Can a <median household save 1 year of expenses every year?

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teen persuasion
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Re: Can a <median household save 1 year of expenses every year?

Post by teen persuasion » Tue May 15, 2018 3:16 pm

terran wrote:
Tue May 15, 2018 11:36 am
Glockenspiel wrote:
Mon May 14, 2018 3:58 pm
Is there anyone here, in this forum, that lives in a household making less than $59,000 gross income per year that saves as much money as they spend, every year?
We both make and spend more than this, but by basing this on our actual situation and eliminating some of our extravagances I'll take a crack at this.

Assumptions:
>$59k will pay gross income
> $4,056.80 FICA after HSA deduction (see below)
>6% = $3540 401k/403b match

Resulting in and annual save/spend of (59000 - 4,056.80 + 3450)/2 = $29,196.60, or $2,433.05/month

Now lets look at their payroll deducted expenses:
> $170.20 family HSA Eligible HDHP (comes with $930/year employer contribution to HSA)
> $43.54 family dental insurance
> $17.01 vision insurance
> $38.84 short term disability (we self insure for this, but just for arguments sake I've included it)
> $16.64 long term disability
> Total payroll deducted expenses = $286.23 ($230.75 of which reduce taxable income)

So we now have $2,146.82 to spend.

$900 rent (2 bedroom apartment)
$488 Groceries (we spend $75/week for 2 people, so this is 1.5x that to account for a kid or maybe 2)
$44 household goods, like cleaning supplies, toiletries, etc ($10/week -- we never seem to hit this)
$22 Cell phones (2 phones on Ting)
$45 Electric (all electric, warm climate, little A/C used, a bit of heat in the winter)
$40 Internet
$55 water and trash
$50 clothing
$14 haircuts (for my wife, I do my own, so lets say our fictional kid is a boy)
$11 Renters insurance
$26 Employer subsidized gym membership
$50 healthcare (twice our actual average, and this doesn't account for the $930 employer HSA contribution)
$30 Life insurance ($1million 20 year term on the primary bread winner)
= 1775 Core expenses

A few extravagances
$9 netflix
$100 Gifts (we budget less than this, but if we had a kid this might be more realistic)
$100 Family visits (travel to see family once a year plus other family on occasion, so we might need to change the frequency if we had a kid)
$85 going out (more than we actually spend)
$25 Electronics replacement (we save twice this but have two fancy/mac laptops, an iPad, and two iPhones).
= $2094, leaving $52.82 to spare

Notable exceptions:
> We do have a car, but we walk to work and could walk, bike or take public transit to get groceries, so I've excluded car maintenance, insurance and replacement from this.
> I've excluded travel which we spend a lot on. That's a luxury and we know it.
> I'm sure that those with kids will have all kinds of problems with this budget, which is totally fair. I don't know what it's like. I will say that despite what I've removed there's still a lot of fat that could be trimmed from this budget. That could get us through some expensive extras. I realize I'm saying this from my childfree ivory tower, but I also think a lot of the efficiencies we find to apply to ourselves could also be extended to kids (hand-me-downs/second hand items, trading child care, free entertainment at/from the library, making things from scratch, etc).
> If we both had to work to hit this median income, we'd need to pay for day care for a time, which could really derail this plan, so I think we have to say this is a single income household.
> While I've seen better, the employer benefits here are pretty good, so if you had worse benefits you might be in trouble.
> I haven't accounted for state income tax, so I'm effectively assuming they live in a no tax state. I tried a few states and you're probably looking at $100-150/month at this level of income.

Now to the savings:
$3450 Employer match
$5970 HSA (plus $930 from the employer)
$12261 traditional 401k/403b
7,515.60 Roth IRA and or 401k/403b
= $29,196.60 saving

I didn't include the employer HSA contribution in the total savings figure, so you can decide if that should be considered savings or used to boost what some might consider low healthcare spending.

Now, federal tax:
$59000 income
- $2,769 payroll deducted expenses that reduce income
- $5970 HSA contribution
- $12261 traditional 401k/403b
= $38000 AGI
- $24000 standard deduction
= $14000 taxable income
= $1400 tax
- $2000 Savers tax credit (non refundable)
= $0 federal income tax

So we'd have to eliminate some of the spending we value (although not really as much as I thought, mostly the travel), but I think it would definitely be doable to save as much as you spend on a median income. Definitely not as easy as it is for us to save (more than) what we spend, but also not impossible. If you start lowering the income below median, then yeah, that's going to get pretty tough if you're talking about someone with kids and/or don't want to see them making some real lifestyle sacrifices. I think that's ok though. Saving as much as you spend is a huge accomplishment, so like any huge accomplishment I think it's alright that it requires you to do unconventional things.
If you are including a couple kids in your scenario, you enter EITC and CTC territory. Two kids MFJ at $38k AGI gives $2648 EITC (2017 chart, bit higher for 2018 likely) and 2x $1400 refundable CTC for 2018. For NYS, EITC is matched at 30% ($794) and CTC matched at 33% (unclear how will work on increased 2018 CTC, I'm guessing will max at current $330 per child = $660). Probably net $700 NYS refund after tax. So altogether >$6000 in refundable credits from federal + state.

Raabe34
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Re: Can a <median household save 1 year of expenses every year?

Post by Raabe34 » Tue May 15, 2018 3:30 pm

In 2004 I was fresh out of college, newly married and ended up making right around 55k that year, combined. If you count principal reduced on home loan, yes we achieved it for that year. I don't have meticulous records but we were right in the neighborhood of 25k saved. Didn't do a ton but didn't miss much.

terran
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Re: Can a <median household save 1 year of expenses every year?

Post by terran » Tue May 15, 2018 3:31 pm

teen persuasion wrote:
Tue May 15, 2018 3:16 pm
If you are including a couple kids in your scenario, you enter EITC and CTC territory. Two kids MFJ at $38k AGI gives $2648 EITC (2017 chart, bit higher for 2018 likely) and 2x $1400 refundable CTC for 2018. For NYS, EITC is matched at 30% ($794) and CTC matched at 33% (unclear how will work on increased 2018 CTC, I'm guessing will max at current $330 per child = $660). Probably net $700 NYS refund after tax. So altogether >$6000 in refundable credits from federal + state.
That's a great point! Since I don't have kids I have only the vague knowledge that such things are possible, but couldn't pull off an example without lots of research, so thanks for outlining what it could look like. So basically, boom, there's another $500/month to help with kid costs.

MrBeaver
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Re: Can a <median household save 1 year of expenses every year?

