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Re: How do we stack up?
Old 03-20-2004, 01:00 PM   #21
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Re: How do we stack up?

Hey Daddy !

The other money I have is in mutual funds, all taxable, not held in any kind of IRA, Roth or otherwise, and primarily with Vanguard (VFINX). My financial plan is much simpler than many here, primarily because I am single and don't have many of the same things to worry about. I put enough into my 401k to be sure I max it out each year, then I contribute the remainder to Taxable funds. I don't have a Roth IRA, as I've never contributed, but I believe I am ineligible to contribute anyway. So, I basically have 3 pools of money:

1) 401k (current and from previous employers) 33%
2) Taxable investments (primarily vfinx) 62%
3) Bank account 5%

These are just top of my head approximations. Now, I'm going to get a lot of pointers about how I should keep more of that 5% in something that provides me with a better return, etc. For me, it's just not worth it for the convenience. Now, this is also my only "safety fund" if you will.

As for your comment on Roth IRAs, I am pretty sure you are correct about you ability to grab the principal at will, but that is something better answered by the IRS or others on this board.

Good luck and congratulations on your progress !

Pan

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Re: How do we stack up?
Old 03-23-2004, 12:06 PM   #22
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Re: How do we stack up?

Daddy, as the data posted before shows I think you stack up pretty well. However, what's more important is how far along you are towards your own goals. If you spend $200k a year you're much worse off with that much in savings than if you spend $20k.

One of the things that perplexes me about the census data is that all the net worths are positive. Surely the lowest quartile of 30 year olds has a negative net worth?

The Millionare Next Door is a great book, but that formula of income x age / 10 just makes no sense. A 30 year-old should have 3 times their income? How can you save 3 times your income in perhaps 10 years, when your income at 30 is probably twice what it was at 22. And, on the other hand, a 50 year-old only 5 times their income? How would you save three times your income in, say eight years, and then only twice your income in the next twenty? It's nuts.

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Re: How do we stack up?
Old 03-23-2004, 12:15 PM   #23
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Re: How do we stack up?

Bongo2:

I agree completely on the income*age/10 equation. I change jobs, get a huge raise, and all of a sudden I suck wind according to this equation, plus the other shortcomings you meant. Having never read the book, maybe I don't understand how the equation was meant to be applied, or maybe its just supposed to make us younger dudes (yes, and dudettes) that we up the proverbial creek with out a paddle, and to put a smile on the face of people who have saved for years. BUT ! your other comment is the key: It doesn't matter how you're doing compared to everyone else, it only matters when you have enough to meet your needs.

Ahh, I wish I was already there ! Getting closeer !
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Re: How do we stack up?
Old 03-23-2004, 01:09 PM   #24
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Re: How do we stack up?

Does anyone who read TMND question the equation? Gee, maybe the book explains it.

No, no, sit down, I have it right here. "From years of surveying various high-income/high-net worth people, we have developed several multivariate-based wealth equations. A simple rule of thumb is..."

The formula is only derived from a statistical analysis of their data and it has a wide bell curve. It's not intended to apply to all of us, but it worked for a substantial group of substantially wealthy people and I'd rather be on the right-hand side of the curve. Stanley & Danko make their living from advising businesses on how to identify & market to high-net-worth people, so presumably they have credibility beyond TMND.

"How can you save 3 times your income in perhaps 10 years, when your income at 30 is probably twice what it was at 22." The one-word answer is: compounding. A longer answer is: save your pay raises. Our income actually tripled over that eight-year phase of our lives, but our savings rate exploded because we were saving almost all of the pay raises instead of spending to upgrade our standard of living. (OK, we were working our butts off and didn't have much time to upgrade anything, but the result was the same.) Our net worth went from essentially zero to a chunk less than lifetime earnings. It was approx five times our latest annual salary, although a minor chunk of that was home equity. (I keep a spreadsheet tracking salary, savings, taxes, & net worth since 1977. It starts slowly but the acceleration is gratifying, and in 1996 our net worth finally exceeded our lifetime earnings. It's one of the reasons I stopped chasing earnings.)

"How would you save three times your income in, say eight years, and then only twice your income in the next twenty?" It's quite possible that the divergence is caused by buying a home, raising a family, saving for college, and maybe going through a major business expansion. That's pretty much what's happening to us. When you throw in a divorce or another major catastrophe, it's all too easy to see why things dip for a while.

