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Savings rule of thumb

Old 07-20-2006, 02:02 PM
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Default Savings rule of thumb

while I dont want people to comment on how much they save, I was talking with a financial advisor who said that a good rule of thumb for someone to follow throughout their career is to always save at least what your mortgage (housing) payment is each month. He said this should enable someone to maintain about their same life style when they retire. I thought it was interesting and may have some merrit being that the cost of one's housing probably dictates what lifestyle you are accustomed to... It obvious wouldnt work for someone starting to save later in life but may actually be a good rule to follow for someone early into the work force.

What good rules of thumb have you heard and do you think this guy's thoughts have any merrit?

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Old 07-20-2006, 02:14 PM
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Default Re: Savings rule of thumb

Min. 10% of gross income. If you start early enough, and invest wisely enough, that can grow to quite a considerable sum. I work for a large corporation that matches up to 8% of gross in our 401k - I put 10% into that (pre-tax), then have a separate IRA that my wife and I both kick into. Even though we started late (following divorces etc.) we've managed to amass a tidy sum by being religious about it. Grand total we are probably stashing away 20% monthly, plus the bit that the company kicks in.

The REAL keys are to a) do it religiously, and b) increase the % as you are able. In other words, don't make dramatic increases in your lifestyle just because you've experienced a dramatic increase in income, particularly if that increase results in piling on debt.

A friend of mine has a favorite question: "why do we spend money we don't have, on things we don't need, to impress people we don't like"?......it's a worthy consideration. He is now saving 90% (HUGE kick in income three or four years ago.)
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Old 07-20-2006, 02:32 PM
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Default Re: Savings rule of thumb

Yah right....save your mortgage payments each month.....who’s he kidding? Who starting off has that much disposable income left over after paying their mortgage, vehicle(s) payments, taxes and utilities, credit cards, children expenses, save for children’s college and weddings, child support (in some cases), health care needs, plus groceries and entertainment expenses and then putting some money away for holidays and a rainy day??? Most people tend to extend themself well into 70 -75% or higher range. Beside, if one had that much disposable income they would have just bought a bigger better house in the first place, a fancier car or more toys......isn’t that the way???
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Old 07-20-2006, 05:03 PM
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Default Re: Savings rule of thumb

I have typicaly heard advice that housing should not cost more than 1/3 of your income and most people pay at least 1/5. For most people to save that much would mean a hard time of it.

The earlier you start the better because your funds will leverage themselves. The higher amounts would be for those people starting later in life who have to accelerate their savings in their remaining income years. Also the Roth IRA plans allow you to shelter your investments in such a way that the income form that part of your portfolio becomes tax exempt.

Good luck!
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Old 07-20-2006, 11:36 PM
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Default Re: Savings rule of thumb

I have a foolproof system that I follow religiously. It is easy and anyone can do it. Every day I go to Macdonalds for breakfast on my way to work. I get the sausage biscuit and a small coffee. Comes to $2.61 here in Ballard. I give them $3.11 and get two quarters back. I save that. Sometimes it isn't really easy but dammit I'm determined!!!
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Old 07-21-2006, 07:20 AM
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Default Re: Savings rule of thumb

Quick rule of thumb that ANYBODY and everybody CAN live by (IF they so determine) ~

Save 10% (of your gross income)
Give 10% (of your gross income)
Live off the rest (80%)

And FWIW - I'm in agreement with Fear Naut

And by ALL MEANS - teach your CHILDREN how to deal with money AND how to SAVE! We are and we're hoping that the seeds we plant in them now will stick with them to adulthood so that SOME of those "lessons" aren't so harsh.

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Old 07-21-2006, 08:15 AM
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Default Re: Savings rule of thumb

One of my rules is to get as much of my employer's 401K contribution as possible. I did not even complain about my raise last year because quite frankly the 401k is better.

When I was in the military they had a thrift savings plan, but it really was not that great because the Army decided they would not match our contributions. I still believe the best savings is real property and make sure you spread your savings over different types of investments, i.e. stocks, bonds and not too much in company stock; although our company stock (DHR) is doing really well.
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Old 07-21-2006, 09:13 AM
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Default RE: Savings rule of thumb

What works for me is to buy a rental house. It is a forced savings plan. If done right the tenant pays the expense of mortgage, taxes, insurance and maintenace. I put 15 year loans on property. If I purchase a $80,000 house I figure (the day of purchase) that I just sit aside 80k - I just have to wait 15 years to get it. Simplistic approach but it works for me. If you do this once or twice a year you can see how it will build HUGE dividends.

Of course, house prices do go up and rents do up as well. You can decide whether to cash out or keep the cash flow...when that time comes.

And best of all - you control your investments.
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Old 07-21-2006, 10:59 AM
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Default Re: Savings rule of thumb

I put the maximum I can afford into my 401k, a small chunk into a roth (just started), another small chunk into a 529 for my (1 month old) daughter, and another small chunk into an ING account which serves as my rainy-day emergency fund. Whenever I get a raise, I just increase the ammount which I'm saving. All of this, in addition to purchasing a house, forced me to sell my boat though. But, in a year or two, I'll be in a position to go get a jon boat for crabbing and fishing the skinny rivers..... and hopefully, down the road from that, I'll be back into something I can take offshore.

I think they key is starting to save early. I started around 25 or 26 (putting into a 401k and such). I turn 30 in about a month, and I wish I knew at 21 what I know now, I'd be even better off.
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Old 07-21-2006, 11:35 AM
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Default Re: Savings rule of thumb

FearNuat, your friend must be a Dave Ramsey Listener.

Anyway, I save 15 to 20% of my gross income in 401K and IRA accounts which is equivilent to a house note. I have it taken out before I recieve my check so it does not hurt as bad, but in any case you can not afford to do anyless. Local and national news is overrun with stories of "fixed income" blue hairs that are having trouble subsisting on their gubment checks.

I still fear the day that the blood suckers in Washington are going to tax my retirement accounts to help pay for those that did not look ahead because not everyone is "fourtunate" (read irresponsible deadbeat) enough to have a retirement account.
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Old 07-26-2006, 11:41 AM
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Default Re: Savings rule of thumb

I try to do the same used to save 10% in my 401k, but my new company doesn't offer a 401k and my wife saves in a 401k plan, but we can't save into an IRA because the gov't save we make too much money. So I am stuck. I try to save as much as I can in my bank account, but I am not forced to save which sucks. My wife and I try to keep our bills very low so basically only have 5k max out of pocket expenses. We both make over 6 figures, but in NY everything is expensive.

I am just upset that the gov't talks about ss not being there when I retire but I can't save in an ira roth or traditional.
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Old 07-26-2006, 10:32 PM
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Default Re: Savings rule of thumb

Wellcraft, just because you can't fund an IRA doesn't mean you can't be "forced" to save. Any bank will happily set up an automatic transfer from your checking to your savings account. Then you use that money to fund your investments.

My paycheck is deposited directly into my checking account; had I chosen the option, I could have had a portion of it deposited into a second account, such as my savings account.
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