Arbitrary Savings Goals

[Jay_Gatsby]

Just save like mad, control your spending, and work toward moving ER ever closer.

I'm opening a can of worms by saying this (and that's exactly what I want), but Robert Kiyosaki would disagree...

http://finance.yahoo.com/columnist/article/richricher/983

 

[Gone4Good]

I'm opening a can of worms by saying this (and that's exactly what I want), but Robert Kiyosaki would disagree...

http://finance.yahoo.com/columnist/article/richricher/983

I guess we'll have to toon in to future installments to find out how you get rich by not saving, not diversifying, and not investing for the long-term. Lotto, levered speculative investments . . . Not sure its a good path to riches but 1 in 724,294,245,687 really do well.

I love this part: "I have no investments to sell you. " But did you know "I self-published a little book titled "Rich Dad Poor Dad." Which is just the best little book of all-time. It's sold a bazillion copies and anyone who hasn't read it needs to run right out and get a copy. If you already own it, just run right out and buy another - it will make you twice as rich. :

 

[Nords]

I'm opening a can of worms by saying this (and that's exactly what I want), but Robert Kiyosaki would disagree...

There's a lot of reasons that Kiyosaki hasn't returned to Hawaii in decades, among them the lies he's told over the years. If he's practicing what he preaches, then why is he writing Yahoo! columns and what charity is he donating the salary to?

I think Yahoo! Finance has found a great way to attract attention to themselves, but they're pushing what little is left of their credibility over a cliff.

 

[justin]

Yeah, I've noticed how Yahoo Finance's quality of articles has been decreasing over time. I laughed when I saw Kiyosaki was going to do an article on there. I guess they want to make Suze Orman look good in comparison.

 

[Mr._johngalt]

Yeah, I've noticed how Yahoo Finance's quality of articles has been decreasing over time.  I laughed when I saw Kiyosaki was going to do an article on there.  I guess they want to make Suze Orman look good in comparison. 

The best way to make Suze O. look good is if she stopped writing and
giving financial advice. A book with her photo on the cover and blank pages
should do it.

JG

 

[Nords]

The best way to make Suze O. look good... a book with her photo on the cover and blank pages should do it.
JG

Is that the photo they take after hitting her in the back of the head with a 2x4 to make her eyes bug out? Where her mouth is still frozen in a snarling rictus of fiendish carnivorous glee smile?

WARNING: Back away from the monitor before clicking on this link...

Considering your criteria of feminine pulchritude, JG, maybe you should stop shopping for that scanner.

 

[Mr._johngalt]

Is that the photo they take after hitting her in the back of the head with a 2x4 to make her eyes bug out?  Where her mouth is still frozen in a snarling rictus of fiendish carnivorous glee smile? 

WARNING:  Back away from the monitor before clicking on this link...

Considering your criteria of feminine pulchritude, JG, maybe you should stop shopping for that scanner.

Yeah those eyes are a little buggy.

Re. the scanner.............still waiting on CompUSA to call me to pick it up.
If they don't come through by tomorrow, then I may just go to Kinkos
(as suggested) with photos and a blank disc. I called and they quoted
me $9.95 per photo! I thought that was a bit much since I am only
paying $30 for the scanner (assuming I ever see it). Be of good cheer
though. Photos will follow, one way or another. Remember, everything I say is (by definition) a promise.

JG

 

[just_hatched]

I am kinda disappointed that Yahoo! Finance would add Kiyosaki to their "expert" panel.

Especially because his opening text clearly is 180 degrees opposite from the rest
of the group. I guess that's "giving all angles" approach.

But still... I feel sorry for the numbers of people who may read Yahoo! and then
go buy his books and get sucked into a cult.

With Suze, she seems to usually make some sense if you can get past all
of her "don't listen to them, listen to me! stupid, stupid, stupid!"

 

[Gone4Good]

I am kinda disappointed that Yahoo! Finance would add Kiyosaki to their "expert" panel.

