Why we’re saving 50% of our income this year (and a mid-year update)
At the beginning of the year, we promised to try to save 50% of our combined incomes. We got a lot of feedback on that post (and almost none of it was positive!). The post got pushed to Yahoo, which made complete strangers question our sanity. So far, thank goodness, Brent hasn’t liquidated all the money and run off to Mexico with a stripper (though I suppose the possibility still exists).
Since my income is somewhat variable (at least the side hustle piece!) and his isn’t, we decided $75,000 was roughly 50% of of our after-tax income. And that’s the number we’re aiming to hit. We’ll get into the specifics of how we’re doing in a bit, but first, let’s talk about why we’re saving 50%, and why we encourage everyone to aim for that as well.
“I could never do that!” say most people when they hear about our goal. “How are you going to live on 50%?” The internet trolls made the point that two people making $150,000 combined really should be able to save 50%. That’s not a challenge, they say. That’s a rich person’s problem. And they’re right. We really should save half.
Funny thing is, though, without clear goals, you spend what you earn. Mindless spending happens at all income levels. It just doesn’t make as much of an impact when you have more in the bank. How do we curb mindless spending and pay our future selves dividends? Furthermore, why are we saving as much as we are?
Delayed Gratification
If we can make sacrifices now, while we’re kidless and virtually free of responsibilities, we’re more likely to go through life comfortable rather than struggling. We know that we’re in the very beginning of our life together, and that the habits we set now are laying the foundation for the way our future will pan out. So we’re exchanging some dinners out for future security. It’s a fair trade off, for sure.
Insurance for an Uncertain Future
We all know there’s no such thing as job security anymore. But you know what? We can buy security. We can sock our money away for a rainy day, and hope that we won’t need to use it. We’re both working for companies we like, in jobs we’re good at, so the likelihood that one or both of us loses a job is slim, but not nonexistent, and we wouldn’t want to be in a situation where we could lose our house if we lose our jobs.
Freedom Fund
The other side of the coin is that maybe one day, we won’t want to work for other people anymore. I have all kinds of entrepreneurial dreams. By saving 50% of our income, we can fund our dreams, or simply fund an early retirement.
Still Flexing the Frugality Muscle
If we can save 5o cents of every dollar we bring in, we’re setting ourselves up to live simply our whole lives. As our incomes rise, so too will our savings, instead of our spending. Then, if we have kids, we’ll teach them how to do the same.
The suggested savings rate of 10% is abysmally low, and puts too many people too close to the edge. The only way to combat it is to save more.
That’s why we’re saving. Join us! We’re starting the Save 50% movement, and we’re organizing a community on Facebook to encourage each other.
Where We’re Saving
We know that we have to move money before it hits our checking account, so we never feel more flush than we are.
Maxing Out Retirement Accounts
Brent has a 401(k), and is going to contribute $17,500 this year.
Brent also has a Roth IRA, which he’ll max out at $5,500.
I have a Roth IRA as well (I had a traditional, but had to switch because the wedding will bump me into a higher tax bracket and I’ll be ineligible) which I’ll max out at $5,500
Total for the year: $28,500
Total contributed so far: $24,161
We’re 85% there on retirement accounts!
Maxing out HSA
Brent has an HSA that he’s contributing $3,300 this year to.
Total for the year: $3,300
Total contributed so far: $1,673
We’re 51% there on health savings accounts!
Mortgage Principal
Mortgage principal counts as savings (yes it does!) because it’s equity we’re building in our house that will one day translate into cash in the bank when we ultimately decide to sell. We’re behind the target this month because principal increases every month, so it’s a moving target. Same mortgage payment in December means much more goes to principal than it would have in January.
Total for the year: $7,650
Total contributed so far: $2,070
We’re 27% there on the mortgage principal!
Where to Put the Rest
Brent set up a Vanguard non-retirement account, where we’re saving the lion’s share of our combined income. I like these funds because they’re not in regular checking, but they’re still pretty liquid. So we can be aggressive and sock as much money as possible into them without worrying that we’re tying up our money for X years, like we’d have to in a CD.
Total for the year: $28,950
Total contributed so far: $17,494
We’re 60% there on non-retirement interest bearing accounts!
Total for the year: $75,000
Amount we’ve saved so far: $45,398
We’re 66% there for 2014 goals!
The rest goes in our checking account, the account from which we pay all our bills. We keep some cash in that account, but not much, and it feels like this “little backyard picnic wedding” eats more and more cash as we approach the big day.
We’re on track to save 50%, though we’re a little shy of our goal. I lost an important gig that was bringing in a decent amount of “side income” so unless something happens faster than I expect on the hustle front (go! Click all the affiliate links on For Profit Blogging!), we’ll fall short this year.
However, we will not be planning an expensive party in 2015, and can raise the bar on our savings goals.
The cool thing about trying to save 50% is that even if you fail, really hit the wall and fail, you’re saving MUCH more than you would if you didn’t make saving a priority.
How are you doing?
