Sacrifices: Saving 50% of Take Home Pay?

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Sacrifices: Saving 50% of Take Home Pay?

Postby Veni Vidi Decessi » Thu Jul 11, 2013 5:00 pm

Hello there! I have just finished writing this post, and I want to thank you in advance for taking the time to read this. So, here is a bit of background before my barrage of questions:

My fiancee and I will be married next year. I will be graduated by then (22 yo then), and have an expected salary of 65-75k, while she will have an expected salary of 40-50kish (I don't really know what MPAs make in state government). We sat down for a financial meeting about a month ago to set some goals for when we are married. We currently only plan to have her working until we start having kids (we will attempt to make it at least 2 years after marriage before we have kids). Given the relatively short time of her work, we have decided to only live off of my paycheck (using it for expenses, retirement savings, etc), and take her pay as a "bonus" savings towards a house down payment, emergency funds, and retirement accounts. This way, we will not have to drastically adjust our lifestyle expenses and expectations when we do start having kids.

We have set the following two-year goals:
60k in retirement accounts
~20-25k for down payment in house (we plan on renting...something (house, duplex, etc) the first few years)
~20k emergency fund

We have decided to do this because of the powers of compounding interest: if we sacrifice in a big way now while we have fewer needs (in time, expense, etc before we have kids), we can save at a more moderate pace (15-25%) down the line without having to worry overmuch about our retirement.

These numbers are clear: She will save every last penny she earns, and I will have to save ~$21,000 per year from my paycheck (essentially maxing 401k and IRA). Assuming a gross salary of 65k, and 33% total taxes, these savings account for 50% of my take-home paycheck. Obviously, this percentage will change if we have higher (or lower) salaries.

Now, for my questions:
Am I being too pessimistic about my tax rates? Federal taxes will work out to be ~18%, 7.65% from ss and medicare, and ~5-8% from state tax.

Given all of this, how poor of a lifestyle does this make? I don't have much of a perspective on this, having never fully lived on my own before. Taking home ~21k (maybe +8kish from utilizing deductions of 401k and TIRA) per year amounts to a $10-15/hr, 40hr/wk wages for one person (or like both of us working and making minimum wage), so I imagine it will be a mostly barebones experience.

Any advice as to the nature and extent of these goals would be greatly appreciated. Are they too aggressive? Have any of you done something similar?

Bonus Question: I am not hopeful in receiving any SS when I retire (~year 2055), and do not account for it when thinking about retirement withdrawal needs. Again, is this overly pessimistic?

Thanks in advance!
Last edited by Veni Vidi Decessi on Thu Jul 11, 2013 11:40 pm, edited 1 time in total.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby awval999 » Thu Jul 11, 2013 5:11 pm

I think you are overthinking a lot--- you are 21 years old and engaged and the world is your oyster and you and thinking about things that don't make sense to me--- a 27 year old young professional. ie: children at 24, a non-working spouse at 24 and a house

I also think it's a poor investment for your wife to go through college to get her master's degree and only work for two years.

However, it does make sense to only use your wife's salary for down payment and emergency fund savings if you truly go through with this plan.

Bonus: Yes you will receive social security.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Rommie2k6 » Thu Jul 11, 2013 5:16 pm

I think you have a good plan.

In my profession, a very common career route is to spend the first 10 years in a mediocre underpaid job, and this has been the source of my emerging frustration as I cannot save enough. So, yes you are in a good situation right now.

Compounding interest cannot be overemphasized. To illustrate its power, and really convince yourself, you can do what I have done.

1) Decide on the minimum "salary" you want at retirement in today's dollars.
2) Figure out how much that amount will be in 2055 dollars (at your retirement age).
3) Use the 3-4% rule to calculate the lump sum that you need at age 65.
4) Now generate a table of "hypothetical savings" and tabulate the contribution from each year.

For example, let's say you are 25 now with 40 years till retirement. A $20k savings contributed this year will grow (assuming 6%) to $20 x (1.06)^40 = $200k by age 65. Repeat this for every year till retirement.

5) Now play around with the figures and generate scenarios. What I've discovered is that you can effectively "assure" half of your retirement goal in the first 10 years of savings, i.e. as much as half of your target lump sum at age 65 can come from the first 10 years of your retirement savings contribution If you can achieve this, it will give you IMMENSE financial flexibility in your later years (i.e. age 35 to 65), since you can "afford" not to save that much and still end up OK at retirement. FYI, that is what I am trying to do right now.

And I've noticed you want to have kids. That's expensive, I would really recommend hunkering down on the finances today.

