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    Budgeting and savings

    I was working on updating our family budget with a new baby a couple weeks away and after the initial shock of daycare costs.

    It just got me thinking if a lot of people in my age range (almost 35) are really saving a lot of money for retirement or the unexpected. I’ve got an older car, don’t have many monthly subscriptions, no student loans, we do have a Washington DC priced mortgage that hurts but even then we are saving around 20-25% of our post tax income. Which could easily be wiped with the shutdown or other major home expense for the year. And won’t exactly allow for an early retirement especially if we stay in this area.

    It got me wondering do others save more? Should we try harder to trim our budget? How much of your post tax revenue do you aim to save?

    Is it a generation thing or is life that much more expensive now for our generation than before since cell phones are required, higher education is needed etc.

    #2
    From my experience and observation, if you're saving 20-25% you are doing much better than most people your age (I have children almost your age and they aren't putting aside that much). Based on what I've read, 5-10% is more typical.

    Starting early is the right thing to do and don't give up--I didn't start saving until my mid-40's, and it was around that rate. I am happily shocked at what I've managed to put away. You will do much better because time is a huge factor in how well you do down the road.

    Some day, probably not that far away, you will be pleasantly surprised to find that the money you're making from your investments exceeds your contributions--and then you will start to see some real progress.

    Keep up the good work!
    WHY ARE THE GUYS IN SUITS HERE? HAS SOMETHING GONE WRONG?

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      #3
      Originally posted by hockeysc23 View Post
      I was working on updating our family budget with a new baby a couple weeks away and after the initial shock of daycare costs.

      It just got me thinking if a lot of people in my age range (almost 35) are really saving a lot of money for retirement or the unexpected. I’ve got an older car, don’t have many monthly subscriptions, no student loans, we do have a Washington DC priced mortgage that hurts but even then we are saving around 20-25% of our post tax income. Which could easily be wiped with the shutdown or other major home expense for the year. And won’t exactly allow for an early retirement especially if we stay in this area.

      It got me wondering do others save more? Should we try harder to trim our budget? How much of your post tax revenue do you aim to save?

      Is it a generation thing or is life that much more expensive now for our generation than before since cell phones are required, higher education is needed etc.
      First, congratulations on the upcoming new addition to your family. Good stuff!

      I'm recently retired and not quite a generation ahead so I'm not sure I am going to provide the perspective you are looking for but here goes. My wife and I both worked, had two children and are/were moderate to high income earners. We also live in a very high cost of living area. We usually targeted 30 - 35% of pretax income.

      Of course that percentage is meaningless without taking into account, salary, family size etc. It is obviously easier to save more if you are a high income earner then a lower one. Also much easier to save if you have 1 child then if you have 4.

      While things are more expensive, salaries are also higher. How much higher of course depends on one's occupation. I belong to a financial forum (which I'm not sure if I'm allowed to mention here so I won't) which advocates a live below your means philosophy as well as a high savings rate to achieve the option of an early retirement.

      How much you save depends on so many things. How old do you want to be when you retire? What will your expenses be? Does your spouse work? Will you be receiving a pension, social security, etc. So your question cannot be answered simply.

      Over at that other forum I mentioned we subscribe to the belief of "pay yourself first". All that means is to set an amount to save and then use the balance to pay everything else.

      You also mentioned a possible emergency home expense could wipe out your saving. You should have an emergency fund set aside which is simply 3-6 months of monthly expenses invested in something very safe and very liquid like a high yield savings account.

      Comment


        #4
        This question is near and dear to my heart, as personal finances (and reading on it, tweaking/fine tuning mine, etc.) is effectively one of my hobbies. I get concerned at a macro level at how little--according to most polls I've seen--people in general seem to be saving these days. It's obviously something that is easier to do with higher incomes (biggest duh ever?), but it is pretty low even on a percentage basis. I'm not all anti-millennial in this take, as it goes up through boomers too. They'll just have the benefit of full social security benefits and maybe even pensions (depending on their job) to rely on. I honestly can't say that for sure for people more toward our age. I do think that generally speaking life is more expensive now... but also people are much worse at telling themselves no. Keeping up with the Joneses (or the Kardashians, sadly) is real and it has become an even bigger part of people's lives from what I have experienced.

