Author Topic: Serial 401k borrowers  (Read 7282 times)

footenote

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Serial 401k borrowers
« on: August 16, 2013, 04:19:12 PM »
Not necessarily massively stupid under certain circumstances, but still...
http://www.nytimes.com/2013/08/17/your-money/one-dip-into-401-k-savings-often-leads-to-another.html?hp

Can't imagine any of these serial borrowers being happy with their stache come age 60...

Forcus

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Re: Serial 401k borrowers
« Reply #1 on: August 19, 2013, 02:59:12 PM »
I have done this, and I am (mostly) ashamed (this was all of course pre-MMM). It is insanely easy to dip in to 401k and with none of the guilt of applying for high interest personal loans and the like. The justification is you are "borrowing from yourself". I really think more people have dipped in to their 401k than most other people have realized and will of course be the worse for it later.

footenote

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Re: Serial 401k borrowers
« Reply #2 on: August 19, 2013, 04:24:47 PM »
I've borrowed from my own funds before. No shame or blame, and sometimes (as the article pointed out) it's sensible.

My worry is repeated borrowing over time that seriously degrades overall savings. I agree with your prediction that these repeat borrowers will regret it later.

Sparafusile

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Re: Serial 401k borrowers
« Reply #3 on: August 19, 2013, 05:08:07 PM »
I nearly had to take out a 401k loan when my wife started her business. Fortunately it didn't come to that, but even if it had I don't see that as a bad thing. The only bad thing would have been that the loan would have come out at the bottom of the market and I would have missed out on some of the mad gainz later!

sarahcooks

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Re: Serial 401k borrowers
« Reply #4 on: August 20, 2013, 07:08:55 PM »
I worked on the phones for a bank answering questions about 401ks and helping people with transactions, including taking out loans.  The first few times I had people ask to borrow from their 401ks I was really troubled, and probably asked a few too many times if they were sure they wanted to do it.  After the first day I got over it.  I got over helping people take their money out knowing the penalties they'd face too.  And the people putting all their funds in money market accounts. 

kendallf

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Re: Serial 401k borrowers
« Reply #5 on: August 20, 2013, 09:08:14 PM »
I have taken loans on mine (TSP) multiple times.  Some stupid reasons, some not.  Some I regret, and some I don't.  Here's a partial list of why I took out loans.. I swear I'm not making these up:

Bought a mobile home for $3k.  Sold later for $3.5k
Paid off credit cards.  Later ran 'em back up.
Boob job!  (not for me, I'm male)
Land purchase; 9.8 acres bought at the height of the market in 2006.  Paid off loan quickly with cash out refi on our house.  Both house and land now worth at least 50k less than we paid.
Home purchase and renovation costs.  $35k house, renovation is almost done, estimated $8.5k total renovation costs.  Hope to move in October.

I'll let you all guess which ones I regret.  :-)

russianswinga

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Re: Serial 401k borrowers
« Reply #6 on: August 22, 2013, 04:45:06 PM »
.  $35k house, renovation is almost done, estimated $8.5k total renovation costs.  Hope to move in October.

I almost did a spit-take there. Where can you get a house for $35K? That's habitable? Your profile didn't list a country, so I'm presuming not in the US??

Just opened escrow on a 2bd apartment in San Diego, my first home, and it was a STEAL at $210K. Needs renovations though :(

amok

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Re: Serial 401k borrowers
« Reply #7 on: August 22, 2013, 09:11:36 PM »

I almost did a spit-take there. Where can you get a house for $35K? That's habitable? Your profile didn't list a country, so I'm presuming not in the US??

Just opened escrow on a 2bd apartment in San Diego, my first home, and it was a STEAL at $210K. Needs renovations though :(

There are many small towns in the US where you can get a 35k house. I've even seen small houses for less than 10k.

kendallf

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Re: Serial 401k borrowers
« Reply #8 on: August 22, 2013, 09:25:57 PM »

I almost did a spit-take there. Where can you get a house for $35K? That's habitable? Your profile didn't list a country, so I'm presuming not in the US??