All this of course specific to the individual. In my calculation my target is $2 mil at age 55, which gives the choice to not save anything after 55, but have $3 mil by age 65, which can give $30k/yr at age 65 in today's dollars.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby letsgobobby » Thu Jul 11, 2013 5:24 pm

Save 20 or 30% of your income now and forever and live on the rest. Beyond that, invest in a low cost, tax efficient way. It'll work out. I agree you may be overthinking things.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby FNK » Thu Jul 11, 2013 5:45 pm

Here's the rule of thumb I approximately follow and recommend to everybody:

Of your take-home pay (after taxes but before 401(k)):
- 50% goes to necessities (rent, food, loans etc.)
- 30% goes to savings (retirement, emergency, extra loan paydown, etc.)
- 10% goes to charity
- 10% goes to fun (you must enjoy something!)

If you simply follow this throughout your career, you'll have your obligations covered without being unreasonably miserable.

You seem to want to go way beyond towards more savings and misery. $20-30K a year for a couple is indeed barebones, unless you're in a really cheap town. It may work out for you, just be aware that it often strains relationships. That 10% for guilt-free fun is a huge release valve.

Do you have any school loans?
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Quickfoot » Thu Jul 11, 2013 5:57 pm

I would not save 50% if it involves depriving yourself of enjoying life. There is no guarantee you will live beyond today, dying with 50% of your money in the bank does not benefit you. At the same time you should plan for living beyond today, and probably beyond tomorrow. Set a reasonable savings rate for retirement and then also allocate "fun" money for dates, hobbies, dinner out, etc.

Some of it also depends on how much 50% is, if you are making 80K a year between the two of you 50% doesn't leave a lot to live on, if you are making 400K saving even more than 50% might be reasonable. If you have a large amount in savings then consider investing it, my goal is to invest anything greater than 20K in savings in the taxable account.

My wife and I are in the top 5% of family income in our state and save roughly 30%. I take her to fancy hotels for dates, we go on getaways, and do fun things with our kids but do not take on debt outside of cars and house. We spend a reasonable amount (more than most) but far less than we could afford on housing / cars.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Veni Vidi Decessi » Thu Jul 11, 2013 6:19 pm

I also think it's a poor investment for your wife to go through college to get her master's degree and only work for two years.


As an aside, her college major was a duo in polysci and history. The masters gives her a marketable degree. She may work more than two years, as well. She also wants go back at some point to continue on to a doctorate in order to teach at the collegiate level.

I am probably overthinking things. When setting goals, I tend to play the ramifications out to their end.

You seem to want to go way beyond towards more savings and misery. $20-30K a year for a couple is indeed barebones, unless you're in a really cheap town. It may work out for you, just be aware that it often strains relationships. That 10% for guilt-free fun is a huge release valve. Do you have any school loans?


Haha...I definitely do not want to go towards misery. And yes, I know that the single-minded pursuit of savings and wealth do not lead to a happy life. The point about strained relationships is a poignant one; having a healthy marriage trumps great savings every time. That is why I was looking askance at our goals: I was thinking that it would be a very large burden. Therefore, I asked this community to opine on this matter.

Also, neither of us will have any sort of debt when we get married.

Thank you all for the responses! I thought that this was perhaps too aggressive; you have resoundingly made that case and solidified my suspicions. I still feel that a larger initial allocation towards savings for 1-2 years will make it easier to allocate future money towards higher expenditures on fun things, but I agree that this plan looks to set a not-so-happy start to our marriage.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby tibbitts » Thu Jul 11, 2013 7:10 pm

Veni Vidi Decessi wrote:
I also think it's a poor investment for your wife to go through college to get her master's degree and only work for two years.


As an aside, her college major was a duo in polysci and history. The masters gives her a marketable degree. She may work more than two years, as well. She also wants go back at some point to continue on to a doctorate in order to teach at the collegiate level.

You can teach at a significant number of colleges, vo-techs, etc. with a master's degree. Doctorates tend to be a long and winding road for most people, that often doesn't lead anywhere. If she wants to teach vs. do research and publish, it's not clear that all those extra years and investment would pay off.

Paul
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby staythecourse » Thu Jul 11, 2013 9:30 pm

Rommie2k6 wrote:What I've discovered is that you can effectively "assure" half of your retirement goal in the first 10 years of savings, i.e. as much as half of your target lump sum at age 65 can come from the first 10 years of your retirement savings contribution


Interesting point of view. Never thought of that way, but makes sense. It is hard to see that from the beginning since it seems you don't see compounding do the real heavy lifting it seems until the last 10 yrs. before retirement when looking at your balance sheets.

So it seems you have to invest a lot the first 10 yr. and then have to be patient to see those good effects in the last 10 yrs. before retirement??

Good luck.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby enderland » Thu Jul 11, 2013 9:38 pm

I'm 25 with similar income to you (but no fiance).

I am also saving a fair bit of my pay, close to 50% of gross salary right now.

