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From debters to savers--advice needed
Old 08-26-2006, 12:28 PM   #1
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From debters to savers--advice needed

Hi,
I've posted on the board before, but my question is a newbie question, because although I've been educating myself about retirement matters (early and otherwise), I haven't had the wherewithal to implement them. Until now.

I'm in my 40's and DH is much younger at 30. We're both way behind money-wise, but we're eager to start. His whole financial life up until now has been spent paying off student loans and CC debt, while I've always been an underearner--only recently graduated from college with a liberal arts degree I'll never use, and I've been unconscious of the importance of saving until recently.

So we've got a small nest egg of around $30K in mutual funds, stocks and cash (want to include bonds and cd's and whatever else you think I should add in). He's eligible for a 401k at work with a decent match, but I don't have that option as a part-timer.

DH makes around $47k and I make around $18k. Since we're recently debt-free (yay!), I want to start saving my entire salary. Our only obligations are rent ($836 a month), car insurance, gas, food, utils, clothes and household incidentals, cat food/care and toys, and Internet access. And we give my mother-in-law a couple of hundred a month right now (this category could go higher as she ages, and we wonder how she's going to retire). No kids and no plans for them.

I think we can do it, but I'm coming from a place where I never saved anything, to saying bye-bye to my entire paycheck when I stash it away. Before getting debt free we were fantasizing about having some cash flow finally. Now it'll feel tight again. although we'll be paying ourselves regularly for the first time.

DH complains of feeling poor, and I wonder if he's going to have the same complaint now that we'll be saving aggressively (for us). He's on the same page and hates debt--no more credit for him, ever. But he's urging me to buy a car in cash. I'd like one, but we already have one (it's a bumperless junker) and it's fine. I'm embarassed to be seen in it, but I don't want to take any more chunks out of our fund. Bus service in my town is pretty good, although the fellow passengers can be scary, but I'm willing to deal with it.* It's personally not that much of a sacrifice. But I will have to school myself not to be popping into coffee shops and bookstores and shoestores, which is where my the dollars of my limited disposable income used to go flying off to before.

Has anyone else tried to go cold turkey like this--to start saving the entire paycheck of one family earner? Or just to suddenly start saving a much bigger chunk of your income than what you're used to?

Also any ideas on other things we should be doing to increase the nest egg? Now that I'm done with school I could find a second--or better--job...I'd prefer not to, but I really want to plump up our cushion and increase our retirement options, and the hour is growing late. Please let me know your ideas...

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Re: From debters to savers--advice needed
Old 08-26-2006, 02:28 PM   #2
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Re: From debters to savers--advice needed

Congratulations on being debt free.* * Here are some thoughts ...

The first thing you should do is to spend time reading about personal finance.* *This site is an excellent starting point.* A good book is "The Four Pillars of Investing".* There are many more books referenced in this site.*

Here is what I would do:*

1.* Have your husband contribute the minimum percentage to the 401K to receive the full match.

2.* Make sure you have an emergency fund that will cover 3-6 months of expenses

3.* Fully fund a Roth IRA for you both ($4K each).* *I personally use Vanguard.* The Target Retirement Funds at Vanguard are worth a look.

4.* After 1-3 are accomplished (and you still have funds to invest), I would focus on maximizing the husbands 401K contributions (if the plan is decent).

5.* Any consideration to purchase a home down the road?* *If so, you may want to set up an account to save for this.* * *The Vanguard Prime Money Market fund is a good choice.*

6.* You can purchase a good used car for under $10K.* *Have you thought about setting up an account to save for this?* I personally like the newspapers and AutoTrader as a resource to locate a good vehicle.*


7.* Any additional funds can be used for taxable investments.* *You can find a lot of advice on this board to help you.* *

As you and your husbands career and income grows, you can continue to increase the amount of money that is invested.* *Good luck !!


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Re: From debters to savers--advice needed
Old 08-26-2006, 05:35 PM   #3
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Re: From debters to savers--advice needed

Welcome, tiki.

You're off to a great new beginning! I didn't save much before my 40s either, and with a lot of saving (and a lot of luck and hard work) I was able to retire at 55. Have you considered increasing your hours to full time (is it possible?) or taking on another part-time job? That would make it easier to save more and have fun, too. I got my first decent-paying, full-time job just before I turned 40, then worked my buns off for 12 years, then reduced to part time for another 3 years, and then retired. Despite some health problems and a long commute, I made it--and it sure feels good.

It works for some people to earn rewards--like for every $1,000 saved, $100 can be spent in a more or less frivolous manner. I find that I can do without many things if I can indulge myself in other ways--in other words, prioritize my spending. For example, I cut my own hair, rarely go out for coffee or even eat out much, rarely buy clothes, use my husband's hand-me-down computers, and only get basic cable, but in exchange for all that, I take a major trip and a minor trip most years. I find it easier to avoid stores entirely than to tempt myself with goodies that could force me to return to the workforce. I have trouble spending on books, so I only go to the local Barnes & Noble about once every other month or so. I borrow & lend books with friends & family, use the library, buy used books, and read more online.

