FREE NEWSLETTER

What It Takes

Richard Quinn

SAVE 30% OF INCOME? No way.

That’s been my reaction whenever I’ve read about people saving 30% or more. I look back and think about making monthly mortgage payments, raising four children, paying for college and trying to save something to supplement my pension. For my wife and me, a 30% savings rate simply wasn’t possible. Nevertheless, people do it.

To find out more, I asked folks on a Facebook retirement planning group, “How do you save 30%?” The responses boiled down to nine key factors.

  1. Folks who save that much are focused. Many buy into the financial independence/retire early (FIRE) movement, seeking to retire in their 50s or earlier. One commenter quoted Abraham Lincoln: “Discipline is choosing between what you want now and what you want most.”
  2. Live well within your means. That means being frugal, resisting immediate wants, driving a car for 15 years or more, and spending minimal sums on vacations and other luxuries. This may justify the label “cheap,” but these super-savers are sure willing to focus on the future. “Don’t raise spending with pay raises” was mentioned several times.
  3. Avoid debt. This was the most frequently mentioned strategy to help save money—which, of course, goes back to living within one’s means.
  4. Two incomes. It seems being a dual-income household is a big help, and that two can indeed live as cheaply as one. Many mentioned socking away all or a portion of a second income.
  5. No children. It’s estimated that it costs almost $234,000 to raise a child through age 17. Add college and you could be approaching $500,000. Skipping children can sure make saving money easier, but—as for me—I’ll keep the kids.
  6. Side hustles. if you’re motivated, holding down two jobs or working lots of overtime can help you to hit that 30% target.
  7. Live in a low-cost area. But aren’t wages also lower in regions with a low cost of living? Apparently not—if you’re transferred there by a large company and keep your salary from your prior location.
  8. Save first. Among the respondents, maxing out their 401(k) was popular. That’s no doubt made possible by employing one of more of the above strategies.
  9. Keep track of spending. I’ve never been into budgeting. Instead, I favor saving first and avoiding credit card debt, and then allowing myself to spend whatever’s left over. Still, I can understand how a close eye on spending can help.

There’s one point missing in the above discussion, and that’s a clear definition of “savings rate.”  When someone says they save 30%, I assume they take 30% of their income and put it in a savings or investment account. But is that what everyone means? For example, could it include reinvesting interest and dividends? In my case, I send money to each of my grandchildren’s 529 plans every month. Is that saving? I say “yes,” even though the money isn’t for me.

Our Weekly Newsletter

Some people count employer matching contributions to their 401(k) as savings. That’s of real value, of course, but should it count toward your savings rate? I’m not sure. Another issue raised is whether the savings rate is calculated as a percentage of pre- or post-tax income, and whether that income includes bonuses or overtime pay.

Whatever the true savings figure, it’s clear that mega-savers are disciplined and, most of all, highly motivated. If their strategies are too much for most people, there’s still much to learn from them and to emulate.

I was curious. How much do I save now I’m retired? To do the calculation, I counted the money that goes into our savings accounts each month, the interest and dividends I reinvest (but not capital gains), and the 529 contributions for our grandkids. To my surprise, it adds up to 29% of our total income.

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, he was a compensation and benefits executive. Follow Dick on Twitter @QuinnsComments and check out his earlier articles.

Do you enjoy HumbleDollar? Please support our work with a donation. Want to receive daily email alerts about new articles? Click here. How about getting our weekly newsletter? Sign up now.

Browse Articles

Subscribe
Notify of
20 Comments
Inline Feedbacks
View all comments
Impersonal Finances
Impersonal Finances
5 months ago

I’d actually attribute my high savings rate (around 50%) to the fact that I live in a HCOL area. Much more opportunity to find cheaper alternatives (rent for example), and frugality really pays off when you have more room to work with. Plus, no kids!

booch221
booch221
5 months ago

When I was working I was saving 40% of my salary. Being a double income no kids household made this possible. I worked for a state that took us out of Social Security. We still paid the 6.13% SS contribution into a 401 and the state matched it. I contributed 6.75% to a defined benefit pension plan. Then I contributed the max to 457 Deferred Comp plan. Then there was what I saved in taxable accounts (I would use some of that each year to fund a Roth IRA to the max). I really saved too much, but I never felt like I denied myself anything. I drove Honda’s when I could have afforded a BMW. I traveled the world and extensively in the US.