What you will find if you do this is two main things. First, you will fairly quickly adapt to a lifestyle spending less. Second, you will find a lot of people giving you crap about this.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby ruanddu » Thu Jul 11, 2013 9:41 pm

Rommie2k6 and StaytheCourse - thanks for your insights. That really helps to encourage a young investor like myself.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby bobbun » Thu Jul 11, 2013 9:41 pm

The 18% going to pay federal income tax may be an overestimate. You might want to grab a 1040 and mock in the numbers for a better estimate. By comparison, I make more than the two of you averaged together, and my federal income tax obligation was about 11% of my earnings last year, filing single. I don't believe you specified if you were planning on using a Roth IRA. It might be a good idea given your low tax rate at this point in your life. However, if you don't, then you should keep in mind that all your non-Roth tax deferred savings effectively reduce your taxable income at the marginal rate, which contributes to a low overall rate.

Saving 50% will be very hard, and I'll concur with others that it may not be necessary or desirable to do that. I will differ with the opinion that the extra education is a poor investment. Given that no one knows the future, having a marketable skill is always good. Even someone who plans to be a stay at home mom may find that fate doesn't have that end in store.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby mlipps » Thu Jul 11, 2013 10:43 pm

My husband and I are 24 & 23, respectively. He makes $90k/year & I make $40k, so it more or less works out to the same total you're looking at. He's also made about $20k this year from some part time contract work. We're on track to increase our net worth by about $80k this year and we live in Chicago. Of course, the stock market's done pretty well, so that's helping a little. Still, I don't think your goal is impossible. We spend about $40k annually and I'd say about $1200/month of that is discretionary spending. $30k is more doable than some might think, but balance is also good. I'm with you for the most part though, the more we can save now the easier it will be in the long run, so I'm willing to make some degree of sacrifice now (although I really feel like we live a pretty cushy life) so that we can cut back on spending when we have kids & not have to stress about it.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Saving$ » Thu Jul 11, 2013 10:57 pm

Nothing wrong with your goal, and very doable. Your combined income will be $115k. You want to save $50k/year. I don't see how there are great sacrifices involved in two people living off $65k year before taxes. Perfectly doable.

The biggest problem I see with what you wrote is this:
Veni Vidi Decessi wrote:...when she does start having kids.

Please change that to "when we do start having kids." You need to adjust & change your entire mindset and thought process so that the "we" comes automatically. Bigger issue than finances, IMO.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby M_to_the_G » Thu Jul 11, 2013 11:27 pm

I think your plan is great, and even though I am still young at 34, I wish I had had my stuff together like you when I was 22. Go for it. Some people are saying that life will be miserable when you live off of 20k - 30k. They are wrong. You have a goal, and it will motivate you. It's like working out. The pain feels good because you're doing it voluntarily and you have a goal in mind you are trying to reach. With every step you take that gets you closer to that goal, it will give you a feeling of pride and satisfaction. The "misery" they are talking about that comes with living on 20k is when you have no choice. It's called "poverty" and yes, it is pure stress and misery. But your situation is different.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Veni Vidi Decessi » Thu Jul 11, 2013 11:35 pm

Please change that to "when we do start having kids." You need to adjust & change your entire mindset and thought process so that the "we" comes automatically. Bigger issue than finances, IMO.


I mean the actual process of having (nearing birthing) a child - i.e. at ~9 months pregnant. If you refer to my only other thread, I refer to us building a family quite a lot. We are both quite enthusiastic about building a family and raising children. However, you are partially right. In everyday life, I can still slip into the "I" mentality - The "we" isn't always automatic yet, but usually is. I look forward to the day when I am we constantly :D . This time, though, I was being a bit more physically specific. My wording probably was not the best, though.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby nedsaid » Thu Jul 11, 2013 11:41 pm

Don't forget to enjoy life. I am frugal myself but make sure I take my vacations and travel. Life is very uncertain, make sure you get some enjoyment out of it.
A fool and his money are good for business.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby bayview » Fri Jul 12, 2013 1:06 am

It sounds like you've decided to back away a bit from the 50% goal. I would just advise that you go back and discuss this again with your fiancee, rather than modifying your plans based on advice from an Internet forum. :happy

For all we know, she might be more rabid about savings than you are. So in other words, any changes need to be mutual decisions between the two of you.

I'm sure you know this, but I remember what it's like when you're trying to absorb a huge amount of info in a short period of time.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby AllySK » Fri Jul 12, 2013 1:40 am

You're proposing saving 50% of your take home pay and 100% of hers? (If I'm reading that correctly.) I think that may be a little TOO ambitious, but I think saving 50% of your combined take home pay is a great idea. I'm 24 and currently saving >50% of take home pay. I suggest you check out the Mr. Money Mustache blog (http://www.mrmoneymustache.com/) if you haven't already. His approach to frugality is that, instead of feeling deprived, you actually feel more free - like having the option of one parent staying at home. And just having a more efficient lifestyle. Good luck! :)
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby fisher_man89 » Fri Jul 12, 2013 8:08 am

As others have mentioned, getting your wife on board is critical.
Your plan is perfectly doable and even commendable.

