6 ms·

I think the vast majority of people would find it incredibly difficult to save ~7.5k per month for 10 years (assuming an annually compound savings interest of 2

I think the vast majority of people would find it incredibly difficult to save ~7.5k per month for 10 years (assuming an annually compound savings interest of 2.2%), to hit 1M. That type of savings goes beyond "no Ferraris/Great-Gatsby-parties".

scottlocklin 8y ago
Depends. If you have a SEP-IRA, half of that is pre-tax. If you've optimized your location away from California/New York on a normal tech billing regime (2x salary, maybe 3/4 the billable hours), you're almost there on tax savings alone; let alone housing expenses.
- bonestamp2 8y ago
  I didn't realize just how big a difference that pre-tax savings makes until recently. A couple weeks ago I thought there was an error when I increased my pre-tax savings and I noticed my take home pay only went down 66% of what I increased my savings by. I logged in and realized that the full amount I increased by was coming off, but I was saving 33% in taxes so my take home only went down 66% of what I expected. For example, let's say I increased my bi-weekly savings by $150. Because it was pre-tax, with the tax savings I was still saving $150 but my take home only went down $100. By the time I want that money, I shouldn't have a mortgage payment so I'll need far less money than I'm making now and my income tax should be much lower, not to mention the additional gains on a higher principle.
newroman 8y ago
you done goofed if you're saving at 2.2%, he means investing in the S&P500 or the likes
- nightski 8y ago
  While it's true the market has given guaranteed returns well north of 2.2% average for 30 years or more (the single worst 30 year period would of been higher than 2.2% average). However, when you cut that down to a decade it changes the picture significantly. There are decades where you could of actually seen a loss. So without giving financial advice, I'd say it's more complicated than throwing it in an index fund if your time-frame is a decade.
  - icedchai 8y ago
    Don't overthink this stuff. Most of the decades you wouldn't see a loss, so you're better off investing a good chunk. Keep 10 to 20% of your holdings in cash getting 2% interest if it helps you sleep at night.
    - nightski 8y ago
      I wasn't trying to overthink. But the market is volatile at the moment and the next decade is rather uncertain. Thinking you can just throw your money in and get 7% over the next decade and get to $1M may not be the best strategy. We aren't talking about losing sleep over volatility here. We are talking about a situation where someone specifically wants to hit $1M in a decade.
      - icedchai 8y ago
        The past decade was also quite volatile. So was the previous. Volatility is normal and timing the market doesn't work, so DCA in and forget about it.
        nightski 8y ago
        I'm not suggesting one time the market. We've been in a huge bull run in the last decade volatile or not. But if you are shooting for $1M in a decade you might want to think about asset allocation more carefully than 100% in the market. That's all I am suggesting. I agree for the portion you are allocating to stocks, DCA in and don't try to time the market. For example, I put several thousand in a Vanguard TR Fund in January of last year. It's still down 2% overall. Now on a 30 year horizon, no big deal. But for a decade that will significantly impact the compounding returns. Stocks are very volatile and may not be real desirable for a 10 year time frame.
        cerberusss 8y ago
        I'm all for buy-and-hold, but you do realize that there's a group of people for which this is very hard? Psychologically, they'll have trouble staying the course when seas are rough.
- nickdandakis 8y ago
  You right. Let's say a 7% annual compound interest over 10 years (which I think, is debatable). That puts you at $5,800/mo. I think my argument still stands?
  - astura 8y ago
    Unless you started saving in the year 2000, then you would have had a negative return 10 years later. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
icedchai 8y ago
10 may be a stretch for many. 15 to 20 years should be achievable by many tech workers. Once you hit your number, work gets pretty depressing. You realize you're making more from passive investing, just doing nothing.
C1sc0cat 8y ago
In the UK IT contractors get paid a lot more if your frugal and have the right skills I could see saving £6k a month not being hard. I can do 2.5k a month as a not massively well paid employee

scottlocklin 8y ago

Depends. If you have a SEP-IRA, half of that is pre-tax. If you've optimized your location away from California/New York on a normal tech billing regime (2x salary, maybe 3/4 the billable hours), you're almost there on tax savings alone; let alone housing expenses.

bonestamp2 8y ago
I didn't realize just how big a difference that pre-tax savings makes until recently. A couple weeks ago I thought there was an error when I increased my pre-tax savings and I noticed my take home pay only went down 66% of what I increased my savings by. I logged in and realized that the full amount I increased by was coming off, but I was saving 33% in taxes so my take home only went down 66% of what I expected. For example, let's say I increased my bi-weekly savings by $150. Because it was pre-tax, with the tax savings I was still saving $150 but my take home only went down $100. By the time I want that money, I shouldn't have a mortgage payment so I'll need far less money than I'm making now and my income tax should be much lower, not to mention the additional gains on a higher principle.

newroman 8y ago

you done goofed if you're saving at 2.2%, he means investing in the S&P500 or the likes

nightski 8y ago
While it's true the market has given guaranteed returns well north of 2.2% average for 30 years or more (the single worst 30 year period would of been higher than 2.2% average). However, when you cut that down to a decade it changes the picture significantly. There are decades where you could of actually seen a loss. So without giving financial advice, I'd say it's more complicated than throwing it in an index fund if your time-frame is a decade.
- icedchai 8y ago
  Don't overthink this stuff. Most of the decades you wouldn't see a loss, so you're better off investing a good chunk. Keep 10 to 20% of your holdings in cash getting 2% interest if it helps you sleep at night.
  - nightski 8y ago
    I wasn't trying to overthink. But the market is volatile at the moment and the next decade is rather uncertain. Thinking you can just throw your money in and get 7% over the next decade and get to $1M may not be the best strategy. We aren't talking about losing sleep over volatility here. We are talking about a situation where someone specifically wants to hit $1M in a decade.
    - icedchai 8y ago
      The past decade was also quite volatile. So was the previous. Volatility is normal and timing the market doesn't work, so DCA in and forget about it.
      - nightski 8y ago
        I'm not suggesting one time the market. We've been in a huge bull run in the last decade volatile or not. But if you are shooting for $1M in a decade you might want to think about asset allocation more carefully than 100% in the market. That's all I am suggesting. I agree for the portion you are allocating to stocks, DCA in and don't try to time the market. For example, I put several thousand in a Vanguard TR Fund in January of last year. It's still down 2% overall. Now on a 30 year horizon, no big deal. But for a decade that will significantly impact the compounding returns. Stocks are very volatile and may not be real desirable for a 10 year time frame.
      - cerberusss 8y ago
        I'm all for buy-and-hold, but you do realize that there's a group of people for which this is very hard? Psychologically, they'll have trouble staying the course when seas are rough.
nickdandakis 8y ago
You right. Let's say a 7% annual compound interest over 10 years (which I think, is debatable). That puts you at $5,800/mo. I think my argument still stands?
- astura 8y ago
  Unless you started saving in the year 2000, then you would have had a negative return 10 years later. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/

icedchai 8y ago

10 may be a stretch for many. 15 to 20 years should be achievable by many tech workers. Once you hit your number, work gets pretty depressing. You realize you're making more from passive investing, just doing nothing.

C1sc0cat 8y ago

In the UK IT contractors get paid a lot more if your frugal and have the right skills I could see saving £6k a month not being hard. I can do 2.5k a month as a not massively well paid employee