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The importance of saving 15% of gross income early

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    The importance of saving 15% of gross income early

    I haven't looked at my net worth chart for a while. I don't really care about net worth because I can't spend it. But I find this chart interesting because had I just started to save 15% of my gross income starting when I first started working, I would have been able to retire without saving so hard in my later years. I did get lucky and got a job that paid a lot, but it wasn't necessary if I had started early.

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    #2
    Not to be critical (as I certainly agree with the basis of your message) but having a smooth curve for the net worth saving 15% doesn't look good versus the actual net worth. I would recommend you redo the chart with saving the 15% and changing the net worth based on market movement. That is, make it what the net worth would have actually been given 15% savings and market movement every year. This would be very interesting to see.
    Don't torture yourself, thats what I'm here for.

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      #3
      What exactly does the blue line represent? It can't be showing how 15% would have grown over the years or else the curve wouldn't look like that. It would have ups and downs along the way like the orange line does.
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

      Comment


        #4
        Originally posted by bennkar View Post
        Not to be critical (as I certainly agree with the basis of your message) but having a smooth curve for the net worth saving 15% doesn't look good versus the actual net worth. I would recommend you redo the chart with saving the 15% and changing the net worth based on market movement. That is, make it what the net worth would have actually been given 15% savings and market movement every year. This would be very interesting to see.
        I did put 5% real return in over the entire period for the 15% savings. My actual net worth reflects the market returns. I could go in and put historical real returns in for the 15% savings line, though. Might be interesting to see the change.

        Comment


          #5
          corn, if you had to comment, what would you say has helped you build wealth the quickest?
          Last edited by disneysteve; 02-09-2021, 04:40 PM. Reason: fixed name
          james.c.hendrickson@gmail.com
          202.468.6043

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            #6
            Originally posted by corn18 View Post

            I did put 5% real return in over the entire period for the 15% savings. My actual net worth reflects the market returns. I could go in and put historical real returns in for the 15% savings line, though. Might be interesting to see the change.
            I figured that was based on an average annual return. Good enough to prove the point but yes, it would be neat to see the actual returns.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

            Comment


              #7
              I note that your projection shows your NW falling going forward. Do you think that's true? I know you're going to retire but your portfolio will continue to grow. Do you project that your spending will outpace the growth?
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                Ok, I put in actual real returns for a 60/40 portfolio. Amazing how it kindof looks like 5% average real returns, which is the historical average of a 60/40 portfolio.

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                Comment


                  #9
                  Originally posted by disneysteve View Post
                  I note that your projection shows your NW falling going forward. Do you think that's true? I know you're going to retire but your portfolio will continue to grow. Do you project that your spending will outpace the growth?
                  I am projecting 2% real rate of return. If that happens, yes, my NW will go down. I am withdrawing 5% / year to start, so I need 5% real return to not decrease my portfolio. As noted, the average real return for a 60/40 portfolio is 5%. I am being very conservative.

                  Comment


                    #10
                    Originally posted by james.hendrickson View Post
                    corn, if you had to comment, what would you say has helped you build wealth the quickest?
                    I built up the debt when I was making a boatload of money and spending it all, plus a lot more. The thing that turned things around was making the same boatload of money and saving a metric f-ton of money.
                    Last edited by corn18; 02-09-2021, 04:50 PM.

                    Comment


                      #11
                      Originally posted by corn18 View Post
                      Ok, I put in actual real returns for a 60/40 portfolio. Amazing how it kindof looks like 5% average real returns, which is the historical average of a 60/40 portfolio.
                      Thanks for the update. Glad you took my comment in the spirit intended. If your numbers are going up that high, yes you are making the metric f-ton. I am doing great compared to where I grew up, but you are making me look weak.

                      Don't torture yourself, thats what I'm here for.

                      Comment


                        #12
                        Originally posted by corn18 View Post
                        Ok, I put in actual real returns for a 60/40 portfolio. Amazing how it kindof looks like 5% average real returns, which is the historical average of a 60/40 portfolio.
                        Very cool how closely those lines track.
                        Steve

                        * Despite the high cost of living, it remains very popular.
                        * Why should I pay for my daughter's education when she already knows everything?
                        * There are no shortcuts to anywhere worth going.

                        Comment


                          #13
                          Originally posted by corn18 View Post

                          I am projecting 2% real rate of return. If that happens, yes, my NW will go down. I am withdrawing 5% / year to start, so I need 5% real return to not decrease my portfolio. As noted, the average real return for a 60/40 portfolio is 5%. I am being very conservative.
                          Makes sense to be very conservative in your planning so that you're prepared for everything. Realistically, I'm willing to bet that's not how it will play out and that orange line will continue to rise.
                          Steve

                          * Despite the high cost of living, it remains very popular.
                          * Why should I pay for my daughter's education when she already knows everything?
                          * There are no shortcuts to anywhere worth going.

                          Comment


                            #14
                            I ran the data again and added 100/0 real returns. The last 10 years have been very good.

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                              #15
                              Did you intentionally say gross income?

                              I know we get that question a lot when someone says save 15% or your income... and they ask if that is gross or net income...

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