Just opened escrow on a 2bd apartment in San Diego, my first home, and it was a STEAL at $210K. Needs renovations though :(

Jacksonville, FL.  This is actually in an older neighborhood in a good sized metropolitan area.  It looks like we bought at the bottom; prices are headed back up.  I'm happy about that!

Here's the thread chronicling my progress on the house so far:

https://forum.mrmoneymustache.com/real-estate-and-landlording/first-limited-renovation/

mpbaker22

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Re: Serial 401k borrowers
« Reply #9 on: August 22, 2013, 09:43:58 PM »
.  $35k house, renovation is almost done, estimated $8.5k total renovation costs.  Hope to move in October.
Where can you get a house for $35K? That's habitable? Your profile didn't list a country, so I'm presuming not in the US??


I actually almost bought a house for $20K in St. Louis.  It shared a wall with a vacant building, which is ultimately why I didn't buy.  A few months after I made the decision, the vacant building caught on fire and ripped a hole in what would have been my house.

There are 'decent' places in that price range in some cities though.

rockstache

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Re: Serial 401k borrowers
« Reply #10 on: August 27, 2013, 02:29:31 PM »
I have taken loans on mine (TSP) multiple times.  Some stupid reasons, some not.  Some I regret, and some I don't.  Here's a partial list of why I took out loans.. I swear I'm not making these up:

Bought a mobile home for $3k.  Sold later for $3.5k
Paid off credit cards.  Later ran 'em back up.
Boob job!  (not for me, I'm male)
Land purchase; 9.8 acres bought at the height of the market in 2006.  Paid off loan quickly with cash out refi on our house.  Both house and land now worth at least 50k less than we paid.
Home purchase and renovation costs.  $35k house, renovation is almost done, estimated $8.5k total renovation costs.  Hope to move in October.

I'll let you all guess which ones I regret.  :-)

My guess is every single one of them except the last one?

kendallf

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Re: Serial 401k borrowers
« Reply #11 on: August 27, 2013, 07:00:25 PM »

My guess is every single one of them except the last one?

Hell no! 

Vitai Slade

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Re: Serial 401k borrowers
« Reply #12 on: August 30, 2013, 03:28:39 AM »

I almost did a spit-take there. Where can you get a house for $35K? That's habitable? Your profile didn't list a country, so I'm presuming not in the US??

Just opened escrow on a 2bd apartment in San Diego, my first home, and it was a STEAL at $210K. Needs renovations though :(

Jacksonville, FL.  This is actually in an older neighborhood in a good sized metropolitan area.  It looks like we bought at the bottom; prices are headed back up.  I'm happy about that!

Here's the thread chronicling my progress on the house so far:

https://forum.mrmoneymustache.com/real-estate-and-landlording/first-limited-renovation/

Wait, whoa! You're in Jacksonville, Florida?! I just bought MY first home in Jacksonville, Florida at the same rock bottom in March-April. BRAND NEW (Bought from the builder, with warranty) 3bed/2bath, 1438 sq. foot home in the dead center of Jax for $125k. I can't believe you found a place for 35k! Nice catch!
« Last Edit: August 30, 2013, 03:34:25 AM by Vitai Slade »

Cheddar Stacker

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Re: Serial 401k borrowers
« Reply #13 on: September 11, 2013, 03:41:09 PM »
I took out a relatively small 401K loan a year ago to fund a great investment opportunity - rental real estate with about a 15-20% return thus far. I'd do it again if I find another opportunity and here's why:

1) I have a very, very stable career so almost no risk of job loss causing forced repayment/withdrawal.
2) Even if I lost my job I have other investments I could liqudate to repay the loan, I just found it easier to use this avenue for the other investment opportunity.
3) You pay yourself back at a low fixed rate of interest.
4) I look at that interest as a "bond" holding in my 401K portfolio. No risk, guaranteed return on investment, and good way to diversify the portfolio to reduce the peaks and valleys of the market.
5) I can still afford to repay the loan quickly with monthly payments while continuing my normal 401K savings rate.

They are not for everyone, and I would not use this type of loan for "consumerism", but I think some people look down upon them without the proper knowledge of how powerful a tool they can be in your arsenal.