To give some background, I am in my early 20s, currently living at home with my parents but would like to move out to an apartment. I am currently maxing out my 401k at work because of low cost of living, and have built a sizeable amount of money in my bank account (i.e. for emergencies).

When I move out, I would like to maintain maxing out my 401k (because I am young and want to leverage the power of compounding returns). Rent, however, is quite high in this area (for a 1-bed, 1-bath that I would prefer over splitting something larger), such that I would be spending a significant amount of my take-home (after tax and 401k contributions) on rent, like up to 60-65% of my take-home pay. In this situation, I would be close to either saving very little of the take-home pay, or in the worse case living paycheck-to-paycheck (which is usually frowned upon).

I know there's no hard or fast rule, but would this still be considered "acceptable", given that I am maxing out my 401k contributions in the meantime (and already have an acceptable emergency fund)?

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    For how long would you be living in such a situation? Do you foresee your income increasing in the next year or two? Also, I don't know where you are located, but in some places it can be difficult to rent an apartment if you can't demonstrate a certain level of income.
    – BrenBarn
    Nov 10, 2016 at 2:49
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    What do you consider a sizable amount in the bank? If it is at least 3-6 months' worth of your expected total expenses after moving out, then you should be fine. Just keep in mind that expenses are easy to underestimate during a transition like this. Nov 10, 2016 at 13:50
  • @BrenBarn This would be kind of an indefinite plan (I would not intend on moving back home). Raises at my current company are on the lower side. And yes, your final point is a consideration, but I'm sure my gross income amount would be fine passing any checks (it's just after taxes + contributions it decreases significantly)
    – lawls544
    Nov 10, 2016 at 19:52
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    @WesleyMarshall The liquid amount I have saved up could definitely cover even up to 1.5 - 2 years of expenses (prospective rent rates + other essentials) if I were unemployed. The way I was raised, part of my mind sees a situation where my liquid assets aren't going up as "bad" (even if they aren't going down) and am looking for some outside perspective.
    – lawls544
    Nov 10, 2016 at 20:01
  • @lawls544: I don't mean how long would you be living on your own, but how long would you be living so close to the bone. As Pete B said, given that you have the option of reducing your contributions you're probably okay, but it seems like it's good to have an idea of how long you'll be scrimping.
    – BrenBarn
    Nov 10, 2016 at 20:12

4 Answers 4


You don't seem to fit the description of paycheck-to-paycheck.

From Investopedia:

An expression used to describe an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses. Persons subsisting paycheck-to-paycheck have limited or no savings, and are at greater financial risk if suddenly unemployed than individuals who have amassed a cushion of savings.

Provided you maintain your cushion of savings I think you are okay. If you did not contribute to your 401K what percentage would the housing be? Hopefully it is less than 30-25%. The nice thing about being short disposable income because of 401K contributions is that you can stop or reduce those contributions at any time. Its a hell of a lot smarter than buying stupid stuff on credit.

Lets say you want to travel next month. You may choose to reduce your 401K contributions a bit to save for the trip for the next two paychecks. Will that materially affect your wealthy 30 years down the road? No. Can you do the same thing if you decided to lease an Audi instead? No.

Keep up the good work.

Moving out of your parents' house will help you mature and also build wealth. I think it is a good idea even though you probably have wonderful parents.

I should say this explcitly: If you do have a financial emergency, that depletes your savings. You should probably reduce your contributions until the savings is built back up.

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    As a former HR employee, let me add a note of caution here. When making changes to any benefit contribution, plan for delays and mistakes. These things don't always go through as quickly as expected or promised. Nov 10, 2016 at 13:56
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    Hey Pete, why do you say moving out ----> build wealth ?? The mature part I understand, but i failed to get that connection. Also, +1 Nov 10, 2016 at 14:22
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    Building wealth, for most of us, is about behavior. Maturity and behavior go hand-in-hand.
    – Pete B.
    Nov 10, 2016 at 14:38
  • To be fair, I need to say that at 10% annual return over 30 years, $2,000 today is $35,000 at retirement.
    – BaseHobo
    Nov 10, 2016 at 15:32
  • Repeatedly changing your contribution rate (with the paper work and delays involved) will encourage dipping into the emergency fund savings for convenience sake I think. To avoid that, I think a better solution would be to acknowledge the fact that if maxing your contribution leaves you with no extra money each paycheck then it is not a sustainable rate, reduce it to 90% of the max and adjust after a while if needed.
    – VBCPP
    Nov 10, 2016 at 18:01

Your question has multiple aspects that really shouldn't be lumped together.

