Savings is the foundation of good personal finance. This article will discuss how much savings to accumulate by age so you can achieve financial independence and retire comfortably. It's important to have savings targets at every age to keep you on track. When it comes to building wealth, you don't want to just wing it!
I don't want to hear excuses as to why you can't save if you want to be free. Go somewhere else please. During the height of the pandemic in March 2020, the U.S. personal saving rate rocketed above 33% from ~5%. Therefore, we can all save more if we want to.
If you are serious about living life on your own terms, study my recommended savings by age chart carefully. The more you save, the sooner you can achieve financial freedom. If you're happy with your job and OK with working until your 60s and beyond, then by all means, spend as much as you want.
Diversify Into Real Estate To Build More Wealth
In addition to saving aggressively, you must also invest aggressively in stocks, real estate, bonds, and other assets. Real estate provides the powerful one-two punch of principal appreciation and rental income growth over time. Fundrise manages over $3 billion in private real estate investments, mainly in the Sunbelt region where valuations are lower and yields tend to be higher. With the Fed embarking on a multi-year interest rate cut cycle, there should be increased demand in real estate in the coming years. I've personally invested over $270,000 with Fundrise so far.
Recommended Saving Rate By Age And Income
Your saving rate should increase the more you make. To do this, you've got to spend at a slower rate than the rate of your income increase. I'm trying to use realistic numbers here so that folks don't overly bitch and moan. I started saving 50% of my after tax income when I began earning more than $60,000, so please, save your excuses for the government instead.
Savings amounts are important, but what's more important is your expense coverage ratio given everybody has different lifestyles. In other words, how many years (or months) of expenses can your savings cover in case your income goes to zero?
Given nobody can work forever, we must increase our expense coverage ratio the older we get because we will have less ability to earn. At this point, it's time to start drawing down our savings. Let's review my savings by age chart below.
Recommended Savings By Age Chart: Pre and Post-Tax Savings Guide
Below is my recommend saving rate and guide by age. It shows how much you should have saved in your pre-tax retirement accounts (401k, IRA, Roth IRA, 403b, etc) and your post-tax investment accounts.
Sadly, the average 401k and IRA contributions are not high enough. However, you have the power to do better than average. For 2023, the employee 401k maximum contribution limit is $22,500. This is up from $20,500. Your goal should be to max out your employee contributions as soon as possible.
Your saving rate should increase the more you make. Not only should you be maxing out your tax-advantaged retirement accounts, you should also be building your taxable investment portfolios. Your post-tax (taxable) investment accounts are what will generate useable passive income if you wish to retire before 60.
I recommend everybody start off with 10% and raise their savings amount by 1% each month until it hurts.
If you've ever had braces, you get the idea. Keep that savings rate constant until it no longer hurts, and start raising the rate by 1% a month again. If you make more than $200,000, certainly shoot to save more if you can. You can theoretically achieve a 35%+ savings rate in two short years with this method!
Please note that I am making 401k and IRA contributions a priority over post-tax savings. The reasons are:
- We have a tendency to raid our post tax savings,
- Tax free growth,
- Untouchable assets in case of litigation or bankruptcy,
- And company match.
Obviously you need some post-tax savings to account for true emergencies. Ideally, my goal for everyone is to contribute as much in their pre-tax savings plans as possible and then save another 10-35% after tax.
The maximum 401k contribution for 2022 is $20,500 and for 2023 it rises to $22,500. The maximum pre-tax contribution amounts have historically increased by about $500 every two years. But it varies depending on cost-of-living adjustments and inflation rates.
Recommended Expense Coverage Ratio By Age
The below chart is an expense coverage ratio chart that follows someone along a normal path of post college graduation until the typical retirement age of 62-67. I assume a 20-35% consistent after-tax saving rate for 40+ years with a 2% yearly increase in principal due to inflation.
The other assumption is that the saver never loses money given the FDIC insures singles for $250,000 and couples for $500,000. Once you breach those amounts, it's only logical to open up another savings account to get another $250,000-$500,000 FDIC guarantee.
You can buy an 18-month CD with CIT Bank for 4.5% thanks to aggressive rate hikes by the Fed. This is one of the best CD rates today. Before 2022, 18-month CD rates were less than 1%. Check back as the CD rate is always changing.
Expense Coverage Ratio = Savings / Annual Expenses
Note: Focus on the ratios, not the absolute dollar amount based on a $65,000 annual income. Take the expense coverage ratio and multiply by your current gross income to get an idea of how much you should have saved.
Recommended Savings By Age In Your 20s
You're in the accumulation phase of your life. You're looking for a good job that will hopefully pay you a reasonable salary. Not everybody is going to find their dream job right away. In fact, most of you will likely switch jobs several times before settling on something more meaningful.
Maybe you are in debt from student loans or a fancy car. Whatever the case, never forget to save at least 10-25% of your after tax income while working and paying off your debt. If you have the ability to save 10-25% after tax, after 401k and IRA contribution up to company match, even better.
In your 20s, it's paramount to get your personal finance fundamentals right. You want to beat the average net worth for the above average person. And you will, if you save and invest aggressively for a long enough period of time. Everything is relative when it comes to finance.
Recommended Savings By Age In Your 30s
You're still in the accumulation phase, but hopefully you've found what you want to do for a living. Perhaps grad school took you out of the workforce for 1-2 years, or perhaps you got married and want to stay at home. Whatever the case may be, by the time you are 31, you need to have at least one years worth of living expenses covered.
If you've saved 25% of your after tax income for four years, you will reach one year of coverage. And if you saved 50% of your after tax income a year for five years, you will have reached five years of coverage and so forth.
Need some extra motivation to keep on hustling and saving money? Take a look at the top 1% net worth amounts by age.
Recommended Savings By Age In Your 40s
You're beginning to tire of doing the same old thing. Your soul is itching to take a leap of faith. But wait, you've got dependents counting on you to bring home the bacon! What are you going to do?
The fact that you've accumulated 3-10X worth of living expenses in your 40's means that you are coming ever close to being financially free. You've hopefully built up some passive income streams a long the way, and your capital accumulation of 3-10X your annual expenses is also spitting out some income.