The amazing thing is that Yahoo! let him write a two-page advertisement for his book as a feature column. I never read "Rich Dad, Poor Dad" and hadn't any pre-conceived notions about Kiyosaki but judging from Nord's post, my initial impression was spot on.

If this guy is really spouting "you don't need to get an education and you don't need to save" non-sense, Yahoo! is doing a real disservice to its readers by promoting this guy.

 

[bow-tie]

...criteria of feminine pulchritude, JG...

pulchritude.?.?  Now THAT is a 25 cent word.   

Regarding Kiyosaki, he's just like every other fin-book author.  They all have the light to lead us to the land of prosperity.  Whatever.  If that were the case, considering how many of those books get bought each year, we would see a considerable uptick in the wealth of households, and never again would a financial self-help book be published, since it wouldn't be needed.  Not very likely...

Being younger myself, it's hard to think about a savings goal and not wonder whether it's arbitrary.  Time will tell, that I am sure of.

 

[just_hatched]

I guess it's all part of the psychology that's written about as "mental accounting", but
I do find it interesting that if I look at my budget and say "if I can save $100 in this
category this month, that's $1200 per year at X% interest which grows to...."

But if I look at the overall effect on my net worth in say, 5 or 10 years, it's the difference
between $920,000 and $930,000 which doesn't seem worth it to scrimp now.

Of course, there are LOTS of assumptions about what can happen in 5 to 10 years that
may prove the projection wrong, but I guess the question is: does it become
less important to be frugal as each year passes even though mathematically it is
just as important in any given year? (i.e. the same mathematical return for scrimping)

It seems to be more of a perception thing to me.

 

[SteveR]

Of course, there are LOTS of assumptions about what can happen in 5 to 10 years that may prove the projection wrong, but I guess the question is:  does it become
less important to be frugal as each year passes even though mathematically it is
just as important in any given year? (i.e. the same mathematical return for scrimping)

IMO, the more frugal you are in the earlier years and where you save as much as you can and invest it in a variety of areas, the better off your $$ will be after those 5-10 years. Waiting to save and invest will prevent you from getting the full effect of compounding of your $$.

One the flip side, you should be making more $$ as your career (business) progresses. This would give you more $$ to save assuming you are still frugal resulting in more $$ in your account. By far the best way is to LBYM as early as possible and invest your savings. Later in life you will not need to be as frugal and will still have the $$ there for your future.

 

[Gone4Good]

I guess the question is: does it become
less important to be frugal as each year passes even though mathematically it is
just as important in any given year? (i.e. the same mathematical return for scrimping)

In addition to the "compounding effect" on your savings mentioned by just_hatched you have the "multiplier effect" on your spending. That is for every additional dollar of spending you will need >25x in savings to achieve a 4% or better WR in retirement. So scrimping early gives you the benefit of a longer compounding period while scrimping later ultimately reduces the size of the stash you will need.

 

[just_hatched]

So scrimping early gives you the benefit of a longer compounding period while scrimping later ultimately reduces the size of the stash you will need.

Later in life you will not need to be as frugal and will still have the $$ there for your future.

Agreed. So if you scrimp early, you'll have more available later. If you also decide to scrimp later, you can ER earlier. (that's what I'm hearing)

I think what I was trying to say in relation to "arbitrary savings goals" is that let's say I pick $1 million as a savings goal. If I project out 10 years and say I'll have $1,020,000 NW by then. If I adjust the numbers in my spreadsheet for my current budget to see what happens and add another $100 per month expenditure now, then I recalcuate and see that I'll have $1,001,000 NW in 10 years.

Psychologically, I may say that I'll still meet my $1M goal, so who cares if I spend another $100 per month? Or I could say that $100 more per month will cost me $19k over 10 years (I'm completely making these numbers up) and I may decide not to spend the extra $100 per month now so I can have $19k later.

They sound like 2 different situations when they are actually the same, depending on how it's worded.

