How much do you invest of your net income?

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TXCLGLF05
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How much do you invest of your net income?

Post by TXCLGLF05 » Sun Jul 10, 2016 1:38 pm

I realize income level and situations differ for all, but generally speaking what % of your net income do you invest? My wife and I have a net income of around 180K. We are in our 30s and I would like to retire late 40s. Net worth is around $1MM at this point. In summary, I am trying to build a reasonable budget, but don't want to get too focused on saving and not enjoying life. FYI, our mortgage, utilities, property taxes, groceries and gas/fuel make up about about 40% of our net income. Am I overthinking this?

cmf
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Re: How much do you invest of your net income?

Post by cmf » Sun Jul 10, 2016 1:56 pm

We base ours off our gross income. We're currently at 30.5%. With employer matching funds it's 38.5%. We're early 50s. We don't feel constrained and have enough left over to do what we want now.

Rob Bertram
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Re: How much do you invest of your net income?

Post by Rob Bertram » Sun Jul 10, 2016 2:46 pm

OP, my wife and I are in a similar life situation. Our gross income is around $180k. Our savings rate is about 45-50% of our gross (depends on bonus). Most of that is going into tax deferred accounts (401k, 457), so our effective federal tax rate is about 13% and state around 3%. We live on the other 35-40%.

We live a fairly extravagant lifestyle by Boglehead standards. We eat organic food, buy local, support local charities, and do vacations 3-4 times a year. We have a maid service clean our house, etc. I mow my own lawn mostly because I enjoy it, and I need the exercise. We enjoy our life, but each person is different.

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goingup
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Re: How much do you invest of your net income?

Post by goingup » Sun Jul 10, 2016 2:51 pm

We focus on dollar amounts to save rather than percentages. We need to save $XXX,XXX per year for X years in order to retire on X date.

Save what you need to, then spend (or donate) the rest. :beer

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TomatoTomahto
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Re: How much do you invest of your net income?

Post by TomatoTomahto » Sun Jul 10, 2016 2:56 pm

I honestly don't know. Whatever is left after taxes, tuition, spending, etc gets saved.

delamer
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Re: How much do you invest of your net income?

Post by delamer » Sun Jul 10, 2016 3:19 pm

goingup wrote:We focus on dollar amounts to save rather than percentages. We need to save $XXX,XXX per year for X years in order to retire on X date.

Save what you need to, then spend (or donate) the rest. :beer
I agree. The OP needs to figure out how big his nest egg has to be to retire in his late 40's if that is his goal. If he saves 100% of his income but his nest egg is too small at retirement, then his plan didn't work. If he saves 1% of his income but his nest egg is big enough at retirement, then his plan worked well.

sambb
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Re: How much do you invest of your net income?

Post by sambb » Sun Jul 10, 2016 3:53 pm

Cant compare to others for several reasons:
1. Do you have a mortgage, and do others and what is the term and to you include in savings
2. Do you have school loans or are saving for kids college, and do you include that
3. Do you even have kids at all - definitely alters savings rate

It would be more interesting how much is contributed to net worth rather than savings.
You are doing fine with 1M saved and invested. Keep on going.

basspond
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Re: How much do you invest of your net income?

Post by basspond » Sun Jul 10, 2016 4:48 pm

What is your definition of net income? Too many variables can muck up the percentage and you should be saving off the top, not what is left over. We save about 30% of gross.

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Phineas J. Whoopee
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Re: How much do you invest of your net income?

Post by Phineas J. Whoopee » Sun Jul 10, 2016 4:51 pm

My income has varied widely. I've had fat years and lean years, each type often clustered together.

Fortunately for me perhaps, at least in retrospect, the earliest post-parents-house period was so lean I had to go into debt (to pay the part of tuition and living expenses I wasn't able to generate by trading my labor, and wasn't covered by my inflation-adjusted combined $16,000 inheritance from my grandmother and her sister, my great aunt - everything I've earned and accumulated since then has been the return on that windfall).

Then my income got to be almost enough, but certainly no more than enough.

Then I had a few fat years, during which I aggressively paid back all the debts. As each loan was retired I saved and invested my former monthly installments. At the same time I was using a recently-converted-from-defined-benefit employer plan for the maximum match. I remember well the payday on which my net worth grew to zero.

My then-girlfriend was unimpressed by my answer to her question about what I spent all the rest of my money on: index funds.

Then I had lean years, having gone back to grad school and after graduation started my own business. My savings rate out of income was modestly negative, but market returns were good so net worth rose.

Then I had fat years and I saved and invested a lot, sometimes more than 50% of gross.

My financial plans do not assume I will have many any more fat years. Fortunately for me, I can reach my goals from where I am even without further paid employment or a repeat of my (failed as it turned out but maybe better next time, if there is one) entrepreneurial period.

