5 Questions My Mom Asked Me About Getting Started With YNAB

Posted on May 7, 2013 by mark

My Mom, the budgeting rock star (no joke), is currently experimenting with a transition from Quicken to YNAB. She’s already signed up for an intro class, but last night we spent a few minutes sharing screens and talking about her first pass with YNAB and the 4 Rules.

Five questions came out of the conversation:

1. How do I manage my car loan on the budget?

You don’t. Make the loan an off-budget account and budget the payent as a normal category and outflow.

(Yes, you technically can manage loans on budget, but it’s messy – with no benefit to your budgeting success.)

2. Is there a difference between a known, infrequent expense and a Rainy Day fund?

Nope. YNAB vernacular throws new folks a little. Traditionally you’d think of saving for a rainy day as something that only refers to unexpected expenses. For YNAB’s purposes, Rainy Day funds refer to any expense that gets paid less frequently than every month.

Your choice of jargon doesn’t help or hurt your ability to live the 4 Rules. Mom has a master category called “Known Infrequent Expenses” (or something to that effect), and another called “Rainy Day Funds.” That’s fine. She’s giving her dollars the right jobs; naming conventions don’t matter much.

3. Do I have too many on-budget accounts?

Okay, Mom didn’t actually ask me this question. Looking at her budget, I said: “Ma, you have too many on-budget accounts.”

Now, I realize having multiple on-budget accounts doesn’t break YNAB or any of the 4 Rules in particular. But it breaks simplicity.

I told her I’d only put accounts on budget if they were directly involved in my monthly outflows and inflows. Turns out she does have money flowing into and out of several accounts at any given time – but out of habit, not necessity.

In my opinion, working with lots of on-budget accounts creates unnecessary mental overhead, and creates opportunities for mistakes.

I’m a fan of “as few accounts as possible,” so for me it’s:

On Budget:

Checking
Credit Card (zeroed monthly)

Off Budget:

Emergency Fund
Betterment
Mortgage
Student Loan

4. Is it okay to budget a month in advance?

Well…

YNAB isn’t going to boot you off the software if you’re budgeting ahead of the current month.

But you are breaking Rule 1, and as a beginner, the practice of allocating money you don’t have (“forecasting”) is a threat to a successful budgeting habit.

The True YNABer keeps “Available to Budget” at a radiantly green $0.

Okay, but here’s the deal. I use next month as a placeholder for my typical category allocations. Am I breaking Rule 1? The shame of it.

5. Should I create a second budget for the rental properties or manage them in my main “Household” budget?

As far as I’m concerned, this could go either way. The key factor in Mom’s situation is that rental income and expenses flow into her personal bank accounts.

The mix of personal inflow and and outflows with property incomes and outflows told me she should manage the properties on her main budget, and use YNAB’s Payee field and slick reporting features (where you can filter by Payee and export to a spreadsheet) to pull relevant data out of the budget at tax time.

I’d be curious to hear how other YNABers deal with property management.

The beauty of YNAB is its flexibility. Could my mom go completely against my advice? Sure (it’s typically the safe move). What matters is finding a work flow that helps you make better, more thoughtful decisions about your money.

How would you have answered my mom’s YNAB questions?

Why do Most Serious Budgeters Neglect Their Biggest Category?

Posted on May 6, 2013 by mark

Why on earth don’t budgeters talk more about income? It’s your biggest budget category – bigger than all others combined (hopefully).

As YNABers we spend time each day, week, and/or month reviewing our spending: How are we on groceries, what’s left in the misc category, how soon until we can buy the thing we’ve been saving for?

Why wouldn’t we also spend a few minutes during that same meeting thinking about income?

Wasteful non-budgeters don’t benefit from pay increases the way budgeters do – our expenses are so dialed in that any bump to our pay makes a big difference to the bottom line.

