Author Topic: How to get to 70-75% savings rate?  (Read 9923 times)

SpendyMcSpend

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How to get to 70-75% savings rate?
« on: April 10, 2015, 12:54:16 PM »
   Income   85000
   401k 18000
   Transportation   1560
   Health    720
   Gross After Deductions   64720
   Tax Rate (includes NYS and City)   31%
   Net Income Yearly   44980
   Net Income Monthly   3748
   After Tax Deductions   128
   Net Income After Deductions   3620
      
   Bills   
Fixed   Rent   0
Fixed   Utilities   140
Fixed   Cell Phone   140
Fixed   Car Insurance   60
Disc   Food    350
Disc   Restaurants   250
Fixed   Gas   40
Disc   Entertainment   25
Disc   Travel   75
Fixed   Repairs   50
Disc   Clothing   125
Fixed    Student Loan   167
Fixed    Student Loan 2   82
Fixed   Student Loan 3   235
Fixed   CC   25
Disc   Other   75
Disc   Other   0
Disc   Other   0
Disc   Other   0
   Total Fixed Spending   939
   Total Discretionary Spending   900
   Total Spending Monthly   1839


Net Income for Savings Rate (Net plus 401k plus pre-tax health and transportation and gym)   63852.4   
Yearly Spending on:   12   
Utilities   1680   3%
Cell Phone   1680   3%
Car Insurance   720   1%
Food   4200   7%
Restaurants   3000   5%
Gas   480   1%
Entertainment   300   0%
Travel   900   1%
Repairs   600   1%
Clothing   1500   2%
Direct Loans   2004   3%
Sallie Mae   984   2%
Great Lakes   2820   4%
Best Buy   300   0%
Other   900   1%
Other   0   0%
Other   0   0%
Other   0   0%
Rent   0   0%
Total after net spending    22,068    35%
401k pre tax   18000   28%
Health pre tax   720   1%
Metro pre tax   1560   2%
Cash Savings   21376   33%
Total spending rate   24348   38%
Total savings rate   39376   62%


Right now I don't have rent for awhile, but that will change come October so I need to factor that in as well.  The cheapest I've heard anyone paying is about $750 for sharing a 3 bedroom apartment in say Bed-Sty or some area like that.  To live in a decent hood prob rent is more like 1000-1200 to share.

So where do you see things to cut or am I just doomed to have a lower savings rate and then relocate to a cheaper area in 10-15 years?

Rein1987

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Re: How to get to 70-75% savings rate?
« Reply #1 on: April 10, 2015, 01:01:44 PM »
Wow, you have already done a great job!

Some idea to further cut:
Clothes: I do not know how many people in your household. If no growing children, I guess you can cut this. Last year my family of two spent less than 300 on clothes.
Cellphone: 140 for how many people? Our family plan pays total of 140 per month, for 4 people (2 of them are friends), so our fair share is $70, including 10GB data plan.

SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #2 on: April 10, 2015, 01:03:41 PM »
Erm just me here! :)

boarder42

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Re: How to get to 70-75% savings rate?
« Reply #3 on: April 10, 2015, 01:07:24 PM »
you can get that cell phone way lower.  i'd look into it.  i have 5 people paying 140 a month on our plan and its 2.5GB per person.

FIPurpose

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Re: How to get to 70-75% savings rate?
« Reply #4 on: April 10, 2015, 01:07:43 PM »
There are several was to lower you phone bill to sub $50 a month. If you really want to get a 70% savings rate, stop eating out, and lower your phone bill. Also what kind of car do yu have and how much is it worth. If you cut C&C coverage you may be able to also cut that in half as well.

What are the details on your student loans?

SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #5 on: April 10, 2015, 01:11:19 PM »
There are several was to lower you phone bill to sub $50 a month. If you really want to get a 70% savings rate, stop eating out, and lower your phone bill. Also what kind of car do yu have and how much is it worth. If you cut C&C coverage you may be able to also cut that in half as well.

