How much of your income is it reasonable/prudent to save?

[seriosa]

Our situation is that we have a mortgage which fits our budget and no other forms of debt. We live within our means. This being Italy we have universal healthcare, relatively cheap higher education, mandatory pension contributions detracted at source so the typical main categories of saving funds do not really apply to us. So once all this is taken care of, what is a reasonable percent of income to put aside as a "rainy day" fund? Averaging it out we are able to save 8-9% of our combined fixed income. DH thinks it is not enough. This is coming up lately because we had some extra outlay (home maintenance) and DH is of the idea that we need to cut back on our ordinary expenditure until we amortize these expenses. While I feel that since we were able to pay for these out of our savings, we can just trundle on as before, and the savings will build back up again (we are not down to zero, if we were I would agree with him). How do you feel about this, how does it work for you?

[Tjej]

We're in Canada, so the healthcare and higher education are similar. We also only have the mortgage and put some away for school for the kids and retirement every year. What we do for house expenses is what you are suggesting.

Well, except we don't really have much of anything in savings and it is all in our home equity line of credit (so we pay less interest on the "mortgage" - I guess I call it our mortgage but technically we don't have one, we have the line of credit instead). It works fine for us. We tend to be savers, both of us. And we anticipate house repair costs (we've been renovating) so it doesn't come as a surprise or anything.

Tjej

[velochic]

You need to figure out how much you would need if you had no income and what period of time is a reasonable expected time without pay. A lot of people in the US thought that 2 or 3 months was a reasonable amount of time to be out of work and now 18 months later are still struggling with no job prospects in sight. Thing of worst case scenario for your situation. I remember when I was taking Italian at the university (just for fun) a few years ago, the instructor, who was from Liguria, was talking about how unemployment was so high. Is that a threat for you guys? How stable is employment?

For most people in North America, 8 months living expenses in savings is really the minimum for stability. I'm not sure that would be necessary in your situation. I'd say have at least 6 months' living expenses, though.

The easy answer is to save as much as you possibly can without sacrificing your needs. Personally, we sacrifice a lot of wants for savings, but that's just us. We don't sacrifice needs, of course and still have some wants we fulfill.

For example, we love to save but it's not stopping us from heading your way in October. (Got any frugal ideas for lodging in Tuscany (Florence) for 10 days??? )

ETA: We have a year's worth in savings at a minimum and about 6 - 8 months if we didn't change our spending habits for living expenses. We don't devote a certain amount to that savings, we keep it at the same balance. We have savings for other things, though, that we contribute to. We keep the emergency savings at a certain level and put more toward other savings in our budget (such as car fund, remodel fund, orthodontics fund, new deck fund, etc.). If we need to use emergency funds, we redirect funds away from others until it is back at that level again. (We're debt free, btw.)

[EmsMom]

If I used up my emergency fund in any amount, I redirect funds and/or become superfrugal until I get back to my desired amount. After that was at the amount I decided was "enough", I would just keep putting aside a certain amount or a certain percentage pretty much forever.

[mtm]

I'd save 6 months normal living expenses or 9 months bare bones living expenses and after that we save 15 per cent for retirement and try to save another 10 per cent for various sinking funds.

[Smithie]

I'm comfortable with 12 months reasonable living expenses - i.e., we'd take no vacations during that period of unemployment, but we wouldn't have to drop preschool or slash the grocery budget.

When things like home repairs (or holiday expenses, or vacations, or a new TV) eat into that amount, I pay attention until I reach my goal again. Basically, I'm OK with this amount going down as long as it's back up again with 3 months or so.

Since I'm an American, I have a whole SEPARATE fund designated for health insurance premiums if we should lose our employer-based coverage. I'm really hoping that I won't always need that!

[Delicateflower]

I would boost my savings until I was back at a good cushion, like your husband. You don't know 100% that you won't have an equally expensive emergency next week.

I like to have enough in accessible savings that we could replace our car and our roof before hitting a crisis.

Originally Posted by velochic

You need to figure out how much you would need if you had no income and what period of time is a reasonable expected time without pay.

They probably have a social safety net, so you don't need a huge e-fund.

[seriosa]

We do have over a years living expenses saved up. We could afford to cover several types of emergencies in an either/or mode eg. a new car, or major dental work, or a major house repair. We are a 2 income household, so that makes us safer... In this country its pretty hard to loose your job unless your employer actually goes bust. There are many safety nets for keeping people in employment. But if you do end up jobless, unemployment benefits are thin and shortlived and it is dauntingly difficult to get back in - even more so at my & DHs age. So if I worry about something, that is it. My job is probably as secure as any private sector job can be, DH's is perhaps a bit more precarious, but we could "frugalize" enough to live on either of our incomes, including keeping up on mortgage payments, if needed be (that was one of the key things we considered when deciding what house we could afford).

The thing is I do feel like we are reasonably safe economically. Of course if we lost both our jobs, and crashed our car and then our house burned down... but I think you can't be prepared for every combination of misfortune or such very long odds. But perhaps this makes me irresponsible in comparison to DH for whom saving is an imperative, regardless of what you already have. So perhaps I should reframe the question:

Once you have reached a level of savings you are comfortable with do you expand your lifestyle and breathe easy or do you keep on squirreling away because more is better?