        Stepping off my soapbox, first off -- congrats on the incoming spawn! I won't restate anything [MENTION=19117]Ron[/MENTION] said, but most of it I would co-sign. I'd say that 20-25% post-tax is fairly decent, especially with having at least one kid (or about to have one) and a wife. However, that's not to say you should call it a day. You're obviously taking a look at where you project to, and have concerns, such that maybe it is a good time for you to revisit goals/targets/etc. That's healthy!

        When I look at this for myself, I look at investments and savings together as a percentage of my gross income (instead of post-tax) given that some of my investments (namely, 401k) are pre-tax. Using that metric, I generally have been targeting 25-30% of my gross income (including bonuses) for investment/savings. I have been afforded a relatively high income, so even with having paid off grad school student loans and living in a high cost geography, I still am able to put away a decent amount. The last few years I have had some big expenditures (wedding, for example), so I've been lower than my target percentage, but it's good to keep the target in mind even when I have times where I miss the target. I'd prefer a target that is a bit of a stretch, so that it keeps me working at it. If it's too easy, then you'll start not paying attention and potentially get yourself off track.

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          #5
          20-25 percent! Outside of your 401k? Man. I wish I could do that. Maybe when the three kids are out of daycare ...

          Comment


            #6
            [MENTION=19117]Ron[/MENTION] is a Boglehead...don't worry we allow other forum mentions. If you just refer to the other forum in all of your posts we generally ask you to stop but here and there are not a problem.

            Man this is a big question but I will break out savings and budgeting into parts. We are dual income, 2 kids in daycare, own a home, and own 2 cars (one of which is paid off).
            1. Retirement - 20% gross income. This is split, because I feel like taxes will be more later in life, by putting money into our 401(k)s up to company match, fund Roth IRA, back to 401(k) until we hit 20% gross.
            2. Next is mortgage - I mean you have to budget to pay this but at some point we refinanced a 30 year to a 15 year. I don't consider my house anything other than an expense. It is not an investment as it costs money to upkeep and if I needed money I can't really monetize where I live.
            3. Other savings - We save in our kids 529 plans and also additional in savings which cover things we want to do around the house, vacations, and other miscellaneous things. Our emergency fund is a solid 3 months but I feel 6 months is excessive. It is really a backstop for unemployment and we have family that could help.
            4. Budgeting monthly expenses. We used to do this but it was a PITA. It was a sore spot in our marriage to say "you spent what on X?!?" Now we just say that there is a certain limit and I remind my wife of this. It has worked well as we only have 1 checking account and a couple savings accounts where we bucket other savings.

            Could we save more than 20% gross? Yes. Do we want to? Not really. We don't want to forgo life now when we already save quite a bit and miss out later in life. Our planning will have enough saved, unless there is some world wide crash for an extended period, that will last into our 90s or more.

            Splurges - We splurged on a cleaning person for a while but cycled through a few due to cost or cleaning ability. We now clean ourselves but take turns and the other person keeps what we would have spent on the cleaning person. Also a lawn guy. It used to take 2.5hrs to mow our lawn and I did it for multiple years in the hot TN summers. I talk to a neighbor and finally call his lawn guy. It was cheaper than I imagined and I get my 5hrs a month back. In essence, I am truly buying time. My wife and I now have an agreement that if we hate doing something and can afford it, we should buy time where ever possible. Our house is not that dirty and plus it only takes and hour or 2.

            Forgot to mention - we also spend money to maintain our health. If you believe in compound interest and making you wealthy, the similar thing is there with your health. Compounding negative health items will make it hard to be mobile late in life. I've told my wife, I will take a mobile active life cut short to 75 than live another 10 years being immobile.

            Comment


              #7
              Originally posted by JBarwick View Post
              [MENTION=19117]Ron[/MENTION] is a Boglehead...
              Why yes. Yes I am.

