The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: BMEPhDinCO on July 29, 2017, 10:26:39 AM
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So I was checking over my yearly budget since DH and I are finally settling in after a move, a house sale, and a house purchase. I wanted to see what the general recommendations are for saving for future expenses and found:
1-4% of house purchase price (or $1 per sqft) per year for house expenses - that is around $150-300 per month per family for a typical house (we are on the low end of that)
$250-500 per month for a new car (to pay cash)
$5,500 per person per year for retirement (~10% of median income - minimum)
If one adds that up, it's just over $10,000 for a household where the house cost around $150k, they have one income, and are saving for an inexpensive car. With an income of $55k, it's about 20% of their income. We know though, that Americans are horrible savers, usually hitting around 3-5% of their income.
Based on this, I assume very few people actually follow the recommendations given and this is why so many people are so deeply in debt.
For my budget, I'm trying to meet (and exceed) these recommendations - but obviously I also read and appreciate advice on MMM and related sites.
Does anyone else follow the recommendations? Where do you put all this money as it is accumulating? (ie, if you save 1% of your house purchase per year, but don't spend it for 4 years, that's $6k and if you save up for a new car, but don't spend it for 4 years, that is $12k... that's $18k in cash somewhere!)
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Well I am sure a google search will find tons of articles on how little we save. I really dislike the word "should", and feel like sites like MMM are helping more people make savings decisions with their eyes wide open. I wouldn't worry about what others are doing or in this case not doing.
As far as what to do with all the money you save - Invest it so you can reach FI!
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We budgeted monthly to cover periodic expenses like vacations and cars and home repairs, and we tracked our expenses in those categories so we made sure we were putting enough aside. But we didn't have separate accounts -- we basically put that into the same money market fund that served as our emergency fund.
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Around this place that "SHOULD save" means something different then in the general public.
The general media exposed number is 10%, but according to MMM, a 10% savings rate allows you to retire in 51 years. I doubt that's what your interested in.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
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What's funny to me is that my fiancée and I don't really "try" to save or follow any guidance, we just don't buy things. We have automated deposits to our retirement accounts but otherwise we're frequently surprised how much money just piles up in our accounts. We have conversations which are basically "how do other people not have any money? We literally do nothing...and it piles shockingly fast."
After we have enough accumulated, we're going to buy another rental. If we thought we'd need a new car soon, we'd reserve for that. If a repair happens, it will just set our rental timetable back.
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Wow, $250/month for a car seems like a lot! My last car cost $13k and lasted 11 years (which should have been a lot longer, but it was totalled). That works out to about $99/month, and my next car was cheaper and should last longer...
I have probably spent over 1% on my home maintenance, though, but hopefully I can bring that down closer to 0.5% over the next 20 years.
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Wow, $250/month for a car seems like a lot! My last car cost $13k and lasted 11 years (which should have been a lot longer, but it was totalled). That works out to about $99/month, and my next car was cheaper and should last longer...
I have probably spent over 1% on my home maintenance, though, but hopefully I can bring that down closer to 0.5% over the next 20 years.
Most households have two cars, so even with your numbers that works out to $200/month. So that's about right.
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The problem with those type of articles is that what you "should save" is still for people that buy new cars every few years, buy houses that are more than they need, expected to buy all the consumerism crap, and are expected to retire at a "normal retirement age".
On a forum like this, with people who "know" better, these articles don't really apply.
You should work out your budget and save what you think you need to for all your needs, wants, retirement, spending, and savings.