I first started reading about increasing my savings rate on early retirement blogs – specifically, Mr. Money Moustache, which is anything but a gentle intro to the fine art of frugality and saving.
That said, it was an excellent wakeup call to re-examine what I had always thought about saving.
I was no slacker in the savings department, mind you. I followed the advice laid out for me in every book that talks about savings percentages.
- I saved 10% of my income for retirement, even as a pauper new grad
- I saved an emergency fund, even if I may have gone about it all wrong
There was rarely a month that went by when I wasn’t saving 20% of my income, so for all intents and purposes, I was doing great, right?
Let’s talk about why savings rates can make a huge difference in getting you through the most expensive decade of your life – your 20s – even if early retirement isn’t even on your radar.
I can’t think of any other time when you’ll be juggling paying for your education, a wedding, a home, a car and maybe even kids. There are just so many goals competing for your income – which is probably at the lowest point it’ll be in your professional career.
That’s why increasing your savings rate is the perfect way to cope with the juggling act that is millennial money. Even if you’re saving for big purchases, not just for retirement, increasing your savings rate can help you achieve your goals faster – and keep you far away from the Dread Pirate Debt.
That’s from a guest post I wrote on Millennial Money Man, about why increasing your savings rate is the perfect 20-something survival strategy.
So ok, you’ve read that and you’re convinced: this savings rate stuff is pretty good, and I should try it to.
Although a 20% savings rate is nothing to sneeze at, I knew that to have a hope of achieving some of my goals in my desired timeline, I’d need to get serious about saving – really serious.
I created an Excel spreadsheet where I wrote down all of my regular monthly expenses, including things like rent, food, coffee, car insurance, gas and the like. If you’re looking for a template to get you started, Canadian Budget Binder has a great – free budget you can download today.
Once everything was in the spreadsheet, I started to play around with the numbers. What if I could find savings in some of my current spending categories?
That question led me to cut these five items, one by one, from my monthly spending. As I cut each one, I redirected the money I was saving into specific accounts I set up for each of my savings goals, which gave my savings rate a big boost.
That’s from another guest post I wrote, this one for Canadian Budget Binder, about how I was able to raise my savings rate from 20% to 40% by cutting some key spending areas. I touch on some big-for-me ones, like the $42 average monthly book bill before I stopped spending money on books and started wearing the same thing every day.
Consider this a gentle nudge.
If you’ve seen countless posts that link your savings rate to early retirement goals, it’s easy to think that’s the only reason to increase it. But there are so many – so many! – other financial goals that people have, and saving more is the least risky way to reach them.
Even if it’s only a 1% increase, it’s a win. We don’t all need to be Mr. Money Moustache.
Also omg giant disclaimer, please always save that same 10% for retirement.
Has anyone else bumped up their savings rate to hit goals other than early retirement? I’d love to hear about it!
This works really well with Cait’s “Your salary is not your budget” mantra. We should always be striving to save more of our money, all of the time. Right now I’m saving 30% of my full-time income, and that number goes up to 37% usually when I factor in my freelance income. Over the next year or so I’d love to get that 30% up to 35% of full-time income. I’ll looking into a few ways of doing this, including moving to a cheaper apartment. We’ll see though.
That’s awesome Jordann! Honestly, I know this month and December are both going to be around the 30% mark for me too, with a few educational expenses coming up and an unexpected ticket for not renewing my license plate this month :S Whoops? Hahaha getting to the full 50% is still a little ways off, but I’m looking at other strategies to get there as well, like increasing my income. I love reading your posts about saving for a house because I’m doing the same, and it was one of the biggest drivers of increasing my savings rate! Three cheers for somewhat-affordable housing markets, right? (I’m in Ottawa.) Still, it’ll be a few years of focused saving at as-high-a-rate-as-I-can to get there.
I completely realize that this is not doable for everyone, but I’m a huge fan of hiding money from myself, e.g. Having HR put some chunk of my paycheck automatically into savings. I started with $100 a paycheck, then learned to live on what was left. Few months later, bumped it up to $150, then $200 and $250. That gradually helped me constrain spending without having to actually think about it. The savings just magically happened. Now we save much more (and earn more) but it’s all based on this same idea.
That’s awesome! Our HR department would probably do something similar if I asked (I think? We don’t have very defined policies since we’re growing so quickly from a small company!) but at this point I just rely on the automated, set contributions that come out of my account after every payday. Since I know they’re coming out – and changing an automated payment feels way too much like defeat! – I always plan on them just not being there.
But most of all, your comment reminded me of a post I read somewhere that encouraged people to put $20 in their winter coat pocket when they put it away for the season, lol. Then when you take it out in the fall it’s a nice surprise (if you can manage to forget it’s there!) I don’t know why, because they’re clearly vastly different ways of “hiding” money, but that’s what it reminded me of, haha.
Wonderful post. I have written about a very similar topic in the past, “Financial independence for the non-early retiree”, and I basically argue the same point that you are – saving money still applies even if you’re not looking to retire early. There are PLENTY of reasons to save money.
Over the years, I’ve had plenty of goals that made me increase my savings rate, but they have all been very, very temporary. I wanted “stuff”, so I saved extra dough in order to buy that stuff.
