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how do you know if you are saving too much?

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how do you know if you are saving too much?

Old 08-21-06, 08:24 PM
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how do you know if you are saving too much?

obviously some people spend too much - get into debt and all that.

but what about the opposite end of the spectrum - saving too much?

of the salary you make, you have certain bills that must be paid (rent/mortgage, food, gas, utilities, health, etc) - the regular mandatory stuff. then after that you have extra stuff that isnt mandatory but isnt excessive (cel phones, cable tv, etc).

but beyond that, how much do you guys save (as a percentage)? if you save too little, you will get screwed in the future - maybe you need that extra money you spent on an emergency or something. if you save too much, you end up sitting on cash that in the future goes to waste.

how do you guys know what is a good amount to save (after al expenses)? no one knows how much money they will need tomorrow, next week or next year so how do you know what to save and what to spend? is there a certain recommended percentage? is there a minimum amount?

(and when i say save, that also includes investing the money...ie, money you dont spend on "stuff" now whether it be tangeable or not...)

as for me, i feel i save too much. i can go back years on my credit card statements and 99% of what i spend seems to be on either necessities, essentials or stuff like cel phones (which i need). the most i seem to spend is a few dvds here and there (very minimal) and gifts for others. i have no problem with it but sometimes i feel, what good is money that just sits there? whats the point of earning it if you dont use it?

im not sure...maybe im on the right track but maybe im way off. what do you guys do?
Old 08-21-06, 08:30 PM
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Where are your savings going? Bank? CDs? Mutual funds/stocks/bonds? Real estate? Just sitting around at home?
Old 08-21-06, 08:32 PM
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i dont think there can be a too much

if you dont need it, give it away. there are plenty of people who do need it
Old 08-21-06, 08:44 PM
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How do you save "too much"?

Just think about it, there are people out there who fear answering the phone because its a bill collector (I used to be one of them a few years ago). Do you know how much stress that causes on everyday life - consider yourself lucky.
Old 08-21-06, 08:52 PM
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Originally Posted by Venusian
i dont think there can be a too much

if you dont need it, give it away. there are plenty of people who do need it

Old 08-21-06, 09:01 PM
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You can never save too much
Old 08-21-06, 09:16 PM
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Originally Posted by edytwinky
You can never save too much

I can't say it much better than that. Currently I am putting 10% of my gross pay in to my 401k + at least $250.00-$400.00 per check in to my house fund.

I've really gotten hell bent on saving lately, I just can't pull the trigger on any purchases over $50.00 or so! Last year I spent a cool 8 grand on vacations and this year I have spent nothing! I just need to make more money, that is all there is to it.

Last edited by Lateralus; 08-21-06 at 09:21 PM.
Old 08-21-06, 09:29 PM
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I wouldn't think it's possible to save too much, as long as you're not going without essentials [housing, healthy food, clothing, etc], and not hating your life/lifestyle.
If you aren't buying non-essentials, and don't miss them, certainly don't start buying them just to have them.
If you've got a lot of money just 'sitting' there, I'd definitely get with an accountant or advisor and try to find a way to get your money to work for you, to make more money.
If nothing else, saving like you are could help you retire at 45 or 40 or whatever.
"They" say that you should have at least 6 months, ideally 2 years, of liquid, easily-accessible assets/savings, in case of emergency. And obviously the more you have,the 'safer' you are, and you can do more with it to earn more off of it.
I'm putting about 12% into my 401k, and I know it's not enough.

Now, of course the other end is being Uncle Scrooge and dying at 94 with billions in an account somewhere, and never having done anything with it--whether that be see the world, donate to charities, buy a Picasso, help your kids/grandkids through college, etc. I think money ultimately is to be spent, but it shouldn't all be spent right now or necessarily by me.
Old 08-21-06, 09:48 PM
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"The Millionaire Next Door" -- Expected Net Worth Calculator

I have always gone by this

http://www.retireearlyhomepage.com/millbook.html

scroll about halfway down. According to this, your net worth should be equal to some formula based on your age and salary. I am about right in the middle between AAW and PAW.

I have always considered being AAW on the right track, but agree with the statement that you can't save too much.

If you are in line with AAW and are debating making a big purchase, I would say go for it. If you are in the UAW category, then keep saving.
Old 08-21-06, 09:55 PM
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Originally Posted by 4KRG
"The Millionaire Next Door" -- Expected Net Worth Calculator

I have always gone by this

http://www.retireearlyhomepage.com/millbook.html

scroll about halfway down. According to this, your net worth should be equal to some formula based on your age and salary. I am about right in the middle between AAW and PAW.

I have always considered being AAW on the right track, but agree with the statement that you can't save too much.

If you are in line with AAW and are debating making a big purchase, I would say go for it. If you are in the UAW category, then keep saving.
Interesting link.

How do I know what my net worth is? Estimate the price of my car, add all the money I have right now, subtract all my outstanding debt? That's going to be a VERY negative number.
Old 08-21-06, 09:59 PM
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not sure the calculator is fool proof though.. The numbers it gives for younger people seems unreasonable... I was playing with it and a 22 year old at $40k a year should have $88k net worth to be average... At 22, I owned a condo (or at least a mortgage) and still had no where near $88k or even $25k
Old 08-21-06, 10:11 PM
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Originally Posted by j123vt_99
not sure the calculator is fool proof though.. The numbers it gives for younger people seems unreasonable... I was playing with it and a 22 year old at $40k a year should have $88k net worth to be average... At 22, I owned a condo (or at least a mortgage) and still had no where near $88k or even $25k
Uh...what if you're like me and make $42k a year, but are almost 28? And I don't own any property. I rent an apartment.