The best age to retire to minimize regret and maximize life is between 41 – 45. Therefore, you should be aggressively saving more in your 40s. Your 40s is a decade when you really start to recognize your mortality. More friends and family members you know start dying. You might also have some health issues as well.
Recommended Savings By Age In Your 50s
You've accumulated 10-15X your annual living expenses as you can see the light at the end of the traditional retirement tunnel! After going through your mid-life crisis of buying a Porsche 911 or 100 pairs of Manolo's, you're back on track to save more than ever before!
You are 100% in tune with your spending habits, therefore, you raise your savings rate by another 10% to supercharge your final lap. As you get closer to traditional retirement age, you can save more in Treasury bonds which are yielding over 4% thanks to Fed rate hikes.
You want to focus more on capital preservation and not capital growth with your savings in your 50s. However, new research says the traditional retirement age can be lowered to 55. It's based on research indicating a 5% safe withdrawal rate is safe, as opposed to only a 4% safe withdrawal rate.
Recommended Savings By Age In Your 60s
Congrats! You've accumulated 25X+ your annual living expenses and no longer have to work! Maybe your knees don't work either, but that's another matter! Your nut has grown large enough where it's providing you hundreds, if not thousands of dollars of income from interest or dividends.
Full Social Security benefits kick in at age 70 now (from 67), but that's OK, since you never expected it to be there when you retired. You're also living debt free since you no longer have a mortgage.
Social Security is a bonus of an extra $1,500 a month. You're budgeting a couple thousand a month for health care as you plan to live until 100.
Regarding a more aggressive target net worth, shoot to accumulate 20X your annual gross income by the time you want to retire. By using a multiple of income, your net worth goal continues to increase as you make more money. There's no way you can “cheat” your way to financial freedom by slashing your expenses.
Recommended Savings By Age In Your 70s and beyond
Sure, you've been spending 65-80% of your annual income every year since you started working. But now it's time to spend 90-100% of all your income to enjoy life! You should absolutely be focused on decumulation so you don't die with too much.
They say the median life expectancy is about 79 for men and 82 for women. Let's just bake in living to 100 just to be safe by taking your nut, and dividing it by 30.
For example, let's say you live off $50,000 on average a year and have accumulated 20X that = $1,000,000. Take $1,000,000 divided by 30 = $33,300. You're getting another $18,000 a year in Social Security, while the $1 million should be throwing off at least $10,000 a year in interest at 1%. If you're interested in retiring early, here's a more aggressive savings strategy for you.
Important Note: Obviously no one ever knows what might happen to provide a boost or a drag to their finances. Maybe you get lucky with a great new job offer or invest in the next Apple Computer. Or maybe you get laid off at 40 and can't find work for two years. My chart above merely serves as a savings guideline. Work to build alternative income streams in the meantime.
In your 70s, you should also think about what type of retirement philosophy you want to follow: YOLO or Legacy. Personally, I'm following the Legacy retirement philosophy in order to create a perpetual giving machine after I'm gone.
Save And Save Some More!
The only way to reach financial independence and hit my savings by age chart is to live within your means. National average money market accounts are still yielding a pitiful 0.07% as of November 2022.
Don't fall pray to letting your cash sit in a savings account with less than a 0.1% yield. Look to direct, online-only savings accounts like CIT Bank's Savings Connect Account instead. Take advantage of these higher rates thanks to the Federal Reserve's aggressive rate hikes.
In fact, I keep most of my saving in high-yield online savings accounts. They prevent me from having the temptation to spend. With the Fed hiking rates so aggressively, you might as well take advantage of higher savings rates.
Think you can't save more? Below is the saving rate chart during the pandemic. Notice how the U.S. personal saving rate spiked to 33% in April 2020. It has since fallen back to trend as more Americans become more comfortable with living through uncertainty. But the point is, we can all save more when we really want to.
My savings by age chart is based on consistently beating the median savings rate of Americans. The more you save, the more you can invest and generate more passive income.
How I'm Reinvesting My Savings
For the money you are comfortable risking, actively invest the rest of your after-tax savings in real estate, the stock market, bonds, private equity and anything else that matches your risk tolerance.
Personally, I've invested $810,000 in real estate crowdfunding because I like owning real assets that produce income that are less volatile. I've invested in the heartland of America to take advantage of strong demographic trends. Valuations are cheaper and rental yields are higher.
With private real estate, it's great to earn income passively instead of having to manage tenants and work on maintenance issues. The work-from-home trend is here to stay. Technology is also only getting better.
My favorite real estate crowdfunding platform is Fundrise. They began in 2012 and are the pioneers of the private eREIT asset class. For most investors, investing in a diversified real estate fund is the way to go.
You can sign up with Fundrise and explore what they have to offer. Fundrise focuses on single-family rentals in the Sunbelt. With over 350,000 investors and $3.2 billion in assets under management, Fundrise is my favorite real estate investing platform.
If you are an accredited investor, also check out CrowdStreet. CrowdStreet offers individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and potentially higher growth. If you have more capital, you can build your own select real estate portfolio with CrowdStreet.
With high inflation, owing real estate is a shrewd move. Inflation whittles down the cost of debt and boosts the value of your real assets. Inflation also reduces the value of your cash savings. Hence, you should always be strategically investing your savings by age to at least keep up with inflation.
Both platforms are sponsors of Financial Samurai and Financial Samurai is a six-figure investor in Fundrise funds.
Diligently Track Your Net Worth
It's important to then track your investments to make sure you're comfortable with your positions. I highly recommend signing up for Empower, a free online wealth management tool. It enables you to easily monitor your finances. It's easier to hit my savings by age target with this free tool.
Before Empower, I had to log into eight different systems to track 28 different accounts to manage my finances. Now, I can just log into one place to see how my stock accounts are doing. I can track how my net worth is progressing as well.
One of Empower's best features is their 401K Fee Analyzer. It is now saving me more than $1,700 in portfolio fees I had no idea I was paying. There is also have a fantastic Investment Checkup feature that screens your portfolios for risk.
