What percent of my salary should I save?
"I am pretty sure you could find a number of financial planners whom you could pay to give you a very accurate number, but the rule of thumb I like best is Save a dime of every dollar.  10% (Savings means save for retirement, not vacations.) Here is a nice article from radio personality Clark Howard with some adjustments based on your age: Saving for retirement later in life?  If you're getting started saving for retirement later in life, the   dime out of every dollar rule won't cut it for you. So for you, The   Baltimore Sun has crunched the following numbers: Jayraj has a particularly good and just as simple bit of math. https://money.stackexchange.com/a/30751/91 Your retirement and financial planning should not end with a flat percentage.  In fact, the chances that any simple math formula is adequate are very low.  My percentages (or Jayraj's simple math) are only starting places.  If you are at the point where you are asking ""where do I start"", starting with this super easy no-brainer approach is great because the key is starting and doing it." "I disagree with the selected answer. There's no one rule of thumb and certainly not simple ones like ""20 cents of every dollar if you're 35"". You've made a good start by making a budget of your expected expenses. If you read the Mr. Money Mustache blogpost titled The Shockingly  Simple Math Behind Early Retirement, you will understand that it is usually a mistake to think of your expenses as a fixed percentage of your income. In most cases, it makes more sense to keep your expenses as low as possible, regardless of your actual income.  In the financial independence community, it is a common principle that one typically needs 25-30 times one's annual spending to have enough money to sustain oneself forever off the investment returns that those savings generate (this is based on the assumption of a 7% average annual return, 4% after inflation). So the real answer to your question is this: UPDATE Keats brought to my attention that this formula doesn't work that well when the savings rates are low (20% range). This is because it assumes that money you save earns no returns for the entire period that you are saving. This is obviously not true; investment returns should also count toward your 25-times annual spending goal. For that reason, it's probably better to refer to the blog post that I linked to in the answer above for precise calculations. That's where I got the ""37 years at 20% savings rate"" figure from. Depending on how large and small x and y are, you could have enough saved up to retire in 7 years (at a 75% savings rate), 17 years (at a 50% savings rate), or 37 years! (at the suggested 20% savings rate for 35-year olds). As you go through life, your expenses may increase (eg. starting a family, starting a new business, unexpected health event etc) or decrease (kid wins full scholarship to college). So could your income. However, in general, you should negotiate the highest salary possible (if you are salaried), use the 25x rule, and consider your life and career goals to decide how much you want to save. And stop thinking of expenses as a percentage of income." A single percentage figure makes little sense here as you are asking for a bunch of different things: "What percent of my salary should I save? is tightly coupled with its companion, What size “nest egg” should my husband and I have, and by what age? Interestingly, Mr.Christer's answer, 10%, is the number that plugs into the equation that I reference. Jay's 25X rule is part of this. We start with the assumption that one's required income at retirement will be 80% of their pre-retirement income. That's high by some observations, low by others. A quick look at the expenses that go away in retirement - The above can total 35-40% It would be great if it ended there, but there are costs that go up. The above extra spending is tough to nail down, after all, you knew what you spent, and what's going away, but the new items? Crapshoot. (For non-native speakers - this refers to a game with dice, meaning a random event) Again, referencing Mr Christer's answer ""financial planners whom you could pay to give you a very accurate number,"" I'm going to disagree with that soundbyte. Consider, when retirement is 30 years away, you don't know much If I can offer an analogy. I once had the pleasure of hearing Jim Lovell (The astronaut played by Tom Hanks in Apollo 13) give a speech. He said that for the first 99% of the trip to the moon, they simply aimed ahead of their target, never directly at the moon. In this manner, I suggest that with so many variables, accuracy is impossible, it's a moving target. Start young, take the 10% MrC offered, and keep saving. Every few years, stop and see if you are on target, if not, bump the number a bit.  Better to turn 50 and find that after a good decade you've reached your number and can drop your savings to a minimum, perhaps just to capture a 401(k) match, than to turn 50 and realize you've undersaved and need to bump to an unsustainable level. Imagine planning ahead in 1999. You've seen 2 great decades of returns, and even realizing that 18%/yr couldn't continue, you plan for a below average 7%, this would double your 1999 balance in 10 years. Instead you saw zero return. For a decade. In sum, when each variable has an accuracy of +/-50% you are not going to combine them all and get a number with even 10% accuracy (as if MrC were wrong, but the pro would tell you 11% is right for you?). This is as absurd as packaging up a bunch of C rated debt, and thinking that enough of this paper would yield a final product that was AAA." Its been years since I lived there, but I found Seattle to be pretty expensive.  