"I change jobs, get a huge raise, and all of a sudden I suck wind according to this equation". Well, yeah, exactly, at least to start. At a minimum you should be saving the same % of your new salary without having any new expenses, and your actual savings rate ($/year) could at least double if you don't spend ANY of the pay increase. And you'll suck at the start, but you'll compound your way to a comfortable lead. The line between prodigious accumulators of wealth and the under-accumulators is that the latter expand their expenses to match their pay raises, while the former expand their savings.

"It doesn't matter how you're doing compared to everyone else, it only matters when you have enough to meet your needs." Absolutely. BigMoneyJim asked for a benchmark and he got one of many. If you don't like it, suggest a better one before you criticize this one. Personally, I think your benchmarks are better since you're the ones in charge of deciding when your expenses will enable you to retire.
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Re: How do we stack up?
Old 03-25-2004, 10:40 AM   #25
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Re: How do we stack up?

Hey Nords ! Thanks for the quick summary of the equation. I was going to get up and go to the library to get a copy, but my beer was still full and after work I usually only like to get off the sofa for: 1) a new beer, or 2) bodily function calls. So this was appreciated.

Yeah, like most things, I figured the equation was like using a hand grenade, you don't have to hit the target, just be close. And as you correctly point out, it's much better to be on the right side of the curve.

I also hear you on saving the difference in income from the new job, and once I'm done getting a tuneup on the ferrari and install the $100,000 sprinkler system, I'm all done ! Yeah, right ! More like wash the truck and maybe, just maybe, mow the grass ( oh wait, it's winter, I don't have to yet !).

Probably like most people on this board, I like the equations, ideas, theories, and number manipulation provided by all sources, but the only drum I hear is my own, and to quote (sort of) Franky, "I'll do it my way !"

Cheers all, I need another beer now !

-pan-


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Re: How do we stack up?
Old 03-25-2004, 03:42 PM   #26
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Re: How do we stack up?

Nords, many people who read the book question the equation. There was a lengthy article on msn criticizing it which appears to be gone (called "How rich should you be" and is cached on google). I've read the book, and the sequel. I like the book for it's portrait of a certain type of millionaire, but it's clear that they have serious problems with their methodology (which I applaud them for actually including in the book). For one thing, if they were my market researchers I'd fire their butts. Who wants to try and sell to wealthy cheapskates? Good luck!

Of course you CAN get to three times your income by the time you're thirty, start out saving 17% of your income when you're 22, add all of your 5% a year raises, and make 7% on your investments, and you are there. But is that a reasonable standard? This person would be extremely unusual. If they continue this they would have about 10 times their income at 40, and 20 times at 50. But, you say, people don't do that. They have kids and so on. I agree, but then you should be consistent and acknowledge that people, even people who are doing quite well, don't have three times their income saved up when they are thirty.

There's an update to scott burns' wealth scoreboard here: http://www.dallasnews.com/s/dws/bus/...scoreboard.htm

90k about puts them in the top 10%.
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Re: How do we stack up?
Old 03-25-2004, 04:40 PM   #27
 
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Re: How do we stack up?

My net worth would look pretty good if I was in the
80+ age group

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Re:  How do we stack up?
Old 03-25-2004, 06:15 PM   #28
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Re:  How do we stack up?

Bongo2,

It's a bell curve, and it's wide with fat tails. The authors weren't trying to generate financial gospel, they were just running a linear regression. I don't think it's intended to be a goal for every American family, either, but my point was that the formula wasn't derived out of thin air or based on some flawed logic-- it was just derived from a pile of data. I could understand a critique if there was something wrong with the original numbers, but non-existent logic can't be critiqued.

FWIW, it worked for us because it gave us an achievable goal. We felt that if others could do it, then we could too. I don't buy MSN's logic that people could be discouraged and just give up-- that's an excuse for poor behavior. If you don't like it you don't have to live your life by it, either-- just come up with something that works for you and we'll call it the "Bongo2 Method". Don't feel obligated to pick apart something that's worked for me.

I agree that MOST people don't have 3x their income in savings by the time they're 30. But some people do, and more people probably could. It's not unrealistic for everyone, just more difficult for some than for others. (And in some cases it's more of a CHOICE or a lifestyle than a problem.) I keenly appreciate that all bets are off for divorcees or large families. But we did it on a military salary with a kid so it's not out of reach...