Finally, utilize Empower's incredible Retirement Planning Calculator. It uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes.
Definitely check to see how your finances are shaping up as it's free.
Savings by age charts are completely updated for 2025 and beyond. After this post, hopefully, you are no longer wonder how much savings should I have accumulated by age. If the amount of money you're saving each month doesn't hurt, you're not saving enough!
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Hi Sam, thank you for this post, I like so much.
Hi,
nice to meet you. I am new here and I am European. I really like the way wealth is treated in America. In Europe we are still a long way off, it is a subject that is little talked about.
I’m about 60 years old, I’m not rich, I don’t have millions in savings. I started working late due to personal vicissitudes. I have a RAL of 48,000 euros + bonus about 10,000 euros per year.
I have a diversified stock portfolio with a total value between profit and invested capital of currently €56,000 with a current profit of 44% Remaining invested. I also have a bond with a maturity of 7 years investing 25,000 euros. The bond has a yield of 3.8% + semi-annual coupon of 2.8% + loyalty premium if you hold the bond to maturity of 4%.
I have the severance pay (it would be like a 401k) that I have always left in the company, but I don’t know how much is the amount, maybe 20-25,000 euro.
I would like to retire as soon as possible, how could I improve my financial assets?
Thank you very much
Sam, would love to get your thoughts on Lifetime Wealth Ratio, the percentage of your savings compared to lifetime earnings (Taxed Medicare Earnings).
Hi Sam. I often find myself referring back to your valuable content over and over again! Thanks for helping me and others to realize financial freedom sooner! Are there any posts that set targets for passive income by age and/or salary? Perhaps I missed this somewhere!
Great post FinancialSamurai. Saving money can be hard for a variety of reasons, including lack of budgeting skills, high cost of living, consumer culture, low income, and unexpected expenses. To overcome these challenges, it can be helpful to create a budget, cut costs where possible, and prioritize saving money. It can also be useful to seek financial advice from a professional or to explore resources such as financial literacy courses or online financial tools. I write a lot about saving money in my blog smartsaver.blog.
thanks for this post. One question: with savings you refer only to money in investment and/or saving accounts or can it also assets like equity on real estate?
In my case im 43 years old. I was never a big earner, and I really dont have much in retirement saving accounts, or the bank for that matter. But i did invest in real estate since mid 20s (old properties at affordable prices but in good locations for rent, or, even better, locations that were going to be good, but still werent at the time of the purchase) , so if i sold my real estate assets and paid all my debts, i could live around 18-20 years eating the capital at my current spending. If we also consider the interest gains that money could generate minus inflation, then that time goes up to 27 years
The real estate equity you gain by paying down your mortgage is definitely accounts and savings. It is tappable equity.
I am very pleased I came across your blog, I am 35 years old and passionate about passive income and expanding my portfolio more
I just wanted to thank you for this wisdom.
When I finished my Ph.D., the one thing that I wanted the most was to own a supercar. I wanted all of those years of hard work and low pay to be worth it.
I got a very nice paying job doing what I love, worked hard, aggressively put in constant overtime, basically lived at the office on weekends for two years, and saved up constantly toward that goal. However, something always went wrong when I went to order a car. The first time, at one dealership, the sales associate left mid-transaction for another dealership and thus wasn’t responding to emails or phone calls. My car went to another buyer on accident. The second time, at another dealership, the sales associate couldn’t get me a build-order allocation due to the the model line being discontinued. A new model had been announced a few days after I made a deposit; I was put on a waiting list, as a result, and later had my deposit refunded since I’d be waiting about a year for a build slot.
I was furious each time, but I didn’t know that I was also severely lucky. It saved me from making incredibly bad decisions.
I later stumbled on your blog. At first, I thought that the advice was about cars and the one-tenth rule was out of touch. Then, by happenstance, I sat down with an asset manager at dinner and realized it was absolutely wonderful.
I turned all of that overtime money into a just enough of a down payment to get a house in a highly desirable area. I put in for constant overtime so that I could make substantial home improvements in short time, like adding solar panels and a whole-house battery back-up system. I then sold that house and bought property to build my own house. I downsized immensely on that next house, but, thanks to the architects I used, I was able to get more usage out of less space. The overall build quality was vastly superior too. Most importantly, I was able to pay off the mortgage in under three years. All of that overtime led to back-to-back promotions that increased my pay rate and enabled me to make large principal payments every year.
Even though life is good, I’m still driving the same car that I bought when I was in grad. school. I keep it looking new and take good care of it. I’ll likely get another six or seven years out of it.
Without a mortgage payment and a car payment, I’m currently saving up almost ninety percent of my after-tax salary and investing about eighty percent of that every year. I just put everything into a mixture of ETFs and treasuries and let it grow. I could probably save up even more, but there’s a point where life becomes too austere; sometimes, you need to live a little.
I don’t get paid a crazy amount compared to some of my peers from my lab in grad. school. I took the path of doing what I love, and basically being my own boss, versus grinding for an obscenely high paycheck. However, I can say that even with a good education, strong work ethic, and prudent spending mentality, you can easily save and invest to the point where, after about fifteen to twenty years of being patient, getting a new supercar every year is basically a fraction of the annual investment returns.
If I still want a fancy car at that time, then at least I’ll be able to truly afford it.
Hi there,
I am 26 yrs old currently saving 16.5% pre-tax in my 401k including the company match and maxing out my Roth IRA each year. The rest post-tax money after expenses I put into multiple funds for emergency, car maintainence, and investment property. My question is should I reduce my 401k contribution to the minimum so that I can maximize saving for the investment property and/or put the post tax money into a taxable account?
I don’t plan to get rich quick with real estate but I am looking to develop multiple cash flows sooner rather than later.
Why should one save money in the beginning and keep that one and only goal. Rather work hard on one’s skills do an MBA from a top ranked university and become a CEO of a decent organization and earn 5 million dollars per year in mid 40s .Also want to know why would one leave an executive level position even though he/she had achieved financial Independence as the earning potential will increase manifold as you move a level up.Is financial indepence is more valuable than a top ranked MBA or an executive level position.Your views are highly appreciated since you worked at an executive level position.