I have learned to adapt to a life in which no adaptation works consistently. There's a similar hypothesis about human origins, but although I agree it may lead to fruitful research, at present it's too just-so story and insufficiently evidence-backed for my taste.

How much of net income do I invest? It will change anyway, plus what do you mean by net income? It's been highly negative, and highly positive, and everywhere in between, and just like everybody else, I don't know what will happen next.

PJW
Last edited by Phineas J. Whoopee on Sun Jul 10, 2016 6:42 pm, edited 1 time in total.

edge
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Re: How much do you invest of your net income?

Post by edge » Sun Jul 10, 2016 6:32 pm

Net income? net of what exactly? Just taxes? You listed lots of other things in the original post.

KlangFool
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Re: How much do you invest of your net income?

Post by KlangFool » Sun Jul 10, 2016 6:42 pm

TXCLGLF05 wrote:I realize income level and situations differ for all, but generally speaking what % of your net income do you invest? My wife and I have a net income of around 180K. We are in our 30s and I would like to retire late 40s. Net worth is around $1MM at this point. In summary, I am trying to build a reasonable budget, but don't want to get too focused on saving and not enjoying life. FYI, our mortgage, utilities, property taxes, groceries and gas/fuel make up about about 40% of our net income. Am I overthinking this?
TXCLGLF05,

If you want to retire at late 40s, you need net worth around 33X to 50K of your annual expense. You can calculate and figure out how much that you need to save.

KlangFool

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celia
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Re: How much do you invest of your net income?

Post by celia » Sun Jul 10, 2016 6:45 pm

TXCLGLF05 wrote:In summary, I am trying to build a reasonable budget, but don't want to get too focused on saving and not enjoying life. FYI, our mortgage, utilities, property taxes, groceries and gas/fuel make up about about 40% of our net income. Am I overthinking this?
Why not track your expenses for a month and let that be the basis of your budget. Then add in 1/12 the cost of things that are paid for annually like homeowners insurance, property tax, or vacations.

If the total of that, your taxes, and your monthly savings don't equal your income, you have a "leak" somewhere that you might want to look for. That in itself is one reason to make a budget--to understand where it goes. If you don't know that, how can you make decisions about your spending?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

onmyway33
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Re: How much do you invest of your net income?

Post by onmyway33 » Sun Jul 10, 2016 6:56 pm

Including my employer's generous match on my annual 401k contribution, my wife and I have been around 45% of our gross for the last few years. I have been liquidating a few taxable assets to help with living expenses so that I can max all tax-advantaged space. My wife is a SAHM though, and I have started making double payments on our mortgage, and we are planning for one more child, so that may drive our savings rate down a bit.
A quote comes to mind, " it is not what you earn, it is what you keep that matters"

MathWizard
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Re: How much do you invest of your net income?

Post by MathWizard » Sun Jul 10, 2016 7:02 pm

Mid 30% range. I've put most of the last several year's raises into savings.

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jhfenton
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Re: How much do you invest of your net income?

Post by jhfenton » Sun Jul 10, 2016 7:04 pm

We save about 38% of our gross income. The way I think about it, we save 0% of our net income, or pretty close to it, because our investments almost all made before the balance hits our checking account: 401(k) x 2, HSA, and Vanguard, all payroll-deducted. I do add the random extra bit here and there as the checking account balance permits, but our bank never sees most of our savings.

Dottie57
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Re: How much do you invest of your net income?

Post by Dottie57 » Sun Jul 10, 2016 7:08 pm

TXCLGLF05 wrote:I realize income level and situations differ for all, but generally speaking what % of your net income do you invest? My wife and I have a net income of around 180K. We are in our 30s and I would like to retire late 40s. Net worth is around $1MM at this point. In summary, I am trying to build a reasonable budget, but don't want to get too focused on saving and not enjoying life. FYI, our mortgage, utilities, property taxes, groceries and gas/fuel make up about about 40% of our net income. Am I overthinking this?
My net income is about 47% of gross. Out of that comes Roth IRA and 5000 -12000 into a savings account with multiple purposes (car, bridge from retire date to SS and emergency). The rest is mine to spend - gotta enjoy the ride to retirement.

401k is full amount for over 55 and HSA is full amt for single.

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celia
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Re: How much do you invest of your net income?

Post by celia » Sun Jul 10, 2016 8:03 pm

TXCLGLF05 wrote:I realize income level and situations differ for all, but generally speaking what % of your net income do you invest? My wife and I have a net income of around 180K. We are in our 30s and I would like to retire late 40s. Net worth is around $1MM at this point. In summary, I am trying to build a reasonable budget, but don't want to get too focused on saving and not enjoying life. FYI, our mortgage, utilities, property taxes, groceries and gas/fuel make up about about 40% of our net income. Am I overthinking this.
What does anyone else's level of investing have to do with YOUR budget? Everyone has different needs and circumstances and incomes. :oops:

In other words, I SAVE NOTHING! Now, see how you build that into your budget! :!: :!: :!:
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

lemonPepper
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Re: How much do you invest of your net income?

