Author Topic: Biggest Finance Mistakes in the FI Community  (Read 61456 times)

retireatbirth

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Re: Biggest Finance Mistakes in the FI Community
« Reply #100 on: February 28, 2015, 01:34:46 PM »
Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

I'd say you're missing about $5000/year in money and travel credit, for a few hours of your time.

I'd estimate that it takes me around 20 minutes to sign up for a card, and hit the minimum spend (Amex Serve), so the return is somewhere around $1000-1500 per hour.  If I round up to an hour to pretend I'm researching every card, it is still about $300-500 per hour.

Here is a list of cards, updated when new offers come out: http://www.flyertalk.com/forum/credit-card-programs/1177334-special-credit-card-offers-master-thread-subscription.html

Could you explain your Amex Serve strategy? I was looking into this, but it appears to only allow $1000/mo. in credit card funding.

Yes, it is only $1000/month in online loading.  But that is $12,000 a year you can use to hit probably 3-4 sign up bonuses, getting you $1000-2000.

Do you have to use the Amex Serve card at all or could I simply add $1,000 with my credit card, then transfer that $1,000 to my regular checking account?

kpd905

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Re: Biggest Finance Mistakes in the FI Community
« Reply #101 on: February 28, 2015, 01:38:53 PM »

Do you have to use the Amex Serve card at all or could I simply add $1,000 with my credit card, then transfer that $1,000 to my regular checking account?

My Serve card has been in a safe since I got it.  I load the money, then normally send it to a different card through Bill Pay.  I think you can get away with sending it to pay the same card you loaded with, but I don't want to take any chances.

nanu

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Re: Biggest Finance Mistakes in the FI Community
« Reply #102 on: February 28, 2015, 01:59:00 PM »
I think you can get away with sending it to pay the same card you loaded with, but I don't want to take any chances.
From what I know, this is what most people do.
As far as "risk", I guess your CC could catch on, but I don't know if that has happened to anyone (though obviously it might have).
The biggest issue with Serve is that some cards (mostly Visa cards I believe) categorize filling it up as cash advance which charges you a fee, and (I think) doesn't even count towards spending for bonuses.

kpd905

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Re: Biggest Finance Mistakes in the FI Community
« Reply #103 on: February 28, 2015, 03:37:56 PM »
The biggest issue with Serve is that some cards (mostly Visa cards I believe) categorize filling it up as cash advance which charges you a fee, and (I think) doesn't even count towards spending for bonuses.

Here is a list from Flyertalk:

Treated as purchase, earns cashback/points/miles:
Bank of America (FIA) (MasterCard, American Express)
Barclaycard (Mastercard, Visa)
Capital One (Mastercard, Visa)
Chase (MasterCard, Visa)
Citi (MasterCard, American Express)
Discover

Treated as purchase, but doesn't earn points/miles:
American Express (Should still count toward minimum spend)

Posts as a cash advance:
Bank of America (FIA) Visa
Citi Visa
PNC Visa
US Bank Visa

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #104 on: February 28, 2015, 06:12:47 PM »

The biggest issue with Serve is that some cards (mostly Visa cards I believe) categorize filling it up as cash advance which charges you a fee, and (I think) doesn't even count towards spending for bonuses.

That happens way more in FUD rumors on Internet forums than real life.  ;)
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xenon5

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Re: Biggest Finance Mistakes in the FI Community
« Reply #105 on: February 28, 2015, 07:13:36 PM »
Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Agreed... I wish I would have put a larger % into my 401k first instead of student loans in 2014 by a few points.  I paid off my student loans this February and was able to contribute $5500 for my 2014 IRA limit.  However, my income was high enough that some of my traditional IRA contributions weren't eligible for the tax refund.

plantingourpennies

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Re: Biggest Finance Mistakes in the FI Community
« Reply #106 on: March 01, 2015, 05:43:31 AM »
Spending too much damn time on the internet arguing about rewards cards.


WYOGO

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Re: Biggest Finance Mistakes in the FI Community
« Reply #107 on: March 01, 2015, 02:31:34 PM »
Spending too much damn time on the internet arguing about rewards cards.

Say wut?! It seems mostly friendly to me...

johnny847

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Re: Biggest Finance Mistakes in the FI Community
« Reply #108 on: March 01, 2015, 05:39:54 PM »
Spending too much damn time on the internet arguing about rewards cards.

Say wut?! It seems mostly friendly to me...
Not if it devolves into arguing idiocy with math and logic. Which I've seen on these forums before and I'm sure I'll see again.