Hi. You underestimate work toll on mental and physical health. Corporate world is full of corpses in their 40s and 50s.
Also no everybody can make it to executive level salary. But most can make average wage and push savings rates high.
So yes you are right. But your 5mil wage will be reached only by couple of thousand. What about remaining hundreds of millions in USA only? FIRE applies to more general population.
Cheers
Mr Whyninetofive
Hi Sam,
I’m evaluating various online banks to park some cash. How is CIT Bank able to offer 1.5% while an outfit like Wealthfront is offering only 0.26%?
Thanks!
Pretty incredible that CIT Bank is offering a 1.5% savings rate when the 10-year bond yield is at <0.7% and the Fed Funds rate is at 0% - 0.125% right?
The answer is that each bank is different and have different needs for deposits. CIT Bank wants to attract more deposits because it probably sees more investing and lending opportunities than other banks. The spread is how banks make money.
Take advantage!
Sam, please also think of stablecoin returns (~8% these days) in places like BlockFi or Nexo. Although, harder and riskier for most people to get into.
Thanks for your amazing and thoughtful articles over the years!
Sam,
I appreciate all of the insights you share on building wealth, and hope more Americans begin taking your advice earlier in their careers. One point of yours I may disagree on is maxing out a pretax 401k first, then using what’s leftover in after tax vehicles. In my situation, I invest ~$20,000 a year, but I find it more advantageous to put $14,000 in my 401k & $6,000 (max) into a Roth IRA, since I predict I won’t always be able to contribute to a roth (Not including back door conversions). Assuming I have the discipline to not touch my roth until retirement, I find the Roth’s tax advantages to greatly exceed that of a pretax account because I will never be taxed on the capital appreciation of my investments in the roth. Can you please share your thoughts on why you think maxing our pretax contributions first is a more efficient way of building wealth than maxing out a Roth, and investing the remainder into a pretax 401k? Thank you!
Kyle
I just turned 43 today and my wife is 45. I have been married for 20 years with three kids 20, 17, 13. My wife is retired military and currently receive $6000 a month in retirement and disability. My wife still works and has a salary of $52,000 a year and my salary is $75,000 a year. We have $25,000 in savings and another $200,000 spread out in TSP’s and ROTH IRA’s. We are 2 years into a 15-Year mortgage and we pay $500 dollars extra to the principle. Our remaining balance is about $170,000.00. We have about 9 years left due to paying extra. I would like to pay it off in the 3 years. Should we pay the house off early or invest the money we would use to pay off the house. I plan to work until I am 57 where I can receive about $2000.00 a month with out taking money from my TSP and Social security a little later. I feel like we are doing O.k. and will have a comfortable retirement. We have a great start due to my wife’s Military retirement. My top priority is no mortgage going into retirement. Any comments/suggestions will be helpful.
Hi Calvin – Sounds like you guys are doing well. The pension is huge. Check out these two posts to answer your questions:
Pay Down The Mortgage Or Invest
How To Calculate The Value Of My Pension
GL!
Sam
This article is great if you take into account the !PERFECT! life scenario. By the time I was 20, I was alone and didn’t have a family. I had a good work ethic and a positive can-do attitude. However, all that doesn’t matter when a company goes bankrupt or it gets sold and your job goes with it. I never had a room-mate, and trying to make ends meet by yourself is not pretty. I never went to concerts, events, never drank coffee, never tried drugs, never smoked, didn’t go to pubs or restaurants, and never was a social drinker either. I saved, saved, and saved. Even today at age 50 I don’t have a mobile phone so I don’t have to pay for service. In my 30 working years I was unemployed a total of 11 years. Economy, buy-outs, layoffs, you name it. Now in my 50s, I have to face discrimination. I saved a total of 120k over the 30 years (or 20 actual working years). It’s not a rosy picture when you have to save your vacation days so when you get canned you can cash in your vacation time for survival. I am eyeballing moving to a 3rd world country, so I can retire with the money I saved. I don’t want to be homeless, because that’s pretty much what awaits you in the united states. And I don’t want to start a discussion with the 20-something millennials who call themselves “recruiters”. You think you have it now because you buy a new phone every year!? Well, just wait until you will be 50 and young kids will discriminate you. Remember, you did the same thing to others when you were young! Karma is right around the corner…
Hi! Great article. I would love your advice. I am a 23 year old female who has been working full time for a year after finishing undergrad. I’m about to return to graduate school for Master’s and PhD on full scholarship (thank God!). However, I’m wondering how I should move forward financially. I currently only have a checking account with a few grand saved in it and two major credit cards. The job I’m about to leave from has been taking retirement out of my check which I will have the option to obtain or I assume roll over into a personal retirement account. I have been researching Roth IRA’s which seem like a great idea for someone at my age, but also feel like I need to open a regular saving’s account…I fear I am falling behind and am unsure of what I should do to feel more secure. Thanks so much!
Hi Sarah,
Roth is a great idea b/c your tax rate will be the lowest.
Aggressively save after tax money until it hurts each month.
Build your side hustles while studying! No reason why you can’t earn extra income.
Related: Ranking The Best Passive Income Investments
Sam
Kind of ridiculous to keep working around our 70s. Life is short, and money isn’t everything.
this is only for rich people, not like me at 66 and NEVER in my life made over 20,000 a year!
20,000 is barely enough to live on, and no spending money!
Ihave 100k in savings and an income of 40k. I am 62can I retire yet?
Pay off Mortgage Principal vs After tax savings/investing?
My wife and I currently have a good situation as far as income goes. But, we aren’t doing that well in the realm of savings. We are 29 living in the Greater NYC area, we make 250-300k/yr combined, own a 2 unit house just outside of the city w/ rental income that pays for half the mortgage. Last year we bought the house (10% equity), a new roof, furniture, car and paid off the remaining 40kish of our student loans.
