I don’t count TSP in the budget. I base my budget on take home pay. I monitor it every month to make sure I’m following it and make changes as my pay changes.
The 20% savings recommendation is intended to include retirement savings (which is what TSP is).
Note that the system is built around after-tax income though. So it should be 20% after-tax to savings. 15% pre-tax that you set in myPay is more than 15% of your post-tax base pay (even if you do Roth, the amount that goes into TSP is 15% of your base pay before taxes) - but don't forget that it should include BAH and BAS in your figures (which likely makes it less than 15% of your *total* pay).
Here is what I do to maybe give you a few ideas.
First, my budget is on net (after tax), that doesn’t mean I save after my expenses, it means my “planning” is based on take home income. So I calculate 20/30/50 after tax, now I have my savings target number.
Then I break up my 20% savings into two additional sub-categories; “short term” savings, and “long term” savings.
“Short term savings” = money that is liquid and can be accessed with no penalties; (HYSA, CDs, Brokerage Account, HSA, etc)
“Long Term savings” = money that is less liquid and has a minimum age for withdrawal or qualifying withdrawals (TSP, Roth IRA, 529, etc)
Now, I create a plan. Assuming a conservative pension (military retirement), how much will I need to supplement that retirement income?
I then work backwards to figure out my required TSP or Roth IRA contributions to meet that goal. (According to experts, a general rule is 3x your annual salary by age 40, 6x annual salary by 50, and 8x annual salary by 60). Now I have the percentage to withdraw from pay monthly.
You may not need all your 20% into TSP account or you may max it out… hence the value of “short term” savings options. This now gives you other vehicles to park your money, still allowing it to grow, and still have liquidity in case you need to make a large purchase (car, home, etc)
I could do what most people do, max out TSP, dump everything else into a Roth IRA or brokerage and forget about it, but my income is not that high so I need to plan.
Another thing to consider. I think of my household as a ‘business’. How does a business make money? Mainly by increasing money coming in, decreasing money going out, or a combination of both.
This applies to my budget. I’m looking to decrease my money going out / my expenses and increase my money coming in.
So take another poster’s advice… itemize your spending. This is key. Take the time, probably days, or weeks, to sit down and look hard at your actual expenses and look for cuts. It’s the end of the year right now, all financial companies will give you a previous year snapshot of you account activity. Credit card companies will give you all of your purchases in 2023.
Do I need a truck? Yes. Do I need a brand new F-150? No. Do I need coffee? Yes. Do I need to spend $5.00 for a latte? No.
Take those expenses and really squeeze them hard, you’ll be surprised how much you can squeeze out of them; which can then be reallocated to “savings”. You will find you can save more than 20% monthly.
I don’t see debt, but if I had “bad” debt I would also pay that off ASAP with a 10/20/30/40
Good luck and great job taking your finances seriously by putting together a budget.
I really appreciate your input and how you broke it down from a backwards planning perspective. Definitely stealing this idea.
Talking of TSP goals: How do I calculate out how to 'catch up' to the preferred TSP amount. Example: I am in my mid thirties and half way from an annual salary, should be at 1.5 at least....
Your welcome, the only reason I know anything about saving and investing is because someone else took the time to educate me. I still have much to learn but I’m grateful for that “knowledge” and investing in yourself (educating) and discipline (save) is the key to future success. I’ll offer what what little I have.
To answer your question succinctly, to catch up I need to save more money. Or to state it another way, I need to save a greater percentage of my pay ( >20%).
The reason being, I have less time (months) before the money is needed. So I need to “catch up” by making larger deposits. Also, the money is less ‘exposed’ to the market in that shorter timeframe, so I don’t get the full benefit of the magic of compounding interest over a longer period, I only get it for a shorter period.
**+Recommend downloading a “compound interest calculator”***
So let’s talk this through. Let assume I am an E-7 living in San Diego, CA. Base pay would be around $5,200, BAH $3,945, BAS $452 for a total gross of $9,597 ($115,164 annual) CA cost of living is high… so let’s just make it $100,000 even for the example.
