Decrease savings rate to save for large purchases?

[MrsSpendyPants]

How sacred is your savings rate?  Do you invest first before you do anything else and it's not touchable for consumer items or are there times you put it on hold to save for bigger purchases?

I stick to a 55% savings rate as I want to retire in 15 years.  However, if I put 4k into putting a wood burner in my fireplace and adding insulation, I could save about $100-$150 a month in electricity.  If I keep my savings rate at 55%, then it'll take a me 10 months to cash flow it and I wouldn't get my energy savings during the high electricity use winter months.  Or I can pause my investments and cash flow it in two months.

I hate pausing my investing and consider my savings rate pretty sacred.  What do you think about your savings rate - most important or do you pause as needed?  We can have this discussion with any item - if you need to save for a car for example, do you do it out of your expenses or do you decrease your savings rate?

For the sake of this discussion, savings for future purchases does not count as savings.  I'm going by the FIRE savings rate definition - money you are not using to live on.

[ixtap]

We only calculate the savings rate after the fact. As long as we max out our tax sheltered savings, taxable accounts can be drawn on at will. We just don't very often have the will.

Our normal savings rate is ~50% of gross. Last year it was closer to 25%. We also figure these lumps into our average annual spend so that we have a realistic view of long term spending.

[Zikoris]

I find it a lot more practical to think of savings rate on an annual basis rather than monthly, exactly because of things like this. We're not interested in going to the trouble of saving up for things. When we want or need something, we just buy it, and oh well I guess that money doesn't go into investments that month. We have months of zero % savings rate and months of 80%+, and yet come year end it always averages out to somewhere between 60-70%. It's been consistent for so long that we really don't bother worrying about it more frequently than like maybe three times a year.

I do keep an eye on our overall spending compared to historical averages, and if we're trending high we'll reign it in a bit. But I really think thinking in terms of annual numbers is the best way to go.

[Mustache ride]

We only calculate the savings rate after the fact. As long as we max out our tax sheltered savings, taxable accounts can be drawn on at will. We just don't very often have the will.

Our normal savings rate is ~50% of gross. Last year it was closer to 25%. We also figure these lumps into our average annual spend so that we have a realistic view of long term spending.

This. Savings rate is nice to know, but it doesn't really matter to us.

[FIRE 20/20]

Savings rate for me is (or was, when working) an outcome not an input.  Roth and 401(k) savings were prioritized and I was fortunate enough to have high enough income and low enough expenses that they were easy to treat as untouchable.  After tax investments were just whatever was left over.  While working I wanted to live the life I wanted to live, not live the life that a particular savings rate mandated.  As a result, there were times when I put a lot into my taxable accounts and other times when I put in nothing.  It averaged out to about a 30% savings rate pre-MMM and a 60-70% rate post-MMM, but in neither case was the goal to hit a particular rate.  The goal was to live a good life which for me included spending mindfully on things that I valued and avoiding wasteful spending.  With that approach even when I was saving 70% I never felt I was living anything less than my best life.  For me, the important switch from pre-MMM to post-MMM in my life was realizing that a significant part of my spending didn't actually improve my life; it just scratched an itch to obtain a nice thing.  If after reflection I realized that was what the spending was going for, then I could let go of that desire.  If I realized that the thing would actually make me happier, then I felt good about spending the money.  I realize everyone gets something different about the FIRE lifestyle, but that realization to me was the key. 

I don't know if that helps with your decision, but that's how I approach most discretionary purchases after finding MMM. 

[TheFrenchCat]

If it's something that it part of my living expenses (home maintenance, car repairs/replacement fund, etc.), then I budget for it spread out over the year, or years as it may be.  So I guess that does decrease the savings rate I see, but I feel like it gives me a more complete version of our spending than if I just took it out of savings and hadn't planned for it.  For the example you gave, if I was confident it was going to save money long term, then I'd probably do it sooner.  Just make sure you've accounted for all of the costs like chimney cleanings, increased home insurance, the wood itself, maybe more I'm not aware of. 

For bigger things that aren't part of our typical spending, we evaluate how much it's worth it to us.  There's a few things for which we've reduced our saving rate, like our daughter's college fund, but to us it's worth working longer for.  We're not entirely sacrificing our retirement savings in order to save up that fund quickly, but we think it's better for us to be saving for both now.  I'm not 100% sure it's optimal, but it seems good for us.

[vand]

Of course a higher savings rate is always more desireable when you are pursuing FI, but its not a competition, and you have to be mindful of what you are giving up, too.

We're about to move to a bigger house and our saving rate will be impacted as a result - we're perfectly fine with that. It's a decision for our family, and the change in finances is the trade off for improving our quality of life going forward.

In terms of OP's wood burner, I actually thing that would be a great thing to do. Sure, you'll take a short term hit, but it will more than pay for itself over 3-4 years, and then anything it saves you thereafter is pure gravy. Where else can you get a 25-33% return on investment?

[Metalcat]

I really don't give it much thought.

If I've decided that in the grand scheme it's worth spending on something, I'll spend on it. If it can wait, I might wait because future dollars are worth less than present dollars, but I'll factor that into the value of the spend in the first place.

