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.