What does “financially stable” mean to you?

[Bellex917]

i cannot stress the importance of this. financialy planning for YOUR OWN future is vital and it must come before funding a full ride college education for one's child(ren).

please-do not short change your own financial security.

I sometimes feel so much guilt that we have basically nothing in college savings and are just starting to work on that. But we HAVE prioritized our retirement and our kids will not need to care for us. I can't go back in time or I'd throw a little something in a 529 when they were younger so they had some years of compounding interest on their sides, but there was so little extra between MY loans, we paid for our wedding, we never lived at home as adults so rent/mortgages, childcare, etc. We can finally breath and I'm just trying to make all the right choices.

 

[BamaGuy44]

To me it means not having to watch every penny to not fall behind, and money is something you think about and plan about, but not worry about. It's a different thing from Financial Independence, which would be being able to live off your savings/investments if you wanted to.

• stable, predictable income(s) if you're still working
• Little or no consumer debt (CC, etc)
• Emergency fund, aka the ability to handle an unexpected expense or short term job loss without scrambling.
• Paid off or manageable student loans, with a plan to pay off as quickly as possible
• Reasonable amount being saved for retirement
• In the US at least, solid health and disability insurance.

What that looks like varies for everyone, but it's generally achieved by living below your means, especially when it comes to houses and cars, and an upward career track over time.

College savings is nice if you can afford it and choose to, but it would be (and was) very low on my priority list. Short changing retirement savings in favor of college savings is a big mistake, IMO. Lots of ways to pay for college, and it doesn't have to cost 300K+.

 

[tvguy]

College savings is nice if you can afford it and choose to, but it would be (and was) very low on my priority list. Short changing retirement savings in favor of college savings is a big mistake, IMO. Lots of ways to pay for college, and it doesn't have to cost 300K+.

That is the only thing I feel differently about. I put my kids college right up there on equal footing with my retirement savings. And after your kids college education you can take advantage of the tax incentives to do catch up retirement savings if you need to. But both take a back seat in my opinion to carefully planning over the 40+ years you will be working to put yourself in the best financial situation when you can when you retire. No debt, trying to make sure any major upkeep on your house was done while you were still working (roof, HVAC, water heater). Almost three years into retirement and my expenses overall are much lower than they ever have been.

 

[BamaGuy44]

That is the only thing I feel differently about. I put my kids college right up there on equal footing with my retirement savings. And after your kids college education you can take advantage of the tax incentives to do catch up retirement savings if you need to. But both take a back seat in my opinion to carefully planning over the 40+ years you will be working to put yourself in the best financial situation when you can when you retire. No debt, trying to make sure any major upkeep on your house was done while you were still working (roof, HVAC, water heater). Almost three years into retirement and my expenses overall are much lower than they ever have been.

That can work for sure, it's "personal" finance, after all. For most people though I would disagree about catching up on retirement savings. It would be almost impossible to make up for the lost years of compounding in most cases. A dollar put in at age 30 will be worth so much more at retirement than a dollar put in at 40 or 45, it would be hard to make up for that with increased contributions later.

Definitely agree long term planning and discipline are the keys. There are really very few "unexpected" expenses. I know the cars are going to need repairs and tires at some point, and the house will need repairs, etc we just don't know the exact timing.

 

[tvguy]

That can work for sure, it's "personal" finance, after all. For most people though I would disagree about catching up on retirement savings. It would be almost impossible to make up for the lost years of compounding in most cases. A dollar put in at age 30 will be worth so much more at retirement than a dollar put in at 40 or 45, it would be hard to make up for that with increased contributions later.

Definitely agree long term planning and discipline are the keys. There are really very few "unexpected" expenses. I know the cars are going to need repairs and tires at some point, and the house will need repairs, etc we just don't know the exact timing.

I agree completely on the impact of compounding. Back in 1980 my wife opened an IRA with $1,500. She was a pretty conservative investor but that account balance now is mindboggling.

