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Why 15% isn't enough: a must-read for everyone trying to save

January 17th, 2012 at 06:16 am

I came across this excellent article http://www.theatlantic.com/business/print/2011/12/saving-the...in The Atlantic via My Money Blog. For anyone trying to save, particularly for their retirement, it's both a warning and an inspiration.

It's the kind of story I could see myself bookmarking and reading later, when I need a kick in the pants.

http://www.theatlantic.com/business/print/2011/12/saving-the-new-year/250554/

11 Responses to “Why 15% isn't enough: a must-read for everyone trying to save”

  1. creditcardfree Says:

    I plan on reading that article. We have been saving 15% for awhile, but I might need to start increasing the amount we save.

  2. MonkeyMama Says:

    Excellent, excellent article.

    I know my own approach is often written off as way ultra conservative and "crazy," in this day and age, but I've often said I know a lot of "millionaire next door" types and they seem to be the only ones not really struggling right now. So, stocks aren't magic, I believe in a year emergency fund, for sure, and think mortgages should be paid off (not kept forever). Plus, my family has a tendency to live long, so I have always been on the conservative side with retirement, realizing we might be retired for many decades. These were all points mentioned in the article.

  3. Petunia 100 Says:

    This is the sort of article which makes me think "take the 30 and save more".

  4. scrappytappy Says:

    This article really has me thinking. I'm 27, contribute $250 a month to my Fidelity Freedom account. My employer matches $100 so $350 total goes in there a month. That's a contribution of 10% annually. I can easily contribute another 5-10% but I don't know where I should put the money. I've been dragging my feet on figuring it all out. I've heard of IRAs, Roths, investments etc. Does anyone have online resources I could look at? I need to decide if I want to increase my Fidelity contribution by Jan 31. I was thinking about increasing my contribution by at least $100 but diversifying might be a better strategy at this point. TIA!

  5. patientsaver Says:

    Scrappytappy, if you have the opportunity to contribute more to a tax-deferred account, do it, whether it's your 401k or your own IRA (Roth is probably better).

    Or do both! But don't let indecision cause you to delay any longer. You can always increase the contribution to the Fidelity Freedom account and then transfer it to a new fund within your 401k later after you've had time to mull over your options.

    If you don't really like the fund options your employer offers, then go the route of the roth IRA. There are lots of calculators/articles on whether a regular or Roth IRA are better, but personally, I think the vast majority of people are better off with a Roth, becus you contribute after-tax dollars and your contributions are tax-free. Taxes, i feel, are only going to go up,not down, so it makes sense to go with something where you don't have to worry what the tax rate's going to be 30 years from now when you take your contributions.

  6. baselle Says:

    Here here.

    The final point that I didn't read in the article is that most people use the match as an anchor. (eg maximize your contributions to get the match gets interpreted as contribute up to the match and that's maximal.) Guarantees you will undersave.

    to scrappy tappy - second what patientsaver said. I might go with the Roth because you have flexibility, you put the dollars in after tax and you can take out what you put in (but only what you put it!) at nearly any time so it can double as an emergency fund - and its great to have taxable savings, tax deferred savings, and tax free savings. If you are first starting w/Roth, remember that you can get a twofer - you can finish contributing to 2011 (deadline is April) and you can contribute to 2012.

  7. FrugalTexan75 Says:

    I wish I could save more ... As it is, if I stick to my budget, I'll be saving about 60% of my take home. Most of that though goes to saving for car insurance, car fund, EF, and vacation funds. Retirement focus savings is less than 10 %. Frown

  8. patientsaver Says:

    That's interesting how you described it, Frugal Texan, but if part of the 60% of your income is going to pay for car insurance and vacation, you're not really "saving" it. You're simply setting it aside and allocating it for various expenses.

  9. Frugaltexan75 Says:

    Thats true. If I took car insurance and vacation out, it still would be right around 40% of my take home. If I can convince my parents that one trip a year to see them is enough, that will cut my vacation money in half, and put me back up to at least 50%. Unfortunately 50 or 60% of little doesn't go to far. Although it is better than nothing! Smile I'm doing my part and trusting that God will provide the rest.

  10. scrappytappy Says:

    Thanks for the advice, everyone. I just opened a Roth IRA and set up monthly contributions. Now, I'm rethinking my financial strategy. I think I want to max my 2011 investment of $5k instead of paying off my cc debt as rigorously. My cc debt is at 0%-1.99% interest and I know I can pay off the debts before the interest rates increase. I think I would rather max my contributions for last year and this year so I'll have $10k by the end of 2012. Thanks for posting and kicking my butt into gear!

  11. patientsaver Says:

    Frugal Texan, saving 40% of net pay is still FANTASTIC.

    Scrappy Tappy, congrats!

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