Higher Income Spending/Saving Strategies?

[f2point8]

So if we save $3000/month from monthly income, plus $1375 retirement contribution (self) plus $1650 (employer match)= $6000/month total savings monthly, this is the 20% mark, correct? (6000/30000=20%). $4000 monthly saved from monthly income would be even better, and doable. Does this fit with All Your Worth principles, or does employer match retirement not count?

[dannin]

You mentioned that you don't want to have accrued too much of a retirement fund at the expense of working too hard and giving up too much of your youth. That is a very valid point and I agree with you 100%.

But, the other thing to consider is that the more quickly your retirement fund grows, you'll be able to retire earlier and enjoy all your free time when you're 45 or 50 instead of 65, etc.

[SavingNJ]

I am just learning, here are my thoughts and probably not the logical explanation you looked for (BTW, I had earned around $350K a year and my combined household income was higher, but I live in northern NJ).

1. As pointed out earlier, the 50/30/20 is just a starting point, depends on one’s goal, it is easier for high income earner to spend much less than 50%, hence putting more in saving and earlier retirement. I knew a dentist who sold his practice at mid 40s and retired. May be he has other incomes, I don’t know.

2. I think you did very good in terms of savings, with 1.5 years work and disposable monthly income $8000, you managed to save $82,000

3. I am not sure what kind of profession you are in, but I have seen jobs evaporate overnight, many of them in upper management, senior VP, MD (managing director). During this economic downturn, it is difficult to find comparable jobs. I think they are doing okay and some may even retire early because of the boom market in the past decade, but I thought your saving is too low (even you are young, but I have concerned on the security of the job, and I am not comfortable that you have only worked 1.5 years, again I live in NJ, the expenses here are higher)

4. Will buying this dream car of yours lead to your desire of buying other luxury items?

5. I don’t have a formula, and don’t have a theory, and may be I am cheap, but I probably will wait until I have over $300K in the emergency/saving account before I look into buying a $65,000 to $90,000 car. But then I knew people in my salary range bought high price cars. I always have my Toyota. My point is I would make an effort to save to buy the car (may I say a toy?).

6. Again not much of a theory, I always thought it is “easier” to live on a $16,000 emergency fund with living expenses of $2000, rather than on a $80,000 emergency fund with a living expenses of $10,000. I know the latter means I have more ways to cut, somehow I also thought that I would have more to lose (say bigger house). I always make sure that my savings can pay off the house, car etc..

[tzsgti]

I know people on this board cant fathom spending 60-70K on car but if you look at it this way. I don't think anyone here would stop themselves if they had enough after savings to buy something that they really liked or was dreaming for it as a kid.

On another note the M3 will save you thousands in the long term over the Porsche. BMW has an amazing 4/50,000 miles free maintenance that covers every wear and tear part on the car except Tires. So basically for 4 years all you have to do is put gas in it and change the tires. They even have an extended plan that goes to 7 years/100,000 miles for about 3 grand. I am sure you know the Porsche specially a used one will cost you thousands on maintenance. The M3 is a phenomenal car and IMHO the best all around car out there.

Id say if you are happy with what you are putting way a month and you figure at what age you want to retire. If you figure how much you would have ended up with at the age you want to retire and you are happy with that number then I would say go for it. Just letting you know this forum will be very biased against getting a car in that price range no matter how much you make.

Edit: To add some advice on the M3. Its a buyers market right now so you can get pretty good deals on any M3. I have heard of even new 2010 and 2011 orders being put in for about 500 over invoice which is about 5k off MSRP. You can easily get a fully loaded car for the lowerr 60s. And BWW has great low financing options as an incentive. 0.9 precent for 24 months and 3.9 for 60 months. So if your are going to finance that will be alot less then a new car.

[jIM_Ohio]

Another problem that higher income earners have is peer pressure. When everyone you know earns 30K, there isn't nearly as much pressure to drive fancy cars, live in a big house, have a huge home theater system, take exotic vacations, etc. Once you start earning big money, though, you find yourself surrounded by luxury and start thinking that is the way you are supposed to live.

I can tell you that although I am a physician, I have exactly zero friends who are physicians. Why? Because my wife and I made a conscious choice years ago not to live the lifestyle people expect for our income level.

