Mint's categorization and budgeting tools will do the envelope system for you, and track progress throughout the month. I rarely use cash, mainly for the ease of auto-categorization of the transaction.
Mint's categorization and budgeting tools will do the envelope system for you, and track progress throughout the month. I rarely use cash, mainly for the ease of auto-categorization of the transaction.
In reply to chandlerGTi:
Yeah, that's a good idea. I'm on the same pay schedule and my second paycheck of the month is usually almost entirely consumed by rent. Splitting it into 2 paychecks may make that seem like less of a burden.
Thanks again for all the great replies and advice. I've learned a ton.
I guess my method is similar to the "envelope" method.
My wife and I have 2 bank accounts.
First, a bunch of my paycheck disappears due to taxes, 401k, healthcare, etc. Of the remainder, a large chunk goes to account A. This account has all of my auto-pay stuff linked to it, my monthly contributions to Vanguard/Fidelity accounts, and that's it. The amount going in here is fixed.
The remainder goes to account B, where it can be spent to cover flexible expenses like food, gas, etc. When there is extra, it is dumped into savings/investments, or accumulated to pay tuition. If tuition was not a factor here and this account accumulated "extra" often, it just shows me I need to bump my contributions elsewhere - 401k or post-tax.
I'm not a "hardcore" saver, meaning I pay my savings first. A really hardcore saver will spend as little as possible on everything, then save the rest. A lot of the people on the MMM forums fall into this category. On the other hand, I'm far from a hardcore spender. After reading MMM for a while, I've started to think like a financial crazy person:
I could buy this car that's only $2000 more, and only gets a few mpg less. Seems like pennies now, but what does the time value of that money and the increased cost of ownership look like invested & compounded for 10 years? Oh, that's really like spending an extra $10k on the car? Hmm...
And that's how I ended up with a '98 Saturn and an '02 Prius.
Great start! Congrats on getting an early start.
I am not interested in prying into your personal affairs, but there is a point where you can't break it down by percentages- you have to consider the actual dollars. Poor people spend a MUCH larger percentage of their money on food.
43% of your money sounds like a lot to work with, but if your income is $150 per month, you will have to make the decisions in a significantly different way. Might not include any retirement until later, etc.
Start a retirement plan as soon as you can. My daughter started hers when she was 16. Often only puts $20 per month in it, but always contributes. She's 24 now, and has over $25K.
On average, you can double your investment dollars every 7 years. If you start early, you can have more 7 year cycles. Imagine, when you are 60, and have saved $200K... Wouldn't it be nice if that could have doubled 1 more time?
Again- big kudos for planning. You are way ahead of most people.
The other thing we do, though you probably won't be able to afford it until you're out of school and working (no shame there). This is a secondary savings plan:
We pay ourselves an average car payment every month into my wife's credit union account, even though we haven't had a car loan in at least 5 years. Once we finally replace one of the cars, in maybe 3 more years, we'll be able to pay cash for something nice and new, and own it outright. In the meantime, that money is earning us long-term interest.
Again, congratulations - you're off to a much better start than 99% of your peers; at least the ones who aren't trust-fund babies.
SVreX wrote: On average, you can double your investment dollars every 7 years. If you start early, you can have more 7 year cycles. Imagine, when you are 60, and have saved $200K... Wouldn't it be nice if that could have doubled 1 more time?
And ideally, this is more like $2M. Being a millionaire isn't what it used to be, and its not hard to get to 2-3M over the course of a 30-40yr career.
On the retirement front: my advice would be to do the math. You seem like a smart enough guy, spend 30 minutes playing around with numbers on an excel spreadhseet.
Here are the assumptions I make when doing it:
So figure out when you want to retire. Figure out how much you'll need to retire (I know, impossible--just ballpark it). Then figure out how much you need to save to hit that number by the time you want to retire.
I don't trust any financial advisor to do this for me, I don't trust my company, and I certainly don't trust the government. If my company pension works out, if Social Security works out, then I'll live a richer life or retire earlier. But I don't want to be in the position where I can't, or where I need to seriously re-prioritize my goals.
MattGent wrote:SVreX wrote: On average, you can double your investment dollars every 7 years. If you start early, you can have more 7 year cycles. Imagine, when you are 60, and have saved $200K... Wouldn't it be nice if that could have doubled 1 more time?And ideally, this is more like $2M. Being a millionaire isn't what it used to be, and its not hard to get to 2-3M over the course of a 30-40yr career.
Like mtn above, I just use the 4% rule. Amount you have saved when retired should be 25x your yearly spending. So yeah, if you need to spend 80K/year, you want 2M invested.
The less you spend, the more you save, the quicker you hit that number.
Again, I am loving all the replies and support. I've learned a great deal and I am extra motivated now.
The false car payment plan is great. I don't ever plan to buy a new car (but that could change someday), so that is great way to save ahead of time for a "new to me" car. It will definitely have to wait until I am out of college and making better money though.
