The Savings Rate

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The Savings Rate

Post by White Coat Investor » Tue Oct 09, 2007 12:43 am

From time to time some of the established posters start a good thread just by tossing out some pearls of wisdom rather than asking a question as most threads do. This is my attempt to do that.

The importance of increasing your savings rate

For a "young" investor (meaning one who has a low account balance relative to the amount he will need to retire, say a ratio of 25% or less) his savings rate has a much greater effect on the amount of money he will have to spend in retirement than his return. Rather than focusing on how to eke out a few more percentage of return, he would be much better off focusing on how to increase his savings rate.

An example:
An investor with $10,000 who saves $5000 a year expects to have $167,000 15 years from now if he pulls off an 8%/year return. If he can increase that return by 1%, he would have a total of $182,000. However, if he could increase his savings by just $2000/year, he would end up with $222,000. He would get much more "bang for his buck" by saving more rather than trying to get a higher return.

The opposite is true for a "mature investor" (again defined as someone with a high percentage of what he would need to retire on.) Let's say we have a 60 year old investor with 5 more years until retirement. He has a nest egg of $1,000,000. He is currently saving $20,000/year and expects an 8% return from his portfolio. This will only get him to $1.59 Million. Where is the bang for his buck now? If he saved another $5K/year, he would end up with $1.62 Million. But if he could increase his return by 1%, he would end up with $1.66 Million. Clearly the bang for his buck is in maintaining/increasing his return.

Steps to Increase Savings Rate

The following are some steps you can take to increase your savings rate:

1) Increase the amount of money you make. It is much easier to save 25% of $200K than it is to save 10% of 40K, even while paying a higher tax rate. This can be accomplished by further schooling/training to upgrade your skills, changing jobs when opportunities to make more money arise, and taking additional jobs/working overtime.

2) Save the raises. Cost of living and standard raises are frequent with many jobs. Although we often need to gradually increase our spending to maintain our lifestyles, often times we do not need to increase our spending as much as our income increased.

3) Keep your fixed expenses as low as possible. The less you are obligated to spend, the more you have the option to save. Then you can make conscious decisions between spending and saving each month. Avoid contracts you can’t get out of if your finances turn sour, such as cable, cell phone, boat payments, large mortgages etc. Try to rent your lifestyle when possible, rather than buy it.

4) Beware the Big Two-Your house and your cars are where you can save a LOT of money. Most people calculate out their mortgage payment when they opt for a bigger, nicer house, but they forget that they also have to pay more in taxes, utilities, repairs, landscaping, furnishings, and upgrades on that bigger, nicer house. Because your house is a big ticket item, saving 25% on that will free up much more cash flow than eating out 25% less. To make it worse, most of these expenses are fixed expenses.
Likewise with cars, a great deal of money is lost buying and financing these depreciating assets. The older you buy a car, the less you will pay in financing costs, depreciation, insurance, and sometimes even repairs because you may be less likely to repair unimportant features of an old car, such as dings in the bumper or a power mirror that works poorly. The savings in repairs and gas of a new car do not come anywhere close to overcoming these costs.

5) The Latte Factor- Even small costs can add up over time, especially when considered in light of decades of compounding. The classic example is the $5 latte. If you save that $5 a day ($180 a month, $1825/year) and earn 8%/year on it, it will be equal to $482K in 40 years. Consciously decide what you want to spend your money on, and spend it on that which brings you the most happiness, and save the rest.

6) Calculate your savings rate each year- Studies show that we consciously and subconsciously strive to improve in those aspects which we measure. Here is a good thread discussing some of the methods forum users use to calculate their savings rate:
http://www.diehards.org/forum/viewtopic ... +calculate

Comments and additional suggestions are more than welcome.
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LH
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Post by LH » Tue Oct 09, 2007 1:06 am

The latte factor owns me : )

I eat out and go out a lot with my wife kids and such.

I fear house remodeling is going to start hurting bad now too, my brother has just remodeled the heck out of his house (my brothers wife grew up with my wife). So that has seemed to provoke a big need for remodeling now, that I have surpressed for 7 years so far heh (heh as in hehehheheh, just shorter, and in this case slightly pained).

