Everybody Loves Your Money

Over and over I read about various people’s plans for retirement.  You know the one thing that they have in common?  They all have different approaches.  There is no "one size fits all" approach to retirement out there.  Rather than try to match someone else’s approach, I have laid out a number of my own possible scenarios:

1) Retire at 65 and do absolutely NOTHING

This is the least attractive scenario for me.  The magical number of 65 would (in theory) give me access to medicare if it’s still around.  It would also give me a longer saving horizon giving more of my money time to compound.  If I retire at 55 with $1 million, waiting until 65 could increase the number to over $2.3 million without contributing another cent.  That assumes I get 9% on my money, although that may be aggressive considering I’ll be less interested in the risk to get a 9% return.

I really don’t want to wait until I’m 65 to quit working.  Frankly, I don’t like work and would much rather pursue other interests.

Pros:

• Longer saving horizon
• More health care options
• Less risk in outliving my money

Cons:

• I’d have to wait until I’m 65
• Less quality years ahead of me
• Life is short
• Less time to pursue other interests

2) Retire at 55 and Do Nothing

This option sounds pretty darned attractive to me but I’m concerned I’d get pretty bored and I KNOW I’d annoy the heck out of my wife while trying to keep busy.  This option also carries a lot of risk in it.  While we are saving pretty aggressively, we aren’t saving aggressively enough to live on our money for 35+ years.  If things went well in the economy, we could probably pull it off, but I’ve proven to myself that I’m pretty darned risk averse and would like to have as much cushion as possible.

55 is a good age to stop working, but I just don’t know what I’d do with the time.

Pros:

• No longer a slave to a job I’m not too excited about
• More chance to try new things and explore the world
• Potentially many quality, healthy years ahead of us

Cons:

• What do we do about health care?
• How would we make our money last?

3) Retire at 50 and get a lower paid job in an industry that I am interested in

There are lots of jobs out there that I would love to do but the money is terrible.  We just couldn’t live on the salaries that these jobs pay.  I think this option is probably the most practical and interesting option of the 3.  If we scaled back our consumption and had our homes paid off, we could easily live on much less than we do today.  Our only bills would be taxes and ongoing living expenses like power, water, cable etc.  By retiring (aka switching careers) at 50, we could work less, and do work that was more meaningful to us.  This option would also give us access to health care options that we wouldn’t have if we sat at home.

We are on target to pay off our houses before we turn 50 and we don’t maintain any other debt so this option is actually quite achievable.  The only gotcha here is that our daughter will just be going in to college.  We are hoping to offset that by investing today in a 529 plan for her.

Pros:

• Pursue work that we enjoy
• Access to health care options
• More time for hobbies and other interests
• Use much less of our invested assets due to income from the low paying jobs
• More time for invested money to compound

Cons:

• Quitting your high paying job while your daughter is in college doesn’t feel too good
• May not have as much time to travel and enjoy "retirement"

When I was younger I used to think that the best thing I could do would be to buy a second home in Arizona.  Why?  Because some day I want to live there in the winter (aka: Be a Snowbird).  I was convinced that a key strategy to my investing and saving for the future was to lock in a low price on a place to live in Arizona today to get rid of the risk of unaffordable prices later.  I’ve since changed my mind.

Real estate in various parts of Arizona is dirt cheap these days.  Mind you, that comes from someone living in the Seattle area where prices are much higher.  In 2006 the median price of a home in the Seattle area peaked around $400K.  That has come down a bit since then but it’s still much higher than the price of many new homes in Arizona.  The median price of a house in Arizona in 2006 was half of Seattle’s.  I found brand new housing developments down there with houses starting in the $110K range.  During the real estate "run up" that we’ve experienced over the last X number of years, the prices in Arizona seemed to be going crazy.  Just like Vegas, reality is setting in though.

Over the years I’ve also realized that owning a second home isn’t a low cost endeavor.  Whether it’s used as a vacation home or a rental, there are many monthly costs to contend with.  Since long distance landlording (Hey, did I just make up a new word?) doesn’t sound very appealing to me, I’d most likely just sit on the property and let it drain my bank accounts.  For my personality profile, being a landlord just doesn’t feel like a good fit.