Housing costs seem out of line with expected salaries.  Coming from Puerto Rico you might be shocked how expensive it is to live there, and also how infrequently you see the sun. Your question is highly subjective.  One person would need 100K to cover those things you are talking about, while others would need less then 30K.  Also where you live in the Seattle area makes a difference.  Will you be in Redmond or Bothell?  Housing costs vary considerably. One nice thing about that part of the country is can be very inexpensive to vacation.  A fishing license, a packed lunch, and a bit of gas is all that is necessary to really enjoy that part of the country.   Back in the day I used to ski Steven's Pass during the week, and the lift tickets were a 1/3 of the weekend rate.  Having hiking/camping gear and or a bicycle is also a good way to enjoy life. Bottom line I would make a budget, and go from there.  If you intend on retiring in PR, then you would need a lot less then if you choose to remain in Seattle so even that is subjective. Perfect Example, Marysville, which is way out of town so a commute would be a problem.  However, unlike many parts south of Seattle, it is safe and nice.  ~200K for a 1200 sq ft home.  Holy cow.   Here in Orlando, figure about 130K for the same home with less of a commute.  And you will see the sun more than 5 days per year.
"Fundamentals:  Then remember that you want to put 20% or more down in cash, to avoid PMI, and recalculate with thatmajor chunk taken out of your savings.  Many banks offer calculators on their websites that can help you run these numbers and figure out how much house a given mortgage can pay for. Remember that the old advice that you should buy the largest house you can afford, or the newer advice about ""starter homes"", are both questionable in the current market. =========================== Added:  If you're willing to settle for a rule-of-thumb first-approximation ballpark estimate: Maximum mortgage payment: Rule of 28. Your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out).  Maximum housing cost: Rule of 32. Your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. Maximum Total Debt Service: Rule of 40. Your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. As I said, many banks offer web-based tools that will run these numbers for you. These are rules that the lending industy uses for a quick initial screen of an application. They do not guarantee that you in particular can afford that large a loan, just that it isn't so bad that they won't even look at it. Note that this is all in terms of mortgage paymennts, which means it's also affected by what interest rate you can get, how long a mortgage you're willing to take, and how much you can afford to pull out of your savings. Also, as noted, if you can't put 20% down from savings the bank will hit you for PMI. Standard reminder: Unless you explect to live in the same place for five years or more, buying a house is questionable financially. There is nothing wrong with renting; depending on local housing stock it may be cheaper. Houses come with ongoung costs and hassles rental -- even renting a house -- doesn't. Buy a house only when it makes sense both financially and in terms of what you actually need to make your life pleasant. Do not buy a house only because you think it's an investment; real estate can be a profitable business, but thinking of a house as simultaneously both your home and an investment is a good way to get yourself into trouble." "I live in the UK so it's a little different but generally you'd have one account (a current account) which would have a Visa/MasterCard debit card associated before working and any high street bank (don't know what the US equivalent would be, but big banks such as HSBC/Santander) will offer you a savings account which pays a v small amount of interest as well as bonds as all sorts. From what I know most people have their salary paid into their current account (which would be the spending account with a card associated) and would transfer a set amount to a savings account. Personally, I have a current account and a few different saving accounts (which do not have cards associated). One savings account has incoming transfers/money received and I can use online banking to transfer that to my current account ""instantly"" (at least I've done it standing at ATM's and the money is there seconds later - but again this is the UK, not US). This way, my primary current account never has more than £10-15 in it, whenever I know I need money I'll transfer it from the instant access account. This has saved me before when I've been called by my bank for transactions a few £100 each which would have been authorised I kept all my money in my current account. If you don't have money (and dont have an overdraft!) what are they meant to do with it? The other savings account I had setup so that I could not transfer money out without going into a branch with ID/etc, less to stop someone stealing my money and more to be physically unable to