If you let yourself get sucked into the lifestyle of the rich and famous, it is hard to get ahead financially.

I don't believe in peer pressure. I believe that some minds are stronger willed than others.

As an FYI one of my 3 best friends is one of top children's surgeons in the city. I am sure he makes quite a bit more than me. He pays to have someone do his yard, pays to have driveway shoveled and pays for other little things like that... I do those things myself.

I hang out with him, he hangs out with my family... I used to coach his son's soccer team. He takes much different vacations than my wife and me... his family lives in a slightly nicer part of town... but at same time my house is bigger (LOL)... he can also listen to the greatful dead a lot longer than I can ever tolerate and also likes the Eagles which I could never get into...

I think the important thing with friends is to know why you are friends. I don't hang out with my Dr Friend because he has money, I hang out with him because he can tolerate my opinions and I can tolerate his LOL. Income is not an issue because we do different things with our spare time but when we do hang out, its always fun to discuss politics and similar considering he is most liberal person I know and I tend to the conservative side. We have respect for each other-that makes good friends... spending because friends spend implies you are a weak person or need new friends.

(Steve none of this is directed at you, I think you know that, but wanted to make sure).

[feh]

Okay- so here is the question: I am in my early 30's. I worked very hard (in my opinion) to get to this point in my life. I feel like I have a lot of time to let my savings grow at the rate I’m building it. The cars I am feeling drawn towards cost between $65,000-$90,000. I know, I know--Totally not frugal, a totally self-indulgent want, not a need.

Any thoughts on this situation?

Thanks.

I may have missed it - what is your monthly mortgage payment? Do you live in a huge house, or are you in an extremely high-cost-of-living area?

Here's my $.02 - if I were in your shoes, there's no way I would buy the car, even if you can afford it. Not only that, but I would try to reduce my monthly expenditures and save, save, save.

Here's why - pulling in that kind of salary, if you make a concerted effort to sock away as much money as you can, you could retire very soon, perhaps in 10 years or less.

Having financial freedom to do whatever you want while still in your forties would be a fantastic situation, and you have the means to achieve it.

[SavingNJ]

Here's why - pulling in that kind of salary, if you make a concerted effort to sock away as much money as you can, you could retire very soon, perhaps in 10 years or less.

Having financial freedom to do whatever you want while still in your forties would be a fantastic situation, and you have the means to achieve it.

agreed, but I won't go to so far to suggest OP not to purchase the car as I think most people will have something they really want. DH loves boats. I am just caution on where he draws the line.

Bottom line, may be as OP pointed out "I am just trying to figure out what I want for myself"

[f2point8]

I really appreciate the replies so far. I am really going back and forth on this one, but I kinda suspected what people in a forum on a web site dedicated to saving would probably have to say (as opposed to what feedback I'd probably get back after posting all my numbers in the BMW forums).

Your replies have given me pause to reflect on what my long-term saving goals are. There is no way to know what the economy will do, and I'm sure even though I have a fairly secure job, bad things can and do happen economically to change the rules of the game.

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Just a side note: I went through school with the encouraging words always saying "Sacrifice now, enjoy later". I don't think this was promising a lifelong spending spree. However, I've found that if you debate the merits of saving versus spending, in the long run, saving will always win out on higher moral grounds. But as Keynes said, (I believe) "In the long run, we're all dead." I know too many people who have overspent their entire lives into oblivion, which is tragic. However, I know personally people who've done the opposite- started out frugally, got into a habit of pinching pennies, but couldn't ever get to the point where they turn the corner to enjoying any of their saving, and lived our their lives with a lot of unspent money in the bank--tragic in a different sort of way if you ask me. Is retirement supposed to be that point- or do you just never turn that corner? Probably no solid answer for everybody.

[markusk]

Retirement is often looked to as the "promise land," as if retirement is the end unto itself. But as one of my elderly patients (I am a physician) said to me recently, "Old age sucks." I think that the "journey" to that promise land is just as important. Sock away for retirement, EF, college fund, and live within your means. And don't forget to give some to charity.

Sounds like you are thoughtful and tempered, and have the means to buy that M3.

[jIM_Ohio]

I really appreciate the replies so far. I am really going back and forth on this one, but I kinda suspected what people in a forum on a web site dedicated to saving would probably have to say (as opposed to what feedback I'd probably get back after posting all my numbers in the BMW forums).

