So let's see: if I make 50,000 a year, then I am supposed to save 1.25 million by retirement. However, I can save AT MOST 25,000 a year because, as this article title demonstrates, half of my income is eaten up by bills and expenses. So even if I am fortunate enogh to save 25,000 a year over 30 years, that is only $750,000 saved. Where is the other half a million going to come from? The mighty compounding interest, currently compounding at an astonishing half a percent? OK, that just bumped my savings up to...wait for it...$808,000!
These rules of thumb need to be renamed to rules of shi.t
"i'd rather have memories of living life than to die a shut -in millionare. you only live once."
Funny how people like murf708 equate living with spending money. The two ain't the same, there, murf. There's a lot more to living than indulging yourself with oversized houses, expensive cars, the latest consumer gadgets and a crap load of debt. In fact, that's not living, that's outright stupidity.
Edana
Then there are those of us who never bought those expensive things, never have our hair colored, and never have our nails done. I have a $12 handbag that I bought at K-Mart on sale about 2 years ago. And when that one wears out, I have another on that I bought at that same sale, ready to spring into action.
I have very little to show for 35 years of hard work and it isn't because my outlook wasn't long term. I saved a large portion of what I earned and always contributed to the 401k to get the company match and more often, more than that.
What i didn't lose when the equity in my home disappeared, I lost in the subsequent market decline. I have 10-12 years left to what people say is "normal" retirement age, and I think I am probably going to have to work till I fall over dead.
Maybe I misunderstand portions of the article...but it seems to miss a few pointers. What about utilities--we tally ours up and that covers just about half our mortgage payment. Changed the lightbulbs, have a smaller "energy efficient" refrigerator, "energy effiicient" washer/dryer, we shut off the comps and pull the plugs on them when not in use, watch our use of lights when we leave a room, only run the dishwasher or washer/dryer when we have full loads, ect ect. There is only so much cutting back you can do. Another one is groceries. Can't remember the supposed percentage that is the normal grocery expenditure according to the gov of monthly income--but it is fantasy land! 25-30% of monthly is groceries and that is if we have no snacks in the house and eat cheap dinners with bare cupboards the last week of the month. Don't really want to count clothing...but if you have kids--you usually have to get clothes once or twice a year. For us adults, we wear stuff we had in highschool and on until it falls off. Healthcare costs...no mention on that. Even with health insurance--copays for visits or scripts eat away a little bit there too. And if you have med bills and have to make payment arrangements between the half-dozen involved places, there goes a chunk of your income right there. Where does entertainment or eating out fall into this budget...nowhere!? If you are attempting to cover the bare necessities--that means your 401k has the minimum match put in, you have no savings, no ability to save, and when you get a notice that your electric bill will be jumping another $25 a month due to increased fees and price hikes--you look over your budget and realize the only thing to cut back on is more food for the month.
How about a real article that matches real life!! And our "housing costs" generally run us about 31% of our monthly income. It is the costs of the other daily necessities that keep us paycheck to paycheck without a new car.
I sort of agree with the way to determine how much house you can afford except i would also add that you need to take out a 15 yr (or 20yr if you can find it) loan....the amount of interest paid on a 30 yr loan is huge compared to a 15yr... and you more quickly build equity so that if you really need to sell, you aren't stuck (on a 30 yr loan, the equity built the first 5 years is tiny)
You could always take out a 30 yr loan and pay it like a 15 yr loan if committing to a 15 yr mortgage is too scary ...just make sure your type of loan allows additional principle payments and that you are structured enough to ACTUALLY make the extra payment amount .
We actually bought a house with a 15yr loan and are paying extra on that!...i hope to have it paid off after 7 years (maybe 8, both kids decided to get married!)
We always try to have just one car payment even though we always need two cars...thus right now we are driving a Volvo with 220k and a Sonata with 120k... Volvo has been paid for years and we will pay off the Hyundai next year
Doghouse
There you have it. You are absolutely right. There is no information here for real people. Most people are dealing with the budget constraints and the problems that you describe, the ones that kwell describes, the ones that I described.
