How do we stack up?

[bongo2]

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/scottburns/alsoonline/wealth_scoreboard.htm

90k about puts them in the top 10%.

 

[John Galt]

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

John Galt

 

[Nords]

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!

 

[cute fuzzy bunny]

Bleugh! Skunk water!

Red Hook ESB or Sierra Nevada Pale Ale. Sam Adams Lager is a good 3rd.

 

[Nords]

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...

 

[John Galt]

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

 

[bongo2]

“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.

 

[Bob_Smith]

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.

 

[John Galt]

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

 

[Saver to Spender]

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?

 

[wabmester]

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

 

[Merlin]

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.

 

[Saver to Spender]

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.

 

[ganda]

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).

 

[John Galt]

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

 

[ganda]

Perhaps if you'd laid off the beer during your infant years (6 decades of drinking?!) your brain would be less addled and you'd recognize Boddys for the swill it is

Cheers!

 

[John Galt]

Swill?? Surely you jest?

Here is the story. In 1997, I was doing some consulting work in San Diego. A fellow I was working with (a Brit)
said "Do you like beer?" I said, "well sometimes I enjoy one." He says, "Come with me after work and I'll
introduce you to the best beer (ale) you ever had".
I was skeptical, but after work I drove what seemed
like forever to this English pub type bar where I sampled
Boddingtons for the first time. On the way I was
thinking. "this is a long drive.........it better be good!"
Exceeded all of my expectations and I am a very fussy guy. Never had better before or since, and I've sampled
a lot, believe me. Just goes to show there is no
accounting for taste.

John Galt

 

[charlie]

John, now that you are an imported Texan you
should sampe a local brew called Shiner Bock. I am
not much of a drinker anymore but that is my
favorite.

Cheers,

Charlie

 

[cute fuzzy bunny]

Swill?? Surely you jest?

John - Stop calling him Shirley.

Had to do it. Sorry. Apologies all around. My bad.

 

[John Galt]

Hello Chuck-Lyn! I've tried Shiner Bock. Not even
close IMHO.

John Galt