What are the details on your student loans?

My car is an old 1990s car I don't used often (may 2-3 times a month to go visit family which saves me about $45 in bus fare each time plus convenience (and not having to bum a car off my mother when I go visit). 

Student loan details:
#1 = owe around $13000~ interest rate is a fixed 6.7%
#2 = owe around $14000~ interest rate is a fixed 2.75%
#3 = owe around $20000~ interest rate is a variable 3.15%

If I didn't have the loans my savings rate would already be hovering around 70% I think

Option could be to cut out all the fun until the loans are paid off and then eat out again.  Eating/drinking out is the main way of networking and socializing in this city and I do enjoy it.  I am a bit of a foodie.

g3

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Re: How to get to 70-75% savings rate?
« Reply #6 on: April 10, 2015, 01:12:38 PM »
I would count the principal portion of my student loan payment towards my saving rate.  Changing that part of the calculation would bump you up quite a bit to your goal.

I agree with Rein1987 on clothing and cell phone.  I'm with Republic Wireless and pay $29 after tax for my cell phone plan.  I ended up paying nearly $300 to cancel my contract with Verizon knowing I would start saving $60 a month within five months.

Car insurance -- have you priced shopped around?  I cut my car insurance in half ($90-$45) without changing my coverage, merely switching from State Farm to Geico.

Food + Restaurants = $600/mo  There should be some room for improvement.  Bring your lunch to work, start cooking at home more, don't shop at high-priced grocery stores, shop the sales, etc. 

Utilities -- what utilities are you having to pay for?  MMM wrote a very interesting article recently about how he has reduced his electricity cost. http://www.mrmoneymustache.com/2015/03/25/cut-your-power-bill/



SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #7 on: April 10, 2015, 01:17:42 PM »
I'm subletting so utilities are gas/electric/basic cable/internet which I can't really change. 

What do you think would be reasonable to spend on food/restaurants every month?  Any ideas on cheaper recipes that are still delicious?  I hate spending $6-10 per drink when I go anywhere out (this makes me think I should be shopping around for happy hours).

Eric

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Re: How to get to 70-75% savings rate?
« Reply #8 on: April 10, 2015, 01:27:16 PM »
I would count the principal portion of my student loan payment towards my saving rate.  Changing that part of the calculation would bump you up quite a bit to your goal.

That may make Meadow feel better, but it won't bring the goal any closer.  (assuming the actual goal is to be FI and not just have a specific savings rate %)  It's not like there's an underlying asset that's going to be worth anything when the loan is paid off.  It's just debt, the same as any other non-collateralized debt.

boarder42

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Re: How to get to 70-75% savings rate?
« Reply #9 on: April 10, 2015, 01:37:10 PM »
I'm subletting so utilities are gas/electric/basic cable/internet which I can't really change. 

What do you think would be reasonable to spend on food/restaurants every month?  Any ideas on cheaper recipes that are still delicious?  I hate spending $6-10 per drink when I go anywhere out (this makes me think I should be shopping around for happy hours).

why dont you just not go out.  is this not an option?  my wife and i probably spend around 200 a month max for the 2 of us eating/drinking out.  Why are you drinking when you're out its way too expensive.  plus you have to drive.  you should be having parties at your house not shopping for happy hours.

SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #10 on: April 10, 2015, 01:42:53 PM »
I'm subletting so utilities are gas/electric/basic cable/internet which I can't really change. 

What do you think would be reasonable to spend on food/restaurants every month?  Any ideas on cheaper recipes that are still delicious?  I hate spending $6-10 per drink when I go anywhere out (this makes me think I should be shopping around for happy hours).

why dont you just not go out.  is this not an option?  my wife and i probably spend around 200 a month max for the 2 of us eating/drinking out.  Why are you drinking when you're out its way too expensive.  plus you have to drive.  you should be having parties at your house not shopping for happy hours.