I may need to take my wife on a tour of the projects or something to get what we have seeming better again. Your money and your brain by Zweig comes to mind. Problem is that people who in no way can even really afford it (likely net worth of zero or negative even), remodel thier kitchens here all the time, and they are my wifes friends. Keeping up with the joneses kills : )

The main thing I would add is DOUBLING TIME.

Saving early is the key. If you think in nominal terms the stock market will earn on average 10 percent, well every 7 years, your saved money roughly doubles. If you think it will get 7 percent nominally, your money will double roughly every 10 years. (rule of 72).

Saving early, and just getting ONE more doubling time out of your money is huge over a period of multiple doubling times. If you can delay 10K purchase by 7 years thats a big deal if you invest that 10K.

So below are, doubling period jumps of the money, in either 7 year jumps(10percent return) or 10 year jumps(7 percent return). The first one you invested 10K, the next one you waited a doubling period to invest it.

10-20-40-80-160
----10-20-40-80

The first period, well not that big a deal right, your remodel cost 20K at that point, but you have had the benefit of 7 years of the nice remodel, and inflation of 3 percent or so has downgraded that cost anyway. But going out in doubling periods, that 10K being saved early on, leaves one with 160K vs 80K 4 doubling periods in the future, (I hope I live that long) Plus at some point, ones signficant other will likely want to remodel AGAIN.

The opportunity cost of spending money young is significantly higher than spending it later. I am trying to hold out for 15 years or so(about 7 are gone of that), until I raise up my lifestyle a bit higher, and hopefully not remodel, not get a sports car/lexus now etc. When I am 55 I may buy a porsche, corvette or something. It will cost me about 2-4 times less then than buying it now in Opportunity cost to portfolio and future lifestyle.

Save when young and starting out, work hard, save as much as you can, delay buying that lexus if you can. Get a nice chunk of money that will double for you every 7-10 years if the gods of financial chance see fit to provide one that return.

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Re: The Savings Rate

Post by mudfud » Tue Oct 09, 2007 12:22 pm

Excellent post. I completely agree with your points.


A question:
EmergDoc wrote:Studies show that we consciously and subconsciously strive to improve in those aspects which we measure
I believe this (based on anecdotal experiences), but I would be interested in reading these studies if you have any references.

Best,

Mud
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Re: The Savings Rate

Post by NAVigator » Tue Oct 09, 2007 6:59 pm

EmergDoc wrote: An example:
An investor with $10,000 who saves $5000 a year expects to have $167,000 15 years from now if he pulls off an 8%/year return. If he can increase that return by 1%, he would have a total of $182,000. However, if he could increase his savings by just $2000/year, he would end up with $222,000. He would get much more "bang for his buck" by saving more rather than trying to get a higher return.

The opposite is true for a "mature investor" (again defined as someone with a high percentage of what he would need to retire on.) Let's say we have a 60 year old investor with 5 more years until retirement. He has a nest egg of $1,000,000. He is currently saving $20,000/year and expects an 8% return from his portfolio. This will only get him to $1.59 Million. Where is the bang for his buck now? If he saved another $5K/year, he would end up with $1.62 Million. But if he could increase his return by 1%, he would end up with $1.66 Million. Clearly the bang for his buck is in maintaining/increasing his return.
What an excellent example!

Thank you for posting such helpful information. The collective wisdom just keeps on growing!

Best wishes,
Jerry
"I was born with nothing and I have most of it left."

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Post by deblacksmith » Tue Oct 09, 2007 7:32 pm

Great Post !

I always tried to get folks working for me to save 1/2 of any raise they got. They didn't have the money last month -- is a 1/2 raise a good deal. Try to save 100 percent of any year end or special bonus. (OK maybe 80 % -- but 100 % if it was a wind fall.)

The Latte factor -- I saw that in parking cost. Now these are old numbers but you will get the idea. I could park in the building for $ 7 per day. I could walk a block and pay $ 1 per day or I could walk 3 blocks and park for free. Walking 3 blocks on most days was good for you. Not only did it cost you $ 7 per day to park in the building but you had to earn $ 10 per day to pay that after taxes. $ 10 per day is a lot towards funding your 401 K each year.

