I have been thinking a lot about my financial aspirations, or my lack thereof.
The truth is, I don’t think much about where I want to be financially. I find financial planning to be both boring and daunting. It is an area I know nothing about, and I’m not interested in knowing anything about, but that I have to know something about. Oh and it’s totally overwhelming.
One of the blogs I’ve been reading is written by the wife of a couple that has big plans to retire early (like, WAY early) in 2017 to a homestead in the woods. She is in her mid-thirties and pregnant with her first child. Together they save 70% of their income and they are on track to meet their goal of retiring in 2 years. They are already looking at plots to buy so they can start building their house.
This woman doesn’t have a budget. Her spending plan is to not spend anything. Ever. They only spend money on the absolute essentials. She writes a lot about how it’s easy not to spend money on anything because every dollar spent on things they don’t need is being taken away from their dream of retiring early and homesteading in the woods. It’s easy not to buy stuff when you feel that doing so is robbing you of your ultimate goal.
Reading her blog I wondered if being money conscious would come more easily to me if I had some set goals. Then I tried to think of a financial goal I could work for.
And I thought. And I thought.
And I couldn’t come up with anything.
Is that sad?
I mean, I wanted to buy a house, and we did that. And then I wanted to live within our means, and we’re doing that. And now I want to be saving, but that goal is so amorphous and undefined.
I considered paying down my student loans faster. Right now I’m set to have the remaining $7,000 paid off in 2 years. If I scrimped and saved to put another $100 a month toward that debt I’d be done a couple of months faster. I tried to get excited about that goal. I waved it front of my face (metaphorically, of course) every time I had the urge to buy something unessential, but the idea of paying off that debt a few months earlier didn’t do much for me. Even when I told myself I could start having a cleaning lady once a month when the debt was paid off, I still felt pretty blase about the whole thing.
I reminded myself that I’ve been woefully neglectful of my children’s college funds (ie they have not been created yet) and that we need to start aggressively putting money in 529s, but again I find it hard to conjure any real sense of urgency. The cost of a four year degree is already so daunting and the projected numbers are outright devastating, anything I might save now feels ineffectual. The same goes for my retirement. All of these goals are so far in the future and so shapeless as to remain devoid of substance. I can’t imagine ever having enough money to retire, and many articles assure me I won’t, so it seems silly to deny something now just to put it toward a retirement fund that will never support me anyway. My generation will have to work until we’re in our 70s anyway, so what’s the point?
Of course there is a point, and I believe strongly in saving for retirement; I’ve been doing so since I was 27. But putting more away for the future is not a financial goal that helps me save today.
I think I just have to set up a budget that automatically contributes to these funds and my goal will be to stay inside that budget. Maybe that is how I will make this work. I don’t see myself embracing any financial goal that will inspire me to stop, or even drastically reduce, my spending. I don’t think what works for this woman will work for me. And that is fine, as long as I figure out what does work for me.
What are your financial goals? Do they inspire you to spend less?
I save by stealing from myself. Seriously, it’s the easiest way to ACTUALLY save. Set a number, arrange for it to be automatically transferred into a savings account/529 plan, and let it go. Then live out of what’s left. That’s what we do with Owen’s 529 plan, 401(k)/IRAs, and our savings accounts. Then we use the savings account for big ticket stuff – home maintenance projects (new windows, painting, etc), big vacations, making sure we have “enough” as our emergency fund.
Which, frankly, is never a high enough number for me. I need that emergency fund to be MUCH bigger than it is.
From a goal perspective? I aspire for us to live off Jeff’s income alone so that I have the flexibility to quit my current job and create a career which is much more meaningful for me, but we’re a ways away from it right now because I am unwilling to sacrifice things that make my life easier and go smoother to that end. (I have a house cleaner, I don’t bother shopping grocery store sales, and when O needs clothing I just go out and buy it. It’s just too much time to devote to that stuff.)
For now, I keep stealing money from each of our paychecks and put it into savings, increasing our padding. And once month out of the year I take my whole paycheck and put into our savings account, forcing us to live leaner that month.
I’m hoping this year to do it twice, maybe three times if we can manage it.
