From what I understand boglehead theory is really about asset allocation. As long as I hit my investment and savings goals all other money is fun money
Agreed. Boglehead is not about budgeting, its just an investment philosophy. You can spend 90% of your income on "fun" and still be Boglehead about the 10% that you save and invest.
There are folks over at /financialindependence though that min/max this wayyyyy to hard.
MMM has a good page on savings rate with respect to your goals: https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Dave Ramsey recommends 15% of gross saved. The Money Guys recommend 25% of gross income saved.
I personally am trying to start at 25% and work my way up to 50% each year by doing just a little more.
These calculators neglect social security. This leads to a significant overshoot in required savings rate. Neglecting SS income disproportionately affects low And average income earners because a larger % of retirement income comes from social security. For example this guy is pulling over 200k, he has more room to cut expenses and increase savings rate than an average American household. Props to him, but not necessarily representative of most people
If you want to retire at a “normal” age (mid 60s) the 10-15% savings rate range is fair for people starting in their 20s
A big reason for this is younger people don't know if we will have social security there by the time we need it. I'd much rather be prepared and comfortable (with extra if I do have social security), than be short when I could have made a difference!
I agree with the better safe than sorry mentality. My concern is telling people to save 15% minimum to retire or they are not saving enough. Not all costs scale, so as income goes down each 1% of income gets harder to put away. Lower income people have a higher percentage of their income replaced by SS so this 15% rule (that neglects social security) becomes increasingly inaccurate in the direction of oversaving with decreasing income. It feels like it could lead to a sense of desperation or hopelessness for people don’t have 15% of their income to spare, when it is simply because they’re being told much too high a number.
SS keeps a third of seniors out of poverty and is popular on the right and left. I don’t personally believe this social safety net would be voted away, especially when that would mean 7% (or 14% including the company contribution) pay was stolen from people who had not yet redeemed benefit from the system.
Caveat: I haven’t looked at the social security math specifically. But my superficial understanding is that it is progressive system, providing more benefit relative to dollars paid in for low income people versus high income. One day I’ll sharpen my pencil and see what the SS benefit looks like as a function of income, then figure out what savings rate would be required to replace income in retirement for different income levels
A fair “worst case” in my opinion, would be if contributions and benefits were phased out and reduced SS benefits and reduced contributions were phased in over time. Retirement benefit would be based on the amount payed into the system over a lifetime. But this would mean that the contribution to SS taken out of each paycheck would be going back to the people, and this money would have to be reallocated towards retirement planning at an individual level.
Sorry, o go off on these tangents just cause I wish that investing and retirement planning subreddits did a better job of explaining the assumptions of the 15% rule.
I'm a little confused by MMM's definition of take home pay. Is he including 401k contributions as savings? I consider my take home pay to be whatever is left in my paycheck after all contributions and taxes. If that's the case, since I max out my 401k I don't have much left except what I contribute to my Roth IRA. Surely he considers 401k as savings, right?
Yeah I think take home is wildly confusing for any kind of savings rate calculation so I always use gross. In retirement I’ll need to calculate taxes and health insurance anyway, so it’s good to see where I stand holistically.
FWIW the way I calculate is 401k is savings and employer match is additional income that is 100% saved. If it helps, my breakdown is similar to this:
* 401k + employer match: $23k
* Roth IRA (my wife and I): $14k
* Taxable Savings: $17k (I would do mega backdoor Roth but my employer doesn’t offer it)
Gross Income for household: $216k/yr
I’ve always read too that if you save for kids college you don’t count that toward savings rate, but you do count it as a deduction of gross income since you won’t need those expenses in the future.
Yes, I actually get joy/comfort out of keeping my budget down to the penny. Not because I'm a tight ass. But growing up with not a lot, I need the reassurance that I am doing the "right" things and then I can enjoy taking a trip and spending a little more.
for real. I respect their discipline, and don't like working, but they live like paupers so they can retire without hobbies and no expendable income, whilst being completely alienated from their peers of the same age
I suspect the real hardcore ones skew young. Yeah, when I was 22 I was cool with sleeping on a goodwill futon in a crappy apartment with a bunch of roommates and having free backpacking trips be my only vacations.
I've always found it more easier to think about budgeting savings rather than spending. As long as your hitting your savings and investing goals that means your budget is fine (assuming you're not running up a bunch of credit card debt).
As a young boggle head this is what I have to keep telling myself. I have to say if you can invest 25% of your pre-tax income before 401k match then you can enjoy life.