You can get to a million plus in a 401 K if you start early, max out and get any company match.

Dave

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Post by MossySF » Tue Oct 09, 2007 7:37 pm

deblacksmith wrote:I could park in the building for $ 7 per day. I could walk a block and pay $ 1 per day or I could walk 3 blocks and park for free. Walking 3 blocks on most days was good for you.
Park 10 blocks away, get some good exercise everyday to reduce your future medical costs.

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Post by heyyou » Tue Oct 09, 2007 7:55 pm

I called it "living in the 80s." That was when I started saving my raises. Like many situations, it became easier with practice. Eventually, I could look anyone in the eye and say "I can't afford that" with no embarassment. I now laugh at anyone who buys something expensive that depreciates quickly. Look at that guy in the new car, he is not good at numbers is the message I get.

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Post by biasion » Tue Oct 09, 2007 7:59 pm

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Re: The Savings Rate

Post by White Coat Investor » Wed Oct 10, 2007 9:50 pm

mudfud wrote:
EmergDoc wrote:Studies show that we consciously and subconsciously strive to improve in those aspects which we measure
I believe this (based on anecdotal experiences), but I would be interested in reading these studies if you have any references.
I'm away from most of my references now, but I'll see if I can find something when I head home in a few months if you remind me.

This is essentially known as the Hawthorne effect, "first noticed in the Hawthorne plant of Western Electric. Production increased not as a consequence of actual changes in working conditions introduced by the plant's management but because management demonstrated interest in such improvements "

http://pespmc1.vub.ac.be/ASC/HAWTHO_EFFEC.html

Not everyone believes in it though:

http://www.cs.unc.edu/~stotts/204/nohawth.html
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Re: The Savings Rate

Post by mudfud » Wed Oct 10, 2007 10:51 pm

EmergDoc wrote:
I'm away from most of my references now, but I'll see if I can find something when I head home in a few months if you remind me.
Will do. Thanks,
Mud
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Post by LH2004 » Thu Oct 11, 2007 12:54 am

I think it's indisputable that the amount you save is the most important factor in predicting how much money you'll have. Based on some rough math, I figure that, over the course of a lifetime, the sorts of things that most of us agree are the right way to invest (controlling costs, managing taxes, wide diversification, etc.) can maybe add up to doubling a portfolio's value (unless the starting point was truly awful -- lottery tickets, money under the mattress, everything in a dot-bomb, etc.). There is clearly a much wider dispersion than that in savings rates: for most income levels, you'll find some people saving nothing, and some saving a large fraction.

But saving money isn't actually the goal.

Money is a means. It has only one end: consumption. Whether that's in the form of early retirement or paying for your grandkids' college or for your own new car every year is up to you.

I keep my spending at a level most people would consider relatively low, but for the purpose of maximizing my consumption over the long term, in whatever form I end up wanting. I don't pretend that that makes me morally better than people who work less hard or "waste" their money on stuff that I don't want.

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Post by White Coat Investor » Thu Oct 11, 2007 1:50 am

LH2004 wrote: But saving money isn't actually the goal.

Money is a means. It has only one end: consumption.
A very good point. The point of saving isn't to accumulate money, it is to spend our money on that which will bring us the most happiness per dollar spent. That may be an SUV now, or it may be retiring 6 months earlier, or it may be a cruise at age 75. The problem is far too few people make these decisions consciously.
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Post by Valuethinker » Thu Oct 11, 2007 2:26 am

MossySF wrote:
deblacksmith wrote:I could park in the building for $ 7 per day. I could walk a block and pay $ 1 per day or I could walk 3 blocks and park for free. Walking 3 blocks on most days was good for you.
Park 10 blocks away, get some good exercise everyday to reduce your future medical costs.
- risk of getting mugged in the walk - very bad for medical costs

- air pollution on the walk

- probability of getting run down crossing the road

:D :D :D

(I actually do without a car, but that's not an option for most, I happen to live in a big city--London). My estimate is that even driving a banger, a car would cost me £4000 or so a year: you can pay for a lot of cabs with that.