So what am I doing instead?  Well, for starters, I’m saving money.  On top of that, we have the second home out near the lake that we are enjoying during our younger saving years.  By my estimation, we’ll be able to sell it as we get closer to retirement age and use the proceeds to buy a place in Arizona.  Who knows.  By that time, we may decide to invest the proceeds of the sale and just rent a place there in the winter time.  The important thing for us now is to keep on task by saving and watching our spending so that we have all of the potential options open to us later.

We all know someone that doesn’t save a dime.  Maybe that’s you?  The reasons people cite for putting off saving are many.  There is only one problem with all of these reasons.  No matter how good your reason is, your future self won’t accept it.  The best reason in the world won’t help you pay your bills when you are older.  That really good reason of yours won’t provide long term care for you when you become sick.  It won’t pay the landlord when he comes pounding on the door.  Grocery stores won’t take a good "reason" in lieu of money for groceries.  So, first things first.  Let’s get all those reasons out on the table.  Once we have all the good ones identified, we can begin to brainstorm solutions for getting past each reason and get you on the path to saving.

1. I don’t have a job

Yeah, this is a pretty darned good excuse.  If you aren’t working, you really can’t save.  The only thing you can really do in this situation is look hard for employment.  Network with people you know.  Ask them if they know of any jobs, or know someone that might.  Talk to recruiting agencies.  If things are getting desperate, consider doing day laboring to start getting some money in the door while you work to find a job that is right for you.  The bottom line is you need to actively search for positions.  Submitting resumes is really not enough these days.  It takes a lot of perseverance and you should exploit every possible angle.

2. I don’t have any money

Why don’t you have any money?  Are you earning income?  If so, you have money, you are just having to make choices about where that money goes.  In many cases you might have more bills than you have income.  Take a long hard look at those bills.  (See number 3).

3. My bills are higher than my income

So, you aren’t bringing in enough money to pay all of your bills.  It’s time to start making some sacrifices.  Take all of your bills and categorize them by "fixed", "variable" and "optional".  Your fixed bills are the things you can’t change easily.  Your mortgage, your health insurance etc.  While they appear to be non-negotiable, you do have choices.  Can you get a better mortgage at a lower rate with a smaller payment?  Should you move?  Can you shop for cheaper health insurance?  Should you change your deductibles?  You get the point.  Variable expenses are much more fluid.  Do you absolutely need these things every month?  Variable expenses might be things like cable tv, high speed internet, home phone service, cellular phone service etc.  This is where you can usually make some improvements.  Can you opt for a less expensive cable tv package?  How about just getting the very basic channels?  Is there a slower internet service in your area that is cheaper?  Have you called your internet company to see if they’ll lower your price when you threaten to leave?  Do you need both home phone service and cellular service?  Consider dropping one.  Do you need a cel phone?  Maybe not.  The point here is that while they seem like "must haves" there is often alternatives, or you might be able to do without.  That brings me to the "optional" bills.  Things like this are Tivo, Netflix, dining out, newspapers etc.  If you lived in a third world country, you wouldn’t even have access to most of these optional type expenses.  Can you live without them?  You bet you can.  The trick here is to be very honest with yourself about what you absolutely need.  This doesn’t have to be permanent.  Get rid of these until you get caught up and start saving for your future and then bring them back one at a time as you can afford them.

4. I want to enjoy life while I’m young

Who doesn’t want to enjoy life while they are young?  It’s important to set some personal boundaries about what fun means.  Maybe you have evolved your taste so much that fun to you means extravagant purchases at the department store and $200 meals in restaurants.  The measurable difference between a $200 meal and a $40 meal is very small, if it’s even measurable.  $300 pants do not bring you 10 times more enjoyment than the $30 pair.  The strategy here is to start being honest with yourself.  If you believe you must hemorrhage money while you are young to enjoy life, then you are missing out on some pretty basic human satisfactions.  The key on this is moderation.  Just like the motto of this website, the goal is to live life for today while planning for tomorrow.  You can do both.  It’s not that hard.