My social activity tends to be one on one or sometimes a group dinner or drinks.  I live in a studio so having people over isn't really an option (and it's not my studio so I'd be a little worried about wrecking stuff).  I am single so I would prefer to go out than sit at home although sometimes my friends do have me over. 

FrugalShrew

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Re: How to get to 70-75% savings rate?
« Reply #11 on: April 10, 2015, 01:47:52 PM »
Joe from No More Harvard Debt's strategy was to bring a flask: http://nomoreharvarddebt.com/2011/09/04/social-lubricant/

Retire-Canada

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Re: How to get to 70-75% savings rate?
« Reply #12 on: April 10, 2015, 02:09:51 PM »
Ask for a $10K raise.

-- Vik

norabird

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Re: How to get to 70-75% savings rate?
« Reply #13 on: April 10, 2015, 02:35:36 PM »
Just popping in to say Bed Stuy is a perfectly decent place to live! (And rising rent-wise as a result, I suspect--but out around the Utica stop should be doable).

I live in NYC too and I try not to order drinks when I go to the bar with friends. Usually I just get water. I can't/don't always avoid these costs but no one really cares if you're just drinking water. Say you're trying to save or that you're getting over a cold or having a 'dry' month.

MDM

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Re: How to get to 70-75% savings rate?
« Reply #14 on: April 10, 2015, 03:08:13 PM »
One can manipulate/define savings' rates in many ways - are you interested in the rate per se, or are you looking past that to "how long to FI?"  If the latter, here's a quick equation - put your numbers into Excel and see what you get....

Time in years to FI = Ln((S + i*E/WR) / (S + i*A)) / Ln(1 + i)

A = Asset amount currently invested in funds you will draw upon in retirement.
E = Total (including taxes) annual expenses in retirement (today's dollars)
i =  Real return on invested retirement funds, e.g., 3% (conservative - we hope...)
S = Annual amount invested in funds you will draw upon in retirement.
WR = Withdrawal Rate planned for retirement, using Trinity Study definitions (e.g., 4%)

SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #15 on: April 10, 2015, 03:33:09 PM »
Right now it says about 9.5 years using that formula.  I'm 32 now would like to be retired by 40

Doulos

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Re: How to get to 70-75% savings rate?
« Reply #16 on: April 10, 2015, 04:05:10 PM »
cell phone looks high.  So does rent, but I suspect shelter in New York City is expensive.

On your food/entertainment question.
My wife and I (2 people) spend 360 on food, 400 on entertainment, + $100 blow money. 
- That is pretty high for here, but we also really like going out. 
- We are also both athletes, thus our calorie numbers are much higher than the average person.  I eat 6 meals a day.
- We eat organic.  Which is expensive.
That would be a total of $480 each.  So I would say your total of ...
Disc   Food    350 -> $155
Disc   Restaurants   250
Disc   Entertainment   25 -> $345 or less
Disc   Travel   75
Disc   Other   75
= $775 -> $500

Could drop to under $500 total.  If you are asking for reasonable luxury numbers. 
- That is only if you are eating organic and party rocking. (which we do)
- If you travel to a camp ground, or drive to a restaurant, or host a party in your loft, it is all entertainment really.

Also, I agree with accounting the removal of debt as tracking net worth -> FIRE.
Going from -$47k to $0 is progress.  Just like going from $0 to $551,700 is progress.

I also noticed that you do not have HSA listed as savings?  Do you have that option for tax-free savings?
« Last Edit: April 10, 2015, 04:22:35 PM by Doulos »

MDM

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Re: How to get to 70-75% savings rate?
« Reply #17 on: April 10, 2015, 05:03:38 PM »
Right now it says about 9.5 years using that formula.  I'm 32 now would like to be retired by 40
So now adjust E and S to get down to 8 years, and you'll see how much you need to change.  Nice thing is that as E goes down, S can go up.

