Bogleheads University 101 2024 What You Need to Do Before You Invest, How to Set Your Savings Target

00:00:00.000 | (audience applauding)

00:00:03.160 | First speaker today is SC Gutierrez,

00:00:11.920 | wherever she is, did I get that right?

00:00:14.920 | See, I knew it, we practiced this.

00:00:16.840 | (laughing)

00:00:18.640 | And she's gonna talk about what you need to know

00:00:22.360 | before you invest, how to set your savings target.

00:00:27.800 | SC is the CEO of Aptis Financial,

00:00:30.360 | and she holds a MPP from Harvard University,

00:00:33.920 | is a certified financial planner,

00:00:36.040 | a certified retirement plan specialist.

00:00:38.280 | And she is the author of "But First, Save 10,"

00:00:44.560 | "The One Simple Money Move That Will Change Your Life."

00:00:49.800 | And her company, Aptis Financial,

00:00:52.200 | provides a flat-free financial planning services

00:00:54.600 | for early career attending physicians

00:00:59.400 | and other young professionals.

00:01:01.360 | So SC, you have the mic.

00:01:04.120 | - Thank you, Rick.

00:01:05.440 | It is great to be here today,

00:01:07.240 | and I am such a fangirl of everything Boglehead

00:01:11.640 | and this conference, and I have a story

00:01:14.680 | that I told Christine, she was like,

00:01:16.000 | "You gotta tell everyone this story."

00:01:18.600 | So I used to be a sell-side stock analyst, actually.

00:01:23.280 | So we are the ones that would recommend

00:01:25.400 | whether people should buy, sell, or hold

00:01:27.720 | in their mutual funds, stocks in their mutual funds.

00:01:30.840 | And I read the book,

00:01:33.840 | the little book of "Common Sense Investing,"

00:01:36.360 | and it just changed everything.

00:01:38.520 | And I left my job and started a new company

00:01:43.520 | to do financial advice in a new way,

00:01:47.020 | all because of Jack Bogle and his inspiration.

00:01:49.720 | So it is a really big deal to be here with you all today.

00:01:54.240 | And I keep meeting people who are like,

00:01:55.640 | "This is my fourth conference."

00:01:57.360 | Like, I wanna be that person, like,

00:01:58.440 | "This is my 10th conference."

00:02:00.080 | Like, that's gonna be me here one day, I promise.

00:02:03.160 | Okay.

00:02:04.760 | So today, actually, went too far.

00:02:07.320 | Today, what we're gonna do is we are gonna combat

00:02:11.560 | something that's happening in the financial industry,

00:02:13.480 | and the financial industry is doing one thing to us.

00:02:15.760 | They're telling us, "We need you to care about one thing.

00:02:18.360 | "What's the one thing that we need to care about?"

00:02:21.040 | What, retirement?

00:02:23.500 | Yes, it is.

00:02:25.160 | But what's continuously being asked of us

00:02:27.700 | is that we care about investing.

00:02:29.800 | We need to care about the latest hot mutual fund to buy.

00:02:33.400 | We need to care about buying or not buying crypto.

00:02:36.440 | That's where the conversation is being had.

00:02:38.720 | And what's interesting is we're in the middle

00:02:40.360 | of a retirement crisis, right?

00:02:43.740 | So we just saw the first people who were in this thing

00:02:46.720 | called the 401(k), a defined contribution plan.

00:02:51.160 | The first group of people, as we switch from pensions

00:02:54.800 | to defined contribution plans.

00:02:56.760 | Tell us whether this experiment was successful or a failure.

00:03:01.640 | What was it?

00:03:02.460 | Here, right?

00:03:05.600 | We're still talking about investments.

00:03:09.760 | I run retirement plans.

00:03:10.840 | You know the only thing they care about in retirement plans?

00:03:13.880 | The investment menu.

00:03:15.680 | Are people saving in it, are they not?

00:03:17.240 | No, we just care about the investment menu, right?

00:03:21.840 | So here's the funny thing is, we are parroting back

00:03:25.640 | exactly what they're asking us to talk about.

