Author Topic: How the beginners can invest more  (Read 7686 times)

mrpercentage

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How the beginners can invest more
« on: February 16, 2016, 06:31:02 PM »
I know MMM has covered this as some point but it is buried the many articles he has wrote.

To keep things easy to understand I will work with multiples of $100.
                                                             
Lets say you can invest 100 a month= $1,200 a year

But you get you paycheck biweekly. You will get two "extra checks" every year. On the months you have three checks deduct food and gas and everything left over on your third check is "extra". Lets say that is $1200.
You don't get carried away so you decided to "dollar cost average in" and start investing a hundred a month when you do. This buys you a year. Well these checks eventually over lap in six months and now its an extra $200 a month to invest.

Now you are sitting at= $300 a month for $3,600 a year

But then you get an average tax return of $3,000. But something came up and you had to buy a new water heater and a set of new tires and you have $1200 left over. You "dollar cost average a hundred a month in.

Now you are investing $400 a month. Now you are a fairly significant investor for the lower middle class and you have a good cushion in the bank.

I think this approach is the best way to heavily increase your investing when getting started. In fact, its what I do

Heckler

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Re: How the beginners can invest more
« Reply #1 on: February 16, 2016, 07:33:12 PM »
That's basically how we killed a 25 year mortgage in 13 years.  It works.

aschmidt2930

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Re: How the beginners can invest more
« Reply #2 on: February 16, 2016, 09:11:46 PM »
Spend less, make more, invest the difference.  You're overthinking this.

mrpercentage

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Re: How the beginners can invest more
« Reply #3 on: February 16, 2016, 09:15:21 PM »
Spend less, make more, invest the difference.  You're overthinking this.

This is for the people who need options other than cutting bills. For some that is not an option.

YoungInvestor

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Re: How the beginners can invest more
« Reply #4 on: February 17, 2016, 05:06:59 AM »
Spend less, make more, invest the difference.  You're overthinking this.

This is for the people who need options other than cutting bills. For some that is not an option.

Sorry, but over a year, with equal expenses, you'll invest the same amount.

What you described is a way to counter lifestyle inflation, not a magic formula.

thd7t

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Re: How the beginners can invest more
« Reply #5 on: February 17, 2016, 08:03:03 AM »
Spend less, make more, invest the difference.  You're overthinking this.

This is for the people who need options other than cutting bills. For some that is not an option.

Sorry, but over a year, with equal expenses, you'll invest the same amount.

What you described is a way to counter lifestyle inflation, not a magic formula.
He's not proposing a magic formula, just a way to look at how money comes in.  It's a reasonable approach that can help people who perceive their pay schedule as being twice monthly, but really are paid bi-weekly.  More importantly, it works (as mentioned by Heckler) and helps avoid lifestyle inflation, without any reduction in quality of life.

P0IS0N

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Re: How the beginners can invest more
« Reply #6 on: February 17, 2016, 10:31:38 AM »
I know MMM has covered this as some point but it is buried the many articles he has wrote.

To keep things easy to understand I will work with multiples of $100.
                                                             
Lets say you can invest 100 a month= $1,200 a year

But you get you paycheck biweekly. You will get two "extra checks" every year. On the months you have three checks deduct food and gas and everything left over on your third check is "extra". Lets say that is $1200.
You don't get carried away so you decided to "dollar cost average in" and start investing a hundred a month when you do. This buys you a year. Well these checks eventually over lap in six months and now its an extra $200 a month to invest.

Now you are sitting at= $300 a month for $3,600 a year

But then you get an average tax return of $3,000. But something came up and you had to buy a new water heater and a set of new tires and you have $1200 left over. You "dollar cost average a hundred a month in.

Now you are investing $400 a month. Now you are a fairly significant investor for the lower middle class and you have a good cushion in the bank.