SpendyMcSpend

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Re: How to get to 70-75% savings rate?
« Reply #18 on: April 10, 2015, 05:52:09 PM »
I guess my question is, is my difficulty in getting to 75% a function of the housing and higher cost of living around here or because I'm spending too much on food and entertainment and fun?

boarder42

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Re: How to get to 70-75% savings rate?
« Reply #19 on: April 11, 2015, 08:01:53 AM »
You're spending too much on frivolous crap. Why even ask that question. Its pretty obvious just looking at the numbers. If you really truly want that savings rate then stop going out and get a cheaper cell phone plan. Pretty easy. If you're not willing to give that up be Ok with your savings rate as is

boarder42

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Re: How to get to 70-75% savings rate?
« Reply #20 on: April 11, 2015, 08:19:25 AM »
MDM that real return is ultra conservative isn't it ?  Assuming you're putting taxes into your spending isn't .06 a good real return based on 10% returns with 4% inflation?

arebelspy

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Re: How to get to 70-75% savings rate?
« Reply #21 on: April 11, 2015, 08:41:16 AM »
I guess my question is, is my difficulty in getting to 75% a function of the housing and higher cost of living around here or because I'm spending too much on food and entertainment and fun?

You can't control some of those costs (aside from moving to a smaller place, a bit further out, etc).  Worry about the ones you can though.

125/mo (1500 annual) on clothing, for example. 

We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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You can also read my forum "Journal."

Kris

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Re: How to get to 70-75% savings rate?
« Reply #22 on: April 11, 2015, 08:48:10 AM »
Phone, food, restaurants, and clothing all jump out as areas that should easily be cut.

MDM

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Re: How to get to 70-75% savings rate?
« Reply #23 on: April 11, 2015, 12:51:26 PM »
MDM that real return is ultra conservative isn't it ?  Assuming you're putting taxes into your spending isn't .06 a good real return based on 10% returns with 4% inflation?
10% returns with 4% inflation is indeed 6% real (to 1 significant digit).  What anyone will actually see over the next ~8 years is a different question. 

As these "how long until FI?" calculations are speculative, one can choose how optimistic/pessimistic/conservative/etc. one wants to be while speculating - and find plenty of posts in this and other forums to support many different numbers. :)

boarder42

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Re: How to get to 70-75% savings rate?
« Reply #24 on: April 11, 2015, 08:10:59 PM »
Gotcha. Small sample size returns so err conservative. But I can always just not stop working. So I err aggressive. Makes it more fun. I'll end up playing one more year I'm sure.

forummm

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Re: How to get to 70-75% savings rate?
« Reply #25 on: April 12, 2015, 07:53:55 AM »
I would count the principal portion of my student loan payment towards my saving rate.  Changing that part of the calculation would bump you up quite a bit to your goal.

Yeah. Paying off loan principal is saving. Your phone and food and restaurant spending are all much higher than needed. For the 2 of us we spend about $42 on our phones (Republic Wireless) and $250 on food each month. So you could do half that. And we eat very well. Meat every day and vegetables.

kpd905

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Re: How to get to 70-75% savings rate?
« Reply #26 on: April 12, 2015, 08:28:07 AM »
It should be pretty easy to save about $100 per month on that insane cell phone plan.

And with your income and 401k contributions, you should be able to contribute to a traditional IRA and deduct some.  As long as your MAGI is under $71,000 you are in the partially deductible range.

http://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

Dodge

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Re: How to get to 70-75% savings rate?
« Reply #27 on: April 12, 2015, 09:55:46 AM »
I know this isn't the answer you're looking for...but you're doing great!  I'd guess that many (most?) of the people who get to 70-75% savings rates on here, are doing it with dual-incomes.  Once you find a partner/get married, you might just jump to 80-85%!