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Re: The Savings Rate

Post by modal » Thu Oct 11, 2007 2:11 pm

EmergDoc wrote:Try to rent your lifestyle when possible, rather than buy it.
Yes, that is a good idea. :wink:

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Post by Adrian Nenu » Thu Oct 11, 2007 2:40 pm

Thanks EmergDoc - outstanding post!

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Post by Kevinm1986 » Thu Oct 11, 2007 2:52 pm

Excellent post, especially the latte factor. It amazes me how some people get so silly with little food costs. I was talking to one of my fellow grad students the other day and he mentioned that it was such a great deal to buy a Domino's pizza for $5 because he'd get two meals out of it-$2.50 a meal. I told him a peanut butter & jelly sandwich (my lunch of choice) probably costs less than a quarter.

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Post by Rodc » Thu Oct 11, 2007 2:56 pm

The opposite is true for a "mature investor" (again defined as someone with a high percentage of what he would need to retire on.) Let's say we have a 60 year old investor with 5 more years until retirement. He has a nest egg of $1,000,000. He is currently saving $20,000/year and expects an 8% return from his portfolio. This will only get him to $1.59 Million. Where is the bang for his buck now? If he saved another $5K/year, he would end up with $1.62 Million. But if he could increase his return by 1%, he would end up with $1.66 Million. Clearly the bang for his buck is in maintaining/increasing his return.
Seems maybe a word about reducing risk has a place in here too. There is value not only in maximizing expected return but in reducing the possibility of a large down side, especially when in or approaching retirement. When young volatility means almost nothing if you have the guts to ride it out (many don't so some care about volatility is worthwhile at any stage).

As to consumption it seems to me that money can have another use, although one might argue I'm splitting hairs. Safety, freedom from worry. If you know you have more than you have any intention of consuming what you have is a cushion that frees you from sleepless nights - priceless for some. :) Of course you might want to argue that it is face you could consume it that matters, but I think since here I'm talking about money you don't intend to consume makes it a bit different.

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Post by Mel Lindauer » Fri Oct 12, 2007 2:56 pm

Good post, EmergDoc. The secret to wealth is really no secret:

1. Live below your means.
2. Save and invest wisely in a low-cost diversified portfolio.
3. Start the process as early as possible and then let time and the power of compounding work for you.

Be safe, EmergDoc.

Best regards,

Mel

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Re: The Savings Rate

Post by Die Hard » Thu Dec 17, 2009 8:07 pm

EmergDoc wrote:Try to rent your lifestyle when possible, rather than buy it
EmergDoc,
This is an older thread, but I am still curious as to what you mean by this comment. Any examples?

Maybe I'm just tired tonight and my brain is trying to shut down.

Respectfully,
DH
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Re: The Savings Rate

Post by Dan Moroboshi » Thu Dec 17, 2009 8:43 pm

Die Hard wrote:
EmergDoc wrote:Try to rent your lifestyle when possible, rather than buy it
EmergDoc,
This is an older thread, but I am still curious as to what you mean by this comment. Any examples?
Rather than purchase an expensive asset related to an activity that you enjoy (e.g. bass boat, condo in a ski resort, small aircraft), rent it as needed and avoid most of the total cost of ownership.

Or, in a less polite variant, "If it flies, floats, or fornicates, it's probably cheaper in the long run to rent it."

And for the counterpoint, here's an editorial from Mr. Jeremy Clarkson:

http://www.timesonline.co.uk/tol/commen ... 821202.ece
Jeremy Clarkson wrote:Ever since the invention of the saloon bar know-all, we’ve been told that when it comes to things that float, fly or fornicate, it’s better to rent than buy.

Rubbish. If you have the money to buy a boat and choose instead to spend it on a pension plan, then you have a plebeian heart and a beige soul.

