Savings Question

[LivingAlmostLarge]

If your income keeps going up slowly or quickly how do you forecast your savings rate and amount? If you had 1x or 2x your income saved but you increased it by $10k? Or you were savings X amount but now have to bump it up?

Do most people save based on gross? What do you do with bonuses?

[disneysteve]

When we were young and broke, we saved 6% of take home pay. Over time, we increased it and then switched to doing it as a % of gross. As income increased, we steadily increased the percentage. I did a post here and on my blog recently with details of that progression.

[humandraydel]

Obviously there are many ways of doing it. Personally, I just save as much as possible and don't worry too much about it. However, one interesting way of doing it, particularly if your salary has changed a lot, is to look at savings vs cumulative lifetime earnings or average salary. This would help average out huge jumps in salary. So if you are 4 years out of school and made $30k, $32k, $35k, and $55k you could compare to either $152k (cumulative lifetime) or $38k (average). Obviously if you compare to cumulative lifetime you aren't looking for the same 1x multiple.

[MonkeyMama]

Personally, I believe in somewhat divorcing windfalls and income boosts from spending decisions. I think this works better from a big picture standpoint. Plus, income comes and goes, and so this somewhat establishes that nothing terrible happens before you get used to spending that money. Finally, I think it's a great habit to be used to saving 100% of windfalls. (This doesn't mean you can't ever spend it. But to me, it removes that reflex to spend extra money *when* it comes along. Maybe I Am comfortable adding a monthly/ongoing luxury today because I got a nice raise last year).

We save all increases and windfalls. There may be exceptions in there. Not like I have always saved 100% of every single windfall. But is just mostly what we try to do. Bigger spending decisions tend to be, "Well, we are exceeding all of our financial goals, so I think we have a little wiggle room to splurge on something big or lowering our ongoing savings rate."

At this point in our lives, we don't really need or want much but to speed up retirement. & not that I really want to retire any time soon, BUT, I guess is more of a "prepare for the worst" mindset, and preferring to have more options.

[cypher1]

I don't really keep track of a certain percentage, but I have a fixed amount transferred to savings from each paycheck. Thinking back the last year or so, I do 1/3 of my paycheck goes to savings, after taxes, while anything else is used for needs/extra spending.

I realize it will vary with different income amounts, families, lifestyle, etc. As for bonuses, if I were to get any, I'd probably save 1/3 and spend the rest, depending on the amount. Income increases, same percentage taken out from monthly net income.

[MonkeyMama]

If you had 1x or 2x your income saved but you increased it by $10k? ?

Do you mean that you had saved up that much income (1x or 2x "old income") but not sure where you should be with "new income"?

I find this measure particularly useless when you are young and in a period of high salary increases. I may have literally had 5 years in a row where my savings did not grow based on "how much income" I had managed to save. My savings was certainly growing at a fast rate; it's just so was my income. Anyway, I don't think you would find this side of things particularly useful to consider. (I never have - income all over the place).

We have always measured things more in terms of "annual expenses." For example, say we have "4 times our expenses" saved. This works for us though because our expenses our crazy consistent. Same expenses now as maybe 12 years ago. (The total expenses are in general the same; the make up of those expenses are very different over the course of 12 years).

[kork13]

Similar to MM, I think of it more in terms of expenses, since those are (generally) within my own realm of control. So I would say "I've got 3 years of expenses saved."

Otherwise, yes -- I do set my savings (and everything else in my budget) based on gross income. For bonuses, tax refunds, or other windfalls, I typically save 100% of it immediately, in accordance with my savings plan for short/mid/long term goals. If I find later that I want/need to use some of it, I can draw from my short term savings and take care of the need that way.

For normal pay raises, I generally keep my savings rate the same (% of gross), and adjust accordingly. Depending on the size of the raise, I might re-evaluate my savings rate to see if I can/should save more. Bottom line, I stay flexible, and adjust when it makes sense.

[coffee]

Depends on if you have an emergency fund or not. If you are sitting good, I would suggest a few days in Bermuda or St marten, if not, put it in an emergency fund

[snafu]

I prefer to keep thing simple. The top 10% of Net Income, no matter the source goes to savings and I sweep any sum left over in chequing less any yet uncleared debt to savings at month's end. We have a long standing investment program that we view as part of our regular expenses. When sums in savings a/c reach targets, I'll often buy an ETF to add to the investment program which is separate from retirement savings. I was funding a separate a/c for those occasional/once a year expenses and goals [replace mattress, new sofa etc] projects.

It sounds risky to some but I switched to an Index MF and sell units as needed. I found it riskier to leave large sums gaining less than inflation since it turned benefit to a minus. We mostly get non monetary bonuses but hard cash is typically split 10% saving the remainder to the next agreed goal.

[LivingAlmostLarge]

Yeah like MM said it's that income has gone up quite a bit since we are early in the career. And the savings when they say have 25x your income, well that's honestly a lot to have save and we have trouble saving that. I like the idea of 25x your expenditures.

Ideally then I need $2.5M nest egg since $100k is way more than we spend now but we can live super luxuriously.

[feh]

I've never tried to save a certain percentage of gross income; I've always tried to save as much as possible, without depriving ourselves.

Given our expenses stay pretty much the same year to year, any increases in income get saved/invested.

[QuarterMillionMan]

The following is my 457 plan contribution history since 2004, currently contributing 20%. My savings/emergency funds is entirely separate.




Paycheck Contribution History


Before-Tax Contributions


Effective date(sortable)

Contribution per paycheck(sortable)

Contribution option(sortable)





08/30/2004 4% Ongoing Inactive
01/14/2008 10% Ongoing Inactive
02/17/2008 20% Ongoing Inactive
06/22/2008 30% Ongoing Inactive
08/24/2008 43% Ongoing Inactive
11/21/2008 33% Ongoing Inactive
11/22/2009 25% Ongoing Inactive
01/31/2010 20% Ongoing Inactive
10/16/2010 17% Ongoing Inactive
12/31/2010 25% Ongoing Inactive
04/06/2011 4% Ongoing Inactive
08/05/2012 10% Ongoing Inactive

[fruitbowlk]

With every pay increase I would increase my savings.