Amount You Need To Save Annually Over Lifespan

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Alexa9
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Amount You Need To Save Annually Over Lifespan

Post by Alexa9 » Fri Dec 01, 2017 1:51 pm

Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M

bloom2708
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Re: Amount You Need To Save Annually Over Lifespan

Post by bloom2708 » Fri Dec 01, 2017 3:17 pm

My gut says $10k/year will not come close to cutting it.

$18k (pre-tax) + $5,500 (Roth) would be a good target to hit as soon as possible. Getting a match on the 401k is a nice bonus.

It is tough when your starting out salaries don't support maxing out. As your salary grows, you have to save more, especially in the peak earning years.

Start at 10% to pre-tax 401k and increase as you get raises until you can max.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

aristotelian
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Re: Amount You Need To Save Annually Over Lifespan

Post by aristotelian » Fri Dec 01, 2017 3:24 pm

Is that $2M inflation adjusted? $2M nominal in 2057 is only perhaps $600k in 2017 dollars.

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Fri Dec 01, 2017 3:30 pm

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.

2) How much is the person's annual expense? The person that saves 20K per year will spend less and needs less to retire. The person that saves 10K per will spend more and needs more to retire.

3) The annual expense and annual savings are closely related. They are not independent of each other.

4) If you would like a better forecasting methodology, go with percents of annual expense saved every year. The targeted number would be 25X to 40X annual expense.

KlangFool

avalpert
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Re: Amount You Need To Save Annually Over Lifespan

Post by avalpert » Fri Dec 01, 2017 3:37 pm

Assuming the same contribution and linear growth it is a fairly straightforward math problem - but the assumptions involved are arbitrary and almost certainly wrong so the exercise is not a particularly helpful one.

What decision are you trying to make?

MI_bogle
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Re: Amount You Need To Save Annually Over Lifespan

Post by MI_bogle » Fri Dec 01, 2017 3:41 pm

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
2 million real (age 25 dollars?) At 4% real growth, you'd need to save 20K per year starting at age 25 to hit 2 million at age 65. If you get 6% real, drop that down to 12K a year.

Obviously due to sequence of returns, there's a huge range around that 20K though. Given the amount of real-world fuzziness involved, I am not sure how good a metric this would be to assist in decision making, other than a rough guide of "boy I need to save a bunch of money, every year"

Juice3
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Re: Amount You Need To Save Annually Over Lifespan

Post by Juice3 » Fri Dec 01, 2017 3:41 pm

Usually Alexa answers my questions!

A couple other thoughts to keep in mind:

Peak earnings are often typically between ages of 40-55. This varies with field/career. Tech is often under 40.

Money losses value of time. Assuming the government somehow manages to keep current 2%ish inflation. 2M today is worth 906K in 40 years. Or doing the math the other way, if you want 2M in current dollars, you need 4.416M in 40 years.

Future need and current ability to save are clearly determined by budget (as others have pointed out). Budgets can vary a lot over time.

Kids are very expensive.

Marriage can be very expensive. (or can also be a cost savings when all works out).

dbr
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Re: Amount You Need To Save Annually Over Lifespan

Post by dbr » Fri Dec 01, 2017 3:45 pm

A first approach to a question like this is to use standard financial formulas with some amount of annual saving and some estimated interest rate. You can try different rates of return to see a range of results.

If you want the amount of contributions to increase with age there is probably a calculator out there but I would tend to just write my own spreadsheet to look at possibilities. Again you can vary inputs to see range of results.

If you want to take into account the random variability of investment returns you can run one of the retirement calculation models of which FireCalc is one example. FireCalc has the advantage that it uses historical returns so you don't have to guess the expected return and risk, although you can enter your own numbers if you want.

Also, you want to work in after inflation dollars meaning you need an estimate for inflation in each future year.

WhiteMaxima
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Re: Amount You Need To Save Annually Over Lifespan

Post by WhiteMaxima » Fri Dec 01, 2017 3:46 pm

Juice3 wrote:
Fri Dec 01, 2017 3:41 pm
Usually Alexa answers my questions!

A couple other thoughts to keep in mind:

Peak earnings are often typically between ages of 40-55. This varies with field/career. Tech is often under 40.

Money losses value of time. Assuming the government somehow manages to keep current 2%ish inflation. 2M today is worth 906K in 40 years. Or doing the math the other way, if you want 2M in current dollars, you need 4.416M in 40 years.

Future need and current ability to save are clearly determined by budget (as others have pointed out). Budgets can vary a lot over time.

Kids are very expensive.