In my case:

A 15% increase in income would cover all my Rainy Day categories (and that’s allowing for taxes and charitable contributions coming off the top).
Or…a 25% jump in income would cover my mortgage.
Or…a 35% pay increase would cover everything in my “Monthly Bills” master category (everything but debt service, savings, rainy day funds and charitable contributions).

Is it easy to bump your income 15% to 35%? Probably not – that’s a topic for another day. Salaried people tell me increasing their income involves performance and patience – but also politics and positioning. In other words, they have some influence over their income, but not a lot.

So what? Exert whatever influence you can. The return on effort toward increasing your income is much bigger than the return on figuring out how to cut your grocery budget by $50 per month.

Budgets are Bones; Earning Power is Muscle

Without your financial skeleton (budget), your muscles (income) are a worthless pile of mush. But if your money bones are strong, building your earning muscles lets you do more work (saving, paying off debt, and even spending) in less time.

Which is why that rare person who is both a dynamic earner and disciplined budgeter is so easily identified by his/her enormous smile and overflowing bank and investment accounts.

April Podcast Roundup

Posted on May 3, 2013 by chance

From taxes to IRAs, and patience to happiness, we talked a lot about retirement this month. We hope you enjoyed April’s podcasts!

076 – Taxes and Timing – Having the choice to create a taxable event (or avoid one) is extremely powerful when it comes to minimizing your life’s single biggest expense.

077 – Why Roths are Better than Regular IRAs – This is the end of that debate.

078 – The Black Box of Spending – Your “Miscellaneous” category is a black box of spending. Is that spending a reflection of your values? Or are you being lazy? And should you care anyway? We discuss :)

079 – Patience – The pathway to wealth is paved with patience.

080 – The Idea of Retirement is Really Starting to Bug Me – This should probably just be a replay of my interview with Leo from ZenHabits.net. The key to money (and probably everything else in life) is to be happy in the moment.

If you want to subscribe to the podcast, you can do so over at iTunes, or through this RSS link.

Three Big Threats to the Bliss of Budgeting

Posted on May 2, 2013 by mark

I wonder if many people “succeed” with budgeting on their first attempt. It must have been at least four years ago that Jesse first gave me YNAB, and yet I’m just now closing in on two months as a “real budgeter.” Actually, “real budgeter” is too strong a title. How about Budgeting Intern?

My attempts at budgeting are similar to my (and many others’) attempts at sustained scripture study.

“How many times have you read the Bible cover to cover?” someone might ask me.

“Uh, well, none.”

“How many times have you read the first few chapters of Genesis?”

“826.”

So why do we all fall off the wagon so often?

We’re sold on the 4 Rules. We see the benefits of budgeting, but for some reason, we just stop. One day we’re budgeting; the next day we’re not.

Here’s my take on why I kept flaking:

I Kept Breaking Rule 1

I didn’t even know I was breaking it (because I didn’t attend one of the excellent YNAB live classes – which would have sorted me out in no time) – but I sure was. I kept trying to budget for an entire month before I had an entire month of money available to budget.

So I’d make these estimates across all these categories, and the total budgeted amount would look ridiculous (because it was), and I’d throw up my hands. “I guess budgeting works for some people, but not for me. The numbers just don’t work.”

The numbers didn’t work because I was treating categories as guesses, rather than treating them as official jobs for each dollar. My budget wasn’t reality. It was what might happen, sort of.

As a budgeting intern, I now understand that you always budget to $0, and you never budget money you don’t have.

I Over-Estimated the Hassle of Entering Transactions

…and underestimated the benefit. These days, YNAB’s free mobile apps allow Kate and me to enter 90% of our transactions at the point of sale.

Before cloud sync and the mobile apps, it would only have taken two or three minutes per day to open my online checking and credit card accounts, look for any new transactions, and square things up. Why was I so convinced the only “efficient” way to deal with YNAB was a weekly or monthly import from my accounts?

I’d fall behind on my transactions, then mess up the import process, so my numbers were always wrong, and I’d quit (again).

