sgtdave4321 said:Scott -just think about it. A million dollars doesn't buy as much now as it did 20 years ago. The same is true for whatever amount is in your bank account.
Of course not, I did not mean to imply there is no inflation, Just that it effects people differently. Not saying I have tens of millions in the bank but if someone did would you still claim "The same is true for whatever amount is in your bank account" It would effect it on a larger scale but they would still come out enough ahead to pay inflated prices. I just don't believe in that statement "Your losing money by having it in banks" , Not if your like us here chasing the very highest rates offered
Another big plus is being debt free keeps rising rates, another big factor of inflation away from me

MaxRC said:scott1961 said:
I wont argue your second statement, I am not dumb I know there are better options and will probably look at them when I eventually do retire. Just for right now I feel very comfortable with being risk free and I do have a managed retirement account that does give me some market exposure.
I don't agree that I am losing money, How could I be paying bills and buying things if I was losing money? I know there is one flaw in my plan because I am paying the taxes with my salary but by the time I retire I would be at an age where I could start drawing down my principle to pay the taxes, which will be at a much lower rate since no W2 income. Even after subtracting taxes I come out enough ahead to pay my bills. I just don't buy all this inflation stuff, Yes, if you were make a few thousand in interest then it would have an effect but if your making a good amount does it really matter if fairly inexpensive things like food and gas is costing more? I control inflation by adjusting my spending on things I don't really need. If inflation rises just buy less or cheaper toys Say you have 2 million in a 5% interest bearing account, with a prevailing inflation rate of 4% and marginal tax on the interest is at flat 33%.

At the beginning of the month, you had 2 million even.
During the month you made $8333 of simple interest, 5500 after tax.
So now you have 2,005,500.

But during the month, inflation went up by .33%, thus your total normalized purchasing power of that 2,005,500 is now only $1,998,903. You have *LOST* $1077 by the end of the month compared to the beginning of the month.

It doesn't matter if you are not "feeling it" or seeing it right now in your actual bottom line: inflation is measured based on real prices, it is not imaginary, and it continues it slow and upward march relentlessly. Even if it is slow in revealing its effects, there will be a day in the future when you look at your account balance and the gut feeling you get is that inspite of it being far more th an $2,000,000, it is not nearly as impressive as what $2,000,000 looked like in 2006.

And "I will simply consume less" doesn't change the fact that you are losing money.

Fun with numbers...

I can be completely arbitrary too and say the savings account rate is 5%, inflation is 3%, and the marginal tax bracket 33% and he hypothetically makes money.

I don't see your point, you picked numbers that went your way, I picked numbers that went the other way. You'd have a hard time proving either one was more accurate. Not to mention there are ways to shield guaranteed and near guaranteed returns from income tax.

x43b said:
Fun with numbers...

I can be completely arbitrary too and say the savings account rate is 5%, inflation is 3%, and the marginal tax bracket 33% and he hypothetically makes money.

I don't see your point, you picked numbers that went your way, I picked numbers that went the other way. You'd have a hard time proving either one was more accurate. Not to mention there are ways to shield guaranteed and near guaranteed returns from income tax.The point is that scott *COULD* be losing money by simply placing money in a bank if he doesn't become mindful of inflation. His current attitude is that as long as he has positive absolute cashflow, he is making money. My examples goes to show that even if you have absolute positive cashflow, you can still in fact be losing money. The numbers were chosen to illustrate that point.

And yes, if the interest was high enough above inflation, he would not be losing money. But the point, once again, is that he *could* be losing money even if his absolute cash flow is positive.

Interesting thread...
I agree life situation would be necessary to make much of the figures people post. I'm a young MD supporting 2 small kids and a full time student wife, I earn in the very low 6 figure range.
Me- about 15% pretax is saved in a 403b, and maxing my roth contributions at about 6%, after taxes of course.

The rest I spend- 8% pretax on long term student loan debt, 14% mortgage, of course about 25% taxes, , 4-5% goes to various health/life insurance costs, food runs 6-7%, utilities run 3%, tuition is 3%, childcare is 12%, now we're at almost 75% for the basics. Then there are medical bills, clothes, cars, diapers, etc. I'm sure I'm missing something because true "discressionary spending" is not 20%, more like 5-10% of income. Lots is spent on gifts to relatives (i'd love to cut this category but we have tons of relatives who are pretty generous to us in return), home repairs and upkeep.