[texmati]

8-9 percent wouldn't be enough for me. I would have separate savings categories for retirement, emergencies, and then 'expected unexpected expenses-- like roof repair, car issues/new car, medical issues, etc'.

[texmati]

Originally Posted by seriosa

Once you have reached a level of savings you are comfortable with do you expand your lifestyle and breathe easy or do you keep on squirreling away because more is better?

I see! This is a very good question-- I"m sure most people would do a little of both, but I'm definitely a squirrel-er.

[sunnysandiegan]

Originally Posted by seriosa

Once you have reached a level of savings you are comfortable with do you expand your lifestyle and breathe easy or do you keep on squirreling away because more is better?

I this question!

We did things in stages, I guess. Once we reached a specific level of comfort (reached a certain goal), we breathed easy for a month or two while we contemplated the next financial goal. Then, we'd gear up and head for the next finish line. At this point, we're probably around the same big picture point you are (speaking in broad strokes, not details). Mortgage is only debt and is within our means; savings is significant.

At this point, our spending/savings ratio averages 70/30 annually and we just rearrange the details on both sides of the equation as life ebbs and flows throughout the year. Keep in mind our 30% savings includes some things built into your scenario.

In general, we only "expand our lifestyle" for a month or two and only at periodic crossroads in our financial life. Most pay raises and promotions and new lucrative adventures all serve a specific purpose and are planned in advance to a certain extent. We allow a luxury item or event here and there with "extra" money, too. We don't save EVERY spare dollar. Once in awhile, one of us will even go overboard on spending. Nothing long-term or detrimental, but beyond our usual moderately frugal ways.

More specifically, when we spend down some of our savings on something it was intended to be used for (key point for us), then we don't change our plan. That IS the plan. We continue with the plan we set up originally, which includes spending $x amount on y [thing; known or unknown at the time]. Such as...we refinanced our mortgage this year. We weren't planning it specifically and didn't have a specific plan, but our mid-term savings is designed to handle this type of thing. We took the money from those funds to pay the closing costs. We haven't beefed it back up or deviated from our monthly plan. This type of expense IS the plan! Neither did we rest on our laurels the month of no mortgage payment between mortgages. I set the money aside until they let me pay it all toward principal (timing was the only issue; not being allowed to do it or not). All is according to plan and that unexpected expense works with our plan not against it.

[sanguine_speed]

I live in Canada and if your social programs are similar to ours, there is actually a lot not taken care of. Of course, maybe your programs are much more comprehensive than ours.

We do have public universities, but a year of an undergraduate science degree is $5000-$6000 just in tuition, and this is rising regularly. With living expenses, books, equipment and tuition, costs easily exceed $20,000 per year for "publicly-funded" university. If you have extra you could save for your kids to go to school, that's probably a great idea. You could also consider that things can change quickly. Even if university is "cheap" today, it might not be by the time your family is ready to use it. Your kids might also wish to travel to an international university, and you may or may not want to help pay for that.

We also have a public pension program (CPP) that is deducted at source and contributed to by employers as well. But, we are funding the current pensioners, and with the birth rate on the decline, there will be fewer and fewer working people supporting more and more (Baby Boomers!) pensioners. The system is a little precarious, and we're hesitant to over-rely on this pension to sustain us in retirement. The birth rate in Italy has seriously diminished too, no?

We also have publicly-funded health care. But, for many, it does not cover dental, or complementary/holistic medicine, nor prescriptions. Many people have jobs that offer significant coverage of these, but many people's don't (or have something in between).

However, as to the bigger question, I do think it is possible to over-save. I have no intention of leaving lots of money behind. I'm happy to risk living with a little less than dying before I can use what I saved to enjoy later.
I also do want to enjoy extras now, even if that means I'm not a multi-millionaire when I'm 90. I'd rather have a very comfortable home than squish us all into an apartment for the sake of extra money later. What this means is that I count backwards. I figure out how much I need to save for the future, then buffer that, and then feel comfortable buying more experiences today with what's left. I am more comfortable with risk than many, however.

[Poddi]

Well it really depends on your goals and priorities. We're not saving much at all right now because we're paying down our mortgage aggressively. It's our only debt and we want to pay it off in another 2 years. We have an EF of about 3 months' expenses. I know it's not much but it works for us. DH's job is pretty secure at least for the next few years. Once we pay off mortgage (currently $2800 per month) we can save that money towards whatever other goals we have.

You sound like you're in a pretty good financial situation already. I don't think you need to cut back too much, just save up whatever is comfortable to you. Though I think for most people with middle class income, 10 - 15% is a realistic amount to save.

[Tjej]

I am a bit like your DH in that I say "squirrel". BUT I do like nice things so if I am buying something it won't necessarily be the cheapest thing to do the job, but it should last. AND I like to travel. So I suppose once we own the house outright we will spend more of our income (buy newer cars maybe, go on more expensive holidays), but we will also step up our education savings for the kids and our retirement savings.

Tjej