Most months this year, I’ve been indicating my savings rate of my net income along with my spending, net worth changes, and what actions I took with my finances that month. It’s solidly been sixty something percent, except for the month where I had no income and I thus had a negative savings rate. I don’t expect you my readers or anyone else to save that much of your income. I don’t expect myself to either. I don’t need to save this much money every month.
My goal is to let myself spend freely (but consciously) while living below my means, having no debt, and not increasing my lifestyle with my income.
I didn’t start out intending to max out all of my retirement accounts out of college. I found the lifestyle that worked for me the first year out of college while contributing enough to get the full match in my 401(k) and I have maintained it for the subsequent five years, even though my income has mostly increased.
This works for me because I’m naturally a saver. I’m also in my twenties and so to retire at a normal age, I really don’t need to save that much.
I started working around 21.5, which would give me 38 years until I can withdraw with no complications from retirement accounts. A savings rate of 19% from age 21.5 would be enough to retire on at age 59.5. A savings rate of 14.5% from age 21.5 would be enough to retire on at age 65. I’ve saved far more than that though, so I only need to continue saving 12% going forward to retire at age 59.5.
If you’re willing to commit to working until you’re in your sixties, you don’t need to save a lot for retirement in your twenties. Money is a tool that you can use to make your life what you want. Early retirement is one way to spend it, just like travel, experiences, and stuff are also ways to spend your money. We all need some balance in our money lives. Don’t overexert yourself trying to save too much too quickly and burn yourself out.
There is this sense in the early retirement community that we should keep working our high paying jobs until we have saved enough to retire completely and then no one seems to be able to pull the plug. And yet there are lower income people quitting their jobs to freelance every month, with $20,000 in the bank and people with hundreds of thousands of dollars saved up can’t seem to quit their jobs they don’t like. If you don’t like your job, find a path to a different job. Don’t just stick it out at your job for the money. Life is too short for that.
Networthify has a great calculator that shows you how much you need to save per year to be able to retire in X years. This works great no matter what age you’re starting out at.
I make enough money and have enough money now that when I take a pay cut, it’s my savings rate that gets cut and not my spending. My gross income this year will be about 15% less than 2014 and my spending will be about the same. I grossed about 15% less in 2014 than I did in 2013 and my spending was about 7% more. I would happily take a lower paying job and reduce my savings rate if it was for the right job. And this is a great place to be in.
If you’re a natural saver, live your life consciously. Save the rest. Don’t fret the little things if you’re meeting your goals, enjoying your life, and living below your means.