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Invest or Pay Off Debt?

So, you have debt. You also hope to retire someday and you want to start investing your money. Both require a commitment. Both require money. Which do you do first, pay off debt or invest?

Good Debt vs. Bad Debt

The first barrier to success in investing is bad debt. Yes, there’s good debt and bad debt. Good debt is money you borrow at a low rate of interest, with which you make a high rate of return.  

An obvious example is the money you borrow to buy an apartment complex. The debt covered by the rental income – or it will be in a few years.  

Bad debt, by contrast, is consumer debt – money you borrow at a high interest rate to buy things that don’t produce income or grow in value. Things like cars, refrigerators, clothing and trips to Europe.  

All of us have done it, and all of us have paid the price.

Read the full blog at ruleoneinvesting.com

The Advantages of a Roth IRA

Roth IRAs are so good that they’re probably not going to last. I think that one of these days the federal government is going to say, “Wait a second, that’s just too good of a deal,” and they’re going to yank it, so you want to get one now and grandfather that thing in.

 

What is a Roth IRA?

A Roth IRA is an individual retirement account similar to a 401k or a traditional IRA. They offer a valuable future tax break. Since they are taxed when you put money into them, the income is tax-free on retirement.

 

Why Roth IRA Over a 401k or IRA?

Roth IRAs are fantastic because you put money into it after you have paid taxes on it. That’s what makes the Roth IRA different from a regular IRA or a 401k.

“A Roth IRA is a great, tax-efficient way to save for retirement.”

In a regular IRA or a 401k the money is going in pre-tax which is the big advantage, because you don’t have to pay taxes on that money when you put it in. When you start to take it out, you pay your taxes on it way down the road.

 

There are some advantages to an IRA or 401k, but the Roth IRA has advantages as well.

Advantages of a Roth IRA

Once you put your money into a Roth IRA, it never gets taxed again. This includes all of the money that grows in the Roth IRA. We like to encourage our students who are just getting going as investors and are just scrambling to make a living much less prepare for retirement to use a Roth IRA.

 

We’re really excited about introducing them to Roth IRAs. I want you guys to really be thinking about this. If you are young, if you are just getting going on your job and you’re not in a high tax bracket, you should use a Roth IRA.

“If you are young, if you are just getting going on your job and you’re not in a high tax bracket, you should use a Roth.”

 How much Can You Put Into a Roth IRA?

As of 2014, you can put up to 5,500 dollars a year into a Roth IRA.

 

Let’s say that you can only manage to put in $2,000 a year. You keep your belt tight and every month you put in $250 into your Roth IRA after taxes.

 

Once it’s in the Roth IRA you can start investing as a Rule #1 Investor. As that grows, there are no taxes that are going to be paid on it.

 

If you put in $2,000 a year, for 10 years, you have $20,000 invested in your Roth. Let’s say you’re earning 15% to 25% a year, pick a number in that area. Let’s say that you’re a good Rule #1 Investor and you can get 25% a year. What you will see is that on that $20,000 that comes in over 10 years, will turn into well over a million dollars.

 

Read the full blog at ruleoneinvesting.com