$400,000.
Do you consider someone with a net worth of $400,000 rich? Well-off? Comfortable? Would you set a lifetime goal for yourself at $400,000?
Actually, a net worth of $400,000 sets you well above the median net worth in this country, and in the world, to say the least. But these statistics don’t matter… what matters is your immediate environment. In your immediate environment, could you give up working once you have $400,000 when you subtract your liabilities from your assets?
I think many people will say “no” to this question, yet they’re willing to set a goal of $1,000,000 in the future — say, 30 years from now. $1,000,000 sounds much, much better than $400,000. With $1,000,000, one might be able to stop working and live off the income. At a 4% safe withdrawal rate, that’s $40,000 a year.
This is why some financial planners, some columnists, and even some bloggers are big on telling people what they can do now (how to invest) to increase the chances of ending up with $1,000,000 thirty years from now. It’s simple: invest $8,250 a year, invest in stocks, and pray for good markets at the end of the time period and a yearly average of an 8% increase.
The huge problem with this model is the fact that it completely ignores the effect of inflation. Assuming a 3% inflation rate over the next thirty years (it could be higher or lower, who knows, but this is a historical average), your $1,000,000 then will only be worth what about $400,000 is worth now.
By the time you’re a millionaire, a billion dollars may be what is needed for the “comfortable” life. With $1,000,000 in the bank, at the safe withdrawal rate of 4%, you’ll be living off the equivalent of today’s $16,000. (For that safe withdrawal rate — the amount you can withdraw while not depleting your funds over time — it’s assumed the money will be invested in the stock market, not sitting in a bank.)
Methinks you should strive for something well beyond $1,000,000 if your time horizon is 30 years.
I still have cash at ING Direct, so maybe the strategy of staying on the bottom of the top works. The interest rate they offer is 4.25% APY as of this morning. While this is miles above the national average, they’re still at the bottom of the online savings list.
In addition to filing for bankruptcy, a hedge fund is suing its own investors to recover the profits that were paid out. Should investors who thought they were investing in a legitimate operation be forced to give back what those funds paid out if the payments were based on fraudulent numbers? Who is to blame?
If you are new to hedge hunds, here is an introduction I compiled last year.
I initiated a new recurring bank account transfer from my Wachovia checking account (my basic operating account) to my ING Direct savings account. As I can’t schedule a daily recurring transfer of $5, I added a weekly $35 transfer. Hopefully this will force me to tighten up my spending a little bit and provide me with a little more savings.
I also need to resume saving 10% of my “day job” paycheck and earmark that amount for emergency savings. In fact, I should start doing the same for all other income I earn. So far, my “extra income” is all deposited into another “subaccount” at ING Direct. I rarely touch it, saving as much as possible to reinvest into the projects that generate the income. Perhaps I should start “paying myself” from this income.
Here’s a piece of bad news for myself and all other renters out there. While I continue my search for an apartment to move into on July 1, the National Association of Realtors is forecasting a 5.3% increase in rents this year. Here are some details from CNN Money:
In addition to making home purchases less affordable, the recent housing boom led many investors to convert apartment buildings to condominiums to try to cash in on the rise in real estate prices. One out of three apartment buildings sold last year were converted into condos for sale, the paper reports, and that took 191,400 apartments off the market, according to the Realtors.
Well, the Realtors organization must be happy about this news. The report obviously comes from a biased source; Realtors would like people to buy rather than rent, and any study that shows a disadvantage to renting must make these folks excited at night.
Here is a further reason for the increase in rents:
Hurricane Katrina also is causing tightness in the rental market, the paper reports, as about half the 100,000 displaced families in the New Orleans area haven’t returned. Most of those families still living elsewhere are now renting.
If I were to stay in my current apartment, my rent would jump from $858 to $910, a 6% increase. My rent hasn’t changed in the last few years as I was able to negotiate with the apartment manager. Otherwise, my rent in 2005 would have been $890.
I’ve been developing a series about becoming your own boss, and this is part 5 in that series. The information is based on an article from MSN, but I’m pulling in information from other locations as well.
Step 5: Raise Money
Now that you have a solid business plan that outlines how much capital you need, it is time to find it. Here’s what our article suggests: [click to continue…]
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