Like buying a car for $30k and choosing to add an extended warranty for $1k - after all what's $1k when you're already spending $30k, right?

Also, unless the goal is purely to ER ASAP, then it seems there should come a time when you can start easing off of the scrimp mode. (which SteveR seems to be saying)
When that time comes is probably more of a personality thing than a financial thing - whether there is some concept of "enough". Which actually, that's what I like about having some definition of enough such as 25x expenses, at least it's something other than "more than what I have now".

 

[maddythebeagle]

Later in life you will not need to be as frugal and will still have the $$ there for your future.

From what I read on this forum, this is easier said than done But always being vigilant on waste is always a good thing. There is always giving money away.

 

[Gone4Good]

I think I understand you now.  It certainly is a perception thing.  But more than that it sounds like one of those little rationalizations we sometimes make to ourselves when we try to justify doing something we know we shouldn't.  e.g. "I know spending that extra $100 will reduce my retirement portfolio by $10K but what's 10K compared to the $1 MM I expect to have saved?"  

Repeat that a bunch of times and before you know it that $1MM portfolio has moved completely out of reach.  

 

[LOL!]

I had a specific number in mind when I first started working.  I told my spouse and friends the number.  It was a big number, but it was not enough to retire on.  I had a spreadsheet (can you say VisiCalc?) that I had worked out how much of my income I had to save, what the return on investments had to be.  Anyways, I reached that goal ahead of schedule and by that time, saving for retirement was pretty ingrained.  And all the rest has been written by MasterBlaster above.

An amazing thing may happen when you hit your savings goal. That savings is your ace in the hole and a source of comfort.

Your attitude changes at work. Things don't bother you so much like they used to. The manager isn't an A-hole anymore (well less so anyway) he's just a guy doing his best considering the circumstances. Same with some of the difficult co-workers.

...

I feel like a lucky guy.

There is no doubt that having a specific number to shoot for and a specific age (40) to reach that number allowed me to save habitually.  Well, that, and a well-paid job.  But it has also made all the years since much more enjoyable because not only do I not think about saving anymore because it just happens, I also don't think about spending either.  That just happens as well.

 

[BigMoneyJim]

In response to the original poster, I also chose $1mil ($40k/year) more ore less arbitrarily and for a while arbitrarily decided I could do it by age 45 or 50 (10-15 years). A little later I ran some online calculators and found that 15-20 years is more realistic, but 55 is still early I suppose, especially by many's standards.

However I wouldn't say I'm "doggedly pursuing" it. I am trying to find a balance between enjoying today and saving for the future, because after all the main reason for retiring early is to do what I want and enjoy myself more. Why wait? I may not live so long. (No immediate concerns, but not everyone lives to be 55, and many aren't fully able when they are 55...known many people with back and knee injuries hobbling them well before 50.)

But retirement is far enough off that I don't get seriously into the calculations of when and how much. There are way too many everyday-life things such as women and children that could happen between now and then to throw things off.

My first goal was to be debt free. I'm still coming out of the adjustment phase after that, and I think my next goal will be $100k liquid investments just for a milestone, but unlike the debt-free goal the new goal won't be a major focus in life. I'm 35, single and not clearly seeing the next step in my career, so really I have bigger things to ponder than savings and retirement at the moment. (Actually I'm quite content right now, like I was about 7 years go, but I realize now like then that I don't want to be in this particular content situation for the rest of my life so it's time to stir things around again.)

 

[HFWR]

There are way too many everyday-life things such as women and children that could happen between now and then to throw things off.

Understatement...

 

[MasterBlaster]

A related subject might be - Can you save too much ? Or is too much savings a lifestyle detriment ?

I had an interesting discussion with my 77 year old mother this weekend about saving and spending. She has a sister who couldn't ever not save enough and has been wealthy for some time. Now that she (the sister) now 87 years old is very ill we wonder if all that saving was detrimental.

