Excellent post Simon. You have done this community a great service if they will only read it and try to do at least some of the suggestions you make.
I want to add that the consistent thing I see most people do wrong regarding savings (and ultimately, retirement) is not living beneath ones means. Everyone has a "means" because everyone has a different income amount and a different family situation (married / single, kids / no kids). But my casual observation is most people will buy the house or car that the bank says they can afford. Well, that's usually right AT their means, not beneath it. It is no sin to live at ones means... but this doesn't easily translate into being able to save. Most banks and realtors, etc. will encourage you to spend as much as their calculations will tell them you CAN spend. Then, most people get excited about that and buy the best car or house or rent the best apartment, etc. that they can. These BIG monthly expenditures are then set in stone for many months or even years and play the biggest part in a budget calculation later. So their budget starts out with a premise that these things HAVE to be this high. Often they do not. This is only because people do not really want to live beneath their means.
Another mistake many make is not taking advantage of their company's 401k match. I've heard from friends that say "Well, my company match is really poor. They only match 50% up to x thousands of dollars... so I don't participate". I ask them what they do with the money that they are not putting into the 401k and they will say "well, I invest it". So, I ask them this, "what investment do you have that guarantees 50% earnings?" Even if your company has a "poor" 50% or 25% match, that is guaranteed! Why not get this "free" money? On top of that, the money you put into the 401k to get the free money match is tax deferred, so you won't pay taxes on it until you retire and begin to withdraw it, probably at a lower tax rate. Not utilizing a company match, at least to the fullest amount your company will give, is silly. You can't get easier money.
Retirement Planning for ex-JW's
by Simon 37 Replies latest social family
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Brock Talon
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Giordano
I am in my 7th decade, my wife and I left the truth in the mid 1960's We bought our first house in 1972 for $34,000 three years later we sold it for $33,000 that was disappointing but looked at another way it only cost us $1,000 to live there for three years! The next house was in a better location (very important as I learned) we paid $44,000 put about $5,000 into it and 5 years later sold it for $85,000 much better result!
We relocated to northern Atlanta and purchased a nice house close to a lake that had a walking trail around it for $124,000. We really enjoyed our walks stayed their for 7 years and sold it for $144,000 that was also disappointing however we lived there rent free and took out $10,000.
The city was expanding so we went to the City Planing department and looked at the county map to see where new and improved roads were going in. Then we looked for attractive rural areas ( where houses and land were cheaper). We found an 8 acre property with a stream that you could see from the house. The home needed some serious work and over the years we invested more money for upgrades and repairs.
We lived there for 8 years and and ran our business out of the walkout basement which also had a view of the property and stream.
As expected the city came out to our location....... prices were going crazy......the land values rose (so did property taxes) we sold the house for a handsome price and moved to an historic town in Virginia. We bought our next home for cash using the profits of our last house.
People could argue that it would be better to get a 6 or 7 % mortgage and invest your money in the stock market. I would agree with that however we had reached a point where the stock market was not questionable but not always soothing to the nerves besides which it just felt great to finally own our home!
In the 13 years we have lived in our historic home, in a community we love, our house has appreciated each year except in 2008 when the real estate bubble burst. The next couple of years didn't bother us, we weren't going anywhere we had 2 years of income we could drawn down on before touching our mutual funds. We kept our mutual funds and watched them come back stronger then ever as did the value of our property.
So to summarize. Make time work for you not against you. The location of a home is important. Factor in growth areas.There is a natural population growth rate, people need a place to live.
Diversify with no fee mutual funds. If you don't know which funds to buy into.......... study your check book and credit card statements. Invest where you spend your money.
Health, food, energy, real estate,consumer products, teck etc. You look at a mutual fund to see if they are investing in the basics and if they handled market down turns well. You average it out and if it's a 7% gain you've doubled your money every 10 years or so.
That's about it. When I look back over a lifetime and averaging our profits we never paid a dime to live in our homes nor heat and cool them. Nor to put gas in our cars. Time and decent investments reimbursed us.
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Simon
When my husband and I were first starting out we sat down at the beginning of every month and wrote down how much our pay checks were and subtracted all the bills we had for the month. That showed how much was left over, we decided how much was for savings, how much for eating out, etc. it really helped us to save some every month and watch our spending.
"Pay Yourself First" is good advice - decide on an amount you can save and pay it early, don't rely on what's left each month especially if you have a tendency to see a balance as 'money left to spend'. It depends how disciplined you are. I know we could save some money with stricter budgeting but ultimately it's just a mechanism to help control your spending urges.
Take out a 30 year mortgage and pay it off in ten. ( That takes opportunity and discipline, but it's worth it)
We overpaid on our mortgage to bring the balance down but right now, with rates so low, it's less appealing. Still, paying it off early is a contingency against rates rising at some point (but the world seems addicted to cheap credit right now).
The other good reason for having a slightly longer amortization than you need is that if you have over-payment privileges (e.g. double-up payments) then it gives you slightly more flexibility to take advantage of them. If you are 'at the limit' then doubling up payments will probably be prohibitive. Also, if you do face a period of unemployment, you can drop back to a much lower mortgage payment for a while.