Better to stretch your saving muscles early and young.
With kids it becomes harder to focus and set habits, but if they are in place beforehand, you can always increase your standard of living.
It's going the other way that is hard.
And with a family the sacrifices will be many.
You might as well start now.
But it is well worth it.

To other posters, please stop saying kids are expensive.
That is simply not true.
To make babies is free.
Birth costs something, but there is no tax on children (quite the opposite, the tax bill will go down).
Giving kids what other adults think they should have and not saying "no" to them is expensive.
I speak from some authority on the issue as a father of six.
The activities that are best for kids cost very little (being outdoors, reading, talking, playing games, exercising).
The ones that require a substitute parent and artificial entertainment cost (organized sports, camps, lessons, driving to pay to be entertained).
One of the best tools for entertainment, the imagination, is free to use and develop.
Food for kids is not bad at all, if you are careful, and clothes do not self-destruct after one kid---they can be used over again.
I spend less than the average U.S family on groceries and not much more than the typical family eats out.

If your wife is committed to being a mother and stay-at-home wife, there is much she can do to maximize her economic value at home.
By cooking well and from scratch, shopping wisely, cloth diapering, gardening, and generally trading time for money, she can be great for the budget without a paycheck.
These things can dramatically increase one's quality of life and health, without costing money.
And best of all, all this output is tax free. (and if you believe as you do about SS, why would you want to pay into it any more than necessary?)
That time not used as an employee must be spent creatively planning, researching, and working, though.
Debt is a killer to cash flow also.
I've found kids are good, free entertainment and not really worth taking to eat out or on expensive vacations.
They counteract the urge to spend on oneself for pleasure or recreation.
I expected my savings rate to plummet, but it is over 40% on less income than yours.

Good luck, we have taken a similar path and found it rewarding.
It will force you to consciously make decisions and go against the grain, but isn't that what children need to learn from parents?
But you can have a high savings rate and a high quality of life with children on one income of your size with appropriate sacrifices.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Grt2bOutdoors » Fri Jul 12, 2013 8:37 am

Moderation in everything, my boy. If you want to stay "happily" married, don't confine or restrict yourselves to an oppressive budget. A starvation diet is the biggest killer of relationships. That includes the artificial withholding of emotional and financial resources. Rome was not built overnight, nor will your nest egg (unless you pick 6 very lucky numbers for Saturday's powerball).
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Grt2bOutdoors » Fri Jul 12, 2013 8:41 am

Saving$ wrote:Nothing wrong with your goal, and very doable. Your combined income will be $115k. You want to save $50k/year. I don't see how there are great sacrifices involved in two people living off $65k year before taxes. Perfectly doable.

The biggest problem I see with what you wrote is this:
Veni Vidi Decessi wrote:...when she does start having kids.

Please change that to "when we do start having kids." You need to adjust & change your entire mindset and thought process so that the "we" comes automatically. Bigger issue than finances, IMO.


How will the OP be able to save $50K before taxes? - 2 401ks, 2 Roths (after-tax money). What am I missing?
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby rainyday1 » Fri Jul 12, 2013 8:50 am

When we started out, I think we made about 85k combined. We always saved my salary and some of his. I did not find it to be a spartan lifestyle at all. It depends what you enjoy - if you're out bar hopping and eating in fine restaurants now (which it does not sound like you are), you may be unhappy. However, if you are happy seeking out free and cheap activities and cooking at home more often than not, you will be fine.

Living cheap and having kids early helped put us a great spot financially. There is no perfect time to have kids, but I have found that since we had kids very young (by today's standard), we had not had time to let our lifestyle creep up to match our income. We certainly missed out on some fancy vacations that our DINK friends were taking, but we would not have done that anyway because we were trying to save all our money. It made for a very easy transition when I decided to stay home with our child. Now in our mid-thirties, we have a great nest egg and have been able to take advantage of some incredible opportunities because we knew financially we could afford to take some chances.

I would think hard about buying a house until you are on the 2nd child. Apartments are great for babies. They don't take up a lot of space, and it will help you control the amount of baby gear you buy. You don't really know (how much space, layout, stairs, etc) what you will need until the kids get a bit older, say 3-5 range. Once you're pretty sure about family size, take the plunge. I think that's one of those things that is hard to decide until you experience the first child. You may say you'll never go through that again or this is great, how about 4. I have seen people go both ways.

You have nothing to lose by trying your plan. You can always spend more if it's too much!
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby ziszew » Fri Jul 12, 2013 8:57 am

Grt2bOutdoors wrote:
Saving$ wrote:Nothing wrong with your goal, and very doable. Your combined income will be $115k. You want to save $50k/year. I don't see how there are great sacrifices involved in two people living off $65k year before taxes. Perfectly doable.

<<snip>>


How will the OP be able to save $50K before taxes? - 2 401ks, 2 Roths (after-tax money). What am I missing?