Marriage can be very expensive. (or can also be a cost savings when all works out).
2 mil today is not worth 906k in 20 years. 2 mil 20 years later is worth 906k today. In order to beat inflation, you have to invest in stock market assume the company can pass inflation to consumers.

snarlyjack
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Re: Amount You Need To Save Annually Over Lifespan

Post by snarlyjack » Fri Dec 01, 2017 3:47 pm

Alexa,

1). Invest in Vanguard TSM fund $3,000.
2). Invest $850.00 per month.
3). At 7% rate of return.
4). For 40 years (age 25 - age 65).
5). You should have approx. $2Million.

Here is the calculator that you need (play around with your numbers).

Have Fun...

https://www.investor.gov/additional-res ... calculator

dbr
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Re: Amount You Need To Save Annually Over Lifespan

Post by dbr » Fri Dec 01, 2017 3:48 pm

MI_bogle wrote:
Fri Dec 01, 2017 3:41 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
2 million real (age 25 dollars?) At 4% real growth, you'd need to save 20K per year starting at age 25 to hit 2 million at age 65. If you get 6% real, drop that down to 12K a year.

Obviously due to sequence of returns, there's a huge range around that 20K though. Given the amount of real-world fuzziness involved, I am not sure how good a metric this would be to assist in decision making, other than a rough guide of "boy I need to save a bunch of money, every year"
Yes, a couple of helpful illustrations. But the appearance of a huge range of results is not due to sequence of returns. It is due to the variability of return altogether. By variability is meant in the that the return in any year will be quite different from the return in any other year. After that, if there are contributions or withdrawals, the sequence in which the returns occur for the same compound average return is an additional source of variability. If there are no contributions or withdrawals there is still large variability but no sequence of returns effect.

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Alexa9
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Re: Amount You Need To Save Annually Over Lifespan

Post by Alexa9 » Fri Dec 01, 2017 3:52 pm

I bring this up because many young people seem to live paycheck to paycheck and spend whatever they get whether it's the latest smart phone or an expensive vacation. They don't realize how much they need to save to retire. I rarely hear it mentioned that you should save X amount per year on average or have X amount by the time you're 50 years old. Of course it varies and there are many factors (lifestyle, income, etc.).

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Fri Dec 01, 2017 3:55 pm

OP,

Let me counter-proposed a simpler and useful approach.

A) Save 1 year of current annual expense every year.

B) Assume that the portfolio will grow at 0% real return.

C) You will be Financially Independent (FI) in 25 to 30 years.

You could adjust (A) and (B) to a different number. Then, you will get a different (C).

KlangFool

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Fri Dec 01, 2017 4:00 pm

Alexa9 wrote:
Fri Dec 01, 2017 3:52 pm
I bring this up because many young people seem to live paycheck to paycheck and spend whatever they get whether it's the latest smart phone or an expensive vacation. They don't realize how much they need to save to retire. I rarely hear it mentioned that you should save X amount per year on average or have X amount by the time you're 50 years old. Of course it varies and there are many factors (lifestyle, income, etc.).
Alexa9,

It is my opinion and observation that it is the wrong approach. You are assuming that most folks can financially survive until retirement age (62 to 67). Then, why should the young people worry? They have 30 to 40 years to fix the problem.

People start to save when they faced the first laid off and recession. Then, they realize that the problem is immediate and near-term. They may be on the street and starve if they do not save enough to prepare for the bad times.

KlangFool

thangngo
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Re: Amount You Need To Save Annually Over Lifespan

Post by thangngo » Fri Dec 01, 2017 4:02 pm

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
$20,000 a year on average. Your portfolio will land anywhere from 1M - 3M. It's a wide range. That's why you should listen KlangFool's perspective above. Playing with projected portfolio value 40 years in the future might be fun while it lasts. If you're serious about being financial independent, save at least a dollar for every dollar you spend (excluding tax paid to the tax man).

Juice3
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Re: Amount You Need To Save Annually Over Lifespan

Post by Juice3 » Fri Dec 01, 2017 4:08 pm

WhiteMaxima wrote:
Fri Dec 01, 2017 3:46 pm
Juice3 wrote:
Fri Dec 01, 2017 3:41 pm
2M today is worth 906K in 40 years.
2 mil today is not worth 906k in 20 years. 2 mil 20 years later is worth 906k today. In order to beat inflation, you have to invest in stock market assume the company can pass inflation to consumers.
I said 40 years. (1.02^40) = 2.208. Reversed is .4529. My math is correct. If you put the 2M in your mattress (my grandparents and other who lived through the great depression did this - coffee cans of cash hidden in the basement was their actual choice) the purchasing power would be 906K in 40 years of 2% inflation

Of course we can look at actual 1934 inflation for the next 40 years. That 2M grandpa put in the mattress Jan. 1 1935 would have 493K purchasing power in Jan. 1 1975. 73-82 was a brutal period of inflation.