Post by lemonPepper » Tue Jul 12, 2016 1:07 am

one interesting question is how much of your income as a % you need to save to maintain your standard of living at whatever age you decide. I think the % is a very important number as people's habits are hard to change in downward direction. A savings rate affects your nest egg as well as your current standard of living.

It may be that you need to save 50% of your gross income if you want to retire at 50. or 30% of your gross income if you want to retire at 65. I have no idea how to come up with this number. I'm sure some folks here have looked into this

FrugalFrida
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Re: How much do you invest of your net income?

Post by FrugalFrida » Tue Jul 12, 2016 1:21 am

Right now I save/invest two years expenses in one year, net. The work situation looks more positive now than last year but I'd like to have the option to retire early.

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czeckers
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Re: How much do you invest of your net income?

Post by czeckers » Tue Jul 12, 2016 1:43 am

With a net worth of $1M, you already have more than most retirees. Figure out when you want to retire and how much you want saved up by then. Then do the math to figure out how much you need to save.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

boglephreak
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Re: How much do you invest of your net income?

Post by boglephreak » Tue Jul 12, 2016 2:16 am

TomatoTomahto wrote:I honestly don't know. Whatever is left after taxes, tuition, spending, etc gets saved.
+1

i dont have a fixed date when i want to retire since im still relatively young, so doing the calculations and math doesnt make since to me. if the market does well, ill retire earlier. if it does poorly, ill work more. ill do the math when i get a big enough sum, or if im curious one day.

if i had to guess, it would probably be at least 50%. we are big savers with limited expensive hobbies. our biggest expense each year (other than mortgage) is probably our int'l vacations.

pasadena
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Re: How much do you invest of your net income?

Post by pasadena » Tue Jul 12, 2016 3:27 am

I'm too late in the game for early retirement, so I'm targeting 62 y-o (I'm 42). As you said %'s don't really mean much for comparison purposes, because it depends on both your income and your target, but since you asked...

- I save ~18% of my gross income including employer's match (maxing out 401k and HSA)
- Then I save minimum 35% of my take-home pay. It varies from month to month due to overtime. I calculated my monthly budget, and have that sum deposited in my checking account. Anything above that is deposited in my savings account. This means 100% of overtime, 100% of annual bonus and 100% of annual raises are automatically saved. My "3rd paychecks" are used for vacation / discretionary spending after the "savings tax" is taken out, and if not needed then 100% saved. I use my tax return to front-load part of my budget (namely the recurring, annual expenses).

I just reached my EF goal this month, so starting next month, I will keep about half in savings (enough to fully fund my Roth IRA every January + pad my EF a bit more), and I will invest the rest in my shiny new brokerage account.

I agree with the posters above though - in your case you should first calculate how much you *need* to save to reach your goal, and then work out your budget with whatever's left.

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TomatoTomahto
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Re: How much do you invest of your net income?

Post by TomatoTomahto » Tue Jul 12, 2016 5:43 am

boglephreak wrote:
TomatoTomahto wrote:I honestly don't know. Whatever is left after taxes, tuition, spending, etc gets saved.
+1

i dont have a fixed date when i want to retire since im still relatively young, so doing the calculations and math doesnt make since to me. if the market does well, ill retire earlier. if it does poorly, ill work more. ill do the math when i get a big enough sum, or if im curious one day.

if i had to guess, it would probably be at least 50%. we are big savers with limited expensive hobbies. our biggest expense each year (other than mortgage) is probably our int'l vacations.
You'll also stop doing the calculations some day, if you are lucky enough to want to continue working after you "have enough."

You have the right attitude. Man plans and God laughs. Nothing wrong with some planning, but trying to get long term plans down to the third decimal place is comical.

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raven15
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Re: How much do you invest of your net income?

Post by raven15 » Tue Jul 12, 2016 10:33 am

Currently in the 60-70% range, depending on how you count (70% includes mortgage principal and wife's tuition at community college). However my introduction to finance and investing was Mr. Money Mustache so I am strange.
It's Time. Adding Interest.

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PhysicianOnFIRE
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Re: How much do you invest of your net income?

Post by PhysicianOnFIRE » Tue Jul 12, 2016 1:48 pm

About 75% gross or 55% net.

I built an Excel based online calculator for this, which I find useful.

:beer -PoF

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LowER
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Re: How much do you invest of your net income?

Post by LowER » Tue Jul 12, 2016 7:58 pm

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