Maybe they're including an HSA ($6450/family)?
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby letsgobobby » Fri Jul 12, 2013 9:27 am

I suggest graduating medical residents/fellows continue to live like residents/fellows for about 5-8 years after graduation. We saved more or less half our income during that period of time and I would say some of the heaviest lifting of our saving for retirement is indeed done. If we get 4% real in our accounts for the next 25 years, we will have enough to generate all our desired annual spending in real terms, after taxes, and without including anything from social security. We are 39 now.

Still, no need to overdo it - life is indeed very unpredictable.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Investing is boring » Fri Jul 12, 2013 9:47 am

Perhaps I am in the minority here. I would argue to execute your plan. I think a couple years of sacrifice accomplishes two critical things:

1: Your compounding interest argument is valid
2: Living with heavy sacrifice builds confidence in your ability to endure hardship. This belief in yourself is a critical aspect of building character and puts future life challenges into perspective. In my case, this has led to a higher level of contentment and a willingness to take risks - which have paid off, not the least of which is my $300k per year income. Something I would have been scarred to try to achieve without the confidence gained through a couple years of deep austerity.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Veni Vidi Decessi » Fri Jul 12, 2013 11:17 am

OP here:
Investing is boring wrote:Perhaps I am in the minority here. I would argue to execute your plan. I think a couple years of sacrifice accomplishes two critical things:

Living with heavy sacrifice builds confidence in your ability to endure hardship.


I agree, for the most part. However, there is a differatiation that needs to be made between concious frugality and misery. If we are saving so much we cannot afford to go out for dates, go to the movies occasionally, or do other fun things (which are very necessary to life, and especially so in marriage, I would think), then we have crossed that line. I believe that this has a strong chance of doing just that. It will be my job as her husband to care for her, to ensure she feels loved and special. If we are saving so much that everyday life is very stressful, tiring, and a drag on our relationship, I am failing in that capacity. I know that having spending money does not a good relationship make, but on the other hand, it does open up more options with which to express my love for her.


fisher_man89 wrote:By cooking well and from scratch, shopping wisely, cloth diapering, gardening, and generally trading time for money, she can be great for the budget without a paycheck. The ones that require a substitute parent and artificial entertainment [are what really] cost (organized sports, camps, lessons, driving to pay to be entertained).

This is actually a fact that many do not seem to know - studies show that the majority of the average working mother's paycheck goes towards the costs of remotely caring for the child (daycare especially). Practically speaking, stay-at-home mothers not only reduce the cost of raising children by a staggering amount, but also have the potential to have side businesses that they can run from the house.

[quote="bayview"]For all we know, she might be more rabid about savings than you are. So in other words, any changes need to be mutual decisions between the two of you.quote]

I come from a middle middle-class family. She comes from a family that did not have much, so out of the two of us, she would be the one more naturally familiar with the aspects of a frugal life. We are both on board with the idea of saving as much as possible in the first couple of years. It was, and still is, our goal to have as much saved as is possible for our relationship. I was attempting to feel out what that might be. We have already talked and decided that we will meet and discuss the revision of these goals once we have more information - like the cost of living where we will be staying, our actual salaries, etc.

Thank you all for your responses!
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Grt2bOutdoors » Fri Jul 12, 2013 1:31 pm

Getting married next year? This article from the WSJ is right up your alley --> http://online.wsj.com/article/SB1000142 ... itorsPicks
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby lindisfarne » Sat Jul 13, 2013 12:06 am

It's realistic & you're not going to be poor, even if you save as much as you propose. It's really a matter of mindset. Your friends will want to do things that cost money; you're going to need to say no. Invite people over to dinner, rather than going out to eat. Wait for that movie to come out on DVD & get it through redbox. I don't need to live as frugally as I live (I live on less than 50% of what you 2 plan to live on) and I feel I have a rich life. Saving a lot early gives you lots of options later. (Just don't pull all your money out of index funds when the market drops 40% - keep in mind 2008 - 2012).

Thrift stores are great and if you have the mindset that the thrill is in the search of a good deal, rather than simply getting a thing, that will help you put off high-expense purchases. You might also let it be known amongst parents & relatives that you'd be glad to take of their hands any furniture or kitchen things they don't need. I don't know about your family, but multiple family members were happy to find someone grateful to receive things that had been replaced, but they just couldn't throw away: some set of dishes, or food processor, or hand mixer that worked but not great.

(I would be cautious about buying upholstered things second hand. Bedbugs are a fact of life these days. I wouldn't buy those things from a thrift store & would be cautious of getting them through a place like craigslist). You might also see if there is a freecycle site for your area. If you're in a major urban area, you might find some good things on a site like that - I did (including a working microwave, and multiple other smaller things). Learn where your thrift stores are, when they have sales, and be a little choosy. 80% of my furniture, dishes, decorations, came second=hand through one route or another.