Steve O
Steve O
5 months ago

I agree with all #1 to #9 not #5

All the confusion and lies in life begins with the word percent.
Always use real numbers to set goals.
In the early 1980 s the 401k confusion was maximum 16 % of salary, company match 50 % of first 6%.
Some time in the 2000 401k limits became real numbers.
I did the max for 35 years and worked OT.
In the early 1980 s we had employee stock ownership plan.
I did the max and worked OT.
Good advice from Pete and Fred brilliant Substation Test General Foremen both talked real numbers with me.
ESOP all the stock offered and not bought was be offered again for purchase, buy. A great way to double the benefit of ESOP.

Cancelled most monthly bills working PT for landlord 1978 to 1985. I would stop by office and landlady would say how many hours this week.
Then she would pay me 50% more than agreed, because of good work and dependable.

In 1986 my wife graduated from Georgetown Medical School cost 18 k / year. Always invest in your brain.

I left VA TECH supervising chemist job in 1981. Joined the power company as supervising chemist and doubled Va state salary / benefit package.
After two years a different Va state agency wanted me to run a different lab.
State offered the top of pay grade after 6 weeks of Friday haggling phone calls.
The power company matched state offer 10 k and 5 k raise six months later. Power company likes to win.
LOL nice pay day for one interview.
One year at power company I was making double of my former PhD va tech bosses. I supervised the whole lab when PhDs stayed in office and “traveled”. Masters in Chemistry, Master Plumber, common sense, taking care of problems and supervision abilities pay well.

Always be very serious about being paid properly.

Save early remember the story of the brothers ONE starts saving at 25 and quits saving at 35. TWO starts at 35 and never catches ONE.

We retired 2015, traveled 9 months/year and stopped in March 2020.
Since retirement S 35/ B 50 / 15 C savings is up one million.
Now S 15 / B 50 / C 35 will buy dip or not.
Why play when you already WON.

We always lived on one income and saved the other. So no budget.
We invested in private medical practice for autonomy.
33 years of company car = max 401 ks
35 years at power company = great pension
We both enjoyed long careers in our chosen fields of study.
We both worked jobs in college.

#7 is nonsense because capital goods, travel and nice houses cost the same everywhere. Example 1990 I was offered a job in western Pa for 1/4 of package in DC.

Last edited 5 months ago by Steve O
DrLefty
DrLefty
5 months ago

We’re still working at age 60, and our kids are out of the nest. We max out three deferred comp accounts between us, but it doesn’t add up to 30% of our income. However, as a state university employee, I have a required monthly contribution to my pension, and it’s a sizable sum. Plus the university matches it. Figuring out the value of my forthcoming pension and how it relates to our net worth has always confused me a bit.

We also put several thousand dollars a month into a travel account. When we started doing this, we meant it for current as well as future travel, but since we still have disposable income each month, we’re just paying as we go for trips (not that there have been any this past year, but there will be as 2021 goes forward). The travel account is growing for our early retirement years.

When I take all of that together, we may be closer to 30% than I thought.

R Quinn
R Quinn
5 months ago
Reply to  DrLefty

I hope you get to use that travel account. In normal times our largest single annual expense is travel and we miss it these days.

Tinted Life
Tinted Life
5 months ago

Awesome post!

Thankfully, having read many of John’s books has provided our family with the wisdom to drive our fixed costs lower each year, live off of one income, live within walking distance from work, avoid divorce, and resist hedonic adaptation as much as we can. We tip-toe into the hot jacuzzi of ratcheting up our savings rate each year…slowly adjusting to the temperature of the water which has allowed us to slowly ratchet up our savings rate. It hasn’t been easy; many times, disputes were had, but as our investment accounts hit the critical mass more trust in the process was received. Last year, we hit our highest number which was roughly 60%.

As a bulleted point to living within your means, Buying a home you can easily afford with low maintenance costs and taxes helps a ton. Our current mortgage payment represents 3% of our pre-tax income.

The kids are costly (we love them despite), we leverage economies of scale as I like to call it. We buy in bulk, and our third daughter has all of our first and second daughter’s clothes that they have grown out of (some new stuff too).

We’re going lower the temperature a bit as we approach our 40’s as best as a prodigious saver can do.

Arnold Hold
Arnold Hold
5 months ago

Like the observation at the end of this article that just because you are retired, there is no reason not to save if you can. Though, 29% seems kind of steep once you are no longer working, if it works…why not.

