How much should one save?

[tsptalk]

imported post

One of the first stocks I ever bought back in theeightieswas Pan Am. Who? Exactly!

They were also a cheap stock but a company I had heard of all my life. It is hard to imagine Delta going out of business but that's what I remember thinking about Pan Am. It is a risk for sure. I had mentioned to azanon that he could buy some longer term options (or leaps) if he wanted to take a shot. It is still a risk but you can minimize your potential loss by limiting your investment. Either way it is a roll of the dice. That said, if they make a big turn around, the potential for a huge gain is there.

 

[azanon]

imported post

Safer plays i'm liking now is the dow dog SBC, I like Lucent Technologies "turnaround" (LU), and i've always though nvidia is an especially strong semiconductor company, (nvda) and still reasonably priced for their strength.

Delta could eat it too, but they have massive income and if you look at quarter performances for the past few instances, the losses are decreasing and the sales are starting to rise again. They seem to be making enough income to pay their debt in the meantime. Like i said, "if" they avoid bankruptcy, its practically a given that their stock will be considerably higher than what it is now. Its aroulette table where most of the squares are red, and the house is letting you bet red, and if you win, the payout will probably be greater than double your money. but the stocks been depressed viciously (like all airline stocks) by 9/11, the war, oil prices, pilot union arguments atm, and discount airlines.

 

[azanon]

imported post

Also add in there that my PT will have 300+ bhp by year's end. I really meant, "right on your tail", so plan for some mods. {snicker}

Yeah, but what's that sucker weight? it looks huge. Acceleration is two variables: horsepower/torque and weight. Also, at high speeds, i think i'd have you on drag coefficient. As for twisties, it'd be no contest (subaru AWD, low/wide profile). The STi is a driver's dream machine. I'm also eyeing the Evo VIII too, havent decided.

only looking much cooler.

Please.... I think "gangsta" when i see one of those. I assume all those drivers have one of those 60s machine guns with those disc shaped magazines in the trunk, hehe, so i'd probably never race one as i might make the driver mad.

 

[azanon]

imported post

In your case, Az, I would pose a question to ask yourself:If you are used to consuming 90% of your income now, then what is your retirement appetite really going to be like?

It all comes down to the unknown, and the 2 million dollar question for me. I'm just not sure that I would "want" to retire if i could. I'm getting paid an insane amount of money to do mostly what I'd do for fun otherwise! So what if i save 15-20%, then hit 60 and clearly have enough to retire. Quit my job when i'm making probably 80K or more then, working 36 hrs a week doing something i love? Speak of waste - that would be waste.... To have oversaved, andcontinue working for an income I dont really need (cause the alternative is to sit and home and twiddle my thumbs), cause it'd be equally crazy to turn down that kind of money for minimal effort.

I do various extracharicular (sp) activites now, but you know what? Every single one of them are strucutured around a normal working day because..... you guessed it.... most people work. So if i end up retiring before all my friends do, i'll just end up being all by my loansome. Also, speaking of exponential, saving 15-20% might get you a very large account, but if you run the models, in reality it only buys you 5 years earlier retirement, and 10 years MAX early retirement. The exponentiality of that works both ways. So 20-30 years of living miserly just to quit 5 years early. Doesnt seem so attractive anymore does it?

Once you quit, they ain't giving you your job back. There's no undoing it.

 

[Frizz B.]

imported post

If everything goes right, I will have more money than I will need in my retirement years. So this is my plan. #1 I have 4 children and instead of waiting till I'm dead for them to get an inheritance, I plan to give them each a certain amt. of cash each year. #2 I plan to start a college fund for my grandchildred and their grandchildren. Right now I have allotted 10% of my tsp dollars to be put in the college fund should anything happen to me. When I do have grandchildren I will start them out with a $1000 on their birth, and try to contribute at least $200 on Birthdays and Xmas. So I do have a reason for my insanity. I really do not want my kids and grandkids to scrape by like I do.Hopefully I can start a trend in my family and all of my children will also contribute to the account.

 

[tsptalk]

imported post

Frizz B. wrote:

If everything goes right, I will have more money than I will need in my retirement years. So this is my plan. #1 I have 4 children and instead of waiting till I'm dead for them to get an inheritance, I plan to give them each a certain amt. of cash each year. #2 I plan to start a college fund for my grandchildred and their grandchildren. Right now I have allotted 10% of my tsp dollars to be put in the college fund should anything happen to me. When I do have grandchildren I will start them out with a $1000 on their birth, and try to contribute at least $200 on Birthdays and Xmas. So I do have a reason for my insanity. I really do not want my kids and grandkids to scrape by like I do.Hopefully I can start a trend in my family and all of my children will also contribute to the account.