The whole point of disposable income is that you have fun with it. And I’m sorry but you cannot catch 6ft of air off the coast of St Tropez on a Pep. Whereas you can on a Fairline Targa 52.
.
.
.
I don’t think you should rent anything. If it’s a house, you’ll fall out with the owners, because you won’t clean it to their level of expectation and they won’t mend stuff quite as quickly as you want.

If it’s a car – who knows what kind of madman was in it last week? Me, probably. So the brakes will almost certainly disintegrate the first time you need them and then you’ll be killed.

And if it’s a holiday cottage, you will be disappointed. This is because no one has ever walked into a seaside villa and thought, wow, this is much better than I was expecting.

All rented properties are moderately worse than the pictures in the brochure suggest. This is a fact.

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Post by White Coat Investor » Thu Dec 17, 2009 9:25 pm

I couldn't have said it as well as Dan did.

Ongoing expenses for lifestyle hobbies are usually quite a bit more than expected. If you're renting it and your income drops, you can quit renting it. Not necessarily so for that time-share, the condo, the boat, the plane etc.

Growing up with a bush pilot father, I'm well aware of the expenses associated with planes. Even the duct tape was $100 a roll. The annual inspection alone costs more than the hobbies of most people.
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Post by Die Hard » Sun Dec 20, 2009 4:17 pm

I appreciate the reply. Now I understand. And, Jeremy Clarkston's article was a chuckle to read.
Thanks, DH
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Post by Boglenaut » Sun Dec 20, 2009 6:18 pm

EmergDoc wrote:But saving money isn't actually the goal.

Money is a means. It has only one end: consumption.
No.

Security.

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Post by southerndoc » Sun Dec 20, 2009 6:30 pm

Just now read this thread, but wanted to give EmergDoc credit for it. Excellent points for increasing savings.

I was a victim of the latte factor. I used to get a daily grande cafe mocha from Starbucks. Now they are weekly. Not only has my wallet improved, but my waistline has improved too. ;)

When I do visit Starbucks, I use their gold card to get 10% off. Combined with savings from extrabux.com (4% discount reloading a card via their website), plus my Schwab 2% cash back credit card, makes the latte a little more affordable and a lot more satisfying (it's fun to game the system).

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Post by Rodc » Sun Dec 20, 2009 6:59 pm

Boglenaut wrote:
EmergDoc wrote:But saving money isn't actually the goal.

Money is a means. It has only one end: consumption.
No.

Security.
Security is knowing you can continue to consume even if bad things come along (consuming housing, food, etc. not just toys) (Ie you are both right)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: The Savings Rate

Post by thatch » Mon Dec 21, 2009 2:51 am

EmergDoc wrote:From time to time some of the established posters start a good thread just by tossing out some pearls of wisdom rather than asking a question as most threads do. This is my attempt to do that.

The importance of increasing your savings rate
Very happy to see this mentioned. Considering the economic uncertainties facing the country and the (likely) mediocre stock market returns that lie ahead, this is a timely post.

Since there are a few simple areas where the majority of people could save money each month, I think it'd be helpful to amass specific suggestions, tips, and info into one place (ie the wiki or specific threads). All of the main areas have been reviewed before (I can think of some great discussions), but the info's all quite disparate (and the threads always contain something not exactly relevant). Perhaps the following savings categories could be expanded upon:

1) Your abode (for renters and buyers; including helpful info for savings in areas such as utilities, renovations, repairs, maintenance, etc).

2) Transportation (mostly tips on vehicle purchases, upkeep, other transport, etc).

3) Food (including eating out, rare as it may be). The following thread could give us much of our material:
http://www.bogleheads.org/forum/viewtop ... sc&start=0

4) Insurance

5) Miscellaneous (cable, internet, cell phone). There have been a few specific threads on this as well.

These items, of course, are discussed somewhat in personal finance books, but it'd be nice to distill the collective wisdom of the community into one place. I'm wondering if there should just be a separate thread (as a start) for saving money in each one of the areas.

thatch

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Post by Adrian Nenu » Mon Dec 21, 2009 4:19 am

Per Brooks Hamilton, benefits consultant, it is necessary to save and invest (and get it right with no big mistakes/high fees) a minimum 20% of income (unless you have a pension) in order to be able to retire after +30 years of work.

