4 ms·

6 months of gross salary, net salary, or expenses?

by CoachRufus87 10y ago

sp332 10y ago
The ability to live for 6 months on your savings. So, expenses I guess.
nstj 10y ago
It's a completely reasonable question - not sure why you'd downvote
kasey_junk 10y ago
Typically it means 6 months of expenses you can't get rid of if you have to. So if you current budget says that you need $500 a month in groceries, but you know you could get that down to $200 with realistic sacrifice, you count the $200 not the $500.
- et-al 10y ago
  The key part is the realistic sacrifice you mentioned. When budgeting, people often understate their expenses and tolerance for cheap food. Leave the grocery budget as is, but cut down steaks and eating out.
samatman 10y ago
How about: get 6 months of expenses, then get up to 6 months of net, then 6 months of gross, then keep saving at that rate while investing anything you don't need to keep liquid? There is no ceiling past which it doesn't make sense to have money.
- mrec 10y ago
  That assumes decent real returns on investment, which I'm not convinced really exist any more without taking on more risk than many are comfortable with. If your savings get to a level where they're evaporating to inflation faster than you can top them up, that arguably doesn't make sense any more. Good piece on Bill Gross today which I largely agree with; key pull quote for me is "capitalism cannot function efficiently at zero-bound rates". http://uk.reuters.com/article/uk-funds-janus-gross-idUKKCN10E1EY?il=0 http://uk.reuters.com/article/uk-funds-janus-gross-idUKKCN10...
  - Jtsummers 10y ago
    Presently, in the US, inflation is 2-3% a year. Savings interest rates definitely don't keep up, but they don't fall so far behind that your money is evaporating. Save up that 6 months of expenses, and each year keep adding to it to make up for the "evaporating" amount. An extra $1000-2000 a year should be more than enough. Move the money into a CD ladder, which has a better opportunity for keeping up with inflation, once you're more comfortable (about 1 year's worth of savings). You effectively risk 1 year (but the cost of breaking a CD open early isn't that bad if worst comes to worst). You put your money into 4xCDs at 3, 6, 9 and 12 months. As each comes to maturity you bump them to 12 months. So every quarter you have one quarter worth of expenses accessible. Keep 3 months worth of expenses in your checking account to ride out the wait for the first CD. Now you actually have 15 months of savings. A single, competent tech worker can easily achieve this after 3 years, probably earlier, outside high cost of living areas.
    - mrec 10y ago
      I was thinking of chunkier savings, i.e. more on the order of 10-15 years' worth of expenses. The evaporation starts to hurt more at that scale, and here in the UK fixed rate bonds (which I think are the equivalent of your CDs) still pay less than inflation. Even "official" inflation.
      - Jtsummers 10y ago
        Oh, absolutely. I wouldn't want that much as savings or CDs. My goal is 2-3 years worth of savings in this CD ladder scheme (international dating has seriously hampered my ability to save at my desired rate). But, yes, you're correct, for that amount, savings and CDs or fixed rate bonds suck.
      - jlgaddis 10y ago
        If you have accumulated 10-15 years worth of savings, that money should be somewhere it is earning a return (easily beating out inflation). It certainly should not be in your savings or checking account at the local bank. I have roughly six months worth of expenses in cash, that I could go take out of the bank right now should something happen. I'll be fine as long as the remainder is somewhere I can get to (some of) it within six months -- and it is.
devuo 10y ago
What I'm currently doing with my net salary: ~10% food ~10% utilities ~12% or more judiciously applied in historically stable investment funds and in savings towards future vacations/gadgets ~33% spent in housing ~35% spent (or not spent) in everything else, eating out, buying random stuff, clothing, etc. Since a small scare, I always maintain an emergency fund easily accessible which covers 7 months of expenses at my current levels (housing, utilities & food) Besides all of these I still have the luxury of living in a country where there's an unemployment pay that covers an hefty percentage of your last gross salary for at least 2 years since the day you became unemployed. I can't tell you how less anxious and relaxed I became since the day I completed my emergency fund and started making proper savings and investments.
- et-al 10y ago
  Is that net after investing in your 401k? 12% for saving seems a bit low (unless you happen to be making 250K+, which then, ignore my advice).
  - yompers888 10y ago
    Parent strongly suggests that they don't live in US. The utilities thing was what I found crazy. I was paying about 1-2% of take home pay to utilities at my place in California, despite making what I assume is far less than most people here.
    - GFischer 10y ago
      I'm not the parent, but utilities for me in Uruguay are closer to 10% of my take-home pay than to 2% (electricity alone is 5%). I pay 5,6 URGP per kWh (about 22 U.S. cents). According to Google, it's twice the price paid on average in the U.S. The same goes for most other utilities. They're usually NOT included in rent contracts, that's another sticker shock foreigners have (also, houses have no basic appliances when rented out). Most groceries are also way more expensive. Third world doesn't mean cheap, sadly. Only labor is cheaper (and some locally produced and nonexported goods, or subsidized).
    - 10y ago

