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I agree with this. Even if your paycheque is $5k a month, practice living on half of that or less—maybe a lot less. It won't hurt to save the rest anyway.



One of the rules of thumb I heard somewhere and try to do (though it's pretty damn hard) is to save 1/3 of your gross salary.


This is/was more popular in eastern Asia, particularly in China when Confucian culture was in its heyday. I remember growing up a Chinese family bought a house in our neighborhood with cash. He was a garbage man, they had two kids, and his wife didn't work.

I've managed it since I was 25. Here's what I found.

* If you're making below or well below the median salary for your state, good luck getting past 10% of your net pay. 30% of net is much easier when you're at or just above the median. 33% of gross requires you to have made those "long-term purchases" already, such as furniture and a vehicle.

* On cars, try to buy the first "long term" one in cash. Yes, this takes time to accomplish, but the reality is once you can do it the first time, you'll be able to easily continue doing it for the rest of your life. Buy what you truly want, otherwise you'll find excuses to replace it earlier. 18-35 year olds in America would be much happier if they had bought a Miata or a Mustang or what they had actually wanted instead of their Corolla or Taurus they felt was a "more responsible" choice.

* Learn to cook. Last night I had a steak, homemade biscuit, asparagus, couscous, drink and a homemade cookie for just under $3. Packaged foods and mixes are never cheap, and the cost of prepared foods is staggering.

* If you don't love it and see yourself using it 10 years from now, why are you buying it? The pricier the item, the longer you better see yourself using it A huge sink in consumer culture is buying "disposable items", particularly furniture, gadgets, and even cars in some cases. Buy once, take good care of it, and avoid having to buy it again for some time, if at all. Furniture especially - go used to save money if the piece is still in production (typical for modern classics), because odds are even if it's already 40 years old it'll still handily outlast you.

* Live as close to work as possible. Mass transit is cheaper than anything (I can go all over Boston, as much as I want, for $59/mo). The higher cost of living is more than offset by the extra time to cook, relax, and decompress.

* Reassess your budget, in full, every year. Prune possessions and figure out why it was a waste. Repeat until your friends refer to you as that really cheap person that somehow has really nice things.


On cars, try to buy the first "long term" one in cash.

You will be absolutely amazed what it does to your finances if you don't have a car payment. Too many people treat them like they're laws of nature. Google for [Drive Free, Retire Rich], which aside from poor math due to overly optimistic assumptions of investment returns is an amazing video.


I don't think the maths was wrong, just the assumptions were possibly optimistic. A $1500 car doesn't really depreciate much (unless it dies), but a $12000 car does. And then there's the 12% investment return figure.

(Still - the overall point is very valid)


I don't have a rule of thumb, but my actual number is usually more like 2/3 of gross saved.

It helps to have the car paid for and not have a mortgage or apartment lease though.


That seems impossible for me - taxes and other deductions are over a third of my gross salary.


Ditto, my taxes are about a third of my gross, but I do save about half of my net, making for about a 1/3 savings rate overall.

Honestly, I haven't hut to cut on many things to get here, so I'm pretty happy about it. One key thing has enabled this:

No car. None, no desire for one. I pay extra to live centrally in the city near good public transit, but the extra I've paid (compared to living in a burb) is a tiny fraction of the cost of car ownership.

By my estimates that alone gets me an extra 10% savings rate at the very least. I have all the spare cash in the world to travel, buy cool toys without ever digging into the rainy day/startup fund.

Being childless certainly helps, too.


Yes, I mostly save "about" a third. The hard part is getting to above a third consistently. I agree with the car part, but with the proviso that it doesn't work so well when suddenly you end up with a job in some industrial park that doesn't have good public transit.


True, but you can always wait to buy a car until you need it, and the savings will* still outdo the cost of a rental to tide you over while shopping for one.

*Estimating here. Looking at Hertz.com, you can rent for ~$250/week, which for me equals about 4 months in minimal car insurance.


2/3 of net, however is very possible. Works out to something like 50% of gross, maybe a little less.


You're right. I guess I don't factor taxes in at the time, since I pay them out of savings.


I save very close or more than 2/3 of my current salary.

I own my car, I bought it in cash. Where I live I need it (I already tried the whole Vespa thing, I lasted one winter and was exhausted).

I don't have a mortgage. I sold my house.

I rent. I don't want the baggage a house brings (time, maintenance, stuck in one place). My rent is ~ half of my old mortgage which was not that much and in a much more enjoyable community (behind campus and about 2 min walk from the video store, coffee shops, and grocery store).

I only buy what I truly believe I will hang on to and be happy or content with.

Why do I do this? I don't know, maybe to retire early. Maybe do the whole start up thing someday.

However, I think it's mostly because it's comfortable for me. I don't feel comfortable in one place and like the ability to just throw everything in my car and go. I don't like things that hold me back or slow me down.

Edit: this is after taxes and whatever else they take off. I'm going by what my paycheck says.


For me it is the startup thing. 1 year of saving 1/3 of your gross (1/2 your net) is one year of runway when you quit.


Agree, agree, 100x agree!

You do not need a BMW, buy a corolla. You do not need the loft, live in the cheapest decent unit you can find. Don't get into the showy lifestyle trap.


If you live in Europe (or New York), you don't even need a car.


Or San Francisco, or Tokyo...


and for everything else, there's ZipCar (I just sold my car :)




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