Saving money

[Aleta]

Thank you Steve for your explanation. How would you classify saving for a car? Then what you are saying is that even a car would normally be paid for monthly as a bill to pay, so it doesn't matter whether you are saving it - it will be spent.

I agree with you on that savings should be long-term. I suppose the money you don't spend each month just indicates that you're living below your means.

[disneysteve]

Thank you Steve for your explanation. How would you classify saving for a car? Then what you are saying is that even a car would normally be paid for monthly as a bill to pay, so it doesn't matter whether you are saving it - it will be spent.

I agree with you on that savings should be long-term. I suppose the money you don't spend each month just indicates that you're living below your means.

Certainly, any money that you don't spend each month does count as savings, even if it ultimately gets spent. The money we are saving for college will ultimately get spent. The money we are saving for retirement will ultimately get spent.

I just look at the short-term money differently than the long-term money. Vacations get paid for out of current income, not out of savings. If I do pull some money out of our MMF for a trip, I just gradually replace it from current income over a few months, like restocking your EF if you spend some of it.

The advantage of living below your means is that you have money leftover each month that can build up for things like your EF, travel, entertainment, auto expenses, home repairs, etc.

[Aleta]

For those items that you mentioned, I allocate money for each of them each month. This has been a great discussion and topic and I'm sure that there are those out there that have had alot of their questions answered Thanks.

[lgslgs]

I also wonder what constitutes savings that some of you are talking about. There is the savings and investing that you do for your retirement plans. There's also savings for your nontaxable accounts. There is a savings for your emergency fund. You also might be saving for a car, house, furniture, vacation, or whatever you're saving for. Do you consider all of these items as a % of your savings? I would think that vacation or holiday spending would be more based on a recurring expense not necessarily an expense and it's also short-term.

There is also the money that doesn't get spent every month. How do you look at that?

Our 55% savings was the money we put into 401K, IRAs, and into long term savings that was to be used to pay for living expenses in retirement.


Our monthly budget was 38% of our gross, and that included things like regular monthly expenses, money set aside for auto care or home improvement, some discretionary spending, veterinary care, etc.

That left us with 7% that we had as totally discretionary. If we planned on buying a car, we'd save that - but since we like to buy used cars and run them until they are completely dead that's not a very regular expense for us. We have used the 7% to fence our land, to buy a wood chipper, to re-tile floors - but a lot of the time we just let it accumulate for a while until it built up and then shifted it into our long term retirement savings. Those extra savings bonus are not counted as part of our 55%.




Now that we are retired we live off of our nest egg. We keep our monthly expense budget fixed at the same dollar amount it was in 2005 and just spilt things a little differently now. We also watch expenses carefully and generally come in about 20% under budget each month. That money is tracked and is sometimes used for major investments in the homestead. But more often than not we just enjoy not spending it so that we can occasionally skip a monthly withdrawal from our long term savings and let the nest egg grow instead.

Lynda

[jIM_Ohio]

15% appears to be our savings rate.

Set aside 18k in 2007, based on our gross income, that is 15%.

I know that will go down in 2008 because twins are on the way, between day care, diapers and baby food, some of that is getting wiped away.

[Aleta]

lgslgs: Thank you for your input. That was a great breakdown and very helpful. It allows most of us to see if what we are doing is working and what is working for others.

Your input after retirement is good information too. It sounds like you are basing everything on your gross. That is great savings. Of course, you are talking pre-retirement days. Is ther anything different that you wish that you would have done?

[lgslgs]

Is there anything different that you wish that you would have done?

Absolutely!

While I retired at 45, I only really had decent jobs from age 33 - 45. (I sort or piddled around in my 20's and then ended up poor enough that I qualified for educational grants and went back to school at age 30. ) I had some odds and ends of college classes before that, but buckled down and finished degrees in both Chemical Engineering and in Chemistry at age 33.

So my grown up work was only over a 12 year span.

The first 7 of that I was not a smart saver. I felt like I had been poor long enough and had a great job that I could cut myself some savings slack. I didn't go into debt, but my savings level was not aggressive and it was all in company stock. Procter & Gamble stock to be exact, and investors may recall how P&G let a horrible market drop, and then downsized 25% of it's workforce.

Had I banked during those 7 years like I banked in the next 5, and had I diversified my investments like I do now, I'd have retired a couple of years earlier.


Now what was done right is that I learned from the first mistake. Then next job I took was selected for high pay and very low cost of living area. (Which also happened to be the sort of area we wanted to eventually retire to anyway.) I went into that job banking like the job would go away tomorrow, and was really well prepared when they had a big downsizing. I was at the savings point by then that I was only looking at staying with them for another 2 years at the most anyway - just to bulk up the savings a little more.

2 extra years at that job would have been really nice for the nest egg, but my boss at the time was so mean and surly that it would not have been a very difficult two years. While the money would have been nice, the nest egg was adequate without it and I I'm really glad to have the extra two years of time at home with my hubby.

So yes, there were definitely a number of things I would have done differently. The big things I learned were that a good marketable degree and modest lifestyle you can save a lot of money fast. If I knew then what I know now I'd have gone straight for the right degree when I was young, saved like a crazy lady in my 20's and done everything I could to be financially independent by age 35 - 40.

Maybe it's just me, but once I hit 40 my ability to tolerate office politics and corporate baloney just nosedived! In my last 5 years of employment I did a bit of thinking about how I spent my first 7 years of a Chemical Engineer's salary - and the nice books, electronics, expensive musical instruments and indulgent vacations didn't have much luster left to them in hindsight. Certainly not when compared with another work day with a genuinely mean and short tempered boss. And I never was horribly indulgent with the spending during those years, but there was a constant trickle of little nice things that would have served me better as $$$ investment in my financial freedom.