I would assume if inflation was the only risk being managed that TIPS would be the most likely answer. That is an advanced topic :)

Here is a reference tot he inflation data I used - http://www.usinflationcalculator.com/in ... ion-rates/.
There is more than 1 way to calculate inflation.

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JoMoney
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Re: Amount You Need To Save Annually Over Lifespan

Post by JoMoney » Fri Dec 01, 2017 4:17 pm

If a 25 year old in 1977 had started investing $150 each month in Vanguards 500 fund VFINX, adjusted the amount saved up with inflation, they'd have $2million in todays dollars 40 years later
PV Link

In inflation adjusted 2017 dollars, the $150 a month in 1977 would be $632 a month.

Past returns are not an indication of future results.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Alexa9
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Re: Amount You Need To Save Annually Over Lifespan

Post by Alexa9 » Fri Dec 01, 2017 4:31 pm

Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.

Juice3
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Re: Amount You Need To Save Annually Over Lifespan

Post by Juice3 » Fri Dec 01, 2017 4:37 pm

Budget is a huge factor. There are many discussions here and elsewhere on Safe Withdrawal Rates. If you know your future budget and your SWR, then you can calculate if you need 2,000,000 or 10,000,000

SWR of about 4% is common number for retirement age people to use. When you get down to around SWR of 3.5%, it is believed to be a sustainable number and thus suitable for early retirement.

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Fri Dec 01, 2017 4:57 pm

Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
Alexa9,

Can you convince a young 25 years old person to start thinking about retirement? I can't. I never save for retirement. I save for my FI. I faced Houston Oil Bust and Texas Saving & Loan Crisis while I was in college. I saved because I need to in order to survive.

KlangFool

Dottie57
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Re: Amount You Need To Save Annually Over Lifespan

Post by Dottie57 » Fri Dec 01, 2017 5:07 pm

Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.

snowox
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Re: Amount You Need To Save Annually Over Lifespan

Post by snowox » Fri Dec 01, 2017 5:42 pm

Dottie57 wrote:
Fri Dec 01, 2017 5:07 pm
Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.


15% of what?
That is 1 factor of many to pick just 15% . I'd be more opt to say as someone else earlier in the thread 1$ spent 1$ saved.

cnh
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Re: Amount You Need To Save Annually Over Lifespan

Post by cnh » Fri Dec 01, 2017 6:47 pm

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
You've asked a straightforward question that has a complicated answer, as many previous responses suggest.

A simple answer: $20,000 (as at least one other reply indicates). The "right answer" depends on a complex array of assumptions, and the actual results will depend on how an equally complex array of variable eventually play out.

Slacker
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Re: Amount You Need To Save Annually Over Lifespan

Post by Slacker » Fri Dec 01, 2017 7:20 pm

KlangFool wrote:
Fri Dec 01, 2017 4:57 pm
Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
Alexa9,

Can you convince a young 25 years old person to start thinking about retirement? I can't. I never save for retirement. I save for my FI. I faced Houston Oil Bust and Texas Saving & Loan Crisis while I was in college. I saved because I need to in order to survive.

KlangFool
I completely agree with this. I never talk to younger people in terms of retirement -> just in terms of financial independence to own their own destiny which can come as fast or as slow as they like totally dependent upon them and how much they save and how much they spend.

Admiral
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Re: Amount You Need To Save Annually Over Lifespan

Post by Admiral » Fri Dec 01, 2017 7:57 pm

When I was 25 (20 years ago) my salary (with a college degree!) was about $30,000, or perhaps $50,000 in today's money. The idea that I could have saved $20,000 was ridiculous then, and for someone making $50k today, it's ridiculous now. And that's without accounting for inflation.

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Portfolio7
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Re: Amount You Need To Save Annually Over Lifespan

Post by Portfolio7 » Fri Dec 01, 2017 8:08 pm

I saved 20% on my first job ($5K out of my $25K salary - though I had to spend it when I was unemployed for 8 months). Once I had a decent job again and access to the 401k I was dropping in 15% immediately and I kick myself for not saving in IRAs aggressively also. What $ amount you end up with is a function of salary, savings rate, and investment returns, as well as sequence of returns.

