Author Topic: How to Save 50%?  (Read 53323 times)

oldtoyota

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How to Save 50%?
« on: June 25, 2013, 10:54:40 AM »
How do people save 50% of gross income? From what I've seen so far, health insurance and taxes take so much out of my income that it's hard to save 50% of gross. I still have a mortgage and regular bills to pay out of the take-home pay.

I'll go back and review my numbers, because I could be missing something. Maybe I am paying too much to the tax man. We got a refund last year, which I did not expect to get. I would rather owe them money. That is one avenue I could explore.

Any other thoughts? I've cut all the unnecessary spending and taken the basic Frugal 101 steps.

Right now, we're saving a bit over 30% of gross.




Rebecca Stapler

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Re: How to Save 50%?
« Reply #1 on: June 25, 2013, 10:59:45 AM »
IDK, because I don't save 50%, but would paying down your mortgage get you to 50%?

ace1224

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Re: How to Save 50%?
« Reply #2 on: June 25, 2013, 11:03:19 AM »
no clue.  they have smaller bills or they make more money.  there is no way i could save 50% of gross, i wouldn't be able to eat or have electricity. 

Kriegsspiel

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Re: How to Save 50%?
« Reply #3 on: June 25, 2013, 11:05:33 AM »
How do people save 50% of gross income? From what I've seen so far, health insurance and taxes take so much out of my income that it's hard to save 50% of gross. I still have a mortgage and regular bills to pay out of the take-home pay.

Spend less on other stuff, or make more money.

matchewed

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Re: How to Save 50%?
« Reply #4 on: June 25, 2013, 11:06:38 AM »
Yeah I don't know how much I save relative to gross. I find it easier to calculate net. If I didn't have taxes directly taken out from my paycheck I'd probably calculate it with gross but as is it is much easier for me to ignore taxes and get a savings rate.

Other than that it's how you get to any savings rate. Optimize the big stuff and reduce the small stuff.

jrhampt

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Re: How to Save 50%?
« Reply #5 on: June 25, 2013, 11:20:22 AM »
As others have said, it helps if you focus on increasing your income.  Much easier to save 50%+ of $100k or more.  I would work perhaps on optimizing your career - certifications, continuing ed, salary negotiations, switching companies.  A combination of these worked for me.

Done by Forty

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Re: How to Save 50%?
« Reply #6 on: June 25, 2013, 11:34:49 AM »
If you are single and earn a salary above $40k, I would concentrate hard on minimizing taxes via 401k and HSA contributions as a quick win.  You get an immediate boost from avoiding/deferring what is likely a very high tax rate and, by default, you boost your savings rate when you put money in these accounts.

mgreczyn

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Re: How to Save 50%?
« Reply #7 on: June 25, 2013, 11:46:49 AM »
We didn't get to 50% until we got to 2 incomes.  Before that it was more like 10 - 15%.  Going back farther, as a singly guy my savings rate was pretty abysmal, I pretty much put money into retirement accounts and called it good.  When we did get to 2 incomes as a couple, we took steps to drastically cut certain expenses, chopping off about $1,000 per month of unneeded crap (long commute, fancy daycare vs good enough, fancy health club, fancy swim club, overpriced house).  Now, if one of us lost our job, we would be back down to 25% or so until the situation was remedied.

If I were in the position of a single person, I would do the following: Maximize income by getting as high paying job as I practically could. Then start by minimizing housing expense (typically the largest single line item) and driving as little as possible in as cheap a car as I could find and spending as little as possible on cell phone plans, food, etc.  I distinctly remember making choices as a brand new worker that, had I made other choices, would have cut my monthly expenses in half. 

As a married person, you have another person to convince on each financial cut and you both might have financial baggage (expensive cars, student loans, oversized mortgages, etc.) and lifestyle choices that could possibly be reconsidered.

dcheesi

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Re: How to Save 50%?
« Reply #8 on: June 25, 2013, 12:37:12 PM »
IIRC the savings rate calculation MMM prefers uses Gross Minus Taxes for your income. Not only does that reduce the overall amount needed to hit 50%, but it has the curious side-effect of incresing the impact of pre-tax savings. Eg. your 401k contribution might be 15% of Gross, but more like 20% of G-T.
« Last Edit: June 25, 2013, 12:39:03 PM by dcheesi »

arebelspy

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Re: How to Save 50%?
« Reply #9 on: June 25, 2013, 01:56:16 PM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved.

That was some pretty simple math even I could do it!  :D
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Re: How to Save 50%?
« Reply #10 on: June 25, 2013, 02:26:22 PM »
I have no idea, I'm getting close to saving 50% of net after taxes tho! June is my best month all year as far as minimizing expenses. Including taxes tho it's closer to 30% of gross.

In spitting distance of 'spend a third', 'get taxed a third' , 'save a third'

Spend less sounds easy enough, but if your partner isn't on board it is probably futile or you have to find a way to compromise whatever that means.

oldtoyota

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Re: How to Save 50%?
« Reply #11 on: June 25, 2013, 02:27:24 PM »
If you are single and earn a salary above $40k, I would concentrate hard on minimizing taxes via 401k and HSA contributions as a quick win.  You get an immediate boost from avoiding/deferring what is likely a very high tax rate and, by default, you boost your savings rate when you put money in these accounts.

I have the 401K covered, but I am not doing anything with HSA. I will put that on the check list for when I can next sign up.

oldtoyota

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Re: How to Save 50%?
« Reply #12 on: June 25, 2013, 02:29:18 PM »
As others have said, it helps if you focus on increasing your income.  Much easier to save 50%+ of $100k or more.  I would work perhaps on optimizing your career - certifications, continuing ed, salary negotiations, switching companies.  A combination of these worked for me.

Very helpful. Thank you!

mpbaker22

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Re: How to Save 50%?
« Reply #13 on: June 25, 2013, 02:36:39 PM »
How much do you make?
I make ~2800/month.
Housing costs average about $380/month including utilities - rent is $320/month
Food costs about 250-325/month
auto costs - 150/month
other costs are usually pretty minimal - maybe 200/month at most
That totals 1000/month.  Heck, even when I went 1000 miles away for a wedding I only spent 3/4 of my monthly income.

My typical savings rate is about 60% and that shoots up to 80% during bonus months or 3 paycheck months.
Savings rate is closer to 45% when it's my turn to pay rent and I only get two paychecks.

Having a family definitely makes this immensely more difficult, but I look forward to the days of thriving as a one income family with multiple kids.  Meanwhile, most people in my office can't get by on 2 incomes and one kid.