6 months of gross salary, net salary, or expenses?

sp332 10y ago

The ability to live for 6 months on your savings. So, expenses I guess.

nstj 10y ago

It's a completely reasonable question - not sure why you'd downvote

kasey_junk 10y ago

Typically it means 6 months of expenses you can't get rid of if you have to. So if you current budget says that you need $500 a month in groceries, but you know you could get that down to $200 with realistic sacrifice, you count the $200 not the $500.

et-al 10y ago
The key part is the realistic sacrifice you mentioned. When budgeting, people often understate their expenses and tolerance for cheap food. Leave the grocery budget as is, but cut down steaks and eating out.

samatman 10y ago

How about: get 6 months of expenses, then get up to 6 months of net, then 6 months of gross, then keep saving at that rate while investing anything you don't need to keep liquid? There is no ceiling past which it doesn't make sense to have money.

mrec 10y ago
That assumes decent real returns on investment, which I'm not convinced really exist any more without taking on more risk than many are comfortable with. If your savings get to a level where they're evaporating to inflation faster than you can top them up, that arguably doesn't make sense any more. Good piece on Bill Gross today which I largely agree with; key pull quote for me is "capitalism cannot function efficiently at zero-bound rates". http://uk.reuters.com/article/uk-funds-janus-gross-idUKKCN10E1EY?il=0 http://uk.reuters.com/article/uk-funds-janus-gross-idUKKCN10...
- Jtsummers 10y ago
  Presently, in the US, inflation is 2-3% a year. Savings interest rates definitely don't keep up, but they don't fall so far behind that your money is evaporating. Save up that 6 months of expenses, and each year keep adding to it to make up for the "evaporating" amount. An extra $1000-2000 a year should be more than enough. Move the money into a CD ladder, which has a better opportunity for keeping up with inflation, once you're more comfortable (about 1 year's worth of savings). You effectively risk 1 year (but the cost of breaking a CD open early isn't that bad if worst comes to worst). You put your money into 4xCDs at 3, 6, 9 and 12 months. As each comes to maturity you bump them to 12 months. So every quarter you have one quarter worth of expenses accessible. Keep 3 months worth of expenses in your checking account to ride out the wait for the first CD. Now you actually have 15 months of savings. A single, competent tech worker can easily achieve this after 3 years, probably earlier, outside high cost of living areas.
  - mrec 10y ago
    I was thinking of chunkier savings, i.e. more on the order of 10-15 years' worth of expenses. The evaporation starts to hurt more at that scale, and here in the UK fixed rate bonds (which I think are the equivalent of your CDs) still pay less than inflation. Even "official" inflation.
    - Jtsummers 10y ago
      Oh, absolutely. I wouldn't want that much as savings or CDs. My goal is 2-3 years worth of savings in this CD ladder scheme (international dating has seriously hampered my ability to save at my desired rate). But, yes, you're correct, for that amount, savings and CDs or fixed rate bonds suck.
    - jlgaddis 10y ago
      If you have accumulated 10-15 years worth of savings, that money should be somewhere it is earning a return (easily beating out inflation). It certainly should not be in your savings or checking account at the local bank. I have roughly six months worth of expenses in cash, that I could go take out of the bank right now should something happen. I'll be fine as long as the remainder is somewhere I can get to (some of) it within six months -- and it is.

devuo 10y ago

What I'm currently doing with my net salary: ~10% food ~10% utilities ~12% or more judiciously applied in historically stable investment funds and in savings towards future vacations/gadgets ~33% spent in housing ~35% spent (or not spent) in everything else, eating out, buying random stuff, clothing, etc. Since a small scare, I always maintain an emergency fund easily accessible which covers 7 months of expenses at my current levels (housing, utilities & food) Besides all of these I still have the luxury of living in a country where there's an unemployment pay that covers an hefty percentage of your last gross salary for at least 2 years since the day you became unemployed. I can't tell you how less anxious and relaxed I became since the day I completed my emergency fund and started making proper savings and investments.

et-al 10y ago
Is that net after investing in your 401k? 12% for saving seems a bit low (unless you happen to be making 250K+, which then, ignore my advice).
- yompers888 10y ago
  Parent strongly suggests that they don't live in US. The utilities thing was what I found crazy. I was paying about 1-2% of take home pay to utilities at my place in California, despite making what I assume is far less than most people here.
  - GFischer 10y ago
    I'm not the parent, but utilities for me in Uruguay are closer to 10% of my take-home pay than to 2% (electricity alone is 5%). I pay 5,6 URGP per kWh (about 22 U.S. cents). According to Google, it's twice the price paid on average in the U.S. The same goes for most other utilities. They're usually NOT included in rent contracts, that's another sticker shock foreigners have (also, houses have no basic appliances when rented out). Most groceries are also way more expensive. Third world doesn't mean cheap, sadly. Only labor is cheaper (and some locally produced and nonexported goods, or subsidized).
  - 10y ago