My budgeting internship has taught me nothing raises awareness like entering transactions at the point of sale and reviewing the budget daily.

I Handled Credit Card Balances Incorrectly

I’m grateful to say I no longer carry any credit card balances.

When I did have balances (on cards I was still using), they constantly made a mess of my budget. One of two choices would have solved this problem, but I was too lazy to carry out either:

I could have stopped using the card until it was paid off, making it just like any other debt I pay monthly and manage off-budget (like my mortgage).
I could have watched the education team’s excellent video on credit card management in YNAB (or attended the live credit card class), and followed through on their instructions.

All said and done, I can’t blame any of these circumstances for my budgeting setbacks. The reality is I hadn’t fully converted myself to the joys and disciplines of budgeting. Once the pain of not budgeting exceeded the temporary discomfort of creating the habit, YNABing became a breeze.

Have you ever fallen off the budgeting wagon? Why? And how did you get yourself back in the groove?

Is Extreme Frugality Necessary for Financial Peace?

Posted on May 1, 2013 by mark

I genuinely love your budgeting system, but generally disagree with you on what seems like a focus on frugality over convenience / indulgence. Not that either of us is wrong, I’m just no good at going without!

That’s a comment from Jason on my post about deciding whether to sell my car. If any of my family or close friends were to hear a person accuse me of extreme frugality, they’d laugh until they passed out. I’ve never been what you’d call the most conscientious money manager.

What Jason is seeing in my recent posts is an exploration of a new mindset – the idea that money should slow down a little as it passes through my hands.

I’m NOT trying to be dogmatic – avoiding consumption for its own sake. I still plan (and look forward to) $150 meals out with my wife. I’m keeping my unnecessary house, and I’m up in the air about getting rid of my car. But at least I’ve thoroughly hashed out the costs and benefits of those decisions, so they’re no longer causing me stress.

For me, that’s the rub:

If a habit or a mindset is causing you stress, take a long hard look at it.

This applies just as well to extreme frugality as it does to loose spending.

At the end of they day, if you’re:

…and working toward living on last month’s income – you’re winning.

I’ll continue to beat up on my big expenses, questioning their value in my life. Hopefully you’ll do the same, but you should never feel stressed, judged, or wrong just because other people consume differently than you do.

Find your sweet spot, and enjoy it!

Can a Two Parent, Two Child Suburban American Family Get By with Just One Car?

Posted on April 30, 2013 by mark

Spoiler alert for a future post:

I’ve been walking to work since the day after I wrote about robbing the emergency fund to buy a bike. Walking to work is one of the greatest decisions I’ve ever made. Details to come.

I don’t drive much – in the last five years I’ve put 10,000 or 11,000 miles on my car. Since I’ve been walking to work (three weeks now), it has left the garage once.

In the spirit of putting all major expenses on the table, my wife and I are talking seriously about getting rid of it and becoming a one car family.

The numbers:

Make: Honda
Model: Civic
Year: 2000
Mileage: ~145,000
Monthly Payment: $0
Insurance: $24/month (liability only)
Registration: $10/month
Annual Safety and Emissions Test: $4/month
Maintenance Cost: ?*
Estimated Resale Value: $2,000 to $2,500

*In 2004 the car required new brakes – the only time it’s been to a mechanic in the nine years I’ve owned it. Of course it will eventually need repairs, but I have no idea when that will be, or how much they’ll cost.

Maybe you YNABers can help me out by sharing a) what you budget monthly for car maintenance and repairs (according to Rule 2), and/or b) any big car repair expenses you’ve incurred recently.

If a safe estimate of repair costs is $50 per month, the car is costing me around $90 per month to sit in the garage. If the real cost of repairs is $150 per month, I’m closer to $200 per month for a car we hardly use.

Even if the fixed cost of the car is only $100 per month, it seems like a no-brainer to get rid of it.

But what about the what ifs?

