LandSickness
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fri tale
Don't get me wrong, I love Zenith(mainly the Zodiac line)and I really appreciate the utility, but that STOL 750 is one butt ugly plane. 
Talk me out of this.
- Thread starter DaleB
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DaleB
Final Approach
I have to agree... regardless of how it flies, that is one butt ugly plane. The RV should be able to haul my big ass (and my wife's cute little tush) around just fine... and by the time the plane is finished, I should have about 100# less to haul anyway. In fact, I don't plan to start anything unless and until I've made some significant progress shedding excess tonnage.
Anyway... to answer Nate's question... No. I have not decided at all. I'm leaning toward it, and to be honest I'm working toward it... but I'm not buying anything yet. I haven't decided whether an RV will even really do the job I need it to do. But every time I think of spending the same amount on something like, say, a 182 or a Comanche... the math just doesn't work for me, for a number of reasons. The idea of building, though, is getting more and more appealing to me.
As for the repeated "Why do you want to spend the next five years (or seven) building instead of flying?" questions... Folks, please try to keep up. First off, I don't think two years is an unreasonable time frame for a quick-build RV, and talking to a number of RV builders tells me I'm not far off. Second, as I've said before, I won't make a decision to build unless I can do it while maintaining proficiency. The club membership is not expensive, and neither is flying a couple of hours a month.
So, no, I haven't made a decision one way or the other... but since I started learning what I could about it, I've got a lot less respect for both the "building is crazy" and the "I'd never fly a spam can" extremes in attitude.
And hey, I haven't even hit a hundred hours yet. Who knows? I may find out I don't fly enough to justify owning anyway. It's one reason I'm not deciding quite yet. But... it's really appealing.
Anyway... to answer Nate's question... No. I have not decided at all. I'm leaning toward it, and to be honest I'm working toward it... but I'm not buying anything yet. I haven't decided whether an RV will even really do the job I need it to do. But every time I think of spending the same amount on something like, say, a 182 or a Comanche... the math just doesn't work for me, for a number of reasons. The idea of building, though, is getting more and more appealing to me.
As for the repeated "Why do you want to spend the next five years (or seven) building instead of flying?" questions... Folks, please try to keep up. First off, I don't think two years is an unreasonable time frame for a quick-build RV, and talking to a number of RV builders tells me I'm not far off. Second, as I've said before, I won't make a decision to build unless I can do it while maintaining proficiency. The club membership is not expensive, and neither is flying a couple of hours a month.
So, no, I haven't made a decision one way or the other... but since I started learning what I could about it, I've got a lot less respect for both the "building is crazy" and the "I'd never fly a spam can" extremes in attitude.
And hey, I haven't even hit a hundred hours yet. Who knows? I may find out I don't fly enough to justify owning anyway. It's one reason I'm not deciding quite yet. But... it's really appealing.
denverpilot
Tied Down
Cool man. I've been on the "not my cup of tea" right now, but I always learn from the discussions. I'd be right there cheering you on if you do it. Or understanding if not. Either way, have fun!
yakdriver
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yellow peril
I love to build and love to fly. Since 2001 I have assembled and licensed a Nanchang CJ6, built a large percentage of a Glasstar, built a RV7, built a Backcountry Super Cub and I'm finishing another RV7. I have flown at least 100hrs or more a year for all those years. Figure out how much time you waste just watching TV or dinking with an Iphone and I'm sure you could find a couple hours a day to devote to building an airplane. Just depends on how you want to allocate your time. Don
Unless you have a 'job' for a plane, it's impossible to justify owning it by hours you'll fly. There is only one justification for owning a plane regardless if you build or buy and that is 'I like it'. Luckily, happiness is the greatest justification for anything and the only one required. Some people have children to make them happy, they are even harder to justify in any other way than a airplane is. If you are going to look for a financial justification for aircraft ownership I can save you a lot of time, there isn't one, it's non existent. The only reason to own a plane without a dedicated mission is personal happiness. The only reason to build a plane is because the building makes you happy. There are no other justifications and there are no other justifications required either.
The other side to the coin though is that aircraft ownership can be a resource hog, so one has to calculate if the resource expenditure on one source of happiness will will bring about misery on other fronts and where that balance will lie.
yakdriver
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yellow peril
Couldn't have said that any better.