As Scott Burns said in that article, the rich do get richer. That's like criticizing Mark McGuire, Barry Bonds, & Sammy Sosa for hitting more home runs every year, with or without supplements & corks. I don't think "getting richer" has to do with net worth as much as it has to do with the skills that acquired the net worth in the first place. "The first million is always the hardest" implies that we subsequently go through "harder" and "hard" before we get to "easy", "easier", and "easiest". (Personally I'd be satisfied with "hardest"!) But once the skills are acquired, execution is easier.

"Wealthy cheapskates" can be great customers if you're selling something they need (not just stuff that they might want). For example, I've learned that quality furniture is always better than cheap, although I don't need it to be fancy. Look how Stanley learned to stop serving pate' at the focus groups, and I'm sure he could sell his Budweiser research to Anheuser-Busch. I also like the way that Tom Stanley included money in the surveys he mailed out, and others are learning the tactic. The How Stuff Works website now offers $2 to people completing their surveys (although you have to be in the survey's demographic target group). When I get surveys in the mail, I put them aside. If I get a followup phone call, I ask for payment. (It's worked a couple times.) When store cashiers ask me for my ZIP code, I always tell them I want a 10% discount first. If they laugh then I point out that they'd appreciate the same thing in my position, and I tell them to get the manager before they finish ringing me up. It works more often than it fails!

But now as Panhead has pointed out, it's time for more beverage research. Corona or Busch!
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Re: How do we stack up?
Old 03-25-2004, 07:10 PM   #29
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Re: How do we stack up?

Bleugh! Skunk water!

Red Hook ESB or Sierra Nevada Pale Ale. Sam Adams Lager is a good 3rd.
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Re:  I'll have to go shopping now...
Old 03-25-2004, 11:11 PM   #30
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Re:  I'll have to go shopping now...

Good idea! Sam Adams is OK. I don't know if I can get Red Hook or Sierra Nevada here. Hawaii hasn't been the same since Primo went out of business...
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Re: How do we stack up?
Old 03-26-2004, 02:07 AM   #31
 
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Re: How do we stack up?

Boddingtons boys, Boddingtons! Once quaffed,
all others disappeared from my head. It's good for what ales you. Happy is he who gets off his can
and hops to the store. Seriously, great stuff!

John Galt
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Re: How do we stack up?
Old 03-28-2004, 12:38 PM   #32
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Re: How do we stack up?

“The authors weren't trying to generate financial gospel, they were just running a linear regression. I don't think it's intended to be a goal for every American family, either, but my point was that the formula wasn't derived out of thin air or based on some flawed logic-- it was just derived from a pile of data."

It has been a while since I read the book, but that is not the way I remember it at all. The way I remember the book, and every other time I have heard the formula used, it was a normative, rather than a descriptive statement. If it was supposed to be a descriptive statement, then I would like to see the data that they used, because I cannot imagine they are getting a decent fit outside perhaps people in their 40s and 50s.

I guess the biggest difference is that the formula motivated you, and insulted me. I read TMND when I was about 26 with my first serious job, and here were these jokers telling me that my wife and I should already have about $200k in the bank? Getting through college and some post-grad without any debt and about $20k in my pocket I felt pretty good about myself, and that probably put me in the top 20% or so, but here are these guys telling me I am a complete schlock!

Paying people to fill out surveys is nice, but don't you see how it is going to skew his results in this case towards exactly the sort of people that he highlighted in his book? What sort of multi-millionaire is going to full out a survey for $100?

And Newcastle is my favorite beer, though Pabst is pretty good for the money.
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Re: How do we stack up?
Old 03-28-2004, 01:14 PM   #33
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Re: How do we stack up?

Quote:
I read TMND when I was about 26 with my first serious job, and here were these jokers telling me that my wife and I should already have about $200k in the bank? *Getting through college and some post-grad without any debt and about $20k in my pocket I felt pretty good about myself, and that probably put me in the top 20% or so, but here are these guys telling me I am a complete schlock!
Hi Bongo2,

I didn't read the book, but what you are saying here is right on the mark. I didn't have anything until I was 38. Zero! Now I'm 52 and have almost enough to take the leap and dump gainful employment for good. It took 14 years. Having $20,000 at age 26 is incredible.

The flow of life pretty much dictates that most of us will have little in the early years with college loans, house down payments, car loans, buying a houseful of stuff, babies, etc. Most must spend every penny just to survive. A select few are able to recognize that cross-over point when extra money can be siphoned off for retirement, and have the self-discipline to do so. Most neither recognize the possibilities nor have the self-discipline required. Yet those are the keys to the kingdom, in my opinion.
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Re: How do we stack up?
Old 03-28-2004, 05:24 PM   #34
 
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Re: How do we stack up?