Otherwise, I don't get too hung up on numbers.

[Dicey]

I never calculated my savings rate the way MMM does. I focused on spending less than I earned, which is not glamorous and does not come with bragging rights. Somehow, I managed to FIRE just fine ;-). Very well indeed.

[LWYRUP]

For me maxing out my retirement accounts and Roth IRA is sacrosanct.  I've done it every year I've worked, and once I married we made sure we both did when wife was working (and now still do spousal Roth IRA).  Money deducted from my paycheck just doesn't exist.  We also fund 529 up to the maximum level of state deduction ($5k per kid) and we pay a mortgage (previously 30 years but now we can swing 15 so we'll do that).  (I've never had access to a "mega backdoor" account and probably wouldn't have enough spare change right now to fund one if I did.)

Other than that, it's up to us.  Some years we've saved a bunch on top of that.  Other years we've spent like drunken sailors on home renovations. 

Anyways, so I don't look at savings rates in the same way (and I don't have an over 50% savings rate either).  But I also wouldn't stop all my auto-deducts to buy a consumer item, they truck along as they do and I make my choices with the balance. 

[lhamo]

If I were still working/in accumulation stage, I would not reduce amounts put into tax-advantaged structures (retirement accounts, tax advantaged college savings, etc) to fund something like that.  But I would be fine with deferring other types of long-term savings (e.g. regular brokerage account investments or extra emergency fund amounts) in order to get the advantages of reduced costs in the upcoming heating season.

We always had a significant cash cushion/e-fund, so I would just take it out of there and then replenish as cash flow allowed.  You could also look for credit cards that have a 0% initial interest rate, often good for 6-12 months.  Here is a link to a few -- I have the Chase Freedom card and like it for its rotating 5% cash back offers.  I can PM you a referral link if you are interested:

https://www.nerdwallet.com/best/credit-cards/low-interest

[moof]

Part of my spending is to keep refilling my savings account to smooth out lumpy expenses.  Last year it was a used car, this year we need to do a siding project.  If I have to back off on the savings for something big, it is no big deal.  If savings exceeds my comfort level for uninvested cash it gets swept into investments.  I don’t fret about hitting an exact savings rate, heck I just calculated last years a couple weeks ago.

[Monerexia]

I'm right at 88% savings rate now, and what that means is all tax advantaged accounts get maxed out early on and the rest goes into taxable. I like to keep a 50K cushion in case there's an all-stop and really i buy nothing. By nothing I mean things like four years ago a greedy plumber told me that my toilet needed to be replaced, and just last week I got around to going to home depot and buying a rubber stopper and handle so I don't have to reach into the tank to flush it. Place is paid off, I could easily spend all my money on home improvements but it all works just fine and for example the cabinets have, I don't know, another 30 years in them? It really helps if you genuinely don't give a shit, are fine with reaching into the tank, and would rather have the money. If something is an emergency there is always plenty.

[LennStar]

I have a sort of minimum savings rate that I don't touch.

Upside of this I simply ask myself if it is worth, and for small items I need I dont even do that. Knife broken? Get a new one, it's not worth the hassle of even thinking about the 10€ for a longer time.

Same goes for "hobby", in my case books. Inside a reasonably amount I don't think of savings rates. It helps that it needs an awful lot of reading to go through 100€ worth of book ;) There are more expensive hobbies out there.
Similar for sweet stuff. You may get calories cheaper, but a nice ice when it's 30°C...

But again, that's peanuts and more important Quality of Life. Besides that In just put everything into savings.

So in short: The % savings rate is something I am happy when it increases compared to last month, and shrug if it doesn't.

In your case I would guess that you would get out a quite a lot of comfort out of your renovation. And it is likely to be better for the environment. As such I would say: Go for it.

[Morning Glory]

I am with the crowd on only calculating saving rate at the end of the year. Most of my bills get paid annually or semi-annually, and I have side income that is seasonal, so it makes no sense to calculate by months.

Your insulation project sounds like it will save you money over time, so it is worthwhile to pause investments to pay for it.

[Life in Balance]

This seems a bit like you're letting the tail (savings rate) wag the dog (quality of life).

[Michael in ABQ]

I don't change my 401k contributions much so those don't get touched. Anything on top of that is just extra. Frankly there's not a whole lot extra to save and it's all basically going into a down payment for a business and a couple of near-term large purchases such as a replacement vehicle for me and a couch. We're in our mid-30s, time to finally get rid of the futon we've had since college and get a real piece of furniture.

[American GenX]

Savings rate is important to me.   Yearly basis only, is what counts.  Monthly is just to erratic.   I try to keep it around 80% annually, and sometimes it's been a little higher than that, maybe a little less some years.  And it will likely remain about that through my FIRE date.

As with MMM, I include my take home pay after deductions/taxes from my paycheck and add in money invested into my retirement fund by my employer and me as my total net income.  Whatever amount of that I don't spend on anything that year is considered savings   It does NOT matter if my plan is to eventually spend it on planned home improvements or whatever, only whether I saved vs. spent in that particular calendar year.   If I spend that money the following year, it will be calculated in figuring the following year's savings rate.

