Am I doing enough??

[Ima saver]

Re: Am I doing enough??

Could you explain the wealth test formula from the book? What do you mean, it determines how you are doing?

[coffeebreak]

Re: Am I doing enough??

Could you explain the wealth test formula from the book? What do you mean, it determines how you are doing?

It's the author's view of where your 'Net Worth' should be based on your age and income.

Here's what he says:
"Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be."

and some examples from his book:
"For example, if Mr. Anthony O. Duncan is forty-one years old, makes $143,000 a year, and has investments that return another $12,000, he would multiply $155,000 by forty-one. That equals $6,355,000. Dividing by ten, his net worth should be $635,500. If Ms. Lucy R. Frankel is sixty-one and has a total annual realized income of $235,000, her net worth should be $1,433,500.

Given your age and income, how does your net worth match up? Where do you stand along the wealth continuum? If you are in the top quartile for wealth accumulation, you are a PAW, or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth. Are you a PAW, a UAW, or just an AAW (average accumulator of wealth)?"

If your NW is the same as the results, you're an AAW. If it's double, you're a PAW. If it's half, you're a UAW.

[Haku]

Re: Am I doing enough??

I have to echo the concensus on this. Yes, please keep your 401k maxed, and go ahead and save up an emergency fund large enough so that you'll never have to risk dipping into your 401k again (terrible no no). I would also set up and max a Roth IRA if you can.

Why? I have a friend who has always believed in living life now. He used to always tell me, "You have to live life for the moment! What if you get run over by a bus tomorrow? What good will saving your money then?" That was more than a decade ago. Today, he's got more than 3 credit cards maxed out, mortgage, equity loan, consolidation loan... it's a very ugly picture. Consequently, his marriage is also taking a turn for the worse because of it.

While yes, you can suffer an untimely death tomorrow, your current track record should indicate that this is statistically unlikely. Extremely. Much more likely to happen is that you can grow older and retire. When that happens, what will you do then? Hoping that Social Security will provide for you? Moreover, you're losing out on the power of time! Time is what allows one to build wealth, and this simply isn't possible if you maintain an attitude of "Why should I bother?"

I can't say this enough. You have to protect yourself financially. Having been unemployed and dipping into a 401k just to get by, you know life can take sudden dips, whether you're prepared for it or not.

However, like others have also stated, you're also fortunate in that you have a decent income, relatively few expenses, and most of all, have made SOME preparations. This is good. If anything else, I'm just encouraging to go the extra mile.

[TBH]

Re: Am I doing enough??

Billy,
First, I want to say I think you are doing great. You are young enough to really benefit from the power of compounding interest. I think putting 10% in your 401K is great. If you feel inspired to open a Roth IRA, just reduce your 401K contributions by the amount you plan to put in the Roth. Make sure, though, that you're still contributing enough to your 401k to get the full employer match. Once you've done that, try to creep the 401k contribs back up to 10% by increasing it one percent every year.

Saving for an E fund is a great first priority. You can also think of this as your downpayment fund. When you do go to buy a house, I would try to have a cushion for the unexpected new-homeowner repairs, but you can build back up to a really health E-fund after you buy a house.

I think you're smart to not try to tighten the belt too much. If you do that, you'll burn out and rebel and stop saving money or something. But if you do decide a house is a really big priority, I happen to be familiar with Philly and I know you can lower your rent if you're willing to move out of Center City. I'm not saying you should move to freakin' Jersey or Bucks County or some such place. But if you're willing to take a 15 min trolley ride from West Philly, or a short bus ride from South Philly, you can find a nice space for one person and a dog for a lot less than $1250. If it's a big deal to you to live in the heart of things, fine, but know that it's going to take you longer to save for a house.

But overall, you sound like you're moving in the right direction.

[CRFSaver]

Re: Am I doing enough??

You also need to look at your tax rate to determine if a Roth or 401k/traditional IRA makes sense for you. For me my marginal tax rate is at 28% and my state marginal is at 9%. If I just look at it from the federal size, having that extra 28% of my dollar compounding and earning interest every year is more advantageous for me even if the tax rate when i retire increases beyong 28%. I dont know the break even point but much rather give uncle sam my money 30 years from now then right now.

I am lucky in that I can contribute 15% to my 401K plan and thats with a rent of 1600 a month. Southern California can be awefully expensive but boy do I love living here. Of course I have no car payment and no kids so trying to put as much away as possible right now.

[Ima saver]

Re: Am I doing enough??

Thanks for explaining that coffee break. I am happy to know that I am a PAW, which means I have about double what I should have saved, based on my husband's age and his earnings. (plus I am not counting my paid for house)

[billybob]

Re: Am I doing enough??

CRF saver what is your income?
I'd like to compare budgets with you!

[CRFSaver]

Re: Am I doing enough??

I don't keep a budget (waits to be pelted by eggs and tomatoes), I just have a general understanding of what I spend. I have no car payment, no student loan payments, no credit card payment, just rent, utilites and food and what I spend on my amex green card every month. I paid everything off in 2001 with my last big bonus and have maintainted no debt since that time. I make less then 100 right now so I am not making a ton of money but enough to be very comfortable at the moment. I would love a new car but just cant bring myself to have a car payment at the moment.