This is meant to be inspirational. If I miss the mark, please cut me some slack.

I bought the last company that I ran in 1990. I was
45 at the time and really had saved nothing. Oh, I had
some assets, but also a mountain of debt. I paid 500K
for the business and borrowed 100% of the money.
I would like to say I was not worried, but I recall
that my gin consumption did go up quite a bit. Anyway,
I ran the business until 1993 and then shut it down
and semiretired. Worked off and on until 1998
when I made my escape to ER. My point is that if I
could do it, anyone (with some planning) can do it.
I'm a smart guy but I squandered a lot of years when I
could have been getting ready for ER. Never crossed
my mind until about 1991.

John Galt
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Re: How do we stack up?
Old 05-02-2004, 07:30 AM   #35
 
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Re: How do we stack up?

For the first time, I have just put on paper what I have saved. I'm 35 and have a net worth of $600,000. No mortgage or loans and my savings are in cash (15%), bonds (10%), equities (75%). I also max out my Roth IRAs. Currently, I'm saving about $3K a month. I would like to retire as soon as possible and do more enjoyable fun things besides work. My expenses are about $40K a year, but at retirement my expenses will probably go to $50K as a yearly average for as long as I can foresee($15K of which will be for travel). Am I on the right track for retirement in the next 5 to 10 years?
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Re: How do we stack up?
Old 05-02-2004, 08:05 AM   #36
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Re: How do we stack up?

Yes, you're doing great. You're on track to retirement in 6-7 years. Your nest egg goal is $1.25M (25 x $50K). Use a savings calculator to determine how long it'll take you to meet your savings goal based on different returns.

The 6-7 year estimate I came up with was based on 7% average returns, and this is the calc I used:

http://www.bankrate.com/brm/calc/savecalc.asp
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Re: How do we stack up?
Old 05-02-2004, 09:27 AM   #37
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Re: How do we stack up?

Wab,

Thanks for the link.

Saver,

I am in a similar financial situation as you outlined in your post. Unfortunately, I am 48, not 35, but I am a little ahead of you in net worth. It apprears to us that we will be able to ER in 2009. You have done very well to have what you do at 35 yo.

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Re: How do we stack up?
Old 05-02-2004, 01:55 PM   #38
 
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Re: How do we stack up?

Thanks for the link wabmester. Using the formulas on that link I got the following:

Your monthly deposit of $ 3,000 for 5 years with an interest rate of 6.500% compounded monthly with an initial starting balance
of $ 600,000:

Year Balance
1 677,275.21
2 759,725.69
3 847,698.03
4 941,562.04
5 1,041,712.30

Final Savings Balance: $ 1,041,712

Amount in savings ($) 1,041,712
Annual interest rate (%) (compounded monthly) 7%
Monthly withdrawal ($) you would like to make $5,000
Years you would like savings to last: 50 years ( I wish I could live to 90!)

Years savings will last if you withdraw the above amount monthly FOREVER

Monthly withdrawal ($6267.86) you can make if savings are to last above number of years

There are probably some things this calculator isn't factoring in like inflation and taxes and what I will receive for social security at 62, but since I will only need $40K in todays dollars, and I could always get a part-time job if things get rough, it appears that I should in good shape. I may even take on a few sporadic no-brainer jobs each year (like taking in the shopping carriages at a superkarket) just to remind me how grateful I am about being able to retire early. I'll probably get fired after the first day of work anyway with the poor work ethic I will have at that point.
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Re: How do we stack up?
Old 05-03-2004, 10:31 AM   #39
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Re: How do we stack up?

Quote:
Boddingtons boys, Boddingtons! *
Ack, the Budweiser of British beers *:-/ The brewery is in Strangeways for a good reason.

"How do we stack up?" I'm 32, my wife is 30, we have about $800K socked away. We currently rent though, so need (want) to buy a house out of that. I think we'll be OK with a $30K annual income, and we're pretty good at making money on the side to cover non-essentials.

ganda (Brit).
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Re: How do we stack up?
Old 05-03-2004, 04:55 PM   #40
 
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Re: How do we stack up?

I don't care about your 600K or whatever. I am almost
60 years old, well traveled, sampled so many ales, beers
etc. I've lost count. I was skeptical at first. Boddingtons
is the best. Nothing I have sampled in 6 decades
is even close!

John Galt
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