Post by MrBeaver » Tue May 15, 2018 3:35 pm

frugalmama wrote:
Tue May 15, 2018 2:38 pm
Texas is pretty close to that MrBeaver. https://www.apartmenthomeliving.com/dal ... room/cheap That said, $900 is on the really low end for apartments in my area right now and you do get what you pay for. Housing prices here are on the rise as supply isn't meeting demand.
Sure, from a cost of living and tax situation, I totally get that. But I dare you to show me a county in Texas with this low cost of living where public transit can get you to a grocery store in under an hour. I just never have thought such a thing exists within the USA, especially since the development patterns pushed grocery stores to arterial roadways away from communities and away from mass transit.

chevca
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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Tue May 15, 2018 3:39 pm

Raabe34 wrote:
Tue May 15, 2018 3:30 pm
In 2004 I was fresh out of college, newly married and ended up making right around 55k that year, combined. If you count principal reduced on home loan, yes we achieved it for that year. I don't have meticulous records but we were right in the neighborhood of 25k saved. Didn't do a ton but didn't miss much.
I thought it'd be a DQ being 14 years ago. But, according to this...

https://www.statista.com/statistics/200 ... ed-states/

We have a qualifier! :happy

Although, how long were you at that income level and did you save that much every year?

Funny, odd, and sad that the median income has wavered so close to the $55k range for so long. Is that a sign of stagnant wages, or will it just always be around that amount?

golfCaddy
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Re: Can a <median household save 1 year of expenses every year?

Post by golfCaddy » Tue May 15, 2018 5:59 pm

It's not that much easier for a single person. When I was single with no kids making about $60k/year, I paid about 30% of my gross income in taxes including FICA, federal, state, and local. That left $40k/year net. If I saved half and spent half, then I would have to live off $20k/year to live off of.

KlangFool
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Re: Can a <median household save 1 year of expenses every year?

Post by KlangFool » Tue May 15, 2018 6:04 pm

alfaspider wrote:
Tue May 15, 2018 1:00 pm
Of course it's possible. The question is whether the household is willing to cut spending far below the median to get there. Depending on one's location, that may involve sacrifices few are willing to make.
+1.

KlangFool

Rotarman
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Re: Can a <median household save 1 year of expenses every year?

Post by Rotarman » Tue May 15, 2018 7:23 pm

My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)

chevca
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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Tue May 15, 2018 7:27 pm

Rotarman wrote:
Tue May 15, 2018 7:23 pm
My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)
Paying off debt/student loans does not count as saving, and you were still over any recent median income I've found. DQ'd..... sorry, I've self appointed myself as judge in this one now. :happy

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triceratop
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Re: Can a <median household save 1 year of expenses every year?

Post by triceratop » Tue May 15, 2018 8:10 pm

chevca wrote:
Tue May 15, 2018 7:27 pm
Rotarman wrote:
Tue May 15, 2018 7:23 pm
My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)
Paying off debt/student loans does not count as saving, and you were still over any recent median income I've found. DQ'd..... sorry, I've self appointed myself as judge in this one now. :happy
As predicted!
David Jay wrote:
Tue May 15, 2018 12:33 pm
triceratop wrote:
Tue May 15, 2018 10:48 am
I am sure that if someone else finds a 5th way to manage the OP's question they will be disqualified for some reason too. Is the reason to find out if this is possible or to prove that it is not possible for any true Scot?
well played...

Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

chevca
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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Tue May 15, 2018 10:03 pm

That's just mental gymnastics. Borrowing money to spend, paying it back, and then counting that as savings??? :oops:

If one paid down the student loans aggressively, they saved on interest they would've paid. I could see that. But, it's still reaching in the weeds.

DQ'd!! :happy

randomguy
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Re: Can a <median household save 1 year of expenses every year?

Post by randomguy » Tue May 15, 2018 10:06 pm

triceratop wrote:
Tue May 15, 2018 8:10 pm


Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
So if I pay off my car loan, credit card or mortgage, I can also count that as savings as you could model them as a negative bonds also?:) It seems like not paying for spending and then calling it saving is a bit iffy. The house at least as an asset that isn't depreciating.

It should be pointed out this works the other way. If I buy a 400k house, 60k EV, 80k of solar cells and batteries,.... so I can live on 20k versus 40k, has anything really changed?

Raabe34
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Re: Can a <median household save 1 year of expenses every year?

Post by Raabe34 » Tue May 15, 2018 10:12 pm

chevca wrote:
Tue May 15, 2018 3:39 pm
Raabe34 wrote:
Tue May 15, 2018 3:30 pm
In 2004 I was fresh out of college, newly married and ended up making right around 55k that year, combined. If you count principal reduced on home loan, yes we achieved it for that year. I don't have meticulous records but we were right in the neighborhood of 25k saved. Didn't do a ton but didn't miss much.
I thought it'd be a DQ being 14 years ago. But, according to this...

https://www.statista.com/statistics/200 ... ed-states/

We have a qualifier! :happy

Although, how long were you at that income level and did you save that much every year?

Funny, odd, and sad that the median income has wavered so close to the $55k range for so long. Is that a sign of stagnant wages, or will it just always be around that amount?
We were around 80k in 2010 so a slow grind to there but has grown significantly from there. We are probably more pauperlike than I want to admit. We bought an apartment unit in there and haul the trash ourselves to the city dump. I've rescued a bunch of decent things out of it over the years.

Lyonsguy
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Re: Can a <median household save 1 year of expenses every year?

Post by Lyonsguy » Tue May 15, 2018 11:15 pm

I think so, but for me it takes some creative math. THe principal on my mortgage was considered savings, as is social security, as is my solar panels on my house, as is 401k, Roth IRA, hsa, as was extra mortgage payments. I also Co side charitable donations as savings.

I think the poster might be feeling overwhelmed by the enormity of the task. You might need to reframe your thinking. Don’t try to save so much all at one time and get overwhelmed or discouraged. Just take it a day at a time and a smart decision at a a time. Think big picture at times (what degree or education do I want) and then flip it and think small as well. What discount at the grocery store can I turn into delicious inexpensive meal. You’ll find yourself in a good place and financially secure - maybe not rich, but secure.

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Re: Can a <median household save 1 year of expenses every year?

