'Tis the Season to Save 50% of Your Income
Aw, I love this time of year. Here in Minnesota, the leaves are turning beautiful colors, the weather is cooling off and the days are getting shorter. The air feels and smells a little different. All in all, it's a great time of year. As the summer season is now in the rear view mirror, it's time to look to the future, into the winter season and into next year. Looking back, I cringe at how out of whack I was all summer long on my finances.
During the past six months, I officially saved 37% of my take home pay. Sure, that's far above average, but it's not enough to make me feel good about my intensity and not enough to allow me to get anywhere anytime soon. So, it's time to set a new goal. For the next six months (October 2012 through March 2013), my goal is to save over 50% of my take home pay.
Saving Half Your Income. How Hard Is it to Do?
I actually was doing this about a year and a half ago, right after getting out of debt. I was pretty intense at the time about building my emergency fund. I had a ton of momentum and managed to keep my expenses down for long enough that over a certain one-year period, I saved over half of my income. Pretty cool, huh?
So how hard is it really to do this? It does depend on your income. Making $30,000 per year in an area like Minneapols and St. Paul, it would be tough to save half of your take home pay. Rent here in a very basic apartment starts at around $600 per month. Due to our not-so-great public transportation system (which we're working on improving), it's pretty difficult to get around without a car and without driving much. So we drive all over the place and pay for parking anywhere near the downtown areas as well.
So on 30k per year, it would be tough. But for the extreme saver who is okay with taking in a roommate or two, driving a paid for car, putting together puzzles, going for walks, riding bike and playing yard games for fun, it starts to get possible to save close to 50% of your income when you start making more than 30k. Sure, it's hard, but it's possible.
For the not so extreme saver like me (although I'm extreme by many people's definition) I get by without such a bare bones lifestyle because I make a bit more than 30k. I'm lucky there and I recognize it. For my income level, which is very average around here, I can easily live on half of my take home pay. Note that I said my income is very average for the Twin Cities area. In fact, I wouldn't doubt if I'm below average. This area is known for solid businesses and a lot of talent.
The point I'm trying to make here is that living on half or less than half of your take home pay is very doable for the average person, making an average income. Sure, it's more difficult when you have a lower than average income, but it just means you have to cut bigger or work on increasing your income.
But Why Should I Save Such an Insane Amount?
Before you accuse me of making it sound easy to live on half your income, let's discuss the reason for all of it. Why live on only half? Here's my reasoning. You don't need your full income. For some reason, many of us are trained instinctively to spend all or almost all of our income. Because of this lack of saving, most people have to work into their 60's at jobs they hate. But isn't there a correlation between what we buy and when we can stop working? There is but many people never make that connection.
If we only bought half the stuff that we could with our income, wouldn't that give us enough extra money that we could stop working far sooner, maybe even in our 50's, 40's or even 30's? The answer is yes. See the chart here over at Mr. Money Mustache's blog. According to that chart, if you start with nothing today and save 50% of your income every year, you can retire, or will become financially independent, in 17 years. That means if you're 25 and if you kick it for the next 17 years saving that much, you can walk away from your job at age 42 without ever needing another job again. Even if you're 45, you can walk away at 62, several years sooner than most people can. Since this blog is geared toward young adults, most of you could retire, or if you still want to work, can become financially independent, at a very young age if you can get your savings rate up to 50% or higher. Note that this chart assumes you can keep your future spending at the same level as it was at throughout your saving process.
Just for kicks, let's say you can get it up to a 75% savings rate. You'll have all the money you'll ever need (if you keep your spending the same in the future), in 7 years.
I'm Going to Do This. Wanna Join Me?
I'm all in. Well, since I'm still under 50%, not completely all in. But with my new goal tonight, I'm striving to be saving at least 50% of my take home pay over the course of the next 6 months. I'm still in the process of setting my definite goal of when I plan to reach financial independence, but that will be coming soon. For now, I think I'm on track (at my current progress) to be financially independent in somewhere between 9 and 15 years from now. That would put me at 43 years old at the oldest. Heck yeah. I think I can do it too.
Who knows, maybe my income from employment will rise, my expenses will go down... or...... I'll find a way to make some side income from this blog or some other thing I have fun doing. 'Tis the season to save some serious money. 'Tis the season to change your future for the better.
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23 Comments
- Kraig @ Young Cheap Living says:October 1, 2012 at 10:49 PM
Yay, Michelle! We can do this together!
- Eddie says:October 2, 2012 at 8:11 AM
This is a very ambitious goal, Kraig. I am working on getting my savings is month to 20%. Good luck!
- Kraig @ Young Cheap Living says:October 2, 2012 at 9:08 AM
Yes, it sure is, Eddie. I think if I can get used to living on that amount, it won't be as extreme of a lifestyle as people think it is. It's all about contentment, I believe.
- krantcents says:October 2, 2012 at 9:02 AM
Be careful you cannot maintain an extreme for very long! I save around 35% for years.
- Kraig @ Young Cheap Living says:October 2, 2012 at 9:06 AM
Thanks, I'll keep that in mind.