waste money on a Friday if I don't arrive at the bank before 4/5PM, so saves a lot of time. US banking is a nightmare, I don't imagine any of this will translate well and I think if you had your salary paid into your savings on a Friday and missed the bank with no online banking facilities/transfers that aren't instant you'd be in a lot of trouble. If the whole ""current + instant access savings account"" thing doesn't work to well, I'm sure a credit/charge (!!!) card will work instead of a separate current account. Spend everything on that (within reason and what you can pay back/afford to pay stupid interest on) on a card with a 0% purchase rate and pay it back using an account you're paid into but is never used for expenses, some credit cards might even reward you for this type of thing but again, credit can be dangerous. A older retired relative of mine has all of his money in one account, refuses a debit card from the bank every time he is offered (he has a card, but it isn't a visa/mastercard, it's purely used for authentication in branch) and keeps that in a safe indoors! Spends everything he needs on his credit card and writes them a sort of cheque (goes into the bank with ID and signs it) for the full balance when his statement arrives. No online banking! No chance of him getting key logged any time soon. tldr; the idea of separating the accounts your money goes in (salary wise) and goes out (spending) isn't a bad idea. that is if wire transfers don't take 3-5 days where you are aha." Gold is a good investment when central bank money printers can’t take their thumbs off the print button. Over the last 3 years the US Federal Reserve printed a ton of dollars to bail out banks and to purchase US federal debt.  Maybe I should exchange my dollars for euros? The European Central Bank (ECB) is following the FED plan and printing money to buy Greek, Italian, and now Spanish bonds.  This, indirectly, is a bailout of French and German banks. Maybe I should exchange my euros for yen? The Bank Of Japan (Japan’s central bank) is determined not to let the yen rise against other currencies so they too are printing money to keep the yen weak. Maybe I should exchange my yen for swiss francs? The Swiss National Bank (Switzerland’s central bank) is also determined not to let the franc rise against other currencies so they too are printing money. You quickly begin to realize that your options are dwindling for places to put your money where the government central bank isn’t working hard to dilute your savings. Physical gold is also a good investment for several other situations:  What situations would lead to a drop in gold prices? What are the alternatives? Silver has traditionally been used more as money than gold.  Silver is usually used for day-to-day purchases while gold is used for savings. You should plan on your monthly payment (Principal + Interest + Escrow) being a conservative percentage of your take home pay.   No matter your cash savings, if your housing is 60% of your take home pay you are going to have trouble keeping up on the house. My target for housing is that a 15 year, fixed rate mortgage should be under 25% of my take home pay.   For some people, they find that too conservative.  I think the exact percent is a risk/reward preference.  Some people like the 25% number but look at a 30 year mortgage. Whatever you do, don't buy a house at the limit of what the bank thinks you can afford :)  Historically, they have been more willing for me to spend my money than I have been. With a 1/4 million you should  be looking at staying fully invested and doing income draw down you can safely take 3 or 4 %   Basing your retirement income 100% on cash investments is very risky I can remember when inflation hit 15% in the UK and it has been at similar levels in the usa around 14% in 79. "I would like to add my accolades in saving $3000, it is an accomplishment that the majority of US households are unable to achieve. source While it is something, in some ways it is hardly anything.  Working part time at a entry level job will earn you almost three times this amount per year, and with the same job you can earn about as much in two weeks as this investment is likely to earn, in the market in one year.   All this leads to one thing:  At your age you should be looking to increase your income.  No matter if it is college or a high paying trade, whatever you can do to increase your life time earning potential would be the best investment for this money.   I would advocate a more patient approach.  Stick the money in the bank until you complete your education enough for an ""adult job"".  Use it, if needed, for training to get that adult job.  Get a car, a place of your own, and a sufficient enough wardrobe.  Save an emergency fund.  Then invest with impunity. Imagine two versions of yourself.  One with basic education, a average to below average salary, that uses this money to invest in the stock market.  Eventually that money will be needed and it will probably be pulled out of the market at an in opportune time.  It might worth less than the original 3K! Now imagine a second version of yourself that has an above average salary due to some good education or training.  Perhaps that 3K was used to help provide that education.  However, this second version will probably earn 25,000 to 75,000 per year then the first version.  Which one do you want to be?  