Post by EddyB » Tue May 15, 2018 11:17 pm

triceratop wrote:
Tue May 15, 2018 8:10 pm
chevca wrote:
Tue May 15, 2018 7:27 pm
Rotarman wrote:
Tue May 15, 2018 7:23 pm
My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)
Paying off debt/student loans does not count as saving, and you were still over any recent median income I've found. DQ'd..... sorry, I've self appointed myself as judge in this one now. :happy
As predicted!
David Jay wrote:
Tue May 15, 2018 12:33 pm
triceratop wrote:
Tue May 15, 2018 10:48 am
I am sure that if someone else finds a 5th way to manage the OP's question they will be disqualified for some reason too. Is the reason to find out if this is possible or to prove that it is not possible for any true Scot?
well played...

Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
The OP asked about “every year,” so without knowing how much debt was incurred over how many years, vs. later earning and repayment, it doesn’t seem like a very complete answer.

ReadyOrNot
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Re: Can a <median household save 1 year of expenses every year?

Post by ReadyOrNot » Wed May 16, 2018 12:13 am

At the tail end of the Great Recession, I remember being laid off and spending considerably less than unemployment benefits. I must have been saving at least as much as my expenses. I guess I didn't feel like spending much. I did not have any mortgage or car payments. Pre-ACA very high deductible health insurance was less than $200/Mo. I did not take any trips or vacation. The state did not tax unemployment benefits (but the IRS / US did). My car gas, maintenance, and insurance were probably around $2k/yr.

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raven15
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Re: Can a <median household save 1 year of expenses every year?

Post by raven15 » Wed May 16, 2018 1:07 am

MrBeaver wrote:
Tue May 15, 2018 1:57 pm
terran wrote:
Tue May 15, 2018 11:36 am

$900 rent (2 bedroom apartment)

Notable exceptions:
> We do have a car, but we walk to work and could walk, bike or take public transit to get groceries, so I've excluded car maintenance, insurance and replacement from this.
> I haven't accounted for state income tax, so I'm effectively assuming they live in a no tax state. I tried a few states and you're probably looking at $100-150/month at this level of income.
Where is this mythical LCOL area where one can rent a two bedroom apartment for $900 a month, get groceries, monthly needs, and travel to necessary appointments on public transit or walk/bike, and within a state that has no state income tax? Seriously, I'd love a list of such places if anyone has one.

It sounds like a dream come true for a destination retirement even though I'm still many years away from that.
I'm in one :). Start by narrowing down by income tax, then COL, then identify a walkable neighborhood.
It's Time. Adding Interest.

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Re: Can a <median household save 1 year of expenses every year?

Post by Rotarman » Wed May 16, 2018 6:08 am

chevca wrote:
Tue May 15, 2018 7:27 pm
Rotarman wrote:
Tue May 15, 2018 7:23 pm
My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)
Paying off debt/student loans does not count as saving, and you were still over any recent median income I've found. DQ'd..... sorry, I've self appointed myself as judge in this one now. :happy
I see your point, but I have to 100% disagree. The loan was for an investment in an education (human capital) that quadrupled her earning power. If I bought stock every month (also capital), that would be an investment. If I bought stocks on a 1% non-callable loan, then paid off the loan every month that's investing as well. Student loan debt is absolutely an investment (though sometimes a poor one)

Rotarman
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Re: Can a <median household save 1 year of expenses every year?

Post by Rotarman » Wed May 16, 2018 6:21 am

EddyB wrote:
Tue May 15, 2018 11:17 pm
triceratop wrote:
Tue May 15, 2018 8:10 pm
chevca wrote:
Tue May 15, 2018 7:27 pm
Rotarman wrote:
Tue May 15, 2018 7:23 pm
My wife and I qualified very near to this for first 2 years out of college. She made 60k and I was in school. 6% to 401k and nearly 40% to student loans before taxes. We were well above 50% of after tax.

Edit: didn't live with family (not that there's anything wrong with that but it would've made it easier financially)
Paying off debt/student loans does not count as saving, and you were still over any recent median income I've found. DQ'd..... sorry, I've self appointed myself as judge in this one now. :happy
As predicted!
David Jay wrote:
Tue May 15, 2018 12:33 pm
triceratop wrote:
Tue May 15, 2018 10:48 am
I am sure that if someone else finds a 5th way to manage the OP's question they will be disqualified for some reason too. Is the reason to find out if this is possible or to prove that it is not possible for any true Scot?
well played...

Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
The OP asked about “every year,” so without knowing how much debt was incurred over how many years, vs. later earning and repayment, it doesn’t seem like a very complete answer.
I don't think OP will find many who do it every year for decades. Most bogleheads, my household included, will only be in that income range for a portion of their lives. Indeed if you consider that the average American family has (to a first order approximation) Gaussian distribution of their earnings over their lifetime (e.g. low at the beginning of career and low in retirement), that means even most US families will have periods above 59,000 income as well. For example, 1 in 5 people (not households) will earn >100,000 for at least a year in their life. These same folk may have had an AVERAGE household income below 59k averaged over their life.

wrongfunds
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Re: Can a <median household save 1 year of expenses every year?

Post by wrongfunds » Wed May 16, 2018 8:59 am

how do you find a place with public transport without having good tax base and/or HCOL? They don't build shiny new subway system in Dumbfolk, MT do they?

frugalmama
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Re: Can a <median household save 1 year of expenses every year?

Post by frugalmama » Wed May 16, 2018 9:14 am

raven15 wrote:
Wed May 16, 2018 1:07 am
MrBeaver wrote:
Tue May 15, 2018 1:57 pm
terran wrote:
Tue May 15, 2018 11:36 am

$900 rent (2 bedroom apartment)

Notable exceptions:
> We do have a car, but we walk to work and could walk, bike or take public transit to get groceries, so I've excluded car maintenance, insurance and replacement from this.
> I haven't accounted for state income tax, so I'm effectively assuming they live in a no tax state. I tried a few states and you're probably looking at $100-150/month at this level of income.
Where is this mythical LCOL area where one can rent a two bedroom apartment for $900 a month, get groceries, monthly needs, and travel to necessary appointments on public transit or walk/bike, and within a state that has no state income tax? Seriously, I'd love a list of such places if anyone has one.

It sounds like a dream come true for a destination retirement even though I'm still many years away from that.
I'm in one :). Start by narrowing down by income tax, then COL, then identify a walkable neighborhood.
I think that is key...filtering by criteria as no city has all housing, etc. like that. I think relying on mass transit isn't the way to go as our transit system changed and now walkable is the only choice. Most everything is walkable from our house so if our old cars fail to start, we can walk to Wal-Mart, the autoparts store, the grocery store or the pharmacy without issue. When we lived in an apartment, the grocery store was across the street. If you do need to take a car to somewhere other than your regular places you can walk, you'd need to call Lyft or Uber, etc. Only a few neighborhoods are going to fit within your criteria in any city and they may run more than $900. However, you can still find something relatively affordable through filtering and research.