There are many different ways to live. I am unwilling to live the way that blogger does; really cut to the bone and sacrifice too much in the here and now for a future goal, but I also do NOT want to live large in the here and now, outside of our means, sacrificing our future financial health because “we deserve it” or something like that.
So I compromise. We live within our means, save to the extent we can, and spend money on luxuries here and there because it’s something we want.
I need to start doing this. And then we can get used to living on less. That is the hard part, because we don’t make enough to have much left over after we take stuff out. But it’s what we have to do, so we’ll start doing it. This summer I’ll figure it all out.
Yeah, you sound like someone who needs to set up auto deductions before you see the money. Saving smaller amounts now means you are more likely to meet those long term goals than figuring you can put large amounts away in the future. Especially for retirement and college.
In terms of retirement money, every bit helps. Social security will be there, but money in now means less cat food and more people food In The future. It’s not an all or nothing thing where either you get to retire or you don’t. It’s also about quality of life.
I don’t actually pay into social security because I’m a public school teacher, but I’m not putting all my eggs in STRS either. My husband contributes to social security so we need to make sure he is putting even more away than I do. I’m going to spend the summer really looking at our budget and making some better choices about putting money into savings. I’m also going to open 529s for our kids. Any suggestions on how to do that?
We have a Post for Ana on that very topic: https://nicoleandmaggie.wordpress.com/2013/10/07/a-post-for-ana-on-529-plans/
You’re in California, which has a deduction, so you will most likely want to go with them and not Utah.
Remember that you do want to focus on retirement before funding college, especially if you don’t have social security (though I would hope CA is less likely to renege on its pension promises than say, IL– if any of these states renege, I am fairly confident the federal gov’t will step in and state employees will get at least a % of what they were promised, but how big a % is an open question). You can’t get loans for retirement.
Wow. Thank you so much for that link. It was amazing. I will be using that info as I move forward.
I understand that it is more important to save for retirement, but I have no idea how much I should be putting away. My employer doesn’t match any amount so I can’t go with that as a guideline. I guess there is no prescribed “amount” because everyone lives in different places with different costs of living, but I wonder if there is a suggested low end I should at least be putting in before I put money away for my kids’ college? I know I need to be putting away more and I will get that set up this summer, but I really have no idea how much I should be aiming for. Any suggestion there? (And thank you so much for your advice and guidance on all this. I’m so impressed with your wealth and depth of knowledge.)
I just read a couple of articles on it and it was terrifying. At least now I have an idea of how much I need to be contributing to my 403b and other savings options.
It looks like CA DOESN’T have extra tax benefits for 529s, so you’re best going with Utah.
They talked a lot about putting one in back in 2014, but it looks like it didn’t pass in the end.
Send us an email with $ details (it can be anonymous: grumpyrumblings at gmail ) and we’ll address your specific retirement questions in an ask the grumpies question one of these Fridays (and that goes for anyone reading who has finance questions).
The general heuristic is that you should put away 10-20% of your income away (on top of social security/state pension) for retirement. 10 if you start young, 20 if you start later. That’s just a heuristic though. It may be a good heuristic for you since your spending is close to your earning (it’s based on the idea that you need something like 80% of your income after retirement to keep your same quality of life). All the early retirement bloggers you’re reading need a different heuristic.
Books that may work with your personality:
All Your Worth
David Bach’s Smart X Finish Rich series
I know I recommended them (or at least All Your Worth) for Ana’s money personality, but these are good for you for a different reason than they’re good for Ana. The similarity is that you both sound like you would work well with heuristics and automation. If you had high interest debt or a shorter-term goal that you really wanted, I’d recommend Dave Ramsey for you, but it sounds like you don’t need a burst of short-term pain to get out of a big hole but can focus on longer-term security.
Actually there’s no income tax deduction for California residents for contributions to our 529 Scholarshare (or to any other state’s 529). It’s highly rated so we chose to go with California’s plan.
http://articles.latimes.com/2011/dec/18/business/la-fi-1218-college-529-qa-20111218
I don’t think about retirement insomuch as I focus on saving money towards travel. I should save more towards retirement, but retirement also feels really un-doable. At least, where I live. If I wanted to move out of the area, we could make it happen.