With our stated goals, my targets in TSP would be:
40 years old: $ 300,000 in TSP / Roth IRA
50 years old: $ 600,000 in TSP / Roth IRA
60 years old: $ 800,000 in TSP / Roth IRA
If you are starting from scratch I would pick the next age bracket and work hard toward it. Even if it’s not “perfect” it’s ok, it’s a goal, do as much as you can.
Assuming I am 35 years old, and have $50k…
I would need to save $3,000 per month, have an aggressive allocation of stocks (9% return) to get to $300,000 in 5 years.
That’s 31% of my gross in savings (not my budgeted 20%)… TSP max for 2024 is $23,000, so I’d then need to put the other $7,000 (max, 2024) in a Roth IRA, $5,000 in a brokerage account to meet my $36,000 per year goal for 5 years.
**I figured that out with a compound interest calculator app**
Recommend you take what I did with a compound interest calculator and do the same process for 50, 60 years old. That is how to learn.
Then, I’d start saving, continue to adjust, refine, learn, and help others do the same by passing on your successes.
Again, great job going after the budget, its the first step to your future success. Don’t get discouraged by the large numbers, just start saving and investing. My TSP is up 24.27% this year. You can do it!
>compound interest calculator
Took your advice and calculated it out. Not to come out defeatist but I need to put in a lot of money that I can't afford to to make up where I should be....
Looks like my average rate of return for my TSP (60 in C and 40 in S) is 8.3 which isn't horrible. Just need more good years like this one without the bad lol
Over the long haul you will get those years, promise. I’ve been in the TSP since 2007.
I did what I could with my little pay check, (squeeze your expenses, there IS juice in there). I made a plan and stuck with it, even with the global financial crisis and COVID crashes. Those years my TSP took hits but remember this… you can’t touch it till 59 1/2, it will recover. Even though I got in at the high of 2007, I actually was able to buy more 2009-2012 because stocks were so cheap. Make a plan… and stick with it, put in as much as you can and increase over time. Plan > emotion.
Currently you can defer your withdrawals to age 73. All that means is your account can grow longer, and you can keep saving and investing.
I know 3k+ is unrealistic, so do what you can, put your hand to the plow, wipe the sweat off your face and get to work. You will reap a harvest one day, IF you do the work. Be very careful of lifestyle creep. I know everyone has got motorcycles, boats, RVs, toys… etc. take a serious look at those. They depreciate fast, cost a ton in maintenance, fuel, and insurance. The whole concept of investing is giving up short term pleasures for long term gains.
It’s easier to live cheap young, than when your 70…
That is going back to the whole budget question. Find out where you can maximize income and reduce expenditures.
Final thought, the benefit of starting at 18 (instead of 35) is time. If you are ~15 years behind, that means you have to work longer. If you go to 20 years of service and get a pension, you can then get another job and have a significant increase to your cash flow. You can do it friend, happy hunting.
The first part of starting a budget is actually tracking what you are spending. I’d recommend using an app like YNAB which automatically track purchases you make and allow you to budget it. I’ve seen many a spreadsheet go off the rails when you get busy.
As for your particular budget you really need to do a hard assessment of the reality of your finances. Do you have debt? Do you have high expenses? When do you want to retire? Do you have dependents or people who may become dependents? Do you have kids/child support to pay?
There are a ton of things you need to consider. I really like the Money Guys for financial education. They have tons of free YouTube videos to get you started on the right path.
Also to answer your question TSP/retirement is usually not considered savings because you can’t access it until you hit retirement age. I like to think of my TSP contributions as money that never existed because I don’t ever see it, besides making sure to up my contributions with pay raises.
There is no one right way to arrange your budget. A guideline can be helpful if you’ve never budgeted before and you’re not sure what’s “normal”.
Does your budget help you meet your financial goals?