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Re: Can a <median household save 1 year of expenses every year?

Post by Jags4186 » Wed May 16, 2018 9:22 am

triceratop wrote:
Tue May 15, 2018 8:10 pm
Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
Paying off non equity producing debt isn't savings unless you counted the taking on of debt as spending. And since we look at savings rates 1 year at a time, it doesn't make sense to include it as savings. By saying it is savings, a person could constantly be in a state of taking out student loans and repaying them, never building substantial net worth, yet be "saving" a lot because they are servicing loans.

I would considering paying principal payments on a house the only debt payment that can be considered savings because, theoretically, you should be able to recover that money on sale. Interest, taxes, insurance, maintenance, transactions costs are all "spending".

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raven15
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Re: Can a <median household save 1 year of expenses every year?

Post by raven15 » Wed May 16, 2018 9:34 am

wrongfunds wrote:
Wed May 16, 2018 8:59 am
how do you find a place with public transport without having good tax base and/or HCOL? They don't build shiny new subway system in Dumbfolk, MT do they?
No good public transportation in LCOL areas I know of. But it is easier to find a town with a walkable core than it is in the infinite sprawl of Stupidton, CA.
It's Time. Adding Interest.

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raven15
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Re: Can a <median household save 1 year of expenses every year?

Post by raven15 » Wed May 16, 2018 9:42 am

frugalmama wrote:
Wed May 16, 2018 9:14 am
raven15 wrote:
Wed May 16, 2018 1:07 am
MrBeaver wrote:
Tue May 15, 2018 1:57 pm
terran wrote:
Tue May 15, 2018 11:36 am

$900 rent (2 bedroom apartment)

Notable exceptions:
> We do have a car, but we walk to work and could walk, bike or take public transit to get groceries, so I've excluded car maintenance, insurance and replacement from this.
> I haven't accounted for state income tax, so I'm effectively assuming they live in a no tax state. I tried a few states and you're probably looking at $100-150/month at this level of income.
Where is this mythical LCOL area where one can rent a two bedroom apartment for $900 a month, get groceries, monthly needs, and travel to necessary appointments on public transit or walk/bike, and within a state that has no state income tax? Seriously, I'd love a list of such places if anyone has one.

It sounds like a dream come true for a destination retirement even though I'm still many years away from that.
I'm in one :). Start by narrowing down by income tax, then COL, then identify a walkable neighborhood.
I think that is key...filtering by criteria as no city has all housing, etc. like that. I think relying on mass transit isn't the way to go as our transit system changed and now walkable is the only choice. Most everything is walkable from our house so if our old cars fail to start, we can walk to Wal-Mart, the autoparts store, the grocery store or the pharmacy without issue. When we lived in an apartment, the grocery store was across the street. If you do need to take a car to somewhere other than your regular places you can walk, you'd need to call Lyft or Uber, etc. Only a few neighborhoods are going to fit within your criteria in any city and they may run more than $900. However, you can still find something relatively affordable through filtering and research.
That's how it is for me. Everything I need is within a 20 minute walk (except Walmart and Home Depot, that is sprawled out). My wife might go to another city for a few months for work, and I told her to take the car and I don't need another one :happy. That is how we save more than we spend (but we don't qualify for the income cutoff of this thread).
It's Time. Adding Interest.

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Smorgasbord
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Re: Can a <median household save 1 year of expenses every year?

Post by Smorgasbord » Wed May 16, 2018 9:43 am

frugalmama wrote:
Wed May 16, 2018 9:14 am
I think that is key...filtering by criteria as no city has all housing, etc. like that. I think relying on mass transit isn't the way to go as our transit system changed and now walkable is the only choice. Most everything is walkable from our house so if our old cars fail to start, we can walk to Wal-Mart, the autoparts store, the grocery store or the pharmacy without issue. When we lived in an apartment, the grocery store was across the street. If you do need to take a car to somewhere other than your regular places you can walk, you'd need to call Lyft or Uber, etc. Only a few neighborhoods are going to fit within your criteria in any city and they may run more than $900. However, you can still find something relatively affordable through filtering and research.
My experience has been that towns with large state universities usually have good bus systems since there are a ton of college student supporting the system as the town's bus system usually doubles as the school's bus system. With the criteria previously listed, I'd probably be looking at Gainsville, FL.

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Re: Can a <median household save 1 year of expenses every year?

Post by terran » Wed May 16, 2018 10:01 am

wrongfunds wrote:
Wed May 16, 2018 8:59 am
how do you find a place with public transport without having good tax base and/or HCOL? They don't build shiny new subway system in Dumbfolk, MT do they?
Buses are public transit too. In my experience Public Universities often cause publicly funded (and therefore open to the public, often free) fairly robust public transit systems to be developed in places they wouldn't otherwise. Being walking distance to a grocery store isn't that hard either. Biking distance even easier.
Smorgasbord wrote:
Wed May 16, 2018 9:43 am
My experience has been that towns with large state universities usually have good bus systems since there are a ton of college student supporting the system as the town's bus system usually doubles as the school's bus system. With the criteria previously listed, I'd probably be looking at Gainsville, FL.
:D Should have finished reading before I replied. Great minds and all that.

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Re: Can a <median household save 1 year of expenses every year?

Post by wrongfunds » Wed May 16, 2018 10:12 am

There; you got me!

I have always loved university towns any time I had pleasure of visiting and spending a weekend or two there. Burlington VT, Charlottesville, VA etc are great places.

Are there places like Charlottesville, VA with even better weather down south? With good public transport and reasonable cost of living and lively and vibrant community?

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Re: Can a <median household save 1 year of expenses every year?

Post by frugalmama » Wed May 16, 2018 10:21 am

Lyonsguy wrote:
Tue May 15, 2018 11:15 pm
I think so, but for me it takes some creative math. THe principal on my mortgage was considered savings, as is social security, as is my solar panels on my house, as is 401k, Roth IRA, hsa, as was extra mortgage payments. I also Co side charitable donations as savings.