Honestly, even travel feels way too vague and unattainable an idea these days. With flights costing as much as they do, they idea of even flying all four of us somewhere far away is daunting. I can’t imagine covering housing and food once we get there. We are lucky to live in an amazing state with lots of fun places within driving distance, so we can get by doing some small trips every couple of years. But even bigger travel seems too out of our reach.
I put away a lot into my 401k and since my employer matches up to 7%, I meet that and raise it every year. So, essentially, I’m putting in 18% of my paycheck into my 401K before I even see it. I do the same with savings, $50 every paycheck. If I can, I put more in so maybe I can save $100 – $200 a month.
Does it suck…yeah it does. Do we go on vacations? No…but we also save for them. I don’t think I’ve ever spent my tax refund or any bonus money. Goes straight into savings. Why? My goal is to save for a rainy day. I know…so wide and not to get excited for but I stress out easily and so if my A/C Unit in my house craps out…I can just buy it cash knowing, if I have to buy it, I can and not worry about where I’m going to get the money.
Find something that works for you. Don’t make saving money a chore or else, from what I’ve learned, you won’t do it.
I think one of my problems is I’m NOT stressed enough about rainy days. And I need to be, because they happen. We depleted a huge portion of our savings when we bought our house and we don’t make enough that if something happened to one of us to hurt our monthly income we’d be okay, even for a few months. I think I have a false sense of security because I basically can’t lose my job unless I do something illegal. My husband’s job is not nearly as secure and we should take that into consideration when we put money away. I need to really boast our monthly savings. A LOT. Thanks for the inspiration. I need it.
1) Yes, that blogger does live super lean and saves a huge %age. HOWEVER they have two jobs that are NOT teachers and city government related like I believe you are living on. It is important to remember that 70% of say 500,00 per year is quite different from saving 70% of 40,000 a year. Do the math and at 500,000 they still have 150,000 to spend. (Yes, I am deliberately exaggerating the two family incomes.) This is why increased water bills for the very wealthy is not compelling and the tax rate paid by the 1% is a nit while taxes for the middle class are significant outlays from income. It is important to stay reality focused when comparing apples and oranges.
2) While the government says your generation will have to work longer etc the current statistics still show the average person leaving their normal employment at 60 due to either health or changes in employment opportunities (aka layoffs). That is really not a pretty picture. As a nation we are not prepared in any way to take care of an increasing population of what I am going to call the ‘new poverty old age population’. And it will be ugly in not very many years because social security is NOT enough to live on and the boomers generation does not have the cash flow potential they will need. Boomers saw their parents live generally good lives in old age but boomers are not projected to do as well.
You both are already trying to save against retirement age but I totally completely know how hard that is to do.
3) We are constantly bombarded from advertisers and our government that we as a country are not consuming enough and need to consume more to increase our GDP per capita but because of the loss of middle class and disparity between 1%ers and the average worker, the disparity in income levels between top corporate managers and average workers which is at an extreme level, the average worker/household is so strapped they cannot afford to increase their spending. Trickle down simply did not and is not happening.
Today we hear how Germany is making college free and we should do the same … which makes setting up and sacrificing for education savings accounts harder because how then would you get that money back … but to do so we would need to drastically alter tax structures, which at least one political party totally opposes and they can, will, have prevented…… so.
4) None of which helps you. The auto removal before you see your paycheck does work ~ provided you can still pay your bills on what is left. But the pitfall you are experiencing is horrifically common today. It is the ‘cat food today versus cat food in 20 years and maybe government will fix it before then’ when everyone you see today is eating caviar and cake… hard to do.
So Understanding, Support, Encouragement. Good wishes.
We need to spend a few months living within our new budget before I’ll have the balls to auto withdrawal any large amounts of money every month. I think this summer will the time for that. I also have plans to start my kids 529s. Baby steps. Baby steps.
It could just be small withdrawals to start with. We used to do $50 a paycheck into our emergency fund. Then you could ramp up over time once you’re used to it.
Whoops…. typo; in my example the big savers had 500, 000 in income versus 40,000.