5. Why save for a day that may never come?

You’re right.  You might not even make it to retirement.  Are you married?  Do you have kids?  The chances of none of you making it to an old age are slim.  Shouldn’t you plan a bit for them?  What if you make it to an age where you can’t retire, but your life might be eased by having a nest egg to draw on in a crisis?  You aren’t saving everything until you are sitting in a rocking chair.  A huge reason to save is to begin to have your money working for you, instead of just working for your money.  That old saying that "It takes money to make money" is pretty darned true.  Look at it this way, if you are able to amass $100,000 in 20 years, at the end of that time you could supplement your income by $8000 per year by getting 8% interest on it.  That’s a pretty decent raise.  By the time you reach $100,000, I think you’ll find it makes even more sense to roll that interest back in and generate even more of a nest egg.  The fact of the matter is that amassing wealth gives you options.  Not amassing any wealth and spending for the day robs you of options.

6. I don’t make enough money

Fair enough.  There are a ton of people in our country that aren’t making enough money.  The only person that can change this is you.  Have you looked at finding a new job?  If you don’t have the skills, can you find any training opportunities in your area to improve your skills?  Look around you.  Are the people that do make more than you doing work that you could do?  Talk to them.  Ask them how you can get in to their line of work.  The better you are at building relationships, the easier it will be to find help in this area.

7. I’m really busy.  I’ll get around to it later

Tomorrow is coming a lot faster than you think.  There will never be an optimum time to start.  You have to take a few minutes to start drafting a plan.  Are you saving through your job?  If not, this is the easiest way to start saving.  Call your HR rep, or your manager and ask them how to start.  It’s usually just a phone call away.  Call your bank, or even better, find a credit union, and ask how you can set up an automatic transfer from your main acct to a savings acct.  Go to Etrade.com or schwab.com, or any number of online brokerage companies and see what it takes to open an acct.  Worst case scenario, just call their 800 number and talk to a representative.  They’ll help you get started.

8. I deserve to have some luxuries in life

Don’t we all deserve a few luxuries in life.  Rather than look at luxuries as a god given right, how about looking at them as rewards.  As you start improving your financial situation, consider using a small percentage of your income to reward yourself.  The key here is that your rewards should be much smaller than your accomplishments.  If you save $1000, go out to a nice dinner.  If you save $10,000, maybe you can decide to get a new TV.  The key here is not to deprive yourself of all luxuries, but instead think of luxuries as a reward for meeting other goals.

9. I’ll count on someone else to take care of this

No one else will take care of this.  I suppose if your helicopter mom is going to stay alongside you through your entire life, maybe you can count on someone else.  She can plan your saving, and investing.  She can make all of your financial decisions for you.  If you are like the other 99.9% of the population, you need to do it yourself.  I kid you not.  No one else is going to make sure your future self is well taken care of.  It just doesn’t happen very often.

10. I spend money on things that give me immediate returns

Sure, hookers give you an immediate return (Besides the obvious STD’s), but I guarantee they won’t help your future self.  Lots of things give you an immediate "return" but what does that mean, anyway?  I struggle to think of any purchase you can make today, in lieu of saving, that will make you better off later.  I suppose the one exception would be finding a Picasso at a garage sale.

11. I save in a 401k

You are saving in a 401k?  GREAT!!!  Is that all you are doing?  Do you have any additional income that you can save in a ROTH IRA?  How about funding a 529 plan for your children?  How about investing in a brokerage account?  There are lots of places to save additional money.  Certainly investing in a 401k is a great first step in your savings plan.

12. I’ll work until I die.  There is no need to save

My mother has always said she’ll work until she drops.  Now that she’s 63 years old, she’s starting to change her tune.  Luckily she has saved some in her 401k and also has real estate to help fund her lifestyle.  My point here is that it’s easy to say you’ll work until you drop when you are young, but your future self may have a change of heart.  Why not plan for a day that you can decide whether you want to stop working or not.

13. I will inherit some money

I’m sure you’ve met someone that doesn’t save at all because they are expecting to inherit some money from a relative some day.  What if that relative loses all their money?  They could be sued, come down with a nasty gambling habit, lose it all in a divorce.  You get the picture.  It’s probably a good idea to have a plan B.  And what if you fall out of their good graces?  Have they told you that you are going to receive X amount of money?  Is it in a will?  Any way you slice it, plan B’s are a great idea.