I tell my son not to leave it to chance, to save 50% if he can handle it, and be pretty much FI in 12 to 15 years (or if something bad happens, at least he has a great head start and some cash to fall back on.) Then he can work more, or not work, whatever he chooses to do, but he's not forced to be a wage slave. I wish I'd had that thought earlier, but my parents never talked about it and I thought 15% was aggressive enough (not so much when your pension gets slashed and real life happens to you and your family - health issues, employment issues, etc). Portfoliocharts.com allows you to enter a portfolio and % of savings and it will give you a sense of when you might hit the FI mark (it's not gospel, but it gives you a sense of how hard or easy it is.)
An investment in knowledge pays the best interest.

PharmerBrown
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Re: Amount You Need To Save Annually Over Lifespan

Post by PharmerBrown » Fri Dec 01, 2017 8:14 pm

$2600 per Dave Ramsey :sharebeer

Dottie57
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Re: Amount You Need To Save Annually Over Lifespan

Post by Dottie57 » Fri Dec 01, 2017 10:27 pm

snowox wrote:
Fri Dec 01, 2017 5:42 pm
Dottie57 wrote:
Fri Dec 01, 2017 5:07 pm
Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.


15% of what?
That is 1 factor of many to pick just 15% . I'd be more opt to say as someone else earlier in the thread 1$ spent 1$ saved.
15% of gross pay.

Spent? Spent on taxes? Spent on getting to work? Spent on healthcare? Spent on non fixed costs?

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Garco
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Re: Amount You Need To Save Annually Over Lifespan

Post by Garco » Fri Dec 01, 2017 10:42 pm

Exactly right for me. Saved/invested 15% of gross pay for 38 years in a 401K, and ended up with about $2.5M.

My first year gross salary was about $16K and my last year was about $180K.

Now I'm taking RMD's out, and have SS on top of that. My gross income from these sources is lower than my gross income in my final year of employment. But so are my expenses, since I'm not paying payroll taxes (though do have Medicare contribution taken from SS), and of course I'm not contributing to my 401K. So I've had no effective change in disposable income or standard of living in retirement from what I had in my latter years of employment. I also have good healthcare coverage from my former employer.

msk
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Re: Amount You Need To Save Annually Over Lifespan

Post by msk » Fri Dec 01, 2017 10:54 pm

Just save 30% of after tax income as soon as you have a steady job and all will be fine. On the basis of the past 50 years historical data, I checked what one would achieve by investing 100% in stocks, starting with an income of $50k at age 25. NB SP500 grew by 6.63% p.a. and inflation has been 4% p.a. both compounded, while dividends averaged 3.1% out of which I deducted 15% tax and reinvested the balance. Next I looked at 3 careers:

1. mediocre (job income just keeps up with inflation)
2. good career (income rises at 2% above inflation)
3. very good career (income rises at 4% above inflation

Ages when NW exceeds 25x job income:

1. Mediocre, NW hits $2.6 million at age 52, job income is $144k
2. Good, NW hits $6.7 million at age 59, job income is $363k
3. Very good, NW hits $26 million at age 69, job income $1.48 million

Inflation makes our current yardsticks look excessively puny. If your job gives you rapidly rising incomes, it becomes more and more difficult to declare FI and retire with nil curtailment to your standard of living. $2 million NW quoted by the OP sounds a lot to all who do not have that much NW but there is a whole spectrum of incomes out there. Save and invest 30% annually and you will be far more free to choose as to when you have achieved FI.

msk
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Re: Amount You Need To Save Annually Over Lifespan

Post by msk » Fri Dec 01, 2017 11:06 pm

Garco wrote:
Fri Dec 01, 2017 10:42 pm
My first year gross salary was about $16K and my last year was about $180K.
Interesting data. 38 years compounding at 6.6% p.a., or 2.6% above inflation. Somewhere between my terminology of good and very good :beer Perhaps I should have called 2% above inflation as very good and 4% above inflation as high flyer.

snowox
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Re: Amount You Need To Save Annually Over Lifespan

Post by snowox » Sat Dec 02, 2017 5:13 am

Dottie57 wrote:
Fri Dec 01, 2017 10:27 pm
snowox wrote:
Fri Dec 01, 2017 5:42 pm
Dottie57 wrote:
Fri Dec 01, 2017 5:07 pm
Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.


15% of what?
That is 1 factor of many to pick just 15% . I'd be more opt to say as someone else earlier in the thread 1$ spent 1$ saved.
15% of gross pay.

