It was the topic of saving that got me started on a journey that eventually led me to be interested in real estate. It has been the cornerstone for me as I have followed the advice of the books I had read (like The secrets of the millionaires mind' by T. Harv Eker, and 'How to make a hell of a profit and still get to heaven' by Dr. John Demartini) and watched my savings grow at a rate I can hardly belive. I currently spend 60% of my income, the other 40% is divided between 10% charity, 20% total to three categories that include money to buy an asset, money for a down-payment for a house/house hack, and money for retirement. The last 10% is for other categories like education, 'play' money etc.
I am amazed that though I am not earning a huge amount of money right now, I am still able to save steadily and live off only some of my money.
How much of your money do you spend? How important is saving to you?
Currently I’m at the point in my life that I can save practically everything! But, as a saver from childhood, I can’t ever imagine not saving a chunk of my income. That would just be irresponsible. Besides investments, if your spending everything then that means you rely on 100% of your income so if anything happens to that income your in trouble with no saving to protect you.
Originally posted by @Fradel Schaechter :
I currently spend 60% of my income, the other 40% is divided between 10% charity, 20% total to three categories that include money to buy an asset, money for a down-payment for a house/house hack, and money for retirement. The last 10% is for other categories like education, 'play' money etc.
I am amazed that though I am not earning a huge amount of money right now, I am still able to save steadily and live off only some of my money.
If you are only actually saving 20% total to the categories of money for an asset, money for a down payment, and money for retirement, need to re-prioritize. That percentage needs to be much higher.
@Eric C. What would you say my goal for this percentage should be? I am working on decreasing the percentage of money we spend and would be interested to hear about the percentages you use in your personal finances. Care to share? :)
Given that most financial experts recommend saving/investing 10-15% minimum just for retirement, if you are only putting 20% for that AND for a down payment, it is going to take quite some time to add up.
@Eric C. The reason I am saving at such a low rate for retirement is because I want to use the money for a down-payment to do a house hack that could potentially put money into my retirement account, or just save me money on my housing expense and then save at a higher rate. Also, the money that will cash-flow from our assets will be put back into the portfolio to keep it going and to grow it. I don't know if what we are doing is correct, but at 25 years old I have a couple of years to experiment and see what works for me. I figure that if my real estate goals don't work out within a year or two, I can always go back to saving the 10-15% just for retirement. Thanks for you feedback!
Why save your hard-earned money? Take a look at these 3 solid points:
- Become Financially Independent: It isn't just about earning money, but it's about being able to make financial decisions at free will too. Like for example taking a long vacation trip whenever your want or changing career path without thinking about your financial conditions or starting off with your own business, not worrying much about investment options.
- Become Debt-free: Did you just lose your job or having sudden wedding plans or having a baby? Chances are you might land-up in debt. Now, that's where your savings can come in handy during these tight situations.
- Avoid Emergencies: It's best to always be prepared for emergencies, many unexpected things turn-up in life. Having a Savings Account to fall back on always protects you from these emergencies.
Now, let's drill down with some awesome ways you could save up some money:
- Budgeting: The first step to saving is tracking down your expenses. There was a time when we use open-up excel sheets and jot down the expenses to maintain the budget. But with the increase in the no. of finance budgeting apps, it's very easy to manage your money.
- Shop Smartly: Who said you can't indulge in some shopping when on a budget? You just need to shop things at the right time, at the right place. There are many online retailers out there with great deals and discounts!
- Avoid All The Small Stuffs: Why not walk to work or ride a bicycle to office? You can chuck all the cab rides! How about using your office food coupons for lunch rather than having an expensive meal outside! You can also make a quick sandwich in the morning to take it to work. Also, how about turning all the lights off while leaving home? You see, there are many teeny-tiny things you can avoid to save up money, they do make a big difference.
- Sell All Unused Things: Did you ever really think of digging up your attic or storeroom? It won't take much time, you won’t believe the no. of unwanted things you have stuffed inside the attic. Try to sell them off and earn money. Your store room would be cleaned up for sure with some cash in your pocket!
- Get A Roommate: Living alone? Get a roommate! You won't just get a company to stay with, but you can share your room rent and save half of your room rent! Also, you can share the grocery bills, maintenance and other living expenses.
- Get Yourself A Credit Card: A credit card can actually help you in budgeting better. There are many amazing rewards and cashback that comes with a Credit Card! Also, paying your credit card bills and EMIs on time has a good impact on your credit score, which will help you get a good credit/loan and with lower interest rates too.
- Investment: Start investing your money into something that could help you double it. There are many investment options available in the market, both high and low risked ones. You can start of with PPF or a Fixed deposit, the risks are low and the returns are good. For more complex investments like mutual investments and live stocks, consider consulting a financial advisor before taking the plunge.
