Saving is hard. I get it.
Except it’s not.
There are approximately 5,293,028 excuses people use for why they can’t save. I have to commute; I live too far from work. I have 14 kids that all have to join boy scouts and gymnastics and soccer and the glee club because lord knows a kid can’t spend an hour alone using their imagination. I live in an expensive city. I’ll save later. And so on.
And it’s all bullshit. Every last word of it.
We all agree people should save. Where we disagree is how much their savings rate should be. I used to advocate people start by saving 10% of their income and go from there. Once 10% gets easy, up it to 20%, then 30%, and so on. When it starts getting hard, people have a choice to make. They can max out there or make changes to really accelerate their savings rate.
I’m a fan of the latter, especially if you don’t have kids. Here’s why you should save 50% of your income.
Freedom is so close
It should not be hard for two educated people sharing resources to save 50% of their gross income each year.
I’m too lazy to look up the actual numbers, but let’s assume households headed by two university grads make about 50% more than the average. This is in no way scientific, but I think it a reasonable assumption. The average household in Canada makes about $80,000 per year, so we’ll assume our DINK couple makes $120,000 annually.
Is it really so hard to assume this couple can “only” live on $60,000 per year? That’s $5,000 a month. That much money goes a long way, even in places like Toronto or Vancouver.
Taxes would be a big expense, but those could be minimized by strategic RRSP contributions. Rent could easily be had for $20,000 a year (or even less), leaving $25,000 or $30,000 to live. This is easily achievable.
If people picked a lower cost of living area it would be even easier to accomplish this. I paid $195,000 for a three-bedroom, two bathroom house. Our minimum expenses each month (including our mortgage payment) come to about $1,300, plus food. Car expenses are minimal as well; we’re saving tons of money by only having one vehicle. If we wanted to, we could live on about $25,000 per year, but we’re big spenders. We’ll probably spend about $40,000 in 2017.
I don’t keep exact track of the numbers, but I’d estimate we’ll save anywhere between 60% and 75% of our gross income in 2017, with that number actually going up as Vanessa’s income increases in 2019. It’s getting to the point where I’m beginning to question what we’re saving so hard for. Luckily, those feelings go away quickly.
I’m not saying this to brag. I point it out because if you’re aggressive enough, getting enough money for some serious freedom is just a decade or so away.
If you manage to save $60,000 a year and you invest that cash earning a modest 8% per year, you’ll have more than a million bucks in a decade (excluding taxes). That’s enough to do just about anything. You could retire, quit your job to do something more fun, start a business, or even just decide to keep working and turn that one million into two million. The world is your oyster.
Is average really for you?
One thing that used to really amaze me was how different my life was versus my friends. They’re struggling to make ends meet. I invest enough in one stock or one private mortgage to eliminate their credit card debt. They eagerly await payday. I couldn’t even tell you what exact day I get paid from my biggest writing client. I worry very little about day-to-day financial decisions because they don’t matter. It’s the big picture that encapsulates me.
And let me tell you, kids. It’s the best.
Although I’m not yet comfortable retiring with my nest egg, it is enough that I could probably stop working. Certain early retirement bloggers have quit with less than I have today. I have very little interest in retirement. But I have a lot of interest in doing fun things that I enjoy.
I can easily cut back on my writing and only work half days. I’ve considered this at times since I’ve always liked the idea of a semi-retirement filled with golfing. I’ve also considered rejuvenating my goal to go see a baseball game in all 30 MLB stadiums. Or I could recline my chair and fill my days making a dent in my massive reading list.
The point is simple. The more you save, the more freedom you have. You can’t control investment returns or getting promoted at work or whether your house goes up in value or a million other variables. What you can control is maximizing your saving. Do that for a long period of time and everything else will fall into place. That’s the ultimate lesson here.