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How aggressively do you save?

A resource forum for those interested in buying, selling, or developing a business; for questions about retirement plans; investing and basically any aspect of acquiring, keeping and increasing one's personal stash of filthy lucre.

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How aggressively do you save?

Postby llary » 10 Feb 2011, 16:10

Until a few years ago I was concentrating on building my business and never put much thought into personal savings or cash investments beyond an emergency fund. I am now socking away 17% of my average monthly income in a mixture of medium risk mutual funds and indices.

I was quite happy with the amount I was saving but after working on some spreadsheets and compound interest calculators over the past few weeks I realized that we could start cutting back and save much more aggressively for a few years, possibly up to 70% of my monthly income. That would be enough to retire comfortably by 40.

Going down this road we would be committing to a much lower standard of living for the next 10 years in return for a higher standard of living and easier life from our mid-40s until retirement. We would have to sell one of the cars, stop eating out, limit holidays and generally be much more careful about spending. I'm not sure if I can commit to it, but the 17% gets automatically debited by various savings schemes and we never seem to miss it. I think I could maybe get used to a 50% or even 60% 'pay cut' if it just leaves my bank every month and I never see it.

My wife is on board too, I give her monthly pocket money since she doesn't work and we figured out if she gets half of it deducted automatically each month into a medium risk fund she will have around $2m of her own savings in 10 years.

Once you saw your savings and investments build up did it start to make you more excited about working harder to save even more, and how aggressively do you save? What is your long term goal and do you think it's worth the medium term sacrifices?
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Re: How aggressively do you save?

Postby cranky laowai » 10 Feb 2011, 16:15

llary wrote:That would be enough to retire comfortably by 40.

Going down this road we would be committing to a much lower standard of living for the next 10 years in return for a higher standard of living and easier life from our mid-40s until retirement.

Huh?
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Re: How aggressively do you save?

Postby sandman » 10 Feb 2011, 16:20

Dude! Pretty much every single person on this board is not even in same league as you appear to be, financially. You're not even talking in the same language as the rest of us. I'd suggest paying for the advice of a financial analyst.
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Re: How aggressively do you save?

Postby divea » 10 Feb 2011, 16:36

70% of your income??? Depends on how much you earn. Our family wouldn't be able subsist on 30% of our earnings.

Darn. Sandman beat me to it.
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Re: How aggressively do you save?

Postby dnwolfgang » 10 Feb 2011, 16:47

llary wrote:We would have to sell one of the cars, stop eating out, limit holidays and generally be much more careful about spending.


Not worth it. My method is to save as much as possible while giving a budget that is big enough to enjoy life but small enough so you are careful with spending.

Currently that amounts to about 20% for play money (food/shopping/whatever), 10% for travel money, and the rest saved for now BUT I have no kids or mortgage, that of course would change things and at that point I would choose to save less and work a few more years than stop eating out and limiting holidays. (Although depending on where you live and how much you need the cars selling one of those may not be a bad idea... Cars are a horribly bad money pit)
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Re: How aggressively do you save?

Postby llary » 10 Feb 2011, 18:35

cranky laowai wrote:
llary wrote:That would be enough to retire comfortably by 40.

Going down this road we would be committing to a much lower standard of living for the next 10 years in return for a higher standard of living and easier life from our mid-40s until retirement.


Huh?


I know quite a few people who could have retired already but they choose not to. It's nice to know you could if you wanted, then you can carry on working but on your own terms.
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Re: How aggressively do you save?

Postby llary » 10 Feb 2011, 19:09

sandman wrote:Dude! Pretty much every single person on this board is not even in same league as you appear to be, financially. You're not even talking in the same language as the rest of us. I'd suggest paying for the advice of a financial analyst.


I'm not looking for advice, but thanks for the snotty reply.

I know as fact that there are at least 3 people in this forum making considerably more than me and a few dozen in the same ballpark but that's irrelevant. This question could apply to anyone making $40k or $40m per month.

I know a very frugal couple earning $70k/month between them and they have been savvy investors since a very early age. They are lucky enough to have inherited their house so they get by quite comfortably and have religiously saved $50k/month in various long-term stocks since their early 20s. When they wanted to buy something or go on holiday they would supplement their income by working at home. Now in their early 50s they have decided to quit work and move the money into safer bonds with staggered maturity dates to live off part of the interest while reinvesting the rest to leave their children.

I am supposed to be good at math, I should know how a little saved each month compounds over time into a very large mount. When faced with a real world example I was shocked into thinking about my own family's future. I did a quick mental calculation and realised this quiet, unassuming pair of office workers is sitting on over NT$75m in liquid assets!

On the flipside I know a specialist engineer in his late 30s who makes over $400k/month and has himself admitted that he does have even NT$100k in liquid assets. I'm not even sure how he manages to spend it all, I think his girlfriend is helping him out with that.

