Are we saving too much (for our needs)?

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aiyuanuc
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Are we saving too much (for our needs)?

Post by aiyuanuc »

As a 31/29 couple with 1 child (2.5 yo, no intention for more), we are making ~$175k a year and saving and investing ~100k across 401k, Roth, HSA, 529, and taxable.

We live semi-frugally: occasional take-out (especially during Covid, no dine-in), luxury vacations ( :oops: , pre-Covid and pre-child...) covered by credit card signup bonus, no interest in spending on toys, and currently don't own a house.

Currently, we have $600k in assets $350k of which is in stocks which we don't plan to touch until retirement (the rest in intermediate-term bonds and cash for possible down payment within 2-5 years). All new contributions are going to stocks.

Using a 3% real return, with only 60% of our current savings (aka, 60k/year), we will have 2.6M in today's dollar at age 56/54. I don't think we need more. So there is $40k excess savings each year.

Can we loosen up a bit by spending more? Say 20k a year? The other $20k can go to daycare (after Covid :oops: ) and extra house payments once we purchase one. It's very hard to get into spending mode after being frugal for many years.
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rob
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Re: Are we saving too much (for our needs)?

Post by rob »

By anyone's measure - your moving along fast. You certainly have the budget to spend more on consumption - obviously that will delay FI or RE but only you can say if that's worth it.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
ThankYouJack
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Re: Are we saving too much (for our needs)?

Post by ThankYouJack »

What are your long term goals? Do you want to FIRE, work as long as possible or somewhere in between? Leave a big legacy or spend it all or something in between?
megabad
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Re: Are we saving too much (for our needs)?

Post by megabad »

Wild guess, you are spending 3k a month. That’s pretty low by the standards in this forum but I assume you live in a LCOL area. You could easily afford to increase spending another 20k annually but that is a huge jump from where you are now, about 50% more spending. It will definitely have an impact but I’m not sure it will be big enough for you to care.
Nate7out
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Re: Are we saving too much (for our needs)?

Post by Nate7out »

It looks like you are currently spending about $50k per year. If you increase your spending / lifestyle by $40k the $2.6M you project will just cover your $100k lifestyle assuming everything goes according to plan.

I would say that:

a) You are doing great so far,
b) You already have some increased spending coming up (house and daycare - definitely worth it),
c) I wouldn't actively choose to up and spend 40% more.

It would not be unreasonable for you to increase spending. Is there some area where you feel your life could improve? I would look for something you believe would improve your life and allocate maybe $500-$1000 per month (might be lumpy and not literally a monthly amount) to that activity or experience and see how it goes for a year or so. If you don't already have anything in mind, maybe you don't need to spend more.
HomeStretch
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Re: Are we saving too much (for our needs)?

Post by HomeStretch »

You are doing great.

Actual results may vary significantly from a financial projection covering 25 years. You may experience job loss, health issues, another child, your or spouse may decide to stay-at-home, decide to fully fund your child’s education, retire earlier than 56/54, etc.

Spending and saving levels are personal decisions. But given you are young, want to buy a house and just starting your portfolio, consider continuing to save now at a high rate to give yourselves maximum financial and life flexibility in the future.
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lthenderson
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Re: Are we saving too much (for our needs)?

Post by lthenderson »

You obviously can afford to spend an extra $40k per year if you so desire. What I would worry about and watch for is lifestyle creep. It is much easier to spend more than to ratchet back spending that you've become accustomed too over time. Keep that in mind and you should do fine.
flyingaway
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Re: Are we saving too much (for our needs)?

Post by flyingaway »

Are you happy with your current life? Do you want to upgrade your lifestyle?

If you truely want to spend more, why not. You may make more money in the future, you may win a lottery..

It depends upon what kind of lifestyle you want. Life is short.
Grt2bOutdoors
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Re: Are we saving too much (for our needs)?

Post by Grt2bOutdoors »

Spend $30k, keep $10k in reserve. If $30k works no need to spend the other $10k - save that for when you buy the house.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
softmax
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Re: Are we saving too much (for our needs)?