WYOGO

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Re: Biggest Finance Mistakes in the FI Community
« Reply #109 on: March 01, 2015, 07:03:08 PM »

Not if it devolves into arguing idiocy with math and logic. Which I've seen on these forums before and I'm sure I'll see again.

becauseintj#

Would you expect anything different ;)
« Last Edit: March 01, 2015, 07:07:02 PM by WYOGO »

Bracken_Joy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #110 on: March 01, 2015, 07:15:10 PM »

becauseintj#


Love that explanation.

Suncoast

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Re: Biggest Finance Mistakes in the FI Community
« Reply #111 on: April 11, 2015, 02:19:04 PM »
Some of my biggest financial mistakes over the past 20 years:

*  Have owned 7 different primary residences (often too much house).  Some of the moves were associated with work relocations, but some were not.  Obviously given the short amount  of time we were in many of the homes, we were lucky to breakeven on most and lost $30k on one.

*  Financed 3 new vehicles (although we did end up paying all of them off very early)

*  Averaged ~$80-$100/week eating out for most of that time until the last 6 months

*  Had cable/satellite to the tune of $100+/month over that entire time (just cut the cord)

It makes me sick to think of these mistakes and the money that was wasted.  However, it is encouraging to know that even though I've made some bonehead moves over the years, I'm still in a position to FIRE in 6 years at age 49.   

Johnez

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Re: Biggest Finance Mistakes in the FI Community
« Reply #112 on: April 11, 2015, 08:36:50 PM »
Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Maybe its a mistake to the aggressive investor, but conservatively paying the debt is smart in that the return is guaranteed. Stocks can go up or down, debts compound-especially when the unexpected happens. A lost job, mortgage payments to make, but invested in the market-which took a 50% hair cut....what now?

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #113 on: April 11, 2015, 08:47:44 PM »
Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Maybe its a mistake to the aggressive investor, but conservatively paying the debt is smart in that the return is guaranteed. Stocks can go up or down, debts compound-especially when the unexpected happens. A lost job, mortgage payments to make, but invested in the market-which took a 50% hair cut....what now?

We don't need to start that discussion again here.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Cheddar Stacker

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Re: Biggest Finance Mistakes in the FI Community
« Reply #114 on: April 11, 2015, 09:05:28 PM »
Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Maybe its a mistake to the aggressive investor, but conservatively paying the debt is smart in that the return is guaranteed. Stocks can go up or down, debts compound-especially when the unexpected happens. A lost job, mortgage payments to make, but invested in the market-which took a 50% hair cut....what now?

We don't need to start that discussion again here.

Yeah, what he said.

Go check out the paying off your mortgage thread. But I still contend, dollar for dollar, its likely the biggest mistake in the FI community.

Johnez

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Re: Biggest Finance Mistakes in the FI Community
« Reply #115 on: April 11, 2015, 09:07:13 PM »
Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Maybe its a mistake to the aggressive investor, but conservatively paying the debt is smart in that the return is guaranteed. Stocks can go up or down, debts compound-especially when the unexpected happens. A lost job, mortgage payments to make, but invested in the market-which took a 50% hair cut....what now?

We don't need to start that discussion again here.

I guess you can delete it if you want. Skipped right over page 2. Apologies.

minority_finance_mo

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Re: Biggest Finance Mistakes in the FI Community
« Reply #116 on: April 12, 2015, 01:35:14 AM »
Holy shit. This turned into another thread about credit card churning...

NICE!

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Re: Biggest Finance Mistakes in the FI Community
« Reply #117 on: April 12, 2015, 03:30:32 AM »
I'll agree with the churning point - I probably could have another $10-20k in net worth had I started it 4-5 years ago when I really started to get better with money.

Now I'm ready to do it but DW has some fears about it and isn't sure she wants me opening new ones in her name, but she is willing to let me churn. That will of course help but we will be forgoing a lot of points if it is just me playing the game.

nanu

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Re: Biggest Finance Mistakes in the FI Community
« Reply #118 on: April 12, 2015, 07:24:35 AM »
I'll agree with the churning point - I probably could have another $10-20k in net worth had I started it 4-5 years ago when I really started to get better with money.

Now I'm ready to do it but DW has some fears about it and isn't sure she wants me opening new ones in her name, but she is willing to let me churn. That will of course help but we will be forgoing a lot of points if it is just me playing the game.
Well, if after a year or so of churning DW sees that your credit didn't drop too much (or even went up), and the possible gain from churning (whisk her off to a weekend somewhere, maybe?),
she might just come around and change her opinion on the matter.

kpd905

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Re: Biggest Finance Mistakes in the FI Community
« Reply #119 on: April 12, 2015, 07:31:14 AM »
Holy shit. This turned into another thread about credit card churning...

It's probably the easiest way for anyone to make $300-1,000 an hour, tax free.

user43423

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Re: Biggest Finance Mistakes in the FI Community
« Reply #120 on: April 12, 2015, 10:52:25 AM »
Holy shit. This turned into another thread about credit card churning...

