A couple days ago, Ramit blogged about 10-year saving strategy to “leave your friends in the dust” after you’ve already handled the basics of saving and investing. In his post, Ramit talked about saving for the things that’re likely to happen 10 years down the road – weddings, babies, vacations, etc.
Here is what will happen to you as you get older:
- Yes, you WILL have a nice and very expensive wedding (even if you’re a hypocrite and think you’ll have a “small, beautiful” wedding)
- Yes, you WILL have kids and want to buy them nice stuff
- Yes, you will need things like family health insurance and life insurance and homeowners’ insurance and family vacations and other things that you can’t predict right now because you’re not in that life situation
- Yes, these expenses WILL come up. People like to believe they’re the exception. BUT YOU’RE NOT. YOU WILL HAVE KIDS. YOUR KIDS WILL BE WHINY AND REQUIRE LOTS OF DIAPERS. THEY WILL POOP ALL OVER THE PLACE AND REQUIRE 10X MORE PAPER TOWELS AND CLOTHES AND CRIBS. PLEASE BELIEVE THIS.
Sounds great, right? What personal finance blogger doesn’t like to plan ahead?
BUT – I don’t think Ramit’s 10-year Saving Strategy is for me. Not because the idea doesn’t sound great in theory, or because it wouldn’t work well for some people – it’s just not my cup of tea.
I might be a planner, but I have to draw the line somewhere. I refuse to save for a wedding when I’m not engaged. And what happens if I don’t get married? I can take that money and do something else, sure, but why not just name it a Future Fund as Little Miss Moneybags have done?
As for babies, well, I’m not sure I’ll have a child, but assuming I do, how do I know what to save for? Hey, my baby might be a genius who gets a full-ride to college (a PF-er can dream, can’t she? 😉 )
Another issue is Ramit’s litany of things we need to save for (for our Future Self) can be overwhelming. On his little napkin sketch, Ramit’s 10-year strategy calls for $6,000 in savings per month to pay for my $30,000 wedding, $33,060 down payment, and various other items 10 years down the road. That’s just, er, a bit outside my budget right now.
I’m going to enjoy being young and carefree for a while longer. That means I’m saving for retirement, and when I’m thinking seriously about buying a home I’ll start saving for a down payment. But there’s no way that I’m going to start saving for my unborn child’s DIAPERS or family vacations after my child is successfully toilet-trained (after, I presume, using a mountain of diapers that I failed to save for).
I understand Ramit’s point – that there will be things that come up in my 30s and 40s that I might not have thought about in my 20s. I’m not discounting the importance of saving for the fuzzy future – after all, what’s fuzzier than retirement 40 years in the horizon? So I suppose I’m doing something similar to what Ramit suggests, just in a different manner.
I’m saving as much as I can for retirement and mid-term cash needs now (i.e. MY vacation and graduate school costs), so that I have the flexiblity to save for other priorities as they come up later.
In the end, though I agree with many of the concepts Ramit touched upon, his method isn’t motivating for me. Fortunately, there are many paths to get to the same end goal (financial preparedness), so to each his or her own. 🙂
What do you think? Do you follow Ramit’s 10-year Saving Strategy?
I still think his points are true. Bless him for true and funny.
You can do both. You can accept his point that you are going to have these big expenses, and just plan further in the future, or call it the Future Fund.
I just today posted something somewhat similar — my mid/long term cash goals suggest I save more cash than I actually do. But I’ll tackle those things as they come up, and am focusing most on the most immediate goals + retirement.
I saved for my wedding a little before we were engaged (I called it a car fund. Even though I knew it wasn’t. 🙂 ) But only for a few months.
I think it is somewhat a difference of whether you love earmarking your savings or just lumping it all into one big cash fund.
His strategy is important for those who aren’t already focusing on savings because they aren’t sure what to save for. I don’t think you are his target audience.
I think it is a nice concept in theory, but what turns be off right away is the $6,000 price tag. I don’t even take home $6,000 a month and a girl’s gotta eat and pay rent.
No, I don’t. Nice concept in theory like Sarah said, but realistically speaking, if by the time I hit my 30s, I don’t have the cash.. I won’t spend it.
That’s it.
Even if I have kids and want to spoil them etc…
I’m saving as much as I can now, just for “whatever”, which includes traveling and retirement, kids and a home even… but to set specific goals?
Who’s to know if I want a home after all? And what the price may end up being? Higher? Maybe lower?
Naw.. I’d rather just save it all in one big fund.
Wow, that is insane. Great idea, if you happen to have a lux job with a lux salary, and pockets full of cash that you don’t know what to do with. Right now, I’m working on saving everything for a house downpayment (mortgage process now…eww) and living expenses when I return to grad school soon. Forget diapers, I don’t even think I want kids. And honestly, if I get married I’m fine with a wedding in the park. I don’t need a wedding that is the prices of a German luxury vehicle.
I don’t really agree with it either. It is a nice concept in theory, but I think you need to save for what you want to save for. If you’re engaged or even close and paying for your own wedding, save then, not necessarily right now. If you’re wanting to buy a house, save for that. Or just save your money for whatever, and when something comes up, use some or all of it then. Depending on where you live and where you are in life, save for that.