Your replies have given me pause to reflect on what my long-term saving goals are. There is no way to know what the economy will do, and I'm sure even though I have a fairly secure job, bad things can and do happen economically to change the rules of the game.

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Just a side note: I went through school with the encouraging words always saying "Sacrifice now, enjoy later". I don't think this was promising a lifelong spending spree. However, I've found that if you debate the merits of saving versus spending, in the long run, saving will always win out on higher moral grounds. But as Keynes said, (I believe) "In the long run, we're all dead." I know too many people who have overspent their entire lives into oblivion, which is tragic. However, I know personally people who've done the opposite- started out frugally, got into a habit of pinching pennies, but couldn't ever get to the point where they turn the corner to enjoying any of their saving, and lived our their lives with a lot of unspent money in the bank--tragic in a different sort of way if you ask me. Is retirement supposed to be that point- or do you just never turn that corner? Probably no solid answer for everybody.

If work "fulfils" you, no reason to stop
I see little point in working because I dislike it.

so you are correct- some occupations/jobs/schedules are more conducive to working than others

[kork13]

First of all, let me applaud you on the M3 -- it's a fantastic car, and definitely my dream car. Hopefully I'll be able to get one myself in 4-5 years. They depreciate rapidly in the first 2-3 years, then level out and hold relatively solid for a while. I'd recommend looking for a quality M3 about 2 years old, and prior to buying, get it thoroughly checked out by a qualified BMW shop. It'll save you a bundle.

I'm mostly in agreement with you. Define and work towards your short-/mid-/long-term goals. Once you know you're on-track to meet those goals, feel free to enjoy your money (within reason). Do I consider an M3 "within reason"? It's a case-by-case thing, and for you in particular, sure as heck I do! But why do you want a third car? Why not sell one before buying the M3? It'll save on maintenance and insurance for a third car, plus could give more free cash to put toward the M3.

Saving is important -- never let "stuff" take precedence over that. But once you're saving the amount that you need in order to accomplish your goals, the rest is fair play.

ETA: one additional thought... if you want to finance it, that's fine (cash is better, of course). But make sure you get the best possible rate (<4% if at all possible), and keep the term short. 3 yrs is good. It'll be higher monthly payments, but will save you thousands. Also, I'd hate to have something terrible happen to the car (major breakdown, accident, etc.) and not own it outright. shorter loan periods help that situation. Run the numbers, I think you'll find you can reasonably afford the shorter terms (by my quick calculations, a $65k loan w/ $2000 payments is finished in 3 years)

[feh]

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

This paragraph gives me the impression you need to re-think your approach to money. You shouldn't be comparing your monthly mortgage against your friends that earn less. Just because they're living in debt doesn't mean you should be. $3500/month is gigantic, regardless of your income. I know it can be difficult, but try to keep an objective perspective.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Retirement doesn't equal sitting around the house idly. It means financial independence. You could volunteer, go back to school, take some job that doesn't pay well but that you've always been interested in, or take a year off and travel. Financial freedom.

[zetta]

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time.

Just what is this dream job that pays $316k a year for 1.5 years experience, only works 30 hr/wk, gives 7 weeks vacation a year, is not too stressful, not on Wall Street, and is fairly secure? Doesn't sound like any small business or well-paid profession (law, medicine, engineering, big-5 accounting) that I'm familiar with.

Regardless, if you want to maintain the $18k/mo lifestyle to which you've grown accustomed, you will need to sock away about $5.4 million dollars for retirement. Are you on track?

[Ima saver]

My dear husband is a big car person. We do indulge in new car purchases. Our first one was a 1978 corvette which we bought new in 1978 and we still have it.
We love corvettes and have decided that we will drive one until we die!
So, we bought a new one in 2004 and in 2008. We just traded the 2004 vette in for a new 2010 model.
We have never made big bucks ( always under 80K combined) but we don't splurge on anything else. We have over 500K sitting in cash at the bank, plus our IRA's, mututal funds and stocks.
My dh has always been hard working (7 days a week) and he deserves a splurge on cars once in a while!
I think you are doing well and deserve your dream car.

[Ima saver]

P.S., However, I do not have any debt or house payment. House has been free and clear for over 30 years.