DaleB
Final Approach
All true, at least to a degree. I know there's really no way to financially justify a plane for pleasure flying. My personal feelings on the matter are still changing, which is one reason I'm not doing anything right now. It would be just stupid to jump into any decision until I'm convinced it's the right one.
We may not end up flying enough to make it even remotely worth considering. And for about the same amount of money it would cost to build an RV, and a lot less time invested, I could buy a reasonably nice Comanche or a 182, freshen up the panel a bit and maybe replace the interior. Reasonably fast, hauls a lot more stuff. Burns a lot more gas. Not equipped exactly how I want it, but it would have the basics covered. When it's time for the annual... with an RV, grab your tool box. With a certified plane, grab your ankles. But it would save an awful lot of work and result in twice the number of seats and a while lot more baggage space. Question is -- do we need that? If we do, the RV is completely unsuitable. Do we have a Harley mission, or an SUV mission? But regardless of the answer tot hat question, if we're only flying occasionally it's not worth doing anything but maintaining the flying club membership.
wabower
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Wayne
It doesn't have to be a club. I've been in two clubs, have owned more that 20 planes as co-owner with one or two other pilots, and have owned another dozen or so as sole owner.
No bad deals (other than the Aerostars that ate us out of house and home) or hurt feelings so far. My position is that the airplane is mine on the days that I fly it and that's all that matters. If you conduct a survey of owners at at any airport in the country, simply ask any owner if his airplane is over-utilized or under-utilized. Then ask for the number of trips that are cancelled each year due to scheduling conflicts.
No bad deals (other than the Aerostars that ate us out of house and home) or hurt feelings so far. My position is that the airplane is mine on the days that I fly it and that's all that matters. If you conduct a survey of owners at at any airport in the country, simply ask any owner if his airplane is over-utilized or under-utilized. Then ask for the number of trips that are cancelled each year due to scheduling conflicts.
bluerooster
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shorty
OK.
Here's how it's going for me:
I started in the basement building ribs. Got my ribs built.
Now I need a spar upon which to mount said ribs. Spar is one piece and 30 feet long. So, just that quick, I outgrew th' basement.
As luck would have it, I was able to start construction on a spot to build my airplane, (I have 5 acres here) using my airplane building funds. (DAM!)
But, By the time the smoke clears, (many years from now) I'll have a nice shop, and an airplane of my own construction. As it stands right now, I have a stack of ribs, and a building under construction.
I figure that If Dad can restore a T-50 in a tarpaper shack, with a dirt floor, I can build a 2 seater in a decent building with wood floor.
DaleB
Final Approach
So today we had our EAA chapter picnic down at KPMV. Got to look at some nice planes up close -- RV-9a, RV-7, Super Decathlon, Tri-Pacer, and a couple of Glasair Sportsmen. Then I got a ride in an RV-7 (thanks, Kevin!). Had a nice 45-minute or so intro to the plane -- what a sweet handling performer!
Got to play with it a little bit. I'd never flown with a stick -- just about zero adjustment, it felt natural. Never flown with a glass cockpit, so it took a little getting used to. (Oh, that white bar? That's a 2700 FPM climb.) I didn't mess with the power, never flown with a CS prop. Overall it flew just like you'd expect it to, very smooth and responsive, basically didn't need to touch the rudder pedals. And fast. 200 MPH plus or minus a little at 70% power.
Ho lee crap. I have GOT to get me one of those.
Other observations... Still not convinced on the tailwheel thing. Slider canopy would make it a lot eraser to get in and out of... but still not *easy*. Not real roomy inside, but no worse than a Cherokee. Would I trade SUV spaciousness for an extra mile a minute? Probably. Especially if I got down to a more reasonable weight.
Got to play with it a little bit. I'd never flown with a stick -- just about zero adjustment, it felt natural. Never flown with a glass cockpit, so it took a little getting used to. (Oh, that white bar? That's a 2700 FPM climb.) I didn't mess with the power, never flown with a CS prop. Overall it flew just like you'd expect it to, very smooth and responsive, basically didn't need to touch the rudder pedals. And fast. 200 MPH plus or minus a little at 70% power.
Ho lee crap. I have GOT to get me one of those.
