On another note, some 12 months ago or so I ran some estimates regarding compounding and came up with the following: 5 years’ steady contributions and steady assumed 6-7% gains is the minimum for compounding to start adding more to the pot than the investor, ie our money starts working more for us than we for it. 10 years is the minimum where the beast has had enough food to be able to live on its own.
Of course anyone smart enough to have invested steadily in the unprecedented, statistics-defying 2012-present bull run looks like a genius now, is probably super safe from more or less anything, and can safely ignore these bum numbers.
One of my brothers who’s on the same investing timeframe as me, and weirdly for a data-driven person (engineer/mathematician), is having more serious second thoughts, he told me last week “Why are we even doing this, living like bums?”. Ok, “living like bums” is an exaggeration, but we are living below our means. I responded with the obvious “To become FI and maybe RE. I don’t want to be like some US colleagues who live in mansions but lost their jobs at 55 and now need to kiss assess left, right and centre because they made 100 and spent 150 for the last 30 years.” And I stand by this statement, fxck you money is freedom.
His retort was “Yeah…but what if we make it to 55 and sequence of returns risk fucks us over and we can’t RE and find ourselves having lost health, experiences, fun with little to show for it?”. I responded that the body’s decline is inevitable for everyone, better that it happens with a good money/investment pillow than without!
I don’t really see what is the issue. If you have decided to fill your cash buffer, then do it, 3a or not. This is a higher level of assets allocation than stocks in 3a vs. stocks in taxable. After you have enough cash, you divert new money to stocks. Inside the stocks asset class, you can decide if you direct new funds into 3a or taxable first. At this level, I think it makes sense to always use up 3a limit first.
IMO it would make sense to prioritize 3a over everything else only if it is almost the end of the year already and you haven’t used up your allowance, because you can’t catch up later.
It is a fallacy that the more you spend, the greater the experiences and fun become. You can have fun today and create experiences that last a lifetime AND have a savings rate of 40%. It’s all a matter of attitude. My grandmother says she has had a fulfilled life, and she lived through WWII, had very little money and never went on a single vacation.
In Switzerland we have the outdoors that offer something in each season, we have at least 100k (!) associations for every kind of interest, opportunities for voluntary work… lots of opportunities to form relationships and experiences for very little or no money.
Right, that’s all good but it’s besides the point if all gets tainted because while trekking up some forest with the family you’re dreaming of a new motorcycle or sofa
But there is a difference between following because everyone puts different value to different things
Living in comfortable home, having good health and relationships, enjoying vacations and have control over your life.
Vs
Overspending just because you can. Assuming the status brings happiness when it doesn’t. And always live in fear of losing a job
Striking a good balance is a key. For example paying 2% to fund manager to invest your money in world ETF is not a good idea. But overthinking 5 CHF buying fees of an ETF because 5 CHF per month compounded over 25 years is 3822 CHF is also not a good idea.
There is still Case 3: invest 7200 end of december → balance end of the year: 7200.
What I wanna say is that, yes doing the lump sum early in the year (if available) is better, but then it was already piling up end of the year, which again doesnt make much sense to me.
I feel the best when doing it monthly with the salary. I don’t stock up money end of the year for doing lump sum later than what I could have invested earlier (in 3b).
In @Mirager case, I would fill the cash buffer as it was the goal. Then it is not ‘unused money waiting to be invested’, but intentional cash buffer which makes sense to me.
Now I get that it could be beneficial to then focus at the first salaries on filling 3a, I prefer to have not all 3a money immediately locked away at the beginning of the year. But thats again more personal taste.
Usually 3a money has the highest fees vs. investing with IBKR, so leaving 3a until the end of the year is nearly 1 year less of high fees. I couldn’t be arsed to do this and would rather invest into 3a at the beginning of the year as the amount is capped, and the planning to have the 7k left over at the end of the year is just too much hassle for the minuscule benefit.
Which part? In my eyes it’s just contextual to the original question.
That can be contradictory though. It’s the and and the cricket, basically. You’re saying not living beyond one’s means, which I take to mean “don’t spend 150 when you make 100”, and wholeheartedly agree with.
The other side of it is what we do here, which is make 100 and try to spend as much below 100 as possible in order to a) not have to work until we’re nearly dead and b) be in control of our financial destiny and not rely on the whims of the state and society in 20-40 years from now.
I know a guy who lost his job and literally spent the first RAV benefits on gear he was eyeing for a while. I am in awe of these people! I even told him and he said “yeah money is tight, can’t let it influence my life or I’ll go crazy”. I was relaying this to my brother and we were both in agreement that if it had happened to us it’d have been beans on toast, pasta, lentils and eating our pets for meat before we had a new job
P.S. anyway, I decided I’ll just call my 3A saved cash my cash buffer and from 2025 just contribute 600-1000 to it/month and call it a day, feels better overall.
I am not trying to spend as much below 100. That might be the case for some folks on forum, but I am not in that boat yet.
I just spend what I feel like. But maybe I do not have extravagant life anyways.
I do not invest because I want to FIRE or RE. I invest because it is right thing to do in long term. If can be the means to FIRE or RE but it can also be the means to not feel afraid to lose my job at some point in future.
It’s getting off topic but yeah I find these people amazing. When living in a bubble it’s easy to forget that such people exist. But good for us I suppose; someone has to actually do the work, so not everyone can RE
I don’t want to sound decadent, but the annual amount and related benefit is so modest that I prefer simplicity.
I pay into 3a in January with one single annual recurring transfer. Cash out, done. No risk of screwing up a payment in December. Rest of the year (with 3a out of the way) it forces me to focus on other FIRE efforts.
The alternative (12 monthly payments, 12 times the payment confirmations from 3a, etc.) just adds too much complexity and wasted effort (paper work, tax return, etc.).
Making the transfer in December is also an option but that’s sometimes the time of year where I run tight on cash so don’t want any critical payments at risk of bouncing.
I always work along the mantra of “getting things done now if you can is better than letting them wait because then there’ll be more/other stuff to do”.
I tried both. The problem with the monthly is that the limit can change between years so you can’t just set it and have the monthly amount go out year after year.
Since you had to adjust it once per year anyway, now, I find it easier to make a single payment - either at the start of the year, or at the end of Q1 when I get paid my bonus.
Can you clarify what you mean by these 5 year and 10 year milestones? I presume the 10 year is when the interest earned each month is more than the monthly contribution paid in by the investor, but what is the 5 year milestone?
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