I am having a similar dialog with myself these days. After you hit your number, What is the point of continued savings ? Granted lifelong spending and savings habits don't easily change. Believe it or not, It's not that easy to suddenly change and start spending lots of money.

So perhaps the save as fast as you can so you can retire as early as possible model isn't optimal from a lifestyle perspective. Just maybe one should be a little more balanced and smell the roses along the way. After all you just get to live once.

 

[retire@40]

A related subject might be - Can you save too much ? Or is too much savings a lifestyle detriment ?

I had an interesting discussion with my 77 year old mother this weekend about saving and spending. She has a sister who couldn't ever save enough and has been wealthy for some time. Now that she (the sister) now 87 years old is very ill we wonder if all that saving was detrimental.

I am having a similar dialog with myself these days. After you hit your number, What is the point of continued savings ? Granted lifelong spending and savings habits don't easily change. Believe it or not, It's not that easy to suddenly change and start spending lots of money.

So perhaps the save as fast as you can so you can retire as early as possible model isn't optimal from a lifestyle perspective. Just maybe one should be a little more balanced and smell the roses along the way. After all you just get to live once.

Oversaving is the reverse problem of overspending.  The problem with people that overspend is that they waste their money on things they don't need.  The problem with people that oversave is that they end up saving money they don't need. 

It takes a lot of intestinal fortitude to transition from saving to spending, but both saving and spending should be done with a reason.  You don't save just because you want a lot of money.  You save so you can have a needed amount that you can use to spend according to a plan.  Your plan may or may not work since things happen that can muck up the best of plans, but having a savings and spending plan is essential to a more successful outcome.

 

[Gone4Good]

A related subject might be - Can you save too much ? Or is too much savings a lifestyle detriment ?

I definitely think you can save too much. But there is a balance that is hard to strike just right. I'm struggling with this question of "how much is enough" at the moment. Currently I'm coming down on the side of "more is better" because I'm young and I value the security. I think I'd rather work an extra 10 years even if it meant I'd die with a ton of un-spent money than spend an extra 10 years retired but have to live the last 5 eating cat food. The problem with this line of thinking is that you can always work another 10 years. You'll never eat cat food, but neither will you retire. Hopefully someday I'll figure out what my "right number" is, but I can't tell you what it is right now.

 

[Honkie]

Ah the eternal question of "How Much is Enough". For me, the calculators, the portfolio theory and the rules of thumb only provide so much guidance. In the end, each person has to look inside themselves and "know" that the time is right. For many it will be the"time" rather than the amount that tips the scales in favour of pulling the plug. For others, it will only ever be the "amount", for if they don't feel they have enough, they will never be confortable with their decision. For most of us I think it is a composite of the two and when the time and amount stars line up then the plug is pulled.

Personally, it is the time for me. We probably have enough to retire now (although the assets would need some reallocation) but I don't feel ready. I have much more to achieve from a personal/professional perspective. That's just me.

 

[sgeeeee]

Ah the eternal question of "How Much is Enough". For me, the calculators, the portfolio theory and the rules of thumb only provide so much guidance. In the end, each person has to look inside themselves and "know" that the time is right. For many it will be the"time" rather than the amount that tips the scales in favour of pulling the plug. For others, it will only ever be the "amount", for if they don't feel they have enough, they will never be confortable with their decision.  For most of us I think it is a composite of the two and when the time and amount stars line up then the plug is pulled.

Personally, it is the time for me. We probably have enough to retire now (although the assets would need some reallocation) but I don't feel ready. I have much more to achieve from a personal/professional perspective. That's just me.

Well said.

 

[Nords]

For most of us I think it is a composite of the two and when the time and amount stars line up then the plug is pulled.

Personally, it is the time for me. We probably have enough to retire now (although the assets would need some reallocation) but I don't feel ready. I have much more to achieve from a personal/professional perspective. That's just me.

From what I've seen & experienced, you will know when it's time to go. If you have to ask the question then the answer is "Not yet".