I'd love to save more and retire early; I have a weakness for buying things for hobbies I have no time for but dream about. www.simpleliving.net is a great resource but the will is weak. Any other tips for getting a handle on the FW deals side of me?

asdf83 said:A couple coments about the super savers.

Some of you are probably just compulsive.
Some of you just arn't living enough.
some of you are clearly just rich, or living off the family.
also you have to consider interest at income


If you're posting a number greater than 50% its not very useful with out a little background.


I am 23 living at home and saving about 23% of my pre-tax
considering i live at home this isn't great.

I find your post misguided. I posted above that I save about 63% pre-tax after all of my compensation, and many of your assumptions are false:

- I am not compulsive
- I live life to the fullest, including international travel, sports games, concerts, and partying
- I do not take a penny from my parents
- Interest is not included in my calculations, but that would add another 1.5-2% to my savings-rate
- I'm 24 and live in downtown San Francisco

The super-savers here are just good at stretching the dollar. We don't drive expensive cars, or wear expensive clothes and even more importantly, we don't NEED to. It's about learning that money doesn't bring happiness, and that it just buys comfort. Money works for me, not the other way around.

This thread raises an interesting question: Is there a such thing as saving too much?

This is a great topic but its so hard to know what actually applies to me without knowing the answeres to those questions that were mentioned earlier. If you dont want to put your atcual numbers in , would anyone else who posts put their income bracket or some type of rangein . I know for me saving 40 percent of my income would be impossible. but I would liek to know what a person like me-- high school teacher---would put away for savings.
Thanx@!

scott1961 said: Simple, person B could lose money because high enough of an inflation rate causes his cash principle to lose value in the bank to a sum that when combined with taxes on $100K interest is greater than the $100K interest income. Meanwhile, person A had no cash holdings in a bank, no loss of principle value, and have a net gain of whatever the after tax figure is from his $100K income.

Look, I've already illustrated the numbers in a previous example. If that was not enough to convince you, you have less of a grasp on your own fiancials than you think. You lack even the most basic and fundamental understanding of inflation and its impact.
Are you a stockbroker? cause what your saying sounds like what every broker tells me. The buying power of my interest may lose value due to inflation but my cash principle could never lose value in the bank. your answer does answer my basic question of, at the end of the year what's the difference between your income being from a W2 or 1099?I am not a stock broker. But that's beside the point. I am not give you an opinion where my professional reputation may matter, but I am offering you objective data and calculations. My being or not being a stock broker is not going to change the effect of inflation on your money in the bank.

How does your cash principle never lose value due to inflation? If you have $2M in principle now, and $2M in princple 20 years later, are you telling me that the $2M in 20 years will have the same purchasing power as $2M now? Inflation affects all cash the same. Whether it is principle, interest, equity in your home, or even the balance in your 401K. All money is affected by inflation the same way: $1 buys you more now than it will buy you later. This is why use the term "real" to stand for inflation adjusted and why investors seek a positive *real* rate of return.

scott1961 said:MaxRC said:No you are not proving them wrong. They are absolutely right if the interest rate minus taxes you are getting from the savings account is less than the prevailing inflation rate. You will then in fact be losing money.

How about looking at this way. let's say we have person A and person B.
A: works and grosses $100,000 a year
B: Does not work but grosses $100,000 a year in interest.
So why would B would be losing money and not A?Perhaps you should think about it in terms of purchasing power and not bank account balance. I like the examle that MaxRC put together, it was not arbitrary and it showed the point of what inflation does to purchasing power. We all know the old adage, "Put a million dollars in the bank and live off the interest for the rest of your life." While that may work, you will be able to buy less and less each year with the same amount money -- even though you still have a positive cash flow.

I think your point of having a basically risk-free source of money is very valid, not a bad way of living.

Shugady said:What savings vehicles are people using that allow you to get such high pre-tax saving rates (50%+)? The 401k limit is 15000.

I dont' know about everyone, but the employer match doesn't count against your max, so that helps, my employer actually "matches" about 11% of my salary if I put in just 3%, so theoretically I could put about 25% plus into my pretax 403b. If you are self employed you can get quite creative and save a lot more pre-tax.

Also, people might just be calculating like this: how much they save/total pre-tax income= savings rate.