Am I the only one without a "budget"?

[dvcgirl]

I think this is actually the basis of most of the dvcgirl bashing on this thread. However, in my experience, the more people earn, the more they spend. Big earners can wind up with nothing in savings quite often. Of course it is easier for them to save IF THEY WANT TO, but so many of them are just as reckless as lower earners.

Funny story...I live in the cheapest, smallest house in a VERY upscale neighborhood. One of my DD18's friends just asked her if we were secretly rich, because I am paying for DD's college and we travel a lot. She, on the other hand, had to take out loans (in addition to her scholarship) because her parents could not afford to send her to college. Shall I mention their HUGE house or their brand new cars or their younger child in an expensive private school or her mother's 5 carat engagement ring or their live-in maid?

Oh, did I mention we live on one income? We scrimped and saved and budgeted (for retirement and college) and now people whose annual income is 3X what we make are envious because we can afford things they cannot.

Oh, I totally believe this. We see it all of the time. People making the same and often more than we do, but spend most of it. They may be saving something, but nowhere near what they'd need to maintain the lifestyle that they're living now. I always wonder if they think that they're going to want to travel *less* than do now (which is way more than we do now for sure)....or if they're all of the sudden going to want to play golf at public courses or lay among the hoards of those tanning themselves on the public beaches as opposed to their private beach club.

Of course, this isn't everyone....but I see a lot of it. I call it the Great Downsizing of the American Lifestyle"....and it's not going to hit the middle class. A lot of "wealthy people" are woefully unprepared. A lot of people at the top think that they can "out earn" their late start or slow start in savings and investment. But that strategy leaves an awful lot to chance.

 

[neatokimmo]

dvcgirl - just curious, how did you come up with your final retirement number? Are you using a planner or some sort of calculator?

The numbers shift and vary depending on which website I use. It's super annoying.

 

[dvcgirl]

It's still his money that is paying for the finance charges, right?

I think we all get your point....thanks. I'll pass it along to my uncle.

And yes, my Aunt loves her iPad. She loves her new car too....and that also came with 5 years of payments. "It has the coolest iPod docking station!" And yes, before you point it out....it's her money that's paying for the car. Well, it's money from in inheritance that is paying for the car...that ends in a few years. Things will tighten up in that household budget at that point.

And they earn 140K a year and they're very lucky that my sister has offered her house on Bald Head Island to the two of them for a week in early September or there would be no vacation. Good think they have a wealthy and generous niece who can't use the house herself that week.

The serious financial issues will surface for them, and many other baby boomers when their income drops to 60% of their max......and they can't afford their "payment lifestyle" anymore. That's when the depression will set it. I don't think it's funny....I think it's really sad. And I wish I had a nickel for every time I personally sat down with this particular Aunt over the years to help her design a budget. She just could never stick to it. And in her second husband, she found a great guy, but financially....they are kindred spirits.

Look for a boom in business pharma stocks for who are on the cutting edge of anti-depressive medications. I'd say it should kick in about 5 years or so from now. That's when the leading edge of the Baby Boomers hit 70 are realize that their "I'll just keep working" plan wasn't really feasible. And it's when the middle of the Boomer pack realizes that they're in big trouble.

This has been coming for years and years. And we've discussed it a million times on this board. If this isn't your situation....then good for you. Even if it isn't....there's likely one or more people in your family who will find themselves in this situation, and so we'll all be affected on a personal level in one way or another.

 

[dvcgirl]

dvcgirl - just curious, how did you come up with your final retirement number? Are you using a planner or some sort of calculator?

The numbers shift and vary depending on which website I use. It's super annoying.

I like the calculator on www.troweprice.com Click on Retirement planning and you'll find it there.

A really loose rule of thumb is that you're going to need 1 million dollars to produce roughly 40-50k per year in income....for a 30-ish year long retirement....without the risk of running out of money.

But you need to factor in inflation. So....we live comfortably on 85K now, but would like closer to 120K when we finally retire (meaning....we stop working for good)....say, 20 years from now. As I've said....we're planning on traveling more in retirement.