Post by softmax »

I think you are doing great, but I wouldn't spend more just to spend more. Where do you want to retire? If it's a HCOL area, 2.6M is not quite enough even by today's standard.
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aiyuanuc
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Re: Are we saving too much (for our needs)?

Post by aiyuanuc »

I do want to have the flexibility to retire at 55 with 2.5M, but I don't mind working a bit longer if situation permits.

I don't care much about leaving a big legacy, but can afford to leave some with 2.5M at 55... especially with our moderate spending...
ThankYouJack wrote: Tue Jul 21, 2020 3:49 pm What are your long term goals? Do you want to FIRE, work as long as possible or somewhere in between? Leave a big legacy or spend it all or something in between?
bloom2708
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Re: Are we saving too much (for our needs)?

Post by bloom2708 »

If/when you buy a house, you will have new and exciting ways to spend money.

Growth is not linear. Up years, down years, flat years. Looking too far ahead can derail plans that are working. Stay in the present.

Put your heads down and keep saving/investing. Have some fun along the way.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
Topic Author
aiyuanuc
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Re: Are we saving too much (for our needs)?

Post by aiyuanuc »

Yep! I am fully aware of that and can dial back any time.
lthenderson wrote: Tue Jul 21, 2020 4:00 pm You obviously can afford to spend an extra $40k per year if you so desire. What I would worry about and watch for is lifestyle creep. It is much easier to spend more than to ratchet back spending that you've become accustomed too over time. Keep that in mind and you should do fine.
KlangFool
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Re: Are we saving too much (for our needs)?

Post by KlangFool »

OP,

My personal rule is to save 1 year of current annual expenses every year and spend the rest. In my system, I consider the whole mortgage payment as an expense. As for the 529, I would consider it as an expense too.

KlangFool
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FiveK
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Re: Are we saving too much (for our needs)?

Post by FiveK »

aiyuanuc wrote: Tue Jul 21, 2020 4:10 pm I do want to have the flexibility to retire at 55 with 2.5M, but I don't mind working a bit longer if situation permits.
That may or may not be the case after 25 more years. ;)

If you aren't unhappy now, keep saving as you have been - it will increase your ability to do whatever you want in the future.
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aiyuanuc
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Re: Are we saving too much (for our needs)?

Post by aiyuanuc »

certainly not the bay area or NYC... some suburbs of LA will do :D we can bear the traffic and don't mind driving a bit more when necessary. 2.6M is in today's dollars.

I wouldn't actively spend more just for the sake of it. I guess my question is more like, is it silly to debate (with myself) if or not to buy that $2.5 lb strawberry because it was $1.5 last week? Or drive extra two miles to save $1 to fill the tank?
softmax wrote: Tue Jul 21, 2020 4:08 pm I think you are doing great, but I wouldn't spend more just to spend more. Where do you want to retire? If it's a HCOL area, 2.6M is not quite enough even by today's standard.
Topic Author
aiyuanuc
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Re: Are we saving too much (for our needs)?

Post by aiyuanuc »

I wouldn't say that I am not happy. Maybe just a bit depressed under this current Covid situation -- nowhere to go, nothing to do... and saving a ton...

One thing I can think of is to care for aging parents on both sides. They live in the same city in a third-world country and I don't think they care to move to the States anyway. If we retire to care for them at 55 or even earlier in our home country, that can help further stretch our funds, right? If we move there, housing will be paid for, and living expenses are really low. I think we can easily get by with < $20k comfortably.
FiveK wrote: Tue Jul 21, 2020 4:20 pm
aiyuanuc wrote: Tue Jul 21, 2020 4:10 pm I do want to have the flexibility to retire at 55 with 2.5M, but I don't mind working a bit longer if situation permits.
That may or may not be the case after 25 more years. ;)

If you aren't unhappy now, keep saving as you have been - it will increase your ability to do whatever you want in the future.
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Watty
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Re: Are we saving too much (for our needs)?

Post by Watty »

As long as you are still maxing out all your tax advantaged accounts then increasing you spending is very reasonable.

