Why Should I Make a Budget?

Yep, just had this conversation on another group. It was suggested that a $2 coffee and $10 lunch were peanuts, and if that made a difference in your retirement, you lost. I pointed out $12 a day 5 days a week is $3,120 a year. Investing $3,120 a year at 10% for 30 years is $619,000! Turn down the utilities, drive used cars and watch a few other things and you could easily retire with over $1M or even retire early. There are families saving 60% of the income, planning to retire in their 40s, living on 4% of their net worth. All you need is a nest egg

25x your yearly expenses and your free not do the daily job.

Here are two URLs, if your lucky, they will change your financial life.

Here's the blog from an IT guy that retired at 30 years old.

And a forum of his followers,

Oh, stock brokers are high commission salesmen, selling you, what you can buy for 1/25th to 1/40th of the brokers price. If you don't know where to start go to Vanguard.com. Buy the "Total Stock Market Index Fund"*. The yearly maintenance is 0.04%, not 1%, 1.5% or even 3% that brokers charge.

• When America does well you do well, if you own "Total Stock Market Index Fund". VTSAX

1) There aren't many investments available to someone with $3k that will pay 10%. 2) Show your work: you are off by an order of magnitude:

Compounding once a year, that 3,120 yields:

# printf '%f\n' $(( 3120.0 * ((1 + (0.1/1)) ** (1 * 30)) ))

54442.135079

Compounding every two months:

# printf '%f\n' $(( 3120.0 * ((1 + (0.1/6)) ** (6 * 30)) ))

61136.395083

Compounding every month.

# printf '%f\n' $(( 3120.0 * ((1 + (0.1/12)) ** (12 * 30)) ))

61892.686045

Compounding daily:

# printf '%f\n' $(( 3120.0 * ((1 + (0.1/365)) ** (365 * 30)) ))

62641.131682

A = P (1 + r/n) (nt)

Where:

A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) r = the annual interest rate (decimal) n = the number of times that interest is compounded per year t = the number of years the money is invested or borrowed for

At a more reasonable current interest rate (1%), compounding once a month:

# printf '%f\n' $(( 3120.0 * ((1 + (0.01/12)) ** (12 * 30)) ))

4211.033360

Let's start with the fact that if only save $3,120 one year and invest it at 10% for 30yrs, you will have $55,442. That's pretty amazing! So we agree on your number. Now, why would you only do that once? My scenario was to do this every year for 30 years. This is the formula you need. Balance(Y) = P(1 + r)Y + c[ ((1 + r)Y + 1 - (1 + r)) / r ] P = starting Principal ($3,120) Y = Years (30yrs) C = each years contribution ($3,120)

That's more than I can compute, so I use online calculators. Plus I can't make it work, I get much more that $619,000.

Here's the one I use.

Here are a couple more,

They all work, they all get exact or very close to my number $619,000. It depends on whether you do yearly interest, monthly, weekly, daily?

Do we have agreement? Mikek

This got dropped while writing my response; Vanguards VTSMX has a $3,000 minimum investment with 0.14% maintenance fee. When you get $10,000 switch to VTSAX for it's lower 0.04% maintenance fee. They have the same holdings.

No, I didn't, you only calculated saving $3120 for one year, I'm doing that every year for 30 years.

Let's start with the fact that if only save $3,120 one year and invest it at 10% for 30yrs, you will have $55,442. That's pretty amazing! So we agree on your number. Now, why would you only do that once? My scenario was to do this every year for 30 years. This is the formula you need. Balance(Y) = P(1 + r)Y + c[ ((1 + r)Y + 1 - (1 + r)) / r ] P = starting Principal ($3,120) Y = Years (30yrs) C = each years contribution ($3,120)

That's more than I can compute, so I use online calculators. Plus I can't make it work, I get much more that $619,000.

Here's the one I use. >

Here are a couple more,

They all work, they all get exact or very close to my number $619,000. It depends on whether you do yearly interest, monthly, weekly, daily?

Do we have agreement? Mikek

That 10% is unrealistic.

Retirement at 30 on a small amount of money is not something that I would aspire for, and that is putting it mildly. That means not contributing to society at such a young age.

No, it's not. From Investopedia; "According to historical records, the average annual return for the S&P

500 since its inception in 1928 through 2014 is approximately 10%."

From

annual return of the S&P500 is 10.22%

From "the Motley Fool" The growth rates for these years are as follows.

1966-2015 9.69% 1916-1965 10.36% 1871-2015 9.05%

And most important to me, Jan 2011 to July 2017. From

The Annualized S&P 500 Return was 12.756%, with dividends reinvested. The market goes up over the long term, you can't pick the timing because there are bad years, 2009 for example, I was down $230k, but I made all that back and much more. The growth rates shown includes those down years. Buy and Hold.