As long as I keep it near or above 80% annually, I'm pretty happy.  Since I'm getting close to FIRE, it won't happen much longer.  I won't have near the income during FIRE, plus I plan to ramp up discretionary spending with the additional free time of retirement that allows me to have more fun.

[MrsSpendyPants]

I would still max out 401ks and Roth IRAs.  But it would drop my annual savings rate as I would be 4k short for the year so I wouldn't max out IBonds.  I appreciate everyone's thoughts and am leaning toward doing it as well.

[John Galt incarnate!]

How sacred is your savings rate? 

Do you invest first before you do anything else and it's not touchable for consumer items or are there times you put it on hold to save for bigger purchases?

My savings rate was never so sacrosanct that I would not temporarily lower it if I wanted to buy something right away or in the near future.

Sometimes I chose the latter  because the amount immediately spent (< ~$5000) or  accumulated and spent a few months later  (< ~$15,000)   wasn't so much that it would significantly affect my FIRE plan.

[John Galt incarnate!]

I stick to a 55% savings rate as I want to retire in 15 years.  However, if I put 4k into putting a wood burner in my fireplace and adding insulation, I could save about $100-$150 a month in electricity. 

OP, $4k is not a huge amount especially since spending it will reduce your electricity expense.

If I could reduce electricity expense by  $100-$150 per month by temporarily lowering my savings rate I'd lower it.

[Steeze]

My investment account transfers I consider fixed - I do not adjust them unless my income changes - and so far have only increased them.

I use my EF for these types of expenses - I like to keep $5k - $20k in a savings account.

We max (2) 401k and (2) Roth IRAs - on top of that we throw $3500 into a taxable account and another $500 into a savings account - anything else goes into the checking.

Some months I have to transfer cash to the checking, some months I can move some to the savings. If a big expense comes up the savings account gets drained and I’ll build it back up over time. If I get a windfall I build up the savings account.

This system is possible because I have a pretty thorough budget that accounts for many long term recurring expenses not just short term expenses. This creates a monthly excess beyond the $500 I budget for savings because some of those expenses occur very infrequently.

Very occasionally I can make a big lump sum investment into my taxable account because my savings account gets too big. So far, I have never had to take money out of my taxable account.

@MrsSpendyPants  in your case the $4000 IS an investment. I wouldn’t stress it, just buy it and install before the winter. If you want to delay payment try to find a creative way to finance at 0% - you could probably easily find a credit card with 6-12 months at 0%. Then you can have your cake and eat it too.

[lhamo]

Oh yeah -- if you look at the future savings on your electricity bill as a return on investment then you are getting roughly 25% returns annually.  That beats average market returns handily.

[vand]

Oh yeah -- if you look at the future savings on your electricity bill as a return on investment then you are getting roughly 25% returns annually.  That beats average market returns handily.

And its a guaranteed post-tax, real return.
Unless you think global warming is going to render home heating unnecessary by 2024 then just do it.

[2Birds1Stone]

Unless you think global warming is going to render home heating unnecessary by 2024 then just do it.

The way 2020 is going, you might see it by EOY.

[Laura33]

Not sure why this would decrease your savings rate -- sure, short-term, you're putting the cash towards purchases; but long-term, those purchases will cut your ongoing expenses, and thus actually free up more money for saving.  Only question for these kinds of things is whether the return is worth the expense.

That's very different than cutting back below your target savings rate to, say, buy a new car, which IMO is always a no with very, very few exceptions.

[charis]

Our payroll retirement contributions (401k/457/403b) are very fixed and untouchable, but we occasionally pull from the HSA and always from FSAs (as they don't rollover).  We max our IRAs as soon as the money is available, so they might get pushed back to deal with a large expense.

On the other hand, while contributions to the EF/savings account are automatic payroll deductions, we use the cash in the account very occasionally for a large expense and then refill it with future auto contributions. 

Our average SR is only effected if we draw on the EF more in a given year (thus spending has increased). It's not sacred but certain investments are, as noted above.

[MissPeach]

For me it's been a lot of the small purchases I never missed. Eliminating those has really helped my savings rate.

As for what you're talking about OP it's called opportunity cost. I'm doing something similar right now trying to figure out is it worth forgoing investment income for something else I want that could save me money in the long run.

[jrhampt]

Anything that is going to save you money on an ongoing basis in the future is worth spending on now or ASAP.  When we were focused on paying off our first home, we didn't spend on any cosmetic remodels, but extra insulation, a wood stove, a more efficient furnace and water heater, more efficient appliances were all fair game.  After we paid it off, we prioritized solar panels over kitchen remodeling etc. 

[Dicey]

I just remembered this: when I was in my twenties and Roths were a new thing, I deliberately did not start one. Yup, on purpose. Why? I was saving for a house. After a cancer experience, I wanted to own my own home. After a cancer with a "propensity to recur", I had no idea if I'd live to see retirement and a house represented security to me. I now have two commas in equities and twice as much in Real Estate. It took a little longer to get to FIRE, but I did a lot of stopping and smelling the roses along the way. No regrets, and FIRE is great!