What percentage of your income do you save?

In My Humble Opinion
1

In this story, the authors calculate how much income is needed to lead “the good life” - two late model cars, a second vacation home, private school for two kids, etc.

The article includes this claim:

Really?

Can it be true that for ALL Americans, the average is only 1%, or less, to savings?

I can’t wrap my head around it.

Dopers? What percentage of your income goes into savings? And could it be more if savings were a priority?

My answer: I was always taught that the basic, keep-it-simple principle was that you divide your income into thirds: save a third, invest a third, spend a third. Savings were short-term instruments like savings accounts, where your money was highly liquid and you could get to it quickly, with no penalties, for an emergency. Investing involved funds, stocks, bonds, or legitimate collectibles that would arguably appreciate over time. And “spend” meant your ordinary expenses - for living and fun.

If you live that way, it always seemed to me, while you might not have as many fun toys as the guy next door, you won’t get hurt nearly as hard by the same disaster that wipes him out.

I can easily imagine variances in that formula… especially if you’re barely earning enough to get by. When I was younger, there was no “invest” column… I was yting to save a third and living on two-thirds, because I needed every bit of that two-thirds to do crazy stuff like eat and pay rent. Often I had to dip into savings. So the formula does fall apart at low-income levels, and I understand that. Hell, I lived it.

2

I was taught (by my parents) to save a 1/3rd off your gross while you’re single and starting your career and once you get married you should both live on the lower salary and save the higher salary in full diversifying with IRAs, real estate, mutual funds blahdeblah. When you’re single and saving a 1/3rd build up a certain amount of money as completely liquid savings, next get enough money to buy real estate and then once that’s done start thinking long-term retirement stuff but even at the beginning try to start 1 IRA (Roth or regular) per year.

Also my parents drummed no credit card debt into my head the minute I got one when I was packed off to college.

Of course, this advice was delivered to me with the firm expectation that I would become a working professional and marry another working professional.

Incidentally, my mother works in finance, has traditionally bourgeois wealthy clients (lawyers, doctors, management) and says she meets a lot of 1% income savings type people even though they make a ton of money.

3

I don’t know the income structure in the USA, but I would assume the wide majority of the population would be plainly unable even afford basics (housing, utilities, food) spending only one third of their income.

If you can save 2/3 of your income (“savings” + “investments”) and still live an acceptable life, you’re probably more wealthy than most.

4

Personally, I save a little over 20%.

5

Prior to my move down here, when I didn’t have a credit card debt (acquired during a few months of unemployment), I saved about half of my income.

Presently, I’m dishing out most of that money to paying down my debt (which wouldn’t be astronomical to most people, perhaps, but it still oppresses me). I just bought a car because my jalopy finally died, so all of my savings evaporated a week ago. Only about 1% of my check is being directed to savings now. Heaven forbid I should lose my job tomorrow, I would be screwed.

I’m caught between a rock and a hard place, it seems. Pay down a burdening credit card debt by sacrificing the savings account. Or stock up the savings account in the face of a mounting debt. I’ve chosen the first option in the meantime; maybe in a year, with careful spending, I’ll be able to trade off.

If I were making half of what the fictional family in the linked story makes, I don’t see how I would allow myself to save only 1% of my income. It should be easier to save money when you have a lot of money to save, and $200,000 is a lot of money no matter how you slice it. It seems to me that the “good life” described in the Forbes article hinges on that 1%. If a family wanted to be more responsible and save 30% of their income, they might not be able to afford that summer house or the 2005 Lexus RX 330. The article seems to be saying, “You can live in luxury if you make six figures and barely save any of it!” Um…how is that news? And is this a message that Americans really need to be told, since many of us are already living beyond our means?

6

I guess it depends on what you mean by “save”. If you mean “put into a savings account and don’t touch it until you need it”, then my answer is 0%. I do contribute 5% of my paycheck into a 401K and maybe 3% into a Roth IRA. I’m trying my damndest to pay off some of my debt, so every extra penny I have goes towards that.

7

I’d say that’s true. The median income for a family of four in my state is $58,000. Call that $45,000 after taxes to make the math easy, and you’re talking about living on $15K a year, which is not very much for such a family.