It's challenging when spouses aren't on the same page--I'm sure your husband wants a reward after paying off all that debt. Instead of permanently increasing "cash flow," how about purchasing something special that will enhance his quality of life without busting the budget...an iPod perhaps? hobby item? or surround sound for the TV? Just be careful not to slip down the debt slope.

You might want to find some online boards dedicated to frugal living and sound personal finance such as Simple Living.
http://www.simpleliving.net/main/

As for books, "The Millionaire Next Door" inspired me to spend less and save more. It worked with my husband, too, epsecially when I was having trouble getting through.

EDIT Forgot to mention--might your MIL qualify for public assistance of any kind? Even if she's too well off for food stamps or help with the rent, she might qualify for help with utility bills or home repairs. Is there an elder assistance hotline in her town?
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Re: From debters to savers--advice needed
Old 08-27-2006, 09:33 AM   #4
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Re: From debters to savers--advice needed

Trace, thanks for those steps. Seeing it laid out in discrete chunks helps a lot. And I appreciate your emphasis on the taxable/non-taxable issue.

Astromeria, your encouraging example gives me hope that we can pull this off. Hearing how you reached your goal, even after starting late, is exactly the kind of inspiration I need.
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Re: From debters to savers--advice needed
Old 08-27-2006, 12:31 PM   #5
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Re: From debters to savers--advice needed

Tikitoast

I also think that you guys are off to a good start. I've never thought of doing it Astromeria's way, but that's actually a great way to do it - using rewards for yourself after saving a certain amount of money.
I can see your husband's side, wanting to buy a new car. You guys have had major accomplishments, with paying the cc's and loans off and with you finishing school.
When I started saving (just 5 years ago), I started saving aggressively at $700/mo, which at the time to me, at least was a huge chunk of my salary. It hurt, and continued to hurt for at least a year or more. At the time I was also working on school, so I always felt like I was suffering, and had been for years. Before that, I'd always had some kind of debt. So at some point, you do want to feel relief.
I would also agree with saving the 3-6 months, and saving in one way or another for retirement first before considering the new car. I've decided to buy cars in cash in the future, and although my car is 6 years old, and will be 7 by the time I consider getting rid of it, everytime I think about plopping down that much money for a new car, it makes me cringe.
Maybe you and your husband can come to an agreement. Is it possible for you both to work an additional part time job for a limited amount of time? 6 months of your each pulling in an additional 400-500 a month might help you to come to a compromise about the car, and also may be the determining factor in deciding whether a new car is really worth it!
You're actually doing great. Starting with no debt is THE MOST IMPORTANT factor in being able to save. So many people are never able to start saving, because they're just not able to get out from under the debt.
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Re: From debters to savers--advice needed
Old 08-27-2006, 03:07 PM   #6
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Re: From debters to savers--advice needed

A 6-yr-old car--why it's barely broken in ! Seriously, I bought used cars (beaters at first) for so long, a car feels new to me for its first 7 years. My 4Runner is 8.5 years old now and I see no reason to think about replacing it so soon (well OK, one reason: side air bags). It only has 95,000 miles on it--that's just out of toddlerhood for a Toyota

A few of my well-to-do friends only buy great used cars...one bought a classic Jag and his wife bought a used Corolla (these folks have a few million bucks, too). Another drives a gorgeous big ole Mercedes sedan (purchased at 10 yrs old) and his wife got a just-off-lease loaded Volvo wagon. One reason these folks are well off is that they let someone else eat the car depreciation. I take a different tack these days--we buy new, reliable cars (such as Hondas and Toyotas) and keep them a long time.
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Re: From debters to savers--advice needed
Old 08-27-2006, 04:18 PM   #7
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Re: From debters to savers--advice needed

Unless you are a real motorhead, there is no point in spending good money on a new car. The best deals are to buy a three year old car just coming off of lease. Someone else takes the huge upfront depreciation hit and you have a still relatively new, reliable car. Then, drive that car until it drops.

We have two Honda Accords -- one a 93 and the other a 97, with 145k and 90k miles respectively. When we picked up the 97, we got rid of a 91 Civic with 205k miles. Based on our current driving habits, I would guess it will be another 5 years before we get a new (used) car.

And that is why we have saved a bundle -- we didn't spend our money on cars.
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Re: From debters to savers--advice needed
Old 08-27-2006, 04:45 PM   #8
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Re: From debters to savers--advice needed

Quote:
Originally Posted by Gumby
Unless you are a real motorhead, there is no point in spending good money on a new car.* The best deals are to buy a three year old car just coming off of lease.* Someone else takes the huge upfront depreciation hit and you have a still relatively new, reliable car.
The only caveat here is that you don't know how the car was driven during the first 3 years of its life. It's a reasonable risk, for the most part, but it's something to consider.
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Re: From debters to savers--advice needed
Old 08-27-2006, 06:37 PM   #9
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Re: From debters to savers--advice needed

Believe me you are not alone. DH and I were in a similar situation not to long ago. I’m in my fifties and he is in his early sixties. Loads of debt and not much saved. Long term we know that we would come into some money as a result of an inheritance but we had to get by until then. Both being professionals we were making good money but were not getting ahead. What was wrong was how we managed out money so we set out to learn how.

