Author Topic: Savings rate question - automatic savings  (Read 1526 times)

aspiringnomad

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Savings rate question - automatic savings
« on: September 12, 2014, 09:41:43 AM »
Hi, I'm somewhat new to Mustachianism, so I've only been tracking expenses for a couple months. Due to some unavoidable one-time outlays, my expenses have been quite erratic over this short period. So while I wait for them to smooth out over time, I thought I'd take another approach focused on my automatic monthly savings to examine my savings rate. Doing this, I come up with a 44.5% savings rate before discretionary income savings. This is encouraging, but I would be grateful for any feedback from the community on my calculations and conceptual approach.


           
« Last Edit: January 07, 2015, 09:04:25 PM by dcmustachio »

nereo

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Re: Savings rate question - automatic savings
« Reply #1 on: September 12, 2014, 05:56:09 PM »
Hello there

Just an observation here - I see lots of posts where people fret over their savings rate.  While it's good to aim for the highest savings rate you reasonably can, I sometimes think people loose sight of the forest for all the trees.

Instead of obsessing about whether your savings rate is 44.5% or 41.8%, try simply to maximize how MUCH you save on any given year.  If you suddenly get a raise or loose your job, your savings rate will change almost comically.  But, what ultimately matters is how much you put into savings.
Try estimating how much you need to retire (your "FI Number") and then calculate how many years you will need to save with X% return every month to reach that number.  For example, if you want to reach $800,000 and assume 6% returns, then saving $4,000/month will take you 11years, 3 monhts to reach your goal. If you bump it up to $5,000/month it will take just under 10 years.

aspiringnomad

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Re: Savings rate question - automatic savings
« Reply #2 on: September 13, 2014, 11:37:32 AM »
Thanks, nereo. I think the "Shockingly Simple Math..." post is probably behind the focus on savings rate by a lot of newbies, or at least for me anyway. Your approach makes sense and seems more goal oriented - which is probably a better way for me to approach it. Thanks again - I'll try doing just that and see what I come up with. Cheers.