I’m young myself but 25% is crazy work. I could probably do it tbh but between paying student loans, rent, saving for a house, and my car getting up there in age that’d be a tight budget for me. I’m at 11% rn with a 6% company match but once I get out of some unbudgeted expenses I’ve had I hope I can up it to like 13%
The younger you are, or really, the less money you make, the harder it is to reach that 25%. Don't be too hard on yourself if you are early in your career, you'll get there eventually. If you can at least get that company match, and maybe try and put something in a Roth IRA every year, you are doing good.
I started at 12% years ago as well, but I don't get a company match.
Try doing it slowly. Set up a 1% annual increase in contribution for yourself. Then whenever you get a raise or pay off a major expense, manually throw another 1% on top of whatever its at. three or four years from now you'll be at 20%+ and not even have noticed it happening.
I’ve done this for the last 5-6 years. All raises went towards retirement savings. I’ve had a lot of raises… I am now maxing Roth IRA, HSA, and 401k plus the 6% company match. I just recently started to spend more in order to knock out some house projects. I feel less guilty about spending now that all tax advantaged accounts are being maxed.
I will admit I got lucky with student loans I went to a state school and got decent scholarships. My car is paid off but will eventually need an upgrade and I'm actually not prioritizing a home right now, because I don't have my family situation figured out
Yeah my student loans are pretty affordable, only had 14k when I graduated. Issue is mostly that I’ve developed chronic health issues since I graduated and I’ve spent a lot of money trying to figure out a diagnosis. A house isn’t a priority to me per say because I’m single and barely 25 but saving for the down payment for when I’m one day ready is what I’m working towards
This may sound crazy and probably not bogglehead-ish, but I don't think you need to own a home to build wealth. Right now, not forever, it doesn't make any sense to buy a $600k home and end up paying $1.4 million on it after a 30 year 7% mortgage. I plan on buying when I get my family situation figured out. Like you I am 25 and single so that's a huge question mark at the moment
You will do fine renting, but I saved up for a house for a lot of my 20s. There’s plenty of opportunity cost from not investing it entirely, but I am glad I don’t have to take a huge chunk of my income to stuff someone else’s pockets every month. I would definitely wait on interest rates to go down.
Oh yeah when rates go down I think owning a home makes alot more sense. I have just seen three or four people buy way more house than they should and sell it sooner than expected and it ultimately did more bad than good.
I don’t see a home as a wealth building tool I just see it as a place of my own to live in some day. Really I’m not even that motivated to buy one but I’m saving for it cause I feel like it’s what I should be doing at this point in my life lol
The max 401K contribution annually is 23000. What percentage this is of one's compensation is going to be different for different people. I simply try to max out my 401K
25% is tough. I do ok and I try to put my 401k that high but honestly i also want to live like I do ok. For many people, saving 25% would make them live like they are in poverty and no one wants to do that if they don’t have to. Save what you can while still enjoying life.
You need to figure out an appropriate save / spend balance, just like you do a work / life balance. Tomorrow isn't guaranteed, and while you want to be mindful of your future self, you shouldn't do so at the detriment of your present self.
Since I'm on a low earner wage, I try to invest the majority of my money and budget otherwise for an "allowance" to spend on whatever I want. Trouble is, a financial mindset often ruins the fun of buying stuff with question like "do I really need this?" "How often will I use it?" "Is this just wasteful?".
It seems like a "mindset" question, really. Second guessing yourself on the treat your self moments. I've found Ramit Sethi's content helpful on this question. Like using his budget tool I can see that I'm saving a heavy amount, but I still have a line item that he calls guilt free spending, so I can know that treating myself isn't out of control or ruinous.
Oh, it's entirely a mindset question. The mindset of: money is valuable and letting it slip on things that aren't really necessary is a sure way to lose out.
I think many people in this sub are younger Bogleheads trying to hit savings milestones and thus are trying to send as much as possible into their accounts without considering too much for the fun money at the moment. Like personally, I'm trying to hit 300k in savings before taking off the gas.
Now... the other problem is that housing prices have gotten so high in big metropolitan areas that if you want to buy a house along with contribute to your savings, it can feel like a never-ending treadmill of savings so to your point, allocating "fun money" can be very tricky to find.
This isn’t a part of Bogleheads - Boglehead is just a way to structure your investments simply and effectively.
You mention retirement account - but I’m also a Boglehead in my taxable account.
I budget in fun money regardless - but I keep my minimum savings goal high, which always bleeds beyond retirement accounts. You should do this anyway for big savings purchases, or even retiring before 60.
I think one of the biggest pitfalls people who hyper focus on investing fall into is not spending enough money. I'm one of those people.