00:03:27.960 | So in our financial planning firm,

00:03:29.440 | we have people who write in, "I wanna work with your firm."

00:03:32.400 | And so they'll say, "Can you help me with investments?

00:03:36.000 | "Can you help me with this?"

00:03:36.840 | And y'all, I love investments.

00:03:39.320 | But you're looking at their portfolio and going,

00:03:41.760 | "Whoa, whoa, whoa, whoa, whoa.

00:03:43.320 | "We need to be talking about something a little different.

00:03:47.780 | "What do we need to be talking about?

00:03:49.980 | "What do you need in order to invest?

00:03:52.560 | "What's the first thing you have to have?"

00:03:55.480 | Money.

00:03:56.760 | Money, money, money, money, money.

00:03:59.120 | That's what we gotta have, we gotta have money.

00:04:01.200 | Okay, so let's start there.

00:04:03.940 | Does anybody in this room think that any young person

00:04:08.080 | in America does not know I need to spend less than I make?

00:04:12.600 | Right?

00:04:13.440 | I mean, we know that, right?

00:04:14.500 | No one would be like, "Oh, that never occurred to me," right?

00:04:17.120 | Like, we all know that.

00:04:18.440 | But here's the big question I have.

00:04:21.200 | Does any young person really know how much to save?

00:04:26.320 | But you know there is an answer, right?

00:04:30.480 | If you're median income and you're 22 years old

00:04:36.680 | and you expect to reasonably retire in your 60s,

00:04:40.160 | we know you need to save 10%, right?

00:04:43.360 | Right, save 10%.

00:04:46.040 | That's gonna get you to retirement.

00:04:48.300 | You're gonna be able to replace your income.

00:04:50.840 | You're gonna be able to probably maintain your lifestyle.

00:04:53.640 | And that's assuming a five or 6% rate of return, right?

00:04:56.320 | Like, we're not talking about anything crazy.

00:04:58.760 | Save 10%, save 10%.

00:05:00.640 | It's a real simple idea.

00:05:02.520 | But why are we not discussing it?

00:05:05.400 | Does anybody here know what your percentage savings rate is

00:05:08.680 | that you need for you to be able to stop working one day

00:05:11.160 | on your own terms?

00:05:12.200 | People don't know our number.

00:05:16.320 | So I'm gonna tell you my number right now.

00:05:18.880 | I have a 35% savings rate.

00:05:20.920 | Sometimes it's 40, sometimes it's 30.

00:05:23.840 | I am aiming to be able to be work optional

00:05:27.440 | 'cause I do not resonate with the word retire.

00:05:29.560 | I love what I do.

00:05:30.520 | I like to use the words work optional.

00:05:34.240 | I wanna be work optional in my 40s.

00:05:36.100 | Have I told you anything about my wealth?

00:05:39.860 | Nothing, right?

00:05:42.980 | You know nothing.

00:05:44.080 | You don't know how much money I have.

00:05:45.520 | You don't know how much money I will have, right?

00:05:47.920 | We can openly discuss our savings rate, folks.

00:05:52.200 | Do you realize that?

00:05:53.720 | We are allowed to absolutely talk about

00:05:55.600 | how much car we buy, how much house we buy.

00:05:57.800 | We can absolutely show any measure of our spending.

00:06:01.440 | But the moment that we wanna talk about wealth,

00:06:04.060 | that is suddenly taboo.

00:06:06.120 | So we live in a society that only talks about spending

00:06:09.300 | because it's taboo to talk about saving.

00:06:12.480 | But this metric that we're gonna do today,

00:06:15.120 | you are gonna walk out of this room with a number.

00:06:18.200 | It's your number.

00:06:19.200 | You're gonna walk out of this room with this number.

00:06:21.120 | I want you to talk about it.

00:06:23.000 | I want you to share it, not just with Bogleheads.

00:06:25.400 | Yes, we share a lot of things at Bogleheads, right?

00:06:28.160 | I'm talking about the greater world.

00:06:30.840 | We are all better off if we all save enough to retire.

