Let's try to minimize regret, and maximize assets, in 2014 with some basic guidance from
You'll find financial truth in the numbers.
Q: Should I start pre-paying the mortgage on our house or invest savings?
A: Several things to consider, but The Bottom Line often relies on a simple formula: Can you earn a higher return rate on your savings than the interest rate you're now paying on your mortgage?
Why put the money in an account earning 2 percent when you could use it to reduce a loan costing you 4 percent a year? And why pay down a 4 percent loan when you can earn 8 percent with the money?
Taylor: "If you think you can earn more after tax on your investments than you pay after tax on your mortgage then you shouldn't be paying down your mortgage.
"For the person that's deciding whether or not they're gong to keep their money invested in the stock market versus paying down their mortgage, the expectation would be that over time they'd make more in the market than they would in interest savings.
"So it's pretty easy to come up with the effective rate on your mortgage. Can you take advantage of the mortgage interest deduction? If if you can't, it's the stated rate on your mortgage. If you can, it's reduced by the amount of the tax savings."
The numbers: You have a
If you instead invested the
If you invested the
Do It Yourself: Pre-pay Vs. Invest The Difference calculator; Mortgage Tax Deduction calculator.
Q: The company I work for offers a 401(k) with a 3 percent match, but I have rent to pay, credit-card bills, student loans and I need a new car. What should I do?
A: Whatever it takes to put at least 3 percent of your salary into the 401(k) to get the company match. Don't be like so many Americans who neglect to save for retirement: Forty-six percent of all workers, and an astounding 36 percent over age 55, have less than
Taylor: "If your company has a match on your 401(k) savings, that's free money. You just can't afford to leave that on the table. Most programs give
"Your employer is offering you a 3 percent raise if you're willing to put that money toward your retirement. Or, said differently, you instantly get a 50 percent return on your money. Where else in life can you get a 50 percent return on your money before you even decide where to invest it?"
The numbers: You're making
After those 10 years, though, your 401(k) would be worth
Total amount invested:
Value of same account without employer match:
Do it yourself: 401(k) Savings Calculator.
Q: I'm in late 20s and I've managed to save some money but I don't want to risk it. So I've just left it in the bank. Is that OK?
A: It's OK if you're satisfied with never having much more money than you actually put into the bank.
Taylor: "When [young people] do invest, they tend to be conservative. They've got the most rebuilding years in front of them than any other generation of people building wealth. The idea that you're dialing back risk in your 20s can limit the growth of those funds.
"I assume a third of my income is going to taxes. Roughly a third of my income is going toward shelter. That leaves me with a third of my income that has to cover not only my current consumption but also my future expenses. So if we can't get young people to recognize that they have to get past living paycheck to paycheck they're going to really struggle in the future in terms of building wealth."
The numbers: You've put a one-time
Overcome with regret, you then wish you had invested that money in stocks or mutual funds that returned an average of 8 percent each year. If you had, your
Do It Yourself: Investing Calculator.
Q: What is a myRA?
A: A well-intentioned Roth IRA variation introduced by
The myRA is structured more like a savings bond, though, with the principal guaranteed by the federal government. You'll never lose money. You won't make much on it, either, because the return is set by the government at the same rate federal employees receive in their retirement plan through the Thrift Savings Plan's
But the initial minimal contribution is
Taylor: "It's letting money come in dribs and drabs until you get up to
The numbers: If you start a myRA with
Do It Yourself: myRA calculator.
Q: Should I buy a new or used car?
A: It depends.
Taylor: "My views are a little unconventional. I understand that new cars depreciate a lot up front, but when you look at the true cost to own over a horizon sometimes with the used car what you didn't pay in depreciation you're paying for in car repairs. I've actually run that when buying a new Sentra versus a 2-year-old Sentra and the numbers are pretty close.
The numbers: You want a base-model Honda Accord with manual transmission. The dealer has a 2014 model available for
The best deal? The 2014 model, according to
The five-year cost projections for the 2013 (
But, generically, an older used car is often a better buy than a new car. A 3-year-old vehicle purchased for
Do It Yourself: 5-Year Cost To Own Calculator, Generic calculator.
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