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Saving 20% of income when you don't have any

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  • Saving 20% of income when you don't have any

    In efforts to automate and track my savings, rather than take each paycheck and do novel math each time, for the last few years I've just taken last years gross/net number and built a spreadsheet to track line items for each asset going forward. Salary hasn't really had that much variance and I usually aim for 30% gross.

    I'm still saving as if I am going to make what I made last year, but I think if I make half what I made last year that'd be a blessing. I think it's safe to say I can take the full 401k profit sharing line out. Was scheduled to max out 401k; assume I'll still max out employee portion barring TEOTWAWKI. Putting $4000/month into taxable.

    We could live quite awhile on current set aside E-fund, but I do have taxable contributions on auto-pilot from there. At what point would you consider slowing down on still funding 2020 things like I thought I would in January? How long do I keep firing dry powder before thinking I should conserve ammo?

    As a wrinkle, I could get a interest-only loan for 1-1.5x my current cash. If the % was low enough, does it make sense to pull that even though I don't technically need it?

  • #2
    i would aim to save 20% of what you actually have coming in and stop automating.

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    • #3
      It sounds like you have a good plan and good habits. This year is going to be very unusual. I would consider it to be a one-off, do what you can to stay afloat, and return to your good habits next year...or whenever this passes.

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      • #4
        during an income interruption i wouldn't do any long term investing.

        save your money and when this all stabilizes if you find yourself with cash you can decide what to do with it.

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        • #5
          I would not take out the loan.

          I would hang on to extra cash for a few months at least. I don't anticipate any income changes this year but seriously you never know. I am saving all cash right now except for our automatic contributions to our employer 401k's. Will keep a 6 month EF on hand and at the end of this crisis will decide what to do with the extra cash.

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          • #6
            Hard no on the loan, financial risk assessment of your needs for a 2 year lockdown and how you will meet them, then invest excess based on actual income.

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            • #7
              Continue to maximize qualified funds contributions. Keep funding HSAs, tax-favored 529s, etc.

              Continue to save and invest 20% of gross income. Minimize personal and business expenses. This could last quite a while longer.

              My spouse’s business income dropped almost completely. There may be enough emergency patients to cover business rent and utilities, but we’re paying the personal mortgage, utilities, rice, beans, & toilet paper off of my income.

              It was painful to shut off the $4000 per month automatic taxable investment, especially since equities are quite a bit cheaper than they were at the start of the year.

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