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.

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 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 twice-weekly newsletter? Sign up now.

Browse Articles

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments

Free Newsletter