It's probably the easiest way for anyone to make $300-1,000 an hour, tax free.

Yeah I'd kind of have to agree.

I have no debt (as of last year, when I still had outstanding student loans) and my credit score is just over 800. I have about 6 cards open now.

Monkey Uncle

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Re: Biggest Finance Mistakes in the FI Community
« Reply #121 on: April 12, 2015, 01:40:48 PM »
Here's my list of stupid things that I've done personally:

DW and I used a portion of her inheritance to add on to our first house (instead of just moving to a bigger house).  Went time and materials instead of fixed price, and of course the dipshit contractor went way over budget and failed to notice until the job was done.  We ended up paying about as much for the add-on as we did for the original house, and then sold the house 4 years later for a loss of about $18k.

Bought too much house the second time out.  We still live in it because we love the property and the location and aren't ready to move yet.

I fancied myself a stock trader back about the time of the '99 tech bubble.  Luckily I came to my senses after losing only about $7k.

DW and I bought 9 acres of raw land thinking we were going to build a house on it.  We backed out due to costs before we did anything more than a little site prep work, then held the land for 11 years waiting for it to appreciate.  We're finally selling it (closing tomorrow!) for $4k more than we paid for it.  After real estate commission, the couple thousand we put into site prep, and 11 years of property taxes and road maintenance fees (not to mention inflation), we're taking a net loss.

But even after all that, I'm still on track for FIRE in a few years because we've lived frugally, managed to invest (rather than blow) about 2/3 of my wife's inheritance, contributed to my 401k since the age of 24 (though not nearly as much as we should have), and saved a little here and there (a lot more in the last year).

Monkey Uncle

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Re: Biggest Finance Mistakes in the FI Community
« Reply #122 on: April 12, 2015, 02:02:33 PM »
I agree with credit card churning being vastly overlooked.  (could be a 10K a year deal for most readers here)

I also think that most people, on this site at least, are overly focused on the saving/cost cutting side of the equation when the gold ring is on the income side.  MMM would still be a working slob if he was earning 35K per year.  Instead his wife and his incomes were well 200K.   That is where the real deal is for FIRE.  (make more! spend less = FIRE)

But for my money  ---- assuming a 10% return with a SWR of 4% when a safer 17% and a 6% SWR is easily doable.  That would be a difference of 10+ years working life for most people.   

See here -  http://www.milesdividendmd.com/two-faced-investing/  for how to easily use Vanguard funds to achieve the mythical 17% return. 

So here are some easy steps to check off -

1. Earn a very good income
2. Invest in tax deferred then taxable accounts at a high percentage of your income (over 65%)
3. Spend very little on crap, experiences and general shit
4. Drive an inexpensive efficient car
5. Buy a home or rent that is less than 2 times your annual income
6.  Use a dual momentum strategy to vastly improve your investment results and retire 10 years sooner
7.  Cheap cell phone service, cut the cable and other reoccurring stuff.
8.  Use Republic Wireless or a very cheap phone provider
9. Churn rewards cards
10.  Figure social security and pensions into your equation
11.  Enjoy life!  Live Better! 

Stuff you can safely ignore --- line drying clothes,  making your own booze,  driving without AC,  riding a bike,  gardening, freezing in your house,  never watching TV, avoiding restaurants.

A big mistake is focusing too much on relatively inconsequential stuff while there is huge low hanging fruit.  (see 1-10 above)     Yet I do agree that once all the low hanging fruit is picked you can add stuff to infinity.   Just be sure you are maximizing income, savings and investment returns as priorities.

I'm surprised no one has responded to the parts of this post that I bolded above.  I haven't dug into it too deeply, but a quick perusal of the linked page had me wondering whether this strategy passes the smell test.  It seems to promise higher than average returns with lower than average risk, which is usually the hallmark of a scam.  Anyone else have any reactions?

Exhale

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Re: Biggest Finance Mistakes in the FI Community
« Reply #123 on: April 12, 2015, 02:28:07 PM »
It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.

+1

Downside - none of the points/benefits
Upside - not spending much money in the first place

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #124 on: April 12, 2015, 02:37:07 PM »
It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.

+1

Downside - none of the points/benefits
Upside - not spending much money in the first place

Manufactured spending.

We earned 1MM+ miles, and spend around 20k/yr.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Exhale

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Re: Biggest Finance Mistakes in the FI Community
« Reply #125 on: April 12, 2015, 02:59:12 PM »
So here are some easy steps to check off -
1. Earn a very good income
2. Invest in tax deferred then taxable accounts at a high percentage of your income (over 65%)
3. Spend very little on crap, experiences and general shit
4. Drive an inexpensive efficient car
5. Buy a home or rent that is less than 2 times your annual income
6. Use a dual momentum strategy to vastly improve your investment results and retire 10 years sooner
7. Cheap cell phone service, cut the cable and other reoccurring stuff
8. Use Republic Wireless or a very cheap phone provider
9. Churn rewards cards
10. Figure social security and pensions into your equation
11. Enjoy life!  Live Better! 