I think the poster might be feeling overwhelmed by the enormity of the task. You might need to reframe your thinking. Don’t try to save so much all at one time and get overwhelmed or discouraged. Just take it a day at a time and a smart decision at a a time. Think big picture at times (what degree or education do I want) and then flip it and think small as well. What discount at the grocery store can I turn into delicious inexpensive meal. You’ll find yourself in a good place and financially secure - maybe not rich, but secure.
I agree, OP don't feel overwhelmed. Just do the best you can and keep thinking...I have found that the longer I am frugal the more ways I find to be more frugal and creative and do things better/more frugally/efficiently. As I said, we are not technically under 59K this year but due to our size to some extent I feel I qualify for this thread and to some extent I don't think we do as there are economies of scale but not nearly enough to not face many of the difficulties that those in this category do - we are still about 3x bigger than the household and don't make even near twice the household income. I totally agree that the numbers can look overwhelming and creativity has to set in. I feel like our savings numbers look overwhelming in January when I set our goals. When I look back at the last 5 months, I am shocked how well we did, but I still always feel like it is a battle and every day. There is nothing easy about living on less for people who make less than the median household - going meatless, eating all leftovers, limiting portions, planning meals around sales, going out in the dead of winter to prep the large number of garden beds and then chopping hundreds of onions, tomatoes, etc. for storage can all help but in the end it has to be one of your top priorities every day - you have to actively think about it at all time (at least I do), especially if you have kids as kids are expensive. It will not mindlessly happen and it will not be as easy as it is for those who make quite a bit more. I agree with the idea of thinking big and then thinking small...it requires both ways. I just save what I can. You just do the best that you can do and know that you are better off than if you had not saved that money.

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Re: Can a <median household save 1 year of expenses every year?

Post by GCD » Wed May 16, 2018 11:09 am

I kinda did back in 1995. I was making around $35,000 and expended more than half my take home pay on student loans while also putting 10% into the TSP and making small IRA contributions.

There has been some differing thoughts on how to count paying off student loan debt. Once my debt was paid off I started saving more than one year of expense every year, but it wouldn't count at that point because I was above the median income by then.

But as to the broader question of "how damn cheap and miserly can a person be", yeah, I lived a rigorously frugal life. Had it not been for student loans I would have saved 60-70% of my income when I was making less than the median. So I would say it is possible.

The caveat is I was a single guy with no dependents at the time. That gave me options that a married couple with kids wouldn't have.

Edit to add: I never had a roommate and this was in the Cincinnati metro area just across the border into Kentucky.
Last edited by GCD on Wed May 16, 2018 11:36 am, edited 1 time in total.

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Re: Can a <median household save 1 year of expenses every year?

Post by KlangFool » Wed May 16, 2018 11:10 am

Jags4186 wrote:
Wed May 16, 2018 9:22 am
triceratop wrote:
Tue May 15, 2018 8:10 pm
Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
Paying off non equity producing debt isn't savings unless you counted the taking on of debt as spending. And since we look at savings rates 1 year at a time, it doesn't make sense to include it as savings. By saying it is savings, a person could constantly be in a state of taking out student loans and repaying them, never building substantial net worth, yet be "saving" a lot because they are servicing loans.

I would considering paying principal payments on a house the only debt payment that can be considered savings because, theoretically, you should be able to recover that money on sale. Interest, taxes, insurance, maintenance, transactions costs are all "spending".
Jags4186,

FYI.

1) I do not consider payment of any debt as saving. This includes the principal portion of the mortgage payment. To me, the whole PITI of the mortgage payment is part of my annual expense. So, any debt payment is part of my annual expense. Currently, my only debt is the mortgage.

2) I do not consider social security and Medicare tax as either expense or savings. They are taxes.

KlangFool

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Re: Can a <median household save 1 year of expenses every year?

Post by thangngo » Wed May 16, 2018 11:24 am

Glockenspiel wrote:
Mon May 14, 2018 3:58 pm
Is there anyone here, in this forum, that lives in a household making less than $59,000 gross income per year that saves as much money as they spend, every year?
Not me. I save $1 to $1.50 for every dollar I spend. But my income is much higher. The higher the income, the easier you can save.

Do the best you can and feel good about it.

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Re: Can a <median household save 1 year of expenses every year?

Post by Glockenspiel » Wed May 16, 2018 11:28 am

chevca wrote:
Tue May 15, 2018 3:39 pm
Raabe34 wrote:
Tue May 15, 2018 3:30 pm
In 2004 I was fresh out of college, newly married and ended up making right around 55k that year, combined. If you count principal reduced on home loan, yes we achieved it for that year. I don't have meticulous records but we were right in the neighborhood of 25k saved. Didn't do a ton but didn't miss much.

Funny, odd, and sad that the median income has wavered so close to the $55k range for so long. Is that a sign of stagnant wages, or will it just always be around that amount?
It's another sign of income inequality. People on the low end are getting zero raises and are not keeping up with inflation, while people at the high end are making way more. Since this is a median and not an average, the large number of people at the low end that are not getting raises are counteracting the fewer people at the high end.

Example using math: You give 10% of the people a 50% raise, and no one else gets a raise, the median income remains the same.

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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Wed May 16, 2018 11:31 am

True.

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Re: Can a <median household save 1 year of expenses every year?

Post by enclee » Wed May 16, 2018 11:35 am

Glockenspiel wrote:
Wed May 16, 2018 11:28 am
chevca wrote:
Tue May 15, 2018 3:39 pm
Raabe34 wrote:
Tue May 15, 2018 3:30 pm
In 2004 I was fresh out of college, newly married and ended up making right around 55k that year, combined. If you count principal reduced on home loan, yes we achieved it for that year. I don't have meticulous records but we were right in the neighborhood of 25k saved. Didn't do a ton but didn't miss much.

Funny, odd, and sad that the median income has wavered so close to the $55k range for so long. Is that a sign of stagnant wages, or will it just always be around that amount?
It's another sign of income inequality. People on the low end are getting zero raises and are not keeping up with inflation, while people at the high end are making way more. Since this is a median and not an average, the large number of people at the low end that are not getting raises are counteracting the fewer people at the high end.

Example using math: You give 10% of the people a 50% raise, and no one else gets a raise, the median income remains the same.
I have some relatives that are getting $0.23/hr as a raise after 10+ years of working and glowing performance reviews. If, a company issues a 2% raise each year, the gap between the 100k employee and 40k employee will grow even though they received the same raise.

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Re: Can a <median household save 1 year of expenses every year?

Post by raven15 » Wed May 16, 2018 12:01 pm

KlangFool wrote:
Wed May 16, 2018 11:10 am
Jags4186 wrote:
Wed May 16, 2018 9:22 am
triceratop wrote:
Tue May 15, 2018 8:10 pm
Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
Paying off non equity producing debt isn't savings unless you counted the taking on of debt as spending. And since we look at savings rates 1 year at a time, it doesn't make sense to include it as savings. By saying it is savings, a person could constantly be in a state of taking out student loans and repaying them, never building substantial net worth, yet be "saving" a lot because they are servicing loans.

