7 Money Ratios You NEED To Know 

I am so ready to down size my housing

Thank you Luke! 😊

For savings, use 401K or 403B to provide a tax shelter while working, buy treasury bills(no state/local tax) etc. this will substantially lower one’s tax bill.

Thanks so much!! Raising your kids to be financially responsible is one of the best things you can do as a parent - thanks for sharing 🙏

I think gross still make sense as the limit. However, people should aim for less.

Thanks so much!!! 🙏

Thanks Curtis!

Welcome to the channel!

Please continue your updates

Yes!!

Add yet another to my list to have my young adult kids to watch since they don't listen to what their parents say 😂😂😂

Thanks Larry!

That makes me so happy to hear! 💙

100% agree for almost everyone. Do you suppose however, that if you found yourself in a position where the house is only 5-10% of your networth, it wouldn't be easier to just reverse mortgage it so that the company can take care of selling the damn thing when you're dead so your heirs don't have to? it would still be throwing away money though, just marginal money.

@@dr_flunks just sell the house.

​@@hanwagu9967A dead person can't legally sell a home......

​@wakarusan1 That is one option, but probably not the best option. It's probably best to have an estate company be the executor of your estate to take care of everything, including selling your home.

Meh. I have about $1.1 million in home equity (on a home worth $1.6 million) and about $900k in IRAs and investments. The largest part of my net worth is in my home...AND...it will be paid off when I retire...AND...I'll be able to downsize into a $600k home and pull a million out of the house tax free when I retire.

You should only include your house if a) it's paid off or you plan to pay it off b) you're wanting to give it to your kids.

Why do you feel that it is silly not to count home net worth?

@@KRYMauL The right answer is there are two Net Worths for home owners. One including the home equity and one without. The one without is used for times you are dealing with cash flow (like your can't very well sell 1% if your jobs equity to buy a car, or go on vacation, for examples). On the other hand, the one with is important for holistic discussions like estate/legacy planning. These two different NW says equally important

@@StepOneToFreedom-ig3ir House equity has a quantifiable positive contribution to your net worth. It is silly to pretend that it doesn't. Imagine I'm renting a house vs halfway through paying off a mortgage on it, all else being equal. How would it make any sense for those two situations to be the same?

@@FIRED13 It's effectively the start of the tv show The Gentlemen. "You are asset-rich, but income-poor." Just because on paper you have a lot of money doesn't mean you actually do. Take the many individuals, including the former President, who have had negative net worths.

I hope they watch too! 😊thanks for sharing

That is an advanced topic. Even if you are purely a financial investor, once you become wealthy your goal is to minimize you stated income while increasing your net worth.

How does monthly expenses work for someone in your shoes. Do you just suck money out of your business' bank account each month to pay the bills, it's ask just a 'loss'?

Very true! I feel like I should have added the caveat of at retirement 😊 Also, congrats on paying off your home!! And thanks 🙏 for watching!!

@@ErinTalksMoney luckily I'm only 43 😊 but knowing I'll likely have another inheritance relatively soon I'm at my FIRE no already and currently working only part time 😊👍

Creepy

Sorry. No creepiness intended.

Yes.

It may be ok if they plan to retire in a less expensive area, but if they plan to stay there then good luck!

Agree. Having wealth on paper does not provide the cash flow to pay bills and living expenses. You cannot give the grocery store a lien on the house.

So you hate using the phrase net worth properly and instead made your own definition? Cool. Go tell the thousands of CPAs out there they're doing it wrong. And to be clear, in your example you would just as easily be someone with a million dollars invested but renting an apartment than a person with a million invested and a nice paid for home. Brilliant.

@@robloxvids2233 First of all, I never said I hated anything or that the formula to calculate net worth was wrong. Those were your words, not mine. I only said I liked the idea of thinking about your net worth outside of the value your home.

Or, do projected sale price MINUS projected real estate commissions.

or just disregard networth as the meaningless concept for personal finance that it is. If you are going to go to that trouble, then you should also include home sales commission into the liability column when determining home asset value since the seller is responsible for buyer and seller sales commission. I've been puzzled that these pundits ignore that chunk of change that reduces home asset value when talking net worth.

@@shawnbrennan7526 i think they are talking about using the lower end of the projected price. No one ever talks about deducting real estate commission for some odd reason, even though it is a sizable liability if you are determined to figure out net worth.

@@hanwagu9967 If you think Net Worth is a meaningless concept, please help us understand what metrics you recommend instead?

@@shawnbrennan7526 what matters in terms of your retirement income is your investable assets. Net worth, which by definition, includes illiquid assets, do not generate your retirement income or comes at a cost to tap the equity. Net worth is a useless and meaningless metric in terms of planning what you need to generate your actual retirement income. Your illiquid assets such as your house, car, boat, pogo stick, etc aren't used to generate your retirement income.