You can each put 5500 into an IRA & 17500 into 401k/403b (does not include the employer match), assuming your employer has one & allows the max.
SS will still be around in 2055; at worst, you'll get a lesser payment (perhaps 75%), but the concerns about SS funding can be resolved easily if there is political will.

Frankly, I'd be more concerned about whether your marriage will last. You're doing a good thing to talk through finances carefully. Before you have kids, discuss this very thoroughly. Are you on the same page about how to raise kids? Is one parent going to be the softy & end up undoing all the structure the other parent is trying to instill? Is one parent going to feel the need to spend on unnecessary things (& thus deprive the child of the need to learn financial skills)? Where is each parent at when it's bedtime? is one going to consistently fail to enforce bed time? What about when your 6 month old is crying (diaper is changed, child is fed, child is not sick) and it's bedtime? Is one parent going to want to hold child until it falls asleep (which sets you up for doing this night after night) or drive the child around in the car until it falls asleep (I have relatives where one wanted to do these things). The first year of the first child is the hardest year on a marriage - although parents who have discussed child rearing and generally have open lines of communication are much more likely to survive this year & have their marriage survive.

Keep in mind - you both are still changing as people. Are you going to wake up 7 years from now & find out you both have changed so much you don't know the other? This happens more than you think. Communication and honesty, and commitment to making the marriage work, are key to preventing this. Marriages aren't always perfect; people who have spent 30-40-50 years together will tell you this. They take hard work, commitment, and often, forgiveness.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Novine » Sat Jul 13, 2013 12:39 am

"If we are saving so much that everyday life is very stressful, tiring, and a drag on our relationship, I am failing in that capacity."

You would be surprised by how much stress goes away when you have a solid financial foundation. I'm not advocating going without every creature comfort. But I can tell you that there's a lot more stress in the marriage when the finances are a mess.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby EmergDoc » Sat Jul 13, 2013 1:45 am

Get rid of any loans, save up for that mortgage downpayment. Put a reasonable percentage away for retirement (15% is probably enough for someone starting so young) and spend the rest without guilt. 50% savings rate? That's extreme IMHO. Yes, her salary may go away soon, but yours will likely go up, or you can take on a part-time job or whatever. It isn't the end of the world.

Anyway, it doesn't matter that much what you do, the most important thing is that you are both on the same page.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby SpecialK22 » Sat Jul 13, 2013 7:19 pm

I don't think it's a bad idea to do some sort of hyper-saving when you are young. The sooner you start saving the sooner your money starts working for you. However, there is merit to creating some balance and saving a smaller amount consistently over time instead. Nevertheless, I think saving as aggressively as possible early on and then tapering off can be ideal. Emotionally, for me at least, having saved pretty aggressively in my 20s has led to an increase in a sense of well being in my 30s (currently 31). It is amazing how quickly a portfolio can grow as well, however luck did play a huge role here as well -- my really aggressive saving years (most of it going into equities) began in mid-to-late 2008 and I have a good paying job that didn't require an expensive degree. The feeling of flexibility I have is well worth it, and looking back I don't feel like I missed out on my 20s. If anything, I think it is easier to save aggressively in one's 20s because society expects 20-somethings to not have a lot of expendable money anyway.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby heartnsoul » Sat Jul 13, 2013 9:27 pm

First off, congrats on even thinking about this stuff in the first place. Most people our age (I'm 23) don't and it's refreshing to read more about our cohorts taking control NOW rather than attempting to later...

Your plan seems completely doable. Y'all have the advantage of youth and the fact that living on $21K/year is really not uncommon for young twenty-somethings. Heck, that's more than what I bring in, so I think you'll be alright ;) I would suggest definitely making a proposed budget of what you believe your monthly expenditures will be. Overestimate on expenditures and underestimate on earnings. That will give you the "worst case" scenario and it only goes up from there. You can then tailor your expenses accordingly, and identify areas that will need tweaking based on the sorts of activities y'all as a couple like to do. I do the same, but it's a little easier for me cause I'm single.

For example, I know that a lot of my enjoyment of life comes from eating out (usually with friends). If I want to go out by myself, it's usually for a coffee which normally doesn't break the bank. At one point last year I was living on ~$700/month, but I knew the budget that I had to stick to when it came to eating out. I'm not an impulsive spender and see no reason to spend $10 a pop to see a movie the day it comes out - would rather wait, hear reviews, then decide if I wanted to Redbox it. So, the expected costs in my "Entertainment" section (which are things like movies, concerts, etc.) are near zero. Doesn't mean I don't go to concerts or movies, but when I do I make sure it is something I really want to see, and not just "Oh hey I'm bored, let's go see a movie." I sacrifice that "impulsiveness" knowing that I would prefer to spend more of my money on eating out with friends and not having to buying the cheapest thing on the menu and just drink water - cause I like dessert! And sushi :)

You can totally do it. You will probably have to make some sacrifices, but they'll pay off (but you knew that already, didn't you?) You will have to come up with creative ways to entertain yourself and you will have to live a frugal life style in general. But many people are not the worse for wear from it, and to be honest I quite enjoy it and can't imagine anything else.

