50% 35% 15% ?

maxsteam

BMTH said:

This might be common knowledge but I just read an article that of your take home pay a good guide is to aim for 50% of your monthly income net pay on mandatory household bills, 35% on yourself to do as you please and 15% invested. This is just a example...

Some people want to retire at 40 so they will live frugally and save more. Other people's circumstances are such that they can barely afford to pay for the basics let alone save. Some people believe that there is a magic ratio that will lead to long life, prosperity and happiness.

In some parts of the UK it's possible to eat well, have a car and children and still save a little on minimum wage. In other parts of UK it takes two full-time incomes just to pay for a reasonable place to live. Some people feel a shiny car is important, other people's priority is an overseas holiday. It is, frankly, ridiculous to suggest that spending 35% of your income on yourself is good while 30% or 40% would be bad.

Steve182

In some parts of the UK it's possible to eat well, have a car and children and still save a little on minimum wage.

Presumably rent or a mortgage also has to be paid?
I'm interested to know where that is as I could live like a king there on say a £50K pension. 
If the weather is also OK I may revisit my plan on retiring to Madeira.

maxsteam

Steve182 said:

In some parts of the UK it's possible to eat well, have a car and children and still save a little on minimum wage.

Presumably rent or a mortgage also has to be paid?
I'm interested to know where that is as I could live like a king there on say a £50K pension. 
If the weather is also OK I may revisit my plan on retiring to Madeira.

If you mean £50k savings, you would struggle to live off that anywhere in Europe. If you mean £50k p.a., then you are spoilt for choice, as long as you don't mean "live like a king" literally. £50k p.a. would only get you a cook, a chauffeur and a gardener with nothing left for a car or food.

TheAble

You'd probably be aiming for a paid-off house by the time you retired in any case. That in place, not sure what you'd need to spend 50k a year on.

Malthusian

Alexland said:

BMTH said:

This might be common knowledge but I just read an article that of your take home pay a good guide is to aim for 50% of your monthly income net pay on mandatory household bills, 35% on yourself to do as you please and 15% invested. This is just a example...

Investing only 15% really wouldn't work for our early retirement ambitions!

Maybe not for you, but for most people 15% of net pay saved could easily translate into over 20% of income saved via a pension, with 3.75% tax relief and potentially employer contributions on top.

BMTH said: Also, I’ve just opened a vanguard account and deposited a lump sum in there between 2 funds. Am I ok leaving that in there without topping it up? Seen a few people suggest setting a DD up per month and always depositing into it. I’m not really in a position to do that at the mo!

Thought I'd answer this part of the question as nobody else had:

Not having a regular DD going into the account won't do the money in there any harm, it just means you will be poorer in the future (compared to if you'd put more money in).

MaxiRobriguez

I'm at roughly: 35% household and bills / 10% self / 55% investments

But I earn quite well (well into 40% tax bracket), have few expensive past-times and would like to retire when I'm 49.

Others who earn less or who have expensive hobbies etc won't be able to do those ratios.

Ultimately it's all about what you're willing to sacrifice in order to achieve your wants.

thickasabrick

BMTH said:

This might be common knowledge but I just read an article that of your take home pay a good guide is to aim for 50% of your monthly income net pay on mandatory household bills, 35% on yourself to do as you please and 15% invested. This is just a example...

£875 bills, £612 personal, £262 shares/saves. Just doesn’t look right to me?

Also, I’ve just opened a vanguard account and deposited a lump sum in there between 2 funds. Am I ok leaving that in there without topping it up? Seen a few people suggest setting a DD up per month and always depositing into it. I’m not really in a position to do that at the mo!

The Richest Man in Babylon  by George S Clason, written in 1926 and still worth a browse today. 
It all depends on individual circumstances. If you're servicing existing debt and trying to clear it then you have to adjust a bit as your "mandatory" amount will include all household bills and living expenses. Whatever is left over is for "servicing debt and building an emergency fund. The Richest Man in Babylon recommends putting aside 10% of that amount to build up your emergency fund and using the remainder to service your debt.
Probably better to do a full review of expenses, the type used in the get out of debt forum here, like a statement of affairs (SOA). Once you have a better understanding of your typical living expenses then you can start to allocate a portion to emergency fund, pension and building up your assets. Remember you still have to live this life so make your targets realistic and achievable.

thegentleway

MaxiRobriguez said:

I'm at roughly: 35% household and bills / 10% self / 55% investments

Nice! I'm similar: roughly 40% bills and myself / 10% charity / 50% savings/investments. I think I earn less than you though if you are well into 40% bracket.

MaxiRobriguez

thegentleway said:

MaxiRobriguez said:

I'm at roughly: 35% household and bills / 10% self / 55% investments

Nice! I'm similar: roughly 40% bills and myself / 10% charity / 50% savings/investments. I think I earn less than you though if you are well into 40% bracket.

You may earn more, my definition of "well" actually correlates to earnings that start with a 6.

YellowStarling

MaxiRobriguez said:

thegentleway said:

MaxiRobriguez said:

I'm at roughly: 35% household and bills / 10% self / 55% investments

Nice! I'm similar: roughly 40% bills and myself / 10% charity / 50% savings/investments. I think I earn less than you though if you are well into 40% bracket.

You may earn more, my definition of "well" actually correlates to earnings that start with a 6.

Very similar to yourselves - I get by on 40% bills and myself (though this actually contains some joint 'maintenance fund' contribution each month), and roughly 10% is fixed in DDs to charity and the like.  That leaves me 50% (sole) savings and investments, the more liquid of which (savings) I consider part of emergency funds for both sole and joint expenses.

I would say the above is fair across a year, though I would imagine some years (pre-Covid!) I may have relaxed the 50% savings and investments proportion to contribute more towards us treating ourselves to a particularly special holiday, or a significant birthday, significant purchase (new car), etc.

In summary, I aim to siphon off 50% of my present income for my future self and dependants, and commit 10% of it to charity (of course, I'd like to think I could grow this as I grow more comfortable in securing my own future funds).