Other observations... Still not convinced on the tailwheel thing. Slider canopy would make it a lot eraser to get in and out of... but still not *easy*. Not real roomy inside, but no worse than a Cherokee. Would I trade SUV spaciousness for an extra mile a minute? Probably. Especially if I got down to a more reasonable weight.
poadeleted21
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Geico266
Touchdown! Greaser!
DaleB
Final Approach
Like I need a hole in my wallet.Sounds like you need a Bonanza
While I'm sure it would be more comfortable and all, I don't think a Bo is going to do 175 knots on less than 10 GPH. And I'm quite certain I won't find one with modern avionics for what I'd spend building an RV.
It looks like the RV would do 80-90% of what we'd need it to do. It's not quite as roomy as I'd like, but that seems like a workable compromise.
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Jason W (FlyNE)
Like I need a hole in my wallet.
While I'm sure it would be more comfortable and all, I don't think a Bo is going to do 175 knots on less than 10 GPH. And I'm quite certain I won't find one with modern avionics for what I'd spend building an RV.
It looks like the RV would do 80-90% of what we'd need it to do. It's not quite as roomy as I'd like, but that seems like a workable compromise.
It seems like you'd be better off with an RV-14. It's essentially the roomier, easier to build version of the RV-7A. It might burn a little more fuel with the 210 hp engine, but they're estimating build times 30% less than a comparable 7A. Plus it has an 810 lb useful load (50 gal fuel capacity). That leaves room for 510 lbs of meat and baggage.
I have a feeling that the Mrs. would be happier not having to squeeze in for a cross country trip.
DaleB
Final Approach
Yeah, I'm waiting to see whether the -14 is going to be within my budget. It looks doubtful, but we won't know until -- well, we don't know that, either. A lot will depend on how difficult it will be to put something other than an IO-390 in it, that's kind of a spendy engine.
The Sportsman didn't look too bad either... slower and more expensive, but lots more room. I just don't know how much I really trust fiberglass (and my ability to do it really well) over the long term.
CJones
Final Approach
I'm a pro-slider guy. If (when) you go with the slider, look for the mod to make the slider into a half tip-up. It makes it TONS easier to get stuff in and out from behind the seats and you still have the air conditioning of the slider while taxiing.
yakdriver
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yellow peril
There is not that much fiberglass work to do on a Sportsman. I fly a friend's that I helped build and it is a good performer on 180hp. Don
DaleB
Final Approach
I've seen that mod, and it looks pretty useful. The tip-up wasn't as big of a problem getting in and out of, not like I'd heard. But, the RV-9a slider still looked better to me.
The -7 owner says he prefers the -7 so he knows he's got a 9G wing under him, just in case. I can see his point. I am wondering how much difference there really is between the -7 and the -9, other than lower stall speeds and slightly lower cruise speed. Smoother in turbulence? More stable? I dunno. Fortunately I don't have to make a decision for a while yet.
CJones
Final Approach
Neal Howard
Cleared for Takeoff
An RV-8 has plenty of room for bigger folks too. Tandem seating doesn't appeal to all passengers but it sure does appeal to the pilot
All RV-8's are sliders too (except for those with fastback mods, which most of those have tip-over canopies like an RV-4, but the fastbacks are pretty rare... almost never see any for sale used).
The two baggage compartments (front and rear) make for easy adjustment of W&B when loading them up full of stuff for cross country flights too.
All RV-8's are sliders too (except for those with fastback mods, which most of those have tip-over canopies like an RV-4, but the fastbacks are pretty rare... almost never see any for sale used).
The two baggage compartments (front and rear) make for easy adjustment of W&B when loading them up full of stuff for cross country flights too.
RV10flyer
Pattern Altitude
Pay off cars, house, finish remodeling. What you save in interest in one year will pay for hangar rent, rv insurance, maintenance and fuel. My bank sure was not happy. Rent once a month to stay current. Once everything is paid for and you finish all of the "honey do's". Buy(solo or partnership) or build.
I have 230 hrs now since pp in 2008. 80 of those in our RV-10. I had never built a plane, but built our house and two garages. I do mean built not paid someone else to build. Happily married for 21 yrs. Two children 12/9. Low incomes for us both(compared to what people think they are worth nowadays).