00:06:35.840 | All of us.

00:06:37.100 | This is not a pie thing, okay?

00:06:38.800 | We're talking about growing the pie here together.

00:06:41.140 | So I want you all to not only take your number away

00:06:45.460 | that we're gonna calculate today,

00:06:47.720 | or get a start with today, I'll explain in a second,

00:06:50.620 | but I want you to take it to your people that you love,

00:06:54.180 | to your kids, to your spouse, to your grandkids.

00:06:58.180 | Take this notion of we talk about

00:07:00.540 | our savings rate as a society.

00:07:03.740 | Okay, so this is a math problem, right?

00:07:06.760 | It's a math problem?

00:07:08.380 | Just math.

00:07:09.220 | If we just knew our savings rate,

00:07:10.620 | we're gonna solve the retirement crisis, right?

00:07:14.180 | Yeah, no.

00:07:15.660 | Okay, we're not.

00:07:17.540 | So this is my budgeting system

00:07:21.020 | when I got out of college and got my first job.

00:07:24.260 | And I was sitting across from the HR director,

00:07:27.020 | and she said to me,

00:07:28.880 | "Okay, so your salary is going to be $23,000 a year."

00:07:33.880 | And I remember looking at her going,

00:07:36.720 | "I will never be able to spend all that money."

00:07:41.580 | (audience laughing)

00:07:44.020 | But we know what happened, right?

00:07:46.580 | Okay, so this is the rite of passage

00:07:48.460 | for all young people in America.

00:07:50.520 | Anything different is un-American.

00:07:52.700 | So we get the money in, and we pay our bills.

00:07:57.300 | And we assume, because we lived on less

00:07:59.340 | before a broke college student,

00:08:01.180 | that we're just gonna spend so little

00:08:03.320 | that there's gonna be money just piling up

00:08:05.620 | in our checking accounts,

00:08:06.620 | and we're gonna have to get a shovel out

00:08:07.940 | to put it into a savings account, right?

00:08:09.980 | But what we actually do is we break even.

00:08:13.620 | Now, I'm gonna explain why we break even,

00:08:15.060 | but we operationally break even.

00:08:18.660 | And then somebody pounds through my Honda Civics

00:08:23.340 | back window to steal my radio.

00:08:26.460 | This was in 2001, when we had radios.

00:08:29.220 | And I had to pay for that, because my deductible was $500.

00:08:34.860 | And so I went into debt, right?

00:08:39.860 | And then I get a flat tire, so I get into more debt, right?

00:08:43.620 | Debt, because I was operationally break even,

00:08:47.540 | and couldn't afford those things that come up.

00:08:51.780 | So I know how we can solve this problem.

00:08:55.420 | All we need to do is just make more money.

00:09:00.620 | The reason I couldn't save

00:09:01.900 | was 'cause I didn't make enough money.

00:09:04.740 | So I remember when I started

00:09:05.660 | my financial planning practice,

00:09:07.220 | I was gonna help like normal people,

00:09:08.980 | like nurses and firefighters.

00:09:11.300 | They could just pay a fee,

00:09:12.360 | and I'd help them get on a budget, it was very exciting.

00:09:15.820 | But one of my first phone calls was from a physician.

00:09:19.780 | And she made $250,000 a year, but couldn't make ends meet.

00:09:24.200 | So she took on extra shifts as a single mom in the ED.

00:09:29.200 | And so her income was $325,000 a year.

00:09:32.380 | And I thought, oh, no worries, yeah, come on in.

00:09:36.100 | We're gonna fix this.

00:09:37.260 | And I'm already thinking,

00:09:39.060 | there is so much money here to go around.

00:09:41.320 | We're gonna work this out easily,

00:09:42.980 | because I don't make that much money,

00:09:44.460 | and I live on so much less, this is gonna be really easy.

00:09:47.660 | So she comes in, and we start going line by line.

00:09:51.300 | And I start sweating, 'cause I'm like in her life now.

00:09:56.220 | And I'm going, what are we gonna do?