So, we shoot for 5 million, which will throw off 200-250K per year in 2031. Sounds great right? But that 200-250 will *spend* more like what 120-125 buys today. That's inflation. So, 5 million sounds amazing now....like we'd be wealthy, but it will spend like 2.5 million 25 years from now.

Also keep in mind that you can factor in what you think you'll get from Social Security. We don't factor in anything from SS, despite the fact that I *do* think we'll get SS....but we'll likely get something like 70% of what we've been promised. But I also think we're all going to be responsible for much higher medicare premiums....unless you're poor. That's going to be the biggest negative surprise for the Boomers....how much those premiums are going to eat into their "fun money".

So why don't we factor in that couple of grand a month that we may see from Social Security? Because I am positive that health care costs will continue to skyrocket and we've ear marked that SS money for co-pays and supplemental insurance in our retirement years.

 

[Swan4Me]

If you really have a 3/4 million portfolio.....careful, you might want to keep that to yourself.....there's some serious envy running through this thread and you just mentioned a pretty big number.

Altho I said portfolio=that includes my almost paid for house which I plan to reverse mortgage in my later years

 

[The Pluto People]

You are lumping everyone that has a big house and a nice car into one category, you are wrong and judgmental and what we call in my family, poverty proud. That doesn't mean you live in poverty, it means that no matter what, if someone has a nice anything, they must be in debt. Sounds a little jealous to me. News flash, not everyone that has nice things, is broke and living paycheck to paycheck. So sorry to disappoint you.

I have not responded to this because I was away for the holiday weekend. I have nice things and I'm not broke or jealous. You missed my point completely. Like DVC girl, our income could afford us a much more lavish lifestyle. Just because you make a lot of money does not mean you have to spend it. Now I'm off to read the rest of this very interesting thread.

 

[disykat]

oops - double post.

 

[disykat]

Like many others, my "budget" is sort of ingrained, not on a spreadsheet. I am not much of a spender. We've always had savings goals etc. but we keep track of them in our head.

We may actually have to start charting for a while because of extreme changes to our financial situation. Years of saving for college will now be paying for college - our first big hit will be in September.

I have also noticed the phenomenon of people who make much more money than us being envious that we are paying out of pocket for college.

 

[Planogirl]

After reading through these posts, it occurred to me that we might be in a weird way fortunate that we've had some struggles. We've learned to get by and even have fun on very little. The problem is that we don't have the savings we'd like but we do have a good, seemingly healthy pension from a public utility. Public utilities tend to be financially stable so I hope that this pension stays in existence.

I can also see a need for balance. My father scrimped and saved his whole life but suddenly died from a heart attack before he could retire. My mother lived it up for a while but then quietly retired and is now living from his pension and social security. I always feel sad that my father couldn't pursue some of his interests but always planned to do so later. "Later" might never come.

 

[bumbershoot]

One thing I am curious about-one financial thing about you I totally disagree.

DVC-I doubt any financial expert would say that is a wise decision-right?

You're starting from the assumption that she bought DVC as an investment, though. And sure, timeshare-as-investment (where you have selling it as a goal) is a bad idea. But buying something to GET something, something of value TO YOU, isn't a bad idea. Most would add "as long as you don't finance". I don't; we financed. I watch the payment schedules, I know what we've spent in interest, I don't hide from it. I know what we're spending above and beyond what we would have if we hadn't financed.

But I digress.

You're assuming that they bought it for a reason that probably is NOT the reason they bought it. I bet they are getting vacations for much less, at places where they really want to be, than if they were paying rack rate (or even a sale rate) each time.

I wouldn't make that assumption of them, personally.

Regarding my parents. I disagree that they gambled the wrong way. They have 6 properties and all are paid for. Their home is paid for. They purchased the land in the 80's and put homes on them when their money allowed (a few had homes on them already).

OK I just don't get how their situation is THAT bad if they own, outright, those properties and homes. Maybe sell one and put it into a savings account (or CD or whatever else) so they can pay the taxes and upkeep when they don't have a renter?

I was the kid who saved her tooth fairy quarters, so I've been like this a long time.