Great list.

I'd add:

1) Note added to #1 of the list above: Even if you don't earn a very good income, FIRE can still be done. In other words, just because you don't make lots of $$$ doesn't mean you can't be free as well. You just have to be more badass to make it happen!

2) Note added to #3 (above): At least for women, taking time to figure out low-cost ways to deal with expectations (external and internal; workplace and personal) concerning make-up, clothing, shoes, nails and haircuts.
- It's insane how much these cost and women's clothes/haircuts are more expensive than men's
- Lucky for me,  I work in an informal environment and, since getting fit & healthy, my skin looks great so I decided makeup-free is my way to go. However, I know that isn't always an option. In those cases the question is how to do what's needed (to be considered professional looking, etc.) in a frugal way.

3) Get fit and healthy - it's a longterm money saver
« Last Edit: April 12, 2015, 03:10:44 PM by Exhale »

Exhale

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Re: Biggest Finance Mistakes in the FI Community
« Reply #126 on: April 12, 2015, 03:09:13 PM »
It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.
+1
Downside - none of the points/benefits
Upside - not spending much money in the first place
Manufactured spending.
We earned 1MM+ miles, and spend around 20k/yr.

Is there a thread on manufactured spending you can recommend for those of us who spend very little (like me at $12,000/year)? I did a search of the MMM Forum, but didn't find anything that gave me the basic starter info needed. Thanks!
« Last Edit: April 12, 2015, 03:22:15 PM by Exhale »

kpd905

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Re: Biggest Finance Mistakes in the FI Community
« Reply #127 on: April 12, 2015, 05:51:24 PM »

Is there a thread on manufactured spending you can recommend for those of us who spend very little (like me at $12,000/year)? I did a search of the MMM Forum, but didn't find anything that gave me the basic starter info needed. Thanks!

Flyertalk has all the info you need: http://www.flyertalk.com/forum/manufactured-spending-719/

I'd also check out Reddit's /r/churning subreddit.

BlueHouse

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Re: Biggest Finance Mistakes in the FI Community
« Reply #128 on: April 13, 2015, 10:30:20 AM »
Holy shit. This turned into another thread about credit card churning...

It's probably the easiest way for anyone to make $300-1,000 an hour, tax free.
Careful, we covered this in another post, but I think the ruling on this was that rebates and refunds can be tax free, but rewards are taxable. 

mathlete

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Re: Biggest Finance Mistakes in the FI Community
« Reply #129 on: April 13, 2015, 10:40:38 AM »
What?  You were posting in the forum for the biggest finance mistakes.  You did hurt yourself, the question is by how much.  You can take the value of your house at 80% and compare that with a 3.5% mortgage vs. what the stock market would have done over that period of time.  I think you will see that you left a few hundred thousand on the table.

Hindsight is 20/20.

It is also a mistake to carry health insurance during years in which you didn't get sick. It is a mistake to get your car registered over periods in which you don't get pulled over. It was a mistake to invest in index funds instead of investing in AAPL.

Bob W

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Re: Biggest Finance Mistakes in the FI Community
« Reply #130 on: April 13, 2015, 12:31:55 PM »
Reiterating the housing mistake --  While it might not be in the FI Community I see it a lot here that people are over housed by a huge amount.   People just don't see houses as consumer items for some reason.  The reality is that they are the biggest consumer item and virtually everyone (including myself) is over housed.    I'm not saying "tiny" houses is the need but a 900 sq ft house for a family of 3 is more than adequate.   We have a 3100 sq ft house which we bought dirt cheap.  We realistically only need 2 bedrooms, kitchen and 2 baths, and LR. 

Don't get me wrong,  we aren't moving according to DW but if we did we could buy a right sized house for the equity in our current home.  (he says as he spent the weekend landscaping and planting flowers)   

One daughter and her BF just rented a 3 bedroom house-  No kids, none on the way longer drive.   Go figure!

kpd905

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Re: Biggest Finance Mistakes in the FI Community
« Reply #131 on: April 13, 2015, 06:11:45 PM »
Holy shit. This turned into another thread about credit card churning...

It's probably the easiest way for anyone to make $300-1,000 an hour, tax free.
Careful, we covered this in another post, but I think the ruling on this was that rebates and refunds can be tax free, but rewards are taxable.