I think this approach is the best way to heavily increase your investing when getting started. In fact, its what I do
I don't get it.

thd7t

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Re: How the beginners can invest more
« Reply #7 on: February 17, 2016, 10:43:39 AM »
I know MMM has covered this as some point but it is buried the many articles he has wrote.

To keep things easy to understand I will work with multiples of $100.
                                                             
Lets say you can invest 100 a month= $1,200 a year

But you get you paycheck biweekly. You will get two "extra checks" every year. On the months you have three checks deduct food and gas and everything left over on your third check is "extra". Lets say that is $1200.
You don't get carried away so you decided to "dollar cost average in" and start investing a hundred a month when you do. This buys you a year. Well these checks eventually over lap in six months and now its an extra $200 a month to invest.

Now you are sitting at= $300 a month for $3,600 a year

But then you get an average tax return of $3,000. But something came up and you had to buy a new water heater and a set of new tires and you have $1200 left over. You "dollar cost average a hundred a month in.

Now you are investing $400 a month. Now you are a fairly significant investor for the lower middle class and you have a good cushion in the bank.

I think this approach is the best way to heavily increase your investing when getting started. In fact, its what I do
I don't get it.
Basically, if you get paid biweekly, but spend like you're paid twice monthly, you get two extra paychecks per year.  If you invest those, you boost your savings without feeling it.

P0IS0N

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Re: How the beginners can invest more
« Reply #8 on: February 17, 2016, 11:01:32 AM »
I know MMM has covered this as some point but it is buried the many articles he has wrote.

To keep things easy to understand I will work with multiples of $100.
                                                             
Lets say you can invest 100 a month= $1,200 a year

But you get you paycheck biweekly. You will get two "extra checks" every year. On the months you have three checks deduct food and gas and everything left over on your third check is "extra". Lets say that is $1200.
You don't get carried away so you decided to "dollar cost average in" and start investing a hundred a month when you do. This buys you a year. Well these checks eventually over lap in six months and now its an extra $200 a month to invest.

Now you are sitting at= $300 a month for $3,600 a year

But then you get an average tax return of $3,000. But something came up and you had to buy a new water heater and a set of new tires and you have $1200 left over. You "dollar cost average a hundred a month in.

Now you are investing $400 a month. Now you are a fairly significant investor for the lower middle class and you have a good cushion in the bank.

I think this approach is the best way to heavily increase your investing when getting started. In fact, its what I do
I don't get it.
Basically, if you get paid biweekly, but spend like you're paid twice monthly, you get two extra paychecks per year.  If you invest those, you boost your savings without feeling it.
Yeah, I guess it's a bit confusing. Paid biweekly? Tax return?

thd7t

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Re: How the beginners can invest more
« Reply #9 on: February 17, 2016, 11:32:42 AM »
I know MMM has covered this as some point but it is buried the many articles he has wrote.

To keep things easy to understand I will work with multiples of $100.
                                                             
Lets say you can invest 100 a month= $1,200 a year

But you get you paycheck biweekly. You will get two "extra checks" every year. On the months you have three checks deduct food and gas and everything left over on your third check is "extra". Lets say that is $1200.
You don't get carried away so you decided to "dollar cost average in" and start investing a hundred a month when you do. This buys you a year. Well these checks eventually over lap in six months and now its an extra $200 a month to invest.

Now you are sitting at= $300 a month for $3,600 a year

But then you get an average tax return of $3,000. But something came up and you had to buy a new water heater and a set of new tires and you have $1200 left over. You "dollar cost average a hundred a month in.

Now you are investing $400 a month. Now you are a fairly significant investor for the lower middle class and you have a good cushion in the bank.