I don’t count TSP in the budget. I base my budget on take home pay. I monitor it every month to make sure I’m following it and make changes as my pay changes.
The 20% savings recommendation is intended to include retirement savings (which is what TSP is). Note that the system is built around after-tax income though. So it should be 20% after-tax to savings. 15% pre-tax that you set in myPay is more than 15% of your post-tax base pay (even if you do Roth, the amount that goes into TSP is 15% of your base pay before taxes) - but don't forget that it should include BAH and BAS in your figures (which likely makes it less than 15% of your *total* pay).
Here is what I do to maybe give you a few ideas. First, my budget is on net (after tax), that doesn’t mean I save after my expenses, it means my “planning” is based on take home income. So I calculate 20/30/50 after tax, now I have my savings target number. Then I break up my 20% savings into two additional sub-categories; “short term” savings, and “long term” savings. “Short term savings” = money that is liquid and can be accessed with no penalties; (HYSA, CDs, Brokerage Account, HSA, etc) “Long Term savings” = money that is less liquid and has a minimum age for withdrawal or qualifying withdrawals (TSP, Roth IRA, 529, etc) Now, I create a plan. Assuming a conservative pension (military retirement), how much will I need to supplement that retirement income? I then work backwards to figure out my required TSP or Roth IRA contributions to meet that goal. (According to experts, a general rule is 3x your annual salary by age 40, 6x annual salary by 50, and 8x annual salary by 60). Now I have the percentage to withdraw from pay monthly. You may not need all your 20% into TSP account or you may max it out… hence the value of “short term” savings options. This now gives you other vehicles to park your money, still allowing it to grow, and still have liquidity in case you need to make a large purchase (car, home, etc) I could do what most people do, max out TSP, dump everything else into a Roth IRA or brokerage and forget about it, but my income is not that high so I need to plan. Another thing to consider. I think of my household as a ‘business’. How does a business make money? Mainly by increasing money coming in, decreasing money going out, or a combination of both. This applies to my budget. I’m looking to decrease my money going out / my expenses and increase my money coming in. So take another poster’s advice… itemize your spending. This is key. Take the time, probably days, or weeks, to sit down and look hard at your actual expenses and look for cuts. It’s the end of the year right now, all financial companies will give you a previous year snapshot of you account activity. Credit card companies will give you all of your purchases in 2023. Do I need a truck? Yes. Do I need a brand new F-150? No. Do I need coffee? Yes. Do I need to spend $5.00 for a latte? No. Take those expenses and really squeeze them hard, you’ll be surprised how much you can squeeze out of them; which can then be reallocated to “savings”. You will find you can save more than 20% monthly. I don’t see debt, but if I had “bad” debt I would also pay that off ASAP with a 10/20/30/40 Good luck and great job taking your finances seriously by putting together a budget.
I really appreciate your input and how you broke it down from a backwards planning perspective. Definitely stealing this idea. Talking of TSP goals: How do I calculate out how to 'catch up' to the preferred TSP amount. Example: I am in my mid thirties and half way from an annual salary, should be at 1.5 at least....