My main goals are live within our means while saving for retirement and college, and keeping our emergency fund intact. I max out my 457 plan and my DH was maxing out his 401k until his employer sold the business and the new owner scrapped it. So now he’s not saving at all–only option is a Roth IRA and right now his work is slow so there’s less money… So yeah. I also have a CalPERS pension so that will help. We follow the retirement first, college second advice, so our college 529 funds are meager (2K per kid per year). But when our kids start school we plan on putting most of the money (approx 1K/month each) we are paying for daycare towards college.
And I bet that blogger does NOT live in California…and must not have a job where you need a certain type of attire…these things cost $…
She lives in Boston. It’s different but not that much different. There’s no need to hate on the FrugalWoods. Their life dream is to homestead, which is not a dream that most people have, but does incentivize them to do extreme saving. She also bought a lot of very nice clothing in thrift-stores before she stopped buying clothing and now gets clothing mostly free. Personally I think she dresses nicely: http://www.frugalwoods.com/2015/01/05/what-a-year-without-clothes-did-for-me/
It doesn’t actually matter what the Frugalwoods do though. Them doing something extreme (that most people don’t need to do because most people don’t want to homestead) doesn’t have anything to do with whether or not it’s pointless to do any saving at all and doesn’t have anything to do with whether or not someone is on track to a reasonably comfortable retirement. It isn’t “sacrifice everything now for later” or “sacrifice nothing now and don’t worry about later.” Extremes are irrelevant. What is relevant is trade-offs between today and the future and what can reasonably be done and how to reasonably do it.
I was going to say that she lives in Boston, which makes it all the more impressive. I realize I don’t know what she or her husband do, but I don’t think they are making crazy amounts of money. They just don’t seem like the types that are rolling in it. I think they just make really specific financial choices and are making it work for them. And yes, she does dress really nicely. (I think it would be easier for someone with her body type to find clothes that fit well in a thrift store, but she hasn’t even done any thrift store shopping in 19 months so she is winning either way.)
I had no idea who/where she was. I was thinking Idaho or something.
Ok, checked out the site briefly. Boy does she sound “nah nah nah”. She includes the increase in value in her brokerage accounts as savings–really?? Brokerage accounts sounds very upper class to me. And eh, I wasn’t super impressed by her clothes. If she was an attorney she’d need nice suits (for most workplaces). I’m pretty frugal and get separates from kohls on sale etc. but still. Maybe if you had a nice wardrobe already there you could go 18 mo without buying clothes. I personally have lost weight (yay) in the last 18 mo so about a year ago I had to get new suits (and actually I had been wearing old scraps, barely good enough for work, for years, bc I didn’t want to invest a lot in clothing when I was still in the pregnant–nursing–losing weight–repeat stages).
Mrs. Frugal woods is not a referendum on your choices. There is no reason to hate on her.
And no, brokerage accounts are not upper class– they are necessary for the middle class to maintain their lifestyle in retirement given the decrease in defined benefit pensions. If you have been contributing to retirement or 529s then you probably have them too. If you don’t then you may want to look at your portfolio.
I appreciate that she has strong convictions and lives by them. She makes very different choices than I make but I see the value in her choices and am inspired by them. I hope to learn from her, though I never intend to live like she does. And I’ll be really interested to see how she continues this lifestyle after having a kid.
Your goals sound similar to mine. We need to put more toward our retirement and our kid’s college funds. And when they are in school, putting what we’re used to spending on child care toward their college funds is a great idea. I don’t want them to be bogged down by undergraduate debt–I hope we can help them avoid that.
As for retirement, as a teacher I pay into STRS, not Social Security so hopefully that will help me when I’m done teaching. I also started teaching really young (24) so I can technically pull the highest amount at 55. I won’t want to retire then, but maybe it will give me the opportunity to try something new later in life, because right now I don’t feel I can change professions, and that is mostly because of retirement (and not having any idea what else I would do).
Is strs reciprocal with CalPERS? That might allow additional (public employer) opportunities.
I really want to retire and live near friends,probably at about 65 or so. That means we have a goal to work toward. Our plan is to set up auto deductions so we never see the money, it just gets saved and donated automatically. Our other goal is to get out of debt. I think my student loans will never manage to be paid off and that’s fine. Hopefully the “after 20 years, all is forgiven” programs still exist when it’s time. We actually have very little debt outside of student loans so it’s achievable and then what we were paying toward that debt goes straight to savings afterward (probably to replace our car in a year or two).
