Ask Roshawn (Vol 2)
| June 9, 2008 | Posted by Roshawn Watson under Uncategorized |
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I’m 27 years old software web programmer. I paid off my 13K $ home loan (500K Indian Rupees) in India last year. Apart from that I don’t have, never had any debt. Still I don’t seem to save anything more than 10K$ annually. I have been earning in range of 60K-85K for last 3 years since I came to US. 10K annually seems pathetic to me. But I don’t know how to do better. What is your opinion? There is always something that seem to come up, which makes a big hole in my pocket. Recently my father has been sick. It was very taxing situation for us emotionally as well as financially. Now he is OK. One trip to visit him once in 2 years costs me 6K.
I have 6-7 years of total experience and I consider my self fairly advanced programmer when it comes to web development, C#/VB.net programming and team leading. 1 or 2 years down the line, I plan to be self-employed even start a website consultancy business. Right now, I don’t have courage or vision to do so. Your recent post is very good catalyst for me to think in right direction.
Pardon me if you find it strange that I reveal so much of personal information for asking the questions that I’m asking. I don’t know the reason, but having said all that, I’m feeling a lot better. I subscribe to a few VERY popular financial blogs and they are very good and informative in their place. But your blog is different, it is clearly of someone with genuine urge to spread good personal finance practices among others. And you are very good at that. I would be honored to befriend someone so inspiring with such good personal finance habits, good writing skills.
Sincerely,
Am I Saving/Investing Enough?
Dear Am I Saving Enough,
Congrats on doing so well with your finances too. So few demonstrate the type of discipline you have clearly mastered (you have no debt), which is an accomplishment in itself. You are inspiring.
Savings/Investing percentage: The whole issue of how much should we be investing one is highly individual. It is based on what kind of life you want in your future and based on what stage you are at with respect to debt, college savings for kids (if applicable), housing, etc. A general rule of thumb is that prior to paying off your primary residence, one should be able to invest 15% of his income into retirement accounts, provided that there is no other debt in the picture (as is in your case). After your primary residence is paid off, investing 25%-33% of your income is will set you on an aggressive wealth path. The rationale is we should pay no more than 25% of our earned income (i.e. from a job) for housing. Without the housing expense, we should be able to add what we were paying in housing (i.e. up to 25%) to the 15% that I mentioned earlier. Theoretically, one could invest 40% of his income after paying off the primary residence and still not go overboard. However, most people understandably want to have a little bit more fun with their money at this stage.
One thing that I was unsure of from your email was whether you pay for housing here in the U.S. That would definitely affect your cash flow. On average, you earn $72,500 per annum. $10,000 is about 13.7%. Thus, if you are paying for housing here which costs about 25% of your income, your investment percentage is definitely reasonable. If that is not the case, then I would seriously try to budget in more money for investments.
I am so sorry about your dad’s health and am glad he is doing ok now. You are right that family expenses are definitely hard to plan for. Sometimes it is definitely worth slowing down a little bit with respect to wealth-building in order to be with the ones who are the reason why wealth is so important: our families.
Starting a business: I am a huge fan of starting businesses. Business owners are about 5x more likely to become millionaires than workers. The tax laws are better. The pressure is high sometimes, but the rewards are so much better. Kudos to you for your ambition. One way to minimize expenses of starting such a business is to do so part time while you are still working for an employer (you probably already know this).
Friendly Regards,
Shawn
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
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