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I save about 20% right now, but I have a lot of goals I want to achieve in the next couple of years and I need to step that up a bit. I had some unexpected medical expenses last year and they really hurt me.
I'm curious to see how well people save their money in this economy. As many of you know, the US has traditionally had a very poor savings rate. We fuel our economy through rampant consumption. In fact, consumer consumptions accounts for approximately $10 trillion worth of GDP every year! That's a lot of moolah!
So that got me thinking. The average American saves about 3%. That's pretty dismal. I keep a budget like many of you. However, that doesn't tell the story in and of itself. What really matters is the percentage of your gross pay you're saving. That's the true measure of one's frugality / ability to save / whatever euphemism you want to call "saving ability".
So do me a favor. Take out your calculator.
Punch in the following: Amount Saved Per Month
Gross Pay Per Month
Remember to use gross pay and not net pay.
My results: 64.5% Yup, I've got just about 0 expenses since my company pays for literally everything.
The reason why I think this is an extremely important metric is because it measure how well one lives within one's means. Project yourself 10 years down the line. You may potentially be making twice your current income. If you expenses stay relatively fixed, you're going to be saving a LOT more than twice what you save now.
Correction: The US personal savings rate is currently in the 5% to 6% range. Still low. But if it had been at this level prior to the recession, the recession clearly wouldn't have been as bad. I think 6% is still kinda low. Ideally it should be around 10%.
I save about 25% of my gross (conservative estimate).
And no, I don't earn a huge gross salary (52K and likely to be cut because of public sector budget cuts). I live in the high cost San Francisco Bay Area. I don't get how people earning 40K or more can't save. It just doesn't compute for me.
You may be interested in this guy's blog. He became financially independent in 5 years living on around 40K to 50K a year and saving 75% of his gross.
He found ways to live on about $7000 per year, despite living in high cost California part of that time. He currently lives in an RV with his wife and works on projects that he is interested and on his timetable.
You may be interested in this guy's blog. He became financially independent in 5 years living on around 40K to 50K a year and saving 75% of his gross.
He found ways to live on about $7000 per year, despite living in high cost California part of that time. He currently lives in an RV with his wife and works on projects that he is interested and on his timetable.
Thanks for posting this. I plan on checking it out. I think he's probably a bit more extreme than we would be comfortable with, but it's nice to see what others are doing.
We were pulling in mid-60s in the northeast and were saving between 25-30% there. We were able to increase that when we moved south, and we're looking at another 5+% increase this year, which should put us in the 40% range. We're only able to do this because 1) we're fairly frugal (my husband loves his groceries though) and 2) we make enough to save a lot. Many, many of our friends and relatives make $35K or less. They have mortgages and children and saving 40% is just not possible.
First, the OP has a highly unusual situation because his employer pays for so many more expenses than any employer I've ever heard of. Second, the percentage asked for is fairly meaningless if the amount of gross income is unknown. To take an extreme example, a person making minimum wage really cannot realistically save anything. At the other extreme let's posit an annual gross income of $250,000; one could live in pretty fair comfort on $50,000 per year, pay $50,000 in taxes, and save $150,000 a year for a 60% rate. This would be effortless, really, except that most people earning that much would have a need (whether perceived or real) to live higher on the hog in order to keep up with peers of similar income. So where is the merit in all this? Are we to condemn the minimum wage earner for not saving? Of course not, although we may condemn him for not preparing himself better to function in our society. Are we to applaud the 60% savings rate in my other example? Why applaud what is effortless? Is there merit there just because the average person (even in that earnings bracket) doesn't do nearly that well? Maybe so, but it's a philosophical issue as much as an issue of personal finance. My conclusion: a meaningless thread.
Thanks for posting this. I plan on checking it out. I think he's probably a bit more extreme than we would be comfortable with, but it's nice to see what others are doing..
Yes, there's a reason his blog is called "Early Retirement Extreme". He makes no bones about it. He doesn't believe in the traditional "American Dream". He also says people use money to substitute for lack of skills (eg..if you know the basics of plumbing, you won't need a plumber, etc.) He made a point in several posts that if people watched less TV and spent more time learning practical skills (work related or practical stuff so they wouldn't have to pay others) they'd have a lot more money.
He is way more extreme than me, but I'm totally with him on his underlying philosophy (in theory, if not always in practice ).
Quote:
Originally Posted by peppermint
We were pulling in mid-60s in the northeast and were saving between 25-30% there. We were able to increase that when we moved south, and we're looking at another 5+% increase this year, which should put us in the 40% range. We're only able to do this because 1) we're fairly frugal (my husband loves his groceries though) and 2) we make enough to save a lot. Many, many of our friends and relatives make $35K or less. They have mortgages and children and saving 40% is just not possible.
Yes, I get that making 35K and having kids is very tough. But I still kinda don't get it. Why just not have kids???? I know it's a personal choice, but kids cost a lot in both time and money. There are way too many people having kids who are not prepared to raise them. I thought birth control was supposed to liberate us from unplanned pregnancies, but it seems to have had the opposite effect
Anyway, I'm glad you liked my post ...I think you'll like the blog.
First, the OP has a highly unusual situation because his employer pays for so many more expenses than any employer I've ever heard of. Second, the percentage asked for is fairly meaningless if the amount of gross income is unknown. To take an extreme example, a person making minimum wage really cannot realistically save anything. At the other extreme let's posit an annual gross income of $250,000; one could live in pretty fair comfort on $50,000 per year, pay $50,000 in taxes, and save $150,000 a year for a 60% rate. This would be effortless, really, except that most people earning that much would have a need (whether perceived or real) to live higher on the hog in order to keep up with peers of similar income. So where is the merit in all this? Are we to condemn the minimum wage earner for not saving? Of course not, although we may condemn him for not preparing himself better to function in our society. Are we to applaud the 60% savings rate in my other example? Why applaud what is effortless? Is there merit there just because the average person (even in that earnings bracket) doesn't do nearly that well? Maybe so, but it's a philosophical issue as much as an issue of personal finance. My conclusion: a meaningless thread.
