There are plenty of posts about the financial bailout already but since I’m writing a personal finance blog I feel required to write about it as well, but I’ll keep it short.
I’m against the bailout but I think it is inevitable that some form of bailout will happen. I’m not too worried about it right now. I’ll probably be more worried about it when the bill for the bailout comes due. Many are saying that if we don’t have a bailout it will be bad for everyone. I don’t know if that is true or not but it seems hard to believe.
So far all the financial turmoil hasn’t affected me personally and I don’t think it will. I can understand people being ticked off about the bailout but it doesn’t really do any good to worry that the economy is going to collapse. My life was good at the beginning of the year and it is still good now. Until that changes for the worse or looks like it is going to I’m not going to worry.
One part of my plan to retire at 50 is to continue to make money on the side. That might more properly be called semi-retirement. However, if I don’t have to work and can make money when I choose to that is good enough for me. Any money I earned would be to do things beyond my ordinary budget or to provide a larger cushion of savings.
There are many ways to make extra money. I’ve covered a few of them with my alternative income ideas. There are a lot of blog posts out there on how to make extra money. Here are a few of them:
“Need extra income? Here are some ideas” from MSN Smart Spending.
“26 Ways to Earn Extra Money” from The Wisdom Journal.
Not all the ideas are non-job ways to make money but there should be a few ideas there that will work for you. If you focus on thinking of ways to earn extra money more ideas will probably come to you.
With the turmoil in the financial markets many people are wondering what they should do with their money. I don’t know what you should do with your money but I can tell you what I am doing. I just invested a little more in my Roth IRA which is 100% invested in a value stock mutual fund. I figure if the stocks were undervalued before they should really be undervalued now. It is a bit disconcerting to see my balance go down but I have faith that the market will eventually rebound. On the theory that stocks are cheap right now I hope to max out my IRA before the end of the month if I have enough cash flow.
If you’re worried about safety than putting your money in an online savings account is a safe way to go. As long as you put your money in an FDIC insured account you’re protected up to $100,000. This is a case where less risk doesn’t lead to less return when you compare them to money market mutual funds. The Reserve money market mutual fund recently broke a buck causing investors to lose part of their principal and the fund is paying less than 2%. In an online savings account such as FNBO Direct you don’t have to worry about losing your principal and it pays 3.50% APY. Why would you invest in a money market mutual fund?
I’ll end with the standard disclaimer. I’m not a financial professional and I’m not advising you how to invest your money. I’m just telling you what I am doing with my money.
Judging from the response I got to my post “How Much Should You Save for Retirement?“, people are really interested in the subject of my retirement. In that post I mentioned my desire to retire at 50 and that I had some ideas on how to do that. I do need to make a plan in order to reach this goal.
When I was in my early 20’s I read a book titled How to Retire at 35. I decided that would be a good goal. I didn’t make much money then so my plan was to start saving big money as soon as I had a good-paying job. Of course, once I had a good-paying job I forgot all about my idea of retiring at 35 and spent money like crazy. When I turned 30 I made a goal of retiring at 40. That goal obviously didn’t happen either. The problem was I didn’t really have a plan and I kept getting sidetracked and putting other things ahead of saving for retirement. Whenever I saved a little money I’d go off on some adventure and then be broke again. I did have fun on my adventures but if I had just been disciplined I could be having adventures all the time now.
This time I’m going to do things differently. I’m already better off than before because I’ve already gotten in the habit of saving for retirement. This time I’m going to keep retirement as a priority. My goal is to have $1000 a month to live on at age 50. If I retired today I’d only have $34.87 a month to live on. That is a very large gap but it isn’t as bad as it looks. That is based on just living off the interest from my savings. Based on just living on the interest, at 6% I would need to have $200,000 saved. Since I have about $6000 saved now I’d need to save about $1200 a month to meet that goal if my savings had an 8% return. That seems like a large amount considering I don’t make that much total right now. After I finish school though that should be a reasonable amount and in the meantime I’m saving all I can afford.
My goal of living on $1000 a month might seem far-fetched to some but I’m confident that it is reasonable. I’ve lived long enough to see the effects of inflation but unless we have really high inflation the next nine years I don’t think it will be much of a factor. I live on about a $1000 a month now and I could live on considerably less. One way I could cut my cost of living would be to live in a van. I’ve already posted about that and I believe it is a feasible option and one that I would enjoy. Another way to cut my living expenses would be to live in a foreign country. I lived in Guatemala for 3 months on $450 and had a great time. The cost would be a little more now but it would still be dirt cheap. A third option would be to spend half the year hiking a long trail such as the Appalachian Trail. I’ve hiked about half the AT and I think with some planning I could hike the trail on a budget of $200-$300 a month. Those are just the ways I came up with off the top of my head on how to drastically cut my living expenses, I’m sure there are many more.
That is my plan for now. It might undergo some changes before I turn 50 but I’m going to keep my focus on the goal.
The standard used to be 10-15% of your income should be saved for retirement. That still might be a reasonable standard if you start early enough, your investments perform well, and you’re confident that Social Security will provide a healthy boost to your retirement income. There isn’t really a one size fits all standard on how much you should save for retirement. Many different factors come in to play such as how early you start saving, how much you plan on spending in retirement, what returns you’ll get on your investment, how long you’ll be retired, and so on. Since I didn’t start saving until age 39 and don’t have much confidence that I’ll receive a full benefit from Social Security I need to save more than 10-15% of my income.
I made approximately $12,000 last year and invested $4,000 in my Roth IRA. That is a savings percentage of 33% of my income. That isn’t bad but I still need to increase my income or savings percentage or both if I want to retire. I’d like to retire before I’m 50. I’ll be 41 this month which only gives me nine years to save enough money. That makes my goal a longshot but I have some ideas how to make it more probable that I’ll share in another post. My total invested in my IRA will most likely be smaller this year but my savings percentage will likely be about the same.
I see some people that save much larger percentages of their income. These are usually people with much larger incomes than me. I’ve developed another way of measuring percentage of income saved that levels the playing field somewhat between large and modest incomes. I look at what percentage of income above the federal poverty level was saved for retirement. The federal poverty level for 2008 for one person is $10,400. My income was $12,000 and I saved $4,000 so my savings percentage was over 100% of my income above the federal poverty level. I don’t think there are a lot of people matching that although I’m sure there are some.
In summary how much you should save depends on your circumstances. In my opinion you should save at least 20% of your income and if you want to retire early you should save much more than that.