I would be spending a significant amount of my take-home on rent, like up to 60-65% of my take-home pay.

This is a bit frightening. As a real estate agent, I typically use a 3 to 1 ratio to pre-screen a new tenant. In other words, they shouldn't be spending more than 1/3 of gross income on rent. This would have me concerned whether landlords with good screening might not reject the application.

I am currently maxing out my 401(k) at work because of low cost of living, and have built a sizable amount of money in my bank account.

An excellent start, kudos to you. Having nearly 2 years worth of expenses set aside is far more than most people have in the US. I don't quite know what "maxing out" means. Is it (a) you deposit the full $18,000 limit, or (b) the maximum percent the employer allows, which can be far lower. 10% limit on an $80K income isn't quite the same $18,000.

In the end, I understand your use of 'paycheck to paycheck,' but the full story is closer to a budget accounting for all income and including a nice deposit to savings. Such a budget implies that every unexpected expense comes from that savings, the emergency fund. I'd be hard pressed to criticize someone who has done a great job saving and just plans to have a budget outside the norm. Budgets are an odd thing. In my opinion, more a reflection of priorities than a rigid set of guidelines such as the 33% housing cost I suggested. If your budget brings you happiness, go for it.

  • The ratio of rent to gross income is about 25%. However, after taxes, benefits, and maxing out 401k (which, to answer your question above, is a pace to reach the $18,000 yearly limit), the ratio of my net income is then 60%.
    – lawls544
    Nov 27, 2016 at 3:46
  • Given this comment, you're within any guideline that can be considered reasonable. The emergency fund is far more than most people have. Nov 28, 2016 at 17:49

Yes, you are ok as long as you have an emergency fund that will cover your expenses should you lose your job. You can always stop contributing if you need more cash each month, and with an emergency fund your covered in case you have no income. Remember, taking from your 401k before retirement is usually not a good idea!

  • For example, I can change my retirement contribution once per quarter, so I would need to save up 4.5 months of expenses in order to feel comfortable. In a worst-case scenario, I would be able to change my contribution before the emergency fund ran out. The OP may have a similar possibility.
    – jpaugh
    Nov 11, 2016 at 2:25

If you are willing to make the short-term sacrifices to max out your contribution because that's your long-term investment plan then it's all a question of whether you want to continue living that way.

As noted, you're not really living paycheck-to-paycheck, except by choice. At some point you made the decision this was the right strategy for you, and unless something has happened to make you change that strategy then the only question is, when do you want to do something different?

This is more of an opinion-based question, which is normally frowned on here in the stacks and I'd ordinarily vote to close it, but I think you need to hear some ideas on this.

Good luck!

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    The only gotcha is that in a worst-case scenario, changing the retirement contribution is not instant. At the point that expenses go up, suddenly, it's not "by choice" anymore.
    – jpaugh
    Nov 11, 2016 at 2:26
  • You're right, @jpaugh. But the OP has made the calculated decision to take that risk in an effort to maximize their 401k contributions. I wouldn't take that kind of risk myself, but some people have more nerve than me! (grin) Nov 11, 2016 at 2:31
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    I only later saw in a comment that the OP has 2 years' worth of expenses saved, so even if they've underestimated expenses by a factor of 2, they'll still be able to change their 401k contribution in time to avoid the "not by choice" problem. (Not nearly as risky!) Same reason businesses like to keep a lot of capital on hand, I guess.
    – jpaugh
    Nov 11, 2016 at 3:01

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