 

[BamaGuy44]

I agree completely on the impact of compounding. Back in 1980 my wife opened an IRA with $1,500. She was a pretty conservative investor but that account balance now is mindboggling.

I always tell my son, interest is something you want people paying you, not the other way around

 

[jimmymc]

To me, it's being able to make any loan payments, pay your expenses, and be able to put 20% towards savings (retirement and other), while also having several months' worth of expenses in the bank.

 

[barkley]

I always tell my son, interest is something you want people paying you, not the other way around

yes and compound interest is a beautiful thing when you are on the receiving end.

 

[dvcgirl67]

Interesting idea and thread. I guess I think of financial stability on a sliding scale. Early on in your 20s-30s it's avoiding credit card debt and keeping mortgage and car loan debt low enough that you can be saving 20% by the time you're in your mid-30s or so. This is particularly important if you don't have a pension. Or if you have a pension that affects whether or not you receive SS, or the lessens the amount of SS.

I really believe in paying off your home as soon as you can. We were fortunate enough to not have a mortgage since our mid-30s, but that's because we took advantage of the boom in 2004 and downsized paying cash...and stayed "downsized" from there in subsequent homes. But I wouldn't want to carry a mortgage into retirement. If you're able to do that and aren't carrying any consumer debt, Social Security at "full retirement age" should cover a fair amount of your basic necessary expenses....meaning, property taxes, insurance, transportation, food (not dining out), utilities and medicare premium. It will for us....at age 67 for sure.

But....if you'd like to travel a lot, which I'm guessing most around here do. And/or...if you'd like to retire early, which many of us do, you'll need a nest egg. The rule of thumb is about the same from all experts....and they calculate it by multiplying your salary. And this is for the classic...retire when you are in your mid-60s...retiring earlier requires more.

By the time you're the following ages you should have that many times your salary:

30: x1
35: x2
40: x3
45: x4
50: x6
55: x7
60: x8
67: x10

I think that this is a pretty good rule of thumb for the most part. If you aren't around those multiples at a younger age, you can always play catch-up. But, as they say....the clock is ticking.

 

[tvguy]

Interesting idea and thread. I guess I think of financial stability on a sliding scale. Early on in your 20s-30s it's avoiding credit card debt and keeping mortgage and car loan debt low enough that you can be saving 20% by the time you're in your mid-30s or so. This is particularly important if you don't have a pension. Or if you have a pension that affects whether or not you receive SS, or the lessens the amount of SS.

I really believe in paying off your home as soon as you can. We were fortunate enough to not have a mortgage since our mid-30s, but that's because we took advantage of the boom in 2004 and downsized paying cash...and stayed "downsized" from there in subsequent homes. But I wouldn't want to carry a mortgage into retirement. If you're able to do that and aren't carrying any consumer debt, Social Security at "full retirement age" should cover a fair amount of your basic necessary expenses....meaning, property taxes, insurance, transportation, food (not dining out), utilities and medicare premium. It will for us....at age 67 for sure.

But....if you'd like to travel a lot, which I'm guessing most around here do. And/or...if you'd like to retire early, which many of us do, you'll need a nest egg. The rule of thumb is about the same from all experts....and they calculate it by multiplying your salary. And this is for the classic...retire when you are in your mid-60s...retiring earlier requires more.

By the time you're the following ages you should have that many times your salary:

30: x1
35: x2
40: x3
45: x4
50: x6
55: x7
60: x8
67: x10

I think that this is a pretty good rule of thumb for the most part. If you aren't around those multiples at a younger age, you can always play catch-up. But, as they say....the clock is ticking.

The number of years income that a house costs certainly has increased. My wife and I were the first generation in our families to have a mortgage. Our parents both paid cash for their VERY modest homes.

My parents bought their first home in 1950 and it cost less than a year's combined pay.

My wife and I bought our first house in 1983 and it cost about three years combined pay.

Our daughter bought her first house in 2019 and it cost about five years income.