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Post by JeremiahS » Mon Dec 21, 2009 8:48 am

Adrian Nenu wrote:Per Brooks Hamilton, benefits consultant, it is necessary to save and invest (and get it right with no big mistakes/high fees) a minimum 20% of income (unless you have a pension) in order to be able to retire after +30 years of work.

Adrian
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I often wonder about studies like this. They often make broad assumptions like people with spend 80% of their preretirement income in retirement. Well I only spend 50% of my income now and I'm just at the begining of my career. How do I use this information to figure out how much money I'll need in retirement when I don't fit in with the statistics that the study was based on?

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Post by livesoft » Mon Dec 21, 2009 9:01 am

JeremiahS wrote:I often wonder about studies like this. They often make broad assumptions like people with spend 80% of their preretirement income in retirement. Well I only spend 50% of my income now and I'm just at the begining of my career. How do I use this information to figure out how much money I'll need in retirement when I don't fit in with the statistics that the study was based on?
As written many times, it is not about how much income you have, but what your expenses are. If you can project your expenses in retirement, then you will need to have enough income in retirement to cover all those expenses. It is that simple.

Don't forget that expenses includes taxes, health care, replacement of cars, vacations, etc. Once you have that number, then you will need to figure out to get that income. Income could come from a mix of Social Security, pensions, SPIAs, an investment portfolio, or elsewhere. You might wish to read Otar's Unveiling the Retirement Myth to see more details on how this can all work out.

And generally, the sustained withdrawal rate from an investment portfolio is between 3% and 4% annually. This is much discussed.

That's how you use this information to figure out how much you will need in retirement.

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Post by james22 » Mon Dec 21, 2009 10:03 am


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Post by KyleAAA » Mon Dec 21, 2009 11:13 am

Is it just me or is it sad that most Americans actually have to be told saving money is a good idea?

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Post by JeremiahS » Mon Dec 21, 2009 11:17 am

KyleAAA wrote:Is it just me or is it sad that most Americans actually have to be told saving money is a good idea?
Many Americans have to be told spending more than you earn is a bad idea.

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Post by White Coat Investor » Mon Dec 21, 2009 12:00 pm

It is kind of interesting that I posted this right at the market peak. Too bad my post wasn't "Why you should sell everything and go to cash for the next 18 months".
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Post by 3CT_Paddler » Mon Dec 21, 2009 12:13 pm

I know this has been posted on here before, but I think it is appropriate for this thread...
http://consumerist.com/2007/04/snl-skit ... ts-content

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Post by Adrian Nenu » Mon Dec 21, 2009 12:51 pm

I often wonder about studies like this. They often make broad assumptions like people with spend 80% of their preretirement income in retirement. Well I only spend 50% of my income now and I'm just at the begining of my career. How do I use this information to figure out how much money I'll need in retirement when I don't fit in with the statistics that the study was based on?
Brooks Hamilton's rule of thumb is based on minimal required income + social security to maintain the working lifestyle. There A LOT of variables involved, any one which could reduce the amount of money available. Better to use a safety margin rather than end up like some who came up short at retirement.

http://www.pbs.org/wgbh/pages/frontline ... ment/view/

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Post by penngy » Thu Dec 09, 2010 10:26 am

mistake

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Post by bobcat2 » Thu Dec 09, 2010 11:48 am

EmergDoc writes.
The point of saving isn't to accumulate money, it is to spend our money on that which will bring us the most happiness per dollar spent. That may be an SUV now, or it may be retiring 6 months earlier, or it may be a cruise at age 75. The problem is far too few people make these decisions consciously.
Then the clear-cut solution to the problem, starting here with Bogleheads, is to get more people to make these decisions consciously. :wink:

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In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Post by GammaPoint » Thu Dec 09, 2010 12:00 pm

The latte factor is a big one. It's amazing how much money you can save by paying attention to the small things.

