How much money should one save? (loans, IRA, expenses, real estate)
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There are some that say saving money is super-essential. And other people who will say saving your money will just cause it to rot from inflation.
It seems like the scale of how much to save vs. invest depends on how much money you have.
There is an absolute minimum of savings that's good to have:
1) Saving up some money for when you need to buy a new car, so you don't have to pay thousands financing it.
2) Saving up for a house
3) Then there should be an emergency fund that could cover 3-6 months worth of basic living expenses, among other emergencies (depending on where you live, this may be $10-15k).
But once all these bases are covered, I'm putting my money into appreciating assets.
Quite a few assumptions and generalizations in your post.
1) I had a 0% loan to buy my car. No need to save up for something to avoid finance charges if the loan rate is 0%. Many car makers offer low or no cost loans for new vehicles. I would say it isn't crucial to save up to pay cash for your car.
2) Obviously you need to save for a down payment on a house. It's best if it's equal to at least 10% but obviously 20% is better.
3) The total size of your emergency fund can be disputed depending on many factors. But you should have some form of a liquid emergency fund, this is bare minimum for savings in my opinion.
As to buying appreciating assets, the difficult part is going to be identifying what those are. What assets do you have in mind that appreciate? Real Estate? Gold? None of those are guaranteed and are just as likely to fall in value.
If you're referring to investments, we don't call those an appreciating asset. They are an investment and include risk. As with anything, it's hard to know what to buy but generally speaking if your timeline is long you are good with sticking it in a mutual fund and waiting.
My opinion is that you should save between 3-6 months of emergency fund depending on how stable your job/career is and your total dependents/age.
After your emergency fund is filled, you should allocate that money to retirement savings in the form of a 401K or IRA using mutual funds. If you still have leftover money to allocate after the federal maximums, then I recommend an individual brokerage account for trading.
I wouldn't personally invest in "appreciating assets" whatever those are, unless it's real estate.
No less than 10% of your gross ... from your first $1 earned to your last breath
What you'll do (be able to, or want to, or need to) with that accumulation will vary over the decades.
Your saved money sits of a scale of risk / reward - with cash being low risk low reward and equities / real estate being high risk high reward option and bonds being the middle option. The general guidance is if you plan to make hefty purchases or start spending more than you're earning soon on a fixed time due to life events, walk down the ladder. If you can time your big purchases or withdrawals to whenever is good financially, walk up the risk ladder. The longer your withdrawal horizion, the more risk you should take since short term gyrations will be smoothed out.
Now, with that approach, realize that total savings is pure loss, so the idea is that you still want to spend your investments - you just want to do that when they have gone up and you've got lots of earnings. 2019 was good for this, 2023 not so much. Now sometimes the best 'spending' is actually buying yourself more leisure time and working less, whether that's sabbatical, lower stress job, hiring out DYI projects / maintenance, or retiring earlier.
Always factor in work time to the calculation - if your funds match what you think you'd largely like to buy, then start trimming down your work.
Finally, cash is an investment vehicle in itself, I change between cash and equities on these recent short term gyrations.
There are some that say saving money is super-essential. And other people who will say saving your money will just cause it to rot from inflation.
It eems like the scale of how much to save vs. invest depends on how much money you have.
There is an absolute minimum of savings that's good to have:
1) Saving up some money for when you need to buy a new car, so you don't have to pay thousands financing it.
2) Saving up for a house
3) Then there should be an emergency fund that could cover 3-6 months worth of basic living expenses, among other emergencies (depending on where you live, this may be $10-15k).
But once all these bases are covered, I'm putting my money into appreciating assets.
Points one and two are up to you, but I have a big issue with your point three.
I mean, where do all those generic averages come from? Is there an invisible contract I am not aware of, where someone guarantees that I'll get a new job in 3-6months (preferably with same salary/benefits)?
I'd say have enough to cover your expenses for a few years (full recession cycle) and you'll sleep well. There are savings accounts paying 3.5% which is enough to offset the part of inflation which is not demand-based.
There have been many examples of people who lost stable jobs around 2008 and it took them years to get back on their feet. It's not that they didn't work, but it was 'contract', sporadic, etc. Reality is they were unemployed or underemployed for years to come.
There are some that say saving money is super-essential. And other people who will say saving your money will just cause it to rot from inflation.
It seems like the scale of how much to save vs. invest depends on how much money you have.
There is an absolute minimum of savings that's good to have:
1) Saving up some money for when you need to buy a new car, so you don't have to pay thousands financing it.
2) Saving up for a house
3) Then there should be an emergency fund that could cover 3-6 months worth of basic living expenses, among other emergencies (depending on where you live, this may be $10-15k).
But once all these bases are covered, I'm putting my money into appreciating assets.
The only sensible piece of advice is #3, but we've all probably heard that a million times by now. The first two have so many variables it's impossible to give an answer that fits everyone
The only sensible piece of advice is #3, but we've all probably heard that a million times by now. The first two have so many variables it's impossible to give an answer that fits everyone
Amen. Every advisor worth a damn will admit the proper advice for every person is different. We all end up in one of two categories:
1. Saved too little
2. Saved too much
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