Lynda

[Aleta]

Wow Lynda, what can anyone add to what you said. That was alot of information for those that are as you say piddling around. I think that we all come into the financial lightbulb moment when we are ready to see it. I personally never knew that debt was really a bad thing. It seemed like everyone I knew had debt of some kind. One night I was flipping through the channels and a financial program came on about getting out of debt. All I can say is that I couldn't pull away from the TV. My eyes were finally opened about debt and the power it had on your life and how it could hold you back. If I had been told that by someone earlier on or had seen it in a magazine, I wouldn't have paid any attention to it. I was not ready for it. So, thank you for your comments.

[anonymous_saver]

I have always put 25% (or more) into retirement savings. At the beginning of the year this is after tax, and I put it into my Roth IRA. After I max out on my Roth IRA for the year, I put 25% into my 457 plan. I am already maxed out on my 2008 Roth IRA!

I am also currently required to put 4.25% into a pension. Additionally, I put approx. 15% of my take home pay into my emergency fund and another 15% of my take home pay into my down payment savings.

Eventually, I will likely change job classes where I work, and then I will continue the 25% savings in a Roth IRA and 457 plan, and then I wouldn't qualify for the pension. However, I would then be required to put in 2.5% into a 401(a) plan, and my employer will be putting in 13%!!! This retirement benefit when I change job classes is one of the main reasons I want to stay at my employer.

I think I figured it out exactly one time... I think I only spend about 30% or less of what I make. I don't feel deprived at all, and I "only" make around $38,000/year. I am 25 years old, and I plan on retiring between 50-55 years old.

[safari]

I think I figured it out exactly one time... I think I only spend about 30% or less of what I make. I don't feel deprived at all, and I "only" make around $38,000/year. I am 25 years old, and I plan on retiring between 50-55 years old.

30% of $38,000 is $11,400. I just can't imagine how someone can live on that. Do you pay rent?

[DebbieL]

Wow Anonymous Saver - that's awsome! Can I ask where you live? That sounds like an incredible amount that you are able to live on (35% of $38,000). Just to rent my apartment is about $900/month (and buying the same place here is ridiculously priced right now - it would cost me at least 2000 a month). I'm always so envious of people who live in the lower COL areas. I would relocate in a heartbeat if it weren't for the fact I can't bring myself to take my daughter away from her extended family (her grandparents, aunts, uncles and cousins have been a huge part of her life - and her father completely abandoned her so I feel she needs all the love she can get).

[anonymous_saver]

How I do it...

I have no debt, as I paid off my graduate school loans with my savings before they charged me any interest. I use flexible spending dollars for medical needs. I actually probably spend less than $11,400/year. I live in ______, so cost of living isn't necessarily really dirt cheap. I use holiday/gift money to buy myself clothes, weather gear (I do live in ______...) and other things like DVD's (although I still put 25% of that towards retirement as well!).

MONTHLY EXPENSES:
$340 (Share rent of $680 with partner.)
$25 (Half of land line phone and electricity bills.)
$150-$185 (Groceries.)
$100-$150 (Necessities, pet food, spending money.)
Total= $615 - $700
Total=This would mean I spend $7,380 - $8,400/year.

ADDITIONAL EXPENSES:
$200-$300/year (pet bills)
$250-350/year (gifts/holidays)
$100-$150/year (apartment necessities)
Total=$550-$800/year.

TOTAL OF EXPENSES= $7,930-$9,200/year.


To be honest, looking at these numbers... even if I am missing a few things, I couldn't see me spending more than $10,000/year. My expenses will obviously rise when I buy a house, but I'm happy the way I live now. I could spend less on food, but I am a strict vegetarian and eat lots of organic foods.

My partner makes about the same amount as me and saves similarly as well.

If I lived alone, that would only add about $400/month ($4,800/year) more to my expenses, which would increase my yearly expenses up to $12,730 - $14,000.

You can be happy without spending as much money! Trust me.

[F16]

I am currently saving about $900 monthly.
The most important rule about saving is "Pay yourself first".
Set up a savings account, and start to deposit small amounts of money,
$50 or $100. Do it regularly, say every 10 days, when you get unexpected money, get that money also to your savings.
That means that you must do some sacrificies, not dining out, no movies,
no nothing. That means that you have no life.
But that is the price I am paying for saving for my first home.
Decide what you want. You cannot get everything you want.
You have to prioritize. Divide your goals between needs and wants.
Start with needs, then focus on wants.

PS
The situation with 10% CD.
I am currently living in a country, where you can get 8-12% yield on CDs denominated in local currency, about 3-7% on dollar denominated CDs (yield depends on the amount invested) and about 4-6.40 % on euro-denominated CDs. That's it. All CDs are compounded monthly. Dividends are reinvested. All CDs have rollover instructions. I hope I answered all the question. For any additional information, please send a message to my email. Because the main topic here is how to save more.

[krayziebone33]

This may be a bit of an ignorant question (pardon me), but is there any reason why you don't calculate your net savings rate? That's actually what I was doing since I don't yet have a 401k with my employer. I'm still learning, for the most part.

[krayziebone33]

Certainly, any money that you don't spend each month does count as savings, even if it ultimately gets spent. The money we are saving for college will ultimately get spent. The money we are saving for retirement will ultimately get spent.

I just look at the short-term money differently than the long-term money. Vacations get paid for out of current income, not out of savings. If I do pull some money out of our MMF for a trip, I just gradually replace it from current income over a few months, like restocking your EF if you spend some of it.

The advantage of living below your means is that you have money leftover each month that can build up for things like your EF, travel, entertainment, auto expenses, home repairs, etc.

To anyone who is new to the idea of saving, this is a very easy, straight-forward explanation. Thanks again, Disneysteve.