I think this approach is the best way to heavily increase your investing when getting started. In fact, its what I do
I don't get it.
Basically, if you get paid biweekly, but spend like you're paid twice monthly, you get two extra paychecks per year.  If you invest those, you boost your savings without feeling it.
Yeah, I guess it's a bit confusing. Paid biweekly? Tax return?
Well, it's pretty basic.  Different jobs often pay on different schedules.  In some regions of the world some schedules are more prominent than others.  If you've held few jobs (because of high job stability, for example), you might be unaware of this, but it shouldn't be hard to imagine.  Some people are paid weekly or daily.  Others get most of their compensation on an annual basis (frequently these are jobs with large bonuses). 

In terms of tax returns, he means tax refunds, which are not uncommon in developed countries with an income tax system.

P0IS0N

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Re: How the beginners can invest more
« Reply #10 on: February 17, 2016, 11:40:32 AM »
Well, it's pretty basic.  Different jobs often pay on different schedules.  In some regions of the world some schedules are more prominent than others.  If you've held few jobs (because of high job stability, for example), you might be unaware of this, but it shouldn't be hard to imagine.  Some people are paid weekly or daily.  Others get most of their compensation on an annual basis (frequently these are jobs with large bonuses).

In terms of tax returns, he means tax refunds, which are not uncommon in developed countries with an income tax system.
Allright then. So it's something specific, not for beginners in general.

thd7t

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Re: How the beginners can invest more
« Reply #11 on: February 17, 2016, 11:49:24 AM »
Well, it's pretty basic.  Different jobs often pay on different schedules.  In some regions of the world some schedules are more prominent than others.  If you've held few jobs (because of high job stability, for example), you might be unaware of this, but it shouldn't be hard to imagine.  Some people are paid weekly or daily.  Others get most of their compensation on an annual basis (frequently these are jobs with large bonuses).

In terms of tax returns, he means tax refunds, which are not uncommon in developed countries with an income tax system.
Allright then. So it's something specific, not for beginners in general.
Yeah.

I'm a red panda

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Re: How the beginners can invest more
« Reply #12 on: February 17, 2016, 12:02:10 PM »
I get paid biweekly, but I have no "extra checks".

To me, that only works if you budget monthly and break even each month. 
If you budget annually there are no extra checks- I get paid X in a year, regardless of how it is broken up. And if you budget per pay period, there are no extra checks. 

The people I know who live paycheck to paycheck, and thus say they can't invest because there is nothing left- don't go by month, but by when the next check arrives.


I guess whatever psychologically works for you; but this doesn't make sense to me.

povertystrickenbastard

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Re: How the beginners can invest more
« Reply #13 on: February 17, 2016, 01:25:56 PM »
For me this works because I use a credit card for all my expenses which I pay in full once a month, so the CC basically converts all my expenses to monthly and as I'm paid biweekly I get the 2 occurances a year where I get the 'extra' paycheque.

mrpercentage

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Re: How the beginners can invest more
« Reply #14 on: February 18, 2016, 04:55:52 AM »
I get paid biweekly, but I have no "extra checks".

To me, that only works if you budget monthly and break even each month. 
If you budget annually there are no extra checks- I get paid X in a year, regardless of how it is broken up. And if you budget per pay period, there are no extra checks. 

The people I know who live paycheck to paycheck, and thus say they can't invest because there is nothing left- don't go by month, but by when the next check arrives.


I guess whatever psychologically works for you; but this doesn't make sense to me.

Its easy. Not sure why you are confused.
You only have to pay rent once a month
repeat with phone, insurance, and everything else.
You usually only get two pay checks.
So you just need to cover the gas and food for two weeks out of your third "extra" check. You will get an extra check twice a year if you get paid biweekly. For example, I get paid every other Thursday.

I'm a red panda

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Re: How the beginners can invest more
« Reply #15 on: February 18, 2016, 07:00:45 AM »
I get paid biweekly, but I have no "extra checks".

To me, that only works if you budget monthly and break even each month. 
If you budget annually there are no extra checks- I get paid X in a year, regardless of how it is broken up. And if you budget per pay period, there are no extra checks. 

The people I know who live paycheck to paycheck, and thus say they can't invest because there is nothing left- don't go by month, but by when the next check arrives.


