Author Topic: How much money should you save by time you're 30, according to finance experts  (Read 9216 times)

marielle

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http://www.independent.co.uk/life-style/how-much-money-saved-reach-aged-30-personal-finance-expert-tips-savings-put-by-a7543136.html

"It's probably more than you'd expect"

"According to a money expert, by the age of 30 you should have six months of living expenses saved up."

Wait...what? So from 18-30 basically, you can't afford to lose your job or have any sort of emergency even once.

The number they give is 13,800 based off of average living expenses. Or $17,364.

LalsConstant

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

Linea_Norway

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http://www.independent.co.uk/life-style/how-much-money-saved-reach-aged-30-personal-finance-expert-tips-savings-put-by-a7543136.html

"It's probably more than you'd expect"

"According to a money expert, by the age of 30 you should have six months of living expenses saved up."

Wait...what? So from 18-30 basically, you can't afford to lose your job or have any sort of emergency even once.

The number they give is 13,800 based off of average living expenses. Or $17,364.

When I was 30 I was halfway paying off the mortgage on the house.
From 25 years old, my husband and I noticed that we spent quite a lot less than we earned. We hadn't discovered investing in funds yet, but after buying a house, we paid off chunks of mortgage every time we had a lot of savings.

caffeine

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

Saskatchewstachian

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

The downside to the UAW and PAW definitions in the millionaire next door is that they are tied to income, therefore a small change in income demands an immediate massive jump in NW and assumes you have been making this income for some time. But typically this makes the goals very very high, supporting your original point that yes they do set some lofty goals.

I was vehemently told this after i brought it up in a previous thread. i.e. at 25yo I have ~250NW which I think is outstanding for my age however to be a PAW in the millionaire next door formula I would need 452k.....

I wonder how they would work if you run the stats on normalizing your income to get more or less an average over the past X years then using that formula..... hmmmm may have to run these calcs to see if it's more realistic.

TheGrimSqueaker

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

The downside to the UAW and PAW definitions in the millionaire next door is that they are tied to income, therefore a small change in income demands an immediate massive jump in NW and assumes you have been making this income for some time. But typically this makes the goals very very high, supporting your original point that yes they do set some lofty goals.

I was vehemently told this after i brought it up in a previous thread. i.e. at 25yo I have ~250NW which I think is outstanding for my age however to be a PAW in the millionaire next door formula I would need 452k.....

I wonder how they would work if you run the stats on normalizing your income to get more or less an average over the past X years then using that formula..... hmmmm may have to run these calcs to see if it's more realistic.

They also use a linear model to predict what a person's wealth should be. It only makes sense once the savers are in their 50s, because once a person starts earning after school, the math dictates they should have more saved than they have earned in their lifetimes. It's one of a few flaws in Stanley and Danko's methodology; they shouldn't have used a linear model to describe a net worth that they freely admit is related to stock investment which appreciates exponentially.

arebelspy

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

The downside to the UAW and PAW definitions in the millionaire next door is that they are tied to income, therefore a small change in income demands an immediate massive jump in NW and assumes you have been making this income for some time. But typically this makes the goals very very high, supporting your original point that yes they do set some lofty goals.

I was vehemently told this after i brought it up in a previous thread. i.e. at 25yo I have ~250NW which I think is outstanding for my age however to be a PAW in the millionaire next door formula I would need 452k.....

I wonder how they would work if you run the stats on normalizing your income to get more or less an average over the past X years then using that formula..... hmmmm may have to run these calcs to see if it's more realistic.

They also use a linear model to predict what a person's wealth should be. It only makes sense once the savers are in their 50s, because once a person starts earning after school, the math dictates they should have more saved than they have earned in their lifetimes. It's one of a few flaws in Stanley and Danko's methodology; they shouldn't have used a linear model to describe a net worth that they freely admit is related to stock investment which appreciates exponentially.

It only works for the middle aged.

It's way too high for the young, and way too low for the old.

I've posted a better (exponential) formula in the past, which can be found here:
http://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-the-mustachian-milestones-for-saving/msg186849/#msg186849
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marielle

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

The downside to the UAW and PAW definitions in the millionaire next door is that they are tied to income, therefore a small change in income demands an immediate massive jump in NW and assumes you have been making this income for some time. But typically this makes the goals very very high, supporting your original point that yes they do set some lofty goals.