 

[dvcgirl67]

The number of years income that a house costs certainly has increased. My wife and I were the first generation in our families to have a mortgage. Our parents both paid cash for their VERY modest homes.

My parents bought their first home in 1950 and it cost less than a year's combined pay.

My wife and I bought our first house in 1983 and it cost about three years combined pay.

Our daughter bought her first house in 2019 and it cost about five years income.

Yes, I definitely think that it matters what you spend on "the big things" in life....house, car, college education for yourself and kids...etc. Even shopping for deals on the bigger bills in life like varying insurances we all carry is super helpful.

With our income and level of savings we could have afforded a house in the next two towns over...between us and the beach, that are two to three times the cost of our home. But....we chose to live in my town which allowed us to live far below our means. That in turn allowed us to become "super savers" over the last 15 years or so. And that in turn is how we can retire early.

 

[jo-jo]

I think we are ok. We live fairly cheaply. Do all the things we've done for years, Check sales, have no fashion sense, eat leftovers, live happy boring lives. But there is always the fear, we are only one major medical issue away from problems.

We hope to die with enough in the bank, to pay off any bills and nothing more. Not saving so our kids get something, but saving so we don't need to get something from the kids.

 

[MrsPete]

I sometimes feel so much guilt that we have basically nothing in college savings and are just starting to work on that. But we HAVE prioritized our retirement and our kids will not need to care for us.

The best time to start save for college (or retirement) is 20-30 years ago. The second best time is today.

College savings is nice if you can afford it and choose to, but it would be (and was) very low on my priority list. Short changing retirement savings in favor of college savings is a big mistake, IMO. Lots of ways to pay for college, and it doesn't have to cost 300K+.

My husband and I both worked our way through college, and it was very difficult -- not that we're sorry. Once we finished, we were beholden to no one, and that was good because it took us about a decade to reach "comfortable". It's still possible, but it takes a great deal of foresight and self-discipline.
As a result, we made college savings for our children a priority -- we literally started saving before they were conceived.

That is the only thing I feel differently about. I put my kids college right up there on equal footing with my retirement savings.

Agree. Both are important, and both are easier if you start early (while compound interest is on your side). If necessary, I'd have been willing to work a few more years to pay for my kids' education. I was in my 40s when they were college age, and I was earning a decent wage by that point ... I could earn more quickly /easily than they could at that point.

Almost three years into retirement and my expenses overall are much lower than they ever have been.

I'm two years into retirement and could say the same thing. Two things are killing us though: My insurance is paid through my former job, but my husband's is so expensive. And taxes have soared since the pandemic.

It would be almost impossible to make up for the lost years of compounding in most cases. A dollar put in at age 30 will be worth so much more at retirement than a dollar put in at 40 or 45, it would be hard to make up for that with increased contributions later.

Yes, but it's so easy to find excuses not to start saving when you're young. Someone is living on 1-2K less than you are ... so put that money away every year.

I really believe in paying off your home as soon as you can.

One addition: Don't upgrade your paid-for house. Better to live in a simple little paid-for house than a mortgaged mansion.

But, as they say....the clock is ticking

While we may have a plan to work until ___ age, none of us know for sure we'll be able to keep that plan. I've read that 1/3 of all Americans don't choose their retirement date; that is, 1/3 of all Americans retire because of lay-offs, illness, or family needs. More reason to save while you're young, even if that feels like a sacrifice.

 

[BamaGuy44]

The number of years income that a house costs certainly has increased. My wife and I were the first generation in our families to have a mortgage. Our parents both paid cash for their VERY modest homes.

My parents bought their first home in 1950 and it cost less than a year's combined pay.

My wife and I bought our first house in 1983 and it cost about three years combined pay.

Our daughter bought her first house in 2019 and it cost about five years income.

