Saving a percentage..

[err]

I'll try to make this simple. They say save 10% of everything you earn.

Let's say I make $10,000 in one month. And rent and bills is $2,000 a month.

Do I save 10% from the $10,000 or save 10% from $8,000?

[sweeps]

The $10,000. Otherwise you could spend the entire $10,000 and end up saving 10% of nothing.

By the way, there's nothing magic about 10%. Save 15% or 20% if you can.

[jIM_Ohio]

save % is based on gross pay before deductions or expenses.

[err]

Thanks, got two of the same answers. The reason I ask was because I just read a book by T. Harv Eker: Secrets of the Millionaire mind. And I realized one of my biggest problems is money management. He says this:

10% - Entertainment
10% - Long term saving for Spending Account
10% - Education Account
50% - Necessities Account
10% - Give Account

I don't know why this book only shows 90%? lol. Does anyone have a better forumla that works for themselves?

And the 10% for savings, Do you never spend that at all or do you save that money and invest it?

And what If I wanted to use money lets say for advertising for a business. Is that in the 10% Savings or the 50% Necessities Account?

I hope this all makes sense and I probably will have like a million more questions. Thank you to all who have responded and will be responding.

[kork13]

I think his plan is a bit outta whack.... for example, I would really have to try (against my better judgement) in order to use 10% of my income for entertainment... It's closer to 2% for me. And I don't understand exactly what some of his categories are meant to be used for... "education", "long term saving for spending", and so on...

I kinda disagree with generalized budgets like this.... If you don't know how you can apply it to your life (as appears to be the case), it doesn't do you any good. I personally believe that anyone who wants to live with a budget needs to build it for themselves. You need to look realistically at what your monthly expenses normally are, then with any remaining income, spread it around as desired. If you'd like we can help you with that (with information about your income, expenses, and goals), but in the end it's all about what you want to spend your money on, and what you want to save it towards.

[maat55]

A book called The Wealthy Barber say's that as long as you invest 10% of your income, It does not matter how you spend the other 90%. I agree with half of this.

Invest 10% of your gross income and be wise with the other 90%, you will be blessed beyond belief.

[sweeps]

10% doesn't have a lot of meaning. Some people may need to save less than 10%. A whole lot of people need to be saving more than 10% of their income.

[jIM_Ohio]

10% works if you start saving early and are willing to retire around age 70. Early would be start at 18 or 22. That would also assume a few good financial decisions along the way regarding a house which appreciates, staying out of debt and probably not paying for kids education either.

[disneysteve]

Originally Posted by err

And the 10% for savings, Do you never spend that at all or do you save that money and invest it?

Of course you spend it. That's the point. You aren't saving just for the sake of saving. You are saving for a purpose, a need or needs, some time in the future. Retirement and college are probably the 2 biggies in the savings department.

Just remember we're talking about long-term goals. We're not saying to save 10% of income this month so you can go out and spend it next month.

[MYOM]

Saving 10% of your after tax income is a VERY GOOD Path to Prosperity. From my book, Manager Your Own Money, “If a 35-year old person with a $50,000 annual income budgets $45,000 for expenditures and $5,000 for savings, he or she can be a millionaire at 65!! At 8% interest, $416.67 a month grows to $620,988.02 in 30 years. With a 3% raise in pay each year, that figure swells to $1,168,559.10 paying out $81,798.48 at age 65!”

A 10% Path to Prosperity can make you financially independent. Only two retirees at age sixty-five are financially independent.

I tip my financial hat to you ERR!

Dan Clemons

[sweeps]

Originally Posted by MYOM

he or she can be a millionaire at 65!!

Big deal, $1 million isn't going to be worth much in 2038.

[pearlieq]

When did 10% become some kind of magic number?

You don't save 10%. You save as much as practically possible, allowing a reasonable amount for needs and wants.

If you make $10,000 in a month and your expenses equal $2000, you save at least $7,000, to my way of thinking. You use the other $1,000 for fun money and charitable contributions.

Some of that $7,000 you put away for retirement, some for an emergency fund, some for irregular expenses (car repairs, insurance, etc.), some for long term goals like college or a new car, and some for "fun" goals like a vacation or a Harley.

But you don't just say "Well, I saved my 10%, time to go blow the rest!"

[disneysteve]

Originally Posted by pearlieq

You don't save 10%. You save as much as practically possible, allowing a reasonable amount for needs and wants.

But you don't just say "Well, I saved my 10%, time to go blow the rest!"

Good point. I've posted before that over the years, we have gradually increased out savings percentage. When we first got married, it was 6% of take-home pay. Then it became 6% of gross, then 8%, then 10%. Each year I'd bump it up. We're now up to 19% of my gross. In addition, 50% of my wife's gross goes into her 401k. I usually review our spending twice a year. If we are still running a surplus, I bump up the savings rate another point. We started this year at 18% and I raised it to 19% as of July 1st. At the end of the year, I'll see where things stand. If I can, I'll raise it to 20%.

[jIM_Ohio]

Originally Posted by pearlieq

When did 10% become some kind of magic number?

You don't save 10%. You save as much as practically possible, allowing a reasonable amount for needs and wants.

If you make $10,000 in a month and your expenses equal $2000, you save at least $7,000, to my way of thinking. You use the other $1,000 for fun money and charitable contributions.

Some of that $7,000 you put away for retirement, some for an emergency fund, some for irregular expenses (car repairs, insurance, etc.), some for long term goals like college or a new car, and some for "fun" goals like a vacation or a Harley.

But you don't just say "Well, I saved my 10%, time to go blow the rest!"

10% is easy to calculate looking at any number (just move a decimal point).

[disneysteve]

Originally Posted by jIM_Ohio

10% is easy to calculate looking at any number (just move a decimal point).

The other thing is that if everyone started saving 10% of their gross income, most of the financial problems in this country would vanish. Compare that to the current situation where 60-some percent of Americans live paycheck to paycheck and the national savings rate is at or below zero.

While I don't personally consider 10% to be enough for our needs and goals, I think it would serve many people quite well.

[jIM_Ohio]

Originally Posted by disneysteve

The other thing is that if everyone started saving 10% of their gross income, most of the financial problems in this country would vanish. Compare that to the current situation where 60-some percent of Americans live paycheck to paycheck and the national savings rate is at or below zero.

While I don't personally consider 10% to be enough for our needs and goals, I think it would serve many people quite well.

If the goal is "to retire", 10% will get you there eventually.
If the goal is "to spend less than you earn", 10% will get you there now.

The issue is many people put a time on retirement- for example "retire at 65"- once the additional time constraint is put on, the 10% constraint will need to be modified or the expenses will need to be modified to make all constraints work.

[jeffmem]

I attempt to save 40% of whatever I earn. 50% of my salary goes to bills, 10% goes to build up the baby fund, we have not had a baby yet, but have already started saving. I will sometimes take out 10$-20% of the savings for things I need to buy, but not always. I will always try to at least save 20% no matter what. But usually I can save more than 20%.

[MaskedMarvel]

I try to save everything else. I pay my bills and the rest is in saving. When I need something essential I save up for it and I buy it cash.