Savings rate versus future needs

[accountingsucks]

With my investments and economy tanking I've become even more diligent with trying to pare costs and tracking year over year expenses, and expenses to budget, etc. I am certainly not helping the economy recover with my miserly ways but it gives me some solace that I don't really need to make any adjustments to spending in this difficult time. Also, I figure I have about a 50/50 chance of retaining my job as my employer has been hit somewhat hard with the downturn.

Anyways, I was playing around with my calcs and noticed that it takes me 3.6 months to save one year of expenses. In other words after my take home (ie after taxes) pay less expenses, every 3.6 months I am able to save one full year of expenses. My expenses do not factor in taxes I should note - it is simply my monthly recurring expenses....not quite a survivial budget but close to it. I do not factor in taxes as part of my expenditures because right now these current savings are simply in cash so if I had to draw on them to meet expenses they would not incur any taxes. For example let's say you save 5K a month and expend $20K in a year, then your ratio would be 4 - it will take you 4 months to sock away one year of expenses. Conversely you could also look at how many years expenses do you save in one year of savings but I prefer to check this ratio on a monthly basis.

Just curious if others have figured out their numbers like this...or maybe I just have too much time on my hands.

[Helen]

This sounds like a really good exercise. My budget for 2008 was my worst in years in terms of saving. My partner and I have been renting. I am looking forward to getting back in sync and socking more away in savings.

I am going to sit down and do a bare bones budget. I think your approach is a good motivator. If I want to buy something, I can ask myself if it is worth a month of living expenses to buy. I like that better than computing an after tax hourly wage.

[OAG]

It seem good but, as I have been told many times on this site, those expenses today will increase more the further out you get ($1 of expenses today will be $1 + something 5, 10 or 15 years down the road). Could always compensate by adding a factor to each say 5 year increment, something like $100 of electricity today will maybe cost 10% more 5 years out so that cost would be $110; 10 years later it would be 20% more than today. I think this makes a good case for a Spread Sheet, by year, as it is simpler to do "what if" and change factors at will. Is this beginning to sound like your ID?

[FIREd]

Using a bare bones budget as a basis (excludes income taxes but includes all recurring expenses such as groceries, gas, mortgage payments, insurance premiums (health, cars, home, umbrella, disability, life), car repairs, property and car taxes, health co-pays, utilities, and pets), we are currently saving one year worth of expenses every 4.4 months.

Expenses that will go away in retirement, namely mortgage payments and disability/life insurance, currently account for about 40% of our bare bone budget.

[growing_older]

I have not tried to figure such a number - until you suggested it. At my current savings rate, I think I put away about a year's worth of expenses in about 8 months. I don't know if I should be okay with that or push to do more if everyone else does it in half the time or less. Maybe if I was living on that bare bones budget I could save more. OTOH, the market took away quite a few years of expenses in the last 12 months. I have to just accept that as part of the process at the level of risk I was signed up for (asset allocation).

[FurBall]

40% retired now. We save 2 months expenses (in today's dollars) for every month I work. So 6 month's to save a year of expenses. The expense computation includes taxes at my estimate of what our retirement average tax rate will be.

[Helen]

Well, I'd have to ballpark we bank about a year's living expense for every year we work.

[Meadbh]

I've been doing this mental exercise recently without a spreadsheet and I estimate I can save a year's "bare bones" expenses in 6 months. It's a helpful metric to follow given that one of my new milestones is "has five years' living expenses socked away in cash or cash equivalents".

[kumquat]

Since I'm no longer working, I can't comment on my ratio, but it was never as good as some of you are doing. I was lucky to save a year's expenses in 3 - 5 years.

At the rate some of you are going, and with the power of compound interest, you'll be FI in no time. Go for it, more power to you.

[Helen]

Quote:

Originally Posted by kumquat At the rate some of you are going, and with the power of compound interest, you'll be FI in no time. Go for it, more power to you.

It would be nice if the stock market would cooperate.

I'm thinking either I make a lot less or spend a lot more than most. My rough estimate isn't really bare bones though.

I need to work on my budgeting and get a better handle on spending.