00:09:58.420 | We can't possibly make it

00:10:01.300 | on anything less than $400,000 a year, right?

00:10:05.060 | Okay, so is this a math problem, folks?

00:10:09.660 | No, this is not a math problem.

00:10:13.780 | Okay, but here's the problem.

00:10:15.740 | It's a big problem.

00:10:17.220 | So, okay, I'm married, and I have kids,

00:10:19.620 | and I'm 44 years old.

00:10:21.180 | I have a lot of stressors in my life, right?

00:10:23.500 | Stressors that are completely out of my control.

00:10:25.940 | But what's wild to me is that

00:10:28.980 | if you look at one of the biggest stressors

00:10:31.220 | that we have in life, finance is one of them.

00:10:35.060 | Finance is always like a stress,

00:10:36.860 | it's like one of the top causes of divorce.

00:10:39.460 | So I had this in my early 20s, stress, stress, stress.

00:10:42.840 | I felt this.

00:10:43.860 | But what's crazy to me is we feel like

00:10:46.140 | everything's chaos, complicated,

00:10:47.820 | it weighs on our relationships.

00:10:49.340 | And so then we go spend more because of YOLO, okay?

00:10:52.740 | I did all that.

00:10:54.020 | But it's all made up, right?

00:10:58.220 | Financial stress is completely artificial

00:11:01.460 | because you can have it or you can choose not to have it.

00:11:04.260 | So that's what's crazy to me.

00:11:07.420 | So is this an intellectual problem?

00:11:10.100 | Is this about being smart enough?

00:11:12.260 | Maybe if we're super smart,

00:11:13.680 | we'll be really good with money.

00:11:16.040 | Is that it?

00:11:17.280 | Are physicians not very smart?

00:11:18.560 | Because did you know that 25% of physicians

00:11:21.340 | who are in their 60s do not even have a million dollars?

00:11:24.980 | So if you do the math on that

00:11:26.020 | and you make about 250 or $300,000 a year,

00:11:29.400 | that's what you live on essentially,

00:11:30.860 | how long is that million dollars gonna last?

00:11:33.020 | Does not take complicated math to figure that out.

00:11:36.300 | So is this an intellect problem?

00:11:37.900 | No.

00:11:39.740 | So lots of people are gonna assign a lot of blame

00:11:42.300 | to our savings problem, but I'm gonna give you mine

00:11:44.800 | and because I'm the person up here,

00:11:46.080 | we're all gonna believe it.

00:11:47.440 | Set point theory of happiness is my,

00:11:51.000 | it sounds so sweet, doesn't it?

00:11:53.240 | What a sweet thing that we have in our brains.

00:11:55.740 | The set point theory of happiness.

00:11:57.360 | Has anybody heard of this?

00:11:59.280 | Oh, okay.

00:12:00.160 | Well, has anybody heard of the hedonic treadmill?

00:12:02.240 | That sounds a lot darker.

00:12:04.320 | I like the more optimistic one.

00:12:06.360 | Set point theory of happiness.

00:12:07.880 | It is a wonderful brain phenomenon

00:12:10.340 | because here's the deal.

00:12:11.700 | We all in this room have a baseline happiness.

00:12:15.900 | I might be a little bit higher,

00:12:18.660 | you might be a little lower, but it's our own baseline.

00:12:22.860 | And here's what's unbelievable.

00:12:24.620 | We can have something super terrible happen to us

00:12:27.180 | in our lives and our happiness can plummet.

00:12:30.220 | But look what's gonna happen after it plummets.

00:12:34.660 | Our brains are gonna fight to get us back

00:12:38.240 | to our set point happiness.

00:12:40.240 | What an incredible adaptive thing.

00:12:43.520 | Jonathan Haidt, who wrote "Anxious Generation,"

00:12:45.720 | he writes about this in "The Happiness Hypothesis"

00:12:47.720 | and he talks about that study of quadriplegics

00:12:50.500 | who in a terrible accident,

00:12:52.080 | they lose the use of arms and legs

00:12:53.820 | and within a year are kind of statistically back

00:12:56.480 | to their same level of happiness.

