Quote:
Originally Posted by unfrgvn
I agree with the poster who said controlling your spending is an important step.
Straight up hiding that income from yourself is a killer app for a lot of people.
One of the biggest mistakes people make is increasing their spending as their incomes rise instead of increasing their savings to a more reasonable level (say 20%, at least*)
That's why so many people find withholding extra (to get bigger refund, but basically giving int free loan to US gov't) so useful for incresaing their own savings rate. Same idea with buying annuities/term life insurance that are objectively suboptimal for a PURELY RATIONAL actor that doesn't need mental tricks to enforce a saving habit.
Instead of doing the dumb withholding, siphoning money (direct depositing) 20% of income right into Vanguard or even savings account at a different bank (so they don't see the money when they log into their own primary bank) will earn a bit higher return and do just fine, for most people.
*why 20% you ask? If you want to retire on same level of income you're earning now, assuming no income growth and 7~9% capital growth or so, you need 20% savings rate to retire in 20~25 years, which is what people seem to want to do.