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The importance of saving 15% of gross income early

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    #16
    Originally posted by Jluke View Post
    Did you intentionally say gross income?

    I know we get that question a lot when someone says save 15% or your income... and they ask if that is gross or net income...
    It’s definitely 15% of gross.

    Net is far too variable to use as your basis.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

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      #17
      It looks really impressive. So it took from 2013-2020 to save enough to retire, mr money mustache math of saving like 50% of more of what you made, versus 31 years of 15%. Interesting dynamic.
      LivingAlmostLarge Blog

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        #18
        Originally posted by disneysteve View Post

        It’s definitely 15% of gross.

        Net is far too variable to use as your basis.
        agree. I think it is much easier to pull off that savings rate if you can contribute to a pre tax retirement account.

        however if someone doesn’t have access to a 401k (or similar pre tax account) And depending on their income it may not be mathematically possible to save 15% of gross after taxes, medical and living expenses.

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          #19
          Corn,
          I love your chart. One thing that I was reflecting on-- the downturns in the market in 2002 and 2008 are now just little blips on the graph for the person that stayed the course over time.

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            #20
            Thanks for sharing this!

            It’s nice to see a real life example.

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              #21
              Originally posted by Like2Plan View Post
              Corn,
              I love your chart. One thing that I was reflecting on-- the downturns in the market in 2002 and 2008 are now just little blips on the graph for the person that stayed the course over time.
              Such an important point. It really shows the benefit of buy and hold investing. All of the daily or monthly ups and downs that everyone obsesses about really matter very, very little in the big picture.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #22
                Originally posted by LivingAlmostLarge View Post
                It looks really impressive. So it took from 2013-2020 to save enough to retire, mr money mustache math of saving like 50% of more of what you made, versus 31 years of 15%. Interesting dynamic.
                I am embarrassed to talk about how bad we were with money. At our worst, I was making $300k / year and we were spending more than that. That is just silly. Once I got the spending under control, my giant salary allowed us to catch up fast. Without the giant salary, the recovery would have been slow.

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                  #23
                  Originally posted by LivingAlmostLarge View Post
                  It looks really impressive. So it took from 2013-2020 to save enough to retire, mr money mustache math of saving like 50% of more of what you made, versus 31 years of 15%. Interesting dynamic.
                  I'm not sure I could find it again, but at one point I came across a chart comparing %income (gross) against the time it'll take to save/invest the money necessary to replace one's income in retirement, regardless of absolute dollar amount. It was something like the below (reproducing with very rough estimates from memory & a basic calculator):

                  This reproduction isn't exactly it, and proper math went into the original... But it left me with the distinct impression of somewhere between 15-20% of gross being the sweet spot between "easy to do" and "not gonna take forever", even if someone starts late. However, even at just 5-10%, still totally achievable within a normal working career from age 20-ish through 60-65. That chart was also partly what helped me decide to target saving 40%+ with the goal of reaching FI within ~20 years around age 40-42.

                  Corn, in your case I think I recall you're only planning to live on ~50% of your current (awesome) income? That in mind, it's really almost unremarkable that you were able to pull off what you've done, just based on the numbers. Now, the human factor of actually saving that aggressively? That's an impressive feat. A little easier to do as income increases, but it still takes alot of discipline to do something like that.
                  % Gross Income saved Time to Retire at Current Income
                  70% 13 yrs
                  60% 14 yrs
                  50% 16 yrs
                  40% 19 yrs
                  30% 22 yrs
                  25% 24 yrs
                  20% 26 yrs
                  15% 29 yrs
                  10% 36 yrs
                  5% 45 yrs
                  Last edited by kork13; 02-11-2021, 01:51 PM.
                  "Praestantia per minutus" ... "Acta non verba"

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                    #24
                    I always liked that chart but considered it a bit weird too. Mostly because you do save a lot and it cuts time but since you are used to living on less it helps. But I always wondered if it fell apart at higher incomes? I mean if you need the $100k to live on = $5M but with taxes and stuff it's very difficult to make that 50% savings rate and live it doesn't seem to work. for instance you make $200k but save $100k, but the $100k to live on/taxes. The taxes on $200k is at least 15% if not more. Then you are used to living on $85k so why save $100k?
                    LivingAlmostLarge Blog

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                      #25
                      Originally posted by Jluke View Post

                      agree. I think it is much easier to pull off that savings rate if you can contribute to a pre tax retirement account.

                      however if someone doesn’t have access to a 401k (or similar pre tax account) And depending on their income it may not be mathematically possible to save 15% of gross after taxes, medical and living expenses.
                      Well, you can figure out how to live on 85% of your income. Or, you can say "not mathematically possible", put it off, and then someday figure out how you are going to live on 30% of your income.

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                        #26
                        Originally posted by kork13 View Post
                        I'm not sure I could find it again, but at one point I came across a chart comparing %income (gross) against the time it'll take to save/invest the money necessary to replace one's income in retirement, regardless of absolute dollar amount. It was something like the below (reproducing with very rough estimates from memory & a basic calculator):
                        https://www.mrmoneymustache.com/2012...ly-retirement/

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                          #27
                          Originally posted by Petunia 100 View Post

                          Well, you can figure out how to live on 85% of your income. Or, you can say "not mathematically possible", put it off, and then someday figure out how you are going to live on 30% of your income.
                          After taxes and maxing 401k (19.5) and paying for medical I see about 60% of my gross as take home pay.

                          I was thinking more of a single person making 30-40k who could struggle to save 15%. Especially if no 401k.

                          maybe my math is off for a person like that.

                          It’s not a personal account of my situation so I may be wrong in that assumption.



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                            #28
                            I think Mr M leaves an important factor out. A lot of people don't consider if you do the military retiring at 42 with 20 years and 50% is probably enough for most mustachians. But it means staying 20 years instead of 7 years like him. Also unreasonable is retiring and self-insuring for medical. Mr M does not buy health insurance but he has millions to cover himself in case something happens from the blog. That is also not typical I would say.
                            LivingAlmostLarge Blog

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                              #29
                              Originally posted by Jluke View Post

                              After taxes and maxing 401k (19.5) and paying for medical I see about 60% of my gross as take home pay.

                              I was thinking more of a single person making 30-40k who could struggle to save 15%. Especially if no 401k.

                              maybe my math is off for a person like that.

                              It’s not a personal account of my situation so I may be wrong in that assumption.


                              It was a generic "you". Sorry if that was unclear.

                              Comment


                                #30
                                Originally posted by LivingAlmostLarge View Post
                                I think Mr M leaves an important factor out. A lot of people don't consider if you do the military retiring at 42 with 20 years and 50% is probably enough for most mustachians. But it means staying 20 years instead of 7 years like him. Also unreasonable is retiring and self-insuring for medical. Mr M does not buy health insurance but he has millions to cover himself in case something happens from the blog. That is also not typical I would say.
                                His spending reports have shown premiums for a high deductible health plan.

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