Editor: Crass Cash

Here are the assumptions.  You want to be a millionaire by the time you retire at 65.  You're currently making $50k at the age of 25.  Your employer does a company match dollar for dollar for 3% of your income.  You're in the 25% tax bracket and you invest your money into an index fund that averages 7% over the next 40 years.  All very commons standard stuff.  How much do you actually have to contribute to get there?

Well you're going to need to put away $5,000 a year for the next 40 years.  You'll save $1,250 on taxes by contributing to your 401k.  The company will also contribute $1,500 to match your contribution.  This means that you actually only need to contribute $2,250 per year!  

The $1,250 + $1,500 in employer matching + $2,250 = $5,000.  You do this over 40 years and all that you end up contributing is $90,000.   That's right you save $90,000 and you end up being a millionaire!

How much do you end up with if you save the full 10% of your income?  The full $5,000 plus the other two benefits of tax savings and employer contributions this comes out to a approximately $1,500,000.  

Editor: Crass Cash

This article has been circulating around the financial news sites for days.  According to the comments section people are shocked that this should happen, but I know the readers of this site aren't shocked because I've preached about this numerous times.  Believe it or not this happens all of the time.  

So go through and read the article and tell me where they made the financial mistake: http://money.cnn.com/2014/07/28/pf/parents-student-loans/index.html

If you said not having life insurance on their daughter, you're the big winner!!! 

If you co-sign for a student loan you always need to have life insurance up to the amount of the outstanding loan.  And since she also had 3 young kids, she should have had an ass load of insurance for them as well!  
"The insurance must have been expensive though?" wrong!  She or her parents could have gotten $1,000,000 worth of term life insurance for 20 years for only $1 a day.  That's a third LESS THAN a basic TV cable package. 

That's right all of this could have been averted for $1/day.  The loan would have been paid off and her kids would have had $900,000 to be put into a trust for their well being until they graduated from high school or college. Assuming anything was left after their grandparents had to take care of them.  

If she just wanted to make sure that her parents weren't stuck with the student loan bill then it would have cost her $9/month to have this paid off with a 20 year term loan. 

Such a simple solution for so little money.  And now everybody is going to get their panties in a wad and petition congress to have this changed.  As a result people won't be able to get the student loans and/or the rates for these loans will skyrocket, much like credit card rates have.  You have an unsecured debt that last for 20 years.  WTF do you think is going to happen??

Here's another result.  These loans go away or the interest rates increase.  People look to Congress once again.  Now they start to subsidize these loans with tax payers money and we end up footing the bill because they didn't do proper financial planning.  Did I mention this could have been averted for $9 per month??

Editor: Crass Cash

I originally thought that this article was an error or that the statistics were just a fluke.  After delving more and more into it though I came to the conclusion that it was much more accurate than I originally thought due to the type of the loans and also the previous studies done in the past.  

This is quite sad.  Part of it is due to people not having health insurance or an emergency fund to handle the deductible.  I also fully understand when people fall behind for things like utility bills since these things are necessities.  However, due to Obamacare the medical bills issue should go away.  Everybody should have medical insurance.  And now if you can't afford it, the govt will subsidize it for you.  

So how do you make sure that this never happens to you?  There are some simple solutions that involve financial planning.  

1. Have an emergency fund.  You should have anywhere to a few months worth of expenses saved to a year's worth of expenses saved.  The lower your education level and the more seasonal/insecure you are in your job, the more you need to have. 

2. Get insurance.  There are copious amounts of insurance to help you cope with this.  Life insurance, health insurance, disability insurance, etc.  Every since person should have health insurance.  This helps at least prevent you from having to declare bankruptcy in the case of a serious illness.  The Emergency Fund should be at least large enough to pay the yearly deductible.  If you qualify for an HSA, max it out!  If you have a job and you lose, then file for unemployment insurance benefits.  This isn't a handout, it's like a govt sponsored emergency fund that was paid for by your employer.  You should also have long-term disability insurance in the event that you can't work due to an illness.  This should last you until you're 65 so that then social security will kick in.  Set the payout to be 6 months after the illness, that will help reduce your premiums.  Remember you should already have this money in an emergency fund.  If you have dependents, then you also need to have life insurance.  This will help your family not fall behind or into poverty in the event of your death.  

3.  Never borrow.  You can't be hounded by debt collectors if you never borrow money.  I understand this is close to impossible for some things like utilities and mortgages, but for God's sake get rid of the fucking credit cards!  Pay off all of your debts as quickly as possible and then go to a cash diet.  Some might think this is extreme, but you've proven to have a problem with this so you need to take extreme measures.  People with gambling problems, don't need to hang out in Vegas...