HOW MUCH SHOULD I HAVE SAVED OR BE SAVING RIGHT NOW?
I saw this book at the library and decided to give it a read.
Farrell, Charles. Your Money Ratio$. New York: Avery/Penguin, 2010. Print.
I have to say I enjoyed reading it.
Charles Farrell is a personal finance writer, adviser, and qualified as a JD, LLM - a lawyer. So I know he knows how to write. Given that in my line of work, I read a lot of legal and compliance documents, I expected a very dry long book. On the contrary, it was easy to read and well written with a very simple vocabulary designed to reach a large number of American readers. He writes for CBS MoneyWatch, so I should not be surprised.
I am all for simplicity and answers to the questions that confound us all. The thing about personal finance is that there are several factors that drive the "right fit" answers for each family or individual. This book took that away and tried to give a reasonable answer using your income as the basis for the ratio. So I am going to start applying the answers from his ratios/unifying questions to our situation.
Of the five questions, here's the first 2 and how we addressed:
1. How much money should I have saved at my age? (Farrell, Pg 4)
2. How much money should I have saved at my age? (Farrell, Pg 4)
The table provided Mr. Farrell was actually really really good answer in my opinion. However it did not catch all situations.
- For instance, my husband really just started working the last 2 years as he went to many years in school. In his mid-30s, the answer of how much to save each year (12% - (Farrell, Pg 30) ) is quite reasonable. However I would save more because he took so long to get into the workplace.
- The Capital to Income Ratio for my husband per his age should be nearly 1.4 (Farrell, Pg 17) . That's 150% of his income in savings, retirement funds, whole life, and annuities type of products. That's impossible 2.5 years out of college .
- Whereas I have been working after college for 10 years to date but am still younger than him by a couple years, so that is more than reasonable for me. So for a two couple house with such different stages career and age wise, how do we come up with the correct ratio for us?
- I think we have to look at his income separate from mine..first my looking at our individual retirement accounts, whole life etc.., and then proportioning our incomes to our savings. I have 1.5 times my income in retirement savings alone. So target is met only for me.
- For my husband, I would utilize the ratio 0.3 or 30% if I took the average of the ratio for 25 years and 30 years. We are certainly meeting and slightly exceeding that target if you consider our combined savings in total for his ratio.
So I feel that gives us a lot of comfort. We have interviewed 3 personal financial planners in the last year. One is our insurance agent, one is a fee-only agent (came out to 1%) still as our accounts are small, and one was broker/agent for Merrill Lynch (2-3% and all our accounts under his direct control). All of them were very impressed with our savings and retirement account size relative to where we are at in life. So if nothing else, independent assessment that our savings rate is not bad for an American couple in their 30s especially with a long college haul.
I feel this post will become too long if I address the whole book in one post. I would like to use the tenants of the book to see how well it aligns to our situation to see if it's reasonable or not. I am not writing obviously to every situation on this blog. Only to our situation as a college educated family with professional careers that have required sacrificing income through our twenties for college debt and lower wage in the East Coast.
Look for post #2 as I look into the question of how much debt?