What if I want to have lunch with a friend in Salt Lake or Provo?
What if I want to drive up to American Fork Canyon for a hike by myself?
What if my mom comes to town and wants to borrow the car again (as happened last week)?
What if I want to take a solo road trip?

The Bottom Line

Cost: some loss of freedom and flexibility that comes with having an extra car on hand.

Benefits: $2,000 to $2,500 now, $100 to $150 per month in the budget and the freed-up garage space. Also, a simplified life thanks to one less large possession.

I’m torn about this decision – as is my wife (unlike in the case of getting rid of the house for an apartment, which was over before it started).

We’re considering a couple of options:

1. Put the Car Out to Pasture

Near our subdivision there are plenty of people with large unused plots of land. Some of them use their extra space for RV and boat storage. We could approach one of them (we know most of them through church), and see if we could park my car on their property for a small fee.

That will give us the full experience of having the car out of sight and mind. If we don’t miss it, we sell it. If we find ourselves missing the car (and frequently walking over to get it from Farmer John), we’ll keep it. We might even keep it at Farmer John’s place, which would give us the garage space without giving up the extra car convenience.

2. Four Wheels Move the Body, Two Wheels Move the Soul

Stole that line from a scooter forum user’s signature. Laughed right out loud when I read it.

When Kate and I were newlyweds I had a scooter and commuted on it for over a year – half an hour each way. I enjoyed it, even in the winter.

I’m sure I could get a 150cc or 250cc scooter with the proceeds from selling the car. I don’t know if the fixed costs of scooter ownership are much lower, so it could be a wash financially. But we’d get the fun of a scooter and the convenience of speedy transportation on demand.

Whichever path we choose, I’ve decided not to drive the car at all in the month of May. If we find ourselves NOT missing the car after the month is up, the right decision becomes much clearer.

What would you do?

Jesse on Retirement: “The Whole Idea is Starting to Bug Me”

Posted on April 29, 2013 by mark

“You pile up enough tomorrows,
and you’ll find you’ve collected
a lot of empty yesterdays.”
- Professor Harold Hill, The Music Man

The following is a transcription of YNAB podcast episode 80 (with some small edits for flow). Make sure you subscribe to the podcast to get Jesse’s weekly take on budgeting and personal finance.

We’ve been talking a lot – especially since I launched that investment course – about saving for retirement (or other things). And in that course I talked about how the purpose of investing is to grow your wealth. Period.

And…to become, oh, what’s the word, like a fat-cat type person. People are sometimes bothered by the idea of wealth because sometimes they see wealth being wasted, or being used flamboyantly (if that’s the right word) – for show, for selfish reasons.

But wealth does an awful lot of good – especially on a micro level: wealth for your kids – to provide them a great education, or to provide the necessities of life to people, or just to give to worthy causes, or to pay for your daughter’s (modest) wedding.

Wealth isn’t bad it all. The investment side of things focuses a ton on retirement and it’s starting to kind of bug me. Mark’s been writing on the blog about how he wants to move – well not wants to move – but running the numbers on moving to a 2-bedroom apartment instead of having his house, and it would mean $200,000 in ten years, and that could go toward retirement.

And then people came back with all sorts of insightful commments about how there are all sorts of other factors besides just the savings and investing for retirement.

In the investing course I really push people hard toward starting, and I’m not backing down from that at all. The average 50-year-old has about $1,000 to their name for each year they are old (or young, depending on how you look at it)!

But the idea of saving and investing toward retirement has tons written about it – you see book after book after book talking about howy you can retire – you can stop working. And I just want to say that I think you should take a hard look at being content now.

It would be really, really said if you had these great kids (as I do – five kids, ages eight and under – basically piled in like a stack of pancakes). And we’re busy with them – it’s crazy at the house, truly crazy – absolute chaos. And sometimes I’m guilty of thinking “When it’s just Rose…” (She’s the youngest – not saying she’s my favorite, but she sure is cute) …”how simple will that be?” All the other kids will have moved on, and I just think about how simple that will be.