Credit card rewards are not taxable.

sirdoug007

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Re: Biggest Finance Mistakes in the FI Community
« Reply #132 on: April 13, 2015, 06:57:30 PM »

Holy shit. This turned into another thread about credit card churning...

It's probably the easiest way for anyone to make $300-1,000 an hour, tax free.
Careful, we covered this in another post, but I think the ruling on this was that rebates and refunds can be tax free, but rewards are taxable.

Credit card rewards are not taxable.

+1

The only reason it was even in question was because Citi sent tax forms for income for cash rewards they were offering.  Credit card rewards in points of any type are considered discounts by the IRS.


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sirdoug007

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Re: Biggest Finance Mistakes in the FI Community
« Reply #133 on: April 13, 2015, 07:00:40 PM »

I agree with credit card churning being vastly overlooked.  (could be a 10K a year deal for most readers here)

I also think that most people, on this site at least, are overly focused on the saving/cost cutting side of the equation when the gold ring is on the income side.  MMM would still be a working slob if he was earning 35K per year.  Instead his wife and his incomes were well 200K.   That is where the real deal is for FIRE.  (make more! spend less = FIRE)

But for my money  ---- assuming a 10% return with a SWR of 4% when a safer 17% and a 6% SWR is easily doable.  That would be a difference of 10+ years working life for most people.   

See here -  http://www.milesdividendmd.com/two-faced-investing/  for how to easily use Vanguard funds to achieve the mythical 17% return. 

So here are some easy steps to check off -

1. Earn a very good income
2. Invest in tax deferred then taxable accounts at a high percentage of your income (over 65%)
3. Spend very little on crap, experiences and general shit
4. Drive an inexpensive efficient car
5. Buy a home or rent that is less than 2 times your annual income
6.  Use a dual momentum strategy to vastly improve your investment results and retire 10 years sooner
7.  Cheap cell phone service, cut the cable and other reoccurring stuff.
8.  Use Republic Wireless or a very cheap phone provider
9. Churn rewards cards
10.  Figure social security and pensions into your equation
11.  Enjoy life!  Live Better! 

Stuff you can safely ignore --- line drying clothes,  making your own booze,  driving without AC,  riding a bike,  gardening, freezing in your house,  never watching TV, avoiding restaurants.

A big mistake is focusing too much on relatively inconsequential stuff while there is huge low hanging fruit.  (see 1-10 above)     Yet I do agree that once all the low hanging fruit is picked you can add stuff to infinity.   Just be sure you are maximizing income, savings and investment returns as priorities.

I'm surprised no one has responded to the parts of this post that I bolded above.  I haven't dug into it too deeply, but a quick perusal of the linked page had me wondering whether this strategy passes the smell test.  It seems to promise higher than average returns with lower than average risk, which is usually the hallmark of a scam.  Anyone else have any reactions?

I have to agree that this doesn't smell right.

The premise is you can jump into the fund with momentum over the past year and avoid major market downturns.  Definitely seems too good to be true but will take more investigation.


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clarkfan1979

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Re: Biggest Finance Mistakes in the FI Community
« Reply #134 on: April 13, 2015, 07:35:31 PM »
I made a few hundred dollars playing penny stocks. Then I lost about 900. Net loss was about 600-700. Not really a "big" mistake, but probably my most stupid one.

I bought a brand new car for $11,000 in 2000. Hyundai Accent. I should have bought a used car for $1,500. That was probably the biggest mistake. 

milesdividendmd

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Re: Biggest Finance Mistakes in the FI Community
« Reply #135 on: April 14, 2015, 12:27:20 AM »
Reiterating the housing mistake --  While it might not be in the FI Community I see it a lot here that people are over housed by a huge amount.   People just don't see houses as consumer items for some reason.  The reality is that they are the biggest consumer item and virtually everyone (including myself) is over housed.    I'm not saying "tiny" houses is the need but a 900 sq ft house for a family of 3 is more than adequate.   We have a 3100 sq ft house which we bought dirt cheap.  We realistically only need 2 bedrooms, kitchen and 2 baths, and LR. 

Don't get me wrong,  we aren't moving according to DW but if we did we could buy a right sized house for the equity in our current home.  (he says as he spent the weekend landscaping and planting flowers)   

One daughter and her BF just rented a 3 bedroom house-  No kids, none on the way longer drive.   Go figure!

I really agree with this. MMM has really changed my conception of what a dream house is. I wrote in more depth about my ambivalence towards my lovely 1890 Victorian here...

http://www.milesdividendmd.com/shrinkage/

AZ


Monkey Uncle

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Re: Biggest Finance Mistakes in the FI Community
« Reply #136 on: April 14, 2015, 04:46:33 AM »

I agree with credit card churning being vastly overlooked.  (could be a 10K a year deal for most readers here)

I also think that most people, on this site at least, are overly focused on the saving/cost cutting side of the equation when the gold ring is on the income side.  MMM would still be a working slob if he was earning 35K per year.  Instead his wife and his incomes were well 200K.   That is where the real deal is for FIRE.  (make more! spend less = FIRE)

But for my money  ---- assuming a 10% return with a SWR of 4% when a safer 17% and a 6% SWR is easily doable.  That would be a difference of 10+ years working life for most people.   