00:12:58.280 | What an incredible adaptation.

00:13:00.460 | But on the flip side, I'm in the Kahara market.

00:13:04.780 | I drive a minivan and I feel like

00:13:09.780 | I would look really good in a Porsche Cayenne.

00:13:12.480 | Do we all agree with that?

00:13:14.100 | Black?

00:13:15.500 | I mean, we all can agree.

00:13:17.060 | I'll roll down the windows and my hair will be flying

00:13:19.660 | and people will be like,

00:13:20.700 | "Look at that very successful woman."

00:13:23.220 | Because right now I have a minivan

00:13:25.040 | that has Chick-fil-A stuck in the corners

00:13:26.740 | and my kids are in the back in car seats.

00:13:29.380 | I am a soccer mom.

00:13:32.300 | My whole identity can change and you know what?

00:13:35.300 | I will be happy.

00:13:36.420 | I will be happy for a very long time.

00:13:39.960 | See, this is what my brain is actually telling me.

00:13:43.000 | Do you know that my brain actually said these things to me?

00:13:46.400 | Oh, my son really wants me to get a Porsche Cayenne.

00:13:50.080 | He goes, "Mom, think of all the friends you'll have."

00:13:53.400 | (audience laughing)

00:13:56.120 | I waited a while and then he said,

00:13:58.780 | "They're probably not very good friends."

00:14:01.400 | Okay, so here's what's happening in the brain.

00:14:03.740 | So the brain is gonna fight

00:14:05.220 | because it loves those dopamine hits that take us high.

00:14:08.780 | But then our limbic system

00:14:10.220 | is just gonna bring us right back down.

00:14:11.860 | And so then a Porsche Cayenne,

00:14:14.060 | gosh, to get to that same level of happiness,

00:14:16.620 | I'm gonna have to get like a Rivian or something.

00:14:19.140 | It's not gonna work.

00:14:20.460 | It doesn't work.

00:14:21.920 | This is what's happening to us.

00:14:24.180 | We are fully adapting to whatever money we have

00:14:28.220 | or don't have.

00:14:29.140 | We're adapting to OPM, other people's money.

00:14:31.500 | We've got credit card debt.

00:14:32.820 | We can buy now pay later with afterpay.

00:14:36.100 | This is what's happening.

00:14:38.060 | So if we don't understand what is happening in our brain,

00:14:41.920 | then we will constantly be victims to it.

00:14:46.040 | So we have two jobs today.

00:14:48.560 | First of all, we need to know the math.

00:14:51.500 | We need to know the math of what it will take

00:14:54.260 | for us to be able to one day

00:14:56.500 | stop working on our own terms, okay?

00:15:00.220 | Does anybody in here like the idea

00:15:03.680 | of being forced to work through your 60s or later

00:15:06.940 | and not being able to stop if you get sick

00:15:09.420 | or just wanna stop on your own terms?

00:15:11.160 | Anybody like that idea?

00:15:13.100 | No.

00:15:14.220 | But it's funny, when I ask people if they wanna retire,

00:15:16.100 | people don't really raise their hands.

00:15:17.660 | So that's why I use,

00:15:19.100 | I want you to one day have the option

00:15:21.240 | to be able to stop working on your own terms.

00:15:23.580 | That usually resonates with most people.

00:15:26.640 | So we got into the math of it,

00:15:29.360 | but then we have to also understand

00:15:31.220 | that our brain is a vicious, vicious animal

00:15:33.760 | when it comes to money, I promise you.

00:15:36.200 | It is not built, we are not,

00:15:37.920 | our brains are not built for money.

00:15:39.400 | I could keep on going.

00:15:40.640 | There are so many other brain factors that we have

00:15:43.300 | that make us bad with money.

00:15:44.880 | So if any of you are walking in with fear or shame

00:15:47.320 | when it comes to money, let it all go.

00:15:49.480 | It's our own brains that we're reckoning with here.

00:15:52.920 | So if you know that and you respect that

00:15:54.960 | and you can't say, oh, I'll just think my way through it,

00:15:57.640 | then we can set up a system, a system.