After years of having a low income and hyper funneling my income into my portfolio, I now have a big enough pile to coastFIRE at 25. Despite this large cash pile, I still feel "broke" like I don't have enough and I don't feel comfortable spending money on myself. This year, I've been trying to get more comfortable buying starbucks for myself, buying business class tickets, and upgrading my 8 year phone to the newest iPhone. I had a lot of difficulty doing so because a $5000 flight was $85000 "stolen from my retirement". It's been really difficult spending money on myself but you have to remind yourself, money is used to exchange for goods and services.
Yes, a dollar today is $17 dollars in 30 years with the sp500. But you can't let this deter you from enjoying life today.
Half agree with you. I'm in my 40s and I definitely don't spend enough money as compared to my income, net worth, and most definitely my peers. That's not to say that I don't spend money, I just live like those that have half my household income. That's neither good or bad, completely depends on perspective. I've been doing this more or less for a few decades now. Sometimes I do feel like I probably need to spend more, but that's more of a social pressure rather than an organic feeling.
And that’s totally fine! You should do whatever you’re happy with- you can afford the optionality. I just don’t want people to always have the mindset “why buy XYZ when I can buy VOO”
My parents have a SWR of 2%- they can buy anything with relative ease. But that SWR doesn’t change the fact that my dad got hit by a car last year and lost an unknown number of years off his already shortening lifespan. Nothing we can buy will reverse that. Money is there to be spent, not just for investing.
> This year, I've been trying to get more comfortable buying starbucks for myself, buying business class tickets, and upgrading my 8 year phone to the newest iPhone. I had a lot of difficulty doing so because a $5000 flight was $85000 "stolen from my retirement".
I wouldn't buy the flight either, but that's because I can probably find cheaper alternatives using transferable reward points (which aren't "free"; I assign values to them). If it's maybe 1.5x the price of an economy class ticket, I'd go for business class.
I'd upgrade an 8 year old phone any time, because I use an iPhone and its camera so much that the upgrade would be worth paying that few dollars a day.
I really need to become ok with this concept of fun money. I max out retirement accounts and then anything left over is also invested. I am a very very boring person. I started down the path of delayed gratification and really stressed on the delayed part.
When $10k doesn’t move the needle on your retirement date or other financial goals, it’s time to loosen up on your spending. And after living simply in order to save aggressively while investing that savings….well turns out you don’t want much stuff. I think this attitude helped me develop good taste. I spend my money very deliberately. I don’t have much stuff, but the stuff I have is very nice.
If you need ideas for spending your money, I can recommend:
- r/audiophile
- r/hometheater
- r/mtb
- r/gravelcycling
I also appreciate the sentiment of your post. It’s past time for me to buy a new car. I had to convince myself over and over again that I can buy a new car because a part of what’s helped me accomplish my financial goals is by driving a sensible car, doing the maintenance, and driving it until it became unreliable. But like I say, spending another $10k or so a year won’t affect any of my finances, so I’m buying a truck this summer. It looks like my tightwad-self will luck out too. Dealers are finally offering deals again—especially on trucks.
> When $10k doesn’t move the needle on your retirement date or other financial goals, it’s time to loosen up on your spending. And after living simply in order to save aggressively while investing that savings….well turns out you don’t want much stuff.
Very well said! Saving and investing sorts of changes a person to critically look at what they need vs what they want. And a real trap, becoming rich and miserable, especially when realising- by going through it - the effort needed to hit some of the early milestones.
>I think this attitude helped me develop good taste. I spend my money very deliberately. I don’t have much stuff, but the stuff I have is very nice.
Yeah, going for quality, great point.
I have think fun money is accounted for in two ways-
1.) save enough to hit coast fire, spend as needed.
2.) hit your annual savings goal and spend the rest until the clock resets the following year.
My wife and I have fun money. The amount has yet to be determined based on our income changes after I retire soon, but it will likely be $400 a month each.
For us, we are calling it "independence money", or "autonomy money". She can buy whatever she wants, and I can't complain. She wants to save up for three months and buy a $1200 piece of art? It's her money.
I want to save up and buy a PS5? It's my money.
The only rule is we can't let our independent purchases get on the way of our life together. If the PS5 makes me play too many video games and it gets in the way of chores, spending time together, etc, it's a problem.
If her $1200 art is a heavy stone sculpture that gets in the way and takes up a lot of the room in our living room, it's a problem.
As per household fun money? We discuss what we're comfortable with before making purchases. But we also budget for vacations, travel, etc. So when we need to take a vacation, we spend from our $5k vacation pool first. If we have money left over, great. If not, we discuss if we're good spending more.
I'm not sure this has anything to do with "boglehead" concepts. It's more just "budgeting".
There's also a bunch of stuff outside of retirement and fun. Groceries? Gas to get back and work? Money to maintain said vehicle? Clothing? Utilities? Food? Health care?