For example, I was at the grocery store yesterday. I opted for 1 lb of the $7.50/lb chicken at the deli instead of the slightly better looking $9.99/lb turkey. There's $2.50. We were having a salad that night. Thought about buying some feta to put on that salad. Decided we didn't have any other use for feta at the time, so opted to have a salad without feta, saved $4. Needed to buy some lamb for a recipe. The employee measured an extra 0.2 pounds more than I asked for - I asked for it to be corrected, saving me 0.2*$10=$2. Total savings = $2.50+$4+$2=$8.50 or about 14% of a VTI share. And I go to the store at least twice a week, so these little decisions add up to quite a bit.

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Post by Martindo » Thu Dec 09, 2010 1:11 pm

There's one aspect of saving money which has been big in my life but I think has not been mentioned in this thread.

I have saved a lot of money by not hiring people to fix or make things for me. I had the engine of my hippie-era VW on the ground 11 various times to keep it running (I know that cars are harder to work on now), have done a lot of carpentry, plumbing, electrical, tiling on various houses and so forth. Besides money, it's a nice feeling to make and fix for yourself if you feel confident.

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Re: The Savings Rate

Post by DiscoBunny1979 » Thu Dec 09, 2010 1:44 pm

EmergDoc wrote: 1) Increase the amount of money you make. It is much easier to save 25% of $200K than it is to save 10% of 40K, even while paying a higher tax rate. This can be accomplished by further schooling/training to upgrade your skills, changing jobs when opportunities to make more money arise, and taking additional jobs/working overtime.
-----
Have there been any studies to determine whether earning more money doesn't mean that one can save like you suggest?

For instance, if you're in some high paying job that earning $200K is "normal" aren't you surrounding yourself with like minded professionals? The professionals dress a certain way, live in certain neighborhoods. For instance, if you're someone of importance, you would live on the "east" side of town, would you?

People that earn big bucks also know quality. You wouldn't buy a suit from JC Penney . . . it would be Nordstrom. Because in the boardroom, people notice details.

So, are there any studies that actual show what percentage of people that make $200K+ a year spend their money on an upscale lifestyle (car, home, clothes) versus those with $200K a year that drive a 20 year old car, live in an extremely modest house and shop at the Dollar Store?
And, exactly what % of income on average is left over from those different groups to actually save.

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Post by tolerable2323 » Thu Dec 09, 2010 2:01 pm

Guys, isn't the whole point of having money for convenience?

I contribute a lot of money each year in my 401k,Roth Ira, and taxable investments However, I love getting my Regular squeeze Orange juice at Jamba juice almost daily (about 5 bucks a day) also would rather go to a luxury Gold Cinema theater to watch a movie that is 22 bucks a ticket that is walking distance from my place Then drive 7 miles to nearest AMC and spend 6 bucks on ticket (company coupon discount)..

What's wrong with some luxury perks?

I know how important investing is However, one of my biggest fears is dying before I can spend any of my money in my retirement funds..

Am 27 years old if your curious.

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Re: The Savings Rate

Post by YDNAL » Thu Dec 09, 2010 2:02 pm

EmergDoc wrote:Posted: Tue Oct 09, 2007 1:43 am Post subject: The Savings Rate
--------------------------------------------------------------------------------

From time to time some of the established posters start a good thread just by tossing out some pearls of wisdom rather than asking a question as most threads do. This is my attempt to do that.

It's kind of hilarious/interesting how a 3-year old (2007) thread is revived by "mistake" and it begins attracting replies.
penngy wrote:Posted: Thu Dec 09, 2010 11:26 am Post subject: .
--------------------------------------------------------------------------------

mistake
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Post by rai » Thu Dec 09, 2010 2:31 pm

I don't have any problem saving (knock on wood) it's a hobby for me.

I make good money, but still feel 'hungry' because I save so much that I 'can't touch'. Not saying I can not touch it but it's off limits (since selling an investment is harder for me than spending regular cash, as I have taxes and asset allocations involved with my investments) if I want to spend more money, I tend to work extra (overtime) and use that for extra spending.

