http://www.signonsandiego.com/uniontrib/20060312/news_mz1b12...

I guess I like collecting different ideas about measuring financial progress. This one had some unique perspectives.

First part is about homes and the 28% rule. Blahblahblah. (or more like - duh. )

The second part confuses me a bit:

" Savings. Farrell suggests that everyone, at every age, should save 12 percent of their income every year. In his charts and calculations, that figure doesn't change. But the amount of savings accumulated, relative to household income, does change. He expects 30-year-olds to have 10 percent of their income amassed in savings, including retirement savings and other household savings. By age 35, that should be 90 percent.

Savings amassed at 40, 50 and 60 should be 1.7 times income, 3 times income, and 8.8 times income."

For one, 10% savings seems rather low for age 30 (but at least he has the whole curve thing going, where you don't expect to be very far at 30, but should progress much further, more quickly, with time).

Secondly, 12% to savings? All household savings. That is hard for me to quantify. I put 13% of my income into short-term savings. Clearly that probably shouldn't count as it is all stuff for within the year.

But as far as household savings? We have almost a full salary saved in cash at one point or another. But everything we saved beyond retirement has been meant for other things. I am aiming 7% savings of gross income for more long-term savings, but the account should ebb and flow. In the grand scheme of things I am only saving what I am planning on using.

I have to assume this means more long-term savings. Like when our retirement is maxed we will invest outside of our retirement. The rest of our savings is good, but it has no long-term staying power. It's just meant to be used up some point down the road. (Orelse obviously it goes to retirement for the tax savings). I might include my emergency fund in the "savings" column, but that's about it. I don't really expect to grow it though - there would be no point. But at some point we should have enough money to have an investment "emergency fund" for college, early retirement, emergency, whatever. I guess for me I would consider something like that savings. But little else. Yes we had a huge amount in the bank and we put it towards our home and maternity leave and retirment and other things as we planned.

I try to shoot for a decade ahead of where we should be, so at 40 we would need to have 1.7 times our income in savings. WE are probably closer to 1.3. As far as 10% of income (the real 30 measure). Well isn't that a slam dunk? I Think we have had more than 10% since like a month after graduating college. IT's like it assumes you would not save any money until you turned 30. We probably saved most aggressively in our 20s ourselves, before life got in the way (babies and such).

OF course it also means I should shoot for 3 times income by age 40. I actually have a goal of 2 times income in retirement by age 35. 3 should be pretty easy by 40, if I make that mark. PArticularly as my goal assumes 1 income and age 35 is around the mark where working would be a profitable endeavor again (for my spouse).

As far as debt this is fairly aggressive:

"Add up the mortgage, the student loans, the credit card balances and the remaining balance on the car loan. At age 30, you'll have your highest levels of debt relative to your income, says Farrell. He pegs that number at 1.7, meaning that if you're earning $50,000 at age 30, you should be $80,000 in debt. As people age, they should reduce their debt-to-income ratio by paying down their mortgage and aggressively cutting auto and credit card debt. At age 45, debts should equal your annual salary. By retirement at age 65, those debts should be zero, he suggests. "

My debt to income ratio is more like 2.8. & I Thought we were doing darn good. Which basically means my mortgage should be no more than $123k at 30. Ha! Maybe it is a good general rule of thumb, but it won't fly to far in the state of Califorina. Oh, but believe me, we tried. We were close. Just bad market timing (trying to sell our old home post-=9/11 - lost about $100k in the deal. Our whole goal was to have a $100k mortgage when we moved here. We did try! OF course interest rates could be a factor too. We pay much less for more debt. WHich is why the $200k mortgage made little difference to us in the long haul. Was less than our old mortgage, on a monthly basis.).

By age 45 my debt should equal my salary. Hmmmm. That one would probably be easy. My mortgage is set to be $125k with no prepayments, at age 45, and we have a goal to pay it off around age 45 anyway. With inflation if we hadn't payed it down, our income should be more than our mortgage in 15 years. The potential of a 2nd income gives us much more leeway too. Probably a slam dunk.

Pay off all debts by 65? Of course. Was aiming for 45.

Sounds like you can take on a little more (actually A LOT more) at 30 and still be ahead of the game even by his debt standards, for the long haul. I mean seriously, if we become lazy and don't prepay a dime, our house (only debt) will be paid off by 55. We are certainly on the right trajectory, according to this article. Oh, but the 10-year ahead thing. Hmmmm. Well on the way for the long haul (pay off 55 would be my goal then). Debt = salary at age 35? Not going to happen. Oh well. Just me? Seems awfully aggressive. Well my excuse is I lived in about any other state I would. Then again my wage would be lower. So a catch 22. I don't know how feasible that really is. Or if it even matters. Since we are well on the trajectory for 10 years ahead of schedule (maybe 20 years when it comes to debt).

Well, was another interesting perspective...