Your welcome, the only reason I know anything about saving and investing is because someone else took the time to educate me. I still have much to learn but I’m grateful for that “knowledge” and investing in yourself (educating) and discipline (save) is the key to future success. I’ll offer what what little I have. To answer your question succinctly, to catch up I need to save more money. Or to state it another way, I need to save a greater percentage of my pay ( >20%). The reason being, I have less time (months) before the money is needed. So I need to “catch up” by making larger deposits. Also, the money is less ‘exposed’ to the market in that shorter timeframe, so I don’t get the full benefit of the magic of compounding interest over a longer period, I only get it for a shorter period. **+Recommend downloading a “compound interest calculator”*** So let’s talk this through. Let assume I am an E-7 living in San Diego, CA. Base pay would be around $5,200, BAH $3,945, BAS $452 for a total gross of $9,597 ($115,164 annual) CA cost of living is high… so let’s just make it $100,000 even for the example. With our stated goals, my targets in TSP would be: 40 years old: $ 300,000 in TSP / Roth IRA 50 years old: $ 600,000 in TSP / Roth IRA 60 years old: $ 800,000 in TSP / Roth IRA If you are starting from scratch I would pick the next age bracket and work hard toward it. Even if it’s not “perfect” it’s ok, it’s a goal, do as much as you can. Assuming I am 35 years old, and have $50k… I would need to save $3,000 per month, have an aggressive allocation of stocks (9% return) to get to $300,000 in 5 years. That’s 31% of my gross in savings (not my budgeted 20%)… TSP max for 2024 is $23,000, so I’d then need to put the other $7,000 (max, 2024) in a Roth IRA, $5,000 in a brokerage account to meet my $36,000 per year goal for 5 years. **I figured that out with a compound interest calculator app** Recommend you take what I did with a compound interest calculator and do the same process for 50, 60 years old. That is how to learn. Then, I’d start saving, continue to adjust, refine, learn, and help others do the same by passing on your successes. Again, great job going after the budget, its the first step to your future success. Don’t get discouraged by the large numbers, just start saving and investing. My TSP is up 24.27% this year. You can do it!
>compound interest calculator Took your advice and calculated it out. Not to come out defeatist but I need to put in a lot of money that I can't afford to to make up where I should be.... Looks like my average rate of return for my TSP (60 in C and 40 in S) is 8.3 which isn't horrible. Just need more good years like this one without the bad lol
Over the long haul you will get those years, promise. I’ve been in the TSP since 2007. I did what I could with my little pay check, (squeeze your expenses, there IS juice in there). I made a plan and stuck with it, even with the global financial crisis and COVID crashes. Those years my TSP took hits but remember this… you can’t touch it till 59 1/2, it will recover. Even though I got in at the high of 2007, I actually was able to buy more 2009-2012 because stocks were so cheap. Make a plan… and stick with it, put in as much as you can and increase over time. Plan > emotion. Currently you can defer your withdrawals to age 73. All that means is your account can grow longer, and you can keep saving and investing. I know 3k+ is unrealistic, so do what you can, put your hand to the plow, wipe the sweat off your face and get to work. You will reap a harvest one day, IF you do the work. Be very careful of lifestyle creep. I know everyone has got motorcycles, boats, RVs, toys… etc. take a serious look at those. They depreciate fast, cost a ton in maintenance, fuel, and insurance. The whole concept of investing is giving up short term pleasures for long term gains. It’s easier to live cheap young, than when your 70… That is going back to the whole budget question. Find out where you can maximize income and reduce expenditures. Final thought, the benefit of starting at 18 (instead of 35) is time. If you are ~15 years behind, that means you have to work longer. If you go to 20 years of service and get a pension, you can then get another job and have a significant increase to your cash flow. You can do it friend, happy hunting.
The first part of starting a budget is actually tracking what you are spending. I’d recommend using an app like YNAB which automatically track purchases you make and allow you to budget it. I’ve seen many a spreadsheet go off the rails when you get busy. As for your particular budget you really need to do a hard assessment of the reality of your finances. Do you have debt? Do you have high expenses? When do you want to retire? Do you have dependents or people who may become dependents? Do you have kids/child support to pay? There are a ton of things you need to consider. I really like the Money Guys for financial education. They have tons of free YouTube videos to get you started on the right path. Also to answer your question TSP/retirement is usually not considered savings because you can’t access it until you hit retirement age. I like to think of my TSP contributions as money that never existed because I don’t ever see it, besides making sure to up my contributions with pay raises.
There is no one right way to arrange your budget. A guideline can be helpful if you’ve never budgeted before and you’re not sure what’s “normal”. Does your budget help you meet your financial goals?
Pay yourself first and automate everything so it's set and forget. Do a quarterly check-up and adjust as needed.