Cuttings from Chapter 10
After 6 hours at Panera and at least three cups of Mt. Dew, I got Chapter 10 on savings hammered out to my satisfaction. One of our goals with this book is to keep it simple, but Phillip and I have a tendency to get verbose. So there's a lot that gets written, then cut out and rewritten. Since I spent time on them, I felt like sharing a few "cut scenes".
In the book, I talk about three different methods to save money. This is my beginner method for younger people who are still living at home and not facing a lot of bills yet. The final version is far more condensed and less "story-like", but this was my first savings method. And one a younger friend of mine is having great success with.:
"Let's say you're a highschool kid with your first part time job. You're making $100 a week, you're parents still drop you off, but you're itching for your own wheels.
You've been looking at used cars and are thinking about something in the $3000 range. The temptation is to run out and buy the car the moment you have $3000 saved up, but you're thriftier than the average teen. You know college is looming, and even if your parents have put away something towards your education, you're not sure it's enough. So instead, you wait until you have double what you plan to pay, $6000, before you buy that $3000 dollar car.
It takes you a little over a year, but you finally have that $6000 and buy your car. And good thing you saved a little extra cause you completely forgot about insurance and taxes! (Not your fault, this all new to you). But you still get through all the fees with $2000 intact.
Gas and car maintance has cut into your income, so you can't save as quickly as before, but now you have your eye on a laptop. You're not a gamer, but you still want a machine where you can play DVDs, get online, and do your homework. You look around and find your dream machine at $1500. The tempation is to dip into that $2000 you have left from the car, but as we said before, you're smarter than the average teen. You learned you're lesson from that sales tax hit with the car and start thinking it might be nice to have a printer to go with that dream machine. So you budget an extra thousand, $2500, for your computer. College is looming even closer now, so you stick with your doubling. $5000...now, this $5000 goes on top of the $2000 you've already saved, so you'll wait until you have $7000 before you get that laptop.
With your car freedom, which allows you to pick up a few extra hours at work, you manage to hit $7000 after a year and a half. By this time the laptop you were eyeing has actually dropped in price after the newest model came out. Ah choices, choices...you opt for a nicer screen on the newer model still spending the $2500 that you had planned before. So there you are, a senior, scrambling to fill out applications and scholarship forms, but sitting pretty with your own car and laptop and $4500 in the bank.
Worst case scenario, you can't get a penny in scholarship money, and that college savings you thought your parents were putting away, turns out to be a couple of $50 savings bond. If you knew what you wanted to do would be very lucrative, you might consider taking on a government loan, but you're racked with uncertainty. But just cause the scholarships were dry, doesn't mean you're dumb. Ignoring the dire warnings of your guidance counselor and Great Aunt Myrtle, you decide to take a year off and get a full time job.
The $100 a week paycheck is now $200 a week. Ah, the temptation to spend grows, but you know you're parents are gonna kick you out eventually. Community college is $2000 a semester, but that's $4000 a year. You decide to save up at least enough for that first year. Maybe you can get your grades up and apply for scholarships again. So you decide to save up at least $8000 on top of your $4500 savings, before taking the plunge.
A year later, you're 19, headed to community college with a car, a laptop, enough to cover the first year without going into debt, as well enough for an emergency fund and the envy of many older adults. "
This next part was just me playing with numbers. I got about half way through it and realized it was horribly impractical, not worth page space, but I wanted to finish it out:
"Hopefully as you grow older, you'll learn new skills, get better jobs, and acquire raises. Let's try that $5 a week scenario again, but this time, every year we increase the amount of weekly savings by $5 (assuming no interest):
[Chart... if I'd actually gotten this formatted into a table, across the top this would have read Age, amount saved per week, saved per year, growing total. ]
Age
18 5 260 260
19 10 520 780
20 15 780 1560
21 20 1040 2600
22 25 1300 3900
23 30 1560 4460
24 35 1820 6280
25 40 2080 8360
26 45 2340 10700
27 50 2600 13300
28 55 2860 16160
29 60 3120 19280
30 65 3380 22660
31 70 3640 26300
32 75 3900 30200
33 80 4160 34360
34 85 4320 38680
35 90 4580 43260
36 95 4840 48100
37 100 5000 53100
38 105 5260 58360
39 110 5520 63880
40 115 5780 69660
41 120 6040 75700
42 125 6300 82000
43 130 6560 88560
44 135 6800 95360
45 140 7060 102420
46 145 7320 109740
47 150 7580 118320
48 155 7840 126160
49 160 8100 134260
50 165 8360 142620
51 170 8620 151240
52 175 9880 161120
53 180 10140 171260
54 185 10400 181660
55 190 10660 182320
56 195 10920 193140
57 200 11180 204320
58 205 11440 215760
59 210 11700 227460
60 215 11960 239420
[/end chart]
I read the 1 grain of rice fable last week, which I think is what put this in my head. As for impractical...once you get to the point where you can stick $1000 a year into retirement, an IRA is probably the way to go. Max that out, then diversify into a few other investments...but that's really a discussion for a different sort of blog.
