The importance of saving

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The importance of saving

Fradel Schaechter
lakewood, NJ · Member since 2017 · 282 posts · 156 votes

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?

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Alan Pederson
Investor · Kennedale, TX · Member since 2016 · 219 posts · 349 votes
8y

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.

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  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Ian Walsh- I agree! I just spoke to a friend today, she is saving a small amount for each of her kids weddings each month. I asked her about putting it into an index fund and after I explained it she said she might do that someday. She had had no idea what these were...

    I think many of my friends and family just view investing of any kind as 'very risky' (with nightmarish stories of great-aunt Molly that lost her life's savings with a bad Investment/investor flashing through their minds)...

    Savings is a great first step, but it is the financial education and subsequent investing that will make the wealth happen!

    0Reply
  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Thomas S.- I respectfully disagree. I actually think that when I look back at how I was generous with my money even before I got rich, I will know that the generosity I feel is real (i.e. I gave before I had that  much to spare). I know this sounds naive and idealistic, but it is simply what I want to do until it proves to be an obstacle to getting rich. I would agree that savings should be a high priority and I am working on increasing my income so that I can save a larger percentage of my money for the long term goals I have.

    It also happens to be that many of my 'whys' for getting rich are related to the things I can do for others with my money, but that still doesn't explain why I insist on giving 10% even now. The truth is, I have a savings account I transfer the 10% to, and do not necessarily give it/ make a donation right away (the account has a few thousand currently) because we don't like to give to just any cause out there, choosing the ones meaningful to me.

    Also, can you clarify what it means 'when I have no use for it' (the money)? Because I can imagine that once I have more money (i.e. wealth) I will likely find more and more uses for it (nicer home, nicer clothes, nicer and lavish vacations, more investments etc.)

    What financial barometer would you say is when I've hit that level?

    1Reply
  • Derek Luttrell
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    I put 12% into a Roth 401k, and depending on that month's commission I save 70-80% of my take-home pay after that. I do this by house hacking, which I admittedly would have never done without my girlfriend casually telling me about BP at dinner one night about a year ago. Combining the house hack and cash flow from my one other property, my housing expenses are more than paid for by other people. 

    High savings rates are also much easier with high incomes. I made $154,000 last year, and through April am pacing for $234,000 in 2018 (I know it's early in the year, but heck it's still exciting to track). I just turned 26, so keeping my expenses low isn't very difficult. This can all change with marriage and kids, but I look forward to enjoying that part of life only once I've built a solid foundation to build that family on. 

    1Reply
  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Derek Luttrell You've got a solid financial foundation going! Hope your post inspires others here to achieve what you have done :)

    0Reply
  • Devante Boll
    Corpus Christi, TX · Member since 2018 · 62 posts · 24 votes
    8y

    @Fradel Schaechter I appreciate your reply and especially the book recommendations. I'm going to read both of them and then I will be contacting you for spreadsheets. Thank you again

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  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Devante Boll- enjoy those books! I know I liked them a lot... Still reread them now and then :)

    0Reply
  • Steve Bracero
    Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    8y

    @Fradel Schaechter

    I began saving since I had my first job in high school haha- Living way below my means. 

    I think its a habit that is hard to begin.. if you have never saved before 

    1Reply
  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Steve Bracero- I agree, it is a difficult habit to start, and takes a lot of self discipline at first to stick to, but I have found that now that I do save (pay myself first) I can't imagine going back to what I used to do (i.e. spending all the cash before the next check arrived...)

    Good for you that you started right away! :)

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y
    Originally posted by @Fradel Schaechter:

    @Ian Walsh- I agree! I just spoke to a friend today, she is saving a small amount for each of her kids weddings each month. I asked her about putting it into an index fund and after I explained it she said she might do that someday. She had had no idea what these were...

    I think many of my friends and family just view investing of any kind as 'very risky' (with nightmarish stories of great-aunt Molly that lost her life's savings with a bad Investment/investor flashing through their minds)...

    Savings is a great first step, but it is the financial education and subsequent investing that will make the wealth happen!

     Everyone has their own emotion and opinion attached to money.  I personally find it to just be a tool used to amplify resources ultimately purchase time.  Compound interest is really hard to argue with.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    I aim to save 50 percent of my take home income and over time this will likely go up as I earn more. Eventually I’d like to see 70 percent or so. This goes to a mix of real estate investing and retirement. I can essentially do whatever I want as far as living expenses, Travel etc for 25-30k a year so as I earn more I will simply save the difference.
    1Reply
  • Account Closed
    Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
    8y
    We save about 50% of our net income. For us it’s all about creating a system so that it’s automatic. Multiple bank accounts all with designated purposes with direct deposit and bills on auto pay. All of our day to day spending is done on a cash back rewards credit card that is payed off in full every month, also on auto pay. We have found that saving money is much easier if you cut back on the big ticket life expenses, the “status symbols.” We focus on those rather than cutting out the small stuff. It makes me feel broke if I have to refrain from eating out or getting a cappuccino from Starbucks. I don’t sweat that little stuff. We drive paid off cars and live in an apartment that is less than we could afford. We eat out a couple times a week and buy things here and there and still save. We plan on having children in a couple years and we’ll move when the time comes. But for now there’s no reason to pay more for a roof over our heads.
    1Reply
  • Fradel Schaechter
    OP
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Caleb Heimsoth and @Account Closed a 50% savings rate is awesome!

    I like what you said about automating the payments and the part about saving on the 'status symbols' and then having more flexibility with the small stuff. Sounds like a great approach!

    1Reply
  • Harish Reddy
    Member since 2018 · 1 post · 0 votes
    7y

    People around the world realize that they need some funds to take care of their expenses, in the situations where their income is unable to support the costs. It can be a medical emergency or sudden loss of a job or unplanned change of residence.

    How to save money?

    It all starts with creating a budget. Sit down with a sheet of paper and create two columns – income and expenses. List down all sources of income and avenues of expenses. Next, categorize your expenses as high, medium and low priority expenses. Learning how to save a lot of money requires a good understanding of your expenses and the priority they hold in your life. Now focus on the low and medium priority expenses and try to think of ways where you can avoid them. Once our income starts exceeding your expenses, you will save money.  Check this article to know the importance of savings and investment  for every individual.

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