I'm not sure how I feel about that. I think kids that are given money, whether through a big inheritance or for a college fund (not an earned scholarship) end upblowing it andtheyend up with a "gimme" attitude in life. It has been my experience that people I know that earned their own way in life, appreciate what they have more, including an education, and are more likely to handle money with care and respect.

I have ample life insurance for my family but not excessive.I want them to live comfortably if I die, but I don't want them hitting the lottery.

Just my opinion,
Tom

 

[thinks]

imported post

I would like to hear more about the college savings plans you have Frizz and also about the life insurance, Tom. We don't have kids yet but probably some day so that's what got me thinking now to do it at time of the birth would be the best plan. I think that would be a great plan actually, Frizz. I know someone else who's father saved money for the grandkids for college and it's a priority and something valued more than others who are assuming to go and will but it's not as meaningful, if you know whatI mean.?. For my dh and I were working our way thru college now and our growing up home lives weren't good so I guess, from my perspective when you've had it rough and hear about plans like this you can relate to how special and loving it is.Maybe Tom you've had experiences like you've mentionedso you feel it's not the best plan but I guess I've never ran into an instance like that but Iunderstand what you're saying.

 

[tsptalk]

imported post

azanon gavesome wise advice on insurance in the insurance forum. I believe he said "If it ain't term [insurance], it's a rip off...

http://www.tsptalk.com/mb/forum26/171.html

Get term insurance while you are young and it can be dirt cheap.

 

[azanon]

imported post

Yeah, i'm paying 9.86/month for a 100K dollar term policy. Yeah its small, but my wife is still young (and gorgerous), and educated so she could find another man, and i just have one child. That in addition to the death benefits under FERS.

For your child's college, i recommend what i'm doing; I have a 10-month old and i started a 529 college savings plan for him a couple months after he was born, contributing 150/month to that automatically. Its basically a stock mutual fund that functions just like a traditional IRA (federal and state tax exempt on contributions and earnings, but pay taxes in the end). To be state tax exempt though, you have to choose a 529 plan sponsored by your state.

Using what Rolo says about not wasting money, i think i'm using it effectively in that case. Much easier to just pay 150/month for 18 years, than have my son face 2022 college tuition costs and wind up having to do something drastic, like GI bill, or me going to the poor house trying to pay for it late. Considering my combined federal and state tax rate, the way I see it the Government funds 50 of that 150 just for starters.

 

[tsptalk]

imported post

azanon wrote:

I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

I thought it was interesting that today Jim Cramer at thestreet.com mentioned buying stocks that are going down. I believe he is talking about buying more shares of a stock you already own that are now selling cheaper. I'll give them a plug and hope they don't mind that I am using some of that article here...

I love to buy down. Love it. To me, it's no different from buying when something's on sale at a store. I don't look at a chart to tell me I should pay $1 for three cans of cat food. I don't need to suspect that the cat food's gone bad. I just need to think about whether I will need that cat food and whether it fits my needs. To me, three for a buck is a bargain, and I want to buy bargains. If the cat food were to go to four cans for $1, I would load the SUV up with the stuff and worry later about where to put it.

... I emphasize the empirical because so many of you seem to subscribe to some sort of dogma that says, "Averaging down is a sin." It is true that if you bought something for a trade, averaging down can be a sin. But I can't trade. I am only allowed to invest. So I presume I will get my chance to buy things cheaper, and if I don't?
Jim Cramer -[url]http://www.thestreet.com[/url]

I know this goes against William O'Neil's belief that you dump falling stocks before you have a big loss on your hands. Just thought I'd give you the other side of the coin.

 

[azanon]

imported post

That's the viewpoint i'm coming from. We've all heard buying a stock on the way down is like "catching a falling knife". Well, that may be true, but there's other things true as well. Delta went for sale on the open market in 1980! for 10 dollars a share. You can now get those exact same shares (no splits) for 6 dollars. Delta had their first flight in 1927! Also, note they had a nice, healthy, slow climb in the 80s and 90s to about 71 dollars a share.