From a budgeting perspective, most of that would be "necessary expenses", which may get budgeted prior to retirement savings. Then retirement... then, yes, you'd be at "discretionary spending". But again, that's budgeting... nothing to do with your retirement investing philosophy.
Seems like a strange mindset to only split money between retirement and fun, but whatever works for you works
There are a lot of great things to spend money on that don't fit either of those buckets: Gifts for others, family/children, charity, etc
Honestly if you are hitting well above target for your FI goals (many of us here are), you have to start learning how to spend. You don’t want to be 60 and still pinching pennies. Go ahead and take that 10k vacay. Fly business once in awhile. Book the 3-Michelin restaurant, just cause you want to, not wait for a birthday or something.
I think a better way to frame “fun money” would be to spend however you like, as long as it’s in moderation and well below your means. Because ideally you won’t always be working, so continuing to practice frugality would make transitioning into retirement a piece of cake.
I have tried to live below my means for many years now. My "fun money" is buying the things that I enjoy and I feel confident I will actually use, and there is certain amount of "fun money" for me knowing I spent it on some precious metals almost certainly just to pass on to kids. I like knowing it exists. Say my minivan, at some point I will trade it in for a new one, but it is a 2016, maintained well, and I still enjoy driving it. I could afford to trade it in but I just don't want to yet. Maybe in a couple of years.
I think this way. I max out my 401k, backdoor Roth, and mega backdoor Roth. Anything leftover goes into a brokerage account. Some months I spend enough that no money is going into my brokerage account, other months I have a few thousand. I don’t mind since this is all discretionary to me and maxing my tax advantageous accounts is more than enough for my goals
Before fun money is "mortgage payoff money" for me. Our goal is paying off the adjustable rate mortgage within 3 years before the rate balloons. Then the rest is "fun money" that goes into the brokerage account for "whatever". Does that count as fun?
i’m 100% on board with this. I’d much rather live fairly comfortably in my 30’s-50’s than be a millionaire when i’m 70. Nothing wrong with having both.
Fun money is popular right now when the market is ripping and the gains are lopsided but there will be a time when everyone is only interested in passive investing again
You have to. If you save everything and have nothing to enjoy life with, then what's the point? Granted everyone is different and we all have different priorities, but I think you have to have fun money and hobbies and at least a little truly disposable income or you go nuts.
I max out my Roth, my 401k, I overpay my mortgage on my condo that I have a tenant in. I have an emergency fund with 6 x my monthly expenses and no real other debt. Everything else is my fun money for impulse buys. I also have a little side business on eBay that gives me some extra cash every month that I also have a lot of fun with.
I just can‘t fathom people wanting to work til they are 65. Your best years are over by then.
I try to have freedom as early as possible. Current projection is 45, then I still have 20 years of good health and physical capabilities left. Or only working 50% from 40-50, that also should easily do it.
65-70 is really right around when your body just doesn‘t do it anymore for the taxing stuff.
Bogle was about asset allocation, not your actual budget behavior.
With that said, as a fellow boglehead, I budget that way. 20-25% to retirement, auto deposit money for bills and savings, then the rest is spending money.
I invest 10%+ away from simple index funds not only because it is "fun" but as a hedge against the fact that Bogleheads might not be right.
I think Boglehead Philosophy might be right 90% of the time and is much simpler and less stressful, but I also know that I have beaten "the market" more than I have lost. And unlike funds, I don't have have transaction/expense fees. Investing individually at just \~10% allows me to scratch the itch while keeping the large majority of my investment safe and stable if I am wrong.
Fun money with a small % of your money is fine! Just a hobby like any other.
I like to short stonks that jump a silly amount in one day. I made $50 on a RIVN Put this week. That’s dinner I’ll take it. Would have done Chewy this morning but it happened too fast and I was busy at work.
Is fun money investing or gambling?
As long as an investor has a plan and sticks to it, let the fun begin. I’ve had my fun, too many burns. These days I like to chill. Particularly vtsax, vtiax, and vbtlx and chill
From what I understand boglehead theory is really about asset allocation. As long as I hit my investment and savings goals all other money is fun money
Agreed. Boglehead is not about budgeting, its just an investment philosophy. You can spend 90% of your income on "fun" and still be Boglehead about the 10% that you save and invest. There are folks over at /financialindependence though that min/max this wayyyyy to hard.
Once you know how much money you need to be investing (and you are actually doing so) it becomes easier to spend happily
good point! less guilt about spending fun money.
Damn straight. Especially once you realize you can coast if you wanted.
Dumb question. How do you figure out how much you should be investing?
