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January 05, 2010

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At this stage of my life I cannot afford to give money but I do have time.I work as a volunteer 1 morning every week, as I see it that is 10% of my 'work' time so kind of means I'm donating 10%... I do also give small amounts of money where I can but this is not budgeted for and really is 'bonus' giving. My question is, does this count as charitable giving or am I just trying to ease my conscience with this line...

Jay- I certainly agree with you that donating time is a worthwhile endeavor. I prefer at this point in my life to do the same. I feel that it is more heartfelt than just writing a check and just as beneficial to the organization if not more so as I can lend my skills to the group's efforts. Plus I can grow my funds to be of a greater value later on in the future. You are to be commended for what you are doing- giving is giving after all and depending upon what you are doing giving of your time is more appreciated than money if you are helping people on a personal level.

This advice doesn't work for me. Am I reading that you should pay down all debt before contributing to 401k? If so, I think that's ridiculous. I still have some debts that I am paying down (auto and some home improvements), and I would not even think about passing on the 401k contribution for a second. I receive a 100% match up to 8% of my salary, which I view as a guaranteed 100% return on my investment. Not only would you miss out on a guaranteed return (match), but you are missing out on the time component when compounding your investments. If it takes more than a year or two to pay down debts that could significant.

Also I don't understand why a home loan is ok, but not a home equity line. I just refinanced my mortgage this summer due to some creative maneuvering. In order to get the mortgage balance to the required 80% equity in the home (to avoid PMI), I moved part of the original mortgage to a HELOC. I haven't changed the amount that I owe on the home, just changed the allocation of the mortgage payments. That let me reduce my mortgage payments significantly and my HELOC is locked in a rate that 1.25 percentage points lower than my mortgage. I plan to move on to steps 5 and 6 before the HELOC is paid off.

Resolution 7: Saving 50% of your pre-tax income is very challenging indeed! I'm paying an effective tax rate of about 34% on all income, that would mean that I'd have to live off 16% of my pre-tax income to meet this goal.

In fact, I'm able to meet this goal but I don't think it's easy to replicate. Because I have a good paying job and live in a very low cost area without carrying any debt. My residence is fully paid for so there is no rent or mortgage and the only expenses are food, utilities and discretionary income. I think this situation would be nearly impossible to create in the USA.

Saving above 50% of your income becomes very difficult unless you can find a way to reduce your effective tax rate- also hard to do at lower incomes because programs like social security eat up another 6.25% of your income below $95K so even lower incomes have an effective tax rate that is pretty high.

-Mike

mike,
I don't think this is pre-tax. It sounds like after tax calculations to me. The numbers certainly make more sense after tax. Although, I agree it is unclear.

Also, I think student loans are probably worth the cost, particularly in exchange for the home loan.

Yeah, I agree on the "get your match from the 401(k)" before other items. That's certainly what I do.

mine is simple (vis a vis finances) increase my understanding as intensely as i can and make a lot of honest money. i hope this year will be better than the last one :)

I really like this article. It makes me want to try even harder to save more money.

I agree with the resolutions, but I also believe that the best financial move is to receive max company matching on your 401k even if you still have a car loan or something.

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