And then at the gym the other day someone told me “Oh, man – when they’re teenagers, everything changes. It’s crazy.”

So here I am, looking ahead the future, always thinking, “Man, tomorrow. That will be something.” Instead of enjoying right now. Enjoying the chaos for what it is, and just finding the joy in the moment.

I was reading a sermon by a church leader who says (paraphrasing): “If you’re always focused on tomorrow, you have a lot of empty yesterdays.”

I feel like the retirement siren song is causing us – or could cause us to be looking to that day off in the future where we get to retire and stop working. Where we get to travel more, or do more woodworking, or gardening, or whatever it is you’re excited about doing when you have more spare time. Always looking forward and saying “Oh, that’s going to be great. I’ll just survive for today.” Instead of just enjoying the moment, enjoying today for what it is.

Whether you’re sitting in a cubicle, crunching numbers (which is what I was doing back in the day), or whether you’re making a podcast (which is what I’m doing now) – just enjoy the moment.

Everyone should go back to the podcast where I interviewed Leo (from ZenHabits.net) and listen to that again, because it’s a good exercise in being content. And when you’re content, maybe that’s the key to retirement: You may not ever really care about retiring because you’re just living in the moment and enjoying where you are.

Whether you’re in debt and slowly getting out, or you’re out of debt and looking to invest more – whatever you’re finances are at the moment. You can just be content with where you are and happy with the direction you’re facing – but you’re not looking off to some distant day and not ignoring – missing- what’s going on all around you.

Some food for thought.

Can’t Retire? Who cares?

Posted on April 26, 2013 by mark

Wednesday’s retirement post alarmed people (me included). It’s not comfortable to realize you’re in no way, shape or form prepared to retire in the traditional sense.

In the comments on the post, saveourskills offered an alternate view:

“The idea of retirement is that you do something terrible now and when it is over you can finally enjoy life. To me retirement is a lie. Retirement is a mindset – not a goal.”

Jesse made a related comment after I published the post:

“I think this idea of ‘retirement’ started with the invention of Social Security – before that I’m pretty sure the idea was that you’d just keep working until you died.”

If you hate the idea of working until you die, your problem isn’t your savings rate. It’s your profession.

What if your income-generating hours made you happy? Challenged you? Taught you new things? Created and improved relationships?

If those were the conditions, would you ever want to stop?

“Sure,” you’ll say, “I’d love to enjoy my job, but I’m too entrenched. I have too much experience/too many bills/too much debt/can’t take the risk…”

Yes, you do. I’m not trying to diminish the reality of your responsibilities.

Can you transition to a new job (or completely new profession) tomorrow? No. Next week? Month? Year? I don’t know – maybe not.

But what if you set a goal of truly enjoying your work within two years? Or five? Still unrealistic? I doubt it.

I love this quote from Peter Drucker:

“We greatly overestimate what we can do in one year. But we greatly underestimate what is possible for us in five years.”

As budgeters, we’re uniquely capable of making this transition (however long it takes). We understand (or are discovering) our real expenses. We don’t overestimate the financial obstacles in our path (nor do we underestimate them).

We can say, with great clarity, what we’d need to earn from our new happy profession. We’d have far fewer stresses as we made the transition, because we wouldn’t be piling financial unknowns on top of the questions about changing the way we make our living. We can even start to use the 4 Rules to whittle away at our expenses in preparation for earning less money.

*But who’s to say we’d earn less money in the new profession? Why wouldn’t our happiness and enthusiasm for the job lead to more money? Not a guarantee, but not an impossibility.

A recipe for financial contentment:

1. Use a budget to live happily within your means. Budgets are freedom.

2. Save aggressively as insurance against permanent loss of income. Planning to work happily forever isn’t an excuse not to prepare for the ultimate rainy day.

3. Pursue enjoyable work to avoid feeling the need to stop earning money. Believe it’s possible; set a goal to love Monday within 2 to 5 years.

Can it be done?