You’re right that 1% is crazy, though it’s easy to understand how it happens when you’ve got a decent-sized mortgage, a car payment or two, mouths to feed, etc.

I’ll start my “real job” this summer, and I’ve been working out my financial plans. I’m going to spend the first year paying off my short-term debt (shouldn’t take long) and getting enough in the bank for six months of basic living expenses. Then I’ll save about half and live on about half. Of the saved half, I’ll invest about 75% and save 25% or so for larger expenses like home improvements, vacations, cars, etc. On the other side, a big chunk of the “living” half will be paying a mortgage on a house that we expect will be a reasonably good investment, and anything that doesn’t get spent will get saved.

My situation is not quite the norm, though; I’m making a good salary in a very inexpensive area, and we don’t have kids and aren’t going to.

8

Again, it really does mean what you mean by savings. I put a little extra in my pension and overpay my mortgage slightly, but that’s it.

9

It is alot easier to save when you have a good income, although many people making good money don’t. When I was first married I had a crappy job and my wife was in grad school, I saved nothing. We lived paycheck to paycheck. We were in a crappy apartment, didn’t eat out, and didn’t have cable TV. This was before cell phones and internet. I don’t know how I could have saved.

While we were both working, I’d say we saved about 15% of our income, mostly in 401K’s or annuities. I began to buy a little stock in the companies I worked for.

Now I am single again and making good money and I’ll save 50% of my after tax income this year, as I did last year. I spend about 15% of my income on my house, and put aside about 3% for a couple nice vacations, but beyond that I spend almost nothing on extravagances. My car is paid off, I don’t carry credit card debt, and I rarely eat out (I like to cook). I am just one of those people who is paranoid about being poor in retirement. I don’t expect to receive much if anything from social security, and I want to live comfortably, so the only way to do it is to save and invest now. I also take great pleasure in investing, I love to see my portfolio grow. About the only thing I consider extravagant is my cable TV bill, which is outrageous. If I didn’t have kids, I would cut it in half.

It is inconcievable to me that there are people in their forties and even fifties who have nothing saved.

10

10% in an employer matching 401k
10% in a ESPP that allows me to buy my companies stock at %85 the lowest price of the start or end of the 6 month period
And I guess about another %10 or so that I put into a savings account until it reaches a point where I can invest it into something relatively liquid like S&P index funds or something.

11

So as Pre-tax and partial match:
(15% + 2% match) 1.333 as pretax is worth roughly a 3rd more than take home.
22.65% additionally house is an investment but hard for me to calculate as tax and interest isn’t really and investment and house goes up in value by uncertain amount. I will arbitrarily call this 5% than puts us only at about 28%.
I get the feeling this is well above average compared to most of my co-workers. I found out {by mistake} I was 1 of only 2 employees over 10% on 401k out of 180 employees. I assume from this that most people are saving less than we are.

I’m not sure how to calculate the value of paying my mortgage.

12

Medical expenses take 10-20 percent of my income every year. Live on 1/3? Ha. That’s pretty funny.

Maybe if I had a yurt.

13

Saving 1%? Egad, I wish I could.

When I was single my saving approached about 30%. By the time I got married, my savings (liquid & retirement) had grown to about three times my annual salary. I also tithed. But I got married to someone who had incurred a lot of debt and was a compulsive spender. I assumed we would work it out. Within three years we had amassed two salaries worth of debt (mortgage & credit cards). We almost hit bankruptcy due to a business failure (the forcasted sales never occured) and almost three years of unemployment, but a job out of the blue saved us from that. In that whole time, my spouse refused to deal with her fiscal problems, in spite of repeated warnings. The worse part was the battle over the tithe. My viewpoint which I had done for nine years: you tithe, you save, you pay your bills, pay off long-term debt, then whatever’s over you can have fun with. Spouses view was have fun, tithe, save for goodies, pay bills. No need to pay defaulted loans, because “out of sight–out of mind” No retirement funding is needed because, “the Lord will provide”. Don’t even ask me how I put up with this infinitive antichrist attitude.