DoubleDown

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Re: How to Save 50%?
« Reply #14 on: June 25, 2013, 02:40:14 PM »
I think most people here and MMM calculate the savings rate as percentage of net income after whatever non-investment deductions (i.e., taxes, FICA, employer health insurance, and so on) come out of your paycheck. If 401k comes out of your paycheck, then that is added back into your savings to determine the net percentage. Same goes for principal paid on a mortgage as equity into your home.

mpbaker22

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Re: How to Save 50%?
« Reply #15 on: June 25, 2013, 02:48:47 PM »
I think most people here and MMM calculate the savings rate as percentage of net income after whatever non-investment deductions (i.e., taxes, FICA, employer health insurance, and so on) come out of your paycheck. If 401k comes out of your paycheck, then that is added back into your savings to determine the net percentage. Same goes for principal paid on a mortgage as equity into your home.

I personally do after tax savings/after tax income.  I have a lot of money saved after tax because I want access to it for a fairly near term property purchase.  It's invested, but not in retirement accounts.  I only save 17% :P of my pre-tax income (including employer match).
I'm one of the lucky few who is not only on a HDHP, but my employer pays all the premiums - not like it costs them that much.  It can't be more than $50/month for a very fit 23 year old.

Rural

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Re: How to Save 50%?
« Reply #16 on: June 25, 2013, 06:02:20 PM »
We've saved 48.1% of gross over the last three years, not counting the HSA, which should put us over 50%. But that's a percentage of two incomes. In a lot of ways, that's easy. Just live on one.

oldtoyota

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Re: How to Save 50%?
« Reply #17 on: June 25, 2013, 07:02:50 PM »
IDK, because I don't save 50%, but would paying down your mortgage get you to 50%?

Yes. You raise a good question. I pay extra toward the mortgage, and I have not been counting that as savings. Thank you for asking that!

oldtoyota

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Re: How to Save 50%?
« Reply #18 on: June 25, 2013, 07:07:46 PM »
How much do you make?
I make ~2800/month.
Housing costs average about $380/month including utilities - rent is $320/month
Food costs about 250-325/month
auto costs - 150/month
other costs are usually pretty minimal - maybe 200/month at most
That totals 1000/month.  Heck, even when I went 1000 miles away for a wedding I only spent 3/4 of my monthly income.

Is that your net income? And do you live in a place with taxes? Your rent is really low!

limeandpepper

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Re: How to Save 50%?
« Reply #19 on: June 25, 2013, 07:19:12 PM »
I estimate that I save 50% of net but not of gross. I think it makes more sense to calculate based on after-tax pay because that is the amount that you actually have control over as an individual.

arebelspy

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Re: How to Save 50%?
« Reply #20 on: June 25, 2013, 07:24:46 PM »
IDK, because I don't save 50%, but would paying down your mortgage get you to 50%?

Yes. You raise a good question. I pay extra toward the mortgage, and I have not been counting that as savings. Thank you for asking that!

The principal part of debt repayment (not the interest part) should absolutely count as savings.

Back on topic, the math is really easy.

Above I did one for 100k:
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved.

That was some pretty simple math even I could do it!  :D

Here's one for making 50k. Effective tax rate 3.2%:
Quote
If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates.
Source: money.cnn.com

Gross 50k. 1600 federal taxes. 2435 state taxes*. $20,965 spending. $25,000 savings.  50% savings rate of gross.

(*I live in Nevada, a state with no personal income tax.  Florida is similar.  Idk what you guys pay in state taxes, but googled and found the HIGHEST one is 4.87%, so I used that.  You very well may spend less, meaning you can up that spending level and still hit 50% savings rate.)

So there you go, spend between 21,000 and 25,000 per year and you'll hit a 50% savings rate of your gross salary (assuming you make 50-100k).  If you make less, you can spend a little less, but probably not that much as you'll go to paying no taxes to getting a tax refund that helps that savings rate.

The question in the OP seems to me to be a straightforward math question, but perhaps I'm thinking too engineer and misinterpreting it.

Is the question supposed to be more like "how can I cut my expenses to actually live on 21-25k per year"?  Or...?
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oldtoyota

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Re: How to Save 50%?
« Reply #21 on: June 25, 2013, 07:40:39 PM »

The question in the OP seems to me to be a straightforward math question, but perhaps I'm thinking too engineer and misinterpreting it.

Is the question supposed to be more like "how can I cut my expenses to actually live on 21-25k per year"?  Or...?

You ask a good question. After reviewing my numbers tonight, I think I have a three-part issue--or three parts to consider.

1. My mortgage (I was not counting the extra I pay toward the mortgage as savings).
2. I do not take home 50% of *my* gross pay so saving 50% is not possible. (I can count the 401K contribution toward savings obviously. However, that still leaves me paying Mr. FICA, Lady Health Insurance, and Lord Tax Man.)
3. I could bundle my salary with the spouse's and maybe could get to 50% overall. I have to look at those numbers later.

Soon, I will also have train fare withheld so that I can use pre-tax dollars for when I need transportation.

On the expense side, I've whacked clothing, restaurants (except for $150 for a recent vacation), eating out for lunch, metro parking, the newspaper subscription, the land line, and reduced the mobile phone expenses. All of that will go into savings.

Because of the expense reduction, I can probably increase my savings at least 5%. I'm going to keep looking at this to find a solution.

I appreciate everyone's help so far! =-)






Dynasty

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Re: How to Save 50%?
« Reply #22 on: June 25, 2013, 10:31:14 PM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved.

That was some pretty simple math even I could do it!  :D

Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.

imustachemystash

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Re: How to Save 50%?
« Reply #23 on: June 25, 2013, 10:53:06 PM »
We are doing it by choosing to live in a small condo in an expensive city.  Our housing costs are lower and the salaries are higher.

arebelspy

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Re: How to Save 50%?
« Reply #24 on: June 25, 2013, 11:00:39 PM »

The question in the OP seems to me to be a straightforward math question, but perhaps I'm thinking too engineer and misinterpreting it.

Is the question supposed to be more like "how can I cut my expenses to actually live on 21-25k per year"?  Or...?

You ask a good question. After reviewing my numbers tonight, I think I have a three-part issue--or three parts to consider.

1. My mortgage (I was not counting the extra I pay toward the mortgage as savings).
2. I do not take home 50% of *my* gross pay so saving 50% is not possible. (I can count the 401K contribution toward savings obviously. However, that still leaves me paying Mr. FICA, Lady Health Insurance, and Lord Tax Man.)
3. I could bundle my salary with the spouse's and maybe could get to 50% overall. I have to look at those numbers later.

Soon, I will also have train fare withheld so that I can use pre-tax dollars for when I need transportation.

On the expense side, I've whacked clothing, restaurants (except for $150 for a recent vacation), eating out for lunch, metro parking, the newspaper subscription, the land line, and reduced the mobile phone expenses. All of that will go into savings.