Saved, ordered entire SLOW build airframe kit. Started 12/1/2009. Saved, finished airframe, ordered engine/prop/avionics. Finished and flew first flight 12/1/2011. 25 hours/week. I called Van's once for tech help. Relied heavily on VAF and other -10 builders. IT CAN BE DONE! You don't have to be rich and you don't have buy or build a show quality plane for it to be safe.
I cancelled all but basic satellite tv. We had our last big family
vacation(everyone thinks they just have to have every year) in 2007. We ate out 2X/year. I watched 20 hrs of tv/yr. I got online 30 min/day. All of this while working 30-50 hours/week.
I built because I knew I would have a new 160 kt/10.3 gph family hauler for
1/3 of factory built not because I enjoyed building. After phase 1(25 hrs) we have had a blast flying around the country. Is this for you or anyone else? You and your wife will have to decide. It is all about good financial decision-making, doing without and hard work. Good luck!!
I have 230 hrs now since pp in 2008. 80 of those in our RV-10. I had never built a plane, but built our house and two garages. I do mean built not paid someone else to build. Happily married for 21 yrs. Two children 12/9. Low incomes for us both(compared to what people think they are worth nowadays).
Saved, ordered entire SLOW build airframe kit. Started 12/1/2009. Saved, finished airframe, ordered engine/prop/avionics. Finished and flew first flight 12/1/2011. 25 hours/week. I called Van's once for tech help. Relied heavily on VAF and other -10 builders. IT CAN BE DONE! You don't have to be rich and you don't have buy or build a show quality plane for it to be safe.
I cancelled all but basic satellite tv. We had our last big family
vacation(everyone thinks they just have to have every year) in 2007. We ate out 2X/year. I watched 20 hrs of tv/yr. I got online 30 min/day. All of this while working 30-50 hours/week.
I built because I knew I would have a new 160 kt/10.3 gph family hauler for
1/3 of factory built not because I enjoyed building. After phase 1(25 hrs) we have had a blast flying around the country. Is this for you or anyone else? You and your wife will have to decide. It is all about good financial decision-making, doing without and hard work. Good luck!!
rkdF250
Pre-takeoff checklist
I am fighting the same question as you are right now. I think I might have found a compromise though. My main hangup is I want something with IFR certification for those questionable trips and something economical and fun to fly as well. Something with folding wings would be perfect so I could store it off airport (unlikely to find one). I think I have decided to get my A&P which will take 15 months four days a week 3:30PM to 11:00PM at a cost of 35K. So that I can work on my own certified aircraft. I figure purchasing a 182 with mechanical issues for around 30K fixing it up with 20K parts I will be all in for 85k. I hope to offset some of the expense by helping out other folks at the airport. Will work to fly LOL.....
DaleB
Final Approach
I hear you, Wayne. Debt is the killer of dreams. We've replaced every window in the house with GOOD quality new ones ($$$), new heat pump & furnace, new steel roof ($$$), and managed to do it without any new debt. I'll have the house paid off in 5-6 years and both cars in two (all early) -- airplane or no. I've learned some really nice tricks for getting rid of debt that will save us a few years worth of money for retirement. I carry zero credit card debt, though I use a couple of cards heavily so we never have to pay for hotels and have some spending money when we're on vacation. And... we do take vacations. We are enjoying the results of many years of hard work and a little good luck. Just no lottery winnings or inherited money.
Getting the finances in order and other major outlays done is one of the things I'm doing prior to starting... though I may cheat a little and start the empennage a little early. I'm willing to spend what I need to in order to do this, but I don't expect those around me to have to endure any hardship for it. Unless the neighbors object to the compressor & rivet gun noise.
Getting the finances in order and other major outlays done is one of the things I'm doing prior to starting... though I may cheat a little and start the empennage a little early. I'm willing to spend what I need to in order to do this, but I don't expect those around me to have to endure any hardship for it. Unless the neighbors object to the compressor & rivet gun noise.
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denverpilot
Tied Down
You've done well!
I want to make a comment about that line above, though.
Too many folks think there's "tricks" to money and budget. Perhaps stemming from our Country's obsession with derivatives and false income via pumping Inflation higher...
They think there's a trick to everything related to the greenback.
There are no tricks, and I know you know it, too ... from your story. Spend less than you make. That's the trick. Not much of a trick. Just a mathematical fact.