I do agree, retiring on about $750k is not the life style I would want. If you use a 4% withdrawal rate you have a 95% chance of not running out of money within 30 years, and most likely you will have more after

30 years of withdrawing than you started with. Your nest egg could even grow toover $4 million in 30 years, even with you living on withdrawals. Here's a calculator, that uses historic market growth periods to figure out how long your money will last.

it, especially if their house is paid off. But MrMoneyMustache made it work very well. Just because you can retire early doesn't mean you aren't contributing to society, in fact you have more time to contribute and, your money is also contributing to society. I'd say MrMoneyMustache has contributed much in defining a plan for many people to get out of debt and actually save money for their future.

Here's the about page of his Blog.

Very nice. I was lucky as I sold out most of what I had in stocks in my and my wife's retirement plans and went all the way in 2009.

I want to comment that no person can hold 100% of savings in stocks from 1928 to 2018. Life does not work like this. Also you need to pay taxes at least on dividends.

Anyway, the current breakdown of my income producing assets is as follows:

35.08% stocks (mostly Berkshire Hathaway but also some index funds) 30.97% bonds/cash 25.70% Equity in my own corporation 8.84% Comm. Real Estate and share in ag land LLC

Yes, I think that when I retire, I will try to put most of my money into stock index and live on up to 4% or dividends, whichever is higher.

i

Clearly that was an example to show the market does return 10% over the long term.

You mean people don't save money for 90 years? Your nitpicking my statements for things they weren't meant to represent.

That is correct, VTSAX pays about 2% dividend. If you're in the 15% tax bracket the tax amounts to 0.003% of the total. But most people would have a lot of their nest egg in tax deferred accounts. Such as IRAs, ROTHs, 401Ks, or SEPs. In that case no tax due on that money. Until you start spending it!

Yes I'm 63 and don't have any bonds, and my concern is, this is not a good time to buy bonds. With interest rates on the rise, the price on bonds will drop, especially longer term bonds. My bond proxy is REIT preferred stocks, they pay 6% to 8% dividend but they are more risky, not as risky as stock, but the can go down in price, or up. The last asset breakdown I did was in Jan.

71% VTSAX and few other stocks 13% REIT preferreds 9% Real estate sold on Land contract (8%) 4.3% Cash 2.8% bonds (My HSA) I do have a bond fund, I forgot, I regret it, but I was limited on what I could invest in by the HSA holder.

We have a small business, but I doubt we could sell it for $100,000. I don't include it as part of my assets, nor my home. I called myself retired Jan 1 2017, but my wife doesn't want to retire. sell, or close the business. Sooo, most of the year I work about

15 hrs a week, in the summer it's probably closer to 25hrs. My wife is working 70 hrs+, she doesn't need to.

This was kinda fun, anyone care to talk more about money saving and/or investing. I'll pass along a good vehicle, that would be an HSA (Health Savings Account). You must have a High deductible insurance plan to be eligible, but then a family can put $6,900 in for 2018. Plus another $1,000 if you are over 55. It's fully deductible off your income, it grows tax free, and the kicker is, pay off you medical bills with today's income and let the HSA grow tax free. Save all your medical receipts, then, when retired, you can pull money out tax free equal to the old receipts you saved. Say, maybe you need an additional $10k income, you pull out $10k of receipts you saved over the last 20 years and that $10k is tax free. Here's more info,

Mikek

I also enjoyed talking to you about it. There is not many people genuinely interested in managing money, usually because they do not have money.

i

The sad part is people think they can't save money. But they can, there are families on the MRMONEYMUSTACHE forum saving 50% and more, living on $30k or $40k. I saw a thread the other day and someone was worried they couldn't make it on a little over $300,000 a year from their investments. I made a snarky remark, and got a warning about not respecting the poster, Got that right!

Perhaps there aren't many people interested in increasing the demand (and purchase price) for their favored financial instruments. Would you invite more auction bidders to compete against you?

Not sure I get our point. If someone has a favored financial instrument, they are already involved. I invite everyone to compete against me in stock purchases, that's what drives the prices up. I have been in some very thinly traded stocks and was to slow to buy and the price rose fast when others did buy. But in general a few thousand shares doesn't move the price of most stocks. Mikek

This would be the least of my concern, frankly. I fear rogue asteroids much more than I would be worried that uber-wealthy Rec.crafts.metalworking readers will bid up the price of S&P 500 or a top 30 stock.

i i

How much does uber add to the networth of the wealthy?

I'm not worried the S&P will get bid up, I'm begging for it to happen. I'm thrilled with the last 7 or 8 years, and wonder how long the run up can go. Mikek

If someone doesn't come up with a welding comment soon, I'll have to post some more financial info! :-) Mikrk

OK, if you have a slag inclusion can it be floated or poked out by melting the area with acetylene?

The slag is in a forge weld in the handle of old blacksmith tongs. I noticed it from the discontinuity in the redness while fitting the jaws and tightening the rivet.

I've practiced sculpting free-form shapes and joining wire loops with TIG as exercises in puddle control, now I want to see how it goes with acetylene.

-jsw