Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
what is the point of working so hard for our higher income if we're going to live like we did when we only made $50k?
I'm not advocating living beyond your means but I do believe in enjoying what you've worked for.
The point of living on $50k when you make $175 would be to not have to work at all.
Everyone values different things and noone is right or wrong on the more stuff = happiness thing, but it is entirely people can live a happy life on $50k and avoid the temptation of having more/bigger stuff to achieve a goal they value more in complete freedom from punching the clock. The lower lifestyle costs hits both sides since it gets you to retirement more quickly and need less accumulated to fund that lifestyle after retirement.
My wife and I always valued the thought of the freedom over the stuff. Move to where you want instead of planning around availability of jobs or ease of commute, plan long trips and let the wind take your sails, etc. God that sounded cheesy.
I think people should aim for 1 year full living expenses in an EF.
Some people.
Take LowEx for example, if they are positioned where they can live on either one of their salaries then it is likely one year emergency fund isn't necessary. Other factors of course what type of job he and wife have, etc. but there is no one-size-fits-all rule.
problem with high earners is that most of their debt, they can "work" to compensate for it. they don't mind spending $10-20k+ on a vacation/fun car because it's a few extra work days a month for a few months and they make it back.
Debt changes meaning once you can just earn your way out of the hole, so why worry about the hole if it isn't a "large" leak?
For most people, they don't see Starbucks as a large leak, so they buy their coffee. A smartphone plan with "extras" like unlimited X, small leak, they pay for an unlimited plan. People buy food but let it spoil, again small leak but they don't mind their money "spoiling" away.
Bring this back to high earners, a small leak can be thousands of dollars.
I don't necessarily disagree. People who are good at earning money can often have a "there's more where that came from" kind of mindset. They think they will always earn good money because they always have. The problem is almost everyone's earning capacity declines completely.
I am quite debt averse myself...but I do believe there are people out there who can borrow responsibly, pay back their debts, and not make borrowing to fund today's lifestyle a habit. Like I said, a minority of people, but probably a relatively large minority.
12% nominal stock market returns over a 20 year period are fairly unusual. In the 68 20 year periods starting with 1/1/28-12/31/47, and ending with the 20 year period from 1/1/95 to 12/31/94, 28 of those had nominal S&P 500 returns (including dividends) of 12% or higher. If we extend that out to 30 year periods, then it's 19 out of 58. .
If we're talking real returns, then obviously it's much less. Any discussion of saving $X in the future needs to take into account that, say, "a million dollars" (or anything) 30 years from now will likely be about half as valuable as today (rule of 72s, money doubles in 30 years at about 2.4%. As good a guess as any going forward).
That said, ANY amount of money saved 30 years from now is better than zero, and DR is about getting people heading towards "savings". If he works for some people, great. Doesn't impact my life any. If a DR "acolyte" wants to fight with me about debt or whatever and claim that anything I'm doing is "wrong", then so be it (I've had a few such encounters during my years on the intertubes. )
Whatever works to make people's lives better. We all make "suboptimal" choices to some degree, and we're all dealing with limited facts, limited time, and limited resources.
Actually if people followed his advice on housing costs and mortgages there would be a lot less foreclosures and a lot more people able to stay in their house when life happens.
It doesn't have to all be in cash. One could keep 6 months in cash and another 6 months in a lower risk investment that has a little bit of equity exposure. Hopefully one doesn't ever need to burn through an entire year, but better to have it than not.
Agreed. I have money saved in some taxable stock and bond funds that I would tap into in the event of unemployment or the need to buy another car. I've held all of those funds for more than 10 years, so even if I have to sell all of them tomorrow, I will have made more money on them than had they sat in the bank and earned minimal interest all these years.
Take LowEx for example, if they are positioned where they can live on either one of their salaries then it is likely one year emergency fund isn't necessary. Other factors of course what type of job he and wife have, etc. but there is no one-size-fits-all rule.
True. If you have 2 incomes and both are substantial, the loss of one doesn't necessarily mean it's an 'emergency' which needs dipping into an emergency fund, therefore a smaller liquid fund is probably fine. I am sole support for myself with no other income, and I have had periods where I was unemployed for a long time after being laid off, so my inclination is to always be prepared for the worst and hope for the best and saveSavesave/make hay while the sun's shining.
Exactly. But you have to give credit where it is due; he is a marketing genius. He found a way to become wealthy by selling advice which was not new. All he did was slightly re-arrange and simplify advice which had been promoted for years by Crown Financial Ministries.
I don't necessarily disagree. People who are good at earning money can often have a "there's more where that came from" kind of mindset. They think they will always earn good money because they always have. The problem is almost everyone's earning capacity declines completely.
I am quite debt averse myself...but I do believe there are people out there who can borrow responsibly, pay back their debts, and not make borrowing to fund today's lifestyle a habit. Like I said, a minority of people, but probably a relatively large minority.
I'm sure it's a smallish but still sizable number.
Anecdote - we're about to buy a new car. An actual NEW new car. Our '94 died, and we're still driving a '99. We're leaning towards a Honda Accord (and yes, I suppose we could "afford" something "fancy", but it's not worth it to us, at least not now. YMMV, literally as well as figuratively).
With interest rates as low as they are, we'll likely finance almost the entire cost, and try to spread that over as many years as possible (as long as the rate is low enough). We COULD pay cash for it, but Life Happens and we'd rather have a pile of liquid assets and low fixed rate debt. Right now I can likely borrow at about 2.3% for 5 years. Our money just sitting in online savings is earning 1%. That adds up to a minimal cost of funds to retain flexibility.
Of course, if we choose to, we could pay off the car loan quicker. However, the rate on our mortgage (yes, even after factoring in the interest deduction on income taxes) is currently higher than car loan rates, so if we were going to dump extra cash towards a debt, that would be a better choice from an interest rate standpoint (but not necessarily from a cash-flow standpoint, as the monthly payment on the mortgage won't change, whereas paying a car loan down ahead of time usually means that you've essentially "paid ahead" and go without paying for awhile if necessary without penalty. Obviously, loan terms vary, etc.).
All of that is not what DR is going to teach, because (for the most part) he's not dealing with people who think in those terms. And that's fine. DR is going to say "don't take on debt and pay it down any debt that you have", because A) that's an easy rule to explain and it's intuitive 2) you can see results quickly, and iii) paying down debt is effectively a GUARANTEED rate of return on your "invested" cash equal to the interest rate on said debt.
With interest rates as low as they are, we'll likely finance almost the entire cost, and try to spread that over as many years as possible (as long as the rate is low enough). We COULD pay cash for it, but Life Happens and we'd rather have a pile of liquid assets and low fixed rate debt. Right now I can likely borrow at about 2.3% for 5 years. Our money just sitting in online savings is earning 1%. That adds up to a minimal cost of funds to retain flexibility.
If this were a 0% rate that would be fantastic. If you took a chunk of cash and were able to invest it and get more than 2% that would be a worthwhile exchange for taking on a car loan. But then again, you can always choose to pay off the car loan faster at some point, if you so desire.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
)
