To increase savings rate or not?

[disneysteve]

I usually sit down and take a look at our savings situation twice a year. If I think there is room to put away a little more, I'll bump up our savings rate by a percentage point in January or July, so now that it is June, I'm starting to think about it again. I currently designate 18% of my gross income for savings. We're doing fine and I think I will push it to 19% as of July 1st. If cash flow gets tight, I can always trim it back, though I have never had to do that since we started saving 6% of our take-home pay 16 years ago and gradually increased from there. I think you just learn to live on whatever you leave yourself. I could probably go up to 20% and still be fine, but I'd rather do it slowly.

[LuxLiving]

Sounds like a good plan!

[Ima saver]

I think that is a very good idea!! You can do it!!

[maat55]

I think you should keep the 1% and buy icecream everyday for the kids on the block. You would be a big hero.

[Jazzmint98]

I would definitely increase your savings rate!

[safari]

Personally, I never set a fixed percentage that I am going to save each year. My spendings fluctuate from month to month, so one month I can put $3K into my savings account, while the next month I only have $1K left after paying all the bills. Basically, whatever money I don't spend, I save. This is outside of the 401(k) plan, where I contribute 10% (the maximum I am allowed), and my employer adds 4% on top of that. When I add everything together, my total yearly savings equal to about 37% of my gross pay.

[disneysteve]

safari - Savings comes first for me, as it does for you with your 401k. That 18% comes out and we live on the remainder. That does not mean that I limit myself to saving 18%. It always ends up being more than that by the end of the year. Already this year our entire tax refund and our entire tax stimulus rebate went into savings. Those amounts are on top of the 18% figure. And my wife puts 50% of her income into her 401k. So our overall household savings rate ends up being more like 22% of gross by the time we're done. The 18% figure is a minimum, not a goal.

[Snave]

Disneysteve, Is the amount you save designated for retirement or is it a combo of retirement/misc savings? We max out my 401k and then put additional savings in a 529 for our son and then we also have other stocks and mutual funds outside retirement that we save in. The other stocks/mutual funds aren't necessarily designated for retirement, but typically we don't use them that often (except recently for the patio). I think that was one of few times in the last few years that we even dipped into that money. I guess it is earmarked for additional retirement funds, but can be used if there is something we feel we really want. We end up saving about 28-29% of our income and then are matched 4% for my 401k and another 4.25% for my pension. The pension goes up a percent every few years. Our total ends up being about 36-37%. This year we are just trying to save back what we took out for the patio and backyard.

[disneysteve]

Snave, that's a combo. That 18% includes maxing my Roth, my wife's Roth, contributing to DD's 529, contributing to some taxable investments and making some extra payments on our home equity loan. I don't have an employer-sponsored retirement plan available to me.

My wife has 50% of income going to her 401k. That's the max allowed by her employer.

[Reldon]

This is a great idea. Paying yourself first is always what you should do. If you can add an additional percentage to your savings, you should do it.

[SnoopyCool]

I don't know if the subject was a rhetorical question, but what else were you considering doing with it?

I would definitely bump up savings.

[Caoineag]

Sounds good. I am glad to see that I am not the only one who thinks gradually taking money away from myself works best.

[disneysteve]

Originally Posted by SnoopyCool

I don't know if the subject was a rhetorical question, but what else were you considering doing with it?

I would definitely bump up savings.

I guess it was kind of rhetorical. My theory is 'save until it hurts' and it doesn't hurt yet. We did have a few months a while ago where cash flow was pretty tight but that seems to have corrected itself. Plus, I forgot to mention, that the last payment on DD's braces was last month so we now have $150/month extra available each month. I want to send that to savings and not get in the habit of spending it.

[LivingAlmostLarge]

Depends. It's not absolutely imperative since you live so cheaply to raise the savings rate.

I'm going to be the dissenter and say if it makes you happier to increase it do so. But it's not necessary.

I have to start saying that with my life.

[yellow heel]

I'd say go for it. How would the "big picture" change by changing the saving rate? By this I mean will you achieve your mid-term/long term goal earlier?

Do you have a milestone? For example, might be achieving liquid net worth of 1 million dollars (its even just cool saying it) with in 10 years etc...

[Tree0164]

'save until it hurts' and it doesn't hurt yet"

Smart man! I think your plan is good!! Where do you think you will put the extra savings.

Curious as for your daughter's 529 do you think you will have it fully funded or will she need to take out loans.

[disneysteve]

Originally Posted by yellow heel

How would the "big picture" change by changing the saving rate? By this I mean will you achieve your mid-term/long term goal earlier?

Originally Posted by Tree0164

Where do you think you will put the extra savings.

The money will get added to existing accounts, specifically taxable mutual fund investments most likely.

Curious as for your daughter's 529 do you think you will have it fully funded or will she need to take out loans.

Who knows what "fully funded" means? No, I don't expect the 529 to cover 100% of expenses. I want to avoid overfunding it and being left with money in the account that we have to pay penalty and taxes on to withdraw. If the 529 covers 1/3 to 1/2, that would be fine.

[LivingAlmostLarge]

What is the use of the money for? To retire earlier? Shave off 3 years off the mortgage?

[disneysteve]

Originally Posted by LivingAlmostLarge

What is the use of the money for? To retire earlier? Shave off 3 years off the mortgage?

Retire earlier is always the master goal.

We do have a home equity loan that I prepay, so getting rid of that is a short-term goal. I hope to have it paid off by the end of 2009. Increasing the savings rate would speed that up a bit.

[LivingAlmostLarge]

I wonder if all our saving is for nil? I know people say to retire early, but when given the opportunity would we really take it?

I'm not saying save but I wonder if we really need to save so much? DH's getting on me about not saving so much. Granted we're relatively young, and have no kids (MY POINT) now is the time to sacrifice. Later we'll have sacrifices, but we'll be able to roll with it.

So in 25 years will it matter if we have 1 million or 3 million?