Spent? Spent on taxes? Spent on getting to work? Spent on healthcare? Spent on non fixed costs?


I know what you meant and wasnt trying to pick a fight with you :sharebeer I was basically saying I dont believe 15% is anywhere close to being enough of gross pay. Meaning 15% of what gross income number. It just wont get you there unless you come out with a starting wage of at least 125k.

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CyclingDuo
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Re: Amount You Need To Save Annually Over Lifespan

Post by CyclingDuo » Sat Dec 02, 2017 8:13 am

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
You pose an excellent question for young BH.org members who may be in their 20's!

Obviously, this response would be for them, as it appears you are on the other end of your working career. :mrgreen:

In our own situation, we met in our mid to late 20's and have been functioning as a dual income household with both of us saving a percentage of our incomes throughout our entire working careers. It may not be for everybody, but we highly recommend it.

:sharebeer

Most Financial Advising gurus will say something or other that usually revolves around the typical "10-15% of your income should be going into retirement savings" mantra. It doesn't work for all people, but it seems that's the standard rule of thumb that gets tossed about for retirement savings. Some even go as high as recommending 20%. In addition, consider that there are a wide range of salaries behind each member's name here on the Boglehead forums. Saving 10-15% of a $350K salary is a chunk of change in difference compared to a $75K salary when it comes to building a two comma portfolio.

The $350K salary at 15% means $52,500 can easily be tucked away into savings each year compared to tucking away only $11,250 a year for the $75K salary. This shows quite an income discrepancy gap when it comes to the sheer $ amount going to savings, and how it impacts the length of time it would take to reach a milestone such as $2M. New posters, and young investors should read every post here at BH with a grain of salt knowing that this discrepancy is behind a lot of recommendations.

One might read here at BH the proverbial "max out your 401K every year" time after time - which is fine for those who have an income high enough to be able to do that, and still meet their fixed costs, and have some leftover for discretionary spending. Not so fine for somebody starting out with a salary of $35 - $50K (especially if they live in a high cost of living area). There are plenty of posters here who have met their goals on less than six figure incomes as well. That being said, the path to make it to a two million dollar goal without being able to contribute the full maximum $18K to your 401K does exist.

We like two simple formulas for those starting out in their 20's. Even though we are in our 50's, the 20's is fresh in our minds at the moment as we have two children who are starting their work careers in their 20's - so we have been reviewing a lot of this with them over the past few years.

The first is known as the 50/20/30 rule. It's quick and easy. 50% goes to your necessities or rather fixed costs; 20% goes to savings; and 30% goes to discretionary. That 20% includes 401k, Roth IRA, and student loan debt servicing, as well as any other savings.

https://blog.mint.com/saving/the-minima ... 0s-072016/

https://www.doughroller.net/budgeting/i ... -of-thumb/

https://www.forbes.com/sites/trulia/201 ... b7276732e9

The second formula we like for the simplicity of it, is David Bach's formula: Save the equivalent of one hour's pre-tax wage per day, every day for the rest of your working life.

http://www.businessinsider.com/self-mad ... ing-2017-1

http://www.businessinsider.com/how-much ... ey-2016-12

https://www.cnbc.com/2017/01/11/self-ma ... -rich.html

How many hours are you actually working for yourself?

Fill in the blanks of Bach's formula to find out:

Last week, I worked a total of ____ hours.
I earn $____ an hour (before taxes).
Last week, I put aside $____ for my retirement.
So last week, I worked ____ hours for myself.


Or another way to look at it if you have an annual salary, of say $50K...

52 weeks X 40 hours a week = 2080 hours worked each year
$50K/2080 hours worked = $24 pre-tax hourly wage
52 weeks X 1 hour saved for every work day = 260 hours
$24 (hourly wage) X 260 (hours) = $6240 ($520 per month) which is 12.48% of pre-tax income on a $50K salary

Most in this scenario will also be receiving the employer match of several percent in a 401k to boost the percentage even higher. Assuming your salary rises with time, maintain that simple formula every year, and one's savings should meet their goals. There are a lot of what ifs, but utilizing one's human capital to produce income is a given with any formula to reach one's goals.

It was not realistic for the two of us to be contributing the maximum to our retirement accounts in our 20's as we were starting out in our full time working careers (we would have had nothing left to cover our fixed costs, or pay off student loans which had double digit interest rates in those days, or for discretionary). The 401K limit was $7K, and the IRA limit was $2K at the time. We did max out our IRA's, and saved at least a grand total of 10-15% each, as well as service student loan debt. That's all we could do on our salaries and budget (lived in HCOL NYC and SanFran in our early years).

