How to Save 50% or More of Your Income
Be in the 1% and save 50% or more of your income
I don't know about you, but I am not even close to that. Maybe one day I'll get there, but let's talk about what we can do today. Financial Hipster was started as a way to think differently with your money and build good money habits. Hipsters are seen as being weird because they are different. If you try to save 50% or more of your income, people will call you weird. When it comes to money, being weird is often a good thing. The chart below shows the savings rate of people based on their wealth class and how much they are saving as a percent of their income.
As you can see, the wealthiest 1% in America save 40% or more of their income. Even though we can't all be in the 1% of income earners. There is nothing stopping anyone from saving like the 1%. By savings 50% or more of your income one day you may be in the 1%.
Saving 50% or More Of Your Income Is Very Feasible - Here Is Our 2018 Savings Goals
As I have mentioned in other posts, coming out of school with no debt and then continuing to live a lifestyle where we never went into debt is no doubt what has allowed us to invest how we want to invest. Even though we make less than the average American household income of $117,795 for households who file married filing jointly, our goal for this year is to save 57% of our income in 2018.
Many of you are probably thinking, "Geez, must be nice to be able to save like that but I can't do that." Well why not? If you are already in debt, you'll have a bit of a road ahead to get out of debt. But I also know many people who aren't in debt and simply choose not to save. In America it is normal to dive into debt. If you refuse to do it, your path might look a bit different but honestly it doesn't really have to be. In doing so, you won't be driving the newest car. You wont be living in the biggest house on the block either but it is very attainable for anyone who focuses on it.
Debt is not inherently bad, there are many ways to invest with debt that can bring wealth. I personally don't chose to partake in those types of investments and so far, so good.
When it comes to debt always remember:
"Debt doesn't usually happen to us, we make the decision to go into debt. We sign off on it."
Our 2018 savings goals:
How We Set Up Our Savings
We max out my work 401k which in 2018 is $18,500. With an employer match, that total amount adds up to a little more than $21,000. My wife is a photographer and brings in a modest income. We use her business earnings to fund our savings account and her Traditional IRA, which is a max of $5,500. We don't earn enough to be excluded from contributing to a Roth IRA, which in 2018 is $189,000 for a family filing jointly. This allows us to save another $5,500 after tax, but it grows tax free and can be withdrawn tax free and penalty free after 59 1/2.
My health insurance at work also provides an HSA option. In 2018, anyone on a family plan can contribute up to $6,850 which we fund from my paycheck. When possible, I always fund all our savings plans straight from my paycheck so I never see it. We chose the HSA option because it allows us to pay a low premium now and save tax free for any future medical expenses. We allocate the rest of our savings to a savings account. With these funds, we transfer money into both our kids Ohio 529 Plan.
The 2018 limits for state tax deduction on the Ohio 529 plan went up in 2018 from $2,000 per kid to $4,000. That prompted us to make sure we funded at least up to that limit for a total of $8,000 this year for our two kids.
After that, we won't have much of our savings left over, but our goal is put another 10k into an after-tax brokerage account. That's a total of just under 57k or 57% of our income. I am pretty confident we'll be able to obtain these goals, and heck you never know, we may even be able to save more after taxes if my wife happens to have a good year with her business.
How To Save 50% of Your Income or More
In order to save 50% of your income or more, you'll have to focus on making more money, spending less, or both. It is not an easy goal but it's very achievable on an income of 100k or less. If we can do it, so can you. Living off less is the only way we can save this amount of our income. It's definitely a marathon, not a sprint, but by focusing on the long term it makes todays financial planning much easier.
Keys to being able to invest more of your income:
- Reduce Payments
- Grow Income
- Avoid lifestyle inflation
- Take Advantage of Tax Breaks
- Invest Any Windfalls or Bonuses
What Do Other People Across the World Save?
Americans on average save 3.7% percent of income according to this 2015 chart. You'll also notice that China saves quite a bit more as a proportion of their income at 47%.