Have I saved enough?

Question

I'm 35 and I have $40k in savings. I own a condo and am paying the mortgage on time. I have no credit card debt. Am I ok? Should I have more saved at my age? How can I make it grow?

Answer 1

You are doing great for your age!  Congratulations on having no credit card debt and saving $40,000!

Is this money in a tax-advantaged account?  Are you contributing the maximum each year to a Roth IRA (assuming you are not over the income limit)?

If you stopped saving right now, and you managed an 8% annual return on your $40,000, your funds would grow to more than $440,000 by the time you're 65, assuming you do not have to pay taxes on this amount.  You might need four times that much by the time you retire.

If your employer offers a 401K, contribute what you need to at least earn a match, if offered.  And, contribute the $5,000 maximum this year to a Roth IRA.  

If you have other debt other than your mortgage, pay that off as soon as possible.  Save for your next car instead of getting a loan.

Best wishes for a great financial future!  You're off to a wonderful start.

MORE:

Here is an alternative approach to paying off your mortgage early.  Take that extra $100 each month (suggested by Randy) and invest it in a broad index mutual fund instead.  Over time, you will have earned more from this extra investment than you would have saved by pre-paying your mortgage.  Plus, and more importantly, you will have liquidity.  When you pre-pay your mortgage, you increase your equity but not your liquidity.  You can not get that money back once you pay it to the bank!  The only way you could would be to get a home equity loan, meaning you have to pay interest to get at this equity.  And, the big banks are freezing home equity lines of credit right now during this real estate/credit crisis.

Answer 2

Is the $40k just in a savings account at a bank.  If it is you are backing up.  Talk to a financial planner.  You should invest in mutal funds.  

As the other person said, start a Roth IRA.  If you have 401K at your work max it out to what your employer will match.

Start paying a little extra each month on your condo. Put $100 extra per month towards principle.  At the end of the year that will be $1,200 which is probably most of one month's payment. You will cut your loan in half.

Don't listen to "Oh but you lose the tax write off if you pay it off".  Do the math.  Send me $1,000 a month for a year ($12,000).  At the first of the following year I will send you

back $ $2,400.  Or you could keep the $12,000 and pay the IRS $2,400 out of it and keep the other $9,600.  

Keep the debt as low as possible and you have a ton less stress.

Answer 3

hello - good job!  you are on the right track.  keep going.  i agree with the mutual find idea.  buy a book or two and learn about managing your money.  consider a fee only financial planner as well to give you some direction and pointers.  

good luck!

Answer 4

I would say you have a little more saved by now, depending on how much you make and your mortgage payments.  Having no credit card debt is great.  You need to max out your employer contribution (if you have one) and try to save 10% of your motnhly income--if at all possible.  You are not doing bad however and are off to a great start.