Higher Income Spending/Saving Strategies?

[disneysteve]

Originally Posted by f2point8

I think some people place a higher value on the other intangibles a car might offer than other people might value.

Exactly. Personally, we love to travel. Some years, we've spent close to 10% of our income on travel. That's a lot. We realize that. I know other people who hate to travel. They don't like being in unfamiliar places with strange beds, unusual food, etc. To them, what we spend on travel seems outrageous. To me, spending 65K on a car is just nuts. To others, like yourself, it might be perfectly reasonable.

[zetta]

Now add on top of that some money for travel, medical care, etc, and we haven't changed our standard of living much if we retire on 60-80K/year in today's dollars. What am I missing here?

What you're missing is that you're probably not living a 60-80k lifestyle today, even after you subtract out the mortgage, charity, and dream car. You've been able to freely spend for furnishings, etc., and you may want to travel. I think you'd likely feel pinched. Today you want a dream car, once you have it other wants will come along. The options I see are to save for a retirement that replaces most of your current income, or to live today as if you only made 60-80k, save the rest, and retire early.

I'd suggest really analyzing your spending to see what your needs/wants/savings breakdown really is.

A rough guess at your numbers appears to be:
Gross: $316k
401k: $16.5k
Taxes & other deductions:$84k
Take-home (after tax & 401k): $216
Needs: $6k/mo = 72k
Wants: $9k/mo = 108k
Savings: $3k/mo = 36k

Normally the ratio is figured off your gross. Since you have such a large tax bite I think we have to count paying them in the needs catagory.

Needs: 84+72/316 = 49%
Wants: 108/316 = 34%
Savings: 16.5+36/316 = 16.6%

I'd say if you put $4k/mo to long term savings you'll be doing ok.

For retirement, check out this calculator:
Flexible Retirement Planner

[feh]

Originally Posted by disneysteve

Another thing that I often think is that certain expenses should pretty much be capped no matter how much I earn. Cars are a perfect example. Let's say I earn 100K and I buy a car for 25K. That's 25% of my income. If I earned 300K, the same percentage would have me spending 75K for a car, but that doesn't mean I should. I'd probably still spend the 25K or maybe a little more, like 30 or 35K and have it represent a much smaller percentage. My personal preference would be to drive the cheaper car, boost the savings rate and be able to retire sooner, but that may not reflect your own personal preferences and life goals.

+1

In other words, just because you can afford to buy something doesn't mean it would be sensible to purchase it. That goes not only for cars but for homes also.

[disneysteve]

Originally Posted by feh

In other words, just because you can afford to buy something doesn't mean it would be sensible to purchase it. That goes not only for cars but for homes also.

Right. I think some of the rules of thumb we often hear are aimed at people of average income, not those of much higher than average income. In fact, I think the 50/30/20 breakdown should be adjusted for higher incomes because needs should take up a smaller percentage as income increases since many needs are relatively fixed amounts. For example, medical costs are the same whether you earn 50K or 500K. Putting gas in your car costs the same regardless of income. Groceries cost the same no matter what you earn. Sure, you may buy a better cut of meat or some more organic veggies, but overall, the cost isn't that much more.