sure who wants an eloquent wedding.

Reducing the cost on an eloquent or elegant wedding is easier said than done. It's expensive to have a venue/food/music for several hundred people. Period. That doesn't mean everyone can afford it, of course.

Geeez! Why is everyone so negative? Seems like anytime I read an article on finances and becoming wealthy, everyone posts a million negative comments. Maybe this guy is not 100% accurate, but can you give him the benefit of the doubt, instead of ripping him to shreds. I, for one, am going to get the book and see what the man has to say. I listened to an interview with him and the book does sound very interesting. Sounds like he might have a lot of good ideas. And having good ideas, I would say, would be very a important part of becoming a millionaire.

@ FMF: I appreciate your analysis of Paul's points in response to Kurt, but is sensationalizing those points with outrageous returns and horrible math really necessary?

Do the ends justify the means? If one person takes this advise seriously and starts saving then it was all worth it?

I think you've insulted your reader's intelligence by allowing exaggerated junk like:

"In six years you will have $261,737 and a couple of choices. You could choose to have a perpetual income of $39,261 created from the interest and dividends..."

That's a 15% yearly return in perpetuity! How does John "Index Fund" Doe make a 15% return in perpetuity? Does the author think we're so stupid to just glaze over that? Do you?

Toby --

Actually, it's not necessary -- which was exactly my point in the response above. These are good ideas with out the wild claims and math.

As far as allowing this sort of post, this is a GUEST POST (not from me) and as long as guest posters aren't saying anything illegal and/or degrading other people, I usually let them have their say. I personally prefer it that way -- having a free exchange of ideas.

As for taking ANYTHING on this site at face value -- DON'T DO IT. I write posts to try and help us all better educate ourselves on personal finances, but not everything on FMF is correct, the "best" alternative, wise, or whatever someone would call it. There are mistakes here and information that's a bit on the edge one way or the other.

I advise all readers to ALWAYS check the facts that I or any other poster present. After all, it's your money and no one can care for it and manage it like you can.

Hmmm... Since there's a disclaimer saying specifically that this article is designed to "provide accurate and authoritative information in regard to the subject matter covered," I don't think it's too much to ask that it at least be accurate. That $261k = $39k in perpetuity claim is downright reckless (and laughable).

I think the point is this; set your sights HIGH ... there ARE many, many safe & legitimate ways with making a TON. I am living proof of that ... 7 million in 7 years!

As I mention in my own blog, the keys are: (a) find ways to SAVE extra money (b) find way to MAKE extra money (c) don't SPEND that extra money ... INVEST it.

Time will take care of the rest!

I bought this book and SO wanted to like it ... but, it is probably the 2nd worst book on PF that I have ever read.

Some of the individual pieces of advice are good, but the overall premise boils down to: save money and compound @ 15%.

Now, that is just NOT possible for a passive investment/savings strategy. The author claims to have averaged 15% compound for 50+ years ... well, I have compounded far higher for [only] 9 years ... but, I do not suggest that is what the average person could/should do!

Invest in factoring? I have such a business (nets me $250K+ a year 'passively'), yet my secretary left to set up her own and lost her daughter's (a paraplegic) entire insurance payout on bad debts.

Invest in mortgages? That's 'subprime' ... what happened to the banks WILL happen to you.

If you want 'above average returns' you MUST be prepared to take 'above average risks' ... there's no way around it.

AJC --

!5% is way too aggressive, which is strange to me. Why did he use that? After all, many (most?) of his suggestions would still have done well with 8% or 10% instead.

I wouldn't throw the baby out with the bathwater. I think there are still some good principles to use in this book.

Here's my money-saving idea: stop buying PF books. 99% of them say the same darn 10 things that you already know. You don't need the books.

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