Then along came children, a house, a career move to Europe for more than a decade - and, well....life. However, we always kept saving at least 10-15% of our income as a bare minimum. So in that respect, we were always following something simple such as David Bach's formula, or the industry standard of saving 10-15% for retirement. Then we boosted our savings to include saving for our children's college educations, so we were firmly in the saving at least 20% using the 50/20/30 rule. Entering the empty nest years, we are saving at an even higher rate due to the change in cash flow.

The percentages and dollar amounts will change/fluctuate over the years for somebody just starting out in their 20's. Following some sort of a simple formula to stay on track is key to reaching the nest egg goal.

gotester2000
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Re: Amount You Need To Save Annually Over Lifespan

Post by gotester2000 » Sat Dec 02, 2017 9:08 am

@Alexa9,

Mathematically the answer is simple. Playing around with Excel function FV(Future Value) - $10000 per year @6.8% for 40 years will give $2 million.

You can keep on changing the 4 numerics in the above statement per your wish.

True - life is not linear and number problems are easier to solve - how you practically achieve the target is the real question.

Many a time people realize late that living every moment fully is the secret of happy life , rather than achieving targets.

Dottie57
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Re: Amount You Need To Save Annually Over Lifespan

Post by Dottie57 » Sat Dec 02, 2017 9:18 am

snowox wrote:
Sat Dec 02, 2017 5:13 am
Dottie57 wrote:
Fri Dec 01, 2017 10:27 pm
snowox wrote:
Fri Dec 01, 2017 5:42 pm
Dottie57 wrote:
Fri Dec 01, 2017 5:07 pm
Alexa9 wrote:
Fri Dec 01, 2017 4:31 pm
Looking at a retirement calculator with exponential compound growth, the importance of saving a larger amount as young as possible and continuing to save allows you to retire earlier or more comfortably. I think $1M in your retirement accounts at age 50 is a reasonable goal and saving at least $20k/year on average. The difference between a Eurotrip and eating dog food in retirement. Whatever it takes to get young people thinking about it.
20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.


15% of what?
That is 1 factor of many to pick just 15% . I'd be more opt to say as someone else earlier in the thread 1$ spent 1$ saved.
15% of gross pay.

Spent? Spent on taxes? Spent on getting to work? Spent on healthcare? Spent on non fixed costs?


I know what you meant and wasnt trying to pick a fight with you :sharebeer I was basically saying I dont believe 15% is anywhere close to being enough of gross pay. Meaning 15% of what gross income number. It just wont get you there unless you come out with a starting wage of at least 125k.

Just a note. For most of my career I put in 15% of gross. I didn't make that much and it was a long time before I could put in the max to 401k. At 55 I started making much more and put in 30% between 401k and Roth ira. I am now 61. My financial assets are 1.3m . This is enough for me to have rewarding retirement.

My point is that you can have a good life and be able to spend during your working life AND have a good retirement too. My idea of decent retirement and yours are most likely very different.

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Garco
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Re: Amount You Need To Save Annually Over Lifespan

Post by Garco » Sat Dec 02, 2017 9:37 am

To add to my previous comment about unfailingly contributing 15% of my gross salary for 38 years to my retirement fund, I'd like to emphasize the importance of persistence. Don't stop contributing, don't borrow or withdraw cash, and consider that when you retire you will likely be able to maintain your lifestyle in retirement with the combination of SS + a safe withdrawal rate on your accumulation (no lump sums) + Medicare subsidy.

In that same spirit, a story from a funeral -- a statement that I made at my father's funeral some years ago.

"People sometimes marvel at the fact that my parents were married for 73 years. 73 years?? Actually, the formula is quite simple: 1. Marry young, 2. Live to an old age, and 3. Stay married."

Staying married and undead are keys. Neither are automatic. You have to work at it. And you need some luck.

Same for saving for retirement. Staying employed, always contributing to your retirement fund, never borrowing or spending from it get you a long way toward sustainable income in your old age.