The middle class folks like you and I and kwell can read articles like this and realize what isn't possible in our lives... but other than that, those articles tell us nothing. Buck0421 is absolutely correct about what you need to retire and "be okay". That is all that I am really looking for, not to be rich, but I would prefer not to be 70 years old and eating catfood because it is the only nutritionally complete meal that I can afford.
Since the financial meltdown, wages continue to shrink and costs continue to swell. I need to know how people are getting from where you, and I and kwell are to the life that Buck0421 is describing.
When most of the articles that post here are insulting, that is, ignoring the situations and realities that most working people face, it leaves me wondering why the authors write them. Have they researched it and figured out that we all subliminally want to read about this lifestyle that we can never have?
There are many out there that receive Social Security, have a modest pension and maybe a few investments that pay a nice dividend that are living a comfortable life.
The key to this door is a lack of major debts. House is free and clear, credit cards are paid down or off and you are in good health.
A large retirement income is great but if you have a ton of monthly payments it doesn't mean too much.
A nice annual or semi annual vacation doesn't have to mean you fly to another country once or twice a year or own the newest luxury car or eat at the pricelist rest. all the time.and stay in expensive hotels.
As a thoracic surgeon, it disappointed me that the list did not contain the incredibly expensive and equally dangerous product: cigarettes. At over $5 a pack, the cost of a "Pack Year" runs about $1,825. For your information, once a person reaches 50 Pack Years (1 pack for 50 years), his/her chance of cardiac, lung, esophagus or throat disease/cancer becomes almost a guarantee. Tough to quit, but as my bumper sticker says, "Cancer cures smoking" and you can save a bunch of money in addition to your life. Dr. John
This is all well and i guess good. But I have another question.
I was listening to one of the "financial gurus" the other day saying that you have to have DEBT in order to have a "perfect" FICO score, and if you have a "good' score you can get a car loan etc. at a lower rate.
Who makes up this notion that you have to pay high interest on CC's etc. just to be assured that when purchasing a car you will be offered a lower interest rate on the loan. What happened to the notion of PAYING for the car. What is wrong with saving money and purchasing the things you need, as opposed to borrowing more money than you can afford make re-payments on? That is right, you won't have a good "SCORE" if you do that. No wonder people today are going bankrupt!
John
I agree. Regular folks aren't getting any advice here.
Most of the population is asking a different set of questions right now. This site seems to provide an endless parade of articles describing the phenomenon of "saving for retirement" as if the financial meltdown never occurred.
Most of the population nearing retirement (some time in the next 15 years) is looking for information about how to recover in time.
Because, you know, its a little late for that scenario where we all did it right the first time starting at around age 20. Oh wait, we did do it right the first time... and it didn't work.
To RenButler,
Rent or mortgage it doesn't matter and whether you're driving a new car or an old used car the argument that I'am making is that the basic cost of living (food, shelter, clothing, transportation, and healthcare) are exceeding the medium income. If you aquire more skills for a better paying job it still takes money to get those skills and it has to come from somewhere. So often people preach about the Capitalist American economy and if you are educated on how it functions then you will understand that if the quanity supplied exceeds the quanity demanded then it will result in a lower cost of the quanity supplied. Labor has done just that, and that is why an individual with a Masters might have a job making 25k a year because right now the supply of labor (both skilled and unskilled) is so high and the demand so low that the price, i.e. wages of labor is low. When overall demand for goods and services in this country increase then demand for labor will increase to meet the changes in the market. Increase in Demand=Demand for more labor=better salaries=increase in GDP and a more stable economy. Our Capitalist economy cannot function without the demand for goods and services from the masses, period. You can say the 99% are whinning but for this great American ship to keep on sailing it needs the 99% to buy goods & services, work, pay taxes, and build this great nation.
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