Because of the expense reduction, I can probably increase my savings at least 5%. I'm going to keep looking at this to find a solution.

I appreciate everyone's help so far! =-)

I would count your spouse's income and your 401k contributions.  I don't personally count principal repayment, but I can absolutely see why one can (and I'd probably lean towards should, I'm just too lazy to).

Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved.

That was some pretty simple math even I could do it!  :D

Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.

You must have missed the post where I did the math with a 50k income.  You'd need to live on about 21k in that case instead of 25k.  It works out to be very similar.  I suspect it's the same if you make less than 50k as well (as long as it's not drastically less),  because then you're getting a tax refund instead of paying taxes, which helps.

Although we can complainypants if you'd like.  :)
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Re: How to Save 50%?
« Reply #25 on: June 26, 2013, 04:05:49 AM »
There is always a way, if you make it a priority.  Eliminating stuff sure helps, starting at the top - homes, vehicles, etc.  If you can eliminate debt payments and insurance payments you can do pretty well. A buddy of mine lived in his office at the university for a while to economize.   He was probably earning $20,000 and saving 70%.

nktokyo

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Re: How to Save 50%?
« Reply #26 on: June 26, 2013, 04:28:11 AM »
If you had a lower mortgage relative to your income then it would be possible. You've got a fixed floor on your costs it seems tho so I would look at your income.

matchewed

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Re: How to Save 50%?
« Reply #27 on: June 26, 2013, 05:47:53 AM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved.

That was some pretty simple math even I could do it!  :D

Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.

Yeah like some people make less than half a 100k income and still make it work. Like myself. All it takes is a more stringent decision on need/want. Living on 20k or less is actually quite easy. And no I do not live in a dual income house. It's called roommates and conscious spending.

oldtoyota

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Re: How to Save 50%?
« Reply #28 on: June 26, 2013, 07:23:25 AM »
There is always a way, if you make it a priority.  Eliminating stuff sure helps, starting at the top - homes, vehicles, etc.  If you can eliminate debt payments and insurance payments you can do pretty well. A buddy of mine lived in his office at the university for a while to economize.   He was probably earning $20,000 and saving 70%.

My only debt is my house, and I have to pay insurance on it since I have a mortgage. =-) Most likely, I won't get rid of insurance, though I'm curious to see what plays out with Obamacare and the exchanges.


mpbaker22

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Re: How to Save 50%?
« Reply #29 on: June 26, 2013, 07:39:16 AM »
How much do you make?
I make ~2800/month.
Housing costs average about $380/month including utilities - rent is $320/month
Food costs about 250-325/month
auto costs - 150/month
other costs are usually pretty minimal - maybe 200/month at most
That totals 1000/month.  Heck, even when I went 1000 miles away for a wedding I only spent 3/4 of my monthly income.

Is that your net income? And do you live in a place with taxes? Your rent is really low!

Net income.  I make ~50K before taxes.  50K is the number on the company provided sheet listing the gross (raw) income.
I have the advantage of not supporting a family currently, so I split rent with a roommate. Actual rent is $640 for two people.  Tis the advantage of being single.  Part of my inspiration for following MMM is the realization I wouldn't be able to support 4-6 people (or more) living like a "normal" person, and that's why I emphasize single.


Quote from: DoubleDown
Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.
You could break this down several ways.  I believe median income for an individual is in the low 40's, so close to half make 50K.  Among college grads, median is in the 60s, so most actually make more than 50K.  Median household income is in the 60s, so most families make 50K+, and individuals in a large portion of the MMM audience make 50K.
So, most people don't make half of 100K, but most households make a fair amount over 100K.

matchewed

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Re: How to Save 50%?
« Reply #30 on: June 26, 2013, 07:47:20 AM »
Also we're looking at the big ticket items such as mortgage and insurance but this goes for all things. Controlling your expenses is a huge portion of the equation. People are frequently unwilling to tackle this area of their lives as alternatives seem suboptimal. Which it just depends on your priorities. If FIRE is a priority then you will find a way to minimize expenses that matter less to you, you will analyze what costs you money and whether it is worthwhile to spend that money. If you're looking at your consumption and it is over 50% gross income and you're unwilling to change things then you will never get to 50% gross savings.

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Re: How to Save 50%?
« Reply #31 on: June 26, 2013, 09:12:04 AM »
Quote from: DoubleDown
Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.
You could break this down several ways.  I believe median income for an individual is in the low 40's, so close to half make 50K.  Among college grads, median is in the 60s, so most actually make more than 50K.  Median household income is in the 60s, so most families make 50K+, and individuals in a large portion of the MMM audience make 50K.
So, most people don't make half of 100K, but most households make a fair amount over 100K.

The median HOUSEHOLD income in the US is just about $50k so that means half make more than this and half make less - so I wouldn't qualify this as most make $50k plus - only half do.  But the MMM audience as you note is probably higher than US figures.

LalsConstant

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Re: How to Save 50%?
« Reply #32 on: June 26, 2013, 09:17:06 AM »
This is actually a really good topic and I've been trying to figure out an elegant way to ask it, and this is it.  It just seems like most of the people who achieve FI in any form have a much higher income from a salaried 9 to 5 job than I do for about ten years of their adult life.

I'll always try to earn more money, I went back to school, etc.  It has gotten so much better for me, I am not complaining.  I used to think I'd work until I died.  I now realize if I go on like I currently am, if everything comes up roses I could be retired as early as age 52.  In a more realistic scenario where I lose my job, etc. I should at least be able to manage the "standard" 65ish age.

That isn't great, but for someone who just four years ago seriously thought it wasn't ever going to be a possibility in his lifetime it's hard to explain what a paradigm shift it is for something to go from impossible to possible.  I don't know how to explain what an epiphany this was that your personal efforts really do matter.  The problem is shifting to that next paradigm, really being able to say I'm working toward FI, where it's not just possible but plausible to retire, is very hard. 

In my real life examples, I'm projecting something that can't happen for at least 20 years.  That's not a plan with a prayer of actually working like I think it will in the real world.  In less than two decades nearly all of my planning assumptions will be invalid.  I can't say how or when or what will fail but reality changes and lifeís not fair etc, something will most likely uncouple this plan. 

I'm not saying it's pointless to try, you've got to try because you have to position yourself for the possibility you succeed.  I just said lifeís not fair, but what if becomes unfair in your favor all of a sudden?  It could easily happen that your humble savings suddenly become a huge economic advantage or something.

What I'm saying is that projecting a general goal over 2+ decades is a life strategy, not an executable plan.  The former does have lots of benefits (there's a great deal of personal satisfaction in the effort itself), but only the latter will give you the relatively sudden lump sum of hundreds of thousands of dollars that will change your life. 