:-P

RWD

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Re: How to get to 70-75% savings rate?
« Reply #28 on: April 12, 2015, 11:44:25 AM »
Cell Phone   140
My wife and I are at $80 for two phones, including the cost of purchasing the phones. I have a dumb phone and we're on a shared family plan with my in laws, which helps. But you should be able to find cheaper options through Republic Wireless, Ting, Cricket, etc.

Food    350
We're at $280 for two people.

Restaurants   250
We're at $50 (+$30 including alcohol) for two people.

Clothing   125
We're at $70 for two people. This is the average of the last three years. Last year we spent less than $40/month on clothes.

That makes four categories where you're spending significantly more for just yourself than we are for two people. I don't consider us to be extremely frugal, so you should be able to easily trim your budget.

mrshudson

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Re: How to get to 70-75% savings rate?
« Reply #29 on: April 12, 2015, 11:56:00 AM »
I know this isn't the answer you're looking for...but you're doing great!  I'd guess that many (most?) of the people who get to 70-75% savings rates on here, are doing it with dual-incomes.  Once you find a partner/get married, you might just jump to 80-85%!

:-P

While it is possible to bring down certain fixed expenses (rent, utilities) by sharing your home with a significant other and with dual-incomes, certain expenses (food, notably) do go up on dual-incomes. And note that when two people save at 75% savings rate, when they join their finances, they most likely will save at 75%, and not higher, because while you are adding the numerator (savings) from dual-incomes, you are adding the denominator (take home pay) also.

Current savings rate (not including student loan payoff as part of savings here, as I'll explain below): net income (A) = $63825/12 = $5321 , net expenses (E) = 1839 + 60 + 130 (health insurance and transportation, which is an expense) = 2029  , total savings rate = 1-(E/A) = 0.62 = 62%.

OP, others have suggested many useful points - I'll toss in my $0.02 from the most impactful, to the least impactful.

1) Food bill/restaurants for one person is ridiculously high. My experience has been that NYC is one of the insanely cheap places to live if you take rent out of the equation. You have $40 prix fine dining options, and you have $3 hole in the wall taco places. You want to hang out at the latter. My fav ones are the whole bunch of hole in the wall ethnic food places near Washington Square park or near NYU campus. Hang out with your friends in the park, people watch and enjoy your food ordered to go from these places.

You mentioned you live in Bed-Stuy. Go to the Trader Joes in Brooklyn Heights, they have all kinds of fancy ingredients at lower cost than the gourmet delis that crop up (I'm thinking of Park Slope, but I bet Bed-Stuy probably has plenty of these as well). I'm a huge fan of Beth at Budgetbytes.com who posts delicious recipes, each costing on the order of $1 per meal. Which is the upper limit on how much things should cost. 

Having been somewhat emotional about food, my trick to reduce my food spending is to challenge myself to reduce my food spending by a certain number and donate that number or a percentage thereof, along with some of your own time to charities focusing on food shelters. FYI, the cost of feeding a starving child PER DAY is  $0.25. If you commit to cut down your meals to $2 per meal, which incidentally is twice the cost per meal that MMM recommends, your cost is about $6 per day (as opposed to $12 you are spending on groceries alone right now), and $180 per month. As my own Asian ancestors have demonstrated, great food is not at all about expensive/gourmet ingredients, and all about savoring every scrap of food, which you will be grateful for when you realize the incredible cushion you have built into your life right now, and the time you put into creating it. I'm not admonishing you, OP, but I have too often succumbed to spending ridiculous amounts of money on food in the past, and until I developed this mindset, and committed to working with food shelters, didn't bat an eyelid about it either. Once you see homeless people line up for one meal, and tiny little kids asking you for food, you will find that rice and beans is super delicious, and every extra thing you put on your plate makes you feel like you are basking in some kind of luxury.