Purple Rain
Purple Rain
5 months ago

Working for a large company with good benefits in a low-cost area with no kids translates for us to zero debt, a paid off house and 55% in savings.

Roboticus Aquarius
Roboticus Aquarius
5 months ago

I don’t think one has to be super frugal for 30 years to hit some very good numbers.

Do it early in your life, and for your first decade of saving, and you can really get that snowball rolling.

R Quinn
R Quinn
5 months ago

Problem is for many the early years are when saving is tough, but the earlier the better.

Roboticus Aquarius
Roboticus Aquarius
5 months ago
Reply to  R Quinn

You’re absolutely right about that. I saved 20% of my income my first year of work, which felt very frugal… I was also paying down college debt that was another 15% or so. Then I lost my job, and I had to spend the 20% I’d saved. It’s not easy.

Thomas
Thomas
5 months ago

Over the past few years, I’ve come to appreciate just how different people are. We all have different life histories, incomes, values, goals, etc. What seems insane for one person is quite sensible for another. I suspect you would balk at my miserly ways, but compared to most of the world’s population, I live like a king.comment image

The key to feeling rich, in my experience, is to make downward comparisons. When I compare myself to the average sub-Saharan African, low-income Indian, or 19th-century American, I feel like the richest man in the world. In turn, that keeps my wants in check and makes it not so difficult to save 30%+ of my income.

Last edited 5 months ago by Thomas
Thomas Taylor
Thomas Taylor
5 months ago

Richard – I always enjoy your articles. I generally adhere to most of these and I agree with you as to #5 and #9. I’ll keep the kids (and one grandchild) and I don’t budget. I currently make $72,000/year gross. I’m required to contribute 9% to a State pension fund; I also contribute $400/pay period to a 401(k) and another $150/month to a personal savings account. When I added that all up. it came to about 26%. My wife’s retired and she “gives” me some money from her pension each month for household bills and she does whatever she does with the rest. We bank her SS check each month. I don’t feel like we deny ourselves anything. We just live pretty simply, so I can see how a 30% savings rate can be done.

R Quinn
R Quinn
5 months ago
Reply to  Thomas Taylor

I’m glad you posted this. It brings some reality to what is possible.

Doug K
Doug K
5 months ago

median US household income is $63k.
median cost of living is about $20k per person.
Arithmetic tells us that saving 30% is not possible except for rich people.
The backstory of every FIRE success story that I’ve investigated, includes six-figure salaries or family money..

As DINKs (dual income no kids) we hit the 30% most years. After kids, my wife went first part-time then got laid off. We managed 20% of my income into retirement and college funds for a while, until years of salary lagging inflation took its toll. At that point my wife went back to work to help pay for college. Our savings has dropped to about 10% now. I’m driving a 2004 Ford and doing car maintenance on all our cars to save money, not where I expected to be after forty years of working..

R Quinn
R Quinn
5 months ago
Reply to  Doug K

You would think it’s only rich people, but that does not appear the case. I am surprised to see just how frugally some people live; to the point many of use would not want to live that way for any cause.

parkslope
parkslope
5 months ago
Reply to  R Quinn

The extreme FIRE cases made me think of those who go on very low calorie diets in an effort to live longer.

daniel kearns
daniel kearns
5 months ago

So I have been retired 8 years now (how fast it goes). I did not withdraw any money from my IRA for several years, and even though I had an employer match, I was surprised to find out that when I looked at the dividends and interest of my IRA account, more money is NOW being put into (reinvested) that account than in any year that I worked. Einstein supposedly said that compounding was the eight wonder of the world. I say the easiest way to make money is with money…

Charlie Warner Jr
Charlie Warner Jr
5 months ago

Six years into retirement I have no idea what my saving rate is currently. I do know my portfolio is worth more today than prior to retirement. Before my retirement my wife and I maxed out our 401k and saved what ever else we could. I’m convinced my wife and I are financially sound today in retirement because of disciplined saving and the value of compounding.

I’m also believe by not eating out excessively we saved a substantial amount of money. While my kids might tell you I was on the cheap side…..they would also tell you they appreciated graduating from college with a dependable car with no debt. 

My wife and I both worked for large corporations and there was no cost of living adjustment based on geography. Yes, living in a medium size city in the south allowed us to sock away more saving than my buddy who lived in New York City. 

Helpful Neighbor
Helpful Neighbor
5 months ago

Richard- Great ending !

Free Newsletter

SHARE