"Pay yourself first"

[elessar78]

Is it 10% of gross?

Does retirement savings count toward the ten percent?

[riverwed070707]

I think it's really more about what you can save and what your goals are. You'll hear most people around here say you should be saving closer to 20% and yes that can include retirement.

[bjl584]

Ideally you should save 20% plus, but it can be whatever you are able to save. 5% is better than nothing at all.

[elessar78]

Right, for the record, between cash and retirement savings we were banking about 24% the last few years. This year's budget has it at 18%, but in real $$ it's going to be much higher because we'll be banking as much as we can to rebuild the emergency fund.

I was just curious about the interpretation of the saying "Pay yourself first" as I read it in Richest Man In Babylon over a decade ago.

[disneysteve]

Yes, when you hear savings advice, the percentage refers to gross income. A good goal is 20% of gross. That does include your contributions to your retirement plan. It does not include any employer match.

A popular budget formula is 50-30-20. That is 50% of income for needs, 30% for wants and 20% for savings.

As for the 20%, 15% for retirement and 5% for other needs.

[snshijuptr]

I always thought "pay yourself first" wasn't an amount, but instead a timing practice. The idea is that you set the money aside directly from your paycheck instead of saving "whatever is leftover".