See here -  http://www.milesdividendmd.com/two-faced-investing/  for how to easily use Vanguard funds to achieve the mythical 17% return. 

So here are some easy steps to check off -

1. Earn a very good income
2. Invest in tax deferred then taxable accounts at a high percentage of your income (over 65%)
3. Spend very little on crap, experiences and general shit
4. Drive an inexpensive efficient car
5. Buy a home or rent that is less than 2 times your annual income
6.  Use a dual momentum strategy to vastly improve your investment results and retire 10 years sooner
7.  Cheap cell phone service, cut the cable and other reoccurring stuff.
8.  Use Republic Wireless or a very cheap phone provider
9. Churn rewards cards
10.  Figure social security and pensions into your equation
11.  Enjoy life!  Live Better! 

Stuff you can safely ignore --- line drying clothes,  making your own booze,  driving without AC,  riding a bike,  gardening, freezing in your house,  never watching TV, avoiding restaurants.

A big mistake is focusing too much on relatively inconsequential stuff while there is huge low hanging fruit.  (see 1-10 above)     Yet I do agree that once all the low hanging fruit is picked you can add stuff to infinity.   Just be sure you are maximizing income, savings and investment returns as priorities.

I'm surprised no one has responded to the parts of this post that I bolded above.  I haven't dug into it too deeply, but a quick perusal of the linked page had me wondering whether this strategy passes the smell test.  It seems to promise higher than average returns with lower than average risk, which is usually the hallmark of a scam.  Anyone else have any reactions?

I have to agree that this doesn't smell right.

The premise is you can jump into the fund with momentum over the past year and avoid major market downturns.  Definitely seems too good to be true but will take more investigation.


Sent from my iPhone using Tapatalk

Checked out the milesdividendmd blog a little more, and he does not appear to be a scammer, as he isn't selling anything.  Indeed, he is a frequent poster on this forum. 

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #137 on: April 14, 2015, 08:16:10 AM »
He is not a scammer, and he is earnest in his beliefs.

That being said, that doesn't mean his beliefs are accurate.  What he believes about dual momentum investing is irrelevant to whether it's a good strategy or not.
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Mr. McGibblets

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Re: Biggest Finance Mistakes in the FI Community
« Reply #138 on: April 14, 2015, 08:51:50 AM »


See here -  http://www.milesdividendmd.com/two-faced-investing/  for how to easily use Vanguard funds to achieve the mythical 17% return. 


6.  Use a dual momentum strategy to vastly improve your investment results and retire 10 years sooner


Can you explain dual momentum investing in more detail? I've never heard of this.

ChaseJuggler

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Re: Biggest Finance Mistakes in the FI Community
« Reply #139 on: April 14, 2015, 09:06:15 AM »
He is not a scammer, and he is earnest in his beliefs.

That being said, that doesn't mean his beliefs are accurate.  What he believes about dual momentum investing is irrelevant to whether it's a good strategy or not.

I've been digging through as much as I can find on the strategy lately (which is very little.) However, what I've found seems to be very impressive & convincing so far.

The entire premise of science is that the past (data) can be used to create accurate predictions of events (theories.) There is a possibility that the rules of nature will change tomorrow and ruin our predictions, but science ignores that. We go with the data because it's the only way (so far) to ever consistently predict the future.

When I look at long term historical data for a dual momentum strategy, it appears to outperform a buy & hold strategy over any 15 year period of your choice**. If that's the case, then isn't it more rational to pick it over the buy & hold?


At this point, I'm looking for reasons not to use it, but I can't find them. It will only fail if the long term future is significantly than the long term past (in which case we're all screwed and it's just a guessing game.)


** I would love to see some numbers on this that go back more than the 40 years listed here, but I can't find them. Anybody have any info on how well it would have done pre 1975?
« Last Edit: April 14, 2015, 09:08:34 AM by ChaseJuggler »

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #140 on: April 14, 2015, 09:27:50 AM »
Many back-tested strategies look like they work and will only fail if the future is different than the past.  And then it is different, at least enough to affect your performance negatively.  Just because a strategy backtests well doesn't make it valid.  It has to pan out on its own.

That's not a criticism against this, per se, but just your idea in general of "it's worked before, so unless the future is different..."