One thing to watch out for though is spending money on things that will have a lot of ongoing costs. For example if you buy a boat then the ongoing costs would need to be carefully considered but it might still be OK.
aiyuanuc wrote: Tue Jul 21, 2020 3:32 pm It's very hard to get into spending mode after being frugal for many years.
It is just my pet peeve but one thing that bothers me is when people have a lot of money but they drive cars that may not be very safe. They have improved car safety a lot especially in the last ten years. In 2012 ESC because required as standard equipment and that is a very good safety feature to have. At about the same time they added a new side offset crash test. A lot of cars did not do well on that so they improved the safety design to do better on that test. In the last few years they have also added a laundry list of advanced safety features like automatic braking. I'm not saying that you should go out and buy a real expensive car that has all the latest safety bells and whistles but if you are driving an older car you may be able to buy a much safer one for a reasonable price and you can afford that.
WS1
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Re: Are we saving too much (for our needs)?

Post by WS1 »

You could practice spending the additional money by donating it. See how having the money physically and permanently leave your account makes you feel. If you’re cool spending it that way I’m sure you’ll be ok doing something useful like chartering a sailboat for 3 weeks in the Caribbean
tashnewbie
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Re: Are we saving too much (for our needs)?

Post by tashnewbie »

aiyuanuc wrote: Tue Jul 21, 2020 4:20 pm I wouldn't actively spend more just for the sake of it. I guess my question is more like, is it silly to debate (with myself) if or not to buy that $2.5 lb strawberry because it was $1.5 last week? Or drive extra two miles to save $1 to fill the tank?
I personally wouldn’t be worrying about these specific situations if I were you. I realized in the last year that I’m not going to hunt for the cheapest gas. If there are several stations along the route I’m already taking, I’ll go to the cheapest one that fits my other criteria, but I’m not going out of my way to get cheaper gas. My time is worth more than whatever few dollars (usually less than that) I’d save.

With food, if you love strawberries, get them!! That’s not going to break the bank. I also look out for produce that’s on sale, but if there’s something I love and it’s in season (because taste is better then), I’m generally going to get it.

My philosophy is to set a savings goal that will reasonably allow me to reach my goals and then give myself permission to spend the rest. If I don’t, then I can save more.
runner540
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Re: Are we saving too much (for our needs)?

Post by runner540 »

I suggest increasing or adding a few categories in the budget rather than a round number.
What are your college savings and plans?
yules
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Re: Are we saving too much (for our needs)?

Post by yules »

aiyuanuc wrote: Tue Jul 21, 2020 3:32 pm As a 31/29 couple with 1 child (2.5 yo, no intention for more), we are making ~$175k a year and saving and investing ~100k across 401k, Roth, HSA, 529, and taxable.

We live semi-frugally: occasional take-out (especially during Covid, no dine-in), luxury vacations ( :oops: , pre-Covid and pre-child...) covered by credit card signup bonus, no interest in spending on toys, and currently don't own a house.

Currently, we have $600k in assets $350k of which is in stocks which we don't plan to touch until retirement (the rest in intermediate-term bonds and cash for possible down payment within 2-5 years). All new contributions are going to stocks.

Using a 3% real return, with only 60% of our current savings (aka, 60k/year), we will have 2.6M in today's dollar at age 56/54. I don't think we need more. So there is $40k excess savings each year.

Can we loosen up a bit by spending more? Say 20k a year? The other $20k can go to daycare (after Covid :oops: ) and extra house payments once we purchase one. It's very hard to get into spending mode after being frugal for many years.
It feels like you are putting the cart before the horse, wondering if you can spend more without having something in mind. (I don’t count child care, which may be a necessary expense or extra house payments, which you don’t have and which may be a good financial decision that has more to do with liquidity than splurging).

That mentality will lead you to spending for the sake of spending. Don’t go out looking to spend money, because you won’t spend it wisely or meaningfully that way. Instead, do it in reverse. When you find something worth buying (a watch, a Peloton bike, whatever), then decide if you can afford it.

Yules
bogledogle
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Re: Are we saving too much (for our needs)?