Does such a far away goal help you save money now? Are you able to delay gratification in enough ways now to make a difference moving forward? That is what I struggle with. I think it’s because there is no real attaining these goals. There is no AMOUNT to work toward, it’s just on going. So it’s hard for me to use those goals as a reason to not buy things now. I think the problem is that I just like buying things too much. 😉
I have a lame thermometer chart so it does, and I marked it out in weeks we get to retire so that helps. (We are up to a week of retirement so far…) It’s more solid – pizza today or a half day to retire? I can skip the pizza. I think somewhere there is a goal of how much we need to retire that we used as the savings number and converted into weeks of retirement (ie we want 20 years of retirement so that’s what we are saving toward). Even if it isn’t attainable it helps to know we are getting closer all the time. The smaller than retirement things are more fun because we reach those goals eventually and get the new thing or adventure.
I think that this is an important point. I agree that our relationship to money/saving has a lot to do with our overall goals. For us, it really has to do with a concept of “freedom”. I know it’s not very concrete at all but it is basically the idea that the less you need, the more you are free to make choices. I’m sure I never could have abruptly become a sahm if we hadn’t saved for years and weren’t already living on a single salary. It wasn’t in the plans but the freedom to choose was.
It seems that you are pretty conflicted. On the one hand, you really want to change your relationship to money but “because you know you should” isn’t a terribly good motivator. I think the suggestions about simply making some disappear and forcing yourself to live within a budget are super useful, especially if it’s something that you struggle with.
I think even Mrs FW wrote a post about how having that big goal, and fantasizing & talking about it nearly every day helps a LOT with not wanting to spend—like Mrs Future PharmD’s thermometer chart, its harder to justify spending when its taking away from something you are really looking forward to.
I like the “steal from yourself method” for retirement, since its too far away to be an effective motivator in and of itself. I am completely in love with the IDEA of financial freedom, but not enough to not spend to make things easier or more enjoyable today. So I just put it in their automatically.
More recently I’ve started putting certain amounts aside for specific plans (a trip, a home repair). I know you wrote recently about wanting to fix up the house—would starting a savings account for that goal help? You could raid that for an emergency if you need, but if not, you can see that money grow a little at a time, getting you closer to your dream house.
My parents stressed from early on when I started working after college the importance of putting money away in a retirement account. I didn’t make enough money in my first two jobs out of college but for the year that I worked for my parents (prior to law school) I was living with them rent-free so 60% of my paycheck went towards retirement. I realize that doesn’t help you but it was a great way to start my retirement account. Nowadays my company matches up to 5% of my paycheck so I have 5% of my salary go straight to my 401K. When my daughter was born my parents started a 529 plan for her and we put in $50/month. It’s not much but hopefully because we started it right after she was born (and my parents put a lump sum in every year) it will cover at least some of her tuition no matter where she goes.
I know that you feel like retirement and 529s are not worth it because you feel behind but if you start saving now (even if it’s just 5% of your salary), then the money has time to grow in the account. It’s better to put even just a little in then nothing at all.
As far as a financial goal for us? We would like to sock away enough money to do a big renovation on our house. I don’t see it happening for a very long time because even though we are putting $300/month towards this magical account, we still have IVF drug costs on the horizon, possibly having to get a new car to replace my car, and if we are able to have a second child, paying for two kids in daycare (gulp). Sooooo it will probably never happen but it’s a nice dream.
This is very top of mind for me right now because we just had “the money talk” this week (3 things, actually). My monthly spend is high, but 100% justified (gas, groceries, bills, kids clothes, activities). We looked closely at it and hottie agrees there’s nothing to do about mine. His monthly spend is another story. Technology, big lunches out, post work drinks, date nights, etc. He’s toning down his spending stat, including reducing date nights for us.
