Ever since I started this website I’ve published a monthly update tracking all my retirement and investment accounts. The purpose was that putting it out there in the public view would force me to really stick to a savings plan and maximize the potential of my investments. I don’t know what you all think of the updates, but every time I write one I have one thought - “Damn, I need to save more money!”
That’s why I’m setting the following goal for myself starting in the new year:
Save 50% of my gross income.
It’s an admittedly lofty goal for myself. I went through my budgeting history before sitting down to write this post and right now it looks like I spend about 70% of my gross income. So I need to cut back about 20% to meet my goal! I paid off my car loan earlier this year which will help out a lot. And once I switch over to a non-contract smartphone plan I’ll cut even more spending out over the next year. What I need to cut back on after that will take a more detailed analysis of my budget this past year, which I plan to do over the next few weeks.
Sam, over at Financial Samurai, mentions quite often how in order to retire early he regularly saved 50-70% of his after tax income. While I have no illusions of being able to retire by the time I’m 40. I do think that adopting a more aggressive savings philosophy will offer me the following benefits:
- Making up for lost time – I will readily admit that I squandered the majority of my early – mid 20′s financially. I’m lucky I never got myself into too much debt, but after graduating college I spent two years doing just about nothing before finally putting my degree to use and landing a job at a “too big to fail” bank about 6 months before the financial industry went over the brink. Needless to say it’s been a rocky career path ever since. By saving aggressively now, I can close the gap on some of those missed years and take advantage of the power of compounding while I’m still pretty young.
- Force Prioritization – While I do a good job of sticking to my current budget, there is still a lot of wasteful spending that I could cut back on (advance apologies to anyone who owns Chipotle stock!). Setting a goal of living off of half of my income will force me to really prioritize my discretionary spending and cut out the things I can really do without.
- More Investment Opportunities – It’s only natural that if I’m saving a lot more money, I’ll have more money to invest! And that brings a much bigger smile to my face than all those burritos! Contributing more to my 401(k), Roth IRA and savings account will naturally be part of the plan. In addition I’d like to start to focus on building some investments in non-retirement accounts. Such as finding a rental property, investing in a regular brokerage account, building a CD ladder, and adding to my P2P lending portfolio.
- Less Stress – More money saved means more of a safety net against the unexpected. Home & car repairs, medical bills and even a stint of unemployment will be less daunting and cause less stress because I’ll be more prepared to handle them (provided they don’t happen in the too near future!)
So, will I be able to meet the goal of saving 50% of my gross income? Honestly, I don’t know. It is a pretty big goal and it’s going to take a lot of work to achieve, but what good are goals if they don’t give you something to strive for? Even if I fall short of 50%, as long as I improve upon my current savings rate I’ll consider it a win.
Do you think you could live off 50% of your income? Want to take the challenge with me? Try Personal Capital to manage your spending, budget and investments all in one place.
Are you already living off of half your income? Share your secrets! I may need the motivation when this gets really tough!