Sure they arn't making money and had to go in debt to stay afloat, but how much different is that than a small cap who's never made a profit before, but people buy them because they hope they will someday. As Delta's CEO said in his late april address this year, the company's faced many adversities along the way that threatened the company, but time and time again they prevailed.

There are no guarantees in life, so I guess you could say life itself is a gamble. How many of us had the american dream, got a big loan, and opened up a business putting money on the line. Investing in Delta would be no different, except they've been there before, and much of what has happend is just irregular circumstance (9/11, fuel prices) than they'll just have to push through.

Still debating it, and watching the stock daily. I admit some greed on this, but it just feels right.

 

[Rolo]

imported post

azanon wrote:

Yeah, but what's that sucker weight? it looks huge. Acceleration is two variables: horsepower/torque and weight. Also, at high speeds, i think i'd have you on drag coefficient. As for twisties, it'd be no contest (subaru AWD, low/wide profile). The STi is a driver's dream machine. I'm also eyeing the Evo VIII too, havent decided.

only looking much cooler.

Please.... I think "gangsta" when i see one of those. I assume all those drivers have one of those 60s machine guns with those disc shaped magazines in the trunk, hehe, so i'd probably never race one as i might make the driver mad.

heh, it's heavy, 3305 lbs. Drag coefficient of .379 (a rounded brick). I will be replacing my suspension within a year. I am shooting for mid-to-high 13's. People expect a sports car to be fast...but a PT? muaha...it eats rice for breakfast.

'60's machine guns...hehe..."disc-shaped magazines"...hehe

You are thinking of a 1928 Thompson ("Tommy gun") with a 50-round drum, and in the Prohibition Era. Since it shoots a .45 (ouch), it's a sub-machine gun. Savvy up, G,it's a primo piece, not no coffee-and-donut bean-shooter. heh. I grew up with one, but well after the Prohibition Era.

[line]

Okay...hmm...don't wanna threadjack...kids...college...er....529 plans...reconsider, for they will effectively render your kids ineligible for grants and scholarships due to their having assets, etc. You may want to keep the funds in a regular investment account.

"The world owes me" vs. "I rose from the ashes" mentality. There is a balance to be found there. If you give them everything, much can be taken for granted and no financial lessons to learn. Give it to them, but make them earn it. That way they have drive, but not have to fend for themselves.

[line]


Yes, you may be in for a Harlem sunset by catching a falling knife, but over the long term, you could be buying on a killer dip. DAL may be at a disadvantage since it is essentially starting all over, but at a disadvantagewith a huge debt. "They did it before" but they could not stay there. Add to the mix that they have fresh, new competition. Plus, I hate flying Delta, they are never on time and their planes look like crap;they just suck and I am not alone in avoiding them whenever possible.

You could be right, but I would bet that they would be another Worldcom, stockwise, too much downside risk.

 

[azanon]

imported post

529 plans...reconsider, for they will effectively render your kids ineligible for grants and scholarships due to their having assets, etc. You may want to keep the funds in a regular investment account.

That's a myth. 529 plans are considered the parents assets, not the child. A possible reason for that is that they really are the parents assets. A 529 plan is not a trust.

Taken from collegesavings.org:

How will participating in a qualified state tuition program affect financial aid eligibility?
Any investment may impact a student's eligibility for need-based financial aid. Financial aid treatment of investments has changed through the years so it is impossible to know how assets will be treated in the future. Current financial aid formulas only include about five percent of parental assets (any investment a parent owns, including 529 savings / investment plans) in the determination of how much the family is expected to contribute to a student’s college education, each year.

Additionally, it is uncertain as to how much or what types of financial aid will be available to families in the future. But one thing is certain, a family that has made the sacrifice to save for their children’s college education typically has more options available when their children are ready to attend college.

The College Savings Plans Network is actively working with Congress to clarify the federal financial aid treatment of 529 plans, and to obtain favorable treatment of the programs.

 

[Rolo]

imported post

Ahhhh! You did consider it, then.

Now that you mention it, I do remember the information I saw did point to the vagueness of 529 plans vs. grants, etc. I'll never have kids, so I do not pay much attention to those.

 

[Frizz B.]

imported post

Rolo, you can adopt my kids as your mission in life.

On the 529's, if it does come to the pt of hurting grants, I have heard that you can name any child for this fund, and at anytime change the name to whoever you want it to go to. So if you use the youngest child or grandchild and then when the oldest is ready for college, you could change the name to that child. Have not looked enough into this, so this is just a though.