00:16:01.820 | And folks, this is the only curse word

00:16:04.820 | I'm gonna use this whole time.

00:16:06.320 | We'll set up a budget.

00:16:08.520 | Okay.

00:16:12.800 | This is what we have to do.

00:16:15.720 | It's as simple as this.

00:16:18.560 | And you're gonna get a session right after this

00:16:20.420 | that follows exactly this, okay?

00:16:23.280 | You have to pay yourself first.

00:16:25.720 | And I know that sounds so like, aw, that's so cute,

00:16:29.160 | like a five-year-old could do it.

00:16:30.540 | No, let me tell you, I have seen millionaires

00:16:33.000 | who are break even, paycheck to paycheck,

00:16:35.960 | get on this system.

00:16:37.240 | This is the only system that works

00:16:38.760 | because it's the system that tricks that hedonic treadmill.

00:16:41.880 | It tricks that set point theory of happiness.

00:16:44.040 | And all you're doing, folks, get this,

00:16:46.720 | you're just getting the money out of there

00:16:49.040 | before it hits your paycheck.

00:16:51.160 | That's it.

00:16:53.120 | You might think it doesn't work.

00:16:54.760 | Here's a crazy statistic.

00:16:56.240 | Did you know you are 12 times more likely

00:16:58.200 | to save for retirement

00:16:59.200 | just by having a retirement plan at work?

00:17:01.680 | 12 times more likely to save.

00:17:05.000 | The crazy thing is it's because they take your money

00:17:07.220 | out of your paycheck and they make it disappear.

00:17:09.620 | That's it.

00:17:10.720 | So you do that.

00:17:11.840 | You do that with your money.

00:17:13.000 | Get your money out and make it disappear.

00:17:14.800 | And now you know how much to take out, right?

00:17:17.280 | Now you know I need to take this percentage out

00:17:19.720 | and make it simply disappear.

00:17:22.400 | Later, I'm going to be giving a talk

00:17:24.520 | on the places where I think you should make it disappear

00:17:27.200 | based on tax efficiency.

00:17:28.440 | We're gonna get to that later.

00:17:29.860 | But fundamentally, I just want you to think,

00:17:32.680 | once I know my number, I need to get it out of my life.

00:17:36.760 | Get it into other buckets that I don't see,

00:17:39.080 | that I don't play with, and then that will work.

00:17:43.720 | Pay yourself first.

00:17:45.420 | You know, it's crazy to me to think

00:17:47.520 | when people can't retire

00:17:49.200 | that they would look back on all those paychecks

00:17:52.000 | from all those months that they worked in their lives

00:17:55.760 | and realize something very fundamental.

00:17:58.920 | I paid everyone else first in my life.

00:18:01.840 | I paid my taxes first.

00:18:05.520 | I paid my health insurance first.

00:18:08.120 | I paid the mortgage first.

00:18:09.280 | I paid the car payment first.

00:18:10.400 | I paid private school first.

00:18:11.720 | I paid everybody else first.

00:18:14.100 | But I never put aside for myself.

00:18:17.380 | So if any of you are in that situation,

00:18:21.060 | this is what I want for you.

00:18:22.420 | I want you paying yourself first

00:18:25.340 | before you pay anyone else.

00:18:27.600 | So now let's do the numbers.

00:18:31.320 | So there's gonna be two tables here.

00:18:34.680 | These are your slides.

00:18:35.800 | I think they're gonna get these slide decks, right, Rick?

00:18:38.640 | - Yes.

00:18:39.520 | - These are gonna be yours.

00:18:40.360 | You don't have to take a picture of it.

00:18:41.600 | You can.

00:18:42.440 | It might be hard with how small these numbers are.

00:18:45.380 | This can be a start.

00:18:47.200 | This can be the moment where you're like,

00:18:48.800 | I am going to experiment with this number in my life

00:18:53.160 | to see if this could be my savings rate.

00:18:57.620 | So let me explain how this works.