All due respect to the” Four Pillars Book”, which was recommended, I just finished it by the way and agree its good, it is not the best place to start. Investing is not where you start. Developing and maintaining a budget is where you start. We used Mary Hunt’s book the “Complete Cheapskate” and got out money right. It is a simple little book, which is great for the layman to use and understand. Following the advice in the book mentioned allowed us to make it on one paycheck, mine, for two years. DH had to retire early because of a disability and the Social Security he got was not much. We developed a budget we could live with and we got out of debt, finally. Why? Because we knew where our money was coming from and where it was going. We developed an emergency fund and a freedom fund. We had goals and a plan. The book will explain.

We also read the “Two Income Trap Author” last name is Warren. We learned a lot about the credit industry from that. “The Richest Man in Babylon” is another common sense book to read the get the basics right. “You Money or Your life” is another good book as well as “Affluenza”. We learned to live below our means and it was easier that we thought. Those books are where we started. We continue to read and learn.

I was able to ER in May. I honestly believe that if we had not gotten our act together we would be burning through the money we inherited and be left with nothing. Now we are educating ourselves on how to maintain what we have and how to make it grow. We have not jumped it to make many changes at this point but may in the future. We are positioned rather conservatively and for income right now, which made sense for the person we inherited from but may not be for us. However we see no reason to run off half-cocked and change every thing just for the sake of change. We will give it a year, read, learn and get advice and the go from there. This site has taught us a lot.
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Re: From debters to savers--advice needed
Old 08-27-2006, 07:18 PM   #10
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Re: From debters to savers--advice needed

You have gotten great advice so far.
There is a very simple thing you can do, costs nothing and may make a huge difference. Start tracking every cent you spend. Your partner may balk, but doing this will show where your money is going. You might decide $5 a day for coffee and bagel is worth it, or going out to dinner, or the new pair of shoes. However, most people find lots of places to plug the leaks.

What I did was to read all the books listed in the prior posts (taken out from the library of course) and figured out what to do. No one tells us how to live below our means and prepare for our future.

One last note, a financial planner or money advisor will never have your interests above theirs in my opinion. Learn how to save money and what to do with it once it starts accumulating.
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Re: From debters to savers--advice needed
Old 08-27-2006, 11:45 PM   #11
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Re: From debters to savers--advice needed

You have gotten a LOT of great advice that will help you on the way... let me give you some more..

A good old Toyota or Honda can be had for about $5,000 and will last many many years.. my sister has done this with her and her kids going to college.. saves on insurance also..

Do NOT try and save everything you can... if you start to live like a pauper, you will hate it and stop doing it... kind of like going to the gym.. the 'trainer' will push you way beyond what you should be doing to start off.. you start to hurt.. and stop going because you don't like the hurt.. but if you start slow and don't give up everything that is 'bad' for you, you will see improvements.. and then you can do more without hurting... and more... soon, you will give up some of the stuff you thought you 'had' to have like the Starbucks run...

Just don't give up all good things in life today for something in the future... moderate and enjoy ALL of your life...
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Re: From debters to savers--advice needed
Old 08-28-2006, 08:26 AM   #12
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Re: From debters to savers--advice needed

Welcome to the board. Looks like you are well on your way to making changes to your lifestyle that will help you get to FIRE. I won't repeat the good advice you have already received but I will offer a couple of personal insights learned the hard way.

You and your partner MUST be on the same page when it comes to adjusting your spending-savings. Otherwise, it can lead to some pretty major issues in your relationship. (been there done that :P)

It might be tougher for you DH to cut back than you. If he is just now getting his head above water on debt the natural tendency is to buy the stuff you have been putting off. Life is about being balanced in all things. Talk with him about what he wants that he has not been able to have. See if you can work out a compromise that will allow him to have a few things he wants to make him happy while not straying too far from your savings goals. Be flexible but don't go crazy. Small rewards are often good to have to make the adjustment in lifestyle easier to make part of your life. It is like learning anything; rewards will create desirable behavior.

Good luck.
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Re: From debters to savers--advice needed
Old 08-28-2006, 01:16 PM   #13
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Re: From debters to savers--advice needed

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Re: From debters to savers--advice needed
Old 08-28-2006, 02:13 PM   #14
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Re: From debters to savers--advice needed

Thank you all for these great responses.

I have some hope now.* Even though we're not high-earners, there are possibilites for us that weren't there before. I'm excited!

I'll be devouring this board in the meatime. Thanks again*
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