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How much do I secretly want to save each year out of my net income?

Most people say that saving 10% is good enough (of your net income).

So if you make $2000 net a month, you should save at least $200/month.

I like 10% as a general rule for all incomes, but as I tend to make a very varied income year-by-year, not to mention that my income is rather high to begin with it makes no real sense for me to stick to that 10% rule.

Seeing as I make more money than the average person, I don’t think I should also be saving an average percentage.

If I make an extraordinary income, I should also save an equally extraordinary amount.

SO I SAVE “ALL THE REST”, AT A MINIMUM OF 25% OF MY NET INCOME; ON AVERAGE 50% OF MY INCOME

What I do, is set an ideal household budget of around $30,000 (but I allow myself go up to $35K – $40K in exceptional cases depending on if I want to do things like travel a lot), so I don’t feel like I am a miser, nor am I living extravagantly, then I try to do these things:

  • “Save all the rest of my money” — this is my general rule
  • Save at least 25% (that’s my preferred ‘savings rate’ for people if it is within financial reach)
  • Really actually aim to save 50% of my net income
  • Secretly aim for the stars at 90% of my net income

I am completely, 100% aware that saving 25% is not in everyone’s financial reach.

Trying to make do on $33,0000 a year (gross average salary), by yourself, paying rent in an urban city, buying food, going to work, and then thinking about saving 25% of that, is near impossible unless you go to extremes or move to the middle of nowhere, where there aren’t many job options.

The goal is to get one of these by the time I retire… 😛

WHAT IF I DON’T WORK IN A YEAR?

If I don’t work in a year (it happens!), I still stick to my original household budget (although I kind of slide off into the cheaper end things, and start returning non-essentials), and I wait (impatiently) for the next contract to catch up.


If I don’t set an average budget for myself, I’ll end up doing what ALL freelancers experience at one point or another: overspending without thinking of when your next contract will come.

I have to keep something steady and reasonable in place, or else it will be feast or famine, the latter of which is not fun at all.

HOW CAN THIS APPLY TO ME?

Even with a steady job, if you make a significant amount of money of let’s say at least $60,000 or so (you already KNOW if it’s a lot of money or not), you should try to:

  • Create a budget that will make you save 25% of your net income at a minimum
  • Aim for a general spending budget that is reasonable but not crazy fun

Note: It doesn’t only apply to “savings”, because if you have debt, I still consider it to be savings, but in the negatives.

You’re essentially saving that money to put it into your debt, which increases your net worth, and does make an impact, even if you don’t see the cash in your bank balance.

You aren’t throwing it away, because you’ve basically pre-spent that cash for whatever reason.

You can also save for short-term fun things like Holiday Shopping or Vacations.

Let’s look at the numbers for a $60,000 a year budget:

In Ontario, you’d net around $48,000 if you earn $60,0000 gross (assuming no tax credits, like if you save in an RRSP, or other things that would be personal to you):

25% of that = $12,000 a year, or about $2000 a month

That leaves you about $36,000 a year (net) to spend, which is $3000 a month.

$3000 a month is a very healthy and generous budget in my opinion, and I once lived on something similar when I was in Toronto, paying about $1000 in rent, and $2000 going to food, public transportation, and so on.

For me, I think it’s a good idea to save more money in an ascending percentage, especially when you make more than a healthy income to be able to do so comfortably like I do.

Currently, my savings rate averages around 70% – 90% when I work.

What do you think? Could you do this? DO you do this?

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Sherry of Save. Spend. Splurge.

Millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. Since then, I have paid my $600K home in cash (my half was $300K), my $180K casr in cash, worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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7 Comments

  1. Ramona

    You are doing amazingly well. I have stuck with the 10% saving rate on average, since my income has taken a hit after becoming a mother. On good months I save 90%, on bad ones I might not save anything, but, fortunately, there’s always money saved, which allows us to be a bit more relaxed.

    Since I ‘sense’ 2016 will actually be a pretty good year for my business, I plan to aggressively save and get into a better spot.

    Reply
    1. save. spend. splurge.

      I sense 2016 will be terrible for me. I am not motivated to work at all, I want a break after all the work I have done in 2015.

      ARg.

      Reply
  2. Cassie

    Currently I have 18% taken right off the top of my pay cheque before I even see it, and then I save in other accounts once it lands in my bank account. It varies every pay period depending on what’s going on, but I’d estimate I’m saving in the 30-40% range.

    Reply
    1. save. spend. splurge.

      That is incredible. I love the idea of taking the money away before you even see it. You won’t notice it …

      Reply
  3. Leigh

    My set budget is about $45-50k/year including everything and then I adjust my savings rate depending on how much I make. This strategy works pretty well for me 🙂 It works out to about a 60-80% savings rate depending on how much I make. I would have a different strategy if I didn’t make over $100,000/year though.

    Reply
    1. save. spend. splurge.

      Agreed. We are lucky in that respext

      Reply
  4. Maria

    small correction: 25% of that = $12,000 a year, or about $1000 a month

    Reply

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