              Comment


                #8
                For what it is worth, if you are looking for a good program to help with budgeting, I highly recommend YNAB (youneedabudget). My wife and I started using it about 4 years ago and found that it's philosophy of giving "every dollar a job" has really helped use meet our savings goals and to generally be more mindful of how we spend our money.

                Sent from my ONEPLUS A5010 using Tapatalk

                Comment


                  #9
                  Everyone is very different with their stances on personal finance. I think I am pretty conservative because I don’t want to run into the things my parents ran into when I was growing up. FWIW, I’m in my early 30’s and had a kid in early 2018.

                  Where does my income go? Uncle Sam gets ~1/3, I save (invest) ~1/3, and I spend ~1/3. I have an emergency fund of ~6 months of the expense items on my budget. Luckily the 1/3 I spend allows me to live in an acceptable spot, and enjoy experiences. I’m not very extravagant, I drive a 2002 vehicle with 198k miles (but it’s in good shape!). I struggle with how much I should have saved at this point in my life, so I don’t know if my portfolio is good, light or heavy.

                  I have 401k, ROTH IRA, an HSA that I think needs to be invested and want to start a 529 for the kid, but not sure what to do from there.

                  Keep in mind that you need to assign value to your time. For me, cleaning is not worth my time, but home renovation projects are. One thing I hate to do and takes me forever, the other I enjoy and saves me tons of $$. Another thing was do I want to spend every weekend cleaning or spending time with the kid.
                  Last edited by Creature; January 25, 2019, 10:29 PM.

                  Comment


                    #10
                    Originally posted by Creature View Post
                    ***
                    Where does my income go? Uncle Sam gets ~1/3, I save (invest) ~1/3, and I spend ~1/3. I have an emergency fund of ~6 months of the expense items on my budget. Luckily the 1/3 I spend allows me to live in an acceptable spot, and enjoy experiences. I’m not very extravagant, I drive a 2002 vehicle with 198k miles (but it’s in good shape!). I struggle with how much I should have saved at this point in my life, so I don’t know if my portfolio is good, light or heavy.

                    I have 401k, ROTH IRA, an HSA that I think needs to be invested and want to start a 529 for the kid, but not sure what to do from there.

                    ***
                    Some of you young folks are amazing at saving and put we older people to shame--keep up the great work!

                    I will tell you that, according to some chart/calculator thing on my 401k's website, I have more money put away than about 70% of people my age (I'm 59 1/2), and I've only got about 5 years' income saved. My excuse is that I floundered around career-wise until my early 40's--two divorces and a business failure, and I didn't start saving until after that.

                    I'm thinking that somebody like you is way ahead of almost everyone if you're saving 1/3 of your income, because I don't save that much and I'm ahead of 70% of the people my age.

                    Here's an article with some guidelines. I'm a little bit behind, but I started late. Plus, I have a young wife who makes almost as much as I do, so she's my backup plan.

                    https://www.cnbc.com/2017/02/22/here...every-age.html
                    WHY ARE THE GUYS IN SUITS HERE? HAS SOMETHING GONE WRONG?

                    Comment


                      #11
                      Originally posted by mebejoseph View Post
                      I'm thinking that somebody like you is way ahead of almost everyone if you're saving 1/3 of your income, because I don't save that much and I'm ahead of 70% of the people my age.
                      [/url]
                      Thanks, I would caution though, just because you’re better than the average you may not be where you want. You may want to retire early (or late), you may want to spend more (or less)in retirement, etc... For those guidelines to make sense, you need to see how they are derived. If I save 10x of my income for retirement (as the article suggests), can I retire when I’m 50 and finish paying off my mortgage, spend 4 months per year traveling and see multiple shows/ sporting events per year or the next 30 years?

                      The key for me has been instead of changing my lifestyle as I’ve increased my income, move more of it to savings. Then I bought a house which accounts for the majority of my spending...