I guess whatever psychologically works for you; but this doesn't make sense to me.

Its easy. Not sure why you are confused.
You only have to pay rent once a month
repeat with phone, insurance, and everything else.
You usually only get two pay checks.
So you just need to cover the gas and food for two weeks out of your third "extra" check. You will get an extra check twice a year if you get paid biweekly. For example, I get paid every other Thursday.

My budget is done annually. It makes no difference at all when it actually leaves the account.  I may pay the mortgage once a month, but I know the total that has to be paid and that is what the budget is based around.
My insurance payments are also not monthly- for the house and car it is done twice a year. For medical and life it is done each paycheck, so there is no "extra" where I don't have to pay it.

wudged

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Re: How the beginners can invest more
« Reply #16 on: February 18, 2016, 07:02:39 AM »
What he is trying to say, but is not coming across clearly, is to make your monthly budget no more than 2 paychecks.  Then throughout the year you will have 2 extra paychecks worth of money to invest.

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Re: How the beginners can invest more
« Reply #17 on: February 18, 2016, 07:15:55 AM »
What he is trying to say, but is not coming across clearly, is to make your monthly budget no more than 2 paychecks.  Then throughout the year you will have 2 extra paychecks worth of money to invest.

I understand what he's saying, but I find it kind of silly.  It's just a psychological trick. 
Why not just make investing part of your budget to begin with? 

Apparently you are already making a monthly budget (I don't have such a thing- we budget on an annual basis)- so just put investments INTO that budget and do it every month? Why rely on the calendar to do this for you?

wudged

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Re: How the beginners can invest more
« Reply #18 on: February 18, 2016, 07:40:39 AM »
What he is trying to say, but is not coming across clearly, is to make your monthly budget no more than 2 paychecks.  Then throughout the year you will have 2 extra paychecks worth of money to invest.

It's just a psychological trick.

Precisely.  This is why it's good for beginners who are not used to saving anything and having a hard time.

arebelspy

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Re: How the beginners can invest more
« Reply #19 on: February 18, 2016, 07:47:02 AM »
That whole first post was quite confusing for me, but I think I've worked through it.

I think an easier way to do it is:
Optimize your spending to spend as little as possible. Figure out how much, if any, of a cash cushion/emergency fund you want to keep in the bank. As your funds go over that, invest them.

That may just be an extra $100/mo. to start with.  Then it will grow as you spend less and earn more. The gap between your paycheck and spending grows, so the amount above your EF left in your checking account gets higher, and then invested, each month.  Except when an emergency happens, then the next month or two may be replenishing that.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Eric

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Re: How the beginners can invest more
« Reply #20 on: February 18, 2016, 03:20:12 PM »
I've never been happier about being paid twice per month than I am right now.  Yeah!  This whole gobbleldygook'd thread doesn't apply to me!

Retire-Canada

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Re: How the beginners can invest more
« Reply #21 on: February 18, 2016, 03:26:40 PM »
Spend less, make more, invest the difference.  You're overthinking this.

^^^ this. Keep your spending in check. Pay your bills and dump what's left into your investment accounts.  It's that simple.

Whether it's a 3rd pay cheque or some other extra win fall in a given month you deal with it the same way.

mrpercentage

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Re: How the beginners can invest more
« Reply #22 on: February 18, 2016, 04:23:51 PM »
I know its completely alien if you are doing well and have a lot of money. It was only meant as a tool in the box. It is more powerful to those living paycheck to paycheck. It doesn't apply to military because they are salary and get paid the 1st and 15th. It applies to any hourly worker. Including those who get paid weekly.

aschmidt2930

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Re: How the beginners can invest more
« Reply #23 on: February 21, 2016, 02:14:00 PM »

Spend less, make more, invest the difference.  You're overthinking this.