After that, it's ratios. If you could snap your fingers and suddenly give everyone on the planet double their money tomorrow, multiplication math dictates that you'd effectively be poorer than everyone who started with a higher number than you.
People don't process money that way though. They'd feel "richer" even though their currency was devalued and they can't buy what they could yesterday with it. They would spend that "extra money" and end up poorer when they got back to their normal income level.
I have a huge pet peeve with authors and folks (trying to take your money, by the way) who use this "Let me show you my tricks!" line, always followed by, "For the low price of only five easy payments of $19.95!"
Somehow we've created a society that believes this stupidity. And I know you're on board with this. I just worry about the phrase.
Teach folks, in true honest, tough, love -- that there are no tricks. You either make more than you spend or you get to be someone else's wage slave for a very long time.
Once they truly tie debt to slavery in their heads, they'll get it. You and all that you accomplish, are owned by your debtors until the debt is paid. Your fiscal accomplishments are not your own.
If you have 20% debt to income, 20% of your life is paying for someone else's. People really don't get this.
I once did hear a great thought though, that would be entertaining. The author bet that if the Net Worth of the owner were hanging above their head like a hologram for all to see, people would suddenly be a whole lot less interested in being the people driving fancy cars and living in fancy houses. There'd be a few who'd have big numbers and we'd be more impressed by those than that ones with giant soul-crushing negative numbers over their heads driving a Porche.
Sports car rental places would probably flourish.
Them's my thoughts on it all, anyway. I know you didn't ask... You just accidentally hit a trigger phrase for me. Money "tricks". There aren't any.
Nice job figuring it out and choosing not to pay for someone else's fun. It's not fun digging out. Been there, done that. Got the t-shirt.
People who understand how to utilize debt to make money don't call it debt, they call it leverage. And they understand the risks involved in utilizing it before they ever pull that lever.
DaleB
Final Approach
Oh, hell yeah. There was a time we lived paycheck to paycheck, in debt up to our eyeballs and had credit cards getting canceled because we were months behind. We weren't even living extravagantly, we just had lots of kids and followed the so-called "normal" ways of doing things... the ones designed to maximize profit for banks, car dealers, credit card companies, etc. It was destroying our lives and any dreams we ever had.
The only neat "trick" I learned is more of a tool. I paid off both of our car loans with a loan from one of the 401(k) accounts. I would normally not have considered it, but I'm paying substantially less per month than I was before on the two bank loans and all of it -- every dime, including interest -- goes into my own retirement account. Paying interest on loans doesn't sting much when you're "paying" it into your own bank account. The interest rate is lower than what the bank was getting, but still more than most investments are paying lately. The difference is going into savings, which will pay for the remodel project we'll be starting this fall or winter.
I've been paying extra principal on the house almost since Day 1 -- easy, just don't buy as much house as the bank tells you you can. We've refinanced it when it made sense to do so and would save us money almost immediately. The last one got us down to a ridiculously low interest rate, so low I can hardly believe it. Well under 3%. I'm paying enough extra that I tend to think of it like a car loan now -- trying to put it away withing five years, maybe six. Sweet. We'll end up paying well over $150K less in interest than we would have with our original mortgage.
Yes, it really helps to finally land a job that pays pretty well. It also helps to have a little sideline business that pays for the hobbies and the occasional vacation. It helped that our kids either enlisted or got scholarships (or both). It all helps... but the biggest help of all came from breaking the mindset of going into debt for everything. We stopped borrowing money for toys long ago. These days I don't buy squat that I can't pay cash for... but I'll gladly take interest-free financing (if a discount isn't an option), just to squeeze that last few bucks of interest out of the money before letting it go.
LandSickness
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fri tale
Geez, where's a "standing ovation" emoticon when you need one?
You've done well!
I want to make a comment about that line above, though.
Too many folks think there's "tricks" to money and budget. Perhaps stemming from our Country's obsession with derivatives and false income via pumping Inflation higher...
They think there's a trick to everything related to the greenback.
There are no tricks, and I know you know it, too ... from your story. Spend less than you make. That's the trick. Not much of a trick. Just a mathematical fact.
After that, it's ratios. If you could snap your fingers and suddenly give everyone on the planet double their money tomorrow, multiplication math dictates that you'd effectively be poorer than everyone who started with a higher number than you.