Yeah all the old rules of thumb about houses are out the window at this point. We feel blessed to be locked into a very low fixed rate mortgage that will pay off a year before we plan to retire. I feel for anyone trying to buy a home right now. 5x income is rough. We listened to the classic (bad) advice to "stretch" our budget for a house, and let our rising incomes make it easier over time. Luckily they did, but we felt "house poor" for quite a few years.

And if something had happened and we needed to sell in those years we would have been severely upside down, due to my uncanny ability to buy things right at the peak of the prices. July 2007, yeah I'm that guy

 

[808blessing]

no car, school or consumer debt w/ savings for a new used car
mortgage -20 year, paid off in 50s
travel fund savings monthly
maintenance, insurance fund monthly
retirement funds enough
in state school tuition saved (half)

live below means to save a little bit every month but otherwise live generously

 

[tvguy]

Yeah all the old rules of thumb about houses are out the window at this point. We feel blessed to be locked into a very low fixed rate mortgage that will pay off a year before we plan to retire. I feel for anyone trying to buy a home right now. 5x income is rough. We listened to the classic (bad) advice to "stretch" our budget for a house, and let our rising incomes make it easier over time. Luckily they did, but we felt "house poor" for quite a few years.

And if something had happened and we needed to sell in those years we would have been severely upside down, due to my uncanny ability to buy things right at the peak of the prices. July 2007, yeah I'm that guy

I have to admit that I laugh at people who are complaining about current mortgage interest rates. Current rates are really what they have been on average over the years. The 2.2% my daughter refinanced at is great, but it is not the normal. Nor is the 12.25% my first mortgage was typical. Of course, we JUMPED at that rate since it was as high as 16% in the year before we bought in 1983.

 

[firefly_ris]

I have to admit that I laugh at people who are complaining about current mortgage interest rates. Current rates are really what they have been on average over the years. The 2.2% my daughter refinanced at is great, but it is not the normal. Nor is the 12.25% my first mortgage was typical. Of course, we JUMPED at that rate since it was as high as 16% in the year before we bought in 1983.

How much was the house?

 

[BamaGuy44]

I have to admit that I laugh at people who are complaining about current mortgage interest rates. Current rates are really what they have been on average over the years. The 2.2% my daughter refinanced at is great, but it is not the normal. Nor is the 12.25% my first mortgage was typical. Of course, we JUMPED at that rate since it was as high as 16% in the year before we bought in 1983.

Sure, still historically low but it's all relative. Much higher than many people have seen in their lifetime, or at least their adult life. Combined with the much higher home prices relative to income and today's rates are a comparable burden to the "old" rates. I haven't done the math but I'd wager homes are far less affordable now overall.

 

[tvguy]

Agree. Both are important, and both are easier if you start early (while compound interest is on your side). If necessary, I'd have been willing to work a few more years to pay for my kids' education. I was in my 40s when they were college age, and I was earning a decent wage by that point ... I could earn more quickly /easily than they could at that point.

I'm two years into retirement and could say the same thing. Two things are killing us though: My insurance is paid through my former job, but my husband's is so expensive. And taxes have soared since the pandemic.

I was 48 when my oldest started college, and 57 when my youngest finished. I consider that a typical age of a parent with College age kids. I do know some parents who started families younger, and some older.
Our health insurance is the lowest it has been in years since we went on Medicare with a top of the line Medigap private supplement. About $250 a month less than our group insurance was, and we used COBRA coverage for 18 months until we were old enough for Medicare, and THAT was $850 a month more than we are paying now.

 

[tvguy]

Sure, still historically low but it's all relative. Much higher than many people have seen in their lifetime, or at least their adult life. Combined with the much higher home prices relative to income and today's rates are a comparable burden to the "old" rates. I haven't done the math but I'd wager homes are far less affordable now overall.

I don't disagree. But houses are still selling, so buyers are finding a way to afford them. Certainly not the crazy situation of 3 years ago where houses were selling within hours of being listed.......but within a a month, which is faster than average. My son and DIL listed their house for sale in May 2021 and had to come hang out with us for a few hours because their agent had 4 appointments the day it listed for tours.