- Veronica @ Pelican on Money says:October 2, 2012 at 2:05 PM
Kraig I wish I could join you in your self-challenge. It was tough as it is to live on anywhere near 50% income in California and now that my bf is out of a job that's all impossible to achieve. Maybe when our situation improves... I look forward to seeing your updates regarding your savings!
- Kraig @ Young Cheap Living says:October 2, 2012 at 3:12 PM
Sorry to hear that your b/f lost his job, Veronica.
- AverageJoe says:October 2, 2012 at 2:16 PM
I save around 30% of my income. Could I save 50%? I'm not sure, dude. This would be fun to try out.
- Kraig @ Young Cheap Living says:October 2, 2012 at 3:11 PM
Jump on board, Joe! Let's do this!
- Emily @ evolvingPF says:October 2, 2012 at 5:02 PM
I'm not going to join but I support you doing it! It seems like a bit of a stretch but not crazy for you so that is a great goal. Into what types of accounts and for what purposes are you saving?
- Kraig @ Young Cheap Living says:October 2, 2012 at 5:53 PM
For now, I'm only using a basic savings account. I am, however, looking into using higher interest savings accounts and/or starting to invest in stocks and bonds. The problem is, I know nothing about investing in the stock market so I need to teach myself a lot first. Regarding the purposes, it's mainly for the sake of working toward financial independence and/or buying a home in cash someday. I don't have my specific goals figured out yet, but I do know that I want to do it for my future and for the options and freedom I can have someday.
- October 2, 2012 at 5:23 PM
Do you save 50% for retirement and never spend it or does that include saving for things like house maintenance and tire replacement on your car? Either way it is still a great goal. I save a lot but I don't think I'm quite at 50%.
- Kraig @ Young Cheap Living says:October 2, 2012 at 5:57 PM
The 50% includes all saving, including for retirement. Right now, I'm not actually putting money into traditional retirement accounts like 401k's or IRA's. I do, however, plan to start using at least a Roth IRA in the somewhat near future. I'm still undecided about whether or not to invest through other IRA's or 401k's. Regarding tire replacement and house maintenance (which I don't have because I rent), they are not included in my saving. I am trying to hit the goal of a 50% savings rate after all of those expenses are paid. I look at those expenses as lifestyle expenses and not as savings.
- Brent Pittman says:October 3, 2012 at 2:19 PM
Bold move. I'll be observing this one from the sidelines. Maybe I can play another day.
- Kraig @ Young Cheap Living says:October 3, 2012 at 6:04 PM
Sounds good, Brent. Thanks for stopping by and cheering me on!
- jlcollinsnh says:October 3, 2012 at 7:38 PM
Hey Kraig..... Thanks for subscribing to my blog today. That got me poking around yours and bit and the moment I saw "Save 50% of your income" I knew you were a kindred spirit. The only time I haven't saved 50% of mine is those years I saved more. I imagine it's difficult for those who try to after years of saving little or nothing. But it's really mostly mind set and what you value. For me, nothing money could buy was more valuable than freedom. So I was 'spending' exactly the way I wanted to. Never felt even a little deprived. Good on you and hope to see you over at my place.
- Kraig @ Young Cheap Living says:October 3, 2012 at 8:06 PM
Hey jlcollinsnh, Great blog. I actually spent about 2 hours tonight reading through your posts. I'm really intrigued by your wisdom. I'm at the point where I'm just getting excited about the whole "money buys freedom" thing. I am also looking to start investing and reading through your investing posts helped me a lot. I'll certainly be around on your blog and I hope you see you around here as well!
- Eddie says:October 28, 2012 at 3:27 PM
Thanks for being an inspiration, Kraig. I am about to finish my first month of intensely trying saving money and having a budget. Eddie
- Kraig @ Young Cheap Living says:October 28, 2012 at 3:30 PM
You bet! Thanks. Congratulations on working toward a better future!
- cv says:April 27, 2013 at 8:05 PM
Hi Kraig, I've been following your blog for some time and have emailed you about Rent vs Buy. I like your articles a lot and particularly enjoy your challenges to others to follow your lead. I've been on target with saving 50%+ since beginning of the year and have enough stash for emergency found and just opened an investment portfolio at Vanguard. I would have to say, as a women, that the key to this challenge is to begin with moderation; work slowly on cutting down item one by one. I think for most americans the consumer mentality is difficult to control, and extremes are difficult to achieve for the most part in a short period of time (without relapse). I also recommend REUSE- substituting the Mall, Target, Bestbuy with second hand place and craigslist. After living abroad where flea market is the norm for finding necessities, I find that our society is way to obsessed with whatever is new. Cutting back on media- not just TV, but also magazines that promote extravagant lifestyle will also help people transition to a more peaceful, clutter free life.
- Melanie says:December 3, 2013 at 12:22 AM
I really wish I can save 50% of my income. But currently I can only save up to 15%. That's my goal next year. Thanks for the inspiration :)
- Kraig @ Young Cheap Living says:December 3, 2013 at 2:12 PM
Melanie, Nice job setting 50% as a saving goal. It's not easy to do, especially at lower income levels. It can be done though. I'm proof of that. If you ever need anything or just want to talk things through, don't be afraid to reach out. Good luck and I hope you'll be back to keep us posted!
