A Money Plan for People Who Are Finally in a Position to Start Saving


Don’t have piles of money to invest? Lacking the time to constantly scan the stock exchange? Just want to be able to afford to live? This is the finance guide for you, fellow regular human.

The Man

Dan, New York City
Age: 36
Occupation: Marketing manager
Goal: Get the most out of his savings and buy a house

The Money Situation: “After years of rock-bottom-paying jobs, I’m finally in a good place financially, making around $75,000 a year,” Dan tells us. “I’ve got about $80,000 between an IRA and my 401(k), and another $20k in various investments that net me a 10–16 percent return annually. My rent is only $1,000 a month — unheard-of in Manhattan — and I don’t have any expensive hobbies. That said, just seeing friends and dating in this city will run an annual bar tab into the thousands. I also spend a couple grand every year working on my artistic career.”

The Debt: “I’m happy to say that I don’t have any debt right now.”

The Goal: “I want to recoup all the lost opportunity from my 20s, when I never got paid enough to save or invest anything,” says Dan. “I currently contribute enough to my 401(k) to get the employer match, but the rates of return between retirement programs and my investments are so drastic, I think I’m better off taking further advantage of their profitability compared to bank savings.

“My dream is to own my own home on the North Atlantic coast. I think with responsible living I could do some drastic saving and pay cash for it in 5 to 10 years, saving myself half a million dollars in mortgage payments. But I might also like to start my own business or do my art full-time while living cheaply off the balance.


“No matter which dream I pursue, I’m five years away from it, and I’m struggling to figure out how to maximize the money I already have. Is there something like an angel investor’s pool for people like me without much in liquid savings, but who can afford to take a risk? I feel like real estate prices and the cost of living have changed so dramatically from my parents’ day that there’s no way out of middle-class toil to achieve the American dream and live comfortably doing what you love.”

The Limitations: “I don’t have anything tying me down right now, so I’m open to pretty much whatever you suggest.”

The Plan

Be Aware of What Lies Ahead: “First off, congrats on taking the steps to get on track for financial independence,” says David Rae, a certified financial planner who’s been helping people across the country reach financial independence for more than a decade. “You’re in a great position to make your dreams a reality — just having that crazy-low rent alone will help the process along. You’re ahead of many of your peers and pretty close to where you need to be if you want to retire at a typical age (in your mid-to-late 60s). But since you want to escape the big city and live a financially free life within the next decade, you have some hard work ahead of you.”

Put More in the 401(k): “Leaving the money in the bank will make it hard to earn enough on your savings to reach your big goal in the timeframe you’re dreaming of, so you’ll need to do some investing. Typically, you should be saving at least 10 percent into your retirement accounts, so up that contribution.”

Understand How Much You Need to Save: “For the house upstate, you mentioned saving $500,000 in mortgage payments, so I’m going to guess you’re looking at houses in the roughly the $250,000 range. Assuming you could earn 8 percent after taxes and fees, you would need to save around $3,000 per month to have $250,000 to buy a house in cash in five years. That drops to about $1,200 per month if you wait 10 years.

“You should also keep in mind that even without a mortgage you’ll still have taxes, upkeep and utilities, so you’ll want to have a bit more saved than just the cost of the home. You may be better off taking a small mortgage and keeping a nice savings cushion to use to help launch you new adventures.

“Saving $3,000 per month would probably be tough on your current income, but it’s not impossible — I saved 50 percent of my income the year before I bought my house. If you continue to get some raises, you may be able to make that high savings rate work without it feeling like too much of a sacrifice. I love to travel and enjoy life, so if this was me, I’d probably find the savings rate that would manageably help me reach my goals quickly, but without feeling like I can’t ever treat myself.”

Don’t Get Suckered With Bad Investments: “I’d caution you to avoid the ‘get rich quick’ ideas like can’t-miss investments or angel investing. The payoff can potentially be huge, but the risks are even bigger, since these types of things would fall into the category of speculating. You should never use money you can’t easily afford to lose on these types of things.


“So to maximize your money and get your dream home, stick with a well-diversified portfolio of funds that are appropriate for your specific time frames, goals and risk tolerance. Take too much risk and you may lose all your hard-earned savings; take too little risk and you may never accumulate enough assets to escape toiling in the middle class.”

The Reaction

What Do You Think About Getting a Small Mortgage Instead of Paying Cash? “I’m mindful that property tax, insurance and repairs are almost as much as my current rent annually, which is why I can afford to wait it out here for now,” says Dan. “The $1,000 a month rent gives me enough savings to beat the interest rate of even a small mortgage, so I’d be losing money if I left this place for anything other than cash.”

Are You Going to Rethink Your Current Investments? Are You Confident They’re Less Risky Than David Claims? “I think David is probably right about some of the risk, and I appreciate his investment thoughts. Overall, I should scale back the risks of some of my investments. It’s just difficult to believe in traditional funds when three times in my life, the stock and banking industries have recklessly (and avoidably) crashed people’s investments and retirement funds.”

Had You Broken Down How Much You Needed to Save Each Month for Your Plan Before? And What Did You Think Seeing It Laid Out Like This? “I’ve broken down my monthly budget, and yeah, I’m saving (or investing) close to what David says while spending about half of that amount on NYC fun. Of course, I’d be socking it away far more easily if I lived here without enjoying all the restaurants, bars and activities. But that’s lunacy!”