Unfortunately, we only have about 20k in liquid risk free assets (buffer), 50k in retirement accounts and a total net worth of about 110k. So, quite a bit lower than your target numbers. Our expenses were high last year, but hoping this year will be much lower. So, I’m trying to identify an optimal game plan to maximize our net worth. I’m assuming step 1 is to max out our 401k?
The real dilemma is whether to work towards reducing principal in our mortgage or accumulating after tax savings and investing it. Our mortgage rate is 3.625% or 4.60% APR
Benefits of Reducing Mortgage:
1. Low Risk Investment — Guaranteed 4.6% annualized return (30yr) + effects on interest and mortgage length
2. Reduces the effect of the front-loaded mortgage interest charge dramatically – No extra principal payments result in paying 82% above the principal over the 30yrs. The effects of paying down principal in the front result in approx 105% Return via lowered interest + lowered length of the mortgage.
I.e. with no principal payments the total mortgage payment over 30yrs is 722k, paying a 2k payment now reduces my overall mortgage payments by $4,412 or 120% return. Discounted to inflation of 2.5% over 30yrs is approx 105%. These returns will decrease over time…
3. Reduction in interest payments results in less interest tax benefits (small)
4. Since half of the property is a rental property, we are depreciating the asset. So, I believe we may be subject to 15% capital gains taxes on that segment despite being a live-in property. Other half will likely have no capital gains implications
5. All investments and paid principal will be into an illiquid asset.
After-tax Investing
1. Much Higher risk but also higher potential return. But, is the equity risk premium here large enough when factoring in opportunity cost of the mortgage principal reduction? Not sure @ current market levels…
2. Higher tax implications on cap-gains
3. Better liquidity if we ever needed to use those assets for something.
4. Much higher potential to spend this money at some pt.
The front-end load nature of a mortgage plays an interesting component in the decision. Solid near-guaranteed illiquid return vs Much higher risk but liquid and higher potential return….
Thoughts?
Check out this post I wrote just for you: Pay Down Debt Or Invest? Implement FS-DAIR
Enjoy!
Hi I am a 22 year old Healthcare Admin graduate with $6k in savings and about 15k in student debt (which i didn’t start paying back yet seeing as I’m going for my masters) I make about 4k a month and live at my parents house rent/bill free. I have equity; my father owns a pretty lucrative contracting business; his business provides certain benefits that i am starting to use to my advantage such as example: not having to pay for gas for my car. Should I just start dumping majority of my income in my savings and let it increase ? or should i stick to the 10-25% rule? I find that once i put it in my savings i have a less need to spend becasue (out of sight out of mind).; sometimes i find this hard because I do like to go out and have fun. I’m a bit confused. Thanks
I am 31 with about 175K in Roth IRAs currently I also own a Home that I sold on contract for deed at 6% interest that I am owed 40K in the next three years. The house I live in is worth about 90k and I owe 25k on it in debt. I recently switched jobs so I travel about 3000 miles a month in milage and purchased a new car that I could pay down but its 0% financing for 60 months so I plan to finance all 35k of that which gives my a total of 60k outstanding. What is my best option for savings in the future? I am putting about 15k into my Roth 401k annually and my house will be completely paid off in under two years at the rate of $1000 per month I am paying it currently. I have thought about creating more liquid cash instead of investing so heavily in the coming years? Is that a good option? I have about 20k currently.
This is unrealistic. 60% of Americans have less than $2000.00 in savings!
It’s not unrealistic. Just because “everyone else” chooses not to do it, that doesn’t mean it isn’t realistic. The average household income is 50k, so please tell me our the average household can’t manage to live and save at least 10% on 50k? If you can’t, you aren’t trying.
Thank you for having this website and updated posts. I turned 26 on Sunday. Looking back on my undergrad and 2 years of full time, I haven’t learned to buckle and save. Now, I am self disciplined to do so. I have to. Learning from Financial Samurai is a risk I’ll take because I believe in the concept. I earn under 50k.. SF California. New car, student loans, multiple credit cards, and bills for adult living. I will manage before 30/29.5. I just gotta get to freedom sooner!
It’s interesting seeing year end results that many investor’s have here. My returns are the results of not investing in the stock market (exited 3/09), no P2P lending (there has been a shortage of borrowers and an oversupply of institutional money to lend when i was looking into it) but i am a landlord of a couple of apartments with my brother and my own private lending (both ROTH IRA and non-IRA). Also, since i don’t invest in the stock market i no longer own any index funds or dividend paying stocks. I retired 2 years ago and am comfortably living off my earnings w/o touching my principal. Instead the principal is growing consistently nice and i comfortably believe i won’t outlive my assets. :)
2009 – 50.18%
2010 – 27.31%
2011 – 18.90%
2012 – 20.50%
2013 – 20.94%
2014 – 8.61%
2015 – 15.74
Saving 25-50% of post tax income? What planet are you on? Who pays your living expenses?
Those kinds of saving rates arent even remotely in the ballpark for the working class. Not even close. We spend 90%+ of our income just making it month to month on things like health care, groceries, and rent.
I dont mean to sound snarky, but suggestion guidelines like that totally disolve any credibility to look at this site further. Its simply not realistic for the vast majority of americans living check to check thanks to deflated wages and inflated costs of living.
Kurt,
Sorry you are struggling to get by. One of the ways I’ve challenged my readers is to work much longer than the typical 40 hours a week, and build their side hustles. Simple math states that you can make 50% more if you work 60 hours a week rather than 50% a week at the same rate.
I’ve done this by driving for Uber for an extra 10-20 hours a week during peak hours making $35/hour (and you can get a bonus after your 10th or 20th ride), and teaching tennis for 5-8 hours a week for $60/hour. When I was working full-time 50 hours a week, I’d get up at 5am to work on my site for 2 hours before going to work, and then work on it again for another 2 hours at night. 3-4 hours a day X 365 days = 1,000+ hours a year for two years until I finally built enough courage and momentum to take a leap of faith in 2012 and go out on my own.
Good things happen when you side hustle!