Which one do you think will be wealthier?   Better educated people not only earn more, they are out of work less.  You may want to look at this chart." The absolute best advice I ever received was this:  You will need three categories of savings in your life: 1) Retirement Savings  This is money you put away (in 401-Ks and IRAs) for the time in your life when you can no longer earn enough income to support yourself. You do not borrow against it nor do you withdraw from it in emergencies or to buy a house.  2) Catestrophic savings  This is money you put back in case of serious events. Events like: prolonged job loss, hospitalization, extended illness, loss of home, severe and significant loss of transportation, very large aplliance loss or damage. You do not take trips to the Bahamas or buy diamond rings with this money.  3) Urgent, relatively small,  need savings. This is the savings you can use from time to time. Use it for bills that arise unexpectedly, unforseen shortfalls in your budget, needed repairs such as car repairs and small appliance repairs, surprising fines, fees, and bills.  Put 10% of your income into each category of savings. 10% intro retirement savings, another, separate, 10% intro Catestrophic savings, and yet another 10% intro urgent, small need, savings.  So, as you can see, already 30% of your income is already spoken for. Divide up the remaining 70% intro fixed (I recommend 50% toward fixed expenses) and variable expenses. Fixed includes those things that you pay once every month such as housing, utilities, car payment, debt repayment, etc. Variable includes discretionary things like eating out, gifts, and  splurges.  Most importantly, partner with someone who is your opposite. If you are a saver at heart partner with a spender. If you are a spender partner with a saver.  There are three rules to live by regarding the budget: A) no one spends any money unless it is in the budget B) the budget only includes those things to which both the saver and the spender agree C) the budget can, and will, be modified as the pay period unfolds.  A budget is a plan not a means to beat the other person up. Plans change as new information arises. A budget must be flexible. The urgent use savings will help to make  the budget flexible.  Edit due to comments: @enderland Perhaps you do not have children living with you. I am a saver, my wife is a spender. When it came time to do the budget I would forget things like the birthdays of my children, school fees due next pay period, shopping for Christmas gifts, needed new clothes and shoes for the children, broken small appliances that needed to be fixed or replaced, special (non reoccurring) house maintenence (like steam cleaning the carpet), gifts to relatives and friends, exceptional assistance to relatives, etc.  As my wife was the spender she would remind me of these things. Perhaps  you do not have these events in your life. I am glad to have these events in my life as that means that I have people in my life that I care about.  What good is a fat savings account if I have no loved ones that benefit from it? "The real question is what can you NOT do!  If you track all your monetary actions, you know everything about your monetary situation.  That means you have the tools to ask and answer ""what if"" questions, such as: ""If I get a 10% raise, could I take longer vacations?""  You could calculate how much you spend per day on vacation and then consider the amount of your raise and how much of it you'd need to allocate to vacations to, say, be able to take a two-week vacation instead of a one-week vacation. ""How much more would I have to earn to move to this nicer apartment?""  This may seem like a simple question, but a surprising number of people can't answer it in a reliable way, because they don't have a clear understanding of how much money they make and how much of it they can afford to spend on housing.  If you find you have lots of spare income, maybe you can move to the nicer place right away; if not, at least you can get a sense of how much more money you'd need to make it happen. ""If I started taking the bus to work, how much would I save?""  You can look at how much you spend on gas and compare that to the price of a bus pass.  By separating out categories like gas, repairs, and car insurance, you can also calculate different scenarios, like if you still kept your car but only used it for occasional trips, versus if you sold the car and used only public transportation. ""If I want to take a trip to Tahiti, what can I cut back on to save the money?""  Using your table you can pencil out scenarios like ""Suppose I stop eating out for lunch at work and just bring my lunch, how long would I have to do that to save enough to pay for a plane ticket?"" These are just a few random examples.  The general idea is that with a record of hard numbers, you can start to consider potential tradeoffs in an objective way --- that is, you can ask ""how much in category X would I have to give up to gain this thing I want in category Y?"" The real trick in making use of your data is not so much ""what"" you can do, but ""how"" exactly to do it.  You may have to become more of a spreadsheet wizard to really delve into these questions.  Also, if you have programming expertise, you can even use something like Python to do calculations that might be laborious in a spreadsheet."