Now, you know how to save and manage your money effortlessly!
We are at about the same place. We spend about 60% of our income and save the other 40%. The 40% is divided between 401K's (16% total) and saving to purchase more rental properties (24%). We should be saving more but for the past 10 years we have helped pay for college for 2 kids and 3 weddings. The last girl child is getting married in May of this year so all the kids will be out of our pockets after that. We should be able to start putting another 10% away and get our expenses down to 50% of our income.
I had a long conversation with two of the people that I supervise a couple of days ago. They both received their tax returns and spent them as fast as they received them. The first guy got back $5,000 and the money went towards breast surgery for his wife. A couple of weeks later he spent $800 building himself a new computer. He told his wife they didn't have any money but she went out and spent $800 on supplements and getting her hair and nails done along with a few other things. He ended up having to take out a payday loan just so he could buy groceries. He makes $24 an hour, is married, and has a 3 year old at home.
The other guy got back $3,000 on his tax return and spent almost the entire thing buying his wife a fancy diamond ring. This is the same guy who works every bit of overtime he can because he can't afford to save $20 a paycheck. He makes $27 an hour and lives in his grandparents old 900 sf house with his wife and 2 kids. He drives a new Mustang and always has the latest I-phone.
These 2 drive me crazy when they tell me this stuff. I guess that's just how some people are. It would terrify me to live like this and have no money in the bank.
@Fradel Schaechter - Thanks for starting this thread!
Despite having an $800 monthly student loan payment, I am able to save just over 50% of my median income pretty easily.
If you take away my student loans, it's closer to 75% to 80% savings rate! Working on income streams to pay these off now :)
Saving is very important, the reality is that the vast number of Americans living pay check to pay check do so not by circumstance but rather by choice.
In your situation I would strongly advise that you take the 10% you are presently diverting to charity and put all of that directly into retirement savings. If you want to give to charity then leave the money to them when you die. For now it is far more important you save for yourself and family.
You must set priorities and at this point in time giving your money away to a charity should never be on the table. Family and your own future should be your only priority.
I have been able to save about 35% percent of my median income per month. Would be close to 50 % but my wife doesn’t believe in living on a budget and saving money to buy assets that would allow our money to work for us inseat of us working for the money. Just paid off 30 K debt in 8 month by saving and living below my means and on track to buy my first rental this year ( Condo).
We are saving 100% of our w2 income. Eating from rentals. The job contributes 10% to 401k and we add another 5%. I am not sure it's a good idea to drop 10% to charity instead of helping your future self in the retirement. I do charity only when I occasionally hit a very large tax break, otherwise you are helping before helping youself.
Are there any quality savings rate calculators that any of you use to put things in perspective for your journeys?
@Thomas S. Thanks for your response here, and while it might seem strange not to put the 10% of charity towards our own future, we actually made that decision based on religions reasons. Since we are only 25 years old, we feel that we would like to see how our finances evolve over the next two years and then decide how to proceed. In the meantime, I am 'investing' a lot of time and energy connecting with investors, learning what I can to get in the position to do a deal. Not sure if it makes a difference, but we just feel that at our age we can afford to make a 'mistake' and correct within a year or two.
On another note, we were one of those people living 'paycheck to paycheck' until we started saving. We read many books on this topic, and they all encouraged saving since we would likely continue 'paycheck to paycheck' with the saving, but then we would have some money in the bank as a backup/ for emergencies.
Another thing that changes, is that we have redefined 'emergencies' to mean the REAL ones (like a desperately wanted vacation doesn't qualify as an 'emergency': if we wanted that we would sooner find a cheap/ free alternative to get the benefits of vacation, etc. )
I strongly encourage anyone that does not yet save on a consistent basis to start with 10% (or another percentage amount) and see what happens. That money is being put in a savings account, and if things don't work out, it will still be there to bail you out. Try not touching it and being creative with how you come up with the money for the deficit and you just might watch your savings grow!
Our total amounts in savings is now at ten times what it was when we weren't saving every month!
@Devante Boll Have you read any books about saving? The two I recommend is 'Secrets of the Millionaire Mind' by T. Harv Eker (he talks about other fascinating topics as well) and 'How to make a hell of a profit and still get to heaven' by Dr. John Demartini. Both these books convinced us to start saving off the top of the paycheck that comes in (not after paying our monthly expenses, if anything is left...)
Hope this helps!
One more thing for @Devante Boll - regarding the 'savings rate calculator' I have detailed spreadsheets in which I calculate the different categories I save for (mentioned briefly in the first post of this thread) You can message me if you want these templates. the percentages we use were based on the two books I recommended above and have evolved over time, as we learn more. Good luck to you!