Please read, Income Profiles Of Financially Free People, to CLEARLY see how normal working people go on to double and 20X the income of the median household. These are all REAL people.
You can deny my credibility, but you are only denying realty that real people are hustling every day to save and make a better life for themselves. You must believe in yourself or else nobody else will.
Related: Spoiled or Clueless? Try Working Minimum Wage Jobs As An Adult
Fight on, and never surrender!
Sam
Just to point out, if you’re salaried then the “simple math” of making 50% more if you work 60 hours/week isn’t so simple – aka, it literally doesn’t happen.
Also, as I’m sure you know, to drive for Uber you need a very new car. If you don’t already have one, it makes no financial sense to buy one to drive for Uber (if you don’t believe that, go over to reddit.com/Uber and read all the math that many Uber drivers have done to dissuade others from buying cars just to drive for Uber). Teaching tennis isn’t something that a lot of working class people can do, either.
I’ve read your “Income Profiles” post and literally every single one involves ridesharing – not only is it not very creative if you’re trying to suggest that there are “many other ways” to make extra money, but I reiterate that that’s just not a financially sound option for most people.
After ridesharing, the next highest earning outside-of-work line item you have on your “Income Profiles” post is “corporate consulting related to website.” Excuse me? You think that most working class Americans can offer corporate consulting on websites in their spare time to the tune of $300-$3,750 per week? That is a very narrow skill set, how on earth is that supposed to be applicable to most people trying to break the cycle of living paycheck-to-paycheck?
Yes, you’re right that people need to believe in themselves, but don’t act like the people on your “Income Profiles” page have skill sets and cars that the average America, working-class person has.
Fight on, never surrender, and realize that the side jobs you proclaim will help the most aren’t available to help the people who need it most.
KL
Hi KL,
You’re spot-on that working 60 hours instead of 40 at a salaried job doesn’t net you anymore income. However, working those extra 20 hours in side jobs is what Sam is referring to. The ‘website related consulting’ can be anything. If you’re a ‘chef’ at Burger King but love culinary arts and have something to contribute to society then you can work to build the next allrecipes.com. That’s what Sam is saying: shoot for the stars, and commit to something you love doing that will benefit others, and you can make it a long way beyond BK.
Best of luck!
Im 21, making 47k and about 34k post tax a year. I save roughly 51% of my income(post tax), living off a total of about 14k a year. I could save more, but i decided to buy a 20k sports car, which is my hobby/passion for justifying the purchase. Before that I lived off of 8400 a year and saved 82%(post tax) of my income. Budgeting and comfortably living below your means is the key.
My numbers:
rent/utilities:475/m
phone:40/m
gas:100/m *would be 120 without the new car*
insurance(2 cars):183/m *would be 25 without new car*
food:80/m (split bill with gf, so 160 for month for both of us)
car payment:315/m *would be 0 without new car*
Misc: is not budgeted for because its negligible, maybe 16 for a movie night, and hygiene and toiletries are bought in bulk, on sale. My gf is great with coupons.
My Tips: Get a roommate to lower rent cost despite mine being set regardless of roommates.
Eat in more, and portion control, use leftovers for lunch the next day.
Have your hobby to spend fun money, just dont go crazy like i did with a new sports car.(I can afford it though and still save 51%.)
Utilize company 401ks!, I have 2 since I didn’t roll over my previous one as i liked the investment options better.
Thinking about buying something? sleep on it for a week, then reconsider. Also pull out cash to buy it, makes it harder in the checkout line to justify.
Other remarks: I am not “lucky” I have worked hard to be where I am, I have planned nearly every step of my life since I was 14. I graduated college debt free, paying my own tuition on 9 dollar an hour at a gas station. Which even on that income, I was saving nearly half. This stuff isnt impossible, its just hard to lower your living standard once youve become accustomed to a certain way of living. I dont know how you guys live paycheck to paycheck, I have always made saving a priority, and very cautious on my spending habits.
HI Jesse! I want to congratulate you on how hard you’ve worked and taken responsibility for yourself. It’s a great feeling when you know you can take care of yourself! I worked through college and post graduate school, rented in less expensive apartments, wore clothes that were used or handmade, drove a 10 year old car (my car currently is 16 years old), had a monthly food budget of $40 so that meant lots of meals at home, used the public library for movies and books etc. Fast forward 20 years, I paid off my graduate loans ($125,000 in 6 years), bought a home near the beach and have traveled around the world (including first class). It’s doable and it’s called lots of hard work and living beneath our means. I’m in my 40s and plan to retire in 10 years.
Same here. I’m blessed to have a great job and a partner who also have a great job. We are early 30s and HH income is ~$225K/yr. We live in NY metro area and work really hard to live below our means to save about 60% of our paychecks, because temptation is there to spend spend spend!! We opt to not do what we can easily afford to: live in a more desirable neighborhood, take fancy vacations, eat at expensive restaurants….instead we invested in properties so retiring in our 40s/50s is possible should we choose to. Today, we have 4 properties with tenants paying our mortgages. This might seem like a brag.. and maybe it is, but just trying to say totally doable. We graduated with crappy jobs making $$35K..worked overtime to become more marketable and worked up to higher salaries and quickly paid down our student loan.
$225K a year puts you in the top 3-5ish% of earners. Your story is not “totally doable” for most folks. In addition to what i’m sure has been hardwork, you have to have a great deal of luck as well to land in the top 3-5% of earners.
Denise:
I’m with you!
how the frack are you eating off $80 a month. That’s $20/week. Calling not doable…
That’s well less than SNAP benefits that most folks already regard as insufficient. Love to see a month of menus in your house because unless it’s 100% rice and beans there’s no way
How about tell us about yourself and your financial situation and age? Thanks
Read my post again, was split bill with gf so that would be 40 for 1 week, for 2 people.
All of our dinners consist of ground turkey, chicken, ground chickenn corn, some kind of green vegetables like green beans or brocolli. Breakfast bars for on the go breakfast or an egg something given the time. Lunch consists of one or two snacks such as cucumber and hummus or some crackers and a sandwhich. Now for a week of dinners consider the following.
