Spend or save for future?

mr_fishbulb

jon3001 wrote: »

Know any good uni courses for footballers/sportsmen,

Haha I do actually - http://www.solent.ac.uk/courses/undergraduate/football_studies_ba/course_details.aspx

bendix

jon3001 wrote: »

The formula is a statistical fit on actual data.

Still not buying it, sorry.

How does this tally with the prodigious levels of debt people in the UK and USA are holding, irrespective of their incomes?

It just doesn't add up.

jon3001

bendix wrote: »

How does this tally with the prodigious levels of debt people in the UK and USA are holding, irrespective of their incomes?

Which people? The ones who are below average presumably.

mac2009

jon3001 wrote: »

Here is the yardstick you need:
http://en.wikipedia.org/wiki/The_Millionaire_Next_Door

The formula for someone's average wealth based on age and income is:
0.1 * age * income.

E.g. for a 30 yr-old on £25K/yr the average wealth would be:
01 * 30 * 25 = £75K.

I'll brace for howls of incredulity again... :rolleyes:. But I've quoted examples of young people pushing far beyond these meagre number before (e.g. http://en.wikipedia.org/wiki/Mark_Zuckerberg for a 25-year old worth $2 billion).

Important to note here that 'wealth' isn't just money in the bank but net worth including equity in houses, cars, pensions etc.

I think it's a good target if nothing else - thinking about 'wealth' in these terms helps me to keep a balanced approach to my own finances and helps me focus on longer term goals.

Lokolo

I have read MND and think it is a good way to live your life if you want it like that.

I will say that the formulae is wrong though, mainly for the younger generation.

Even not going to university, 18 year old on £15k is expected to have £27k..... which, lets be honest, is near to impossible.

bendix

Lokolo wrote: »

I have read MND and think it is a good way to live your life if you want it like that.

I will say that the formulae is wrong though, mainly for the younger generation.

Even not going to university, 18 year old on £15k is expected to have £27k..... which, lets be honest, is near to impossible.

Precisely. There are just too many variables at that young age. A 25 year old earning £25k is meant to have over £62k of assets just to be average?

It's nonsense.

jon3001

Lokolo wrote: »

Even not going to university, 18 year old on £15k is expected to have £27k..... which, lets be honest, is near to impossible.

1.8 * income is the 'sweet spot'. As the book says the AAWs (average accumulators of wealth) are in the range of 0.5-2.0x this figure (or £13.5K-£54K). Someone living at home between 16-18 yrs-old could potentially accumulate that.

I'm sure the data will be below the fit at lower ages. However by the time people wake up and wonder if they've saved enough over their career then it begins to matter. Certainly if you're 55 and still below average you should probably be concerned.

BritRael

bendix wrote: »

This formula is utter nonsense. Given that most people's income at any point in their life is substantially higher than it was previously, I can't logically see how they are going to have accrued 2.5 or 2.5 or 4.5 or 5.5 times that in savings by the time they receive that income.

It's totally illogical.

You might disagree with the formula, but try reading the book and then maybe you would understand why they state it.

I read it when it came out, and it has some great ideas, and gave me a totally different perspective on my finances.
The OP and one poster mentioned something like "treating myself with disposable income.." and "whats money for if not for enjoyment?...". This type of thinking is really the crux of this book; if you live by these motto's, you'll never acculate any money. Your choice..

ses6jwg

BritRael wrote: »

You might disagree with the formula, but try reading the book and then maybe you would understand why they state it.

I read it when it came out, and it has some great ideas, and gave me a totally different perspective on my finances.
The OP and one poster mentioned something like "treating myself with disposable income.." and "whats money for if not for enjoyment?...". This type of thinking is really the crux of this book; if you live by these motto's, you'll never acculate any money. Your choice..

too true

its alright you treat yourself occassionally - but IMo 3/4 of your disposable income should be saved or invested

Primrose

I think you're wise to start rethinking your saving philosophy now as spending for the sake of it almost inevitably delays the time when facing up to the reality of saving for a house, or for your retirement means it becomes an increasingly uphill struggle. The first sensible thing to do seems to be to throw all your spare cash at reducing your credit card debt, and possibly reducing the timescale of your car loan if this can be done without penalty. With income tax almost certain to rise in the future because the country's debt problems, you will have to decide whether hanging onto your tax free ISA savings is worth doing for the long term, rather than using them to reduce your debt. I don't think 30 is also too early to start saving for a pension if you haven't yet considered this option. I think the country's economic problems are forcing many people to review their own spending philosophies, reduce their debts and increase their savings. So while you are mortgage free, this may be a good time for you to cut back on your own consumer expenditure and start a more serious debt reduction/ savings regime. As everybody who has ever bought a house will tell you, you never seem to have quite enough money for the venture by the time you have taken into account all the ancilliary expenditure relating to it, so increasing your savings commitment now will make it easier for you to achieve in the long run.