Okay, tl;dr version - > as much as it is about shopping for cheap ingredients and cooking delicious meals therewith, cutting down food spending is equally about your mindset, where you train your mind to think that simple dishes like soup and rice and beans are equally delicious. Plus being at least somewhat of a vegetarian can accelerate progress in this area. Again, it's about mindset, where you don't feel deprived because you are not eating meat.

New goals I recommend: $180 per month for groceries, $70 per month for eating out= $ 250 per month; savings of $350 per month, compounding at 7% to $61,283.06 in ten years

New savings rate if you add back $350 of savings, or cut expenses by $350 = 1-((2029-350)/5320) = 0.69 = 69%. But you can do that yet, because you still have to pay back your student loans.

But holy mackerel, seven full percentage points.

2) There are some philosophies on how student loan payoff is part of your "savings". I disagree. While it is true that no student loan is better than student loan and frees up cash flow, the paid of student loan is gone, and does not let you tap into it if you need to unlike say a mortgage where your principal goes to building equity for you. There is no such thing as a good debt. So, pay these off ASAP - in the initial months, commit to paying the minimums on these, and then apply the $350 of savings from food spending above.  Once these are gone, you can apply the cash flow to even higher savings rate. Read  nomoreharvarddebt on how one guy paid of $90,000 student loans in 10 months. Even without any sort of compromise on your lifestyle, you should be able to pay off your loans in four years if you just kept paying $350-$400 extra every month.

Extra cash flow once your student loans are paid off: $484 per month.
Savings from food spending above: $ 350 per month.

New savings rate: 1-((2029-484-350)/5320) = 0.78 = 78%


3) Clothing - same spiel as food above. Even if you work in a business environment where suits are typical, buy a few good pieces of outer layers, and mix and match. Go shopping at outlets. I work with some people pulling a $1 million per year, and still wearing the same tailored suit they purchased from 14 years ago, and driving a gently used Honda Accord to business meetings with CEOs. In a conversation, the same gentleman refused to buy anything priced at over $50 per clothing item, and anything that can't be found at TJ Maxx. So there you have it. Around 50% reduction easily possible.

New goals I recommend: $50 per month for clothing; savings of $50 per month, compounding at 7% to $8,754.72 in ten years

New savings rate if you add back $350 of savings from food, $484 from student loans, $50 from clothing, or cut expenses by $884 = 1-((2029-884)/5320) = 0.79 = 79%

And there you have it. Once you remove rent out of the equation, one can easily accomplish 80% savings rate in NYC, the most expensive place to live on the planet. And assuming that I would not have a car if I lived in NYC, the possibility of even more savings opens up, putting my FIRE timeline at 5 years or so. Sweet deal, I would think.


Dodge

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Re: How to get to 70-75% savings rate?
« Reply #30 on: April 12, 2015, 02:46:09 PM »
If two people with the same savings rate decide to live together in the same place, the combined savings rate must be higher, barring any lifestyle inflation.

ender

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Re: How to get to 70-75% savings rate?
« Reply #31 on: April 12, 2015, 03:06:02 PM »
If two people with the same savings rate decide to live together in the same place, the combined savings rate must be higher, barring any lifestyle inflation.

Not necessarily.

If both live with two other roommates currently, they are splitting many expenses (rent/utilities and potentially food) three ways - if they live together, they will only be splitting those two ways (unless they downgrade living locations).

Dodge

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Re: How to get to 70-75% savings rate?
« Reply #32 on: April 12, 2015, 03:44:31 PM »
If two people with the same savings rate decide to live together in the same place, the combined savings rate must be higher, barring any lifestyle inflation.

Not necessarily.

If both live with two other roommates currently, they are splitting many expenses (rent/utilities and potentially food) three ways - if they live together, they will only be splitting those two ways (unless they downgrade living locations).

If I pay $800 a month for a single room in a 3 bedroom apartment, and my partner also pays $800 a month for a single room in a 3 bedroom apartment, when the partner moves in with me, we will each be paying $400 a month for a single room in a 3 bedroom apartment.