If you want any ideas on keeping costs low or just want a sounding board who is in a similar position as you - PM away :)
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby avalpert » Sat Jul 13, 2013 10:16 pm

Hmm, I may have missed it but it seems you should probably wait until you actually have job offers providing that compensation level before you worry about how you will use it.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby Leemiller » Sun Jul 14, 2013 11:50 am

Pre-baby we traveled quite a bit, honestly now I wish we would have traveled a little more since we're not going to be going to Italy again anytime soon with a two year old (and if we did it would be a very different vacation). You're young, why not do things in moderation? Also, I think saving is important but I think sometimes people lose sight of working on increasing income.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby umfundi » Sun Jul 14, 2013 3:02 pm

You would do well to live like students for a while even after you graduate.

Save hard, buy a starter house, don't spend more until it is in the bank.

A couple of years of continued frugal living will serve you well.

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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby qwerty3020 » Sun Jul 14, 2013 4:51 pm

Given all of this, how poor of a lifestyle does this make? ... I imagine it will be a mostly barebones experience.


My husband and I saved 50% of our stipends as Ph.D students for 5 years (i.e. lived on 25K per year 2005-2010). We didn't even have a plan to save, we just tried to be conservative in our spending. In some ways our existence was barebones (500 sq foot apartment, bad health insurance, entertainment was often redbox or dollar movie), but I don't think either of us felt poor. If there is something we really wanted, we bought it. And that is generally how we live today even though our salaries are much higher.

Any advice as to the nature and extent of these goals would be greatly appreciated. Are they too aggressive? Have any of you done something similar?


I think your plan is very doable. My only advice might be to consider the first year an experiment. Be frugal, but don't tighten the belt so much that it hurts. The first year of marriage can be stressful-- don't add money to your list of worries. Then at the end of the first year, evaluate your spending and saving habits and make a more precise plan. Also, there is alot undecided here-- neither of you have actually graduated and obtained jobs (if I read your post correctly); you might decide that being married, in love DINKs in your early 20s is awesome and you don't want to rush to have kids, etc. Just do the best you can and don't stress if you don't meet the exact goals you've described here.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby YttriumNitrate » Sun Jul 14, 2013 8:47 pm

Veni Vidi Decessi wrote:Given all of this, how poor of a lifestyle does this make? I don't have much of a perspective on this, having never fully lived on my own before. Taking home ~21k (maybe +8kish from utilizing deductions of 401k and TIRA) per year amounts to a $10-15/hr, 40hr/wk wages for one person (or like both of us working and making minimum wage), so I imagine it will be a mostly barebones experience.


As other have mentioned, a lot of that depends on where you live. If you live in an area where $1,500 month rent is considered cheap, it's going to be a really tough. If you live in a place where you can get a decent place for $600 month then you shouldn't have much trouble. Obviously you won't be going on any extravagant vacations and "movie night" may involve Red Box, but it's certainly doable.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby assumer » Mon Jul 15, 2013 2:32 pm

letsgobobby wrote:Save 20 or 30% of your income now and forever and live on the rest. Beyond that, invest in a low cost, tax efficient way. It'll work out. I agree you may be overthinking things.


So I just threw together a quick excel table with some simple assumptions, and it's making me concerned. Hoping you can comment on it.

Image

Edit: Further out:
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby YDNAL » Mon Jul 15, 2013 5:44 pm

Veni Vidi Decessi wrote:My fiancee and I will be married next year. I will be graduated by then (22 yo then), and have an expected salary of 65-75k, while she will have an expected salary of 40-50kish (I don't really know what MPAs make in state government). We sat down for a financial meeting about a month ago to set some goals for when we are married. We currently only plan to have her working until we start having kids (we will attempt to make it at least 2 years after marriage before we have kids)...

So much in life is unknown, not just now but when you are 32, 42... With family comes responsibilities and costs. Did you actually sit down for a "financial meeting" with your fiancé ? What's the rush (age 24) to have a family, to own a house ?
Veni Vidi Decessi wrote:... Given the relatively short time of her work, we have decided to only live off of my paycheck (using it for expenses, retirement savings, etc), and take her pay as a "bonus" savings towards a house down payment, emergency funds, and retirement accounts. This way, we will not have to drastically adjust our lifestyle expenses and expectations when we do start having kids.

We have set the following two-year goals:
60k in retirement accounts
~20-25k for down payment in house (we plan on renting...something (house, duplex, etc) the first few years)
~20k emergency fund... << snip >>

Any advice as to the nature and extent of these goals would be greatly appreciated. Are they too aggressive? Have any of you done something similar?