If itís not a method that will give results relatively quickly (say in ten years), itís possible nothing could ever change for you even if you feel better about yourself for at least trying.  I said before life is not fair and It can be unfair in your favor easily, but the opposite is just as true, it can be very unfair as well.  Machinations of the economy/government/unexpected medical bills/zombie viruses etc. can screw you over easily.  A twenty or thirty year effort is just flat out going to fail the vast majority of the time, the circumstances of the world change far too quickly.

And to overcome that velocity of change you need a big pile of cash all at once, and that means at least that 50 percent or better savings rate.  But I canít get there and itís aggravating,  It just seems like there's a quantum of spending just above true thriftiness that I'm stuck in due to still having to work, which prevents me from saving enough to afford a cheaper life.  I'll try to explain.

I cognitively know the answer to becoming FI is something like live in a van, but with every seemingly practical innovation I can list to get closer to the goal I run into very real not complainypants problems.  Like I can't live in a cheaper locale, I'd have no job.  I am stuck in a city for now.

It's like once you stop just throwing money away on things (like cable) cutting out more suddenly gets much harder.

And if I live in a van where do I hang my suits that I have to wear to work, I couldn't drive that van to work at my current job, etc. which makes me realize so much of my income is spent just owning things like a closet so I can make the money in the first place, and it leaves me very confused what it is I want versus what it is I have to pay to do things I want to quit doing.

For example I could slash $250 a month from my budget in transportation (dinosaur gas) costs if I didn't have my job.  Similarly I could cut my rent in half easily if I didn't rent an expensive place to minimize that dinosaur gas bill as much as possible.  These two moves alone would slash what I spend each month by roughly a third.

But that illustrates the problem perfectly, just due to having to work, I incur one expense which invites another etc.  I try to track it but itís really hard to estimate it precisely and this just makes it even harder to plan because I have to assume bigger safety margins.

Thatís another frustrating thing about reading some MMM posts, the only reason he can save money sometimes is because he already has money!  Iím not saying you shouldnít also try to have money so you can do the same thing for yourself; itís meant as an observation of the problem you have to overcome.  I have concluded the way he got there was a higher savings rate during his accumulation phase.  Itís very academic and cut and dried what you have to do but actual execution is something Iím failing at.  Itís a positively devilish chicken and egg problem.

If I could make the life I could live if I didn't have to pay to be employed the life I live now, I'd probably find my ten year plan.  But if I didnít pay the extra expenses of having a job Iíd be able to save nothing and wouldnít even have the 20+ year strategy!  It's so frustrating to be caught between a rock and a hard place.   I so want to grow the Ďstache but I wasnít born with the hair follicles.

If I simply had more income to throw into my savings the extra expenses would be a temporary item that would vanish in a decade or so and this problem wouldnít be a problem at all, but since Iím looking at a 20-30 year window all these extra expenses compound many times compared to someone looking at a 10 year window. 

If I ever get that extra money I'll rejoice but in the meantime I'm still trying to solve the problem with what I have.  I donít think itís unsolvable by any means but that doesnít mean Iím not allowed to become frustrated trying to crack it.

The information resources for doing that seem scant since everyone who manages FI and documents how to achieve it seems to not be in this lower income bracket that Iím stuck in.  I would benefit more from an FI blog by the guy who was a minimum wage McDonald's employee for 10 years and retired is all I am saying, and that statement is not meant to say MMMís site is in any way diminished because of a hypothetical thing, itís the best thing I have and Iíd be worse off without it.

It's like when I read The Millionaire Next Door, it made me realize I can "live" like a wealthy person and take advantage of the systems they've created, it just doesn't work as well because the inputs I have are so much smaller.

Two9A

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Re: How to Save 50%?
« Reply #33 on: June 26, 2013, 09:26:32 AM »
Here's one for making 50k. Effective tax rate 3.2%:
Quote
If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates.
Source: money.cnn.com

For what it's worth, those figures are absolutely amazing. If I were to earn £50k in Britain, assuming 50 weeks of work a year, the following would be taken from gross income:

Income tax: 20% between £8,105 and £42,475: £6,874
Income tax: 40% above £42,475: £3,010
National insurance: 12% for each week above £146: £81
National insurance: 2% for each week above £817: £4
Student loan repayments (taken automatically from gross): 9% above £21,000: £2,610

So net income: £37,421. Roughly.

Your taxes are so low.

matchewed

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Re: How to Save 50%?
« Reply #34 on: June 26, 2013, 09:44:56 AM »
This is actually a really good topic and I've been trying to figure out an elegant way to ask it, and this is it.  It just seems like most of the people who achieve FI in any form have a much higher income from a salaried 9 to 5 job than I do for about ten years of their adult life.

I'll always try to earn more money, I went back to school, etc.  It has gotten so much better for me, I am not complaining.  I used to think I'd work until I died.  I now realize if I go on like I currently am, if everything comes up roses I could be retired as early as age 52.  In a more realistic scenario where I lose my job, etc. I should at least be able to manage the "standard" 65ish age.

That isn't great, but for someone who just four years ago seriously thought it wasn't ever going to be a possibility in his lifetime it's hard to explain what a paradigm shift it is for something to go from impossible to possible.  I don't know how to explain what an epiphany this was that your personal efforts really do matter.  The problem is shifting to that next paradigm, really being able to say I'm working toward FI, where it's not just possible but plausible to retire, is very hard. 

In my real life examples, I'm projecting something that can't happen for at least 20 years.  That's not a plan with a prayer of actually working like I think it will in the real world.  In less than two decades nearly all of my planning assumptions will be invalid.  I can't say how or when or what will fail but reality changes and lifeís not fair etc, something will most likely uncouple this plan. 

I'm not saying it's pointless to try, you've got to try because you have to position yourself for the possibility you succeed.  I just said lifeís not fair, but what if becomes unfair in your favor all of a sudden?  It could easily happen that your humble savings suddenly become a huge economic advantage or something.

What I'm saying is that projecting a general goal over 2+ decades is a life strategy, not an executable plan.  The former does have lots of benefits (there's a great deal of personal satisfaction in the effort itself), but only the latter will give you the relatively sudden lump sum of hundreds of thousands of dollars that will change your life. 

If itís not a method that will give results relatively quickly (say in ten years), itís possible nothing could ever change for you even if you feel better about yourself for at least trying.  I said before life is not fair and It can be unfair in your favor easily, but the opposite is just as true, it can be very unfair as well.  Machinations of the economy/government/unexpected medical bills/zombie viruses etc. can screw you over easily.  A twenty or thirty year effort is just flat out going to fail the vast majority of the time, the circumstances of the world change far too quickly.