I also like the 7 year retirement plan. $20 per month is do-able for me now, and 7 years from now $40 will definitely be doable, etc. If I am able to maintain that until 60, I'll have $198k in my retirement fund (like you said)! If all goes according to plan, I hope to be making more and more money as I get older and will be able to afford the doubling every 7 years.
In reply to mtn:
Thanks. I am going to write that down and do some number crunching over the break.
In reply to ProDarwin:
Thanks for explaining that, I had never heard of the 4% rule but that is a great one to follow.
Tmc22 wrote: Again, I am loving all the replies and support. I've learned a great deal and I am extra motivated now. The false car payment plan is great. I don't ever plan to buy a new car (but that could change someday), so that is great way to save ahead of time for a "new to me" car. It will definitely have to wait until I am out of college and making better money though. I also like the 7 year retirement plan. $20 per month is do-able for me now, and 7 years from now $40 will definitely be doable, etc. If I am able to maintain that until 60, I'll have $198k in my retirement fund (like you said)! If all goes according to plan, I hope to be making more and more money as I get older and will be able to afford the doubling every 7 years.
He means the money you have invested will double every 7 years. But that's at 10%, which does not account for inflation.
Accounting for inflation (say 7% growth), it will double every 10 years. Put aside 20k now, you've got an inflation-adjusted 40k in 10 years.
ProDarwin wrote:Tmc22 wrote: Again, I am loving all the replies and support. I've learned a great deal and I am extra motivated now. The false car payment plan is great. I don't ever plan to buy a new car (but that could change someday), so that is great way to save ahead of time for a "new to me" car. It will definitely have to wait until I am out of college and making better money though. I also like the 7 year retirement plan. $20 per month is do-able for me now, and 7 years from now $40 will definitely be doable, etc. If I am able to maintain that until 60, I'll have $198k in my retirement fund (like you said)! If all goes according to plan, I hope to be making more and more money as I get older and will be able to afford the doubling every 7 years.He means the money you have invested will double every 7 years. But that's at 10%, which does not account for inflation. Accounting for inflation (say 7% growth), it will double every 10 years. Put aside 20k now, you've got an inflation-adjusted 40k in 10 years.
This.
You don't know how much you'll need annually in retirement. No one does. We just do our best to estimate it, using todays dollars because that is all we know. We also know that historically, we can expect a 7-8% return in the market after inflation, and we know that the 4% rule (25x rule) has been a decent guide. We also know that at that 7%, our money doubles in 10 years. I want my money to work for me, as long as possible. That means I'm saving as much as I can now. I still have fun, but I'm frugal. It is simple steps, carpooling to work, brown-bagging my lunch, not having cable... I highly recommend the Mr.Money Mustache forums and articles. Much of it is too extreme, but you can get many good tips there.
On another note, what are your hobbies? Mine are guitar, hockey, golf, and cars. I've found a way to turn guitar into somethign that in the long run doesn't cost me money (Buy smart, sell smart, and you can make money or at least your initial investment back), and I now referee hockey on the weekends and some nights for my beer money. Can you do anything like that with your hobbies?
(Sorry to go rambling, personal finance is just something that greatly interests me)
ProDarwin wrote:MattGent wrote:Like mtn above, I just use the 4% rule. Amount you have saved when retired should be 25x your yearly spending. So yeah, if you need to **spend** 80K/year, you want 2M invested. The less you spend, the more you save, the quicker you hit that number.SVreX wrote: On average, you can double your investment dollars every 7 years. If you start early, you can have more 7 year cycles. Imagine, when you are 60, and have saved $200K... Wouldn't it be nice if that could have doubled 1 more time?And ideally, this is more like $2M. Being a millionaire isn't what it used to be, and its not hard to get to 2-3M over the course of a 30-40yr career.
Agreed, but keep in mind anything 401k or non-Roth IRA is taxed on the way out, so your spend rate is after tax.
On the $20/40 per month thing, once you are settled into a career you want that to be more like 15% of gross. My wife and I work to between 15 and 25% depending on what else is going on in our lives. $200k isn't squat to live on for 30+ years.
Some general sites suggest your spend rate in retirement will be 70-80% of your spend rate pre-retirement (taxes reduced, paid off house, commuting, etc), so if you have a salary growth in mind you can target the total.
Good job on paying attention to your money!! You might do well to get a Dave Ramsey book. It will explain the envelope system and provide a decent framework for playing the money game.
I see you have 3 items listed at a specific percentage. You need to look a little more into the future and bump these percentages so that you have some left in the budget to build a buffer. It is nice when you pay your rent and realize you have 3 months rent in your rent budget. Or when you need tires, registration, insurance or other car expenses, the money is there because you have been budgeting it all year.
Money is a gamethat you need to play to win!
Bruce
egnorant wrote: Good job on paying attention to your money!! You might do well to get a Dave Ramsey book. It will explain the envelope system and provide a decent framework for playing the money game.
