Anonymous wrote:

Anonymous wrote:This may be a very basic question, but some of us are at intro 101 levels when it comes to personal finance.
A lot of books (i.e. I will teach you to be rich--Ramit Sethi; financial feminist by Toni Dunlap) provide broad guidelines for saving, investing and spending. For example, Sethi's book says to invest 10% in retirement, savings at 5-10%, fixed costs at 50-60%, etc.). But I am confused--does this refer to pre-tax or after-tax amounts? For example, if I make $100k per year, but 20% is taken out in taxes, do I put 10% of the 100K into retirement or 10% of the after tax 80K? (I know that some funds like 401ks are pre-tax). I know these are just broad guidelines and that everyone is different but curious how other folks approach these numbers.

Save as much as you can, 20% of gross income at a minimum, in the following order.
1. Max 401K to the extent of company match
2. Mega backdoor Roth, if available. This bucket can typically be rolled over into a Roth IRA right away vs. a Roth 401K.
3. Roth IRA (outside of work)
4. Brokerage
5. 401K contribution remaining after (1) - This gets priority over (4) if your marginal tax rate is higher (25%+).

Remember that your contributions to Mega backdoor Roth and Roth can be withdrawn anytime and act as an emergency fund of last resort. Their earnings remain untouched/untaxed forever.

PP again. On the topic of emergency funds.. If you have credit cards with a decent credit limit and parents who can spot you a couple of months' of expenses, you don't need an emergency fund. Otherwise, you do. 3 months should be fine if you're single.

Anonymous wrote:This may be a very basic question, but some of us are at intro 101 levels when it comes to personal finance.
A lot of books (i.e. I will teach you to be rich--Ramit Sethi; financial feminist by Toni Dunlap) provide broad guidelines for saving, investing and spending. For example, Sethi's book says to invest 10% in retirement, savings at 5-10%, fixed costs at 50-60%, etc.). But I am confused--does this refer to pre-tax or after-tax amounts? For example, if I make $100k per year, but 20% is taken out in taxes, do I put 10% of the 100K into retirement or 10% of the after tax 80K? (I know that some funds like 401ks are pre-tax). I know these are just broad guidelines and that everyone is different but curious how other folks approach these numbers.

Save as much as you can, 20% of gross income at a minimum, in the following order.
1. Max 401K to the extent of company match
2. Mega backdoor Roth, if available. This bucket can typically be rolled over into a Roth IRA right away vs. a Roth 401K.
3. Roth IRA (outside of work)
4. Brokerage
5. 401K contribution remaining after (1) - This gets priority over (4) if your marginal tax rate is higher (25%+).

Remember that your contributions to Mega backdoor Roth and Roth can be withdrawn anytime and act as an emergency fund of last resort. Their earnings remain untouched/untaxed forever.

In your twenties and thirties, my philosophy is to put in the max you can into savings. This is the easiest time to do it since you should have the lowest expenses.

Things you need to think about: retirement, emergency savings, housing - do you want to purchase housing at some point in the future, any current debt you have.

Current Debt: car, student loans, credit card debt. Try to pay off your credit card every month - use it as a cash flow mechanism not as debt. If you find that you tend to buy more than you should, consider not using a credit card and using a debit card instead. Debit cards take money out of your account when you use them. Credit cards bill you once a month and if you pay them off once a month, you do not incur any interest charges. Pay off cars as soon as possible. Pay off student loans faster the higher the interest rate.


Do the max your employer allows if you have access to a 401k (or similar). This is frequently 15%. If you set it up now at the start, you will never get used to spending that money. If you can do a ROTH 401k do it, your tax load should be at its lowest the younger you are (assuming you increase your income as you work and age). ROTH IRAs are also good. If you can do both the 401k and ROTH, do it. If not, the priority should be 401k % to the max your employer will add more in, then ROTH IRAs, then increase the 401k percentage to the max allowed by your employer.

Save for an emergency fund to be about 6 months of your expenses and increase it as your expenses increase. This is the easiest way to set it up.

Then, think about if you want to save for housing. This is above the retirement and emergency fund savings. As you meet your emergency fund goal, you can put the monthly contribution you made to increase your emergency fund towards your future housing. You can also plow any bonuses into it. Once you pay off student loans, you can add that monthly expense towards your future housing.

Having roommates if much less expensive than living on your own. It allows you to save and spend more on other things. If you have the opportunity, living at home for free can be the best arrangement, BUT you need to come up with a budget to figure out what it would coast you to move out and live elsewhere - save all of that each month - then you will be used to having the limited extra cash to spend. Setting up good spending habits is important. My DC, lived at home for 2 1/2 years and saved $3k more a month while he was here. That gave him a great starting point for savings.

Most experts recommend saving 15% of your gross HHI from your first job. If you do this, you’ll never worry about having enough to retire. Ramit’s targets on his Conscious Spending Plan are post-tax. He sees that post-tax savings and investing as additional to the pre-tax amounts. Having taxable brokerage accounts is hugely helpful for things like buying a house and retiring early.

Pretax

If you put 10% in retirement, it wont be taxed (for now). Then do another 10% of post tax money for your emergency fund.

It depends on your lifestyle. Put as much as you can into retirement.

This may be a very basic question, but some of us are at intro 101 levels when it comes to personal finance.
A lot of books (i.e. I will teach you to be rich--Ramit Sethi; financial feminist by Toni Dunlap) provide broad guidelines for saving, investing and spending. For example, Sethi's book says to invest 10% in retirement, savings at 5-10%, fixed costs at 50-60%, etc.). But I am confused--does this refer to pre-tax or after-tax amounts? For example, if I make $100k per year, but 20% is taken out in taxes, do I put 10% of the 100K into retirement or 10% of the after tax 80K? (I know that some funds like 401ks are pre-tax). I know these are just broad guidelines and that everyone is different but curious how other folks approach these numbers.