And to overcome that velocity of change you need a big pile of cash all at once, and that means at least that 50 percent or better savings rate.  But I canít get there and itís aggravating,  It just seems like there's a quantum of spending just above true thriftiness that I'm stuck in due to still having to work, which prevents me from saving enough to afford a cheaper life.  I'll try to explain.

I cognitively know the answer to becoming FI is something like live in a van, but with every seemingly practical innovation I can list to get closer to the goal I run into very real not complainypants problems.  Like I can't live in a cheaper locale, I'd have no job.  I am stuck in a city for now.

It's like once you stop just throwing money away on things (like cable) cutting out more suddenly gets much harder.

And if I live in a van where do I hang my suits that I have to wear to work, I couldn't drive that van to work at my current job, etc. which makes me realize so much of my income is spent just owning things like a closet so I can make the money in the first place, and it leaves me very confused what it is I want versus what it is I have to pay to do things I want to quit doing.

For example I could slash $250 a month from my budget in transportation (dinosaur gas) costs if I didn't have my job.  Similarly I could cut my rent in half easily if I didn't rent an expensive place to minimize that dinosaur gas bill as much as possible.  These two moves alone would slash what I spend each month by roughly a third.

But that illustrates the problem perfectly, just due to having to work, I incur one expense which invites another etc.  I try to track it but itís really hard to estimate it precisely and this just makes it even harder to plan because I have to assume bigger safety margins.

Thatís another frustrating thing about reading some MMM posts, the only reason he can save money sometimes is because he already has money!  Iím not saying you shouldnít also try to have money so you can do the same thing for yourself; itís meant as an observation of the problem you have to overcome.  I have concluded the way he got there was a higher savings rate during his accumulation phase.  Itís very academic and cut and dried what you have to do but actual execution is something Iím failing at.  Itís a positively devilish chicken and egg problem.

If I could make the life I could live if I didn't have to pay to be employed the life I live now, I'd probably find my ten year plan.  But if I didnít pay the extra expenses of having a job Iíd be able to save nothing and wouldnít even have the 20+ year strategy!  It's so frustrating to be caught between a rock and a hard place.   I so want to grow the Ďstache but I wasnít born with the hair follicles.

If I simply had more income to throw into my savings the extra expenses would be a temporary item that would vanish in a decade or so and this problem wouldnít be a problem at all, but since Iím looking at a 20-30 year window all these extra expenses compound many times compared to someone looking at a 10 year window. 

If I ever get that extra money I'll rejoice but in the meantime I'm still trying to solve the problem with what I have.  I donít think itís unsolvable by any means but that doesnít mean Iím not allowed to become frustrated trying to crack it.

The information resources for doing that seem scant since everyone who manages FI and documents how to achieve it seems to not be in this lower income bracket that Iím stuck in.  I would benefit more from an FI blog by the guy who was a minimum wage McDonald's employee for 10 years and retired is all I am saying, and that statement is not meant to say MMMís site is in any way diminished because of a hypothetical thing, itís the best thing I have and Iíd be worse off without it.

It's like when I read The Millionaire Next Door, it made me realize I can "live" like a wealthy person and take advantage of the systems they've created, it just doesn't work as well because the inputs I have are so much smaller.

You brought up a massive number of points so I'm going to boil some down. Please feel free to correct me if I oversimplify.

1) Need money to start saving money. Wrong. You need to stop spending money in order to start saving money.

2) Need to spend money to keep job/home/transportation. This is true but you get to choose how much you spend on those. You get to look for optimization now, not later, not hiding behind some thought process that this is a chicken and the egg issue. You mention in one paragraph that you've minimized your gas costs for work transportation and it is still $250 a month. I have to call bullshit on that. You have not minimized your transportation costs if you're spending that much. You can change these things.

3) Shit happens and plans change. This is also true. This is why your plan should be understood and flexible. If 10 years from now you decide to not FIRE well you'll have cash to ride out the curveballs life throws at you.

4) Scalability of MMM's ideas. Go take a look at our demographics. People of all sorts of different earning capabilities can follow these concepts. If you truly want the extreme version go check out Jacob at ERE (earlyretirementextreme.com)

5) Execution of Long Term Plans. It is possible to execute long term plans. I'm pretty sure it won't be the exact plan you thought of or wrote down twenty years prior but you can execute it.

6) Cutting out one thing makes cutting out other things harder. I don't get that. I'm not sure how that follows. You may just need to change your mindset on this.

jrhampt

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Re: How to Save 50%?
« Reply #35 on: June 26, 2013, 09:45:30 AM »
This is actually a really good topic and I've been trying to figure out an elegant way to ask it, and this is it.  It just seems like most of the people who achieve FI in any form have a much higher income from a salaried 9 to 5 job than I do for about ten years of their adult life.

I'll always try to earn more money, I went back to school, etc.  It has gotten so much better for me, I am not complaining.  I used to think I'd work until I died.  I now realize if I go on like I currently am, if everything comes up roses I could be retired as early as age 52.  In a more realistic scenario where I lose my job, etc. I should at least be able to manage the "standard" 65ish age.



I hear you...in my twenties I felt stuck in lower-paying jobs and unable to exceed mid-thirties in income.  Then I hit thirty and all of a sudden it seemed like things started falling into place career-wise as my income more than tripled over a period of 5 years.  These are the things that worked for me:

If you have downtime at work, use it.  Read tech manuals, study for certifications, get a graduate degree.  I have 2 technical certifications, 2 master's degrees, and 2 post-baccalaureate certificates from state universities - mostly paid for by employers.  Volunteer for projects that require you to attend additional training.  You never know what will turn out to be useful.

Always know what you are worth on the market.  Create a linkedin profile.  Go to lunch with a couple of recruiters to get a feel for what's going on with salaries and demand in your field.  Do at least a couple of interviews every single year, even if you don't think you want to change jobs at the moment.  Use your knowledge to negotiate raises at work or switch jobs for even more substantial raises to grow your income.

Join local and regional professional organizations in your field.  Volunteer at them, give presentations, write white papers, and present them at your own organization if the opportunity arises.  This gives you something tangible to pass on to hiring managers at interviews -- I have had questions come up and be able to offer to send them a paper that I've written and presented on that topic.  And your current manager may love this as well.  I've been able to use this in annual reviews to show professional development and knowledge contributions to other employees.

msilenus

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Re: How to Save 50%?
« Reply #36 on: June 26, 2013, 09:45:53 AM »
We are doing it by choosing to live in a small condo in an expensive city.  Our housing costs are lower and the salaries are higher.