 

[azanon]

imported post

Ahhhh! You did consider it, then.

There are very, very few things i do without careful consideration. I'm not going to pay 150/month for 18 years only to later find out that was a mistake.

 

[azanon]

imported post

On the 529's, if it does come to the pt of hurting grants

This wont be a concern of mine. Any child of mine definitely wont qualify for a grant or any other needs based scholarships. One's income has to be relatively modest to qualify for these.

 

[Wimpy]

imported post

azanon wrote:

Let me tell you what will happen to you if you become a miser for your whole career; you get so brainwashed into preserving and making money, that over the years, and years turning to decades, you literally forget how to spend money, and when you do, the enjoyment just isnt there anymore. My dad's worthover 1 milin a small town. I can assure you, he hasnt the least clue what to do with it now. You dont just snap your fingers and all of a sudden your view of money changes from what it was for the past 40 years. You know, the author of "Millionairre Next Door" practically acknowledges this to be fact, with the example of the millionairre that gave back the expensive car that was a gift, simply because he could no longer even identify with it.

How much should one save?

I thought the Millionaire Next Door was a great read and I agree with most of it. My take on giving the car back was a little different than Azanon’s. The person used in that example primarily didn’t want the increased OVERHEAD (insurance and maintenance) associated with the high end vehicle. Plus, he couldn’t picture throwing his freshly caught fish in the back seat of a ROLLS ROYCE. The built in admonition, in this example, is that we need to be careful of what we give to others as gifts and also what we accept. Even though they may be getting something for free that something may end up costing them more, in the long run (increased overhead), than they can really afford. Example: giving a kid a tennis racket would incur much less ongoing overhead than say giving them an X-Box 360 requiring additional and expensive software purchases. Tennis balls are a lot cheaper and with a little sweat equity you can find abandoned tennis balls in the grass and bushesoff the court. Not to mention the side benefit of getting a little needed exercise.

Azanon and others discussed the ever elusive issue of balance. In other words, how do we dial in the appropriate tempo and intensity of our savings from a ‘balanced’ perspective…balancing current needs and wants against future needs and wants? It would naturally seem that surplus money left over after the basic necessities of life are met would conceivably be available for immediate wants or future needs and wants or some combination of all three. But the problem is…everyone has just a little bit different take on what comprises the necessities of life. Most agree that food, shelter, transportation, and clothing are the basic necessities of life, but most would disagree[/i] on what constitutes an appropriate level of quality in each of these categories. Both a pickup truck with a fully stocked self-contained overhead camper OR a fully stocked 5 bedroom 5 bathroom home with a Mercedes, BMW, Hummer, and a Vette in the 4-car garage…meet the basic necessities of life.


Most, no matter what their income levels, are living at or above their means, if the current savings rate is an accurate indicator.

I don’t think this topic can be adequately discussed without introducing ‘energy management’ into the equation. Essentially, while we are young, we convert our energies (mental and/or physical) into income for immediate or future use. As we age, the energy we have available for conversion into income becomes more susceptible to disease and dysfunction. Since the probabilities for disease and dysfunction increase as we age, a good argument can be made, as some have previously suggested in this thread, to strike while the iron is hot[/i][/b].

Another issue associated with this topic, that can’t be discounted, is ‘peace of mind’[/b]. If our ultimate goal is to have ‘just enough’ assets to carry us through to the end of this life, versus a significant surplus, how much is that going to cost us in ‘peace of mind’ knowing an event could upset the apple cart?

I would also like to know who came up with the ‘idea’ that saving and/or investing money isn’t ‘fun’? A lot of people approach saving money the same way fat people approach diets. The first 3 letters of the word diet is DIE [/b]and that is what most fat people focus on. And many approach saving money with the same negative connotation.


I would suggest a number of things contribute to that negative aura around the subject of ‘savings’ and ‘die-ts’. The first thing that comes to mind is that ‘die-ts’ and ‘savings’ are generally ‘short-term’ solutions to a longer-term problem. People don’t usually become poor or fat instantaneously. Their negative financial and/or physical condition is the result of poor choices (spending or eating too much) made over an extended period of time. To apply a short-term solution (crash die-t - wanna be skinny tomorrow; or crash savings- wanna get out of debt and be rich tomorrow) to a long-term problem causes intense feelings of pain and deprivation. I believe crash die-ts and[/i] crash savings programs can lead us away from out intended destinations. Both approaches can lead to depression and binge eating and spending patterns.