I would considering paying principal payments on a house the only debt payment that can be considered savings because, theoretically, you should be able to recover that money on sale. Interest, taxes, insurance, maintenance, transactions costs are all "spending".
Jags4186,

FYI.

1) I do not consider payment of any debt as saving. This includes the principal portion of the mortgage payment. To me, the whole PITI of the mortgage payment is part of my annual expense. So, any debt payment is part of my annual expense. Currently, my only debt is the mortgage.

2) I do not consider social security and Medicare tax as either expense or savings. They are taxes.

KlangFool
To extend this logic stocks, bonds and savings accounts are also expenses. They only become savings if they exist, are accessible, and worth more than you paid when you finally need the money. The difference between savings and expenses can only be known with hindsight. Bad news... all the money you thought you were saving was actually just a huge expense that has not profited you at all.
It's Time. Adding Interest.

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Re: Can a <median household save 1 year of expenses every year?

Post by Jags4186 » Wed May 16, 2018 1:09 pm

KlangFool wrote:
Wed May 16, 2018 11:10 am
Jags4186 wrote:
Wed May 16, 2018 9:22 am
triceratop wrote:
Tue May 15, 2018 8:10 pm
Paying off student debt absolutely counts as saving. A student loan can be modeled as a negative bond; of course, one could direct their savings there or elsewhere. Net worth increases just the same (likely better with high interest rate loans). Significant judicial error is already present here.
Paying off non equity producing debt isn't savings unless you counted the taking on of debt as spending. And since we look at savings rates 1 year at a time, it doesn't make sense to include it as savings. By saying it is savings, a person could constantly be in a state of taking out student loans and repaying them, never building substantial net worth, yet be "saving" a lot because they are servicing loans.

I would considering paying principal payments on a house the only debt payment that can be considered savings because, theoretically, you should be able to recover that money on sale. Interest, taxes, insurance, maintenance, transactions costs are all "spending".
Jags4186,

FYI.

1) I do not consider payment of any debt as saving. This includes the principal portion of the mortgage payment. To me, the whole PITI of the mortgage payment is part of my annual expense. So, any debt payment is part of my annual expense. Currently, my only debt is the mortgage.

2) I do not consider social security and Medicare tax as either expense or savings. They are taxes.

KlangFool
That’s fine if that’s how you want to look at it. I believe money spent that is increasing the amount of assets you own is savings. Since homes are generally appreciating assets I believe owning more of one is savings. Similar to owning more stocks or bonds or gold. It’s much harder for me to quantify the payoff of student loans therefore I consider it an expense. Especially since in almost all situations you could have spent less to gotten the same degree.

Although I didn’t mention taxes in my post I believe that all taxes is spending. After all, by optimizing your tax situation you can increase both your spending and your savings. Therefore with poor tax planning you are spending more. Of course minimizing payroll taxes means making additional money from non earned income sources.

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On the topic of Saving vs Savings

Post by triceratop » Wed May 16, 2018 1:19 pm

Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Wed May 16, 2018 1:25 pm

So, someone that cash flowed college or paid cash for a house saved that amount then?

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Re: Can a <median household save 1 year of expenses every year?

Post by triceratop » Wed May 16, 2018 1:27 pm

chevca wrote:
Wed May 16, 2018 1:25 pm
So, someone that cash flowed college or paid cash for a house saved that amount then?
Someone who cash flowed college spent money on college.

Someone who paid cash for a house may have saved the money in the past, but the act of purchasing a house is not saving.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Wed May 16, 2018 1:30 pm

So, if I'm following this correctly, paying cash for things is an expense, but taking loans out for things and paying back the loans is "saving"?

If that's the case, that makes no sense to me.

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Re: On the topic of Saving vs Savings

Post by Jags4186 » Wed May 16, 2018 1:47 pm

triceratop wrote:
Wed May 16, 2018 1:19 pm
Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
Person A borrows $96,000 to go earn a Bachelors Degree. Upon graduating from college Person A makes $4000/mo, spends $2000 to live and pays the $2000/mo for 4 years clearing the loan. After 4 years he has $0.

Person B works throughout college and pays as he goes. Or, alternatively, Person B’s parents pay for college. He graduates with no debt. Person B also makes $4000/mo and puts $2000/mo into his savings account. After 4 years he has $96,000.

Do Person A and Person B have the same savings rate? I would argue no they don’t. Person A borrowed money, accellerating future earnings into the present. His savings rate is 0%. That “savings” is in reality pre-spent. Person B did not use his future earnings to pay for college. Person B’s saving rate is 50% or 1x spending, however you want to look at it.

So perhaps if you’re looking at this as an accounting excercise, then yes both people are saving $2000/mo. But from a reality standpoint, one is accumulating while the other one isn’t.

To answer the OPs question, I’m sure there are people who making $59,000/yr and save half of it. I know I did when I was making $59,000/yr. But I also had very little expenses. I was single, paying $1000 in rent, had no debts or payments, and split utilities with a roommate. I was paid whatever the prevailing mileage rate at the time was by my company and that more than covered my gas and insurance for both work and personal usage. It even covered pretty much all my maintenance. I could live on basically $1500 a month if I had to. Of course I probably spent another $800/mo on eating out and bars, but even then, I still was saving about half.
Last edited by Jags4186 on Wed May 16, 2018 1:56 pm, edited 2 times in total.

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Re: Can a <median household save 1 year of expenses every year?

Post by wrongfunds » Wed May 16, 2018 1:52 pm

What do you mean it does not make sense to you? 90% of the discussion on BH is what would be termed as "mental <certain_act_not_to_be_mentioned_in_mixed_company>" The longer a topic goes without getting locked by moderator, more of the MM starts becoming evident to anybody who has not deliberately closed the eyes.

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Re: Can a <median household save 1 year of expenses every year?

Post by chevca » Wed May 16, 2018 1:55 pm

Mental... gymnastics? :happy

I know what you meant.

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Re: On the topic of Saving vs Savings

Post by frugalmama » Wed May 16, 2018 1:58 pm

Jags4186 wrote:
Wed May 16, 2018 1:47 pm
triceratop wrote:
Wed May 16, 2018 1:19 pm
Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
Person A borrows $96,000 to go earn a Bachelors Degree. Upon graduating from college Person A makes $4000/mo, spends $2000 to live and pays the $2000/mo for 4 years clearing the loan. After 4 years he has $0.