When we were starting out, I was working in an expensive area for a company that had its main operations out-of-state in a much more normal housing market.  They were transparent about the salary adjustment they had to offer to hire in my area.  It was something like 15%, which, with the same effect for my wife added in, was big enough to park our entire housing budget in even after taxes were taken out.

But even then we weren't saving 50% of our gross.  50% after-tax is about the best I've ever been able to swing.

mpbaker22

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Re: How to Save 50%?
« Reply #37 on: June 26, 2013, 09:56:31 AM »
Quote from: DoubleDown
Most people don't make half of a 100K income.  Most households are lucky to make half of 100k.

Its not quite as easy as your math shows.
You could break this down several ways.  I believe median income for an individual is in the low 40's, so close to half make 50K.  Among college grads, median is in the 60s, so most actually make more than 50K.  Median household income is in the 60s, so most families make 50K+, and individuals in a large portion of the MMM audience make 50K.
So, most people don't make half of 100K, but most households make a fair amount over 100K.

The median HOUSEHOLD income in the US is just about $50k so that means half make more than this and half make less - so I wouldn't qualify this as most make $50k plus - only half do.  But the MMM audience as you note is probably higher than US figures.

my bad, I was giving erroneously the mean income.

Quote
For what it's worth, those figures are absolutely amazing. If I were to earn £50k in Britain, assuming 50 weeks of work a year, the following would be taken from gross income:
My taxes last year were 15-18% on ~50K income.

oldtoyota

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Re: How to Save 50%?
« Reply #38 on: June 26, 2013, 09:59:08 AM »
Also we're looking at the big ticket items such as mortgage and insurance but this goes for all things. Controlling your expenses is a huge portion of the equation. People are frequently unwilling to tackle this area of their lives as alternatives seem suboptimal. Which it just depends on your priorities. If FIRE is a priority then you will find a way to minimize expenses that matter less to you, you will analyze what costs you money and whether it is worthwhile to spend that money. If you're looking at your consumption and it is over 50% gross income and you're unwilling to change things then you will never get to 50% gross savings.

Agreed. That is not my issue, but it might be one others have.


oldtoyota

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Re: How to Save 50%?
« Reply #39 on: June 26, 2013, 10:00:45 AM »
Here's one for making 50k. Effective tax rate 3.2%:
Quote
If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates.
Source: money.cnn.com

For what it's worth, those figures are absolutely amazing. If I were to earn £50k in Britain, assuming 50 weeks of work a year, the following would be taken from gross income:

Income tax: 20% between £8,105 and £42,475: £6,874
Income tax: 40% above £42,475: £3,010
National insurance: 12% for each week above £146: £81
National insurance: 2% for each week above £817: £4
Student loan repayments (taken automatically from gross): 9% above £21,000: £2,610

So net income: £37,421. Roughly.

Your taxes are so low.

True. If we get sick, though, we're pretty much screwed. We pay a lot for health insurance and then many insurance companies don't cover "extras" like, say, radiation for a breast cancer patient. One of my biggest fears in America is getting seriously ill and having to pay for it.




teen persuasion

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Re: How to Save 50%?
« Reply #40 on: June 26, 2013, 10:06:15 AM »
Interesting discussion.  It seems that the devil's in the details.

DH & I combined gross a shade under 50K.  He's on track to max his 401k again this year, at roughly 50% of his gross.  I don't have access to a 401k, but I've been maxing Roths for both of us, so last year we saved $27k into retirement accounts.  What allows us to do this is that we paid off our mortgage in 2009, and we receive generous tax refunds that I use to fund the Roths as much as possible.  The refunds are generous because of our circumstances: MFJ, 3 kids still at home, 2 still under 17, State matches EIC at 30% and CTC at 33%, HSA.

At relatively low incomes, and with children, you can quickly reach the point of 0% fed tax w/ 401k contributions.  The more we put in the 401k, the lower our AGI, the higher the EIC.  Taxes actually add to our income, rather than subtract.  Of course, that means that our taxes can only increase in the future as our kids become adults and move out.

LalsConstant

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Re: How to Save 50%?
« Reply #41 on: June 26, 2013, 10:29:18 AM »

snip


1.  I apologize if I was unclear, what I meant to say was once you have your time back because you donít work any more, you can leverage your time and spend even less money.  Quick example: I donít mind walking an hour and a half to go to the doctor.  That means three hours of my day spent strolling about.
If I have no obligations, I can do that and get some exercise etc. in the process.
On a day when I have appointments at 9, 11, 4 and 6, itís not practical.  Iím realistically going to have to drive, spending more money.
What I do instead is either try to go to the doctor on a day I have such free time, or if thatís not possible I think of other things I can do on the drive to and from there to make the most economy of the expenditure.  I also drive in a very particular way to use as little gas as possible, pre plan the route for efficiency, etc.  But thatís not the same as being able to avoid spending in the first place.
2.  I do not control the price of gas.  I have limited influence on what sites I have to work at (I can make some requests but itís not even in my managerís control, the law dictates where I have to go ultimately).
$250 is $160 for fossil gas, $40 for insurance (yes my insurance is expensive, I rate shop every May though and this is as good a deal as I can currently find), $5 to cover the fees associated with the vehicle (my state requires registration and safety inspection), and the remainder is divided among planned maintenance like tires and oil with a small amount saved for unexpected problems.
I donít spend the full $160 every month, however what I donít spend I save because in some months I have to drive a lot more and that consumes most of this ďsurplusĒ, I sort of ďhedgeĒ the expense this way.
Itís worse still because I have to bookmark about $200 of month of my current savings to be able to replace my 11 year old car when it fails (to be clear I would just drive this same car forever  if not for the fact it will fail at some point and it will make financial sense at some point to buy a newer model with better fuel economy). 
If you can optimize this more now please tell me how I take absolutely no pleasure in spending this money.
3.  I agree but thatís not the problem Iím having at all.  I wish I had this problem!
4.  ERE is what got me started on this whole thing, and really Jacob is a better example of why what Iím saying is true.  Jacob, if you look at it carefully, lived as cheaply as he could near his job for about ten years and then used the big pile of money he ďsuddenlyĒ had to go buy an RV and live the life of Reilly.   As he continued this experiment he found even more ways to spend less because he had lots of time and no need to continue to pay expenses to earn income. Having a lot of money amass in a short period of time is the key and Jacob made at least twice what I do now in absolute terms and even more if inflation adjusted.  If youíre somehow trying to argue with anything Iíve said you picked the worst example.
6.  So all expenses are, for lack of a better word, fungible?   I simply cannot agree.  For example three years ago (itís different now) I discovered changing my health insurance to get a much better rate saved me $100 a month,  you seem to be saying I should save yet another $100 a month by getting rid of it.

jrhampt thatís inspiring you are able to accomplish so much, like I said Iím always trying.  Iíve got my masterís and Iím working on a certification that could help (rather I will be soon once my current assignment ends).

matchewed

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Re: How to Save 50%?
« Reply #42 on: June 26, 2013, 10:41:53 AM »
Yes once you FIRE your expenses will likely drop. That is corroborated with general knowledge and from what I've read on other ER forums. But as for your example about appointments, you chose to have those appointments at that time. Do not blame the driving on the fact the appointments are at those times, blame the driving on your choice (i.e. you) to have appointments at those times.