14. I’ve got plenty of equity in my house

Have you seen the real estate market lately?  You have less equity than you used to.  Even if you still have a significant amount of equity, in order to access that equity you’ll need to move.  Sure there are reverse mortgages, but that isn’t necessarily the optimum financial arrangement.  No matter how much you have tied up in your home equity, you should always have multiple types of investments to ride out the various economic crashes.

15. It’s so cheap to borrow money these days, that you would be a fool not to

I wonder who invented the saying "You’d be a fool not to borrow money when it’s this cheap".  If you have to borrow money to buy a home, or another major purchase, sure it makes sense to borrow the cheapest money you can, but if the interest rate drives your purchases, then you probably have a problem.  If crack cocaine is cheap, should you buy it?  If toilet paper at Costco is half price, should you buy 10,000 rolls?  For the average Joe, it makes the most sense to moderate your behaviors and just chip away at saving, paying down debt, and planning for the future regardless of how cheap money happens to be.

I have to confess something.  More and more these days I’m finding myself thinking about what it would take to check out of the rat race.  I don’t care about having the fanciest stuff, or the latest and greatest tech gadget.  I really want to have the option to just do absolutely nothing as much as I want.

I think it stems from a few things.  First is seeing how happy my friend who retired is.  Sure, he’s older than I am but that doesn’t change the fact that I would sure like to be in his lifestyle situation.  He did a lot of things right to retire around 50.  It’s unrealistic to think that I have done lots of things right that would give me the ability to retire at that age, or even earlier, for that matter.  Sure we are savers and have amassed a decent set of assets but not nearly enough to check out now.

I also keep thinking about all the posts that JD @ Get Rich Slowly has done on the 4 hour work week and reading about various people that have bucked the trend and are working on their terms.  Blogging for a living is a little scary and I can’t even begin to dream about that because I don’t have the readership, or revenues of some of the other guys that have actually done that.  The chicken in me also worries about what I would do if the income stream died off.  Frankly, it would be a lot harder to generate my current income level on my own than it is to just stay at my current job.

As I get a little bit older, I find myself wondering, "What’s the point of it all?"  I suppose this might be due to the fact that I’m not doing work that I’m passionate about.  I mean, do you know anyone that is passionate about doing process development and managing lots of customer expectations?  I don’t.  "Why don’t you do something that you are passionate about then?" you ask.  Well, probably because I don’t know what that is.  Frankly, I probably need the type of job where I’m out and about all day visiting customers.  I absolutely love dealing with people and working from home just doesn’t give me as much of that.

So, what are my options?  Well, I could sell everything I own and end up with a decent chunk of change that I could generate basic interest income off of.  It would probably give me enough to rent a modest apartment and buy basic necessities but the reality is that there are too many variables that could tank that plan.  I don’t have enough that I could take whatever life might throw at me and probably won’t for at least another ten years.  Even then, it would be a very modest lifestyle.

I’ve also thought a lot about selling our primary residence and living rent free at our lake house.  With the money I’m making online, interest income I could generate, and maybe a part time job, I could get by.  But then there is the issue of what kind of life that would be for my daughter.  Is it selfish of me to drastically adjust our lifestyle and potentially rob my daughter of opportunities later as she struggles to figure out how to pay for college etc?  That doesn’t really feel right either.

So, here I sit.  Wondering what the best solution would be for my family.  Wondering if I’ll live a long life and all of the working and saving now will pay off later.  Wondering if I’ll kick the bucket much sooner and then regret not having ever taken a big chance on another way of life.

No matter what happens, I am grateful for the lifestyle and way of life my family has today.  Don’t get me wrong.  If nothing changed for the rest of my life, I’m still very, very grateful for being where we are at.  I just can’t help but wonder what else there might be…….

It’s been no secret that our household has been hemorrhaging money over the last 1.5 years as we built a second home out at our favorite lake.  Now that we have been in it for a few months and have stopped buying both construction materials and basic furnishings etc, our budget is slowly getting back to normal.  How have things changed?