In the book, I talk about three different methods to save money. This is my beginner method for younger people who are still living at home and not facing a lot of bills yet. The final version is far more condensed and less "story-like", but this was my first savings method. And one a younger friend of mine is having great success with.:
"Let's say you're a highschool kid with your first part time job. You're making $100 a week, you're parents still drop you off, but you're itching for your own wheels.
You've been looking at used cars and are thinking about something in the $3000 range. The temptation is to run out and buy the car the moment you have $3000 saved up, but you're thriftier than the average teen. You know college is looming, and even if your parents have put away something towards your education, you're not sure it's enough. So instead, you wait until you have double what you plan to pay, $6000, before you buy that $3000 dollar car.
It takes you a little over a year, but you finally have that $6000 and buy your car. And good thing you saved a little extra cause you completely forgot about insurance and taxes! (Not your fault, this all new to you). But you still get through all the fees with $2000 intact.
Gas and car maintance has cut into your income, so you can't save as quickly as before, but now you have your eye on a laptop. You're not a gamer, but you still want a machine where you can play DVDs, get online, and do your homework. You look around and find your dream machine at $1500. The tempation is to dip into that $2000 you have left from the car, but as we said before, you're smarter than the average teen. You learned you're lesson from that sales tax hit with the car and start thinking it might be nice to have a printer to go with that dream machine. So you budget an extra thousand, $2500, for your computer. College is looming even closer now, so you stick with your doubling. $5000...now, this $5000 goes on top of the $2000 you've already saved, so you'll wait until you have $7000 before you get that laptop.
With your car freedom, which allows you to pick up a few extra hours at work, you manage to hit $7000 after a year and a half. By this time the laptop you were eyeing has actually dropped in price after the newest model came out. Ah choices, choices...you opt for a nicer screen on the newer model still spending the $2500 that you had planned before. So there you are, a senior, scrambling to fill out applications and scholarship forms, but sitting pretty with your own car and laptop and $4500 in the bank.
Worst case scenario, you can't get a penny in scholarship money, and that college savings you thought your parents were putting away, turns out to be a couple of $50 savings bond. If you knew what you wanted to do would be very lucrative, you might consider taking on a government loan, but you're racked with uncertainty. But just cause the scholarships were dry, doesn't mean you're dumb. Ignoring the dire warnings of your guidance counselor and Great Aunt Myrtle, you decide to take a year off and get a full time job.
The $100 a week paycheck is now $200 a week. Ah, the temptation to spend grows, but you know you're parents are gonna kick you out eventually. Community college is $2000 a semester, but that's $4000 a year. You decide to save up at least enough for that first year. Maybe you can get your grades up and apply for scholarships again. So you decide to save up at least $8000 on top of your $4500 savings, before taking the plunge.
A year later, you're 19, headed to community college with a car, a laptop, enough to cover the first year without going into debt, as well enough for an emergency fund and the envy of many older adults. "
This next part was just me playing with numbers. I got about half way through it and realized it was horribly impractical, not worth page space, but I wanted to finish it out:
"Hopefully as you grow older, you'll learn new skills, get better jobs, and acquire raises. Let's try that $5 a week scenario again, but this time, every year we increase the amount of weekly savings by $5 (assuming no interest):
[Chart... if I'd actually gotten this formatted into a table, across the top this would have read Age, amount saved per week, saved per year, growing total. ]
Age
18 5 260 260
19 10 520 780
20 15 780 1560
21 20 1040 2600
22 25 1300 3900
23 30 1560 4460
24 35 1820 6280
25 40 2080 8360
26 45 2340 10700
27 50 2600 13300
28 55 2860 16160
29 60 3120 19280
30 65 3380 22660
31 70 3640 26300
32 75 3900 30200
33 80 4160 34360
34 85 4320 38680
35 90 4580 43260
36 95 4840 48100
37 100 5000 53100
38 105 5260 58360
39 110 5520 63880
40 115 5780 69660
41 120 6040 75700
42 125 6300 82000
43 130 6560 88560
44 135 6800 95360
45 140 7060 102420
46 145 7320 109740
47 150 7580 118320
48 155 7840 126160
49 160 8100 134260
50 165 8360 142620
51 170 8620 151240
52 175 9880 161120
53 180 10140 171260
54 185 10400 181660
55 190 10660 182320
56 195 10920 193140
57 200 11180 204320
58 205 11440 215760
59 210 11700 227460
60 215 11960 239420
[/end chart]
I read the 1 grain of rice fable last week, which I think is what put this in my head. As for impractical...once you get to the point where you can stick $1000 a year into retirement, an IRA is probably the way to go. Max that out, then diversify into a few other investments...but that's really a discussion for a different sort of blog.