I was vehemently told this after i brought it up in a previous thread. i.e. at 25yo I have ~250NW which I think is outstanding for my age however to be a PAW in the millionaire next door formula I would need 452k.....

I wonder how they would work if you run the stats on normalizing your income to get more or less an average over the past X years then using that formula..... hmmmm may have to run these calcs to see if it's more realistic.

They also use a linear model to predict what a person's wealth should be. It only makes sense once the savers are in their 50s, because once a person starts earning after school, the math dictates they should have more saved than they have earned in their lifetimes. It's one of a few flaws in Stanley and Danko's methodology; they shouldn't have used a linear model to describe a net worth that they freely admit is related to stock investment which appreciates exponentially.

It only works for the middle aged.

It's way too high for the young, and way too low for the old.

I've posted a better (exponential) formula in the past, which can be found here:
http://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-the-mustachian-milestones-for-saving/msg186849/#msg186849

I like your formula better, but still seems a bit low for the typical mustachian. According to the formula it should take me nearly 10 years to save up 1x my gross income, when I could easily do that in less than two years. Even with tweaking the salary up to numbers like 150k, the time to save 1x gross stays the same, when really you should be able to save much faster at salaries like that. But all it takes is simply tweaking the exponent, a .15 instead of .075 seems a bit more realistic for me (assuming no salary increase for 10 years).

boarder42

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The Millionaire Next Door had some pretty ambitious goals for a 30 year old if you were an ultra saver as well.

The downside to the UAW and PAW definitions in the millionaire next door is that they are tied to income, therefore a small change in income demands an immediate massive jump in NW and assumes you have been making this income for some time. But typically this makes the goals very very high, supporting your original point that yes they do set some lofty goals.

I was vehemently told this after i brought it up in a previous thread. i.e. at 25yo I have ~250NW which I think is outstanding for my age however to be a PAW in the millionaire next door formula I would need 452k.....

I wonder how they would work if you run the stats on normalizing your income to get more or less an average over the past X years then using that formula..... hmmmm may have to run these calcs to see if it's more realistic.

They also use a linear model to predict what a person's wealth should be. It only makes sense once the savers are in their 50s, because once a person starts earning after school, the math dictates they should have more saved than they have earned in their lifetimes. It's one of a few flaws in Stanley and Danko's methodology; they shouldn't have used a linear model to describe a net worth that they freely admit is related to stock investment which appreciates exponentially.

It only works for the middle aged.

It's way too high for the young, and way too low for the old.

I've posted a better (exponential) formula in the past, which can be found here:
http://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-the-mustachian-milestones-for-saving/msg186849/#msg186849

I like your formula better, but still seems a bit low for the typical mustachian. According to the formula it should take me nearly 10 years to save up 1x my gross income, when I could easily do that in less than two years. Even with tweaking the salary up to numbers like 150k, the time to save 1x gross stays the same, when really you should be able to save much faster at salaries like that. But all it takes is simply tweaking the exponent, a .15 instead of .075 seems a bit more realistic for me (assuming no salary increase for 10 years).

the .15 is the tweak ARS made to that formula.  the .075 above is for normal people.

Tako

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I have one year worth of expense saved after 15 months of work and I'm only 21. Should I start over and save way less to succeed ?

arebelspy

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But all it takes is simply tweaking the exponent, a .15 instead of .075 seems a bit more realistic for me (assuming no salary increase for 10 years).

Yep, what boarder said.

If you read the post I linked to, I explain that that the first formula is for older folks, but it's different for Mustachians, saying:
Quote
My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner).  It changes the 0.75 to 0.15

I had the same tweak you did.  :)
« Last Edit: January 26, 2017, 02:30:40 PM by arebelspy »
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2Birds1Stone

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http://www.independent.co.uk/life-style/how-much-money-saved-reach-aged-30-personal-finance-expert-tips-savings-put-by-a7543136.html

"It's probably more than you'd expect"

"According to a money expert, by the age of 30 you should have six months of living expenses saved up."

Wait...what? So from 18-30 basically, you can't afford to lose your job or have any sort of emergency even once.