Person B works throughout college and pays as he goes. Or, alternatively, Person B’s parents pay for college. He graduates with no debt. Person B also makes $4000/mo and puts $2000/mo into his savings account. After 4 years he has $96,000.

Do Person A and Person B have the same savings rate? I would argue no they don’t. Person A borrowed money, accellerating future earnings into the present. His savings rate is 0%. That “savings” is in reality pre-spent. Person B did not use his future earnings to pay for college. Person B’s saving rate is 50% or 1x spending, however you want to look at it.

So perhaps if you’re looking at this as an accounting excercise, then yes both people are saving $2000/mo. But from a reality standpoint, one is accumulating while the other one isn’t.

To answer the OPs question, I’m sure there are people who making $59,000/yr and save half of it. I know I did when I was making $59,000/yr. But I also had very little expenses. I was single, paying $1000 in rent, had no debts or payments, and split utilities with a roommate. I was paid whatever the prevailing mileage rate at the time was by my company and that more than covered my gas and insurance for both work and personal usage. It even covered pretty much all my maintenance. I could live on basically $1500 a month if I had to. Of course I probably spend another $800/mo on eating out and bars, but even then, I still was saving about half.
Yes, so saving and net worth are not the same thing. Both are saving (i.e. changing net worth in a positive manner by contributing money to a specific account...rather than a specific asset itself increasing), but the 2 people have different net worths at different points. Really it is about asset allocation - what are you considering an asset.

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Re: On the topic of Saving vs Savings

Post by Jags4186 » Wed May 16, 2018 2:01 pm

frugalmama wrote:
Wed May 16, 2018 1:58 pm
Jags4186 wrote:
Wed May 16, 2018 1:47 pm
triceratop wrote:
Wed May 16, 2018 1:19 pm
Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
Person A borrows $96,000 to go earn a Bachelors Degree. Upon graduating from college Person A makes $4000/mo, spends $2000 to live and pays the $2000/mo for 4 years clearing the loan. After 4 years he has $0.

Person B works throughout college and pays as he goes. Or, alternatively, Person B’s parents pay for college. He graduates with no debt. Person B also makes $4000/mo and puts $2000/mo into his savings account. After 4 years he has $96,000.

Do Person A and Person B have the same savings rate? I would argue no they don’t. Person A borrowed money, accellerating future earnings into the present. His savings rate is 0%. That “savings” is in reality pre-spent. Person B did not use his future earnings to pay for college. Person B’s saving rate is 50% or 1x spending, however you want to look at it.

So perhaps if you’re looking at this as an accounting excercise, then yes both people are saving $2000/mo. But from a reality standpoint, one is accumulating while the other one isn’t.

To answer the OPs question, I’m sure there are people who making $59,000/yr and save half of it. I know I did when I was making $59,000/yr. But I also had very little expenses. I was single, paying $1000 in rent, had no debts or payments, and split utilities with a roommate. I was paid whatever the prevailing mileage rate at the time was by my company and that more than covered my gas and insurance for both work and personal usage. It even covered pretty much all my maintenance. I could live on basically $1500 a month if I had to. Of course I probably spend another $800/mo on eating out and bars, but even then, I still was saving about half.
Yes, so saving and net worth are not the same thing. Both are saving (i.e. changing net worth in a positive manner by contributing money to a specific account...rather than a specific asset itself increasing), but the 2 people have different net worths at different points. Really it is about asset allocation - what are you considering an asset.
Let’s look at it a different way. I borrow $250,000 and throw it out the window. I start paying $5000/mo to service the loan. I’m saving $5000/mo? You need to account for the initial spend if you are going to include debt payments as saving.

The way I see it, you can’t save money until you have a postive net worth. If you have negative net worth you have pre-spent your future earnings. Savings actually means accumulating. If you go from -$100,000 net worth to -$50,000 net worth I applaud you, but you still haven’t accumulated anything. You’re $50k in the hole.

Now I considering principal payments on a mortgage to be savings because, theoretically atleast, it’s a 1 for 1 swap. If you pay $1 towards mortgage principle, you lose $1 in your checking account but gain $1 in home equity. I consider all the other stuff, interest, taxes, maintence as spending. I consider most other consumer goods worthless and don’t count them. Even if I spend $20k on a car, I’m probably going to sell that car for $3k-$5k in 10 years. And that $3k-$5k will be put towards the next car anyway. If I take a loan on the $20k or pay cash, it’s all money that’s going to go to $0 in value, so I don’t consider paying your car off savings.

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Re: On the topic of Saving vs Savings

Post by raven15 » Wed May 16, 2018 2:30 pm

Jags4186 wrote:
Wed May 16, 2018 2:01 pm
frugalmama wrote:
Wed May 16, 2018 1:58 pm
Jags4186 wrote:
Wed May 16, 2018 1:47 pm
triceratop wrote:
Wed May 16, 2018 1:19 pm
Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
Person A borrows $96,000 to go earn a Bachelors Degree. Upon graduating from college Person A makes $4000/mo, spends $2000 to live and pays the $2000/mo for 4 years clearing the loan. After 4 years he has $0.

Person B works throughout college and pays as he goes. Or, alternatively, Person B’s parents pay for college. He graduates with no debt. Person B also makes $4000/mo and puts $2000/mo into his savings account. After 4 years he has $96,000.

Do Person A and Person B have the same savings rate? I would argue no they don’t. Person A borrowed money, accellerating future earnings into the present. His savings rate is 0%. That “savings” is in reality pre-spent. Person B did not use his future earnings to pay for college. Person B’s saving rate is 50% or 1x spending, however you want to look at it.

So perhaps if you’re looking at this as an accounting excercise, then yes both people are saving $2000/mo. But from a reality standpoint, one is accumulating while the other one isn’t.

To answer the OPs question, I’m sure there are people who making $59,000/yr and save half of it. I know I did when I was making $59,000/yr. But I also had very little expenses. I was single, paying $1000 in rent, had no debts or payments, and split utilities with a roommate. I was paid whatever the prevailing mileage rate at the time was by my company and that more than covered my gas and insurance for both work and personal usage. It even covered pretty much all my maintenance. I could live on basically $1500 a month if I had to. Of course I probably spend another $800/mo on eating out and bars, but even then, I still was saving about half.
Yes, so saving and net worth are not the same thing. Both are saving (i.e. changing net worth in a positive manner by contributing money to a specific account...rather than a specific asset itself increasing), but the 2 people have different net worths at different points. Really it is about asset allocation - what are you considering an asset.
Let’s look at it a different way. I borrow $250,000 and throw it out the window. I start paying $5000/mo to service the loan. I’m saving $5000/mo? You need to account for the initial spend if you are going to include debt payments as saving.