Post by bogledogle »

Always save more money than you think you will need. You can always spend money quickly but saving takes a long time. Who knows when life throws a curveball at you.

That said, you have a good saving rate so go ahead, splurge and buy some happiness once in a while. But, don't force yourself to spend more money on a schedule like 20k a yr.
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peetsperk
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Re: Are we saving too much (for our needs)?

Post by peetsperk »

If you haven't, I think you should ask your spouse what she/he thinks about your current savings rate, as well as what budget amounts should be spent on things like vacations, child care and the like. This is supposed to be a partnership. Good luck!
inbox788
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Re: Are we saving too much (for our needs)?

Post by inbox788 »

aiyuanuc wrote: Tue Jul 21, 2020 3:32 pm As a 31/29 couple with 1 child (2.5 yo, no intention for more), we are making ~$175k a year and saving and investing ~100k across 401k, Roth, HSA, 529, and taxable.

We live semi-frugally: occasional take-out (especially during Covid, no dine-in), luxury vacations ( :oops: , pre-Covid and pre-child...) covered by credit card signup bonus, no interest in spending on toys, and currently don't own a house.
That sounds great, a gross 57% savings rate (100/175), but I wonder about taxes and budget. After rent, taxes, and transportation, how much non-discretionary and discretionary is left? What are the biggest remaining items, and what is your tax rate? State tax?
Currently, we have $600k in assets $350k of which is in stocks which we don't plan to touch until retirement (the rest in intermediate-term bonds and cash for possible down payment within 2-5 years). All new contributions are going to stocks.

Using a 3% real return, with only 60% of our current savings (aka, 60k/year), we will have 2.6M in today's dollar at age 56/54. I don't think we need more. So there is $40k excess savings each year.

Can we loosen up a bit by spending more? Say 20k a year? The other $20k can go to daycare (after Covid :oops: ) and extra house payments once we purchase one. It's very hard to get into spending mode after being frugal for many years.
Don't worry about it. It's easier to spend more than not have enough to spend. And if you save too much, it's not a terrible problem, but few people have that.

I've know folks who've been very frugal and saved a lot, and once they were secure, they blew a bunch on a fancy car. Other might go on a long vacation. It's a matter of priorities.
neverpanic
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Re: Are we saving too much (for our needs)?

Post by neverpanic »

1) It's my opinion you are projecting too far out for your age. I'd suggest looking at a much shorter horizon. The world is too uncertain to know what job security means these days.

2) How does your partner feel about your frugality? If I had to guess, I would assume you are very much on the same page, which is great. Keep doing what you are doing to remain on that page.

3) Older kids cost a lot more than younger kids. Participating in the performing arts or high-level sports will put a tangible drain on your resources.

4) Teach your child about what you did to build this life for them. Set up a trust to help them make wise choices.

5) Enjoy once-in-a-lifetime experiences. Twice.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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Hub
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Re: Are we saving too much (for our needs)?

Post by Hub »

1. Make hay while the sun shines.
2. Your spending will go up no matter if you choose it now or not.
3. Your income will likely go up significantly over the next 10 years.

I would stay frugal. It's easiest when kids are small and it's not any fun to go anywhere anyway! You're doing great.

4. I personally don't view a projection that goes all the way out to your mid 50s as having it made at your age. Shoot for the $2.6MM at age 45 and spend more as you make more but keep your savings goals at a point that gets you there.
investingdad
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Re: Are we saving too much (for our needs)?

Post by investingdad »

aiyuanuc wrote: Tue Jul 21, 2020 3:32 pm As a 31/29 couple with 1 child (2.5 yo, no intention for more), we are making ~$175k a year and saving and investing ~100k across 401k, Roth, HSA, 529, and taxable.

We live semi-frugally: occasional take-out (especially during Covid, no dine-in), luxury vacations ( :oops: , pre-Covid and pre-child...) covered by credit card signup bonus, no interest in spending on toys, and currently don't own a house.

Currently, we have $600k in assets $350k of which is in stocks which we don't plan to touch until retirement (the rest in intermediate-term bonds and cash for possible down payment within 2-5 years). All new contributions are going to stocks.