But now, my wife and I have but a single goal – retire by the end of next year, so that’s what we’re gunning headlong for without getting side tracked by any other savings goals. We save 70% of our income every month, so that’s pretty good.
Honestly Steve it’s awesome to hear that I’m not totally off-base from such a wonderful early-retirement writer! Thank you for taking the time to comment!
I do have to admit that a chunk of my 50% goal, albeit a small one, is for “stuff” – I call it my “big home purchases” account. It only gets $100 a month, but it’s for the big things like when my ancient mattress finally bites the dust, or to help cover moving expenses if/when I buy a place. But it’s also the account that I’m going to draw on for things like a new duvet so my boyfriend and I can stop fighting over the double-bed sized blanket we have on our queen sized bed, haha. Which to be frank, sounds like a REALLY good use of money when we keep waking each other up to yank back the covers!
I’m so consistently impressed with your progress and dedication towards your early retirement goals – I love following along on your blog! Thanks again for taking the time to comment!
We’re huge fans of not only paying yourself first, but also paying yourself last. We set our minimum savings goals for the month in our budget where we work to max out our IRAs each year, invest in 401ks, and save for shorter term goals like vacations. My eyes usually light up at the end of the month because we usually have money left over in our budget categories. We then use this money to save even more!
That’s awesome Vic – and unsurprising that being so good with money, you’d have some left over! I’ve been able to do that once in the past three months, which was a great feeling. Throwing an extra $100 at a savings goal is nothing to sneeze at! And it kind of feels rockstar-fantastic, so that’s nice too, haha.
Des, awesome points you make here! Especially in our 20’s, it’s hard to consistently stay one-track minded to save for retirement only (it’s so far away! unless I decide to venture into early retirement which I will be evaluating in a year or so from now). My fiancé & I always evaluate ways that we can decrease costs in order to accelerate our savings goals (I wrote a post about “The Teeter Totter of Decreased Costs and Accelerated Goals” :)). When we moved from renting a house back to renting an apartment, our rent & utilities decreased. All of that extra rollover savings we decided to throw at other financial goals (specifically: a future home downpayment fund). It’s empowering to work on increasing your savings, vs. giving in to lifestyle inflation since we have found additional money month to month! Another thing I like to focus on is saving for short term goals/events. For example, if I know I will be attending say a destination wedding and know the ticket for a flight will be around $300+ roundtrip, I breakdown this savings goal into chunks of $100 and make sure to start sending that aside 3 months prior. That way it doesn’t feel as if I am spending $300 all at once, I have been intentionally setting money aside for it in advanced.
Oooooh, I love that you’ll be thinking / evaluating early retirement in a few years Alyssa! Honestly I feel like if I spend two years tackling the goals I have now, get those behind me, it’s the next logical “big financial thing” to look at. Never say never and all of that, haha.
Also, we should TOTALLY do a “Surviving Destination Weddings” themed week after Christmas, because I have two of them coming up in August of next year and I’ve *already* started planning to avoid the exorbitant costs! I love your saving ahead strategy – I’ve also been hoarding my credit card rewards to cover most of the flight and the car rental for a family wedding out west!
We are bumping our savings rate for many reasons, such as for saving up for our next house, future children, and more. I enjoy saving money (I’m a money nerd) so thankfully I find it fun haha.
Hahaha I think you’re in good company there Michelle! Money nerds, unite 😉 I love following your journey of saving on your blog – thanks for stopping by!
I love this! I’m not sure if early retirement is my ultimate goal and honestly, I don’t think most 20-something-year-olds even consider it. 10-20 years feels SO long when you’ve only been alive 23 years, haha!
But like you said, high saving rates are useful for ANY goal you have—travel, extravagant weddings, kids or just peace of mind.
Exactly! And to be totally honest, I’d consider retiring at 55 an “early” retirement – which gives me just under 30 years to save for it! (Holy crap, that’s so many years. No wonder none of my friends are saving for it.) But who knows – maybe in ten years my priorities will shift and I’ll want to spend all my time rescuing dogs, ASAP. (That’s my actual retirement plan, lol. ALL of the dogs.)
Great stuff. When I was in my 20’s I had savings rate in the high 70% sometimes highers. I actually didn’t try to have high savings rate so I can retire earlier. I just didn’t spend my money on partying. The saving practice has helped me to get where I am now.
That’s awesome – congrats on the monster savings rate! I’m probably going to throw a (super frugal) party if I ever hit 70%, haha.
I’m always working to try and get my savings rate a little higher. We just finished paying off our student loans and transitioning to a once income home now that my wife is staying home with our daughter so we are still trying to determine what we can do as our minimum savings rate but once things get more established, we will keep evaluating to see how much higher we can drive it up!
That’s amazing, Thias! Kudos on the transition to one income – what a wonderful experience for your family, and what a sensible way to approach it. I’m a big fan of being a little gentle with your finances when things are in a state of flux 🙂 Definitely still important to keep an eye on things, but giving yourself time to adjust to the new situation before tackling the big goals, like how much you can save on one income, is so smart.
PS. SO many kudos on the student loan payoff! Woohoo!