You do not control the price of gas but you do control the method of transportation or the fuel efficiency of your car. Do not blame the high gas bill on external factors out of your control (this will be a theme). Look at what you can control. Can you find a more fuel efficient form of transportation?

The point about Jacob is that Jacob didn't point at all the things around him talking about how unavoidable it all was. He did something. Those somethings can work for any income range.

No not all expenses are fungible. I'm speaking directly about the section where you say

It's like once you stop just throwing money away on things (like cable) cutting out more suddenly gets much harder.


This is purely a mental thing. Yes there will be some expenses where you have reached an optimization limit. But cutting cable does not make evaluating your food expenses harder.

velocistar237

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Re: How to Save 50%?
« Reply #43 on: June 26, 2013, 12:19:47 PM »
For reference, here are ERE Jacob's salaries (from a comment in this post):
Age 24-28, $20K (this one is net; I don't know whether the others are net or gross; equivalent to ~$28K today)
Age 29-31, $41K
Age 32-33, $69K

He lived on $7K/year (at first, he was single, then he had separate finances from his wife; he always had a roommate). At the end, he had more than $250K, which was enough for an ultra-conservative 2.8% withdrawal rate.

The way to have an ultra-high savings rate is to value early retirement more than anything that conflicts with early retirement, certainly more than your current living situation if you have a lower savings rate. The degree to which you can increase savings rate is the degree to which you're willing and able to make changes. Move to a worse neighborhood, take a worse job for higher pay, stagger schedules with the spouse to add income without adding childcare expenses, etc.

I only have about a 50% savings rate (of net, naturally). If I wanted more than anything else to retire as early as possible, I would move to Dallas or Houston, get any training I needed, get the highest paying job possible, and live in a small apartment. The combination of a well-paying job and low cost-of-living would push me to 60-80% net. I'm not willing to do that, but I could. Most if not all the people here also have the capability, but just like me, some of them value something else more. It's okay to value other things more, but it's helpful for your decision making to realize that it's often more a matter of priority than capability. Then it goes from "I can't" to "I don't want to right now because of my priorities, but if I think carefully, over time I'll be able to cut expenses and raise income while still honoring my priorities, which may themselves change."

jrhampt, I like how your post illustrates that these things can take a while. It helps to know that to not get discouraged by your current circumstances.

LalsConstant

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Re: How to Save 50%?
« Reply #44 on: June 26, 2013, 02:18:43 PM »

 snip


I find your comment I choose to do these things a bit amusing, while ultimately itís true I have choices in life, day to day I canít control everything.   I get appointments like this:

Boss: LalsConstant, you have an appointment at 9 next Tuesday.
Me: Thanks Boss!  Iíll be there at nine!

The very idea I have control over this is slightly amusing.  Now I think what you mean is in the big picture I do because I can quit or whatever which is a fair point but kind of not helpful, I'm doing what I know to be the best I can do at this point already and it comes with bad I can't extricate from the good like anything else in life.

Now for what itís worth I am at this job because itís the best thing for me right now and for at least another couple years in all likelihood.  I do want to move to a different place that would negate a lot of my problems and I keep my eye open but for now I bide my time.  So perhaps one day this will not be an issue.

As for more fuel efficiency, Iíve considered and rejected the following:

Bicycle Ė You remember the MMM post where he talks about being a clown living in the middle of a NASCAR track?  I have a situation about like that, I am the clown.  I have to cross a body of water to get to most sites including the main office, and the bridges donít facilitate pedestrians or cyclists.  To be fair the city is building a bridge for this purpose and I will re evaluate my options at such time this is complete. 

Off topic:  Someone broke stole my bike recently, totally unrelated but Iím still so sore about it.  The theft of electronics is one thing but taking a manís bike is so personal.

Motorcycle/Moped/Scooter etc. Problem is I often have to transport equipment, records, and other people.  Using a car alternative is challenging, if itís just my laptop thatís just fine but if I need to bring any devices like a scanner or a bunch of manuals etc, itís a problem.   

Some of these things actually have pretty good cargo capacity however, itís not off the table but it would be extremely socially stupid to ask my managers to ride bitch in their suit if we have to go somewhere.

Bus Ė I could feasibly get to and come back from the main office using the bus.  Itís actually a rather nice situation there as the bus stops .5 miles from the office and I can get on the bus 1.9 miles from where I live, and according to the diagrams I could find the round route it takes would get me to work in about 25-30 minutes.  That is posh.

The problem is all the stuff in the middle of the day; itís quite common for plans to change and I suddenly have to be somewhere else that day but this does vary quite a bit depending on current assignment. 

The other problem is we are supposed to drive every day (itís a condition of employment), however complaints were filed about this.  Management changed its position to say you drive every day unless you get written permission not to and itís project dependent whether you can even ask or not.  I currently mostly do projects where you canít, and the one I had where you could was for a short time but it involved going somewhere the bus doesnít constantly. 

I have found the loophole in the system however is carpooling,  I exploit the hell out of that, but due to our constantly rotating assignments itís not as good as it could be.  It's better than nothing though.

As for what you meant about cutting expenses in one category vs. another, I understand that X is not Y, but thatís not my problem.  My problem is that first you can cut all the stupid stuff you donít even need, thatís easy.  But whatís left is harder and slower to reduce.   I even agree itís a mental thing but that doesnít mean itís trivial. 

Food is a great example since you mentioned it.   I donít pretend Iím 100% there on food yet by any means, but even once I get to my goal it will only be a 1.5% improvement in my savings rate, which is AWESOME! but  far less than what I could save if I cut that $250 of transportation expense out of my budget!
Earning that 1.5% will be tough and not fast.   I am STILL learning new things about food to spend less on it, STILL learning new foods and how to prepare them (lentils being the latest thing Iím trying).  I know for a fact I can do better and I will do better but Iím just not there yet because it just takes time and effort. 

This is all in my head, absolutely.  But I don't have a wand to wave to make it any different or better, just consistent drive over time and a want to change.

If I think about it in a linear manner, perhaps in 2-3 years Iíll get that where I want it.  So letís call that a 0.5% improvement per year.  The problem I am experiencing is that to get to this point, I cut things down at a rate that improved things by 2.5 percent per year!