This is for the people who need options other than cutting bills. For some that is not an option.
[/quote]

The other half is still applicable, make more.  If this line of thinking works, that's great, but if one is seeking to eliminate waste wherever feasible and spending based on their values, it's unnecessary.

HipGnosis

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Re: How the beginners can invest more
« Reply #24 on: February 22, 2016, 11:39:25 AM »
I know its completely alien if you are doing well and have a lot of money. It was only meant as a tool in the box. It is more powerful to those living paycheck to paycheck. It doesn't apply to military because they are salary and get paid the 1st and 15th. It applies to any hourly worker. Including those who get paid weekly.
How does salary vs hourly make any difference?
How does it apply to an hourly worker that's not paid bi-weekly?
I don't know of, never heard of, anyone living paycheck to paycheck that is investing.

thd7t

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Re: How the beginners can invest more
« Reply #25 on: February 22, 2016, 12:12:32 PM »
I know its completely alien if you are doing well and have a lot of money. It was only meant as a tool in the box. It is more powerful to those living paycheck to paycheck. It doesn't apply to military because they are salary and get paid the 1st and 15th. It applies to any hourly worker. Including those who get paid weekly.
How does salary vs hourly make any difference?
How does it apply to an hourly worker that's not paid bi-weekly?
I don't know of, never heard of, anyone living paycheck to paycheck that is investing.
Just from anecdotes on this forum, I know that people borrow from their 401k's for a variety of reasons (some not so wise).  Clearly these people are investing and living paycheck-to-paycheck.

povertystrickenbastard

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Re: How the beginners can invest more
« Reply #26 on: February 22, 2016, 12:16:32 PM »
I'm investing paycheck to paycheck..

arebelspy

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Re: How the beginners can invest more
« Reply #27 on: February 22, 2016, 12:26:00 PM »
I'm investing paycheck to paycheck..

Hah, awesome.  This is a great quote to think whenever you hear someone "living paycheck to paycheck."
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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mrpercentage

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Re: How the beginners can invest more
« Reply #28 on: February 22, 2016, 05:09:26 PM »
I know its completely alien if you are doing well and have a lot of money. It was only meant as a tool in the box. It is more powerful to those living paycheck to paycheck. It doesn't apply to military because they are salary and get paid the 1st and 15th. It applies to any hourly worker. Including those who get paid weekly.
How does salary vs hourly make any difference?
How does it apply to an hourly worker that's not paid bi-weekly?
I don't know of, never heard of, anyone living paycheck to paycheck that is investing.

If you are truly paid salary-- it doesn't matter if you work 100 hours a week. You will get paid the same. A perfect example is the military and they get paid the 1st and the 15th.

If you are paid hourly they generally do not have an arrangement like the 1sth and the 15th of each month. That could throw a paychecks value all over the place.

So with biweekly you will have 26 checks and two months will have 3 checks. If you get paid weekly there will be 4 months you get 5 checks instead of 4. The reason this method works for someone who wants to start invest but haven't is they usually suck at budgeting (I know unthinkable on the MMM forum right?). So they will tell you they don't have money because every month they pay for X, X, and X. Then you point to their extra checks and asked what they did with those and they don't know. I know-- it was McDonalds, Denny's, Starbucks, and the movies, and maybe that concert. They just seemed to have extra money and didn't even think about it. I know because I have asked people at work what they are doing with their third check and they say "we get three checks?". They didn't even think about it. I read about this method for reducing debt but it can also be used to invest. It doesn't have to be averaged into the market. You could lump sum it. If they don't have an emergency fund they can begin investing earlier by averaging in because it leaves some in the bank. It would be a good idea to separate the money and put it into a savings account and move what they need each month so they don't get confused and think they have money they don't.

And remember that if you do this you will have to subtract things that are a daily expense instead of monthly. A good example is food and gas. You will need to remove those and everything left over is money to save or invest.
« Last Edit: February 22, 2016, 07:03:39 PM by mrpercentage »