I am somewhere in between those two attitudes but I am starting to get very attracted to the idea of putting in 20 years of really solid work and ruthless saving to live a relaxed jet-set lifestyle in my old age.

I wonder if other people are already much further down this road and have any comment on whether they regret wasting their youth on being frugal or if they are having a blast now the hard work is done.
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Re: How aggressively do you save?

Postby llary » 10 Feb 2011, 19:23

dnwolfgang wrote:
llary wrote:We would have to sell one of the cars, stop eating out, limit holidays and generally be much more careful about spending.


Not worth it. My method is to save as much as possible while giving a budget that is big enough to enjoy life but small enough so you are careful with spending.

Currently that amounts to about 20% for play money (food/shopping/whatever), 10% for travel money, and the rest saved for now BUT I have no kids or mortgage, that of course would change things and at that point I would choose to save less and work a few more years than stop eating out and limiting holidays. (Although depending on where you live and how much you need the cars selling one of those may not be a bad idea... Cars are a horribly bad money pit)


That's exactly the attitude I used to have, but when you start plugging numbers into calculators you realize what you are missing out on in future. For example NT$5,000/mo invested over 30 years at 6%/year is something anyone could manage by putting their money into some kind of index tracking fund. That would be worth $5m after 30 years. Even after inflation you have a few million in the bank to enjoy or re-invest. If you stopped contributions but let it compound for another 10 years you would be sitting on nearly $10m. I know some people will be reading this thinking, 'well, duh!' but I really shocked myself when I started considering all this seriously

I used to think that buying in Taiwan was pointless with rent so cheap until I realized that mortgages were a forced savings vehicle. Everyone needs somewhere to live and unless you are lucky enough to have rich (grand)parents it's better off putting the monthly housing cost into an appreciating asset rather than a black hole.

You are right about cars, if I'm honest with myself it would be no great hardship to scale down to something cheaper and I think we will do that when it's getting time to replace the current model. I'm not sure about selling the second car though, it's an old but reliable Subaru that would be worth hardly anything to sell and does not cost much to maintain. I think my wife would be a lot less happy if she was stuck at home with the baby every day and that was the real motivation to owning two cars.
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Re: How aggressively do you save?

Postby Indiana » 10 Feb 2011, 19:41

I'm 37 years old now and have for the past few years thought an awful lot about what what my husband and I will need to retire comfortably. It's quite a scary prospect for those of us who don't have pensions, etc. (not that pensions are a great deal typically, but they are something). We save about 65- 75% of our salaries depending on the month / expenses that we have and will be able to semi-retire in about 10 years if we keep up the same rate of savings, which we are hoping to do, and then retire to a place where we can make enough for our daily expenses and have enough $$$ to buy a few properties and have a healthy nest egg in the bank. I'm just hoping the jobs we have now (or something similar) are still here ten years from now, but anything can happen and we may be in a situation where we need to seriously save for 20 years instead of 10.

I think that too few expats take saving money seriously enough, and I applaud your efforts.
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Re: How aggressively do you save?

Postby saddletramp » 10 Feb 2011, 19:52

I think it is a great idea. Retiring at 40 sounds great.
I did something similar, but I started at 38, I plan to be mostly retired at 50. I have two more years to go.

When I first came to Taiwan, I was on an expat package. I used to have about 25% of my check deducted for taxes, but since I had moved overseas, I was then exempt from taxes. I took that money that I used to pay in taxes, and put it into my 401K package instead. That was like a forced savings plan, so it was pretty easy to do. I never got to see the money, so never missed it.
Also, my pay was deposited directly into my US bank, so I had an automatic wire transfer sent to me here in Taiwan, I only had 30,000 NT sent a month, and I was able to do alright on that. I didn't have easy access to the rest of the money from my check, so my account in the states built up nicely. I also did some investing in the Taiwan market with my NT money.

Like Llary, I also started working for myself. My wife and I have done pretty well, but we still keep a pretty frugal lifestyle.

We bought property both here and in the states for pretty reasonable prices, and we paid cash, so we are not getting soaked in interest fees. Last year I spent 6 months back in the states building on our land, so my retirement home is pretty much in place.

We are now in the process of opening a franchise outlet. After getting it established, we will let a local manage it.

I will also start doing some consulting work for a Taiwanese Solar company that is building some large scale solar generating power plants in the states. Be careful of the toes you step on today, they might be connected to the ass you kiss tomorrow.

Before I came to Taiwan, I was never a saver, I lived paycheck to paycheck. Always borrowing and paying huge interest and finance charges. The cost of living in Taiwan makes it quite possible to accomplish your goals, you just have to stick with it!!
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