The House Has Got to Go – 2 Bedroom Apartment Here We Come

Posted on April 25, 2013 by mark

Opportunity Cost: The loss of potential gain from other alternatives when one alternative is chosen.

Confession: When I said I would seriously consider downsizing our home, I was only sort of telling the truth (so much for defeating denial). Yes, I’d evaluate the costs and benefits of downsizing, but there’s no way I’d really get rid of our house, I said to myself.

Maybe that’s still true – maybe there’s no way my wife and I would leave a home and neighborhood we love for the sake of accelerating our savings. But after a couple of hours with Excel, I can now say that staying in our home is purely emotional, because financially it makes no sense at all.

Check out this table:

Housing Alternative	Savings	3 Yr Value	5 Yr Value	7 Yr Value	10 Yr Value
Rent Similar Home	$310	$12,450.54	$22,323.26	$33,674.98	$53,969.29
Rent Townhome	$710	$28,515.75	$51,127.47	$77,126.57	$123,607.07
Rent 2-bedroom Apartment	$1,135	$45,585.03	$81,731.95	$123,293.89	$197,597.22

Notes:

‘Savings’ estimates the difference in cost between our current home and the alternative, and includes estimates of the value of the mortgage tax credit, maintenance on the home, utilities, and HOA fees.
This table assumes a meager 7% return on the saved amount. If the money earned 10% per year, the 2-bedroom apartment would pay out nearly $235,000 in ten years. Yikes.
My wife may threaten divorce if I use this table to try to get her to move.

When I showed Jesse this table, he took it to another level: after ten years of renting, we could go right back to our current cost of living, let the $200k sit in the market for another ten years (when I’d be reaching my goal retirement age of 54), and have around $400,000 extra in savings. Four hundred grand (or $470,000 with a 10% interest rate on the savings).

Summing up: If I lived the next 10 years in a 2-bedroom apartment – investing the savings along the way, the end result could be an additional $16,000+ per year in retirement.

I don’t know what else to say about it. We love our home and our neighbors. We’ve planned to be where we are for a long time – maybe forever.

But these numbers aren’t unreasonable. It’s one thing to grasp the total cost of home ownership in the traditional sense (principal plus interest), but adding in the cost of lost savings is making the house feel really, really expensive.

What it Really Takes to Retire in 20 Years When You’re Starting from Zero

Posted on April 24, 2013 by mark

If you’re just arriving on the post, make sure you read the comments, where some of my assumptions are generously corrected.

On Friday I said I’d be evaluating all my major expenses, and decide whether to:

Downsize my house
Have no more children
Take my kids out of private school
Become a one-car family
Drop or reduce my health insurance
Drastically reduce grocery spending

As I started to research whether downsizing the house is a good idea, it occurred to me I’ve never established a long term financial goal, like, you know, retirement. Deciding whether to make major changes to my big expenses is only meaningful in terms of the impact on my long term goal – so that’s where I need to start.

Shocker: I Want to Be Debt Free with a Nice Nest Egg

My major goals are similar to yours:

1. Eliminate all debt (including home mortgage) by the time I’m 50 (16 years from now).

2. Draw $40,000 per year from my investments starting at age 54 (20 years from now).

Barring catastrophe, the debt elimination goal is on track. I’m already rolling a pretty good debt snowball, and as long as I don’t interrupt it, my home loan will be zero right around my 50th birthday.

By the way, if you have debt, and you’re not snowballing it, you need to start. The day you start snowballing – however modestly – your feelings about your debt will change. You’ll still feel annoyed and stressed by the balances, but you’ll shift immediately toward a sense of control and power. And…

Debt snowballing is addictive.

My current plan zeroes all debt in 16 years, but the momentum of a good snowball could easily knock that down by 3 to 5. Why? Because the more the snowball grows, the more excited you get about eliminating balances. The excitement drives more dollars toward the snowball, accelerating it.

If you’re YNABing, it’s all the more fun because every time you have extra money in a category, you can slide it right into your debt repayment. Double the emotional payoff and patting of self on the back.