Using a 3% real return, with only 60% of our current savings (aka, 60k/year), we will have 2.6M in today's dollar at age 56/54. I don't think we need more. So there is $40k excess savings each year.

Can we loosen up a bit by spending more? Say 20k a year? The other $20k can go to daycare (after Covid :oops: ) and extra house payments once we purchase one. It's very hard to get into spending mode after being frugal for many years.
My wife and I are 47 but I was projecting out just as far as you are when I was in my late 20s. Correcting for inflation we were probably making about the same though I think you've got a bit more saved than we did.

We are currently sitting at 3.4M and, like you, I was projecting much more conservatively. I think you may be surprised and find your actual portfolio value will be higher than you think.

So it's two thumbs up from me as I think we're traveling a similar path, I just have a 17 year head start.

Don't spend just because you can. You're living semi frugally now and are pretty happy? Good, it's a good age to live on the frugal side. You may find as you get older you'll want to let your lifestyle creep. But if your life is sunny now and your investing large chunks of money, just ride that train for awhile.

Can you spend a bit more now? Looks like you can to me. But don't do it just for the sake of spending.

And remember, while projections are good...until you've got it in your pocket, don't be lulled into a false sense of security because the spreadsheet is forecasting a big sum later in life.
daheld
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Re: Are we saving too much (for our needs)?

Post by daheld »

aiyuanuc wrote: Tue Jul 21, 2020 4:20 pm certainly not the bay area or NYC... some suburbs of LA will do :D we can bear the traffic and don't mind driving a bit more when necessary. 2.6M is in today's dollars.

I wouldn't actively spend more just for the sake of it. I guess my question is more like, is it silly to debate (with myself) if or not to buy that $2.5 lb strawberry because it was $1.5 last week? Or drive extra two miles to save $1 to fill the tank?
softmax wrote: Tue Jul 21, 2020 4:08 pm I think you are doing great, but I wouldn't spend more just to spend more. Where do you want to retire? If it's a HCOL area, 2.6M is not quite enough even by today's standard.
We're a bit older, earn a bit less, and currently save about 60% of what you do. But, we pay for daycare and own a home, so probably are paying a bit more in things like insurance, property taxes, etc. We did save more before baby came and daycare added expenses. We are on a similar path in terms of retirement mid-50s, in terms of retirement nest egg total, etc.

Anyway, this type of letting go--not really thinking much of buying those red cherries before they're completely in season and at their lowest price--is honestly freeing for me. It's something I've sort of let myself do over the last couple years and has been nice.

Something I might also suggest--when we married about four years ago, we combined all our finances. Retirement, savings, checking, everything. We also created "side accounts" for each of us. We each have access to both side accounts, but the intent is that we're free to spend that money on whatever we want, however we want, no questions asked. We deposit a pretty meager sum each pay check ($40/pp). The balances are now a few grand. I want to buy a $250 carbon fiber kayak paddle that my wife thinks is silly? Fine, that's what the side account is for! We always wind up discussing this stuff and still obsess over big purchases more than most people, but it has been a good thing to have that pot of money for hobbies, etc.
Nowizard
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Re: Are we saving too much (for our needs)?

Post by Nowizard »

You are at a wonderful point of opportunity. You have done well and now have the opportunity to consider finances as part of an overall goal of a more balanced life. You are probably aware of the Hierarchy of needs, and you have the basic ones of food, clothing, shelter in good shape and can continue to save and enjoy the ride as well. It is difficult to shift, particularly when you are experiencing success with meeting or approaching a major goal. The same question occurs when one is near retirement and has "Won the game" and even after retirement if one has little or no need to take risk but difficulty moving to a less aggressive portfolio or to a preservation rather than accumulation stage. There are multiple stages of investing, each with a new learning curve. Fortunately, your current one is based on success with one that can continue while moving forward.

Tim
hulburt1
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Re: Are we saving too much (for our needs)?

Post by hulburt1 »

I'm 67 and one thing I wish I did was put more in Roth and less in my Ira.
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aiyuanuc
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Re: Are we saving too much (for our needs)?

