What Would Suggest I Have a Lower Savings Rate than Listed:
February is a shorter month.
No emergencies happened.
I am still covered by my parents’ health insurance, since there is no extra cost to my them.
What Would Suggest I Have a Higher Savings Rate than Listed
The electric heating of my apartment is killing me and will hopefully go back to normal after March. I plan on moving to a more environmentally and budget friendly apartment next year.
I calculate my savings rate by dividing all of my expenses for the month by my estimated post-tax income. This method calculates my savings rate as a residual, which prevents complications when savings are placed into a combination of tax-exempt, tax-deferred, or taxed accounts.
My Name is Jennifer, and I’m a No-Spend Challenge Failure
Making no discretionary purchases was easy for the first couple of days…because the snowstorms that have been hitting Boston recently left me stuck in my apartment. And it was so easy that I forgot that I was even doing a no-spend challenge and failed it…without even realizing that I had until hours later.
The basic principle: Cut all "non-mandatory" spending for a given period of time. Money dedicated towards shelter, food, and utilities are kept, and all else goes.
I have never done a no spending challenge before, although I do budget and keep detailed records of my expenses.
If I want to save 50% of my after-tax income, I am fairly certain that I will have to do one (or more) of the following:
Earn more money
Save more money through a substantial lifestyle change (by moving to a different apartment, for example, or having no internet at home)
Save more money on expenses like traveling and eating out or on basic needs through couponing or other discounts
My gut reaction is to resort to #3, and honestly, I don't think that it will be enough. I have always resorted to #3 when I was in a jam, but I have been cutting it for the past few months. The category has lost a lot of its slack.
Over the course of the first two weeks of February, I could have cut:
~$8: Netflix subscription for me and my family
~$8: pizza on Superbowl Sunday
~$62: a Kindle e-reader (so I could check out e-books that did not have a back lit screen to protect my eyes)
~$8: shabu-shabu beef...delicious, but an expensive meat
~$2: cheap razors that I have in a bag to donate
~$3: stroopwaffel
~$8: Indian food my roommate and I purchased mid-snow storm and mid-laziness
~$17: eating out for lunch (2 people)
~$1: two Glade jar candles
For total savings of ~$117. Which means that I could save enough in the #3 category alone to reach my extra $210 a month savings goal.
The only problem is that...I don't regret these purchases.
And that sounds exactly like people who spend a lot of money, but are blind to the excess that can be cut from their spending.
So I made a decision that I will be doing a no spending challenge from February 15th to the end of March, for a total of 45 days.
The challenge, however, can end earlier -- whenever I take action to earn money or make more substantial life changes. This type of challenge is usually structured to make the point that there is a lot of excess spending, and perhaps I will discover that. But for me, I want to come out of this either (1) loving the new frugality or (2) inspired to start earning more money and making more substantial life changes.
I started tracking my expenses in August, and now that January's come and gone, surprise! I have six months of spending data. And what better way to celebrate Galentine's Day than doing some singleton data analysis whilst another snowstorm takes on Boston?
As expected, I do not naturally save 50% of my after-tax income. In fact, I need to cut ~$210 of spending a month, and looking at my expenses line by line, I know for sure that I will start feeling the strain.
Let the brainstorming of money saving and money earning techniques begin, but I suspect that I will need more than some tips and tricks of the trade to get to where I want to be.
(1) Needs include costs associated with shelter, transportation, health care, utilities, cell phones, emergencies, et cetera. It does not distinguish between the basic cost of, say, having a place to live, versus the higher cost of having a nice place to live.
(2) "High level want" includes costs associated with eating at home, some gifts to friends and family, some household niceties, a Netflix subscription, a gym membership (or the home gym components I bought so I no longer pay a gym membership), et cetera.
(3) "Low level want" includes costs associated with eating away from home, clothing that I do not need for work or weather, travel, et cetera.
I’ve struggled in trying to determine a number. Do I trust the 4% rule? Does the 4% rule even apply to early retirees? How do I invest so that I can minimize my tax burden? What return can I expect? How do I model projected increases to my income? Perhaps most importantly, what risks would I be taking? I am lost.
A part of me says to take it step-by-step. I should find yearly inflation rates and monthly growth rates on the investments that would likely constitute my asset allocation. I should create controls so that I can see what happens when I change my asset allocation, my withdrawal rates, my tax rates, my life span, et cetera. And I get excited by the thought that I could perhaps even build the model so that it would approximate annual portfolio rebalancing behavior. I run it all through a Monte Carlo simulation so that I can see the probability that I outlive my money (or don’t).
But that’s a lot for a weekend’s work. And Vanguard has a decent calculator for me to use.
What I have done before is the modeling behind this chart that translates the percentage of take-home pay saved into estimated working years until retirement. My costs right now are lower than what I would expect later in life, though – I still fall under my father’s insurance plan at no additional cost to my parents.
So, to keep it simple, I want to retire in 20 years, which suggests that I need to save 45% of my take-home pay. But since my expenses will surely increase with the addition of health care costs, I want to aim for 50%. And should the 4% rule underpinning that table not hold, the fact of the matter is that I don’t plan on living in an expensive city like Boston.
I want to save 50% of my take-home pay. There, I’ve said it. Challenge accepted.
"I would rather have a bare minimum to invest and invest more than have the dream, 'This is what I hope to invest.'"
I love looking at budgets (for people, not businesses). I admit that there might be an unhealthy voyeurism to it, but I find it fascinating to see how people spend (and save) money.
I admit, however, that I can only look at this for so long before I start to ask why someonewould make a pie chart with a hole in the middle.
is to be financially independent by the time I am 45.
And by financially independent, I mean that I will have saved and invested enough money that I can (1) afford the lifestyle I want to lead, (2) afford that lifestyle without having to spend any time earning money, and (3) no longer worry about money running out.
But more than anything, this is a promise to myself to never be scared of doing whatever I want to do because I do not have the money or the financial knowledge to do it. I never want to stay in a bad marriage because of money. I never want to be a financial burden on my family. I never want to be caught in a career I hate because of money. I never want to be afraid that a medical emergency or two would leave me or my family in poverty. And above all, I want to have the final word on how I live.
My name’s Jennifer. I’m in my early twenties, and this is the beginning of what will *fingers crossed* be a twenty year journey to financial independence.