People don't process money that way though. They'd feel "richer" even though their currency was devalued and they can't buy what they could yesterday with it. They would spend that "extra money" and end up poorer when they got back to their normal income level.
I have a huge pet peeve with authors and folks (trying to take your money, by the way) who use this "Let me show you my tricks!" line, always followed by, "For the low price of only five easy payments of $19.95!"
Somehow we've created a society that believes this stupidity. And I know you're on board with this. I just worry about the phrase.
Teach folks, in true honest, tough, love -- that there are no tricks. You either make more than you spend or you get to be someone else's wage slave for a very long time.
Once they truly tie debt to slavery in their heads, they'll get it. You and all that you accomplish, are owned by your debtors until the debt is paid. Your fiscal accomplishments are not your own.
If you have 20% debt to income, 20% of your life is paying for someone else's. People really don't get this.
I once did hear a great thought though, that would be entertaining. The author bet that if the Net Worth of the owner were hanging above their head like a hologram for all to see, people would suddenly be a whole lot less interested in being the people driving fancy cars and living in fancy houses. There'd be a few who'd have big numbers and we'd be more impressed by those than that ones with giant soul-crushing negative numbers over their heads driving a Porche.
Sports car rental places would probably flourish.
Them's my thoughts on it all, anyway. I know you didn't ask... You just accidentally hit a trigger phrase for me. Money "tricks". There aren't any.
Nice job figuring it out and choosing not to pay for someone else's fun. It's not fun digging out. Been there, done that. Got the t-shirt.
People who understand how to utilize debt to make money don't call it debt, they call it leverage. And they understand the risks involved in utilizing it before they ever pull that lever.
dell30rb
Final Approach
There are tricks... debt is fine if you are wise about it. I guess they are called 'tricks' because the average citizen is not savvy enough to be wise with their debt. Sometimes it is more advantageous to use a form of debt to pay for something, even if you are able to pay cash for it. This is because of a critical concept... that a dollar in the hand today is worth more than a dollar received at some point in the future.
Say you want a new car and you can either pay cash for it or get a low interest loan. It might be to your advantage to get the loan, and invest your cash into something profitable.
Say you want a new car and you can either pay cash for it or get a low interest loan. It might be to your advantage to get the loan, and invest your cash into something profitable.
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LandSickness
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fri tale
That depends on your current net worth. Given the chance to pay $40k cash for a car today and invest the $5k for five years or pay $45k over five years for the same car, I'll take the first option every time. If the 60 payments is a more manageable strike to your net worth, then you're right.
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DaleB
Final Approach
Over time I have learned... my investment almost never pay more than interest on a load will cost.
We'll finance cars, but I always pay them off as early as possible. The 401(k) loan idea, though... that's something I would normally never consider, but after working out the numbers it was clearly a great move. It's saving me a ton of money. Not just the interest on the car loans that I'm no longer paying to someone else. The difference in the payments is allowing me to pay down my mortgage principal, which will save me much. much more in the longer term. Like, enough to pay for both vehicles. In fact, if you look at what we'd have paid on our original home loan had we paid it off over 30 years as originally agreed... we've saved enough for both vehicles, plus a pretty nice airplane.
Or a few years of retirement.
<edit: Conventional wisdom/advice says that 401(k) loans are a Bad Idea(tm). This advice almost always assumes that you're desperate for cash, and will stop contributing to your 401(k) while paying off the loan. If you don't stop paing into it -- if you don't desperately need the cash -- it can be a pretty good deal to finaice your own purchases rather than letting someone else do iy. Just make sure you can pay it all back if you change jobs!>
We'll finance cars, but I always pay them off as early as possible. The 401(k) loan idea, though... that's something I would normally never consider, but after working out the numbers it was clearly a great move. It's saving me a ton of money. Not just the interest on the car loans that I'm no longer paying to someone else. The difference in the payments is allowing me to pay down my mortgage principal, which will save me much. much more in the longer term. Like, enough to pay for both vehicles. In fact, if you look at what we'd have paid on our original home loan had we paid it off over 30 years as originally agreed... we've saved enough for both vehicles, plus a pretty nice airplane.
Or a few years of retirement.