Post by aiyuanuc »

The 2.6MM is in today's dollars... if I want 2.6M in today's dollars at 45, I would have to save $11k a month assuming a 3% real return...
Hub wrote: Wed Jul 22, 2020 2:49 am 1. Make hay while the sun shines.
2. Your spending will go up no matter if you choose it now or not.
3. Your income will likely go up significantly over the next 10 years.

I would stay frugal. It's easiest when kids are small and it's not any fun to go anywhere anyway! You're doing great.

4. I personally don't view a projection that goes all the way out to your mid 50s as having it made at your age. Shoot for the $2.6MM at age 45 and spend more as you make more but keep your savings goals at a point that gets you there.
Grt2bOutdoors
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Re: Are we saving too much (for our needs)?

Post by Grt2bOutdoors »

aiyuanuc wrote: Wed Jul 22, 2020 1:40 pm The 2.6MM is in today's dollars... if I want 2.6M in today's dollars at 45, I would have to save $11k a month assuming a 3% real return...
Hub wrote: Wed Jul 22, 2020 2:49 am 1. Make hay while the sun shines.
2. Your spending will go up no matter if you choose it now or not.
3. Your income will likely go up significantly over the next 10 years.

I would stay frugal. It's easiest when kids are small and it's not any fun to go anywhere anyway! You're doing great.

4. I personally don't view a projection that goes all the way out to your mid 50s as having it made at your age. Shoot for the $2.6MM at age 45 and spend more as you make more but keep your savings goals at a point that gets you there.
You spend your time focusing on a dollar amount, one day you are going to wake up and find life passed you by while you are fixated on the amount. Everything in moderation and when/if you are able to save more, do so. Focus on what’s important - spending more now? If it’s a need and you have the means do so, but if it’s a “want” to do that for X years, you may need to revisit your priorities.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
jarjarM
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Re: Are we saving too much (for our needs)?

Post by jarjarM »

Grt2bOutdoors wrote: Wed Jul 22, 2020 7:32 pm
aiyuanuc wrote: Wed Jul 22, 2020 1:40 pm The 2.6MM is in today's dollars... if I want 2.6M in today's dollars at 45, I would have to save $11k a month assuming a 3% real return...
Hub wrote: Wed Jul 22, 2020 2:49 am 1. Make hay while the sun shines.
2. Your spending will go up no matter if you choose it now or not.
3. Your income will likely go up significantly over the next 10 years.

I would stay frugal. It's easiest when kids are small and it's not any fun to go anywhere anyway! You're doing great.

4. I personally don't view a projection that goes all the way out to your mid 50s as having it made at your age. Shoot for the $2.6MM at age 45 and spend more as you make more but keep your savings goals at a point that gets you there.
You spend your time focusing on a dollar amount, one day you are going to wake up and find life passed you by while you are fixated on the amount. Everything in moderation and when/if you are able to save more, do so. Focus on what’s important - spending more now? If it’s a need and you have the means do so, but if it’s a “want” to do that for X years, you may need to revisit your priorities.
+1 Enjoy life, you only live once. Don't wait til you're 85 and realized you're richer than 95% of the US population and yet have no enjoyable memories of your youth. Also, once you have the house, spending will go up.
Katietsu
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Re: Are we saving too much (for our needs)?

Post by Katietsu »

There is a big difference between spending an extra $20k or $40k and worrying about the cost of strawberries. I know some people think that being care free with pennies will turn into bigger and bigger spending. But it nstead, maybe if you give yourself permission to on the small things here and then, you will not feel the need to spend on a bigger item.
MathIsMyWayr
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Re: Are we saving too much (for our needs)?

Post by MathIsMyWayr »

KlangFool wrote: Tue Jul 21, 2020 4:15 pm OP,

My personal rule is to save 1 year of current annual expenses every year and spend the rest. In my system, I consider the whole mortgage payment as an expense. As for the 529, I would consider it as an expense too.

KlangFool
Not a rule, but you happened to fall into the sweet spot. If the income is too low, impossible. If too high, you may end up saving many years' expenses.
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