4 ms·

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

by adamio 12y ago

JoshTriplett 12y ago
Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible. And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.
- mfringel 12y ago
  Indeed, "dumping raises into savings" was one of the smartest things I ever did, financially. When I moved from working from a university to working at a mid-sized corporation, I got roughly a 25% pay bump. Every single dollar of that went into savings (fully funding the 401(k) and Employee Stock Purchase Plan, etc.). This did a couple of things... it kept a lid on living expenses because there was no additional cash, but it also provided an easy way for me to raise my savings every year without having to make too many conscious choices, just by moving every pay raise into savings.
JoachimSchipper 12y ago
Houses are pretty cheap, compared to how much money you need to retire.
- lucaspiller 12y ago
  Also as a rough estimate, most yearly rental prices are 5% - 15% the value of the property. If you get a long mortgage (in the UK, 30 years is pretty common) you can easily pay less per month than you would rent.
Ecio78 12y ago
Mr. Money Mustache will probably tell you to move to a different place[1], saving time and money by reducing the commuting time[2] etc.. NB I neither agree nor disagree with his ideas (still have to decide.. :)) [1] http://www.mrmoneymustache.com/2011/09/28/get-rich-with-moving-to-a-better-place/ http://www.mrmoneymustache.com/2011/09/28/get-rich-with-movi... [2] http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/ http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-c...
- yen223 12y ago
  By my calculations, it's generally much better to live in a high-cost area while earning a high wage, than to live in a low-cost area while earning a low wage. This is because a lot of products out there have a fixed cost which isn't based on geography (think iPhones). A higher wage makes it easier to purchase those items.
  - jacquesm 12y ago
    So, the optimum would then seem to be to live in a low cost area making a high wage.
    - SteveGerencser 12y ago
      It can be done. My wife and I both work remotely and are able to earn significantly more than the average income for our area. She is an hourly engineer and I work as a consultant. We get to live where we want and do the work we want. We could both make significant;y more if we were to relocate, and we have in the past, but we enjoy the lifestyle here and are happy to give up some top end income for quality of life.
  - PavleMiha 12y ago
    And even if all costs scaled completely linearly with your earnings saving 20% of your income in a high-cost/high-wage are will earn you more money than 20% in a low wage area. You can always move to the low-cost area when you are ready to stop working.
  - 12y ago
lbotos 12y ago
So I just did the math. I work at a startup in NYC and could probably make more money at $BigCo. I should be able to save %50 of my current salary and be able to pay rent and have a decent daily spend to the point that it's 2AM and I'm furiously recalculating a lot of scenarios. That has to count for something. :)
netcan 12y ago
Not that I'm recommending it, but this strategy is radically different from the norm, so it will require you to be abnormal. Mortgage @ 35% of net income is the norm. Unless you earn 3X the median in your area, living on 35% of your salary means living with below average expenses. Whatever your salary, you will probably think normal is normal for your peer group which usually is closer to whatever you earn than median so even if you earn much more than median you will probably be required to be abnormal. Being abnormal is hard to decide. However you achieve this, it will probably require you to make lifestyle changes that most people like you consider unacceptable. Move someplace cheap. Start a commune in an old mansion with 6 other families/couples. Live in a cabin. Squat. :) Live with your parents. Don't own a car. Whatever the specific setup, spending 25-35% of your salary is unlikely to be a moderately different from the norm in your peer group. But, also not impossible. Consider: (a) Students, broke artists, unemployed and lots of other people do live on very low incomes. It's possible. If you earn the median, then 10-20% of people in your area live on 35% of what you do. Matt mentioned 14k p/a as a grad student. (b) This is the "find a way" scenario like a startup. Startups may require you to deal with ungodly stress work, 100 hour weeks and do "impossible" things. If retiring within 10 years is valuable to you, it might be worth it.

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

by adamio 12y ago

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible. And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.

mfringel 12y ago
Indeed, "dumping raises into savings" was one of the smartest things I ever did, financially. When I moved from working from a university to working at a mid-sized corporation, I got roughly a 25% pay bump. Every single dollar of that went into savings (fully funding the 401(k) and Employee Stock Purchase Plan, etc.). This did a couple of things... it kept a lid on living expenses because there was no additional cash, but it also provided an easy way for me to raise my savings every year without having to make too many conscious choices, just by moving every pay raise into savings.

JoachimSchipper 12y ago

Houses are pretty cheap, compared to how much money you need to retire.

lucaspiller 12y ago
Also as a rough estimate, most yearly rental prices are 5% - 15% the value of the property. If you get a long mortgage (in the UK, 30 years is pretty common) you can easily pay less per month than you would rent.

Ecio78 12y ago

Mr. Money Mustache will probably tell you to move to a different place[1], saving time and money by reducing the commuting time[2] etc.. NB I neither agree nor disagree with his ideas (still have to decide.. :)) [1] http://www.mrmoneymustache.com/2011/09/28/get-rich-with-moving-to-a-better-place/ http://www.mrmoneymustache.com/2011/09/28/get-rich-with-movi... [2] http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/ http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-c...

yen223 12y ago
By my calculations, it's generally much better to live in a high-cost area while earning a high wage, than to live in a low-cost area while earning a low wage. This is because a lot of products out there have a fixed cost which isn't based on geography (think iPhones). A higher wage makes it easier to purchase those items.
- jacquesm 12y ago
  So, the optimum would then seem to be to live in a low cost area making a high wage.
  - SteveGerencser 12y ago
    It can be done. My wife and I both work remotely and are able to earn significantly more than the average income for our area. She is an hourly engineer and I work as a consultant. We get to live where we want and do the work we want. We could both make significant;y more if we were to relocate, and we have in the past, but we enjoy the lifestyle here and are happy to give up some top end income for quality of life.
- PavleMiha 12y ago
  And even if all costs scaled completely linearly with your earnings saving 20% of your income in a high-cost/high-wage are will earn you more money than 20% in a low wage area. You can always move to the low-cost area when you are ready to stop working.
- 12y ago

lbotos 12y ago

So I just did the math. I work at a startup in NYC and could probably make more money at $BigCo. I should be able to save %50 of my current salary and be able to pay rent and have a decent daily spend to the point that it's 2AM and I'm furiously recalculating a lot of scenarios. That has to count for something. :)

netcan 12y ago

Not that I'm recommending it, but this strategy is radically different from the norm, so it will require you to be abnormal. Mortgage @ 35% of net income is the norm. Unless you earn 3X the median in your area, living on 35% of your salary means living with below average expenses. Whatever your salary, you will probably think normal is normal for your peer group which usually is closer to whatever you earn than median so even if you earn much more than median you will probably be required to be abnormal. Being abnormal is hard to decide. However you achieve this, it will probably require you to make lifestyle changes that most people like you consider unacceptable. Move someplace cheap. Start a commune in an old mansion with 6 other families/couples. Live in a cabin. Squat. :) Live with your parents. Don't own a car. Whatever the specific setup, spending 25-35% of your salary is unlikely to be a moderately different from the norm in your peer group. But, also not impossible. Consider: (a) Students, broke artists, unemployed and lots of other people do live on very low incomes. It's possible. If you earn the median, then 10-20% of people in your area live on 35% of what you do. Matt mentioned 14k p/a as a grad student. (b) This is the "find a way" scenario like a startup. Startups may require you to deal with ungodly stress work, 100 hour weeks and do "impossible" things. If retiring within 10 years is valuable to you, it might be worth it.