The writer (Fleur Bradley, Yahoo Finance) says that you should start as early as possible, which makes perfect sense – the longer you save, the more you’ll have. She says if the company you are working for does not have a 401(k) plan, then she suggests starting up a Roth IRA. This also is good advice, but she specifically says to start saving $200 a month, and then gradually increasing that amount as the years go by. I couldn’t help but laugh at that. Two hundred dollars a month, AT AGE TWENTY-FIVE??!!??
I didn’t know anybody when I was that age that could save that much every single month. If we saved that much in an entire year it was a major accomplishment. Most of us couldn’t afford to save anything! Hell, even in our 40’s we still have trouble saving anything, let alone two hundred. Nobody in my tax bracket can afford to save $200 a month; we’d have to make two or three times as much in income to do so.
The problem here is the starting point. Ms. Bradley starts her unnamed saver off in the workplace at age 25, which assumes they have gone to college and graduated. Good for them. However, she mentions nothing about college loans that need repaying, and dollar amounts for those can vary wildly, from $30K up to over $100K. Then there are all the day-to-day bills we have to pay – rent/mortgage, car payment, utilities, insurance, food, gas, daycare, entertainment, clothing, etc. More importantly, people in their mid-twenties don’t normally make $60K a year or more. I only know of two or three people that make that amount, and they’re my age or older.
For most entry-level jobs the pay is pathetic. Just because you have a Bachelor’s degree is no guarantee of a well-paying over-$50K-per-year job. In fact, a large percentage of average office clerks that have degrees do not get much over $40K, if they’re even close to that amount. Look at the want ads – the starting pay at an entry-level office job in this part of the country averages between $10/hour to $14/hour. That equals out to – MAXIMUM – a little over $29K a year. Let’s give our 25-year old the benefit of the doubt and figure they got the highest amount. How do they handle their regular bills? After all of those are taken care of, what’s going to be left? Diddly-squat. Don’t believe me? Let’s crunch the numbers (NOTE: some of these figures are conservative estimates):
GROSS PAY: $14/hr X 40 hours a week = $560
Taxes, health insurance (25% of salary) = $140
TAKE HOME PAY: $420/wk X 4 wks = $1680/mo
STARTING BALANCE: $1680
RENT (1BR in a half-way decent area) (600)
CAR/TRANSPORTATION (includes gas) (300)
INSURANCE (car/rental/life insurance) (100)
UTILITIES ( 75)
FOOD ($50/wk X 4 wks) (200)
CLOTHING (100)
ENTERTAINMENT ($50/wk X 4 wks) (200)
REMAINING BALANCE $105
As we can see, this doesn’t leave enough left to save the amount Ms. Bradley has suggested. And, as I stated above, some of these are conservative estimates; the rent, car payment or utilities could easily be higher. They could also be lower, and some items could be reduced if our worker was a good bargain-hunter, but I didn’t include daycare costs or student loans, both of which by themselves would eat up the measly one hundred bucks that’s left, and then some. This means that our 25-year old would already be living beyond his means and is going further into debt. Add a couple of credit cards into the mix and it’s easy to see how so many people at the bottom end of the income spectrum have so much difficulty saving anything at all, let alone $200 a month. And $14 an hour is actually pretty good as a starting salary. Get anything less than that and it'd be even more difficult to save anything.
Ms. Bradley’s article goes on to assume that the 25-year old continues to advance and do well in their chosen career, without any hiccups along the way to mess things up. How nice. I wish I had a life like that. Nowhere does it say anything in this article about what to do if you get laid off, have to move unexpectedly, get into an accident, survive a hurricane/tornado/flood/earthquake, cope with the death of a loved one (and all the associated funerary costs)…the list goes on and on. LIFE intervenes all the time, throwing monkey wrenches into even our best-laid plans.
Sure, it’d be nice if we could afford to save enough money to be a millionaire at retirement. The truth, however, is that most of us can’t do it. Some can’t even start on this kind of program; we’re just trying to get by and hope nothing majorly bad happens. Winning the lottery aside, that’s the best we can do.