Author Topic: How much should I REALLY be saving?  (Read 3043 times)

BuildingFrugalHabits

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How much should I REALLY be saving?
« on: January 28, 2015, 06:49:20 PM »
http://finance.yahoo.com/news/how-much-should-i-be-saving--175035501.html

Some sage budgeting advice.  "50% towards housing, 30% towards entertainment and the remaining 20% combined for retirement and short term goals like buying a new car."

AsianStash

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Re: How much should I REALLY be saving?
« Reply #1 on: January 28, 2015, 06:55:44 PM »
I do love how they lump retirement together with buying a new car in one measly 20% portion of your savings. Guess which one people will prioritize?

There are also some seriously fatalistic comments on that article too. Here's one gem:

"Retirement" is guaranteed to no one, and is just a pleasant term for "one step away from the grave". Who wants to spent their whole time alive basically planning and looking forward to dying?

SaintM

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Re: How much should I REALLY be saving?
« Reply #2 on: January 28, 2015, 08:05:11 PM »
Just another talking head.

Why 50% for housing? If she thinks she has no control over housing and utilities, she has no clue. Food AND entertainment is 30%...that will literally make one fat, dumb, and [un]happy. How much of the 20% do I blow on the vacation or the car? At the end of the month/quarter/year, he reader is deeper in debt and has nothing saved.

slugline

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Re: How much should I REALLY be saving?
« Reply #3 on: January 28, 2015, 10:51:37 PM »
They are cribbing from the 50/20/30 guideline popularized by LearnVest:

http://www.learnvest.com/knowledge-center/your-ultimate-budget-guideline-the-502030-rule/

. . . and they don't quite get it right. The 50/20/30 is conceptually the breakdown of what happens to your take-home pay. You know, what's leftover after taxes and 401K. In other words, there's retirement savings going on even before we get to the "20" slice of the pie.

I think budgeting by percentage is fundamentally flawed. But a median income earner could do 50/20/30 and come out with a gross savings rate of around 40%, believe it or not!

Wiggle

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Re: How much should I REALLY be saving?
« Reply #4 on: January 29, 2015, 05:47:50 AM »
Perhaps the most important thing I've learned from reading MMM is that the paradigm of budgeting based on percentage is a bad idea.  It seems that people love a justification for buying shit they don't need and pointing to a percentage of spending that is "acceptable" seems to reinforce that idea.  I could almost accept the idea of a percentage budget if those numbers had more realistic values for saving/retirement but then you get the complainypants brigade proclaiming it is impossible (their comments typed on a new iPad bought on credit for extra impact).

I live very comfortably right now, arguably more than I should.  But that being said I am very conscious to avoid lifestyle creep and constantly seek optimization.  My lifestyle is not totally frugal, especially compared to many people here.  But my idea is that as long as I follow a mentality of optimization and avoiding luxuries that only increase comfort and appearances (especially those prone to hedonic adaptation) one can be succesful.  This is compared to the line of thinking of "I can't wait til I make X (salary) so I can buy Y (something I don't need)".   I feel like this is where it all goes wrong for many people.  Rather than living a reasonable lifestyle and taking financial security they will increase spending to match any increase in income.  While this gives them more "visible wealth", ie fancy lifestyle, fancy car and big house, it still leaves them in the same precarious position that people with low income face.  But in this case they do it to themselves and still have the audacity to blame systemic problems.

It almost seems like there are three major groups of people in how this is managed.

1)  People who realize that many goods and comforts do not enrich or improve quality of life significantly.
2)  People who want these goods and comforts but are willing to save and budget to manage them financially while still securing a sound future.
3)  People who want these goods and comforts right now because they believe they are entitled to them.  They will purchase these on credit or at least on the edge of financial stability and will blame others when the situation goes south.

Personally I fall somewhere between 1 and 2.  I still indulge but try to be conscious to invest in those hobbies and interests that stimulate my thinking and skills.  Balancing the interest in these hobbies while also being aware that buying better things constantly only increases your standards of "normal" over time.
« Last Edit: January 29, 2015, 06:06:35 AM by Wiggle »