                      Comment


                        #12
                        Originally posted by Creature View Post
                        Thanks, I would caution though, just because you’re better than the average you may not be where you want. You may want to retire early (or late), you may want to spend more (or less)in retirement, etc... For those guidelines to make sense, you need to see how they are derived. If I save 10x of my income for retirement (as the article suggests), can I retire when I’m 50 and finish paying off my mortgage, spend 4 months per year traveling and see multiple shows/ sporting events per year or the next 30 years?

                        The key for me has been instead of changing my lifestyle as I’ve increased my income, move more of it to savings. Then I bought a house which accounts for the majority of my spending...
                        I agree 100%. It sounds like you have an excellent understanding of the issues and are very disciplined with your lifestyle and savings. There are plenty of websites that offer projections and calculations about how much we will need for retirement based on our goals. I bet you're aware of the some of the people your age giving financial advice on how to retire at an early age and still live a great life.

                        I've read some of these things and other more traditional financial advice and I come to only one conclusion: You can't save too much. I know people with $10,000,000 in their 401k accounts, are 65-70, and they don't feel safe retiring. Largely because they have vacation homes, boats, expensive travel habits, and so forth.

                        On the other hand, my mother made the mistake of retiring early, at about 63, from a great paying career and she regrets it. She's about 80 now and out of money other than social security. Fortunately her home is paid off and her children are generous. Plus, she has never had expensive habits. Her big fun is playing cards with people and maybe a simple trip once or twice a year.

                        So, you're right--one's goals for retire age and the lifestyle you want after retiring largely dictate how much money you'll need. That's a very individual determination.

                        Historical data demonstrates that you could have taken over the past 30 or 40 years you could have invested a lump sum in a hypothetical index fund (which didn't really exist 40 years ago), taken 4% a year out, and still have more money now than you did when you started. But that's no guarantee that would happen again in the future.

                        I'd feel pretty safe retiring at 70 with about ten times my current annual expenses put away. 4% a year from that has a something like a 95% chance of lasting until I'm 100 if I put it in a fairly conservative mix of stocks and bonds--I think about 60/40. That's about a 80% income replacement when I count social security. And given that I have enough expensive shoes to last me until I'm dead, I won't need more than 80% of what I make now. No--really, our plans are to move to a state with a lower cost of living and lower income taxes than California. We're already tired of the traffic and over population here.

                        But if I wanted to retire now, I'd probably want 20 times my income put away--I'm not sure--I haven't done the calculations.
                        WHY ARE THE GUYS IN SUITS HERE? HAS SOMETHING GONE WRONG?

                        Comment


                          #13
                          Man. This thread is making me realize I need to get better on top of my finances. (I’ve got a schwanky state retirement plan, some investments, an IRA, and the promise of a healthy inheritance, but I don’t put much of my income toward extra savings, only a couple hundred bucks per paycheck.)
                          Ben

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                            #14
                            Since links are allowed some useful ones listed below.

                            Bogleheads. Investing inspired by the late John Bogle, who founded Vanguard and developed the first index fund.

                            http://www.bogleheads.org

                            Interesting series of article on early retirement along with charts showing different withdrawal rates and different timespans.

                            http://earlyretirementnow.com

                            A good retirement calculator where you can play around with many variables such as rates of inflation, stocks/bonds percentages and other income sources.

                            http://firecalc.com

                            Comment


                              #15
                              [MENTION=17354]mebejoseph[/MENTION] - $10M in a 401k would be ungodly rare due to the structure. Maybe they are like Mitt Romney with IRA thing but what he did is now closed. Also, since we are mixing threads here in the Other area, I'd worry mostly about your healthcare costs as you had heart issues in the past. Those are usually the biggest expense for anyone. Lastly, 10x income is pretty easy to live off of...that is 25x expenses. You really have to watch what is going out the door.

                              This weekend my wife and I were talking about her sister who just moved into a house 3x the size of ours. Their burn rate is huge because they thought they needed a house that large and they regularly mention working past 65 for whatever reason. Here is a quote from one of Jack Bogle's books that fits this situation and I told my wife:

                              "At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have . . . enough.”

                              Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …

                              We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal. That message, I think, is what Joseph Heller captured in that powerful single word, enough."

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