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1 year of expenses including rent,healthcare, food ,etc. When doing financial planning you should always try to save up to 6 months of all expenses. This is ha

1 year of expenses including rent,healthcare, food ,etc. When doing financial planning you should always try to save up to 6 months of all expenses. This is hard to achieve but the recommended number even if you are staying at your industry job. You never know what can happen.

Spooky23 13y ago
Seriously, how do you do this? My family makes a good income, own a modest home, drive 10 year old cars, have $0 debt ex-mortgage and don't do exotic trips. We put 20% away for retirement. Our baseline cost to live including mortgage, property tax, food & minimal extras is probably around $45k. Our area has a tight rental market, so owning the house is a net money saver. Other than cannibalizing retirement, building up that much is tough.
- shazow 13y ago
  When I scored my first job out of school, I moved out into a tiny apartment in downtown Toronto—walking distance from the office. I managed to save about half of my after-tax income for a year and a half which came out to $26k. No car, no family to support, no travel, no expensive purchases (I remember deliberating for weeks about buying an iPod Nano). Doubt I could have done it with a family to support and multiple cars. I did have immediately family as a safety net but I covered my own expenses for whatever I needed after moving out, with the exception of a few meals here and there.
  - jdc0589 13y ago
    My situation was extremely similar, though I had a car and half my salary for the year came out to more like 20k. Two years and a lot of raises later I am maintaining the same lifestyle, still have a roommate + a fairly cheap apartment, and putting away around 70% of my salary each month. Not having any dependents helps...a lot.
- kenrikm 13y ago
  Most financial planners usually say to build the 6 months before anything else - since if shit hits the fan you're likely to dip into your retirement which has penalties if you're pulling some out early.
  - splendidfailure 13y ago
    I wonder how the penalty + income tax from lower tax bracket for the emergency withdrawal compares to the tax that you would pay at the higher bracket if you chose to take it as post-tax income during your employment...?
- jaredsohn 13y ago
  I think cannibalizing retirement (by significantly reducing how much you save) temporarily is the way to go. If you make that decision, it also makes it easier because it reduces the amount of money you would need for six months expenses. If you're low on cash, you're less likely to put money into retirement savings anyway (since if it takes too long to get more revenue, you'd have to pay fees to make use of that same retirement money.)
- Symmetry 13y ago
  Well, I'm not sure how I'd do it starting in your situation. When I got out of school I lived in a cheap apartment and took public transit to work, which let me save about half of what I made. I didn't start retirement saving until I had a 1 year buffer saved. Since then I've made sure to always have that much saved when moving to a more expensive place though I haven't upgraded that much. Currently I put 1/6 of my pre-tax income away for retirement, then put 1/5 of the remaining into savings, and another 1/5 into my emergency/charity account. I donate 1/4 of that account to charity at the end of the year, and I also dipped into it when my apartment caught fire. I'm probably not going to be able to keep all of this up when I have kids, but I'll be doing it until then.
- doppenhe 13y ago
  My general philosophy has been moderately upgrade your life style every 3 bumps in earnings- this has led me to live pretty bare bone in a lot of aspects. In my case I was very lucky with my overall earning increasing about 10-15% a year, yet I lived in the same apartment, drove the same car and pretty much only spent money on travel and food (my vices). This also allows you to cut down a lot easier in the case of a pinch. I don't own but rent - economically in the long run buying would be more advantageous but being able to move in a heartbeat or quit my job to start my own business took priority over that. I am religious about saving cash. Every month before my paycheck (used) to drop in my account I would put a decent percentage into savings - this was after 401k contributions (which I did about ~10%). If i received a bonus at work 90% would go directly to savings either in the form of my personal investment account or cash reserves (with 10% always going to 401k). The remaining 10% was for the family slush fund. From a financial planning perspective 10% might be low for 401k but I believe I can make my money work harder outside of it. My household cost is similar to yours (~45k), I add 10k to keep sanity (vacations with wife, anniversary presents, etc). Disclaimer: This is working for a established tech firm paying towards the high end of industry average and working there for 5 years. If you are in a startup your salary is lower and lopsided towards equity so achieving this cushion I imagine is a lot harder.
- twistedpair 13y ago
  Similar. No fancy vacations. No cars. No house. No fancy cloths and only occasional eating out. Only draws are DirecTV, ISP, and phone which I could halve if needed. Put max into 401K, rest of savings in investment fund. Mutual funds are up 71% (yes 71%) YTD. Can easily save that 26K in a year's time, but the reality is when you don't have all the cost sinks of a nuclear family you should save, save, save as that money will grow a ton before you retire over several decades compared to the "shit, I better start investing" thought many people have when they've already gone totally gray.
patio11 13y ago
6 months is a decent starting point for one-size-fits-all advice, which is why it is the standard context-free recommendation, but I honestly think there are circumstances where you can skimp on it. For example, in the totality of your personal situation, you might have: + multiple independent sources of income + insurance against common forms of risk (e.g. very good health or occupational coverage) + strong non-market safety nets, either via your government or social network + better than average marketability of your skills + a lifestyle which was amenable to belt-tightening in the event of an emergency + access to credit which would survive events likely to cause a hit to your income I appreciate that there is a wide range of the risk tolerance spectrum represented on HN, and I'm probably towards the "I'd prefer more consistent, smaller returns" side of it, but there are many people for whom six months of savings is underbuying risk given their positioning and preferences.

