Why would you want to save so much?
If you ask anyone what the secret to retiring early is they will say it is a high savings rate. But what if you don’t want to retire early? Should you even bother?
If traditional early ‘retirement’ doesn’t appeal to you, what other goals could you achieve if you just had a bit more money at the end of each month?
- Quit the job you hate without something immediately lined up
- Spend more time travelling
- Have the cool to handle an unexpected medical emergency
- Stay at home with the kids while they are young
- Take the time off to volunteer and pursue your passions
- Move to a homestead in rural Vermont ??
If it is an intended goal, or just wanting to be covered when life doesn’t go to plan, saving half your incomes will give you options and the freedom to live your life the way you choose.
Know what you spend
If you want to save half your income you need to know what you are paid and how much is spent. While I don’t personally track every dollar now when starting out it is important to highlight where your money is going so you know some areas to be able to cut back. Look over your bank/credit card statements for the past 12 months and put each expense into a category. Chances are housing, transport and food are high expenses. Does anything else stand out? Entertainment, eating out, unused subscription, treats for the kids? Whatever it is, take note.
Commit to cut back for 30 days
Challenge yourself to only spend money on the essentials for 30 days. It is a short enough timeframe that you can see the end and won’t give up too oon, but will offer a bit of a challenge to prove you really want it.
Essentials include shelter, basic food, and any bills you’ve previously committed to*. No daily coffee, magazine for the train ride, or retail therapy when you’ve had a bad day. At the end of the 30 days see how much you have saved that would have easily been spent if you weren’t questioning it. Rinse and repeat until you are comfortably spending only on what is needed.
The Zero Day Challenge has been a great way to keep me on track with spending only on the essentials – it really makes me question if it is a need or a want because I don’t want to have to report it to everyone 😉
*This means debts!! Get rid of any consumer debt as soon as possible and a higher savings rate will happen that much faster.
Pay yourself first
After you’ve committed to cutting back and gotten into a new habit of considering purchases beforehand, set up an auto savings habit. Don’t wait to see what is left at the end of each month – transfer the money up front. I do this each month and it works!
If I want to do some online shopping and log in to check my bank balance I can see if I can afford the item and know my savings is safely already tucked away. Out of sight, out of mind.
Increase by 1% each month
I know asking you to immediately switch to a 50% savings rate might feel like asking you to cut off a limb! So let’s start small and work our way up. This year I set myself a goal to save an extra 1% each month and it really helped me to ease into it. I got my savings rate up to a high of 60%! By tackling my goal one step at a time it was relatively pain free and I didn’t feel deprived and feel the need to rebel with a shopping spree in spite of myself.
Whatever your current savings rate is add 1% this month and go from there. Even if it seems slow at the time, but the end of the year you’ll be saving 12% more than you were previously.
Earn more money
Often the least talked about way to increase your savings rate is to increase your income. It is definitely much easier to save more when you earn more. If I didn’t work hard to increase my income by 75% in the past 5 years I know my savings rate wouldn’t be anywhere near as high as it is now.
- Ask for a pay rise
- Hustle on the weekends
- Put your hand up for a promotion
- Start your own business
Of course, you can still live extremely frugally and save 50% of your income, however, if you can find a way to earn more it will be so much easier for you to gain momentum and hit that goal!
What you’ll get?
Saving half your income doesn’t mean you have to live in a caravan and eat beans and rice (though I don’t see any issues with that ;))
What it will mean is that you can live the life you want sooner!
Want to retire early? If you only save the average 10% it will take you 51 years. Save half your income and you will reduce this number to just 17 years. That’s 34 years of your life back!
Whether it is being a stay at home mum, taking a career break, or just not stressing about a job loss or medical emergency, whatever your ‘why’ was above will living on half your income help you achieve your goals sooner.
How much do you save? Could you bump it up to half your income?