Savings Rate – Foundations of Financial Freedom Part I

Let’s start this from the very beginning. You have a job or some way to make money. At the end of the week or month, you have a little more money than you spend. Congratulations, you just made money on your business of yourself. We usually call this “saving money.” I call this “savings rate.”

The Situation

You just did what many people, even in America, genuinely wish to do – and that is to save money. We often mention this in the same breath as living “Paycheck to Paycheck.” If you click that link just above, you will see that recently, in May 2022, 29% of 2,236 U.S. consumers had issues paying their bills. Note that the 29% mentioned did not have any credit cards. If we’d be so kind to include those of us who use credit cards, specifically making a payment in the last 90 days on a credit card bill, then 36% of U.S. consumers had issues paying their bills for May 2022, unlike what is said here and here. And just to triply make sure my reading comprehension skills are up to snuff, I have provided a screenshot from the first link below.

This means that, regardless of who owns a credit card or not, one-third of Americans or about 111 million people of the United States of America are living paycheck-to-paycheck. And, while according to the data, you may be in the majority – I have a strange feeling that the data collectors did not go too far out of their way to interview too many low-income or poverty households. I suggest this from their stated fact that “49% of consumers earning more than $100,000 were living paycheck to paycheck in March (2022)”. That you can even have enough data to find out that half of the poor people making over 100k lived paycheck to paycheck appears absurd. But that is enough about the integrity of the data.

Savings Rate

You may have heard of this term from other financial independence creators, even myself. But it is essentially this – your savings rate is just how much money you save at the end of the month, usually defined as a percentage.

So, if you make $2000, and save $1,000 of it, then you have a 50% savings rate. This is the key to your freedom. In this world where money is the most useful resource, it behooves you to spend all of it. Investing is a different story, and can be viewed as a way of saving or storing money. But to spend it frivolously is what you should not do.

Yes, go out, spend some money on mini-golf or an experience you’ll never forget or friends you will never have again. Even as a huge fan of public transportation and a previous owner of a Toyota Camry, I’m not even suggesting to give up your perfectly fine car for the most efficient car on the market. I’m not suggesting to throw away everything inefficient for you and become a minimalist monk and only live on the cheapest food possible. Just, please, save some money.

If you want to see how a larger savings rate, like something incredible of 80%, can allow you to reach financial independence fast, check out this calculator, if you’d like to read more about savings rate, just check out here or here.

Takeaway

That is it. The whole point of this post is that I want you to save money. And maybe to learn a little bit about the quality and interpretation of the data everyone likes to report on.

So even if it’s 5%, even if it’s 50 bucks a month. Start. Saving. Something. We can figure out how to make it better from there. We can figure out how to save more from there. But you will never hit financial independence without starting to save money and resist the temptation of burning your hard work down in the name of anything. This starts with you and the choice you make to hold onto the dollar you so kindly created for yourself. Please be kind to yourself.

Next time, we will take a look at budgeting, anti-budgeting and the mindset of abundance instead of scarcity.

Godspeed,

Dennis