DISQUS

Kyle · 7 months ago

I think 10% is a good starting point and then base on your individual requirements for saving and propensity for risk you can adjust from there.

Jimmy Day · 7 months ago

Flexo, just out of curiosity, are we talking about gross or net income here?

Flexo · 7 months ago

Gross income is the better basis for figuring these savings targets, but I'd take net income as a basis if the other option is nothing.

Jimmy Day · 7 months ago

Gotya. If that's the case, it appears that I'm saving right about 20% of my gross income (I had no idea I was doing that well...thank you Dave Ramsey!).

I'm actually concentrating the majority of that 20% on my car loan which will be paid in full by Oct. 1st, and then it'll be on to maxing out my Roth IRA and dumping the remainder in my 401K.

Matt Jabs · 7 months ago

My wife & I are currently saving 5% of our income. We currently have our heads down in hard core debt repayment mode. Once I pay off my $12,000 or so in high interest credit card and auto loan debt, I plan to bump my savings rate up very high until I have funded my Emergency Fund with around $20,000, then I am going to hit my 2nd mortgage ($40,000) and shoot to have that paid off in 5 years or less.

Once I am in a more comfortable spot (debt down & EF built up) I plan to have at least 10% going into cash savings and 10% going into retirement savings.

Once 2nd mortgage & student loans are gone I want to save between 25% and 50% of my income...I'll let you know when I get there!

Flexo · 7 months ago

Sounds like you have a great plan. Definitely keep us posted!

Olivia · 7 months ago

I don't like the idea of setting a certain percentage each month to save. My husband and I save as much as we possibly can. Some months, that is about nothing. Other months, it can be more than half of what we earned. Our income and expenses change throughout the year, so it makes more sense for us to save this way.

Acajudi · 7 months ago

I love a certain amount, for it grows. I make it less than I can afford, and then add more later. I do spend and I am not cheap, but it is nice to save, even if you "blow" it on a vacation, or whatever shakes your boat. Then save some more...

Alan Schram · 7 months ago

I woke up this morning, looked around the web a bit, and this was the topic I decided to write about. So interesting that I then opened TweetDeck and saw you had posted about it too!

I love the discussion though, because it is so wonderfully personal. There is no way that anyone could simply declare a number or a percentage and say that everyone must save x%. While there are some rules of thumb (10% I guess) - it depends.

I like to think of it in terms of "healthy" and "unhealthy". What's a healthy savings percentage, and what is unhealthy? How can we move from unhealthy to healthy? At what point are we saving too much?

James Fowlkes · 7 months ago

10% seems a good starting point. Your budget will tell you what you can and cannot do. Which is why having a monthly budget is essential to getting ahead financially. You can tell how much money you have left over at the end of each month and adjust from there.

Lazy Man · 7 months ago

As noted percentages don't work for everyone. If I think of a baseball player just signing a $70 million dollar contract, 10% might be a bit on the high side for he needs. Then again, we've heard of a lot of people spending a windfall quickly, so perhaps having the 10% is a good number.

In any case, I think you have to re-evaluate your progress often (or maybe once a year) and readjust to stay on track. I probably have some adjustments to make after the market's performance this past year.

UH2L · 7 months ago

I never know whether the discussion on how much to save includes 401K or IRA retirement savings or just liquid investments like cash.

SJ · 7 months ago

And what % should be spent in order to meet living and happiness needs =)

RallyCap · 7 months ago

As long as you don't feel deprived, I say the more savings the better.

In regards to UH2L's question, I think the minimum 10% savings should be in addition to retirement vehicles.

My savings break out as such (all percentages are of gross):
401K: 10% + 3.5% company match
HSA: 3.5%
Voluntary Pension: 3.0%
General Savings: 13.5% (some of this then goes to IRA's)
Total: 33.5%

One of the "tricks" I used to get to these levels was to roll my debt snowball(s) right into savings snowballs.

Flexo · 7 months ago

One of the "tricks" I used to get to these levels was to roll my debt snowball(s) right into savings snowballs.

That is a fantastic idea!

UH2L · 7 months ago

RallyCap,

Thanks for the input, but then I think there needs to be a "good enough" percentage for retirement savings. I have averaged 17% contributions in my 401K (= 3% match) this year, I'm still saving it, but it makes my savings rate seem lower.

Perhaps the suggested savings rates should be broken out into retirement and non-retirement and this might depend on one's age, (or maybe not).

Atul

RallyCap · 7 months ago

UH2L

I view retirement savings as exactly that; for retirement. A "good enough" percentage there is enough to allow you to retire on (based on your assumption of return, inflation, and lifestyle). For me, maxing out my 401K and my pension should meet my needs. I'm a strong proponent of modeling your retirement incomes versus just assuming x% is good enough.

For me, 5-10% of "other" savings is a good minimum to cover the unexpected. Things like loss of job, home/car repairs, and the like. A thousand dollar emergency fund is a great start, but is definitely something to continue building upon if your finances allow.

I could also see a third category of savings for specific goals: cars, home improvements, vacations, etc. I've been able to plan for most of these in my general monthly budget (i.e., put a $XXX planned expense in June for vacation).

Jacob · 7 months ago

First and foremost, savings should be compared to expenses (as that is what the savings will eventually replace) rather than income. For low levels of expenses it makes more sense to use absolute numbers (people do need to eat) whereas for higher levels, relative numbers make more sense (you do not really need the super yacht).

Beyond that the percentage is directly related to how many years you wish to work until you retire. 15% pretty much corresponds to 30 years on the job. This is the most normal and why 15% is commonly recommended. Higher numbers, and you can retire earlier. Low numbers and it takes more than 30 years.

Frankilus · 7 months ago

I love this article and it has inspired to me write my own; Being a Steward of your Assets | http://wealth360.blogspot.com/2009/05/being-ste...

Well, ultimately, I think the minimum should be:
1. If your company offers a 401k or 403b, save as much as you need to in order to get the company's match. Like for me, it is at least 5% and the company matches with 10% of base salary.

2. Set up an automatic savings account that allows you to put aside at least 6 months of living expenses. I call it the automatic emergency fund. Once that has crossed the 3 - 6 month living expenses limit, set up a Roth IRA and add the rest there.

I think there are many creative ways to be a steward, but it is important to live the life you want to live, in a comfortable manner.
GREAT POST. THANKS>

Finance Junkie · 5 months ago

I recommend using the prodigious accumulator of wealth (PAW) formula to determine if you are saving appropriately for retirement. The formula comes from "The Millionaire Next Door" and states that you are a PAW if your net worth exceeds the value obtained from the formula:

"Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less than any inherited wealth, is what your net worth should be."

Since we are a two income household, I modify the formula to use the average age of my wife and I.