It’s not what you earn. It’s what you save!
Jan 21, 2018
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
Here are three classic examples of why I’m different to most and sometimes referred to as a “weirdo” amongst my nearest and dearest:
When I go to my work each week I genuinely LOVE every minute of being there. I work 840 minutes a week, give or take, and sometimes I get so excited about going to work that I turn up when I’m not even meant to be there. True story. The inverse of that is that I did forget to go one day too… One particular colleague shakes his head sometimes and says “what is WRONG with you, why do you enjoy coming to work so much?” *
I love to go running up steep hills in Central Otago. Who wouldn’t? Don’t get me wrong, I’m not a gazelle by any stretch but I figure I’ve got two good legs and it would be a shame not to use them. I huff and puff, get red in the face, stop far to often to talk to my dog, which is code for “having a rest”, but I’m loving it.
Another reason why I’m an exception to the rule and considered odd is that I get immense satisfaction out of saving up money to invest. I’ll happily forfeit a few luxuries if I means I’ll save another $50 that month, I don’t feel deprived at all. To me it’s worth it as I’m seeing the benefits of what consistent saving does over a long period of time. Money saved and invested makes more money.
So, I’m a bit weird and I accept that title gladly.
I’m a member of the Facebook Kiwi Mustachians group (join it if you have not already) and recently a bunch of weirdos a.k.a my peeps on there were posting about their savings rate for 2017 and this invited a whole heap of supportive comments. One of them went like this:
Well done! We had an ok year as well. I was reading a Stuff article about how to budget for the coming year, no mention of savings rate % at all. Since joining this group that has been my main focus, our savings rate.
For those of you who are just stumbling upon the FI community you have to agree to be a weirdo like the rest of us and start to pay close attention to how much you are SAVING. It is arguably more important than what you are earning. I heard a quote last week that said something along the lines of: “the easiest way to double your savings rate is to halve your spending!” Simple really. Spend less than you earn and then focus on having the highest savings rate possible.
There are some real heros on the FB group who are hitting 50% savings rate and I’m sure there are others who are hitting an even higher percentage. Imagine putting half of your yearly pay into investments? I’m not faring quite so well but we still manage to save an average of 30% of our income each month and lock this away in investments. Ours is ‘low’ because we are not considered high income earners anymore and our income each month varies dramatically due to both of our jobs. Working only 840 minutes per week for an employer does not result in a huge pay packet… BUT it does leave me a lot of time for running and blogging. And my website earns me a small income these days too so that is added to the savings pot as well.
Because I track our earnings and expenses I can easily work out how much is left over, which is how much we save.
Here is the equation I use: increase ÷ original number x 100 = % increase
For example in October 2017 we earned $5,303 and spent $3,400
$5,303 - $3,400 = $1903 (this is the increase)
$1,903 ÷ $5,303 x 100
% increase = 35%
So for October we saved 35% of what we made and were able to go ahead and invest this. But every month is different because of what we earn and what we purchase. We changed our car in 2017 and this KILLED our savings rate for that month and had a big impact on the savings average for the whole year! It was a mathematical disaster, but such is life!
What should I be saving? What is the right amount? Well, it is different for everyone, depending on the goals you have set for yourself. Personally I would like to have a higher savings rate but every year without fail we come up with some “must do” idea that spends a big chunk of our money. It was a trip to America in 2016, a car in 2017 and it’s looking like another trip overseas this year. So, all I can do is focus on saving as much as possible and look for new income streams to increase the amount of money that we have coming in. And I need to STOP looking at travel brochures.
The answer to saving more is not just earning more, there is no point just focussing on earning more money if you then turn around and blow it. An increase in income needs to lead to an increase in your savings rate.
Am I headed for a magic number of savings invested so I can quit all paid employment and just live off our investments? Yes and No is the vague answer.
There is the “25 X” figure out there that is designed to give you a rough number to shoot for and will tell you how much you will have in your retirement. If on average you spend $45,000 per year:
45,000 x 25 = $1,125,000.00
It means that $1,125,000.00 invested will see you right, supposing you don’t have any major changes to your yearly expenses. Of course if you are 65 years old you have the joyous pleasure of receiving a superannuation payment from the government each week, so you need to factor that into your math as well. I’m always envious of retirees and that extra pay cheque, but I’ve got another 21 years to wait! And I hope they go by slowly.
I can’t blog about savings rates without referring to: www.mrmoneymustache.com - The Shockingly Simple Math Behind Early Retirement
Make sure you go to this link because this is considered a real ‘go to’ article for FI aficionado's as he boils down the math to a chart that shows you how many years you will need to work based on your current savings rate.
Mr Money Mustache's chart that shows you how many years you will need to work based on your current savings rate.
If your current savings rate is only 5%, then what the heck are you reading this post for? Shouldn’t you be at work... for the next 66 years…!
Now there are a pile of other rules out there: The Rule of 72, The 4% Rule etc but the gist of these is they are trying to create an easy template for you and I to see the POWER of saving and the effect that compounding interest has on savings. So, whichever rule you choose to apply, just make sure you apply something and save your little heart out.
When I used to work full time on a salary I was always pretty keen to check out my pay amount each month but now that takes second place to working out at the end of each month what our savings rate was instead. Investment contributions are on direct debit and when cash allows I make additional investments and over our last ten years of investing it is all starting to add up and compound. Every time I stash a bit more cash, I knock another month or another year off how long we have to work for. And then cause I’m a weirdo I give myself a high five and a pat on the back and just sit back and enjoy being the exception to the rule. I don’t call myself The Happy Saver for nothing after all.
If this is you too, well Congratulations! Welcome to the club.
Happy Saving!
Ruth
* The answer to that is that work become much more enjoyable when I go there because I WANT to work, not because I HAVE to.