FWIW, researching dual momentum investing more is on my to-do list for about 4-6 months from now, after FIRE.  If it's a valid strategy, it'll wait, and still work then, and the gains it'd give me over those few months will likely be minimal over a more traditional buy and hold index fund strategy.  If it isn't valid, I'll have been glad I waited.  Either way, I'd recommend thoroughly researching and understanding (and that means more than reading a few blog posts) anything before investing in it.
« Last Edit: April 14, 2015, 09:33:14 AM by arebelspy »
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ChaseJuggler

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Re: Biggest Finance Mistakes in the FI Community
« Reply #141 on: April 14, 2015, 10:03:29 AM »
Many back-tested strategies look like they work and will only fail if the future is different than the past.  And then it is different, at least enough to affect your performance negatively.  Just because a strategy backtests well doesn't make it valid.  It has to pan out on its own.

Doesn't this make every strategy equally invalid? Without a crystal ball or extraordinary insight, long term backtesting is kind of all we have! (If you're referring to short term backtesting, then I completely agree.)

The thing I find attractive about the strategy is that it has such a strong overlap with what I'm already doing. So it's not trying to completely reinvent the wheel from what we're already doing, which gives it some validity.

Congrats on the upcoming FIRE!

arebelspy

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Re: Biggest Finance Mistakes in the FI Community
« Reply #142 on: April 14, 2015, 10:08:57 AM »
Doesn't this make every strategy equally invalid? Without a crystal ball or extraordinary insight, long term backtesting is kind of all we have!

We do have extraordinary insight.  From people like Benjamin Graham.  He wasn't back testing and coming up with theories on how to invest, he was using logic and reason.  From people like Jack Bogle.  He wasn't back testing to create index funds.

My point isn't that back testing is useless.  It's certainly something one ought to look at carefully.  But back testing isn't the only thing we have, and shouldn't be the primary reason why we accept a strategy.

If I back tested versus the market and found that the market popped up significantly every 27th Tuesday unless the month it was in started with a J, then skip that month, would you invest with that?  Even if it backtested perfectly?  For decades?  And you said this sentence: "It will only fail if the long term future is significantly than the long term past."

I sure wouldn't.  I'm betting you wouldn't either.

In other words, back testing is not sufficient on its own.  And historical data is not the only thing we have and the only way to evaluate things.  That was my only point, and it's relevant to all investing strategies, not just this one.

It does have good overlap with buy and hold, and it's definitely worth looking into.  But the argument of "it backtests well" doesn't sway me nearly as much as "this is the logical reason why it has worked, and will continue to work" (and "psychology" isn't it).  Like I said, researching it more is on my to-do list, so I don't have more specific criticisms, just that what I have read has been enough to pique my interest, yet not convince me nearly enough.  :)

Thanks for the congrats, very excited.  :)
« Last Edit: April 14, 2015, 10:10:41 AM by arebelspy »
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

dsmexpat

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Re: Biggest Finance Mistakes in the FI Community
« Reply #143 on: April 14, 2015, 10:16:55 AM »
Funding Roth or Taxable accounts when it doesn't make sense.  See this one on the forum all the time!

Yeah this is also a good one that I myself am guilty of. I had contributed to a Roth IRA the past couple years when I absolutely should've been going the tIRA route instead. Live and you learn I guess.

I'm guilty as well. 2014 was the first year that I put 100% of my retirement savings into tax-deferred accounts.
I feel like I'm earning the least I will at any point in my working life right now so I'm ROTHing. I take a 10% hit now but I feel like at least a 15% hit is inevitable later so I'm still better off with the ROTH than the traditional, right?

691175002

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Re: Biggest Finance Mistakes in the FI Community
« Reply #144 on: April 14, 2015, 10:23:04 AM »
Backtested performance is almost always deceiving for many reasons.  You need to be particularly concerned about over-fitting ( http://www.financial-math.org/blog/2014/04/faqs-on-backtest-overfitting/ ).

Note that the "dual momentum" strategy did not exist at the beginning of the 15 year test period so a backtest from that point is inherently flawed.
The backtest could contain malicious deception (directly tweaking parameters to optimize performance in the test period) or simply unavoidable knowledge about the future (knowing that momentum may outperform is an example of information that was not obvious 15 years ago).  Optimizing parameters against past data is a legitimate strategy to improve your odds of future performance, but it will invalidate the back-test because your strategy requires knowing future returns.

Momentum is not a new strategy and is one of the foundations of the APT/3F model.  It is considered a risk premium because momentum crashes are infrequent but brutal.

It is also of interest that momentum was first broadly publicized in 1993 which is the point where it became extremely volatile.

If you want a basic introduction to factor investing I would recommend http://www.msci.com/resources/pdfs/Foundations_of_Factor_Investing.pdf

Note that the dual momentum blog is nothing more than marketing for the book.