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Re: Amount You Need To Save Annually Over Lifespan

Post by #Cruncher » Sat Dec 02, 2017 10:15 am

MI_bogle wrote:
Fri Dec 01, 2017 3:41 pm
2 million real (age 25 dollars?) At 4% real growth, you'd need to save 20K per year starting at age 25 to hit 2 million at age 65. If you get 6% real, drop that down to 12K a year.
These results and others can be calculated with the Excel PMT function. The portfolio balances at age 35, 45, and 55 can then be calculated with the Excel FV function. Here they are for real growth rates ranging from 0% to 6%:

Code: Select all

         Annual Investment Required at Various Growth Rates (Constant $)
        ------------------------------------------------------------------
          0%        1%        2%        3%        4%        5%        6%
        50,000    40,685    32,678    25,916    20,305    15,727    12,051 [*]

Age                      Balance at 10 Year Intervals
---  ---------------------------------------------------------------------
 25          0         0         0         0         0         0         0 
 35    500,000   427,705   361,419   301,798   249,162   203,513   164,580 
 45  1,000,000   900,373   802,785   709,030   620,620   538,700   464,015 
 55  1,500,000 1,422,730 1,341,780 1,258,530 1,174,403 1,090,757 1,008,807 [*]
 65  2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
* Sample calculations for 6% growth:

Code: Select all

   12,051 = -PMT(6% / 12, 12 * 40,           0, 2000000, 0) * 12
1,008,807 =   FV(6% / 12, 12 * 10, -12051 / 12, -464015, 0)

snowox
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Re: Amount You Need To Save Annually Over Lifespan

Post by snowox » Sat Dec 02, 2017 11:04 am

Dottie57 wrote:
Sat Dec 02, 2017 9:18 am
snowox wrote:
Sat Dec 02, 2017 5:13 am
Dottie57 wrote:
Fri Dec 01, 2017 10:27 pm
snowox wrote:
Fri Dec 01, 2017 5:42 pm
Dottie57 wrote:
Fri Dec 01, 2017 5:07 pm


20k may be closer to 1/2 of a young person's gross pay. I think percents are better. Of course student loans need to be paid off to. Best advice is to start and increase until at least 15% of income is being saved.


15% of what?
That is 1 factor of many to pick just 15% . I'd be more opt to say as someone else earlier in the thread 1$ spent 1$ saved.
15% of gross pay.

Spent? Spent on taxes? Spent on getting to work? Spent on healthcare? Spent on non fixed costs?


I know what you meant and wasnt trying to pick a fight with you :sharebeer I was basically saying I dont believe 15% is anywhere close to being enough of gross pay. Meaning 15% of what gross income number. It just wont get you there unless you come out with a starting wage of at least 125k.

Just a note. For most of my career I put in 15% of gross. I didn't make that much and it was a long time before I could put in the max to 401k. At 55 I started making much more and put in 30% between 401k and Roth ira. I am now 61. My financial assets are 1.3m . This is enough for me to have rewarding retirement.

My point is that you can have a good life and be able to spend during your working life AND have a good retirement too. My idea of decent retirement and yours are most likely very different.

I agree with you. I am 53 and retired and really played catch-up to do so. The difference today is kids most likely wont have the luxury of SS and they spend a lot more than our era did. I dont have any stats for that but having 4 kids and seeing what goes on all around they really want there toys. And what you and I can retire on today is not anywhere near the same what there going to need.

letsgobobby
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Re: Amount You Need To Save Annually Over Lifespan

Post by letsgobobby » Sat Dec 02, 2017 11:23 am

KlangFool wrote:
Fri Dec 01, 2017 3:30 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.

KlangFool
Your personal experience notwithstanding, that is an absurd comparison. I know many people who were employed continuously their entire working lives. In contrast the odds of flipping heads forty times in a row is (1/2)^40, or approximately one in one trillion.

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Re: Amount You Need To Save Annually Over Lifespan

Post by abuss368 » Sat Dec 02, 2017 11:28 am

I look for ways constantly to increase our contributions. At least once a year at minimum our contribution increases.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

letsgobobby
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Re: Amount You Need To Save Annually Over Lifespan

Post by letsgobobby » Sat Dec 02, 2017 11:29 am

Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
It will obviously depend on market returns. Thirty-five years ago both stocks and bonds were exceptionally cheap and proceeded to go through a once in a lifetime bull market. That simply can't happen over the next thirty five years. I'd caution younger BHs from extrapolating to their own experiences those of BHs now in their 50s... who were able to save a relatively small percentage of their incomes and still achieve financial independence at an early age. I suggest saving about double the 10-15% commonly recommended.

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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Sat Dec 02, 2017 11:40 am

letsgobobby wrote:
Sat Dec 02, 2017 11:23 am
KlangFool wrote:
Fri Dec 01, 2017 3:30 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.

KlangFool
Your personal experience notwithstanding, that is an absurd comparison. I know many people who were employed continuously their entire working lives. In contrast the odds of flipping heads forty times in a row is (1/2)^40, or approximately one in one trillion.
letsgobobby,

1) Most people that I know are not continuously employed over their entire working lives. My observation is at least as valid as yours.