I don’t agree about saving for kids – but I do think saving for a home as early as possible and hey a wedding too is a good idea – sometimes I get excited about real estate and look into homes I want to purchase, and realize wow, I would have to wait 1-2 years to save up for the down payment! By that time, the house would no longer be on the market (well…maybe it still would be, in this economy) but anyways what I mean is it is NOT easy to save $30K “when you decide” to buy a home. I think some of the money should already be accumulating that way you are not stressed out and whatnot.
Just my two cents 😀
I think saving for the future is ridiculously important. But I don’t want to save for things so far away that I feel like I can’t reach them (retirement is a different story…sort of). I don’t want to save for a car when I have no idea when I will be buying a car (‘cuz it sure won’t be till I’m moving out of NYC). I don’t want to save for a wedding when I’m not planning one. I don’t want to save for specific goals that are more than a year away.
So it all gets lumped into the Future Fund, and I trust that Future Little Miss Moneybags will know when to convert some or all of that money into a Wedding Fund/Car Fund/House Fund/Kid’s College Fund. (In a way, really, I’m just putting off the decision, but not the savings. That’s procrastination I approve of!)
I agree with most of the folks here – I think it’s a great idea in theory, but most of us are working to save for CURRENT goals – not goals that will come up in 10-20 years. I would imagine that once I max out my RRSP, my E-fund, my various savings accounts, my house fund…ect – that I would start a generous Future Plan fund. But to plan to pay for diapers now?! Not going to happen.
I want to get through the next 5 years first.
I’m still working on my emergency fund (which for now also includes my down payment fund and whatever fund), so I can’t imagine saving for a wedding and kids that are light years away at this point. And as others have mentioned, I’m sure not many of us have the luxury of taking home $6K/mo after taxes, much less saving that crazy amount each month, in this economy.
I think that his advice is worthwhile for someone who is ONLY saving for retirement, thinking that since they’ve got their emergency fund all set they can just sit pretty and enjoy the extra disposable income. The message that there’s always something around the corner to be aware of and preparing for is a good one.
But seriously? I’m supposed to be saving for my potential wedding and house and kids? No way. House, maybe, if I had any intention or desire to buy one in the next 5-10 years. But I have a theory about wedding expenses; if you can’t save enough to pay for it during the length of the engagement, then you can’t afford to be spending that much on a wedding (or you need a longer engagement). I think it’s crazy to be sacrificing anything now, in my fun & frivelous independant prime, to prepare for a one-day celebration that may or may not even ever happen. And kids?! How about, when my future maybe husband and I decide we want them, we make sure our ducks are in a row to pay for them and continue to save for them throughout their lives. I’ll have 18 years between birth and college to prepare for that expense, and again, if I can’t manage to save a couple thousand for a vacation over the course of any one year? I shouldn’t be taking that kind of vacation. I hope to be living that kind of lifestyle later in my life, but not unless I’m earning enough to pay for it later in life. That $6,000 per month (if I had it, of course) would actually be way better served if I were to add it the retirement pot now and paid lower amounts into that as I got older and had the additional expenses to deal with.
Wow, sorry – that got kind of out of hand, length-wise. In short? I think he’s a little nuts.
I think he basically added way too much detail to what is essentially a “you can never save too much” message. He tells readers that once they are maxing out retirement accounts and have an emergency fund, don’t be afraid to keep saving because no matter how much you have you’ll always wish you’d saved more for x and y and z…
But first of all, most people are middle aged before they can even afford to max retirement accounts and save anything more (if ever). Second, even if you have lots of extra cash flow for saving, it’s ridiculous to try to put labels on what WILL be short term goals so far in advance. Those goals will change.
He admits that he is preaching to a niche of single 20-somethings who have above-average salaries with no children.
I am 26, and most of what he preaches does not apply to me. I have 1 child and am already married. Obviously I am not saving for a marriage or a wedding ring. I just bought a new car (Honda Odyssey Touring) in cash and am not in the market for another car down payment. I also recently bought a house with more than 20% down. Those things I am not saving for at all.
I do save for the future on top of maxing out the 401ks. I call it a slush fund and just put extra $$$ in there that I am not really spending. We make too much to qualify for a Roth IRA.
I already have more than 9 months of living expenses saved up ( a combo of e-fund and “long term savings”). We contribute to a 529 every month, and vacations can be paid for out of the excess funds we have from our paychecks every month. We also contribute a large amount to charity.
I am suffering from a difficult, albeit understandably enviable, position of having more than we need. I am looking at what else I can save for and what I can do with the rest. My only short term goal is to pay off the mortgage.
Good points. However, you do want to put some money away, especially for retirement. It may seem way off but you are going to have to live 25-40 years without much income so if you want to be comfortable, you might want to have a fund that you add a little to every so often and it sits and increases while you are still able to make money.
[…] Fund” that I’m going to rename “Future Fund.” Well-Heeled blog made a comment about naming it Future Fund and I like that. I’m not engaged nor do I expect to be any time […]
“People like to believe they’re the exception. BUT YOU’RE NOT. YOU WILL HAVE KIDS.”
Is that so? While you’re predicting the future, do you mind telling me how my mum’s court case is going to turn out?
[…] Fund” that I’m going to rename “Future Fund.” Well-Heeled blog made a comment about naming it Future Fund and I like that. I’m not engaged nor do I expect to be any time […]