you have two choices: a warm fuzzy feeling vs actual financial sense. It's similar to the snowball method for debt: you are choosing a warm fuzzy feeling despite it not being financially optimal. There are plenty of people who advocate for a warm fuzzy feeling to give you an unfounded sense of financial security having a home paid off and no further mortgage payment in retirement, despite it not necessarily making financial sense on paper. If you are lucky to have a very low mortgage rate, you would be hard pressed to find the numbers work out to pay off the mortgage early. Those warm fuzzy feeling folk also seem to forget that if you are actually doing worse on paper if you are speeding up paying mortgage off early in the latter half of your mortgage schedule, becuase of amortization. You are mostly paying interest over principle at the beginning, so toward the end you are paying mostly principle, so you've already paid most of the interest. The only thing you have to plan for if carrying in retirement is having enough retirement cash flow to cover the mortgage payment as part of your expenses. If the whole purpose was to pay off mortgage before retirement, then you should have just gone for a shorter term mortgage to begin with that has you paying off before retirement. Moot given that mortgage rates are higher now than they were a couple of years ago, so refi wouldn't make sense. Additional consideration is that if you are house rich and cash poor, I doubt that doesn't provide you much financial security although you may get a warm fuzzy feeling about idiotic net worth. I would argue that if you don't have at least equal non-housing investable assets to home equity, you ought not worry about winding down your mortgage early. If you look at the statistics, average home equity barely keeps up with inflation over the long term. This means a bunch of money is sitting there losing value or barely keeping up while being illiquid. I'd rather have more flexibility carrying a low rate mortgage into retirement rather than the inflexible nature of an illiquid asset barely keeping up with inflation.

Put 15% into retirement and anything available after expenses toward the house.

If you own: 25x(all expenses minus the mortgage payment but including the taxes and repairs) If you don't own: 25x your expenses

Gee, if you could pick it up and move it to the Bay Area your value would likely increase 10 fold. 😉

Same to you 😊 have a great day 😊

Depends on your situation (age, health, retirement goals, etc). For example for early retirees, 25x can readily be replaced by 33x. Or for someone retiring at 67 in relatively poor health and no dependents, maybe 15x is reasonable.

well, then it's not a 25x rule of thumb anymore: it's a 28.75x rule of thumb.

I think a 3% withdrawal rate is low enough. Otherwise I'll just divide by my remaining life expectancy.

Hopefully it gets better each month, 😃

If your home is paid off it can technically reduce your monthly housing cost. If all else goes wrong you can sell it and live off the money for some time. Just think about it this way. It makes a big difference if you house is valued at $200K vs $20 million.

I agree with you generally. I wonder if many find treating a house like an asset is simpler than tracking the expenses related to the house and then including the inferred income of the rent payment you don’t have (or “imputed income”) to see how home ownership is affecting their overall financial situation. Too many people blindly believe that a house (primary residence) is an investment without factoring all of the costs and end up treating it like an art object that is no longer functional and whose value is only that of “what will someone give me for it” rather than, “what is it doing for me both short and long term”

Just make absolutely sure you vet the person you are about to let into your home, especially if you are in a state where someone can easily claim to be a squatter.

Agree with the above comment please think carefully, this is can go wrong in so many ways, enjoy your own space unless absolutely not possible

Usually if you are pulling from it it's rolled into an IRA. The only other method I could think of assuming you're doing like a 401k loan would be to rebalance before the withdrawal so that after the withdrawal you end up with the balance you want.

@@MeltingRubberZ28 you are confusing things. The 4% safe withdrawal rate is based on withdrawing in retirement, which means you are withdrawing for retirement income not to rollover into an IRA.

It depends on your 401k plan, so you'll need to look up your 401k rules. However, most plans will require a pro rata distribution across your entire portfolio. This is another selling point to rollover your 401k into IRA, so you have more flexibility in determining your withdrawal allocation.

@@hanwagu9967 Great thanks, I’m still a few years away from a withdrawal strategy. I’ll have to call my 401k provider to clarify.

If you are invested in multiple assets within the 401K then you should be able to draw down one asset before the other.

Are you investing in real estate, or just in your home? Two different things.

Capital gains tax rate is low for investments too, though I get your point on the house. Good luck finding a $600k house 8 year from now that you want your live in forever.

@@shawnbrennan7526 Well, I left out that I would expect my $1.6 million house to grow in value to maybe $2.0+ million in that time (assuming a 3% growth rate in value) leaving $1.0 million to go into the next house...but I didn't want to overly complicate my comment with a real estate expected rate of growth. 15% Cap gains rate on investments < 0% Cap gains rate on primary residence. That's a $75k delta.

You have no idea what you're plan for your home is in 2068. And even if you did it wouldn't change the fact a home is an asset and is included in net worth.

I agree with you. I sometimes think the house I live should be treated as an inventory or an investment or an expensed item.🤔

the thing abour rules of thumb are they vary depending on your unique circumstances. If you are in a hard to find a job industry, it makes sense to increase your emergency fund to account for that reality. If you are in an industry that you can get a job no problem the next day then you can decrease. Same logic applies for things like chronic medical issues, etc.

Depends on your age. For me house $35,000 left on mortgage and 23% nw. 5 cars $50,000 in loans 3% nw. 5% nw in cash. Rest in market. 8 yrs to retire if I choose, but you have to figure in your time horizon and the fact that you will only be pulling out a small percentage at a time so I’m comfortable with the risk and a probable impending crash.

The percentages would be different if you use after tax income. One could do it that way but recalculate the percentages.

Of course, but why not use the take home figure?

@@alr5286 It’s just a rule of thumb. But for example, the “take home pay” is significantly different for a 401k person and an IRA person, even if they earn the same and investing the same amount.

😬 I definitely didn’t know that!

@@ErinTalksMoney because it is folklore.

hogwash...it's folklore. rule of thumb was derived from approximating measurement for trade.