 -We have increased our 401k contributions

When we bought the the place we made quite a few sacrifices.  One of which was to lower my 401k contributions to only 8%.  Why 8%?  It’s pretty simple, really.  My company matches 75 cents on the dollar up to 8% of my income.  No matter what we did, I wasn’t about to miss out on any company matching.  Now that things are getting back to normal, I have bumped the contributions back up and am now maxing out my 401k again.  During construction, the extra money came in very handy for materials.  Our goal was to not take on any debt to complete the place.  We succeeded by cutting down unnecessary expenses, scaling back our investing and pacing the work to our budget.

-We are investing in a ROTH again

Same story on the ROTH.  We stopped contributing to the ROTH temporarily while we finished the construction.  We are now starting to contribute to that again.

-We are increasing contributions to our daughters 529 plan

While we never cut down on contributions to our daughter’s 529 plan, we have decided to increase the contributions now that we have more money in the budget.

-We plan to start paying down the mortgage more aggressively

For a long time we were contributing an extra $150 per month towards the mortgage.  We also stopped that during construction but will now be doing that again.  It’s exciting to see the total mortgage go down extra every month.  I watch that fairly closely because I anticipate hitting a point where we could sell our lake house and use the proceeds to pay off our primary home mortgage.  By doing this, we could end up living mortgage free in our early 40’s.  That fits nicely in to our master plan of retiring early.

Another significant milestone that is coming up for us is that our daughter is going to be starting kindergarten.  It’s an amazingly exciting milestone for our family but it also has financial implications.  We have been paying $800 per month for daycare for the last two years.  That expense is going away which is going to drastically improve our budget surplus.  We’ll definitely take a portion of this and start directing that at our daughter’s 529 plan.

Today I went to lunch with a couple friends of mine. One is someone that I currently work with and the other is someone that I worked with for a few years until he retired last year. I’m only 36 but by talking to my friend, I could just tell I’m going to really love retirement. My goal is to get there at 50. My friend, who we’ll call Jack, has no idea how inspirational he is to me. He retired at 50 and is having the time of his life. Every time I see him I do my best to pick up new tidbits of how he got there at such a young age. We talk about personal finance a lot when we get together so I’ve managed to pick up a few of his tricks. Here are some of the fundamental things he has practiced during his working life and now continues to do in retirement.

1) Spend less than you earn.
This seems so basic and is mentioned on just about every personal finance site there is, but it is SOOOOO true. Jack is living proof that simply living below your means can drastically speed up your retirement. He made an average living his whole life and simply made sure that he didn’t spend everything he made.

2) Find pleasure in the simple things.
Jack told me something today that really stuck with me. We were talking about traveling and while he likes to take 1 to 2 day trips around the Pacific Northwest, he said he also likes to enjoy the sights closer to home as well. He told me today, “If you look around, you see tourists that have obviously traveled great distances to visit places around here. I get to visit the same places without all the cost”. So true, so true. There are a ton of places that I haven’t been to in the Pacific Northwest. I need to do some research and make a list of all the places I would enjoy. I can think of a few right off the top of my head and there are no long road trips or expensive airplane tickets involved. Last time I talked to Jack he told me about his travels to some of the college towns in the area. He and his wife enjoy seeing college theater productions and are able to take in some great shows on the campuses. They love to stay in the campus housing when they can and eat at the dining halls on campus. The prices are cheap, and it’s a fun adventure.

3) Own cars that make financial sense.
Uhhhh yeah, this is a great lesson for me. I’ve pulled more than a few idiot moves over the years when it comes to cars. Jack joked that back in the 70’s he used to drive a Datsun 1200. People that he didn’t know would walk up to him and say, “That car is horrible. It’s unreliable, is a death trap and is not worth driving”. People literally would say things like that to him and they didn’t even know him! A few years later, during the gas crisis, new people started asking him questions about the same car. “What kind of gas mileage does that get? Have you had any trouble with it? Would you recommend a car like that?” I couldn’t help but draw parallels to the current gas crisis. The people out there a few years ago laughing about how their huge SUV or pickup could eat a Honda Civic for lunch, are probably thinking about snacking on a nice small Civic or Corrolla themselves now. Any way you slice it, 35 miles per gallon is sexy these days. Anyway, back to Jack. Today he drives two very fuel efficient, small cars. It’s just one more way that he lives within his means and is able to enjoy retirement now.