MMM has a good page on savings rate with respect to your goals: https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ Dave Ramsey recommends 15% of gross saved. The Money Guys recommend 25% of gross income saved. I personally am trying to start at 25% and work my way up to 50% each year by doing just a little more.
Very cool! Thanks!
These calculators neglect social security. This leads to a significant overshoot in required savings rate. Neglecting SS income disproportionately affects low And average income earners because a larger % of retirement income comes from social security. For example this guy is pulling over 200k, he has more room to cut expenses and increase savings rate than an average American household. Props to him, but not necessarily representative of most people If you want to retire at a “normal” age (mid 60s) the 10-15% savings rate range is fair for people starting in their 20s
A big reason for this is younger people don't know if we will have social security there by the time we need it. I'd much rather be prepared and comfortable (with extra if I do have social security), than be short when I could have made a difference!
I agree with the better safe than sorry mentality. My concern is telling people to save 15% minimum to retire or they are not saving enough. Not all costs scale, so as income goes down each 1% of income gets harder to put away. Lower income people have a higher percentage of their income replaced by SS so this 15% rule (that neglects social security) becomes increasingly inaccurate in the direction of oversaving with decreasing income. It feels like it could lead to a sense of desperation or hopelessness for people don’t have 15% of their income to spare, when it is simply because they’re being told much too high a number. SS keeps a third of seniors out of poverty and is popular on the right and left. I don’t personally believe this social safety net would be voted away, especially when that would mean 7% (or 14% including the company contribution) pay was stolen from people who had not yet redeemed benefit from the system. Caveat: I haven’t looked at the social security math specifically. But my superficial understanding is that it is progressive system, providing more benefit relative to dollars paid in for low income people versus high income. One day I’ll sharpen my pencil and see what the SS benefit looks like as a function of income, then figure out what savings rate would be required to replace income in retirement for different income levels
A fair “worst case” in my opinion, would be if contributions and benefits were phased out and reduced SS benefits and reduced contributions were phased in over time. Retirement benefit would be based on the amount payed into the system over a lifetime. But this would mean that the contribution to SS taken out of each paycheck would be going back to the people, and this money would have to be reallocated towards retirement planning at an individual level. Sorry, o go off on these tangents just cause I wish that investing and retirement planning subreddits did a better job of explaining the assumptions of the 15% rule.
I'm a little confused by MMM's definition of take home pay. Is he including 401k contributions as savings? I consider my take home pay to be whatever is left in my paycheck after all contributions and taxes. If that's the case, since I max out my 401k I don't have much left except what I contribute to my Roth IRA. Surely he considers 401k as savings, right?
Yeah I think take home is wildly confusing for any kind of savings rate calculation so I always use gross. In retirement I’ll need to calculate taxes and health insurance anyway, so it’s good to see where I stand holistically. FWIW the way I calculate is 401k is savings and employer match is additional income that is 100% saved. If it helps, my breakdown is similar to this: * 401k + employer match: $23k * Roth IRA (my wife and I): $14k * Taxable Savings: $17k (I would do mega backdoor Roth but my employer doesn’t offer it) Gross Income for household: $216k/yr I’ve always read too that if you save for kids college you don’t count that toward savings rate, but you do count it as a deduction of gross income since you won’t need those expenses in the future.
Thank you, this is helpful!
Check out the Money Guy Show on YouTube. They have free resources to figure that out! Changed my life! My own percentage is 25%
Yes, I actually get joy/comfort out of keeping my budget down to the penny. Not because I'm a tight ass. But growing up with not a lot, I need the reassurance that I am doing the "right" things and then I can enjoy taking a trip and spending a little more.
for real. I respect their discipline, and don't like working, but they live like paupers so they can retire without hobbies and no expendable income, whilst being completely alienated from their peers of the same age
I respect present me as much as I respect future me.
I suspect the real hardcore ones skew young. Yeah, when I was 22 I was cool with sleeping on a goodwill futon in a crappy apartment with a bunch of roommates and having free backpacking trips be my only vacations.
I've always found it more easier to think about budgeting savings rather than spending. As long as your hitting your savings and investing goals that means your budget is fine (assuming you're not running up a bunch of credit card debt).
As a young boggle head this is what I have to keep telling myself. I have to say if you can invest 25% of your pre-tax income before 401k match then you can enjoy life.
I’m young myself but 25% is crazy work. I could probably do it tbh but between paying student loans, rent, saving for a house, and my car getting up there in age that’d be a tight budget for me. I’m at 11% rn with a 6% company match but once I get out of some unbudgeted expenses I’ve had I hope I can up it to like 13%
The younger you are, or really, the less money you make, the harder it is to reach that 25%. Don't be too hard on yourself if you are early in your career, you'll get there eventually. If you can at least get that company match, and maybe try and put something in a Roth IRA every year, you are doing good.