Old 08-21-06, 10:14 PM
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Originally Posted by 4KRG
"The Millionaire Next Door" -- Expected Net Worth Calculator

I have always gone by this

http://www.retireearlyhomepage.com/millbook.html

According to my Nationwide investment calculators if I keep on saving as much as I am now (At 8% return) I will have 2 million by the time I'm 65 and that does not include SS, my life insurance or my Roth. According to the Expected Net Worth Calculator I'm a penny-less loser!
Old 08-21-06, 10:18 PM
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I never said it was fool proof, it is just something to shoot for and a good baseline for those that always wondered.

When I was 22, I didn't fit it either, but it gave me something to work towards that was attainable.


net worth is = what you have - what you owe

If you car is worth $10,000 but you owe $15,000, then you are -$5000

If you home is worth $200,000 and you owe $160,000 on it, then you are + $40,000

Use realistic numbers, for cars I would use wholesale trade in
for houses I would use tax assesed value (minus 6%)
for stocks, take the trade price at todays close
for bonds and t-bills, you can calculate to the day interest earned.
cash - counts as face value
credit cards are all negative
student loans are negative
add in your 401k and IRA
Old 08-21-06, 10:25 PM
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Originally Posted by Venusian
i dont think there can be a too much

if you dont need it, give it away. there are plenty of people who do need it
but my point is how do i know i wont need it next year? how much of what i make should i save for emergencies and how much can i feel free to just spend on whatever i want?
Old 08-21-06, 10:26 PM
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Originally Posted by criptik28
Where are your savings going? Bank? CDs? Mutual funds/stocks/bonds? Real estate? Just sitting around at home?
mostly sits in an ING savings account.
Old 08-21-06, 10:41 PM
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Between my gf and myself, we save over sixty percent of our combined incomes.

Aside from her car payment, we have zero debt. I inherited the house we live in from my grandparents, my car is paid off, hers is almost paid off. We pay our credit cards off every month. No student loans to pay off (she went to college on a full scholarship; I had several academic scholarships and did some work on the side). No kids now, none in the future. We could live comfortably on either of our single incomes, and we tend to be frugal.

After the bills and living expenses are paid/anticipated, we then give ourselves allowances for things like books, CDs, video games, movies, etc and the rest gets stashed away.
Old 08-21-06, 10:53 PM
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I agree you can't save to much, however:

You should maximize you savings. Maybe even talk to a financial planner. But don't stick it all in a 3% savings account. Think diversification. You also don't want to pay Uncle Sam more then needed so again talk to a pro....
Old 08-21-06, 11:13 PM
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Originally Posted by atari2600
but my point is how do i know i wont need it next year? how much of what i make should i save for emergencies and how much can i feel free to just spend on whatever i want?
I save a lot, but always with a plan. These are just rough numbers, but what I try to do is have 2 months worth of all expenses for my rental accounts (in other words, I would have to have 100% vacancy). When it gets beyond that, I start looking at capital improvements, or buying more.

For myself, I keep 1 years worth of income saved. Most will tell you that is too much, and for most people I would agree. If I has a steady job that paid me once a month, or every other week, I could see having 2-3 months worth of expenses, but I am paid solely on commissions. As a result, 1 year makes me feel comforable. When it gets beyond that, I get a plan. Either I will put money into education for my kids, pay off a mortgage, or some other thing that puts me ahead of the 15 year plan that is based on regular monthly payments.

So obviously, it has a lot to do with your individual situation.
Old 08-22-06, 03:27 AM
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how do you know if you are saving too much?
Set a goal. Once you've reached the goal, anything beyond that is too much. Damn, why can't all questions be this easy?
Old 08-22-06, 06:16 AM
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You can never save too much... You can have too much saved in the wrong places though, that's what's more important.
Old 08-22-06, 07:56 AM
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Do a net worth statement, that will give you some idea.
Old 08-22-06, 08:38 AM
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I'm in a similar situation, but I feel like I'll never have "enough" for retirement. I assume you max out your 401(k) and Roth (or traditional) IRA accounts? If you earn less than $150k per year combined, you cannot contribute to your Roth or traditional IRA account anymore. The maximum an individual can save in their 401(k) is $15,000 per year (going up $500 a year until 2011)

That being said, I agree with others that you should have about a years worth of expenses saved up and in a very liquid investment. Since CD rates have been pretty attractive, I've been laddering my savings so that I have a set amount coming to me each month.

Here is an example of laddering: Say I have $40k saved up, I will split the money into 4 $10,000 chunks and invest:
$10,000 in a 3 month CD
$10,000 in a 6 month CD
$10,000 in a 9 month CD
$10,000 in a 12 month CD
Usually longer period CD's have higher interest rates (as it is right now). In 3 months, I will make a decision if I want the $10k today, or if not, then I'll punt it to 12 months. Remember that in 3 months, all of your CDs shift by 3 months so your 6 month becomes a 3 month, 9 month becomes a 6 month, and so fourth. You could even make the time frames smaller like 2 months. So you buy a 2, 4, 6, 8, 10, and 12 month CD. (banks typically like to divide the year into quarters, hence they offer 4 types of CDs). CD rates have higher interest rates than typical savings accounts.

That doesn't address your question though -- how do you know if you're saving too much. I would say that the lifestyle you and your wife are accustomed and comfortable with should not be altered.
Old 08-22-06, 09:26 AM
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I agree that there is no "too much" when it comes to savings. There are some good suggestions here about where you can put some of your money so it's not all liquid. Sounds like you're going to have a nice retirement.
Old 08-22-06, 09:34 AM
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Put me in the "you can't save too much" category. Especially since right now is the first time, since I think it was the depression, that American's have a negative savings rate. We're spending more than we make these days.

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