My brother was the same way. He budgeted his Halloween candy all the way to Easter. Budgeted his Easter candy until Halloween. I bet his wife was nearly the same way.

When they were in college, she was a year ahead of him and had some credit card debt. After he moved in, he spent a year helping her work out how to pay it off, so when they married at 22 she didn't have that debt. he didn't pay it for her...he was a year behind her (though only 2 weeks younger) and he didn't work while in college...he just helped her figure it out. And she accepted that help (where others would refuse the help and buy MORE things). Man oh man are they an obnoxious couple.

Sometimes my mind boggles how he and I grew up in the same household (but I have to say that we didn't totally...his last 3 years of high school he had a new stepdad in the house who was financially responsible...I was off at college, not getting the benefit of that wisdom).

 

[dvcgirl]

You're starting from the assumption that she bought DVC as an investment, though. And sure, timeshare-as-investment (where you have selling it as a goal) is a bad idea. But buying something to GET something, something of value TO YOU, isn't a bad idea. Most would add "as long as you don't finance". I don't; we financed. I watch the payment schedules, I know what we've spent in interest, I don't hide from it. I know what we're spending above and beyond what we would have if we hadn't financed.

But I digress.

You're assuming that they bought it for a reason that probably is NOT the reason they bought it. I bet they are getting vacations for much less, at places where they really want to be, than if they were paying rack rate (or even a sale rate) each time.

I wouldn't make that assumption of them, personally.
.

Thanks for pointing out that the DVC isn't an investment and we didn't purchase it as such. We did however sell in for a profit in 2004 when we lived in Orlando and decided that for us, DVC wasn't something we'd use enough to make sense for us.

When we did purchase though....we paid cash, because again, it's not an investment, it's a pre-paid vacation plan for people who like to visit Disney at least every other year and normally stay in luxury resorts. Otherwise it makes no sense. And we purchased back in 99 I believe, when the price per point was 65 dollars....now, I don't think the numbers work at all with the current price. And with Disney pulling a lot of the perks from resale buyers they're really hurting that market.

The other interesting thing is that rental prices haven't come up as I would have anticipated. And there are a *lot* of distressed DVC landlords (and sellers) these days. We snagged (2), two bedroom villas at BCV last year and got a nice deal.

But no, when we did purchase.....it was clearly a splurge that we could afford.

As the one post about a "portfolio" being worth 3/4 of a million including the home. I don't see it that way, especially after the housing bust of the last four years. We see our portfolio as our investments....we view our paid-for home as the place where we live. We include it as a part of our net worth, but we don't intend to reverse mortgage our home. It's a great deal for the bank.....terrible deal for the homeowner.

 

[VAN]

And by the same token, just because people spend more than you, don't think that they are in debt.

Oh, I do know they are because they tell me!!!!

 

[Swan4Me]

As the one post about a "portfolio" being worth 3/4 of a million including the home. I don't see it that way, especially after the housing bust of the last four years. We see our portfolio as our investments....we view our paid-for home as the place where we live. We include it as a part of our net worth, but we don't intend to reverse mortgage our home. It's a great deal for the bank.....terrible deal for the homeowner.

Housing costs where i live are stable
My house has doubled in value from what we paid for it 18 years ago

Dont agree with you on the reverse mortgage-but I bow to the DIS Budget Board expert..............I guess
:

 

[MrsPete]

As the one post about a "portfolio" being worth 3/4 of a million including the home. I don't see it that way, especially after the housing bust of the last four years. We see our portfolio as our investments....we view our paid-for home as the place where we live. We include it as a part of our net worth, but we don't intend to reverse mortgage our home. It's a great deal for the bank.....terrible deal for the homeowner.

I agree. I see our house as, well, our house. I consider it separate from our other financial accounts. I could sell any of our stocks. I could empty out an account. I can't sell our house -- not unless I develop a hankering to try homelessness.

We do plan to sell our large, perfect-location house someday -- maybe when the kids are out of the house, maybe when we retire, but probably about 10 years from now. The money should allow us to mostly pay for a smaller, designed-for-us house on the retirement land we own.