Spooky23 13y ago

Seriously, how do you do this? My family makes a good income, own a modest home, drive 10 year old cars, have $0 debt ex-mortgage and don't do exotic trips. We put 20% away for retirement. Our baseline cost to live including mortgage, property tax, food & minimal extras is probably around $45k. Our area has a tight rental market, so owning the house is a net money saver. Other than cannibalizing retirement, building up that much is tough.

shazow 13y ago
When I scored my first job out of school, I moved out into a tiny apartment in downtown Toronto—walking distance from the office. I managed to save about half of my after-tax income for a year and a half which came out to $26k. No car, no family to support, no travel, no expensive purchases (I remember deliberating for weeks about buying an iPod Nano). Doubt I could have done it with a family to support and multiple cars. I did have immediately family as a safety net but I covered my own expenses for whatever I needed after moving out, with the exception of a few meals here and there.
- jdc0589 13y ago
  My situation was extremely similar, though I had a car and half my salary for the year came out to more like 20k. Two years and a lot of raises later I am maintaining the same lifestyle, still have a roommate + a fairly cheap apartment, and putting away around 70% of my salary each month. Not having any dependents helps...a lot.
kenrikm 13y ago
Most financial planners usually say to build the 6 months before anything else - since if shit hits the fan you're likely to dip into your retirement which has penalties if you're pulling some out early.
- splendidfailure 13y ago
  I wonder how the penalty + income tax from lower tax bracket for the emergency withdrawal compares to the tax that you would pay at the higher bracket if you chose to take it as post-tax income during your employment...?
jaredsohn 13y ago
I think cannibalizing retirement (by significantly reducing how much you save) temporarily is the way to go. If you make that decision, it also makes it easier because it reduces the amount of money you would need for six months expenses. If you're low on cash, you're less likely to put money into retirement savings anyway (since if it takes too long to get more revenue, you'd have to pay fees to make use of that same retirement money.)
Symmetry 13y ago
Well, I'm not sure how I'd do it starting in your situation. When I got out of school I lived in a cheap apartment and took public transit to work, which let me save about half of what I made. I didn't start retirement saving until I had a 1 year buffer saved. Since then I've made sure to always have that much saved when moving to a more expensive place though I haven't upgraded that much. Currently I put 1/6 of my pre-tax income away for retirement, then put 1/5 of the remaining into savings, and another 1/5 into my emergency/charity account. I donate 1/4 of that account to charity at the end of the year, and I also dipped into it when my apartment caught fire. I'm probably not going to be able to keep all of this up when I have kids, but I'll be doing it until then.
doppenhe 13y ago
My general philosophy has been moderately upgrade your life style every 3 bumps in earnings- this has led me to live pretty bare bone in a lot of aspects. In my case I was very lucky with my overall earning increasing about 10-15% a year, yet I lived in the same apartment, drove the same car and pretty much only spent money on travel and food (my vices). This also allows you to cut down a lot easier in the case of a pinch. I don't own but rent - economically in the long run buying would be more advantageous but being able to move in a heartbeat or quit my job to start my own business took priority over that. I am religious about saving cash. Every month before my paycheck (used) to drop in my account I would put a decent percentage into savings - this was after 401k contributions (which I did about ~10%). If i received a bonus at work 90% would go directly to savings either in the form of my personal investment account or cash reserves (with 10% always going to 401k). The remaining 10% was for the family slush fund. From a financial planning perspective 10% might be low for 401k but I believe I can make my money work harder outside of it. My household cost is similar to yours (~45k), I add 10k to keep sanity (vacations with wife, anniversary presents, etc). Disclaimer: This is working for a established tech firm paying towards the high end of industry average and working there for 5 years. If you are in a startup your salary is lower and lopsided towards equity so achieving this cushion I imagine is a lot harder.
twistedpair 13y ago
Similar. No fancy vacations. No cars. No house. No fancy cloths and only occasional eating out. Only draws are DirecTV, ISP, and phone which I could halve if needed. Put max into 401K, rest of savings in investment fund. Mutual funds are up 71% (yes 71%) YTD. Can easily save that 26K in a year's time, but the reality is when you don't have all the cost sinks of a nuclear family you should save, save, save as that money will grow a ton before you retire over several decades compared to the "shit, I better start investing" thought many people have when they've already gone totally gray.

patio11 13y ago

6 months is a decent starting point for one-size-fits-all advice, which is why it is the standard context-free recommendation, but I honestly think there are circumstances where you can skimp on it. For example, in the totality of your personal situation, you might have: + multiple independent sources of income + insurance against common forms of risk (e.g. very good health or occupational coverage) + strong non-market safety nets, either via your government or social network + better than average marketability of your skills + a lifestyle which was amenable to belt-tightening in the event of an emergency + access to credit which would survive events likely to cause a hit to your income I appreciate that there is a wide range of the risk tolerance spectrum represented on HN, and I'm probably towards the "I'd prefer more consistent, smaller returns" side of it, but there are many people for whom six months of savings is underbuying risk given their positioning and preferences.