The way I see it, you can’t save money until you have a postive net worth. If you have negative net worth you have pre-spent your future earnings. Savings actually means accumulating. If you go from -$100,000 net worth to -$50,000 net worth I applaud you, but you still haven’t accumulated anything. You’re $50k in the hole.

Now I considering principal payments on a mortgage to be savings because, theoretically atleast, it’s a 1 for 1 swap. If you pay $1 towards mortgage principle, you lose $1 in your checking account but gain $1 in home equity. I consider all the other stuff, interest, taxes, maintence as spending. I consider most other consumer goods worthless and don’t count them. Even if I spend $20k on a car, I’m probably going to sell that car for $3k-$5k in 10 years. And that $3k-$5k will be put towards the next car anyway. If I take a loan on the $20k or pay cash, it’s all money that’s going to go to $0 in value, so I don’t consider paying your car off savings.
So somebody with $95,000 of student loans and $90,000 home equity is not saving by paying off the loans, but someone with $95,000 of student loans and $100,000 home equity is?
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Re: On the topic of Saving vs Savings

Post by Jags4186 » Wed May 16, 2018 2:45 pm

raven15 wrote:
Wed May 16, 2018 2:30 pm
So somebody with $95,000 of student loans and $90,000 home equity is not saving by paying off the loans, but someone with $95,000 of student loans and $100,000 home equity is?
1) You can't save if you have a negative net worth. All you can do is dig yourself out of a hole.

2) You can only say you're saving by paying down the student loan if you counted taking the loan out and using it for tuition/whatever else as an expense. Since most people look at spending/savings on a yearly basis, and most loans are taken out over a multi year period, it's disingenuous to say your saving by making student loan payments.
Last edited by Jags4186 on Wed May 16, 2018 2:46 pm, edited 1 time in total.

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Re: On the topic of Saving vs Savings

Post by triceratop » Wed May 16, 2018 2:46 pm

Jags4186 wrote:
Wed May 16, 2018 1:47 pm
triceratop wrote:
Wed May 16, 2018 1:19 pm
Bogleheads:

We seem to be getting tripped up on a semantic point: not all saving results in an increase in savings. In fact they even have different units, as expected befitting their different parts of speech. Savings is a stock, an accumulated surplus of wealth. Saving is a rate, a flow, of excess income over consumption. Thus one can have a high saving rate without much of that going to direct savings (for example, by paying down a loan). This should be familiar to anyone who has used a double-entry accounting system. Not treating the payment of past debt via cash flow as saving appears to me like a variant of the sunk cost fallacy.

KlangFool's definition of saving being only that excess cash flow directed towards productive investment is incongruous with the meaning of words. It leads to all kinds of funky results, like, the required retirement assets falling off a cliff once one's primary residence is paid off since a supposed "expense" drops to zero; this should be a red flag that there is a problem with their logic system.
Person A borrows $96,000 to go earn a Bachelors Degree. Upon graduating from college Person A makes $4000/mo, spends $2000 to live and pays the $2000/mo for 4 years clearing the loan. After 4 years he has $0.

Person B works throughout college and pays as he goes. Or, alternatively, Person B’s parents pay for college. He graduates with no debt. Person B also makes $4000/mo and puts $2000/mo into his savings account. After 4 years he has $96,000.

Do Person A and Person B have the same savings rate? I would argue no they don’t. Person A borrowed money, accellerating future earnings into the present. His savings rate is 0%. That “savings” is in reality pre-spent. Person B did not use his future earnings to pay for college. Person B’s saving rate is 50% or 1x spending, however you want to look at it.
A rate is an instaneous quantity. You can’t talk about a rate of a 4 year period, but you can talk about an average rate. The difference between an average rate and rate explains the difference between the (truly useful) situation you’ve described and the definitions I explained.
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Re: On the topic of Saving vs Savings

Post by triceratop » Wed May 16, 2018 2:51 pm

Jags4186 wrote:
Wed May 16, 2018 2:45 pm
raven15 wrote:
Wed May 16, 2018 2:30 pm
So somebody with $95,000 of student loans and $90,000 home equity is not saving by paying off the loans, but someone with $95,000 of student loans and $100,000 home equity is?
1) You can't save if you have a negative net worth. All you can do is dig yourself out of a hole.

2) You can only say you're saving by paying down the student loan if you counted taking the loan out and using it for tuition/whatever else as an expense. Since most people look at spending/savings on a yearly basis, and most loans are taken out over a multi year period, it's disingenuous to say your saving by making student loan payments.
1) Yes, you can save with a negative net worth. Digging yourself out of a hole is saving. As someone wisely pointed out, there is saving vs. spending and then there is asset allocation. The two are distinct.

2) Yes, that is the appropriate way of looking at it: of course tuition/living expenses while in school are an expense.
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Re: On the topic of Saving vs Savings

Post by Jags4186 » Wed May 16, 2018 2:53 pm

triceratop wrote:
Wed May 16, 2018 2:51 pm
Jags4186 wrote:
Wed May 16, 2018 2:45 pm
raven15 wrote:
Wed May 16, 2018 2:30 pm
So somebody with $95,000 of student loans and $90,000 home equity is not saving by paying off the loans, but someone with $95,000 of student loans and $100,000 home equity is?
1) You can't save if you have a negative net worth. All you can do is dig yourself out of a hole.

2) You can only say you're saving by paying down the student loan if you counted taking the loan out and using it for tuition/whatever else as an expense. Since most people look at spending/savings on a yearly basis, and most loans are taken out over a multi year period, it's disingenuous to say your saving by making student loan payments.
1) Yes, you can save with a negative net worth. Digging yourself out of a hole is saving. As someone wisely pointed out, there is saving vs. spending and then there is asset allocation. The two are distinct.

2) Yes, that is the appropriate way of looking at it: of course tuition/living expenses while in school are an expense.
Using your definition:
triceratop wrote:
Wed May 16, 2018 2:51 pm
Savings is a stock, an accumulated surplus of wealth.
If you have a negative net worth you have no stock, no accumulated surplus of wealth. Therefore if you have a negative net worth you cannot be saving because you have accumulated no stock, no surplus of wealth. Only once you have accumulated a surplus can you be saving. Using an "instantaneous rate" might be good for an academic exercise, but for a course in practicality it is worthless.
Last edited by Jags4186 on Wed May 16, 2018 2:56 pm, edited 1 time in total.

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