One more benefit of saving is that there is a security in knowing that if something crazy happens to us and we can't work/ get fired/ have a huge unexpected expense: we can survive it without going into debt.
@Tenzin Wangchuk 35% is pretty good (lots of folks saving 0% out there...)
One nice method I once heard of getting other people on board with an idea is to look at their top priorities (for example, being able to buy good food, nice clothing, splurge on things here and there and the security of having extra money to spend, etc. ) and try to show them the benefit of the concept to their priority. For example, in your case, you can find out why your wife doesn't feel comfortable budgeting, let's pretend it is because she enjoys having extra 'spending money' or doesn't like to feel like money is tight when the paycheck is not. If that is the case, you can point out the benefits of saving now so that the assets will be able to give her these things. Once the assets are cash flowing, that gives her even more 'spending money' and it will give her more time to enjoy the things money can buy (less dependent on a job). As a woman myself, I can relate to the challenges of running a household on a budget, and I also enjoy feeling like I can buy the foods I like, but I have found a way to have 'both' by spending on the things I enjoy and eliminating waste to cover the extras.
Also, there was a great podcast recently about being frugal, but still having what you want, it was 'the Money Show #10'
hope this helps :)
@Hina Williams - thanks for your detailed post!
@Alan Pederson It can be super frustrating to watch others financial mistakes when you know better, and the strange part is that I don't even try to teach this stuff to the people in my life that need it most because they are simply not in a frame of mind where they can implement it.
I try my best to focus on my finances and to move them ahead. Perhaps when they see what I have achieved they might be tempted to mimic the discipline I used to achieve my goals.
Good point. I've talked about the importance of saving money and getting your finances in order for years and years but it wasn't until I started buying rental property that others really started to listen. I encourage them to take their hobby or something they're interested in and try to find a way to make money from it. The 9-5 job pays the bills and provides insurance but if you want more out of life, you need to find a way to make your money work for you.
Because I saved at such a high rate for so long and haven't had a w2 in 15 years, I don't even know the % sorry to say. Sometimes it's over 100% if that makes sense. Earn it, keep it, multiply it. I'll buy something with the savings that earns more than the regular income did. 110% savings rate? 120?
Where it gets confusing is when you are no longer saving for specific goals. Saved to get out of consumer debt, to get married, to pay off student loans, then houses, then apts, then retirement. Scratch that. No 401 since '03. Some IRAs. What to save for anymore? Not that interesting to track like I used to. Kids college and UTMAs, teenager's new Roth. Did/doing that already.
When different accounts get bloated I move them around, into the market or knocking off some apt bldg mortgages above 6%, in large chunks. Not enough buying opportunities to tip my NAP correlation index, so 6+% is good enough.
Glad to see some folks are saving! Gives me hope for all of us. Thanks everyone for sharing!
Saving money and re-investing it is something everyone should learn to do. If you are not doing that, you will have a very tough time getting ahead.
Interestingly, I have never opened a savings account, but my wife is a big proponent of saving.
I cringe at the idea of the bank deploying my capital to earn fat returns while giving 0.05% peanuts as interest.
As a result, I always keep my capital dynamic and in motion, hedging against inflation through diversified investments.
My $0.02. Thanks! - Ola
"we can afford to make a 'mistake' and correct within a year or two."
That thinking is counter productive. What you should be doing is saving the 10% and two years from now decide if you still want to throw/give it away. My guess is you will conclude it is wiser to invest. Your reasoning for giving money away as opposed to saving it is irrational at your age.
You only give money away when you have no use for it. You are not in that financial situation at this point in your life contrary to what you may believe.
I definitely agree that there is a time to save and a time not to save. The most prudent course of action will vary depending on circumstances. In a fairly stable situation like yours, Fradel, I think it comes down to what values an individual has. I like how you put 'mistake' in quotation marks :)
I personally have taken pains to give at least 10% of my income away since I first started earning in High School. I think charitable contributions are important. As long as I have enough to provide for the needs of my family and a reasonable amount saved to cover any unexpected circumstances that would be my responsibility to resolve, such as medical expenses, rental expenses, etc, I'll satisfy my giving goal before stockpiling for the next acquisition. I may not build wealth as quickly as I would otherwise, but I'm at peace with that fact, and I've still managed to do pretty well so far nonetheless. I'm of the mind that we should do good when we can, since tomorrow isn't even promised to us.
Thanks for creating this discussion. The importance of financial mindfulness can't be overstated. No matter what our goals or values are, we won't have any freedom to pursue them until that first mindset shift away from living in the moment and sating fleeting desires... into running a personal budget with intentionality, planning for the future, and taking steps to do the things that will actually increase long-term satisfaction.
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