Not sure I agree with that on the whole. The enveloping idea, sure. But in general, I think Ramsey is excellent for people who aren't great with money. For folks like OP, who is clearly on top of this, debt is a powerful tool that can be used to his advantage. Just don't use a credit card as a loan, don't finance a TV, etc. Frankly, Ramsey would be holding him back.
If I can get a loan for a car at 2% financing, I'm going to take it and leave my money in a mutual fund.
While I agree that it is a very good idea to put some away for emergency/retirement. It is never too early to plan for that, the earlier you start the better off you'll be at retirement. But I take it you are young and being young having fun and chasing skirts is a necessity. At least in my perspective. Have to allow for that and realize it can be costly. Even having a steady can cost, maybe more than chasing.
The $20 per month thing was DEFINITELY NOT a recommended investment level.
It was to say, "anything is better than nothing".
You will need to do much more when you are able. Like 15% of your monthly income.
Others have already explained the "doubling your money" thing. Its not a "7 year retirement plan"
SVreX wrote: The $20 per month thing was DEFINITELY NOT a recommended investment level. It was to say, "anything is better than nothing". You will need to do much more when you are able. Like 15% of your monthly income. Others have already explained the "doubling your money" thing. Its not a "7 year retirement plan"
To re-iterate a point you had made earlier, I'm going to pick on your 15%. That might not be good enough. Or it may be way more than necessary, depending on your income and your goals. The point is, percentages are a good guideline for comparisons when you don't want to divulge too much information, but do not forget to look at the actual dollar figures. Neither percentages or the dollar figure will show the whole story.
My cardinal rule is "pay yourself first" that means 5% of my gross salary goes into my 401k. I'm 32 now, which means I'm fairly aggressive with my investing, because doing so now means a way bigger pay off later. At my current rate of investment and portfolio growth, I should have, when I plan to retire at 70, more than enough money to live for another 30 years quite well.
Waiting even 5 years to start saving toward retirement greatly reduces the net effect. I'm not saying don't have fun, but worrying about money when you're less able to work is really undesirable.
ProDarwin wrote: He means the money you have invested will double every 7 years.
Oops, I feel dumb. 
Hey, the other method still isn't bad. You DO end up with 200k without interest or inflation at 60 if you do that. However, it gets to be rather difficult around age 45.
In reply to mtn:
Don't apologize, I appreciate the rambling. You are teaching me a ton.
There are a lot of great replies from everyone and I am reading each one and taking it all in. I already think I've doubled my knowledge on this whole thing.
It's definitely a balance I am going to have to master, seeing as I want to be planning for the future but I also want to enjoy my time in college (as wlkelley3 said). I guess my rate of contribution to savings/retirement will just be a little less as compared to what it will be once I am out of college.
I think with all I have learned, I will be able to put into effect many of these practices and handling my money will be easier and less stressful. I plan on setting up my initial budget over the Thanksgiving holiday.
Tmc22 wrote: It's definitely a balance I am going to have to master, seeing as I want to be planning for the future but I also want to enjoy my time in college (as wlkelley3 said). I guess my rate of contribution to savings/retirement will just be a little less as compared to what it will be once I am out of college.
FYI--I'm only 24, and only 2.5 years out of college. I worked through college, had fun but without going to bars (cab rides and drinks add up--go to parties instead). I only had about $2,000 in savings/investments when I graduated. 2.5 years out of college, I have about 1.25X my salary in savings/investments. I was aided by an extremely good 2013 in the stock market (I didn't play it, just index funds), and I have a pretty low salary. I still have fun, but not as much as I could. I ration it out more--going out on a random Saturday night doesn't happen, at least not for more than 2 beers, but I probably go to 12 concerts a year. It also helps that I've been with the same girlfriend/fiance since I was 18.
mtn wrote:egnorant wrote: Good job on paying attention to your money!! You might do well to get a Dave Ramsey book. It will explain the envelope system and provide a decent framework for playing the money game.Not sure I agree with that on the whole. The enveloping idea, sure. But in general, I think Ramsey is excellent for people who aren't great with money. For folks like OP, who is clearly on top of this, debt is a powerful tool that can be used to his advantage. Just don't use a credit card as a loan, don't finance a TV, etc. Frankly, Ramsey would be holding him back. If I can get a loan for a car at 2% financing, I'm going to take it and leave my money in a mutual fund.
100% agree here. Ramsey has value, but it sounds to me like the OP is ahead of the curve enough that when it comes time he can use debt to his advantage, not need to use the "envelope" method, etc.
Duke wrote: The other thing we do, though you probably won't be able to afford it until you're out of school and working (no shame there). This is a secondary savings plan: We pay ourselves an average car payment every month into my wife's credit union account, even though we haven't had a car loan in at least 5 years. Once we finally replace one of the cars, in maybe 3 more years, we'll be able to pay cash for something nice and new, and own it outright. In the meantime, that money is earning us long-term interest. Again, congratulations - you're off to a much better start than 99% of your peers; at least the ones who aren't trust-fund babies.
Meh, with interest rates for savings and MMAs where they are you're better off taking the free/cheap money and enjoying it now.
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