[kumquat]

Quote:

Originally Posted by Helen It would be nice if the stock market would cooperate.

If you are young enough (10+ years to ER), it will probably cooperate. If not, we are all probably screwed. Good luck.

[Independent]

I'm impressed. You people are serious about this. The best we ever did was 1:1, one year's expenses in one year. That was all expenses except taxes. contributions, and tuition so it was more than bare bones. I was pretty proud of that.

I always figured we could earn a little more than inflation on our savings, and I expected SS and pension to help us out when we got old enough, so I wasn't really targeting 30 years of spending.

[ProspectiveBum]

We're saving about 50% of our current barebones expenses per year. We're aggressively paying down our mortgage though, or it'd be more like 75%.

[Rambler]

We're dumping about a year's worth of living expenses (liveable, but relatively barebones) into the black hole market in every 2.5-3 months. Again, that is liveable, and would nicely support life including health insurance. However, we would not be having a whole lot of fun, nor would we be able to do much travel. On the other hand, we save about one year of our comfortable target in about 5 months or so. We have enough to consider ourselves "entry-level" FI, but we don't want to RE at entry-level FI comfort, so I keep plugging away at it.

R

[Meadbh]

Quote:

Originally Posted by Independent I'm impressed. You people are serious about this. The best we ever did was 1:1, one year's expenses in one year.

It's easier if you have a high earning job. Of course, to train for one, you have to study for years and years and will start with large debts unless your parents have paid for your education (as mine did).

[Bimmerbill]

Yeah, I don't know how you are doing it. I had to reduce my 18% 401K to 5%. Picked up daycare expense of $6K a year, property taxes went up $1K a year, heating oil was at an all time high (3x what I paid last year).

I'm not saving anything, other than my 5% into my 401K. I am paying off my debts tho, and have made good progress.

After that I hope to start stashing some money for an emergency fund. Even then, its probably something like 1 year of living expenses in 10 years.

But I'm young, in a high COL area, and have a 3yo DD. I tell you what, doctors copays add up FAST!

[snodog]

Wow some impressive savings rates. I'm almost embarassed to say it takes us about 13 months to save a years worth of expenses. Hopefully the stock market turns around someday and makes it feel like i'm making progress.

[Grep]

I normally save a year of generous living expenses per year (two if we're talking basic living expenses). That's the good news.

Unfortunately, these days the stock market is eating five or more years of generous living expenses per year. So, my net savings rate is a negative four years per year or worse, recently.

[Rambler]

Quote:

Originally Posted by Meadbh It's easier if you have a high earning job. Of course, to train for one, you have to study for years and years and will start with large debts unless your parents have paid for your education (as mine did).

Yes, and sometimes you have to make other sacrifices to get to that high earning job (family time, personal time, and health come to mind).

R

[Dennis]

Yes, a good Exercise, but I do MORE Buying in times like these.. I search for Replacing my Cars, Home Products and everything else I can at -25% differences in most cases..Just got a 2008' Car for $6k less than just 6 mos ago and got full price value for my 2005...but the 08' was a Repo... Got thru my bank..

Same for TV's ( Garage Sales for nice 42 and 54" Guys for 50% Less in the stores and only 6 mos old ) and Getting alot of Contracting Work done on the house at ave of another 25% discounts..they are starving for work....just had Seamless gutters Installed for over 40% Cheaper than just last Falls Price.. Getting A Lower Interest Rate on CC's- I call them every 6 mos.. and Just Bought s used Hot Tub for about 75% less than Retail from another Garage sale /House repo deal..and Went to Kohler in Wi. ( about 100 miles from me) and bought all new Bathroom items at 55% Off! from just going thru wanting to do a Rehab last summer..!

And buying some more of my MFunds? They're Selling at pre 1999 and 2002 prices? are bargins to me..Just like when I bought more of them in 2002 and early 03'...

So Climbing into a Hole and Hiding may not be in your best interest..If you have a couple of Yrs of COH and your bills are Upto date? I'd be looking at major Items to buy now and not wait until things improve... Inflation will also come back as well.

so, IAD..on you situation..