That's about it. When I look back over a lifetime and averaging our profits we never paid a dime to live in our homes nor heat and cool them. Nor to put gas in our cars. Time and decent investments reimbursed us.
Good when you can take advantage of market conditions and buy and sell at the right time.
I know a couple who were very lucky that bought and sold in different areas each time fortunate to take advantage of a property boom in prices. They weren't disciplined though and saw the equity as "free money" ... which they spent. Oh dear. Of course property prices have a ceiling, even though a bubble can make it appear otherwise. Once property stopped going up they were soon in negative equity for a property they couldn't really afford and I think they ended up losing the house.
If you are fortunate to get a windfall for any reason, paying off debt or investing it is infinitely more use than going on a spending spree. The danger of getting too used to the money is great.
When you look back at what you used to earn and used to survive on it's clear that most of the time, your spending and lifestyle expands to fit your income. If you can control that you should be OK.
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Simon
Another mistake many make is not taking advantage of their company's 401k match.
Yeah, anytime the company or the government is going to give you free money you should do whatever you can to take it!
Most banks and realtors, etc. will encourage you to spend as much as their calculations will tell them you CAN spend
It makes for a much more relaxed life to live well within you means rather than borderline. There is no slack in case anything happens and it's got to be more stressful.
No need to 'keep up with the Joneses' - they may be stressed out and miserable paying for all their toys.
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dubstepped
As I posted in my story on here, my wife and I were awful with money. We now use YNAB to track everything we do. We live one month ahead in our budget, always paying next month's living expenses as we work this month. We work more than needed to make sure that we can save and take care of unseen expenses. I'm 38 years old and for the first time ever we'll likely be investing this year for retirement. I'm looking at a Roth IRA invested in good index funds from here to retirement.
It's so nice not living in fear of money issues every month. I probably shaved years off my life with all of the money stress I put myself through.
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4thgen
Simon, very interesting. We can tell you have given this a great deal of thought.
Undervalued Real Estate investments are a great bargain now. (Buy when everyone is selling....sell when everyone is buying).
A SELF DIRECTED IRA is a good alternative to the regular IRA's, as you can invest in whatever you want, without being tied to the stock market. You can even invest in Real Estate! https://en.wikipedia.org/wiki/Self-Directed_IRA
Also, Below is a thought on mortgage being good debt. Personally, I feel a whole lot better now that my home is paid off!
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Giordano
Good when you can take advantage of market conditions and buy and sell at the right time.
Simon when I tried to do that I failed........I had no inside information as to what was really going on. Like learning about the truth the game was rigged. But I knew what I was spending our money on and invested in energy and medical and real estate mutual funds and just held on to them to this day.
Dubstepped: I'm looking at a Roth IRA invested in good index funds from here to retirement.
"in his recently released letter to Berkshire Hathaway shareholders, Buffett gives us a glimpse into how he views long-term investing. As arguably the greatest stock picker of our time, his perspectives may surprise you.
Buffett describes advice he has left in his will as to how the trustee should invest money Buffett is leaving for his wife. Here’s Buffett’s advice:
“My advice to the trustee could not be more simple: Put 10 percent of the cash in short-term government bonds and 90 percent in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)” -
Closer to Fine
I agree, great thread and I appreciate the explanations and advice. I too because of age started thinking and planning for retirement several years ago. This is one of those difficult situations that UBM's can find themselves in. My hubby has no interest in planning for the future. He spends more than he makes and would be in the hole by hundreds of $'s every month if he was on his own. It is the way he was raised and is of course supported by the belief the big A is any day now, so why save anything?? He has told me many times how foolish I am for thinking this system will be here when we are old. So the retirement planning is up to me and can be a bit intimidating. I appreciate all advice on this topic.
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Simon
Simon when I tried to do that I failed........I had no inside information as to what was really going on.
I think the truth is that very few people can, I think the majority of those that do simply get lucky.
Buffett gives us a glimpse into how he views long-term investing. As arguably the greatest stock picker of our time, his perspectives may surprise you.
He's long said, correctly, that fund managers are a waste of money. None of them outperform the market. He offered money as a bet if any fund manager could and not one took him up on it. That is why index funds are better - at least you are not paying someone for a bad job.
He spends more than he makes and would be in the hole by hundreds of $'s every month if he was on his own. It is the way he was raised and is of course supported by the belief the big A is any day now, so why save anything?
Yeah, lot of people have bad financial habits. It sickens me that schools teach all manner of useless crap but very little that is practical.
Who cares about a tangent to a circle compared to balancing a household budget?!
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Ignoranceisbliss
That's some great advice Simon! Thanks for sharing. This is something that I think a lot about as well. My dub parents are awful with money and my dad has to work until he is 70. There is no way I want to end up like that.
I would add that diversification is good. We have assets in stocks, rental properties, and savings accounts (emergency fund). I have a hard time trusting the stock market with all of my retirement money.