There is nothing wrong in setting goals and planning our future, but my feedback (since you asked) is to slow down and take a year or two to get accostumed to a different lifestyle and to sharing your life with another person.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby YttriumNitrate » Mon Jul 15, 2013 5:58 pm

assumer wrote:So I just threw together a quick excel table with some simple assumptions, and it's making me concerned. Hoping you can comment on it.


It looks like your salary is getting adjusted for inflation, but your 4% growth rate is not (or you're being extremely conservative). That is giving you scary numbers when comparing the future year's income to a safe withdraw rate.

Alternatively, your chart wonderfully shows how dangerous it can be to put a big chunk of your retirement savings into "safe" investments when you are young.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby assumer » Mon Jul 15, 2013 6:05 pm

YttriumNitrate wrote:
assumer wrote:So I just threw together a quick excel table with some simple assumptions, and it's making me concerned. Hoping you can comment on it.


It looks like your salary is getting adjusted for inflation, but your 4% growth rate is not (or you're being extremely conservative). That is giving you scary numbers when comparing the future year's income to a safe withdraw rate.

Alternatively, your chart wonderfully shows how dangerous it can be to put a big chunk of your retirement savings into "safe" investments when you are young.


Good points. I could have used a 0% real growth rate on salary. That yields a "break even" point of a $114,000 safe withdrawal rate at age 61. Much more reasonable.

Like you said, though, if you expect only a 4% nominal return on stocks, and a 3% nominal growth of salary, that can be dangerous!

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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby jasg » Tue Jul 16, 2013 12:18 pm

assumer wrote:Good points. I could have used a 0% real growth rate on salary. That yields a "break even" point of a $114,000 safe withdrawal rate at age 61. Much more reasonable.

Like you said, though, if you expect only a 4% nominal return on stocks, and a 3% nominal growth of salary, that can be dangerous!
In my experience, salary growth seldom continues smoothly. It is lumpy and tends to flatten out later in one's career. Tough to model, but the OP concept of early savings and compound interest is crucial. I wish I had done so, but I started 15 years later - and only got serious a bit after that.

One 'trick' that worked for me was to route all raises and bonuses to savings first (after maxing out 401k/IRA accounts). If I needed more spending, I would make a slight savings adjustment. That let me grow my rate of savings quite nicely.
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby NightTrain » Tue Jul 16, 2013 3:43 pm

I created something similar. I'm super new to investing or having even a remotely legitimate map to retirement. I wanted to be able to create a chart that said my current stash of money saved is X, here's what I'm contributing this year and plan to next year. Add in expenses expected after Financial Independence (house paid off, etc), inflation, contribution increases... and then a secondary section to actually update it with hard numbers after each year to see how I fare against the projections (or adjust along the way).

I wanted the focus to be: if I contribute THIS much, this is how much faster I'll get to Financial Freedom.

I think I made it right. If anyone sees any glaring issues with this, let me know!

http://www.floatingox.com/other/moneymap.jpg

(It wouldn't let me include the image in the post, not sure how to do it).

Here's a link to download the Excel file, HERE
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Re: Sacrifices: Saving 50% of Take Home Pay?

Postby BigOilTexan » Tue Jul 16, 2013 4:09 pm

Only you can really answer whether or not it will be a sacrafice to save that much. I will also say that while strict budgets can be a good idea for getting an idea of where you spend your money (which might suprise you), they can be VERY detrimental for a new relationship.

My wife incurred ~$175k in student loans in school and always lived in debt. We had talked about savings, paying off debt, being frugal, blah blah blah. We got married the week after she graduated and suddenly she went from a household income of $0 to a household income of around $200,000. We had all her loans payed off in about 2 years. She was initially very resistive to spending so much of our money paying off debt (mostly because they were taught in school that this amount of debt is like a 30 year house mortgage and will be with your forever, so don't worry about it), but I convinced her that it was the right thing to do. We were able to have some nice things, go out to eat occasionally but still save a large portion of our money.

However, about halfway through I started using Mint.com to track and budget our expenses which created much more stress than the help it provided. We started having those 'Honey, why did you buy this' discussions much more regularly. It's really easy for people to say that having a strict budget is the best way to control yourself, but I've found that the mindset is much more important that the spreadsheet. I have a hard time believing that if you cant control your spending without a spreadsheet, the spreadsheet is not the missing piece, its the mindset. This may not be true for everyone, but for most people in the long run I suspect it is more true than they want to admit.

We're now 26 and 27 (got married at 23/24) and we've paid off $175k in debt and saved $215k. I can't tell you our exact savings rate during that time and I stopped tracking and categorizing every expendature a long time ago. I can tell you that I think we've done a good job of saving and taking control of some pretty shitty debt while not letting finances become an issue in our relationship. I attribute this 100% to both of us having the right mindset about where we want to be and how to get there.

Good luck to you and your (soon to be) wife :sharebeer
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