Going from broke to 5 percent savings was tremendously hard.  I had to really change things.  Most people donít understand what thatís like.  Going from 5 percent to 20 percent was a joy, in fact it was easy.  But pushing further has just gotten really hard, like I still have my momentum but Iíve lost my velocity.

I just notice people with higher incomes cross that threshold much more easily and their cases of how they did it are better documented.  I just feel like a lot of the things they talk about like buying rental property or paying off a house during the accumulation phase that got them to FI just wonít help me very much. 

At a certain point I donít know how much more someone who comes from higher earnings can keep helping me improve because they overcame their problems and not mine; surely at a certain I canít generalize their situation to mine to significant effect any more.   I feel Iím not at that point yet but that in perhaps 5 years I would be. 

Iím not done, Iím still cutting expenses.  But the rate at which I cut them has slowed down so much, I fear itís converging on a point far shy of a 50% savings rate by the time I reach that point (for what itís worth quick math tells me I could do as well as 39%, which doesnít suck by any means but itís not what feasible FI requires.

For reference, here are ERE Jacob's salaries (from a comment in this post):
Age 24-28, $20K (this one is net; I don't know whether the others are net or gross; equivalent to ~$28K today)
Age 29-31, $41K
Age 32-33, $69K

<snip>

Really?  I seem to recall years ago reding it was much higher than that, thanks for the facts!  He still made a six figure number more than I did during this years but it's not the order of magnitude I thought it was.  He earned more than I did at all points there both absolutely and inflation adjusted but it's not a factor of 10 or even 2 in some years (except later!).

Maybe Jacob is the example I am looking for and I need to go read the old posts in order, you've done me a great service.

Just to clarify I've reached a point where I know better than to say I can't.  I've proved to myself that's stinking thinking.

I have however reached a point where I feel like I'm up against some kind of wall and need some new paradigm, another big shift, to move on to whatever it is.  Right now I think I'm probably going to tend toward more thrifty but I'm not trending that way as strongly as I want for lack of knowledge of what to do at this point, I just feel stuck.

Part of it is, I don't really belong on a site like this because I'm the example of what NOT to do.  It wasn't that long ago I was 40k in the hole with debt and saving nothing (that was about 2007).  I'm not really very accomplished, I save about 25% now with no debt but I have no real assets to speak of either. 

It's a terrible place to be from the perspective I can't enjoy the carefree wastefulness I used to, nor can I realistically have a better life without juicing my savings rate a lot more.  It just plain stinks to be caught in this situation where you are basically no longer a part of the cult of consumerism (and are slowly backing away from it as you go) but you aren't really someone who's going to be financially healthy either.

I wish there was a middle ground forward, save enough to mitigate the most likely problems you could encounter while indulging in the best of those things velocistar237 references.

Joet

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Re: How to Save 50%?
« Reply #45 on: June 26, 2013, 05:29:24 PM »

I only have about a 50% savings rate (of net, naturally). If I wanted more than anything else to retire as early as possible, I would move to Dallas or Houston, get any training I needed, get the highest paying job possible, and live in a small apartment. The combination of a well-paying job and low cost-of-living would push me to 60-80% net. I'm not willing to do that, but I could. Most if not all the people here also have the capability, but just like me, some of them value something else more.

I think we tend to get a little carried away w/percentages here. eg 30% means 25 years of work before FI, etc. I look at it in terms of net savings. Sure ability to alter spending patterns post FI is a variable as well but in the Houston hypothetical the problem is a given worker might not actually be saving as much as say a worker in SF or NYC. Sure they're spending less but they are also earning less in Houston. EG in NYC you might be saving 50 or 100k a year, in houston 40 or 80k a year, YMMV. The other half of that assumption is a paid off house (or 3) post FI which would be tremendously more difficult in SF or NYC. That's ok though: they make houses in other places too.

I also look at it in terms of 'lifestyle' thresholds for FI.
EG 250K=van-down-by-the-river FI-style, healthcare might get a little sketchy pre-medicaid post age 45 or so
1M or so = probably a decent apartment in a decent area with occasional world travel and healthcare. A spouse wouldnt terribly change things if you keep the spending down
2M or so = probably a decent apartment/house with tons of travel, easy healthcare, still have to control spending a bit
3M or so = probably gets a little more difficult to spend down (8-10k/month or so), good problem to have!
any of the above change greatly with home ownership of course

etc. Just my $0.01
« Last Edit: June 26, 2013, 05:40:54 PM by Joet »

matchewed

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Re: How to Save 50%?
« Reply #46 on: June 26, 2013, 07:29:41 PM »
Joet, the reason why percentage of savings is used is because it can apply regardless of actual lifestyle choice or income. So your arbitrary assignment of amounts of net worth with correlating lifestyles looks kind of silly for people who don't fit your criteria. All it depends on is the actual expense control or income increase.

Dynasty

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Re: How to Save 50%?
« Reply #47 on: June 26, 2013, 09:45:53 PM »
Joet, the reason why percentage of savings is used is because it can apply regardless of actual lifestyle choice or income. So your arbitrary assignment of amounts of net worth with correlating lifestyles looks kind of silly for people who don't fit your criteria. All it depends on is the actual expense control or income increase.

To a point.

If someone is living on a salary of 25K a year. And they manage to save 80% of that every year, and magically in five years or whatever they are FI... That's still independently poor. And most would consider them a bum.


Joet

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Re: How to Save 50%?
« Reply #48 on: June 26, 2013, 11:02:23 PM »
right, if you are a villager living in say indonesia somewhere existing only in a barter economy you're probably already FI and need to save almost precisely 0% of income, or crops, or fish, or baskets or whatever, just make sure you have 6-10 kids and you're good

agree to disagree I'm good with that :)

I think amount of actual savings is far more relevant than savings rate, especially in the van-down-by-the-river crowd.

savings rate is a useful guideline, nothing more. Saving 50% of 25k for 20 years doesn't really get you very far, imo

sol

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Re: How to Save 50%?
« Reply #49 on: June 26, 2013, 11:33:14 PM »
savings rate is a useful guideline, nothing more. Saving 50% of 25k for 20 years doesn't really get you very far, imo

I understand your perspective, but I think saving 50% of 25k is still an illustrative case. 

No matter how much or how little you make, there is always someone making 50% as much as you and getting by just fine.  Living happily, even, with a loving family and friends and hobbies and their own unique perspective on life.

If they can be happy at half of what you have, why can't you?  Simply because you're accustomed to more, and that will be true no matter how much you make.

Getting to a 50% savings rate is as easy as realizing that you need to live on less than you make.  Whatever you perceive your "necessary" expenses as being, someone else is getting by just fine without them and you could too.