Monday:spaghetti sauce,corn,noodles, ground turkey, broccoli
Tuesday:quinoa, Brownsugar, soysauce,ground turkey(your pack of ground turkey is gone now),green onion.
Wednesday:pasta, grilled chicken given whatever marinade or sauce you please, veggie.
Thursday:breakfast for dinner! French toast and turkey.
Friday:pasta(gf loves pasta)chicken stir fry
Saturday:burgers
Sunday: salad with raspberry dressing and fried chicken.
All meals have the same core things like protein, pasta, veggie. With different ingredients and recipes it can still vary a lot through the monthe.
Takes careful planning. Let me know if you have questions. As for the sufficiency of food, I’m type one diabetic and haven’t ever been hospitalized so I think my diet is okay.
Cry me a freaking river. Geez, I’m not nearly as financially independent as most here, but I busted my butt to put myself through school from 25-30 and graduated with ~60k in debt. Guess what, now I make a decent income and I’m paying it back. If you can’t manage to figure out a way out of this situation of “oh, poor me, I don’t make enough”, then it is 100% because you don’t want to. From 18-28 I worked BS entry level jobs ranging from 7.25-11/hour and the most I made in a year was 18k. Then, I, as someone who barely made anything, still was screwed by the government in taxes on income. Yet, I have managed to overcome and now I make 100k a year and have 1x savings in expenses by 31. So please just shut up.
Replying to post from: you are annoying…
I AGREE 100%. I am a few years younger than you but that is exactly the truth! Everything you said is 100% accurate. If someone doesn’t like their situation, then they need to do something different to change it. I started with a minimum wage job then worked my way to six figures after busting butt for years and being dedicated. No one gives hand outs, you have to earn things in life if you want to succeed. Glad to know there are a few of us out there… But it can be everyone if they want it. But hard work simply scares people.
Nothing Changes if Nothing Changes! Never forget that!!
Agree with your sentiment. Now wait until you have 2 kids, buy a house, get divorced, pay child support and alimony while simultaneously helping out your parents (poor retirement planners) with a six figure income! Hard work and belief are important but some luck helps as well…..
could be 50% ramen noodles and 50% rice and beans
Hey man thats awesome! I’m in a similar boat, no college debt, just paying off my car that’s all (300 a month) which is a honda btw, about a 90k net worth (half in savings rn, until I decide where to invest it) and about the other half in roth, 401k, and index funds. Worked my ass off since about 16, worked 2 years full time in cybersecurity, got laid off, now building my marketing agency for at least a year (and a few other side things). Trying to build up my passive income by the time I reach 30 so I can travel full time and work on other projects too that I’m also passionate about. I live pretty frugally, just trying to be aware of lifestyle creep, right now pretty much breaking even every month as I try to continue to build up my business. I can always get a job, not really worried about that, lol. Surprises me how many others don’t do the same, your 20’s are a time for experimentation and growth, not for sitting in a cubicle imo.
I’m laughing so hard at all these people on here like “I have a million dollars, am I good???” It’s like yes you idiots, your good and you know that. You’re just bragging. i could live off a million dollars til I die and I’m 23. You guys have no idea what it means to actually struggle (at least currently) which is great but don’t act like you’re barely going to make it. There is no type of person I hate more than the “I’m not rich, I’m middle class with two houses, new car, zero debt, 3 kids, paid off their college, have enough savings to pay off student loans 20 times over but I’m just an AVERAGE middle classer trying to live!” Guess what? bragging is annoying and you all do it far too much all while pretending to be normal like the rest if us. You’re not. Congrats but shut up.
With all due respect, you are 23 and your comments support the fact that you are not at a point where you can understand nor respect the concept of personal financial management. Unfortunately, a million dollars in investable assets (not including real-estate) would net you 40k per year in cash flow for at least 30 years of retirement. If you add up your expenses while in retirement you will quickly appreciate the fact that you will not have enough money to actually live the sort of lifestyle that you’ve become used to over the course of your 35-40 years of independent living. First off there’s medical costs which you may not have had to worry about for the balance of your 23 years of life. It’s not cheap and it’s getting to be more expensive every year. Let’s assume it’s $1,500 per month for a couple. Than there’s something else that you might not know much about and that would be long term care insurance for another 300 per month per person so call it $600 in premiums per month. That would cover the some of the costs to house you and or your wife in a long-term care facility when one or both of you get demantia. If not, you will wipe out most of your nest egg. House is most likely paid off along with cars so that leaves food, clothing, utilities and another round of taxes (20%). So @ 40k per year less 20% in capital appreciation tax that means a net take home of $2,666 per month. So, without SS that means I have $566 per month to spend on Food, Clothing, Utilities, Gas, Starbucks, Gym Membership, Golf Membership and all the other stuff that millionaires should be able to afford…(tongue in check)….Good luck on living in a van down by the river…!
It depends on what you want to do when you retire. If you want to travel a lot, still stay in your large home and do other things the way you were while working, then of course you are going to need a big nest egg.
For me, it is just myself and no debt at 58. I don’t have a large nest egg, but I think enough to survive along with SS. I plan on retiring at 62 and just enjoy doing my photography and living in my mobile home.
Blah blah blah, scrounge, save, be frugal thru your whole life, have lots of money when you’re old, lmao……spend a little, take some vacations, save at the same time, I wouldn’t go by any of these guys advise, you should, you should…I say shut up and live man, wtf lol….finally get your retirement and die in 5 yrs. reward yourself, or be a slave all ur life then when you’re old, it’s too late and u screwed yourself of real living.
Look up compounding Mr. Polo. It is the most important part of investing and it is the part that you apparently are clueless about.
JB,
Honestly I get where he is coming from. He/she may not put it in the best way but Alot of Americans barely have a few Thousand saved and some are in their 30’s. smh I was reading a few and was thinking are you serious do you know some people can’t even imagine what you have. But to each their own I guess
There are so many that are in hock and continue to spend. I started saving in my early twenties. I didn’t have a high paying job, but I saved as much as I could. I won’t have a ton of money when I retire, but I think I will have enough to survive and still enjoy life.