00:18:59.260 | So if you are median income

00:19:02.380 | and you are fine with a work optional age of, say, 65,

00:19:08.980 | then what you can do is you can do a little math.

00:19:15.220 | How much money do you have right now?

00:19:17.620 | Think about that.

00:19:18.660 | Add it all up in your retirement accounts.

00:19:20.860 | Not home equity, just retirement accounts,

00:19:23.400 | brokerage accounts, add 'em all up.

00:19:25.540 | And I mean, if y'all wanted to do this right now,

00:19:28.780 | we'll kind of, we have time.

00:19:29.980 | So we're gonna, these are my last two slides.

00:19:32.420 | So we got a few minutes here.

00:19:33.860 | So add up all that money

00:19:37.100 | and then divide it by your income,

00:19:42.160 | your current income right now.

00:19:45.180 | And that is how you're gonna find

00:19:47.100 | which column you're gonna be in.

00:19:48.540 | So here's an example.

00:19:49.500 | Let's say you have $500,000 in assets right now

00:19:54.500 | and you make 100,000 between you and your spouse.

00:19:59.940 | Should never do public math,

00:20:01.820 | but I believe that puts me in the five times column.

00:20:05.340 | Yes, I see some nodding, good.

00:20:06.860 | We've done math well together.

00:20:09.020 | And let's say that I am 50 years old.

00:20:14.060 | You can see that I would need to have

00:20:16.340 | about a 15% savings rate.

00:20:19.220 | So I'm median income because between myself and my spouse,

00:20:22.380 | we make $100,000 a year.

00:20:24.920 | We've been able to manage to save 500,000

00:20:28.180 | over the course of this time.

00:20:29.420 | Maybe we were saving 5% into our retirement plan

00:20:34.420 | and our company was matching us a little bit,

00:20:36.660 | but we've kind of missed the mark a little.

00:20:38.660 | So instead of saving 10%, we got to catch up a tiny bit.

00:20:41.840 | We've got to get to a 15% savings rate.

00:20:44.600 | That is gonna allow me to have a shot

00:20:47.620 | at retiring by the time I'm 65.

00:20:50.980 | Now, a lot can change.

00:20:53.220 | We can't guarantee that there's gonna be

00:20:55.480 | a nice steady rate of return of five to 6%,

00:21:00.060 | but in general, this could be a start.

00:21:03.660 | Now, you can also use some other calculators

00:21:05.880 | to try to triangulate this a little bit,

00:21:09.260 | but I want you to have a starting target today

00:21:13.820 | that you can start with.

00:21:15.200 | So has anybody gotten your savings rate off this table?

00:21:20.160 | Has anybody been able to calculate it?

00:21:22.140 | Yes, does anybody wanna share what their savings rate is?

00:21:25.120 | Yes, go ahead.

00:21:27.860 | 5%.

00:21:30.600 | You'll see, we're gonna do a book giveaway.

00:21:34.600 | I wrote a book called "But First, Save 10."

00:21:36.520 | I assume that most people don't actually read books anymore,

00:21:39.040 | so I just put the whole thing in the title.

00:21:40.840 | Just save 10%, folks, just save 10%, that's it.

00:21:44.040 | So this book is yours.

00:21:46.060 | You probably could give it away to somebody if you wish,

00:21:50.840 | but yes, thank you so much for sharing that.

00:21:53.680 | Was that scary to share?

00:21:55.080 | No, because I don't know anything about your wealth.

00:21:59.560 | I know nothing.

00:22:00.480 | See, it's safe.

00:22:01.400 | We can share this number.

00:22:02.680 | Okay, so let's say you are higher income.

00:22:08.680 | So it's a little harder to retire in the same way.

00:22:12.360 | It's a little harder to have these lower savings rates

00:22:15.080 | when you make more money.

00:22:16.120 | Social security is not gonna have as big of an impact

00:22:19.220 | in replacing your income,

00:22:20.960 | and so it's a little bit harder, actually,

00:22:23.840 | to retire and replace your income when you make more money.