The number they give is 13,800 based off of average living expenses. Or $17,364.

Boy does it feel good to have 10X annual expenses saved up at 29 ;)

LivlongnProsper

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The formula I have used is (age-18)(.025)(cumulative income). This works well in accounting for lower pay in your 20s and doesn't have a large jump in expected NW based on a recent pay increase.

ysette9

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Do you mean cumulative income or average income??

Reynold

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When I was 30 I was halfway paying off the mortgage on the house.

In addition to depending a lot on how much you are making, those formulas may need to adjust for when you start earning it.  I got my first full time permanent job and house right around 30, because of doing an undergrad, M.S., Ph.D., and 2 year Post-Doc.  We saved some money before that point, but not a ton because of being students then moving then moving again after the Post-Doc.  The payoff was a fairly good salary and steady job in R&D doing something I enjoyed for almost 2 decades, and all of that up front time was a prerequisite.  Then after a layoff I was able to parlay it into an even higher paying job, so now we could easily FIRE if we weren't worried about health care costs.  Plus my current job is pretty cushy. :) 

arebelspy

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Do you mean cumulative income or average income??

If it's average income, he's only expecting you to save 2.5% per year, super low, and never earn any interest.  So he's likely meaning cumulative.

It's still a weird number to me.. if I earn 100k/yr for 5 years (500k cumulative income), he's expecting me to only have $65,500 of it saved, only 12.5%, and that's counting any earnings on the investments.  Average income obviously makes it worse ($12,500 net worth, 2.5% of my total earnings).

It seems low for Mustachians, even using cumulative.
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LivlongnProsper

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Do you mean cumulative income or average income??

If it's average income, he's only expecting you to save 2.5% per year, super low, and never earn any interest.  So he's likely meaning cumulative.

It's still a weird number to me.. if I earn 100k/yr for 5 years (500k cumulative income), he's expecting me to only have $65,500 of it saved, only 12.5%, and that's counting any earnings on the investments.  Average income obviously makes it worse ($12,500 net worth, 2.5% of my total earnings).

It seems low for Mustachians, even using cumulative.

It is cumulative. Definitely low for mustachians but it provided incentives to me when I started out making 20k/yr. Adapting it for this group would be easy- maybe 10% per year.

Metric Mouse

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When I was 30 I was halfway paying off the mortgage on the house.

I wouldn't mind being there when I reach that age. Not rushing for it, though.

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By my calculation, if you have between $100k and $300k saved up, by age 30, you don't need to keep contributing to your long term retirement.

*Assumed age 65 retirement, and typical government pensions / Soc security for seniors totaling $1500 per month or more in today's dollars starting at age 65.

arebelspy

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By my calculation, if you have between $100k and $300k saved up, by age 30, you don't need to keep contributing to your long term retirement.

*Assumed age 65 retirement, and typical government pensions / Soc security for seniors totaling $1500 per month or more in today's dollars starting at age 65.

So saving that up by 30 lets you retire at 65.  Saving up more then just moves that date in earlier. Save up enough, and you can ER. ;)

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TheAnonOne

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)

arebelspy

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)
8 years X 18k/yr. = 144k, plus gains on investment.  Tough then only if you're making 200k+ individually by 30, but I won't cry too hard for you. ;)
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Metric Mouse

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)
Yet another example of why planning retirement numbers based off of income is a terrible idea.

Playing with Fire UK

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http://www.independent.co.uk/life-style/how-much-money-saved-reach-aged-30-personal-finance-expert-tips-savings-put-by-a7543136.html

"It's probably more than you'd expect"

"According to a money expert, by the age of 30 you should have six months of living expenses saved up."

Wait...what? So from 18-30 basically, you can't afford to lose your job or have any sort of emergency even once.

The number they give is 13,800 based off of average living expenses. Or $17,364.

It looks like they took this from this quote:

Quote
Kelly Smith, a writer for The Penny Horder, told Attn: I think the goal at any age is to get to the point of having six months of living expenses saved up. Admittedly, its harder in your twenties but it is a good time to start.

Which seems to make it sounds worse (aged 65? the target is to have six months' living expenses).