4) Minimize non-essential spending.
I was dumbfounded to find out that Jack doesn’t have an internet connection or computer at home. There is a library near his home that they go to every few days to check email and do online research and other computer related tasks. The library even offers laptops that you can check out while you are there so that you can sit comfortably and do your thing. A quick math calculation tells me that Jack is easily saving more than $500 per year on internet connection costs and PC related costs. Cut out a few things like that each year and it really starts to add up.

5) Maintain absolutely no debt.
Jack paid his home off years ago. He and his wife live in a nice two story house that doesn’t even come close to a McMansion and would definitely be considered modest by most people. The only housing expense he has is upkeep and taxes. That’s a huge game changer when you want to retire early. They own both of their cars and have no payments on them as well. Not having any debt puts him light years ahead of most people. Houses and cars suck up so much of a family’s income that it’s easy to see how they are a huge hurdle when looking at retirement.

You can bet that next time I talk to Jack I’ll be listening for those subtle clues on how he and his wife live their life, to pick up any solid tidbits about living economically without feeling like I’m missing out on life. The thing about Jack is that he is so at peace with life. He mentioned that it was nice to be able to go out to the beach last week when we had a record low tide to explore all the sea life that is normally not visible. That was all over the local news last week. He pointed out that during his working career he could have never done that. Because he retired early, he thought nothing of driving out to the beach to spend the day exploring with his wife.

If you haven’t picked up on the theme of this post, I’ll be more blunt. The bottom line is that Jack and his wife are feeling excited and alive because they didn’t spend their life accumulating useless crap that was paid for on credit cards or with home equity. By following some pretty simple concepts of living below their means, watching what they spend, and obviously saving all the extra, they have been able to take control of their futures and do what they want each day for the rest of their lives. By living this way their whole life, they were able to find the beauty of the simpler things in life. They didn’t need to spend their way to some sort of materialistic satisfaction and now that they are retired at 50, they can continue to live that way and do it by their own rules.

I wish I had a nickel for every time this question has popped in to my head.  I thought about this a lot more when my net worth was quite low and I had just gotten started.  It’s hard to imagine that you are on the right path to retirement when you only have $10,000 put away in your 401k or IRA.

So how do you know if you are saving enough?  It’s never a cut and dried answer.  There are so many variables that play in to how much money you’ll need when you retire.  You have to consider health care later in life, whether you expect to get any social security money, whether you’ll ever have a pension, or whether you’ll inherit a large sum of money  (fat chance for me and I don’t recommend assuming you will get squat).

The conservative approach to deciding whether you are saving enough is to expect nothing.  Assume that the only way you’ll live comfortably in retirement is to generate income from money that you have saved/earned by investing.  At first that can be a rather frightening thought, but the reality is that most people will HAVE to count on themselves later in life.

Maybe it’s not as bad as it seems.  If you were able to amass $1 million dollars by the time you wanted to retire, you would easily generate about $50,000 a year before taxes.  Sure, inflation needs to be considered because $50K tomorrow isn’t as much as $50K today but it is significant.  With inflation in the mix, maybe you should shoot for $2M.

How do you know if you are headed down the path to at least $1M?  Just head on over to an online calculator and do the quick calculation by punching in a couple numbers at this online calculator:

http://www.investopedia.com/calculator/MillionaireCal.aspx

If you are 35 today and want to retire at 65 you need to save $442.38 per month until you are 65 to amass $1 million dollars.  That assumes that you have nothing today and will get a 10% return on your money.  The calculator also lets you input the total that you have put away today and tells you how much less you need to save to reach the $1M mark.

Every so often I like to visit one of these calculators to check up on where I’m at and to make sure I don’t need to increase my savings rate.  I like to change the expected retirement dates around etc to see how much earlier I can retire based on various investment and contribution rates.  I’m currently tracking to retirement at 50 or so.  That’s the date that I “can” retire, but most likely I’ll push a little farther because the investment gains really pile up at the end of your work career.  For every year you can delay, you see significant increases in your nest egg.

