I've always heard that I should save 15% of my income. I should be graduating soon, etc.. and i want a good idea of what that phrase means. does that mean 15% of my gross, or of my net. Also does that 15% include what I would put into a 401 or is that on top of what i should put in my 401. thnx,b. seriously.

2/27/2007 3:19:39 PM

You are serious cat.
Is this serious thread?

2/27/2007 3:22:21 PM

It depends on how much you are going to be making.

The easiest way to save is to do it paycheck by paycheck. Calculate your needs for the month (rent, food, gas etc.). The rest goes into savings. 15% is just a recommendation. You may or may not be able to save that much.

2/27/2007 3:29:11 PM

actually, for once, i am being dead serious.

i'd like to think that I could save 15%. I know its just a rule of thumb, but based on what you're saying I guess that means including your 401, right? also i'm still confused about if thats a before tax or after tax figure that I should be saving. Also, is that rule providing a good safe middle ground for what to save, or is it on the lower end of hte spectrum. any information provided will be looked upon fondly.

2/27/2007 3:41:55 PM

Saving is for losers. Live for today, not the future

2/27/2007 3:47:57 PM

Get enough in savings to be able to go unjobbed for up to six months. Are you asking about how much you should have minimum in savings or how much of your income should go into savings?

2/27/2007 3:48:45 PM

To go along with ^^^^, you should have your budget calculated before you get your paycheck. Ideally, using direct deposit, you should have a certain portion of your check deposited directly into your savings account.

As far as 401's, IRA's, investments, etc. go...that's really up to you. Some save independently of investing and others use savings to invest. If I were in your shoes (realizing that only you know your financial condition and goals), I'd probably focus the majority of my savings on building cash resreves as a rainy day fund (^), and then I'd focus on investment and retirement savings and additional long term financial goals (e.g. a house).

How much to save...again, that's up to you. You need to evaluate your goals in life (when do you want to retire, where do you want to live, hobbies, etc.) and plan accordingly. Personally, I think you should save/invest as much as possible, while still allowing for enjoyment of life in the present. Others live incredibly frugally now, and of course others live paycheck-to-paycheck even though they may be earning 50k+ a year.

Ultimately, you need to decide what you want to do and who you want to be. Then make it happen.

[Edited on February 27, 2007 at 3:55 PM. Reason : ]

2/27/2007 3:53:11 PM

I bought a house and try to keep enough liquid money to float me for 2-3 months. The rest I invest, try to max out the 401k and Roth IRA. Making 15% on the retirement money is more important to me then paying off my 5% mortgage early.

2/27/2007 4:09:08 PM

I would save 15% gross minimum. This obviously varies depending on if you are making 20K a year vs 200K a year. Usually when people say 15% they are including your 401K. I'm saving much more than this now and I'll cut back later on in life if I have to do so.

Personally I would calculate when you want to retire, how much you want to retire with, and figure out how much you need to save each month. It isn't this simple if you are going to have a huge salary jump in the near future (lawyer, doctor, etc) but it should work for most people.

2/27/2007 4:09:15 PM

When you get a job after graduating start taking 15% out of it from your very first paycheck. 401k isn't a bad option or something like that (tax deductable, you'll only be reducing your spendable income by 10-13% instead of 15%). Have it automatically taken out and some place you won't notice it. If you do it from the very beginning you'll never notice the money you've saved is missing.

However if you start by taking nothing out, and get used to the lifestyle you can have with 100% of your money it will be very difficult to cut back to a 85% lifestyle sometime later.

[Edited on February 27, 2007 at 4:12 PM. Reason : tax]

2/27/2007 4:10:26 PM

I expect to make right at the 50k range. maybe a little more, maybe a little less. i have some intern experience so i'm hoping a little more.

Thanks for the advice though. When i was thinking 15% after what goes in the 401k that seemed a bit extreme.

But 15% gross minimum, huh. what percentage whould you say you save total, if you dont mind me asking.

2/27/2007 4:45:44 PM

I invest about 30% gross and I save a little more on top of that.

2/27/2007 4:56:06 PM

^ whoa there $tex. do you need a boyfriend or man servant or something. me love your $$$$ long time.

2/27/2007 5:02:02 PM

1) Contribute at least to the company match on your 401k.
2) Max out your Roth IRA every year.
3) Contribute what you have left to boosting your 401k.

15% should be taken off what you gross. Its not very painful when you have it automatically going to your 401k. As you get pay increases, increase your 401k. If you find that you have extra money, bump up the 401k.

Pull up a compound interest calculator and look at what 15% of your income would do at 8% interest (conservative for mutual funds) and 3% inflation over 30 years.

2/27/2007 6:15:33 PM

^ We have a winner...that's the right order of priority.

2/27/2007 6:20:43 PM

^,^^

though he did leaved out the rainy day fund...which everyone should have. 100% of peoples savings shouldn't be going into 401k/roth unless they have a sizable rainy day fund built up. ntm most people coming out of school will be thinking about buying a house and possibly paying off student loans. those two things change the equation a bit.

2/27/2007 6:54:37 PM

Invest that 15% into lottery tickets instead of saving it. You'll thank me later.

2/27/2007 6:58:42 PM

eat drink and be merry, for tomorrow we die.

2/27/2007 7:27:29 PM

^^^ Put the rainy day fund into a brokerage account or at least a high interest earning savings account. Once you have a sizable amount put back, the money market account with your bank will make you pretty good interest. It will divide into essentially two accounts, one more liquid than the other. The more liquid account will earn less interest naturally.

If you still have money leftover, a 500-index fund is a good place to put your money. Low fees to have the fund, requires no knowledge of the stock market, and has a good annual return. You can spend time investing different funds, but its tough even for analysts to beat the 500-index and extremely tough when they are skimming a few % points off what you make on the fund.

[Edited on February 27, 2007 at 7:29 PM. Reason : Added an arrow...]

2/27/2007 7:29:20 PM

True, 3-6 months' expenses in an easily accessible account (Emigrant Direct online is paying 5.05% right now) should be a predecessor to retirement savings.

2/27/2007 8:16:00 PM

I'd probably aim for 6% in your 401k on Day 1 of the job to get the match. After which, I think I'm saving 12-15% of my net pay - between maxing the IRA and getting the down payment fund growing and saving for grad school.

I think it works out to about 20% of my gross, but I'm also saving 100% of the extra income from my side gig. Realistically, it's worth over-saving now because you won't see the huge pay raises when you need it most - starting a family - and you can find room in the budget by cutting back on the savings to a more sustainable level.

2/27/2007 8:49:30 PM

I have a rainy day fund, but hypothetically I could just raid the roth.

2/27/2007 10:14:59 PM

Get access to Old School for some additional discussions of 401ks, IRAs, Household Budgeting, etc. As everybody else said, "It depends" on your specific circumstances. There are some good rules of thumb to follow most people will agree on, but if you don't agree with it (or its not possible for you do to), it doesn't mean you have to follow it.

Quote :

"I invest about 30% gross and I save a little more on top of that."

That's probably about what % I'm doing as a combination of savings and paying off debt.

2/27/2007 11:00:28 PM