I agree with most of what you've said. But I don't think this is a meaningless thread at all for a few reasons.
1. As you said, while most high income folks do save higher percentages of their incomes than the rest of us, they typically don't save the huge percentages that are possible, because, as you so aptly said, they "keep up" with peers in their income bracket. So, I say, saving large chunks of your income is commendable. Going against the grain of spend, spend, spend is a very good thing
2. It shouldn't be this way, but the reality is that a lot of people try to emulate the spending patterns of people who are a rung higher than themselves on the socioeconomic ladder. If the well off save more, spend less, and are generally less flashy, the aspirational spenders will take their cue from that and also spend more conservatively. So, in this way, the ethic of frugality ripples further down the socioeconomic ladder, which is a good thing.
3. If the high income folks spend less, our trade deficit will come down. If that mindset ripples down to folks further down the socioeconomic ladder, our trade deficit goes down even more. Trade deficit down means GDP growth goes up, along with tax receipts, which means the budget deficit goes down, too. There are all good and important things.
In short, if high income folks embrace frugality, it will be better for our economy and society in general.
Last year I 'saved' 2 months of takehome pay. (End of the year, zero out that savings account)
But it was an expensive year for me. Bought a motorcycle (Most expensive one yet), took a LARGE step up in living, and bought furnature...
BTW, I make under $2,500 takehome per month, and when I'm out of school... (And my income goes up expadentially) The 'level' I'm living at right now is fine for me.
Yes, there's a reason his blog is called "Early Retirement Extreme". He makes no bones about it. He doesn't believe in the traditional "American Dream". He also says people use money to substitute for lack of skills (eg..if you know the basics of plumbing, you won't need a plumber, etc.) He made a point in several posts that if people watched less TV and spent more time learning practical skills (work related or practical stuff so they wouldn't have to pay others) they'd have a lot more money.
He is way more extreme than me, but I'm totally with him on his underlying philosophy (in theory, if not always in practice ).
We were only able to buy our first house because it was a foreclosure (during the housing boom). My sweet husband bought a do-it-yourself book and learned everything you can imagine from it - plumbing, roofing, flooring, tiling, etc. We hired someone to put in our doors (which we should have done ourselves), and we hired someone to reroof & build a new front deck (because we needed the time more than the money). Everything else my husband and I did, and we remodeled every room with no home loan. We thought it was quite the feat.
My point being: I, too, agree with his principle.
Quote:
Originally Posted by mysticaltyger
Yes, I get that making 35K and having kids is very tough. But I still kinda don't get it. Why just not have kids???? I know it's a personal choice, but kids cost a lot in both time and money. There are way too many people having kids who are not prepared to raise them. I thought birth control was supposed to liberate us from unplanned pregnancies, but it seems to have had the opposite effect
I totally agree with you, but we're in the Bible belt. Having children, believe it or not, for many people here is about following religious teachings ("be fruitful"). I grew up with a girl who had 6 siblings, and, when asked about it, she always said, "God said, 'Be fruitful and multiply.'" I didn't grow up with religious parents so that sounded like the craziest thing I ever heard. I wonder with more recent financial hardships have caused people to alter their thinking at all. Of course, that's not true for all folks in the Bible belt. Don't want to paint with too broad a brush. It's just tradition too.
My husband and I don't have kids. We've been together (dated & married) for 12 years. We get asked fairly frequently, "When are you going to have kids?" (not by our parents, thankfully). Have you seen the prices of diapers and formula???
I think that's another point the should be made about the OP: no external obligations. When a person is married and/or has kids, adjustments have to be made. Fortunately for my husband, I'm a saver and not really mommy material.
We save around 30% of our income to save, but I also put aside about another 25% for taxes. We're self employed and those quarterly taxes MUST be paid....
First, the OP has a highly unusual situation because his employer pays for so many more expenses than any employer I've ever heard of. Second, the percentage asked for is fairly meaningless if the amount of gross income is unknown. To take an extreme example, a person making minimum wage really cannot realistically save anything. At the other extreme let's posit an annual gross income of $250,000; one could live in pretty fair comfort on $50,000 per year, pay $50,000 in taxes, and save $150,000 a year for a 60% rate. This would be effortless, really, except that most people earning that much would have a need (whether perceived or real) to live higher on the hog in order to keep up with peers of similar income. So where is the merit in all this? Are we to condemn the minimum wage earner for not saving? Of course not, although we may condemn him for not preparing himself better to function in our society. Are we to applaud the 60% savings rate in my other example? Why applaud what is effortless? Is there merit there just because the average person (even in that earnings bracket) doesn't do nearly that well? Maybe so, but it's a philosophical issue as much as an issue of personal finance. My conclusion: a meaningless thread.
I respectfully disagree. You're essentially telling me the concept of "savings rate" is meaningless. The point of opening this thread up to the general population is you eventually get to a median and average amount for both annual salary and the savings rate. The cumulative amounts have significant impact on the macro economy. On a micro level, you're twice the fool for not knowing what / how much is coming in every month and what / how much is going out every month. Every personal has a theoretical cap. How close they are to it is also very meaningful.
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General thoughts on this thread
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...I think you'll like the blog.