00:22:27.780 | So that's why you'll see that on the high-income households,

00:22:34.040 | you're gonna have higher savings rates

00:22:38.280 | in these assumptions.

00:22:40.040 | So again, the same math to kind of start

00:22:43.280 | trying to figure out your number,

00:22:45.400 | but you'll see that the savings rates are quite a bit higher.

00:22:48.960 | So a lot of people say, "I save X percentage," right?

00:23:00.960 | So there are people who talk about saving as a percentage,

00:23:03.800 | and there's some people that talk about saving

00:23:05.760 | as a percentage of their net pay,

00:23:07.960 | so their pay after they pay their taxes.

00:23:11.340 | I think it's a little easier to talk about

00:23:14.160 | saving as a percentage of your gross pay,

00:23:16.560 | because that way we're all on the same page

00:23:18.820 | on exactly where we are on our savings rate.

00:23:22.140 | So that's what all of these numbers are based on,

00:23:24.760 | is our percentage of our gross pay.

00:23:26.640 | So I wanted to show you just the simple math

00:23:28.640 | of how to apply this.

00:23:30.200 | So you take your gross pay,

00:23:31.640 | which is you are going to make $23,000 a year

00:23:36.000 | times the 10% I should have been saving,

00:23:40.800 | and then it equals how much money you should make.

00:23:43.800 | So in this case, $150,000 times 15% is 22,500.

00:23:48.400 | Any questions on that?

00:23:51.780 | Okay, so the final step here is you automate it.

00:23:58.520 | I hope that all of you are extremely motivated

00:24:01.600 | to go apply your savings rate.

00:24:03.600 | I hope you are all excited to go tell everybody

00:24:05.800 | to pick a savings rate and to be proud of it

00:24:07.960 | and to make it disappear and go away.

00:24:10.440 | But how many months is your brain motivated?

00:24:13.720 | Does anybody know?

00:24:14.760 | To do something.

00:24:15.640 | The prefrontal cortex,

00:24:16.720 | when it makes a decision to do something,

00:24:18.520 | how many months will it be excited about something?

00:24:21.680 | Two weeks, that's funny.

00:24:25.160 | That's more, we're on the same page.

00:24:27.320 | So some people, it can be as much as three months.

00:24:30.220 | You can be excited.

00:24:31.540 | So a lot of people will tell me I love this

00:24:34.120 | and I'm gonna make those transfers mindfully

00:24:37.480 | into my brokerage account or into an IRA or a Roth IRA.

00:24:42.400 | Please don't do that.

00:24:45.920 | The financial industry has done us a huge favor

00:24:48.640 | in helping us figure out how to automate our decisions.

00:24:52.280 | And trust me on this point,

00:24:54.860 | once you figure out where your money will go,

00:24:57.920 | the amount of money and where it goes,

00:25:01.300 | I want you to take the final step to automate it

00:25:04.180 | and I cannot overstate this.

00:25:05.960 | By you saying on the eighth of every single month,

00:25:09.400 | I want this much money to transfer out

00:25:11.540 | of this checking account and go into this brokerage account

00:25:14.160 | and automatically purchase these three mutual funds.

00:25:18.040 | You can do this and then you can check in on it

00:25:21.500 | every three to six months,

00:25:23.160 | but do not skip this step

00:25:25.740 | because this is where people get into trouble

00:25:27.760 | or they try to time the market.

00:25:29.280 | Oh, this seems like a really terrible time

00:25:30.800 | to be putting money in a brokerage account.

00:25:32.360 | The market's up, the market's down, the market's flat.

00:25:35.280 | It's always a bad time, right?

00:25:37.520 | So this also prevents you from market timing.

00:25:40.240 | So I think I am right at time,

00:25:44.160 | but I am going to be hanging around.

00:25:46.600 | If anybody has any questions for me, let me know,

00:25:49.760 | but thank you all so much.

00:25:51.720 | (audience applauding)

00:25:54.880 | you

00:25:56.940 | [BLANK_AUDIO]

Bogleheads University 101 2024 What You Need to Do Before You Invest, How to Set Your Savings Target

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