So, that’s the debt freedom goal. I’m sure there will be ups and downs along the way, but as long as I’m living on a budget and working to improve my earning power, I’m confident the debts will go away on schedule.

I Have to Save How Much if I Want to Retire in 20 Years??

The retirement income, on the other hand, is a can of worms. This is my first real foray into the messy world of investing, inflation, and withdrawl rate in retirement.

Here are the assumptions I’m working with; feel free to jump in and correct any you consider way off base:

“Retirement” Date: 2033 (age 54)

By age 54 I’ll have no debt and no kids at home (right, parents over 55? Please don’t burst my bubble). My son will be 26, daughter 24, and if there are any more Butler kids on the way, he/she/they will be 18 (or close to it).

*I’ll put all their belongings in suitcases and on the front porch, then kick them out at 4am on their 18th birthday. In my head this is a scene played out between Cliff, Theo, and Vanessa Huxtable. I don’t know why.

Retirement Income Goal: $40,000 per year (in 2013 dollars)

Based on our current budget – with no kids and no debt – Kate and I would live fine on $40,000 per year (again, in today’s dollars). Not lavishly, but comfortably.

We may not even need the $40,000 when I’m 54 – I should be in my peak earning years. But assuming I’m completely fed up with all income-generating activities, $40,000 per year would do the job.

Trying to Predict the Stuff You Can’t Really Predict

Inflation: 3.25% per year (the historical average).
Number of years in retirement: 40 (assuming I make it to age 94. If I die earlier, the remainder can go to charity – or to build a shrine honoring John Elway’s Super Bowl wins).
Interest rate earned on investments during retirement: 4.25% (I really had no idea what to use here, and went with the default number on the calculator shown below).

So how big does my nest egg need to be, and how much do I need to be saving to get there?

The numbers I need to hit if I want to draw $40,000 per in 2013 dollars, starting in 2033, and lasting for 40 years. Retirement Withdrawal Calculator here.

Plugging my numbers into this calculator, it appears I need to have $2,500,000 earning 4.25% per year, with an average inflation rate of 3.25% per year – and all of that would allow me to start drawing $40,000 in 2013 dollars from age 54 on.

$40,000 per year in inflation-adjusted income, starting in 2033. (Only showing the first 15 years or so.)

This is Where Things Get a Little Nuts

Betterment gives me about a 75% chance of reaching my savings goal on time…with a monthly deposit of over $5,000 per month??

According to Betterment, if I want to have a (roughly) 75% chance of having $2,500,000 at age 54, I need to be saving around $5,000 per month.

Hm.

If I were making $250,000 per year, $5,000 per month would be reasonable. Unfortunately, I’m not. (It is worth mentioning that improving your earning power – once you’re solidly living on a budget – changes your retirement prospects in a major way.)

That’s One Heck of a Reality Check

So, why did I take you through all those goal calculations, when I’d obviously already found out they were unrealistic?

Because maybe you’re like me. Maybe you think $40,000 is a piddly retirement income – one that I could achieve by beginning to invest when I’m 45 or so. If you do think like me – oh how wrong we both are.

For example, dropping my annual income goal to $25,000 (2013 dollars), and extending my retirement age to 65 (giving me 31 years instead of 20 to prepare), changes my monthly savings requirement to $1,475 – a savings rate I could achieve within the next year or so.

$1,475 per month to reach a $1,900,000 nest egg by age 65. Much more feasible.

Don’t Forget About the $729,000 Bonus I’ll Get at Age 65

Remember how all my debt will be gone when I’m 50? Taking the whole snowball and putting it into my investments for the fifteen years between age 50 and 65 will pad my nest egg with a tidy $729,000, bumping my retirement income from $25,000 to $34,000 per year. It pays to be debt free.

Sheesh – 1,000 words (and one John Elway reference) later, that’s my best guess at a retirement plan.

How’d I do?