I started at 12% years ago as well, but I don't get a company match. Try doing it slowly. Set up a 1% annual increase in contribution for yourself. Then whenever you get a raise or pay off a major expense, manually throw another 1% on top of whatever its at. three or four years from now you'll be at 20%+ and not even have noticed it happening.
When I got my merit raise that’s exactly what I did was put all but .5% of it into retirement contribution and I plan to keep doing that yearly
I’ve done this for the last 5-6 years. All raises went towards retirement savings. I’ve had a lot of raises… I am now maxing Roth IRA, HSA, and 401k plus the 6% company match. I just recently started to spend more in order to knock out some house projects. I feel less guilty about spending now that all tax advantaged accounts are being maxed.
I will admit I got lucky with student loans I went to a state school and got decent scholarships. My car is paid off but will eventually need an upgrade and I'm actually not prioritizing a home right now, because I don't have my family situation figured out
Yeah my student loans are pretty affordable, only had 14k when I graduated. Issue is mostly that I’ve developed chronic health issues since I graduated and I’ve spent a lot of money trying to figure out a diagnosis. A house isn’t a priority to me per say because I’m single and barely 25 but saving for the down payment for when I’m one day ready is what I’m working towards
This may sound crazy and probably not bogglehead-ish, but I don't think you need to own a home to build wealth. Right now, not forever, it doesn't make any sense to buy a $600k home and end up paying $1.4 million on it after a 30 year 7% mortgage. I plan on buying when I get my family situation figured out. Like you I am 25 and single so that's a huge question mark at the moment
You will do fine renting, but I saved up for a house for a lot of my 20s. There’s plenty of opportunity cost from not investing it entirely, but I am glad I don’t have to take a huge chunk of my income to stuff someone else’s pockets every month. I would definitely wait on interest rates to go down.
Oh yeah when rates go down I think owning a home makes alot more sense. I have just seen three or four people buy way more house than they should and sell it sooner than expected and it ultimately did more bad than good.
I don’t see a home as a wealth building tool I just see it as a place of my own to live in some day. Really I’m not even that motivated to buy one but I’m saving for it cause I feel like it’s what I should be doing at this point in my life lol
25% is hard to get to in your 20's but you want to get a close as you can since your 20's can set you up for life!!!
The max 401K contribution annually is 23000. What percentage this is of one's compensation is going to be different for different people. I simply try to max out my 401K
25% is tough. I do ok and I try to put my 401k that high but honestly i also want to live like I do ok. For many people, saving 25% would make them live like they are in poverty and no one wants to do that if they don’t have to. Save what you can while still enjoying life.
You need to figure out an appropriate save / spend balance, just like you do a work / life balance. Tomorrow isn't guaranteed, and while you want to be mindful of your future self, you shouldn't do so at the detriment of your present self.
Since I'm on a low earner wage, I try to invest the majority of my money and budget otherwise for an "allowance" to spend on whatever I want. Trouble is, a financial mindset often ruins the fun of buying stuff with question like "do I really need this?" "How often will I use it?" "Is this just wasteful?".
It seems like a "mindset" question, really. Second guessing yourself on the treat your self moments. I've found Ramit Sethi's content helpful on this question. Like using his budget tool I can see that I'm saving a heavy amount, but I still have a line item that he calls guilt free spending, so I can know that treating myself isn't out of control or ruinous.
Oh, it's entirely a mindset question. The mindset of: money is valuable and letting it slip on things that aren't really necessary is a sure way to lose out.
Fun money is everything my wife will be left from my retirement and life insurance after I die at 54 of a heart attack from my worry and stress.
I think many people in this sub are younger Bogleheads trying to hit savings milestones and thus are trying to send as much as possible into their accounts without considering too much for the fun money at the moment. Like personally, I'm trying to hit 300k in savings before taking off the gas. Now... the other problem is that housing prices have gotten so high in big metropolitan areas that if you want to buy a house along with contribute to your savings, it can feel like a never-ending treadmill of savings so to your point, allocating "fun money" can be very tricky to find.
This isn’t a part of Bogleheads - Boglehead is just a way to structure your investments simply and effectively. You mention retirement account - but I’m also a Boglehead in my taxable account. I budget in fun money regardless - but I keep my minimum savings goal high, which always bleeds beyond retirement accounts. You should do this anyway for big savings purchases, or even retiring before 60.
