When you’re examining your salary, you probably compare it to your current (or future) expenses. To really get a feel for how comfortable you’ll be, calculate how much of that income you’ll be able to save.
Photo by mehmetdeveci.
As writer Nat Eliason explains, savable income is what’s left over from your salary after you’ve paid your taxes, your bills, and your everyday expenses. The bigger the margin on what you’re able to save, the better off you’ll be. You can save for that vacation you want to take, you can save to build your emergency fund, or you can even save up enough to leave your job. Best of all, your savable income isn’t solely influenced by how much you make:
If you have a high salary, but a high cost of living, then your savable income at the end of the month will be lower than someone with half of your salary but a lower cost of living and lower tax rate.
And if you’re trying to increase your runway to quit your job and start your own thing, then savable income is the number you should focus on.
Even if your salary is inflexible, you can adjust your savable income by reducing expenses. Moving to a place with a lower monthly rent can improve your savable income just as much as negotiating a higher salary can (though both is obviously better).
Savable Income: How to Earn 1/3 Less but be 3x Richer [Nat Eliason via Rockstar Finance]