Madcuzyoureoutoftouch – You will realize a million is not enough as you get older. A quarter of that (and in some cases half) will not even cover medical expenses and healthcare till you pass away. At 23, you might also think having a household income of $85,000 to 100,000 in enough, but you will soon realize after you have kids, mortgage, etc. how little even $100,000 will take you.
depends on how you spend it. It’s all relative. Many people could make $100K last MUCH longer than you by the sounds of it.
I know I’m responding to an old post, but I’m seeing it for the first time. I understand Madcuz’s frustration at what seems like people bragging; but I just wanted to say that one of the good parts of a website like this is you can talk about finances honestly without bragging. What’s the point of me “bragging” anonymously to strangers?
The truth is that it is hard to talk about finances in the real world, so talking honestly about it here is important. If you tell your family or friends your income, they’ll either think (a) it’s more than they thought, and you’re spoiled/ privileged, and cheap because you don’t give them more, or (b) it’s less than they thought, and you’re not all that. People should be proud of financial success, and of the stability/ self-preservation it enables; but it is very hard to get any good vibes about financial success without lots of bad vibes. So Madcuz might not mean it that way, but responses like that are why people are financially illiterate: we can’t talk about finances without lots of heat and interpersonal unpleasantness. People who talk honestly here might be doing so because it is the only place they can use these numbers in complete sentences and get some validation that it’s OK.
To be honest, my wife has modest financial needs, coming from a graduate student/ scientist mindset, and she knows how much money I make; BUT she has never brought herself to say “good job,” and despite the fact that our needs are fundamentally modest, when I have suggested I might retire early and live off our financial assets, she shot me a worried look and asked whether we could do that and still afford to pay for our son’s school. Analytically, she’s smart enough to know we can, and I do not believe she has forgotten all I have told her about my thinking on our finances; BUT she still stresses me out because people are bad about talking about finances. So she won’t give the calm response that says “you have accomplished great things and we can totally make it work,” because it isn’t something people talk about and we frankly don’t know anybody who has retired so young (52). I come here because I want good advice. If people here think I’m totally secure, and say so; or alternatively point out risks I haven’t foreseen, then great. But forgive me, this is one of the few places I can have this discussion. (Brokers say lots of things, but they’re never quite un-biased.)
So Madcuz, please don’t try to shut people down by accusing them of bragging. This is an important place.
And BTW, a million dollars isn’t that much. If the market tanks by 30 or 40% over a few years, and your spouse divorces you, and somebody gets sick, that million is now like $200K or less. I obviously don’t talk about worst case scenarios involving divorce with my wife, but honestly at my age I’ve seen plenty of friends’ spouses just dump them (and yes, in my experience it is usually the wife who grows unhappy in middle age, wanting some kind of fulfillment her dutiful husband isn’t giving her). So with my savings invested, I know it could be 60% of that in a bad downturn, and my wife could have a breakdown and turn that into 30%. A conservative 5% draw on 30% of my investments is all of a sudden not so great, even though I thought my $1M+ in investments sounded pretty great to start. Which you thought sounded like bragging. Start with $1M, and that leaves just $300,000 in assets (ignoring legal fees, and forget about somebody getting sick, that never happens…), at 5% withdrawal rate (which is higher than people recommend long-term) that’s $15,000 a year income. $2M in assets might sound like easy street to you, but take the same scenario (market loses 40% over some bad years, then divorce), and draw 4% annually (more sustainable), and it’s $24,000 a year. I probably could (did in college/ law school), but I don’t want to live on that.
People are here to plan better than average, so we are allowed to — supposed to! — fantasize about secure, calm futures based on better than average savings and prudent investing. Don’t harsh on people who need to talk about particulars that come out in this open forum.
Million is a large number. Those that don’t have this amount far exceed those who do. And there is a great deal of boasting from braggarts in all walks of life, even here. Travel the world and open your eyes. You are wealthy, just not as wealthy as you desire.
AfterLaw:
Your’s is an excellent post … filled with truths about the difficulty of discussing finances, and the impact of that on poor levels of financial literacy.
I think we would agree that to someone with $5,000 of savings and $20,000 of debt, who earns $40,000 a year – that $1 million in savings is other-worldly.
However I would say to that person – don’t be so quick to judge someone else’s heart. As AfterLaw says, that $1 million nest egg can become really small really fast.
I would also say to that person – don’t presume to know what that millionaire’s ambition is for their savings. They may have hoped to be able to provide for children or grandchildren education. Or they may have hoped to give a substantial sum to their church or in support of missionaries. When I read some of these threads, it seems that some believe the millionaire is selfish and (frankly) some of the posts strike me as mean-spirited.
Responding to madcuzyouroutoftouch…
You are very immature and have no idea what the real world is. I am in my 20’s and make over 6 figures. I am successful and have a house, and a comfortable savings. I will be worth a million dollars early in my life, but that doesn’t mean I will simply be fine forever. Your adolescence and immaturity shows what is truly wrong with this country and the mentality of young americans and millenials. I might be young but have worked hard for everything I have and grown in the process. When you move out of mom and dad’s house and get a real life and have real bills, responsibility, and a family, maybe you will understand. I hope you have an “ah ha” moment where it clicks sooner than later. Good Luck.
Reply to macuz
I appreciate everyone’s point of view on this topic and Afterlaw was spot on in his comments that this site offers us the freedom to discuss numbers and plans that we cannot discuss with a spouse or even our financial planners (bias). My comment was not bragging or boasting to anyone but simply my attempt to connect with others in a similar life situation. I can see the end of my career but I’m not sure what that would entail. Will I need to adjust my lifestyle? Will I be required to work and how long and doing what? My goal would be to maintain my lifestyle but it’s still not clear since many of my expenses are attached to my college and high school children. As Afterlaw poignantly articulated, life happens and one would need to be prepared financially for this. Since my post, my wife and I refreshed our estate plan and wills and I’d highly suggest this exercise. I’d like to hear more from others on this board. Even the negative opinions are welcome.