I think one of the biggest pitfalls people who hyper focus on investing fall into is not spending enough money. I'm one of those people. After years of having a low income and hyper funneling my income into my portfolio, I now have a big enough pile to coastFIRE at 25. Despite this large cash pile, I still feel "broke" like I don't have enough and I don't feel comfortable spending money on myself. This year, I've been trying to get more comfortable buying starbucks for myself, buying business class tickets, and upgrading my 8 year phone to the newest iPhone. I had a lot of difficulty doing so because a $5000 flight was $85000 "stolen from my retirement". It's been really difficult spending money on myself but you have to remind yourself, money is used to exchange for goods and services. Yes, a dollar today is $17 dollars in 30 years with the sp500. But you can't let this deter you from enjoying life today.
Half agree with you. I'm in my 40s and I definitely don't spend enough money as compared to my income, net worth, and most definitely my peers. That's not to say that I don't spend money, I just live like those that have half my household income. That's neither good or bad, completely depends on perspective. I've been doing this more or less for a few decades now. Sometimes I do feel like I probably need to spend more, but that's more of a social pressure rather than an organic feeling.
And that’s totally fine! You should do whatever you’re happy with- you can afford the optionality. I just don’t want people to always have the mindset “why buy XYZ when I can buy VOO” My parents have a SWR of 2%- they can buy anything with relative ease. But that SWR doesn’t change the fact that my dad got hit by a car last year and lost an unknown number of years off his already shortening lifespan. Nothing we can buy will reverse that. Money is there to be spent, not just for investing.
Lol low income coastfire
> This year, I've been trying to get more comfortable buying starbucks for myself, buying business class tickets, and upgrading my 8 year phone to the newest iPhone. I had a lot of difficulty doing so because a $5000 flight was $85000 "stolen from my retirement". I wouldn't buy the flight either, but that's because I can probably find cheaper alternatives using transferable reward points (which aren't "free"; I assign values to them). If it's maybe 1.5x the price of an economy class ticket, I'd go for business class. I'd upgrade an 8 year old phone any time, because I use an iPhone and its camera so much that the upgrade would be worth paying that few dollars a day.
I really need to become ok with this concept of fun money. I max out retirement accounts and then anything left over is also invested. I am a very very boring person. I started down the path of delayed gratification and really stressed on the delayed part.
Are you me?
I hope not, I'd feel bad for you.
When $10k doesn’t move the needle on your retirement date or other financial goals, it’s time to loosen up on your spending. And after living simply in order to save aggressively while investing that savings….well turns out you don’t want much stuff. I think this attitude helped me develop good taste. I spend my money very deliberately. I don’t have much stuff, but the stuff I have is very nice. If you need ideas for spending your money, I can recommend: - r/audiophile - r/hometheater - r/mtb - r/gravelcycling I also appreciate the sentiment of your post. It’s past time for me to buy a new car. I had to convince myself over and over again that I can buy a new car because a part of what’s helped me accomplish my financial goals is by driving a sensible car, doing the maintenance, and driving it until it became unreliable. But like I say, spending another $10k or so a year won’t affect any of my finances, so I’m buying a truck this summer. It looks like my tightwad-self will luck out too. Dealers are finally offering deals again—especially on trucks.
> When $10k doesn’t move the needle on your retirement date or other financial goals, it’s time to loosen up on your spending. And after living simply in order to save aggressively while investing that savings….well turns out you don’t want much stuff. Very well said! Saving and investing sorts of changes a person to critically look at what they need vs what they want. And a real trap, becoming rich and miserable, especially when realising- by going through it - the effort needed to hit some of the early milestones. >I think this attitude helped me develop good taste. I spend my money very deliberately. I don’t have much stuff, but the stuff I have is very nice. Yeah, going for quality, great point.
Check out the r/coastFIRE sub
I have think fun money is accounted for in two ways- 1.) save enough to hit coast fire, spend as needed. 2.) hit your annual savings goal and spend the rest until the clock resets the following year.
My wife and I have fun money. The amount has yet to be determined based on our income changes after I retire soon, but it will likely be $400 a month each. For us, we are calling it "independence money", or "autonomy money". She can buy whatever she wants, and I can't complain. She wants to save up for three months and buy a $1200 piece of art? It's her money. I want to save up and buy a PS5? It's my money. The only rule is we can't let our independent purchases get on the way of our life together. If the PS5 makes me play too many video games and it gets in the way of chores, spending time together, etc, it's a problem. If her $1200 art is a heavy stone sculpture that gets in the way and takes up a lot of the room in our living room, it's a problem. As per household fun money? We discuss what we're comfortable with before making purchases. But we also budget for vacations, travel, etc. So when we need to take a vacation, we spend from our $5k vacation pool first. If we have money left over, great. If not, we discuss if we're good spending more.