Then we looked at money in/money out per month. Hottie does not do the finances but made a very bad financial decision with his check that hit us hard. Out of his control was a pay structure change that delays a big amount of money in pay until the end of the fiscal year (Sept) – which had been paid out quarterly before. Here’s where his bad decision came in. They have a stock purchase plan that he can setup automatic payments to from his check. In an attempt to “save more money” he did that, at the same time his pay structure changed. The pay structure cost us several hundred dollars per month and his stock plan cost us even more hundreds of dollars per month. The reason I’m telling you this is this: He tied up hundreds of dollars per month in a stock plan that we can’t access for at least a year! So his “savings plan” locked the money away even in emergencies. He’s maxing his 401k as well so he has literally tied up a lot of monthly money that we cannot access without paying serious penalties. When I explained this to him last night (remember, he doesn’t do the finances!), he was so mad at himself for putting us in this position. I tried explaining this all when he did it, but he couldn’t imagine the impact. Now he sees it. Between his pay structure change, his stock purchase plan, and the 401k, we are borrowing from savings monthly when we don’t have to be.
So as you’re deciding how much to deduct automatically into this or that account, please make sure you keep it accessible or you’ll cause more stress for yourself. Once you’re used to that monthly loss in spending, then tie it up in a 401k or investments. But allow yourself time to adjust before locking it away!
Good luck!
THANK YOU for relaying this. I was feeling super gung-ho about upping my contribution considerably and then I thought maybe I should practice with a certain portion of it by putting in a savings account I can access if I need to. Reading this comment helps me know which is the right choice. 😉
All Your Worth I think does the best job of thinking about how to set those percentages for the different kinds of saving/spending.
It was super helpful to have specific percentages in mind moving forward. Super, super helpful. Thanks!
I wouldn’t recommend fear as an incentive but I know many retirees (in my extended family) and I can just see the difference between those who planned and those who didn’t.
Other random thoughts: Even if you save a little for your kids’ college, it’s better than nothing. And yes, save for retirement first.
Don’t assume social security will be gone. I think that too many people now believe it’s not going to be there so they’re less likely to fight for it and prevent cuts/changes. Some politicians happily perpetuate this myth, I think.
I appreciate hearing that you’ve seen real examples of people who didn’t plan well enough for their retirement. I am surrounded by people who made good choices and are doing fairly well, despite the recession, so it’s important for me to hear that you’ve seen the negative effects of not putting enough away.
Once we realized children were not going to be in the picture for us, our financial goal was to pay down our mortgage as quickly as possible, and then start socking away money towards the goal of early retirement. Believe me, we were very glad we did that when both of us lost our jobs a little ahead of our planned retirement schedule. We both belonged to our workplace pension plans, thank goodness, and we’ve always tried to pay ourselves first (Karen’s “stealing from yourself” idea) with automatic transfers to our RRSPs (kind of like your 401Ks, I think), which we increased over time as we were able. Any bonuses we got at work, income tax refunds, etc., went towards paying down the mortgage, and whenever we renewed (at a lower rate — our original mortgage was 11.75% and by the end it was just under 7%), we asked to keep the payments the same (since we were already used to having that amount coming out of our account), which also helped to pay it down faster. Once the mortgage was paid off, we regularly transferred the same amount of money we’d been paying into a high-interest savings account. It all helps. I realize our situation is somewhat different from yours, because we didn’t have kids, so we did have a little more disposable income for saving/investing — but the basic principles are still the same. Start as soon as you can — the power of compound interest, etc. etc. 😉 and every little bit helps.
Have you thought about consulting a financial planner? Some will do a consultation for a flat fee, without strings attached (i.e., pressuring you to buy their mutual funds, etc.). It takes some work on your part to get together all your financial information for them to analyze, but it might be helpful in terms of finding out what you’re doing right and where you need to do some work. We had occasional sessions with investment officers at the bank looking at our mutual funds, etc., but we never actually went to a planner to look at the overall big picture until we were offered a session as part of dh’s settlement package. We thought we would still be OK to retire early — dh took some financial planning courses & is pretty good at this stuff — but it was really a relief to have a professional look at our stuff & tell us we’d be fine.
I definitely need to consult with a financial planner. I think I’ll give us a year to get things a little more in order, so I’ll have a better idea of what we can, and more importantly cannot, do and then go meet with someone. I definitely need a little professional help on this one.