<edit: Conventional wisdom/advice says that 401(k) loans are a Bad Idea(tm). This advice almost always assumes that you're desperate for cash, and will stop contributing to your 401(k) while paying off the loan. If you don't stop paing into it -- if you don't desperately need the cash -- it can be a pretty good deal to finaice your own purchases rather than letting someone else do iy. Just make sure you can pay it all back if you change jobs!>
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denverpilot
Tied Down
A 401k loan is a ticking time bomb for someone on the edge of solvency who is suddenly unemployed, though. There's a risk in it.
Don't pay it back, it becomes a taxable event plus government early withdrawal penalties.
You also lose all investment gains on any money loaned out. Good in down times, bad in up.
And you get double taxed on the money used to repay the loan, because you pay it back with post-tax dollars which is what the 401k is avoiding until retirement. Then you're taxed again on it.
It's a tool. If it worked out on your spreadsheet to be better, good.
http://retireplan.about.com/od/401kplans/a/401k_loan.htm
It's not without significant risks, but if mitigated, an interesting option.
Don't pay it back, it becomes a taxable event plus government early withdrawal penalties.
You also lose all investment gains on any money loaned out. Good in down times, bad in up.
And you get double taxed on the money used to repay the loan, because you pay it back with post-tax dollars which is what the 401k is avoiding until retirement. Then you're taxed again on it.
It's a tool. If it worked out on your spreadsheet to be better, good.
http://retireplan.about.com/od/401kplans/a/401k_loan.htm
It's not without significant risks, but if mitigated, an interesting option.
DaleB
Final Approach
Hence the common "OMG DON'T DO IT!!!" advice.
In my case... I have the money in the bank to pay off both car loans. I don't want to do that, because I want the savings there if I should suddenly become unemployed (or some other disaster). I'm paying the bank between 5 and 6 percent.
The 401(k) loan "costs" me less interest, and all of the principal and interest goes into my own account. I take my own sweet time paying it off, knowing I'm keeping the money anyway. In the mean time, I've lowered my car payments by an aggregate $300 per month... which I plop down ads (more) extra principal payments on my house, saving even more in interest. In reality: I get clear title to both vehicles, my interest rate is zero, and I've just guaranteed a 5%+ rate of return (though no higher than that) on a small part of my retirement account.
All the while, I'm still contributing to my plan, still getting employer matching funds, nothing changed there. In the event of a disaster, yeah, there's risk -- theoretically I might have to empty the bank account within 90 days. If I'm unemployed for longer than that, things will get tight.
My ace in the hole is this: My company will not just dump me without a fair amount of warning, and "displaced" workers almost always get a nice parting gift - in my case it would probably a few months' salary. So let's assume tomorrow morning I get a phone call from my manager and find out I'm on my last few weeks of employment. The instant I hang up the phone, my next call will be to secure a home equity loan - to pay off the 401(k) loan, of course. Hey, I'm still employed. I'll still be paying less than the original car loans, and I don't have to drain our savings.
If you do it right, and within a fairly limited set of parameters, there's very little risk and no down side. I still would not recommend a 401(k) loan under normal circumstances, though. It can indeed be a ticking time bomb if you don't know exactly what you're doing.
So what's this got to do with building an airplane? Everything! I don't borrow money for toys.
Meh. You're really only double-taxed on the interest you pay yourself... unless I'm just too slow tonight to figure that out. My tax rate isn't horrible yet anyway; I can live with it.
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denverpilot
Tied Down
It's because money going into a 401k is from pre-tax dollars on your pay stub, and money paying back a 401k loan is from post-tax dollars. It raises your taxable income in the years you do it.
You are doing an interesting mix because you're both paying off the loan and paying more money into the 401k which is an interesting strategy I hadn't thought of. Nifty. Maybe there are "tricks".
Our tax rate is god-awful. We are DINKs in our so-called "prime earning years" and while I won't complain, the only way out for us is to fund retirement heavily. (Or start a business, or whatever...)
A "first world problem" if there ever was one, but we as a Country sure do want folks to pop out ankle-biters, judging by our tax code!
I pay for more of my neighbor's kid's school mill levy than he does. Maybe his kids are supposed to take care of me when I'm old? Ha. Right.