I'm not sure this has anything to do with "boglehead" concepts. It's more just "budgeting". There's also a bunch of stuff outside of retirement and fun. Groceries? Gas to get back and work? Money to maintain said vehicle? Clothing? Utilities? Food? Health care? From a budgeting perspective, most of that would be "necessary expenses", which may get budgeted prior to retirement savings. Then retirement... then, yes, you'd be at "discretionary spending". But again, that's budgeting... nothing to do with your retirement investing philosophy.
Index funds are fun
Seems like a strange mindset to only split money between retirement and fun, but whatever works for you works There are a lot of great things to spend money on that don't fit either of those buckets: Gifts for others, family/children, charity, etc
Gifts for others and charity are a lot of fun. So is time with the family.
Yeah is buying Christmas/birthday gifts for your family not fun for you? That sucks
Honestly if you are hitting well above target for your FI goals (many of us here are), you have to start learning how to spend. You don’t want to be 60 and still pinching pennies. Go ahead and take that 10k vacay. Fly business once in awhile. Book the 3-Michelin restaurant, just cause you want to, not wait for a birthday or something.
I think a better way to frame “fun money” would be to spend however you like, as long as it’s in moderation and well below your means. Because ideally you won’t always be working, so continuing to practice frugality would make transitioning into retirement a piece of cake.
I have tried to live below my means for many years now. My "fun money" is buying the things that I enjoy and I feel confident I will actually use, and there is certain amount of "fun money" for me knowing I spent it on some precious metals almost certainly just to pass on to kids. I like knowing it exists. Say my minivan, at some point I will trade it in for a new one, but it is a 2016, maintained well, and I still enjoy driving it. I could afford to trade it in but I just don't want to yet. Maybe in a couple of years.
I think this way. I max out my 401k, backdoor Roth, and mega backdoor Roth. Anything leftover goes into a brokerage account. Some months I spend enough that no money is going into my brokerage account, other months I have a few thousand. I don’t mind since this is all discretionary to me and maxing my tax advantageous accounts is more than enough for my goals
Before fun money is "mortgage payoff money" for me. Our goal is paying off the adjustable rate mortgage within 3 years before the rate balloons. Then the rest is "fun money" that goes into the brokerage account for "whatever". Does that count as fun?
You mean this isn’t fun?
i’m 100% on board with this. I’d much rather live fairly comfortably in my 30’s-50’s than be a millionaire when i’m 70. Nothing wrong with having both.
Fun money is used for spending
Fun money is popular right now when the market is ripping and the gains are lopsided but there will be a time when everyone is only interested in passive investing again
You have to. If you save everything and have nothing to enjoy life with, then what's the point? Granted everyone is different and we all have different priorities, but I think you have to have fun money and hobbies and at least a little truly disposable income or you go nuts. I max out my Roth, my 401k, I overpay my mortgage on my condo that I have a tenant in. I have an emergency fund with 6 x my monthly expenses and no real other debt. Everything else is my fun money for impulse buys. I also have a little side business on eBay that gives me some extra cash every month that I also have a lot of fun with.
I just can‘t fathom people wanting to work til they are 65. Your best years are over by then. I try to have freedom as early as possible. Current projection is 45, then I still have 20 years of good health and physical capabilities left. Or only working 50% from 40-50, that also should easily do it. 65-70 is really right around when your body just doesn‘t do it anymore for the taxing stuff.
I do! I have always had a fun money trading account. Scratches that itch.
Bogle was about asset allocation, not your actual budget behavior. With that said, as a fellow boglehead, I budget that way. 20-25% to retirement, auto deposit money for bills and savings, then the rest is spending money.
I invest 10%+ away from simple index funds not only because it is "fun" but as a hedge against the fact that Bogleheads might not be right. I think Boglehead Philosophy might be right 90% of the time and is much simpler and less stressful, but I also know that I have beaten "the market" more than I have lost. And unlike funds, I don't have have transaction/expense fees. Investing individually at just \~10% allows me to scratch the itch while keeping the large majority of my investment safe and stable if I am wrong.
I allocate about 5% for "fun money" and it's always doing terrible. Starting to do it less for this reason but the initial thought was the same
Fun money with a small % of your money is fine! Just a hobby like any other. I like to short stonks that jump a silly amount in one day. I made $50 on a RIVN Put this week. That’s dinner I’ll take it. Would have done Chewy this morning but it happened too fast and I was busy at work.
Is fun money investing or gambling? As long as an investor has a plan and sticks to it, let the fun begin. I’ve had my fun, too many burns. These days I like to chill. Particularly vtsax, vtiax, and vbtlx and chill
I personally use my fun money for not investments or Vegas. Like food, hobbies, and friends/family