2) Is it good planning to assume that a person's employment will not be affected by multiple recessions over 40+ years? The obvious answer will be no. Hope for the best and plan for the worst should be the prudent approach.

KlangFool

letsgobobby
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Re: Amount You Need To Save Annually Over Lifespan

Post by letsgobobby » Sat Dec 02, 2017 12:14 pm

The odds of remaining employed in a given year for most people is far more than 50%. One in a trillion is absurd. Give it up.

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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Sat Dec 02, 2017 1:16 pm

letsgobobby wrote:
Sat Dec 02, 2017 12:14 pm
The odds of remaining employed in a given year for most people is far more than 50%. One in a trillion is absurd. Give it up.
letsgobobby,

1) That has nothing to do with the odds of a particular person being employed continuously over 40 years. They are totally different.

2) A person can be drowned in a lake with an average depth of 3 inches. We are not a statistic. This is a personal finance forum.

KlangFool

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Re: Amount You Need To Save Annually Over Lifespan

Post by Nate79 » Sat Dec 02, 2017 1:27 pm

$2m is a nice goal for a BH but for average person they will retire on SS and a paid for home, maybe some CD's in the bank. To think you need $2m to retire on misunderstands the situation of 90%+ of people in this country.

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Veiled
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Re: Amount You Need To Save Annually Over Lifespan

Post by Veiled » Sat Dec 02, 2017 3:51 pm

letsgobobby wrote:
Sat Dec 02, 2017 12:14 pm
The odds of remaining employed in a given year for most people is far more than 50%. One in a trillion is absurd. Give it up.
KlangFool wrote:
Sat Dec 02, 2017 1:16 pm
That has nothing to do with the odds of a particular person being employed continuously over 40 years. They are totally different.
Anecdotes are nice, but they aren't data. According to the Bureau of Labor Stats:
Individuals born in the latter years of the baby boom (1957-1964) held an average of 11.9 jobs from age 18 to age 50, the U.S. Bureau of Labor Statistics reported today. Nearly half of these jobs were held from ages 18 to 24.
Discounting the entry-level high school/college jobs, this suggests that most adults still hold 5-6 jobs in their lifetimes. letsgohobby is right to say it's not one in a trillion. KlangFool's point might just be that an individual cannot assume he or she will be the outlier who has one job.
Pardon me as I read these one hundred and fifty-seven SP vs LLC vs Scorp threads...

letsgobobby
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Re: Amount You Need To Save Annually Over Lifespan

Post by letsgobobby » Sat Dec 02, 2017 4:00 pm

And even if they hold ten lifetime jobs, that does not imply they have 9 periods of unemployment. The jobs may be held successively.

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Re: Amount You Need To Save Annually Over Lifespan

Post by Bacchus01 » Sat Dec 02, 2017 4:26 pm

Admiral wrote:
Fri Dec 01, 2017 7:57 pm
When I was 25 (20 years ago) my salary (with a college degree!) was about $30,000, or perhaps $50,000 in today's money. The idea that I could have saved $20,000 was ridiculous then, and for someone making $50k today, it's ridiculous now. And that's without accounting for inflation.

That’s almost identical to me. Started post college work 20 years ago at exactly $30K. Saved what I could, but nothing close to $20K

Having a salary that has grown at about 13% CAGR over that timeframe has changed the ability to save way more than $20k/yr.

I strongly believe that while you should invest and LBYM when young, ALL of your investment focus should be on you. Invest in yourself, your education and you’re career. It will impact you way more than the $5K you squirreled away.

macheta
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Re: Amount You Need To Save Annually Over Lifespan

Post by macheta » Sat Dec 02, 2017 4:57 pm

I'm not sure I need two million or four million. My biggest concern is the inflated cost of medical. I am budgeting $21,108 per year in tomorrows inflated view for medical or $6500 in todays view . This estimate takes into consideration estimate of Medicare Parts A, B, and D, a Medigap policy, and any out-of-pocket expenses.

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Re: Amount You Need To Save Annually Over Lifespan

Post by DrGoogle2017 » Sat Dec 02, 2017 5:49 pm

It doesn’t matter whether it’s 2M or not, but save some, at least $5k or $10k a year, they will be glad they do. Put that in their budget as a must spend amount, not as an after thought.

Both of my kids have to learn how to budget, one whined a lot about budgeting, but in the end she did learn how to do it and even got her friends at work to budget.

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