A reverse mortgage is an expensive way to get retirement money. The fees are steep. Why? Because they can be. Most people don't turn to this option unless they're a little desperate.

 

[punkin]

I do see the equity in our house as possible usable assets. I don't know if I would classify it as part of my "portfolio" but I guess technically it is. In that case, we are going much better than I thought savings-wise. We have a nice amount of equity in our house, but our mortgage is still significant. We are not planning to stay here after DD12 graduates from high school. At that point we will significantly downsize. We will have enough equity to buy a small (2BR) apartment outright and pay our substantial mortgage toward college expenses.

I agree that reverse mortgages are useful only in very limited circumstances. I would prefer to sell the house and take the money outright.

 

[dvcgirl]

I do see the equity in our house as possible usable assets. I don't know if I would classify it as part of my "portfolio" but I guess technically it is. In that case, we are going much better than I thought savings-wise. We have a nice amount of equity in our house, but our mortgage is still significant. We are not planning to stay here after DD12 graduates from high school. At that point we will significantly downsize. We will have enough equity to buy a small (2BR) apartment outright and pay our substantial mortgage toward college expenses.

I agree that reverse mortgages are useful only in very limited circumstances. I would prefer to sell the house and take the money outright.

I didn't say that I don't see the equity in our home as usable equity. Like you, we'd sell the home and use the equity in that manner. We'd downsize...or rent, or possible use it to move into an assisted living facility. But I won't pay the incredibly high interest rates that banks charge for reverse mortgages. And after this latest housing *depression*.....yes, *depression*......and it's still heading down......the amount of equity that they'd be willing to pony up is going down. They're going to leave themselves quite the cushion to make sure they're not caught holding a home that is underwater.

And to the other poster or two who continues to be snarky towards me.... I didn't say that *you* shouldn't take out a reverse mortgage on your home.....just that I wouldn't. And I *certainly* never said I was an expert on anything.

 

[crjack]

Are there ever any circumastances where a reverse mortgage may make sense? I'm just thinking ahead for the worst case scenario with caring for my aging father who is adamant about staying in his own home. (Completely paid for and has been for years).

We has a fair amount of savings that he hasnt had to touch because he lives very simply and his monthly soc sec & pension check cover all his needs.

With the high cost of care, though, say at an assisted living facility, I had wondered if it was ever needed if it would be an option to consider?? He has early dementia and at some point my siblings and I will need help.

 

[ilovemk76]

I do see the equity in our house as possible usable assets. I don't know if I would classify it as part of my "portfolio" but I guess technically it is. In that case, we are going much better than I thought savings-wise. We have a nice amount of equity in our house, but our mortgage is still significant. We are not planning to stay here after DD12 graduates from high school. At that point we will significantly downsize. We will have enough equity to buy a small (2BR) apartment outright and pay our substantial mortgage toward college expenses.

I agree that reverse mortgages are useful only in very limited circumstances. I would prefer to sell the house and take the money outright.

We see our home as a "fall back plan". We include it in our net worth but not in our retirement savings. We view SS as a "fall back plan" too.

A reverse mortgage is good if you live far longer than they expected. You can make out in those situations.

Many use a reverse mortgage as a way to stay in their home. Many seniors are so attached to their home that leaving it would lead to their passing sooner. Many times it is more of an emotional decision to get a reverse mortgage than a fiancial one.

 

[punkin]

We see our home as a "fall back plan". We include it in our net worth but not in our retirement savings. We view SS as a "fall back plan" too.

A reverse mortgage is good if you live far longer than they expected. You can make out in those situations.

Many use a reverse mortgage as a way to stay in their home. Many seniors are so attached to their home that leaving it would lead to their passing sooner. Many times it is more of an emotional decision to get a reverse mortgage than a fiancial one.

This is true, but given the upfront fees and interest, you had better WAY WAY WAY outlive the actuarial assumptions.

I also don't think it makes sense to talk about emotional reasons for a reverse mortgage. None of us can adequately judge that or assign a monetary value to it.

 

[mhsjax]

Oh, I do know they are because they tell me!!!!

Yep that's right. EVERYONE that spends more than you is in debt. Wow. I didn't realize you know everyone.