I use my credit cards for everything and I get a lot of cash back. Fidelity rewards credit cards gives 2% cash back, the catch is the funds are depostied into a Fidelity account which encourages me to save it. I save all these cash rewards (plus I add some extra every month) in no-cost ETF, and they will add up to a significant amount of money over time.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

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Re: The Savings Rate

Post by smurff » Thu Dec 09, 2010 10:02 pm

DiscoBunny1979 wrote: For instance, if you're in some high paying job that earning $200K is "normal" aren't you surrounding yourself with like minded professionals? The professionals dress a certain way, live in certain neighborhoods. For instance, if you're someone of importance, you would live on the "east" side of town, would you?

People that earn big bucks also know quality. You wouldn't buy a suit from JC Penney . . . it would be Nordstrom. Because in the boardroom, people notice details.

So, are there any studies that actual show what percentage of people that make $200K+ a year spend their money on an upscale lifestyle (car, home, clothes) versus those with $200K a year that drive a 20 year old car, live in an extremely modest house and shop at the Dollar Store?
And, exactly what % of income on average is left over from those different groups to actually save.
Thomas J. Stanley, the professor who wrote "The Millionaire Next Door" series of books, did this research. Look at page 198 of his 2009 book in the series, "Stop Acting Rich." In fact, one of the favorite places for wealthy men to buy men's suits is from JC Penney. He makes a distinction between those who merely look rich, who lease Mercedes and shop at Nordstrom and Neiman-Marcus, versus those who really are rich, who buy Toyotas (the #1 car among millionaires, according to his and Toyota's research) and shop at JC Penney and Costco.

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Post by bhmlurker » Fri Dec 10, 2010 12:20 am

Kevinm1986 wrote:Excellent post, especially the latte factor. It amazes me how some people get so silly with little food costs. I was talking to one of my fellow grad students the other day and he mentioned that it was such a great deal to buy a Domino's pizza for $5 because he'd get two meals out of it-$2.50 a meal. I told him a peanut butter & jelly sandwich (my lunch of choice) probably costs less than a quarter.
For ye young aspiring academics not already clued in, do attend the ubiquitous seminars around noon and you'll get a free meal. Hospital-side seminars tend to have tasty catered food, since they used to be sponsored by drug reps (not sure if it's still legal at your institution), whereas at smaller depts you might end up with only cookies and soda.

If they cater a lot of food and only a few people show up, ask the dept administrative asst. on-site after the talk if it'd be ok for you to take one to-go. Often they'll be happy to oblige. Do this consistently and you might save an extra $1-2K/yr to throw into your ROTH IRA! *Your mileage may vary*

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Post by Tuxx » Fri Dec 10, 2010 1:54 am

What if your house value is dropping $5500 a month?

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Post by MossySF » Fri Dec 10, 2010 2:11 am

Tuxx wrote:What if your house value is dropping $5500 a month?
Mark to Model?

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Post by xerty24 » Fri Dec 10, 2010 2:40 am

MossySF wrote:
Tuxx wrote:What if your house value is dropping $5500 a month?
Mark to Model?
After all, that's what the bank holding your mortgage is doing - at least when it's your house, you can keep living in (possibly longer than you decide to keep paying for it).

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Post by Noobvestor » Fri Dec 10, 2010 3:27 am

EmergDoc wrote:It is kind of interesting that I posted this right at the market peak. Too bad my post wasn't "Why you should sell everything and go to cash for the next 18 months".
Ah, but with revived-post hindsight, it turned out you were right after all!
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by Wannaretireearly » Fri Dec 10, 2010 4:02 am

Great thread...

I like to save any amount over about $20. Coupon clipping at the groceries for a buck or 2, never been my thing. But, any big ticket item, I love haggling, negotiating, price matching (love costco and bed bath beyond for their return policies). Recently got a DSLR from costco, was able to pricematch it to their online store after Thanksgiving many weeks after, $50 cash in my pocket after asking for a price match in the store :) gives me a kick and some extra $. Any time "service" falls short, ask for compensation! I got $250 of a $600 rug from Lowes by negotiating with the manager, just because it was delivered 4 or 5 weeks later than expected! over the course of a year I probably save one or two thousand by being a smart consumer.

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