I personally would like to see that subsidy dropped... want to have kids? Go for it. Same tax rate. But I'm square in the minority on that one so I know it'll never happen.
I'd happily spend the money on AvGas. Just let me list the airplane as a dependent.
DaleB
Final Approach
I see that... but you got pre-tax dollars out without paying income tax on them, so it's a wash, I think.
I kind of thought so.You are doing an interesting mix because you're both paying off the loan and paying more money into the 401k which is an interesting strategy I hadn't thought of. Nifty. Maybe there are "tricks".
As a parent of five kids... I respectfully disagree.A "first world problem" if there ever was one, but we as a Country sure do want folks to pop out ankle-biters, judging by our tax code!
I pay for more of my neighbor's kid's school mill levy than he does. Maybe his kids are supposed to take care of me when I'm old? Ha. Right.
I personally would like to see that subsidy dropped... want to have kids? Go for it. Same tax rate. But I'm square in the minority on that one so I know it'll never happen.
The tiny tax break you get per kid is most certainly not enough to encourage anyone to have them, believe me.Mafoo
Cleared for Takeoff
Right now we as a nation we spend far more then we bring in. The only way we will ever not fail as a country, is if we have enough kids to pay for our mismanagement of this nation.
I have not made the choice to completely change my life and have kids. Because of this, I have no problem spending a little extra money in taxes then the one who have, considering they are raising the future holders of my debt.
Considering how much we seem to want to keep spending, we need a lot more kids in the world.
I have not made the choice to completely change my life and have kids. Because of this, I have no problem spending a little extra money in taxes then the one who have, considering they are raising the future holders of my debt.
Considering how much we seem to want to keep spending, we need a lot more kids in the world.
Mafoo
Cleared for Takeoff
So what's this got to do with building an airplane? Everything! I don't borrow money for toys.
If one has $50,000 in loans, and comes into $50,000 dollars, and choses not to apply that money to the loan, and pay cash for a toy instead, that is no different then paying off the loan and getting a $50,000 loan on a toy.
If you are in dept to anyone for anything, and buy a toy, you chose to borrow money for it.
Not saying it's the wrong thing to do, just disagree with your statement.
wabower
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Wayne
The inescapable conclusion is that no matter which pocket the money or note to the bank is in, it's all in the same pair of pants being worn by the same guy or guyette. Contents of all pockets must be included in the count to determine the net number.
Based on many years' experience in the financial planning field, I will testify under oath that those who think they know all the tricks of the trade often find that they would be better off knowing the trade. "Buy term and invest the difference" was a highly-advocated trick for many years. We learned from analyzing clients' portfolios that buying the term was much easier for them to accomplish than was investing the difference.
Based on many years' experience in the financial planning field, I will testify under oath that those who think they know all the tricks of the trade often find that they would be better off knowing the trade. "Buy term and invest the difference" was a highly-advocated trick for many years. We learned from analyzing clients' portfolios that buying the term was much easier for them to accomplish than was investing the difference.
LandSickness
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fri tale
Why do you classify "Buy term and invest the difference" as a trick? You buy only the insurance that will replace your income and the rest goes to grow your net worth. Compared to some of the whole life and universal life cash value products out there, term is the better way to go. And what made investing the difference difficult? I'm not arguing your point, I'm just curious what you mean.
I think Wayne is saying that, based on his experience in financial planning, folks just don't end up investing the difference. Therefore, the whole life insurance product, while inferior to term+invest the difference, perhaps ends up better for the individual.
This is similar to Dave Ramsey saying that people should always pay off the smallest cc balance first, regardless of interest rate. Simple math shows that this will end up costing more money. However, recent studies have backed up his approach that folks are more likely to stick with debt reduction if they experience early "wins" of paying off lower balances.
LandSickness
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fri tale
I agree, the early "wins" serve to motivate clients to stick to a debt reduction plan.
The biggest challenge with respect to investing is education. There's an old proverb that says "A man's weakness is not found in what he doesn't know but rather what he thinks he knows." When people know better, they do better.
I know people who believe that overpaying the government and getting a tax refund back is the only way they can "save", when in fact, that lack of discipline to invest that money monthly is costing them dearly. Of course, these are also the people who "splurge" on a large purchase with the refund check, as though they've somehow "earned" the splurge. It's a mindset that has to be overcome.