ShaneD

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Re: Biggest Finance Mistakes in the FI Community
« Reply #145 on: April 14, 2015, 11:30:29 AM »
Subscribing.


I'm surprised this isn't in the thread yet.

Not choosing to relocate incurring higher costs of living, commute/vehicle expenses, etc, without realizing the real effect of those decisions.

A surprisingly large percentage of us here still live in areas requiring significant expenses and time for commuting.

Working on this one right now. What a pain it is (headache, heartache, buttache...), but important in the long run for us.

BlueHouse

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Re: Biggest Finance Mistakes in the FI Community
« Reply #146 on: April 14, 2015, 11:52:54 AM »

Credit card rewards are not taxable.

+1

The only reason it was even in question was because Citi sent tax forms for income for cash rewards they were offering.  Credit card rewards in points of any type are considered discounts by the IRS.


I'd like to see your source, if only so I can educate my accountant who seems to be very strict if I track my cash rewards as anything other than a rebate. 
Below is a quote from the IRS document on how it treats rewards, specifically reward miles.  Notice that the IRS didn't actually make a ruling.  Rather, they have decided not to pursue it until they want to pursue it.  Weasels. 
Quote
Consistent with prior practice, the IRS will not assert that any taxpayer has
understated his federal tax liability by reason of the receipt or personal use of
frequent flyer miles or other in-kind promotional benefits attributable to the
taxpayer’s business or official travel. Any future guidance on the taxability of
these benefits will be applied prospectively.
This relief does not apply to travel or other promotional benefits that are
converted to cash, to compensation that is paid in the form of travel or other
promotional benefits, or in other circumstances where these benefits are used for
tax avoidance purposes.

The full document can be downloaded here:  http://www.irs.gov/pub/irs-drop/a-02-18.pdf

sirdoug007

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Re: Biggest Finance Mistakes in the FI Community
« Reply #147 on: April 14, 2015, 01:18:55 PM »

Credit card rewards are not taxable.

+1

The only reason it was even in question was because Citi sent tax forms for income for cash rewards they were offering.  Credit card rewards in points of any type are considered discounts by the IRS.


I'd like to see your source, if only so I can educate my accountant who seems to be very strict if I track my cash rewards as anything other than a rebate. 
Below is a quote from the IRS document on how it treats rewards, specifically reward miles.  Notice that the IRS didn't actually make a ruling.  Rather, they have decided not to pursue it until they want to pursue it.  Weasels. 

So tell your accountant you are tracking it as a rebate and be done with it.

Honestly, regardless of how you read the IRS and tax court rulings the odds of this becoming an issue for any of us is basically zero.  The IRS has bigger fish to fry than credit card point income.  The whole start of this was Citi sending 1099s to credit card holders:

http://www.forbes.com/sites/kellyphillipserb/2012/03/01/citibank-issues-forms-1099-for-frequent-flyer-miles-surprising-customers-and-irs/

Cheddar Stacker

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Re: Biggest Finance Mistakes in the FI Community
« Reply #148 on: April 14, 2015, 01:24:37 PM »

Credit card rewards are not taxable.

+1

The only reason it was even in question was because Citi sent tax forms for income for cash rewards they were offering.  Credit card rewards in points of any type are considered discounts by the IRS.


I'd like to see your source, if only so I can educate my accountant who seems to be very strict if I track my cash rewards as anything other than a rebate. 
Below is a quote from the IRS document on how it treats rewards, specifically reward miles.  Notice that the IRS didn't actually make a ruling.  Rather, they have decided not to pursue it until they want to pursue it.  Weasels. 

So tell your accountant you are tracking it as a rebate and be done with it.

Honestly, regardless of how you read the IRS and tax court rulings the odds of this becoming an issue for any of us is basically zero.  The IRS has bigger fish to fry than credit card point income.  The whole start of this was Citi sending 1099s to credit card holders:

http://www.forbes.com/sites/kellyphillipserb/2012/03/01/citibank-issues-forms-1099-for-frequent-flyer-miles-surprising-customers-and-irs/

Hey Blue, if you're talking about a business then it really doesn't matter what you call it, a reward/rebate/cash back will result in more tax. You have to track every dollar in a business. If you call it income, it increases profits and tax. If you call it a rebate, it reduces expenses which increases profits and tax.

If it's personal transactions, stop telling your accountant about your credit card activity and it will solve the problem.

FIPurpose

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Re: Biggest Finance Mistakes in the FI Community
« Reply #149 on: April 14, 2015, 03:10:56 PM »
Is anyone else interested in a 'Dual Momentum' thread? I also have never heard of this strategy before, and would like to see what other people think about it? Including what any success people have had recently using it.