Another thing is that in the UK we can't access our pension savings until the allowed age; so a lot of people wouldn't count them as savings until they were much closer to retirement.

ysette9

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The formula I have used is (age-18)(.025)(cumulative income). This works well in accounting for lower pay in your 20s and doesn't have a large jump in expected NW based on a recent pay increase.

Phew! I re-did my spreadsheet and see that I missed a decimal place originally, which led me to ask about average or cumulative earnings. I was feeling down about myself there for a moment. :)

LalsConstant

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)
Yet another example of why planning retirement numbers based off of income is a terrible idea.

Well it's just something I have heard, like always put 20 percent down on a house.

It shouldn't be hard even with a high income, I could tax shelter something like 46k a year theoretically, and someone with an SEP IRA (and if your income is that high you generally have one of these) should have lots of space.  I haven't been in the tax game for a long time but tricks from investing in low turnover index funds, tax loss harvesting, using SL depreciation, and investing in real estate can often help simulate tax advantaged space or at least they could back then.

But honestly "folk wisdom" rules of thumb will never make sense for people in the far end of the tail.  That's why I had to take classes to learn what people in that portion of the income distribution have to do differently, haha.  The marginal utility of money is one reason, ownership of high value assets complicates things, personal opportunity cost is another factor, the tax code is written for the bottom 95%, etc.

Is it not ironic I know exactly what to do with a high income despite having never earned one?

boarder42

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)
Yet another example of why planning retirement numbers based off of income is a terrible idea.

Well it's just something I have heard, like always put 20 percent down on a house.

It shouldn't be hard even with a high income, I could tax shelter something like 46k a year theoretically, and someone with an SEP IRA (and if your income is that high you generally have one of these) should have lots of space.  I haven't been in the tax game for a long time but tricks from investing in low turnover index funds, tax loss harvesting, using SL depreciation, and investing in real estate can often help simulate tax advantaged space or at least they could back then.

But honestly "folk wisdom" rules of thumb will never make sense for people in the far end of the tail.  That's why I had to take classes to learn what people in that portion of the income distribution have to do differently, haha.  The marginal utility of money is one reason, ownership of high value assets complicates things, personal opportunity cost is another factor, the tax code is written for the bottom 95%, etc.

Is it not ironic I know exactly what to do with a high income despite having never earned one?

not everyone has access to SEP IRAs if you work and have a 401k you would have to have a side gig to even use a SEP IRA but this site is focused on spending and not income for that very simple reason.  what you make only matters so much as to how much you can save over what you spend. 

marielle

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I always heard you should try to have at least your annual salary in tax sheltered investments by age 30 plus the emergency fund.  So basically it's now down to even less than that?

Granted I failed to accomplish this personally but I was an idiot.  If In could go back and slap 18 year old me that would have been entirely doable without even being THAT intense.  C'est la vie.

This is REALLY hard / impossible for high income folks. 18k a year limit makes this pretty tough, but it is hard to complain :)
Yet another example of why planning retirement numbers based off of income is a terrible idea.

Well it's just something I have heard, like always put 20 percent down on a house.

It shouldn't be hard even with a high income, I could tax shelter something like 46k a year theoretically, and someone with an SEP IRA (and if your income is that high you generally have one of these) should have lots of space.  I haven't been in the tax game for a long time but tricks from investing in low turnover index funds, tax loss harvesting, using SL depreciation, and investing in real estate can often help simulate tax advantaged space or at least they could back then.

But honestly "folk wisdom" rules of thumb will never make sense for people in the far end of the tail.  That's why I had to take classes to learn what people in that portion of the income distribution have to do differently, haha.  The marginal utility of money is one reason, ownership of high value assets complicates things, personal opportunity cost is another factor, the tax code is written for the bottom 95%, etc.

Is it not ironic I know exactly what to do with a high income despite having never earned one?

not everyone has access to SEP IRAs if you work and have a 401k you would have to have a side gig to even use a SEP IRA but this site is focused on spending and not income for that very simple reason.  what you make only matters so much as to how much you can save over what you spend.

I agree, I'm employed at a company that doesn't have a 401k or HSA. So I can only tax shelter $5500 a year through a tIRA. Unless there is something else I'm unaware of.

LalsConstant

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It's true most people don't have an SEP IRA.  All I am saying is in my experience as a tax preparer most high income people generally did.