Lifestyle changes lead to a better and more predictable outcome than the ‘binge’ approach. Lifestyle changes come about as we associate a ‘positive’ versus ‘negative’ connotation to the behavior change we are contemplating undertaking. Essentially, it is a matter of what we FOCUS on. If we focus more on what we are giving up rather than what we are gaining, we tend to self-sabotage our efforts and rationalize why the die-t (food or financial) wasn’t a good idea to begin with. I’ve known people who have spent an entire lifetime of misery in the fat trading channel of ‘binge’ dieting (food or financial) and who carry enormous amounts of guilt and shame for their apparent lack of discipline or success. Both end up wrecking their physical and financial future by subscribing to the ‘no pain, no gain’, approach versus a more long-term ‘train, don’t strain’ approach.

Although I feel a good argument can be made for ‘striking while the iron is hot’, I also feel the long-term ‘train, don’t strain’ approach will prove to provide the most long-term benefit.

In the quest to determine how much to save we need to ask ourselves, “When we finish this race to the end of life, how do we want to look as we cross the finish line?” Do we want to have plenty of financial ‘kick’ left at the end or do we want to have that ‘spent’ look?

Ultimately, the choice is ours. That is what freedom is all about…choosing our own destiny. The more financial assets we have…the more OPTIONS we have. The more OPTIONS we have…the more freedom we have. FREEDOM is FUN, in my opinion.

You can have two factory workers working side by side with one being FREE while the other one remains a wage and/or debt slave the rest of their life. Again, the choice is ours…along with the consequences.


I believe saving in moderation (5-10%), especially for young families just starting out, is best…with slow and incremental increases leading up 30-40% + around mid-life and to retirement. And when I say incremental, I MEAN incremental. The increments should be less than one would normally desire so when the next raise or promotioncomes around the individual will be earnestly looking forward to raising the savings bar one more little notch. And the occasion should be celebrated.


Even in retirement I want to save a minimum of 10% (probably much more).

Last but not least, there is nothing wrong with passing a little of the FREEDOM legacy to our kids…they will certainly need it.

Everyone looks at FREEDOM a little differently and, obviously, FREEDOM isn’t for everyone. And, if everyone one was FREE, it probably wouldn’t mean as much. Ultimately, FREEDOM isn’t something that is conferred, granted, or inherited, but rather is built one step at a time with the choices we make. We can choose an overabundance of depreciating assets (diminishing fun) that limits our future options or we can choose an overabundance of appreciating assets (fun squared, in my opinion) that compound and re-generate and provide self-perpetuating options for the future. Choose your fun!

The best and most inspiring book I’ve ever read about saving was titled The Richest Man in Babylon. You can’t set this book down after having read it and not want to take action immediately, but the caution is to begin slowly and progressively. Increase the tempo and intensity as the savings muscle becomesconditioned to bear the load.


Great thread Azanon!

 

[vicky]

imported post

Wimpy wrote:

How much should one save?
.................
Even though they may be getting something for free that something may end up costing them more, in the long run (increased overhead), than they can really afford. Example: giving a kid a tennis racket would incur much less ongoing overhead than say giving them an X-Box 360 requiring additional and expensive software purchases. Tennis balls are a lot cheaper and with a little sweat equity you can find abandoned tennis balls in the grass and bushesoff the court. Not to mention the side benefit of getting a little needed exercise.
...............
But the problem is…everyone has just a little bit different take on what comprises the necessities of life. Most agree that food, shelter, transportation, and clothing are the basic necessities of life, but most would disagree on what constitutes an appropriate level of quality in each of these categories.

Not that anyone asked but all I want is a room of my own.

(BTW, in order to play tennis the country club fees can be quite high or just the expense of transport to the courts and the hourly fees.)

vicky

 

[Wimpy]

imported post

Vicky,

If you kept your receipt, the store will refund your money on the X-Box

-----------

True, country club tennis is expensive but why play there? I've always used the public park courts and our taxes have already paid for those. For the most part, we have lived within walking distance to a court...or could ride a bike or catch a bus there. I remember spending hours in the parking lot next to the local elementary school batting balls (we found at the local court)off the brick wall (when school was out of course) with friends.

Hey, if a person truly wants to economize...and still have fun...there isa way.