The one other “gotcha” in making your decision on how much to save is all the things that can happen in your life.  That’s probably the biggest risk to your plans.  You could lose your job and fail to find a comparable one.  You could experience a death in the family or have some catastrophic event that completely impacts your finances.  It’s an endless number of scenarios that could go wrong.  With this in mind, I’d recommend “shooting the moon” and saving as much as you can.  That doesn’t mean you should completely starve yourself of living for the day, but you should take a long hard look at what you “need” versus what you “want” and make sure you aren’t screwing your future self by paying too much attention to all the “wants”.

Earl Crawley earns $20,000 a year as a parking lot attendant.  Even with such a small amount of income he has managed to create a nest egg of over $500,000 in the last 44 years.  If Earl is not an inspiration to you then you are a lost cause.

You know those simple savings tips that you read on all the PF blogs?  They can help you do what Earl has done.  Spend less than you earn and invest the difference and you are on your way.  Earl’s example shows that it’s not all saved in a day.  It takes years and years of self discipline to achieve your goals.

Check out the article:

http://www.kiplinger.com/magazine/archives/2007/09/mystory.html

I read an article on Salon.com about a woman who’s 30 year old son won’t leave home.  Not only will he not leave but he also won’t help share the costs of living there.  Every time the mother brings up the fact that she really needs him to help with the costs, he blows up and gets angry.  She’s afraid of making too big of a deal about it because he’s the only family she has.

It sure sounds like the son has figured out how to play with his mom’s emotions and live on easy street.  Sure, blow up when your mom brings up the issue of money.  If you make it uncomfortable enough, she’ll quit bringing it up.  You know she isn’t going to kick you out because you are the only family you’ve got.

As I read through the article it was clear that the mom realizes what’s going on but just doesn’t know how to take it to the next step.  I completely agree with the Salon writer.  Kick him out gently and make him start realizing what the real world looks like.  He’s been drifting on easy street too long.  And what kind of son disregards his mothers current and future well being for his own selfish needs?  Grow up Junior!!!

http://www.salon.com/mwt/col/tenn/2007/09/04/living_at_home/?source=whitelist

I’m so close I can almost taste it.  (Although, I’m not really sure what $100,000 tastes like).  After almost 6 years on the job, my 401k is about to hit $100,000.  I would have already hit the mark if I hadn’t scaled back my contributions to help offset our vacation home purchase (scaled back to 8% to get all the company match) but I expect that we’ll more than make up the difference in additional equity on the vacation house.  It’s really kind of amazing how quickly the 401k balance can add up when you are contributing to it every two weeks.  My contribution level has varied over the last 6 years but here are a few of the details around what I did to reach this milestone.

-Contributed as much as my budget would allow (up to the IRS maximum) for part of the time

-Made sure to get every cent of the company match

-Made a few strategic trades in my account during wild swings in the market

-Diversified across large cap, small cap and international index funds

-Bought a large chunk of company stock in the 401k after 9/11 and then moved out of it after a significant increase in value

Overall I’m quite happy with the 6 year performance of my funds.  I definitely made some mistakes along the way too though.  For quite some time I was way too heavily invested in a large cap S&P 500 index.  While that gave me “okay” returns, I missed out on massive returns in some of the international and small cap funds.  I corrected that a couple years ago though and have been happy with the overall returns since.

While the 401k is an important part of my investment portfolio, it isn’t the only part.  We are also funding a ROTH ira which, when added to the 401k balance, puts us well above the $100k mark.  I like the idea of having multiple potential income streams during retirement, some taxed and others not.  What I haven’t done a good job of is funding a conventional brokerage account.  I plan on using some of the real estate equity we have and will have in the future (potentially sell the vacation house years down the road) to help fund our after tax needs from the time we retire to the age that we can start withdrawing pretax retirement income.  This is probably a flawed approach for a number of reasons and we intend to diversify further by getting more money put in to a standard brokerage account soon.  The other investment that we are funding is a 529 college savings plan for our daughter.  While there isn’t a ton in there, we are investing in that monthly and will probably contribute some lump sum money in there over the years as well.  Between the 529 plan and paying off our home before our daughter goes to college, we hope to have the cash flow necessary to help her get through college.