Bye, bye spouse. :rolleyes:

After eight years, I’m just about out of debt. I’ve learn not to let the size of my assets dictate my “self-worth”. Because it could happen again. On the other hand, my fiscal reasoning still stands. Borrowing only makes sense if you know it will increase in value (real estate, education, etc.). Borrowing for a depricating asset (car, vacation, boat, etc.) is in effect becoming an indentured servent. It’s far more satisfying to buy something and know that you own it instead of the bank. Second, it’s a good filter for indicating what you really want. Who hasn’t bought something on impulse and realized that you really didn’t want it.

But one thing that terrifies me is medical. That’ll kill you faster then anything else out there. I was paying COBRA for eight months–$6000.00. My parents who were always careful with their money and saved for retirement, spend half their income on medical expenses!!! They don’t pay federal or state income taxes anymore. That sobered me up in a way nothing else did… What would happen if they ended up in a nursing home? I shudder to think :eek:

14

I contribue 12% to my 401k and get a an additional 5% as a company match and have several months of living expenses in an “emergency fund”. I also have a traditional pension.

I used to save more (fully funded a Roth IRA and saved in a house down-payment fund) but I bought a house and won’t be able to save as much as I was for a few years yet; however, I plan on keeping this house indefinately so in the long run I think it makes financial sense and don’t feel too bad.

15

Until I quite work to go back to school, I was at about 75% savings–I’m now down to about 40% I believe.
Helps when you don’t smoke, don’t drink, don’t have car payments, education payments, etc. Though two years of savings at 75% is enough to buy a car outright–so I’m thinking that the big kicker is interest for most people.

16

There is no way I could save a third, invest a third and use a third. Housing costs here in NYC are over 1/3rd our income. That’s rent. Just rent.

We save the max 6% in our 401k and whatever name they call a 401k when it’s non-profit.

17

I have 15% off the top taken from my salary into a 401K. Since that is not taxed, it actually saves me more than 15%. Plus my employer matches, I think, 2% or 4%. I have virtually no credit card debt and no mortgage. I am a very fortunate person.

At another time in my life it was absolutely impossible to save anything. Putting extra money in the bank then would have required me to borrow to meet ordinary expenses, which I kept to a bare minimum anyway. I used to agonize over whether we could afford to buy a box of cookies this week.

IMHO those who would lecture folks to save more when they’re barely making ends meet as it is are full o’ donkey dust.

18

Man, just when I was starting to feel almost smug since it seems everyone I know is crazy in debt and I’m not…here comes Bricker to smack me with a clue-by-four.

There’s just no way I can wrap my head around living on 1/3 of my income, and I’m solidly middle-class. Cutting out all extravagances could maybe get me near living on 65% or so, but I’m also not willing to live that poor.

My saving percentage is down to around 8% currently, used to be quite a bit higher before some downsizing at work, I consider myself lucky to still have a job at all. Mortgage, childcare and utilities didn’t get downsized when my income did, so my goal switched to just keeping even and not accumulating debt.
For the forseeable future, I’m counting on what I managed to get invested before my circumstances changed just continuing to grow, eventually I’ll get the savings percentage increased bit by bit.

19

Before a run of bad luck late last year, I was saving about 5% of my income and had no credit card debt but, currently, I’m probably under 1% and have over $3,000 on my VISA that I’m trying to pay off as fast as I can.

I know I could be a lot more financially responsible and I hope to be eventually but thinking about it tends to intimidate me and at only 23 and having only had my first decent (but non-professional) job for just over a year now, I’m still in the infancy of my adult life so I’m not even sure what I need to do.

401Ks, IRAs, et al are a foreign language to me.

20

Your only 23? Don’t get depressed–you’ve got 40 to 50 years of work ahead of you. The fact you’ve made a mistake this young doesn’t compared to what it cost me in my mid-40’s. I have to start over again and I’ve only got 25 years tops. You’ve got 40 to 45. Please examine why compound interest is so relevant to savings and you’ll quickly understand why your better off then I am (even if you make far less money then I do.) Then, figure out whether deferring gratification is philisophically acceptable to you. If it is, stay out of debt and save every penny. You’ll be wondering if it’s worth it. In 30 years you’ll be thankful. Think of it as getting an education. It had it’s ups and downs, but I thankful I followed through with it all the way to college.

There are plenty of websites out there which will help explain what IRA’s, 401(k)'s mutual funds, stocks, etc. Take your time and ask around. Avoid the get-rich-schemes, etc.