Sunday, November 15, 2009

An interesting development and Sportsmansguide

So I got my first paycheck since I took out the loan on my 401k. Surprise, surprise my takehome is now more than it was after the loan payment is taken out. All payments into the account are tax deferred so if after making your payment you end up in a lower tax bracket the amount that you're taxed is reduced. That could make your paycheck bigger than before even after you make your loan payment. Any payments made towards your 401k are taken out of your check by your employer before you get the income so you're not taxed on it. Oh and the interest rate on my loan is only 5.5%. If you have a 401k, lots of credit card bills and you don't foresee losing your job anytime soon then educate yourself. This could be a very good tool to get yourself out of debt. Technically, I only owe myself the money that I borrowed. If something happens and I can't pay myself back then I have to pay a 10% penalty on the amount that I borrowed and the amount of the loan counts as taxable income for that year.

So the way I understand it you could just sack away 10% of whatever you borrow just in case you can't pay the loan back. If you lose your job at some point (really the only way that I could see not being able to pay it back) then you could just pay the penalty. Whatever you paid back into your 401k up until that point will still be there. You'll still have the money that you borrowed (unless you spent it). It would just be like paying 10% interest on the loan all at once I suppose. Since I really don't know that much about this stuff and I'm only speaking from my extremely limited experience (in other words DON'T ACT ON MY ADVICE ALONE EDUCATE YOURSELF) I would appreciate it if anyone who's in the know could explain to me why this is not a good idea. FYI there's also a type of life insurance policy that you can buy that works on the same principle except that the payments aren't tax deferred. The payouts, however, aren't taxable because they're considered loans. The benefit over a 401k is that you don't incur any penalties if you don't pay it back. I have one of those as well but it doesn't grow anywhere near as quickly as my 401k.

Aside from managing my finances I've been prepping quite a bit. I may be getting my hands on a lot of 25lb bags of brown rice. Rawles recommends this stuff for very good reason. It's a lot healthier and tastier than white rice. I'll have to buy more than I can use to get in on the deal so if anyone is interested then please feel free to email me at artyboy@gmail.com and I'll get you a very good price with shipping included.

I also put together an order from sportsmansguide. I picked up a few wool watch caps, some Merrel shoes, a new coat and some boots for the wifey. The wife's boots were as could be expected. I could have bought her a pair of boots that everyone reviewing them claimed were still comfortable after walking 20 miles but I could carry her for 20 miles and she'd still complain. So I just went for something that would keep her feet dry when she's walking across the driveway to her car. She put them on, they fit and she was happy. I was pretty impressed with the quality for the price as well. Mission accomplished.

As for the wool watch caps, they were just too awesome. Try to find wool watch caps anywhere these days and you'll probably pay $30 a pop for them. Most of the crap you find for sale are some kind of acrylic blend that doesn't actually keep your head warm. It just keeps your head dry until the snow melts through or you start to sweat. Wool works wet or dry. As long as you can keep your head and your feet warm then the rest of your body doesn't have to work very hard at all to stay warm.

Speaking of feet I also picked up a pair of Merrels. I can't speak highly enough of this brand. A few years ago I picked up a pair on clearance at some big box store. They served me well until I walked outside one day to find my dog chewing on them. He'd been using them for a chew toy all night. They were still pretty rough around the edges but after putting in some new insoles and replacing the laces they were still usable and comfortable. I've been wearing that pair for 2 or 3 years since. I've gone on a lot of hikes and spent many nights in the woods with them. Even after being chewed up they were still waterproof. I can't tell you how many streams and creeks I've stepped into. Once my brother got stuck in a really deep creek and I was in water up to my knees. My feet never did get wet. Finally, sportsmansguide put a decent pair of Merrels on sale for $70. Thank you sportsmansguide! If it wasn't for my dog trying his best to rip them to shreds I wouldn't even need a new pair but sometimes crazy stuff happens.

You're probably wondering about the coat. It aint all that. It's a lot thinner and lighter than I expected. It'll do what I expected it to do. It just won't do it as well as I expected. You get what you pay for. In my experience, if you're buying from sportsmansguide then pay attention to name brands. If they're selling a name brand that you really trust and have experience with and the price is off the hook then jump on it. They'll come through for you. If you've never heard of the brand and the price is just "pretty good" then pass. If you see "guide gear" and they're not giving it away then wait for a sale. Eventually they'll put a price on it that you just can't pass on.

6 comments:

Anonymous said...

You can read about the problem of borrowing from your 401(k) elsewhere on the internet, but the bottom line is that there is an opportunity cost of taking money out of your 401(k)--those dollars are no longer invested, so they're not working for you. It's not as simple as comparing the interest rate on your 401(k) loan to the interest rate on your credit cards, because time is what long-term investing (e.g., in a 401(k) is all about). A simple way to play with this idea is to use a compound interest calculator, and look at the difference between say, $X amount invested for 10 years and that same $X amount invested for only 5 years--I'm sure you can imagine the difference!

That said, with the gouging currently underway with credit cards, if you are looking at a 29% APR on a credit card, desperate times may call for desperate measures!

The Urban Survivalist said...

So in other words if you expect the stock market to crash again within the next couple of years (at the most) then it could be a good idea to take a loan out while you have a significant balance to take a loan on? I'm not telling anyone to stretch themselves or even suggesting that they should do this. I'm just sayin....it might not be such a bad idea to look into it. If the stock market keeps going up like crazy then you'll certainly wish that you'd had the money in there gaining interest. If it crashes then it'll be nice to have it in hand.

If you take out a loan and you get fired or somehow can't pay it back then that money is gone and you have to pay 10% of the balance and pay taxes on the loan as if it were income.

Survival Bunker said...

Laughed out loud at the line about how you could carry the wife 20 miles in her new boots and she'd still complain.

Anonymous said...

Those wool watch caps are pretty awesome for keeping you warmer in cold temps. At our local Tractor Supply, they are selling Thinsulate caps for $4. Thinner than the wool ones, but compact very nicely, tucking into corners of pack. Worth it, especially at the price. The bad part - watch caps do a number on the hairdo when taken off, lol, talk about modern sculpture. But better'n freezing your tookus off by a long shot.

My main gripe with Sportsmanguide is the speed where materials are backordered or no long available.

Hope the wife's boots continue to impress her, hey, your spouse's comfort is one area you don't want to go cheap on. Well worth keeping them happy - a complaining spouse is lousy experience for both!

theotherryan said...

I duno about the whole borrowing from the 401K thing. Remember Suzie Orman talking about it once and not being a fan but don't remember the reasons why.

For watchcaps I used to be all about the wool until I got some experience with nice fleece ones. Just as warm, far lighter and much more compact.

I don't order stuff which needs to fit a certain way unless I have tried on the same thing in real life. I know any shirt in the right size will fit me just fine but boots are iffy. I order stuff out of catalogs that you can't find elsewhere (gear, surplus Norwegian wool pants, etc) or when it is at great deals.

The Urban Survivalist said...

I was rolling the dice on the wife's boots. I was relieved when they fit her. As for the Merrels, I've been wearing the brand for a while and they all fit the same so I wasn't worried about those.

As for the 401k thing, as has already been mentioned if you borrow from it the money isn't there to gain interest. It's not there to disappear if the stock market tanks again either, though. As long as you pay on it you get a guaranteed rate of return based on your interest rate. Historically, the rate of return is much better if you just leave it alone. Our financial future is still very much in question, though. What's going on now has never happened before. If you've got this tool available to you then it's just one way to hedge your bets.