Money and Finance

Savings Rate and Monthly Investing

Hi Everyone,

Hope you all have had a nice couple of weeks. I have been incredibly busy with work and as such, haven’t had much time to write. With July 4^th write around the corner, we are over half way through 2014 and the year is just flying by. It could be because the fiancé and I have had a wedding every weekend for the past 3 weeks, plus wedding planning of our own, but this year seems to be moving incredibly fast. Without further ado, this next post will be about our savings rate and what we are roughly investing every month.

Savings Rate:

Your Savings Rate in my opinion is by far the most important aspect of trying to become financially independent. It doesn’t matter whether you make $10,000 or $100,000 per year whoever saves the most relative to their income will be better off reaching financial independence. For instance, if person B, the $100K person, is spending $98,000 per year, they will never be financially independent. If Person A saves $5,000 out of $10,000 they would only need a portfolio of $125,000 to live off dividends that yield 4%. It would take them roughly 15 years with 7% dividend growth rates to achieve a comfortable retirement.

And this is why I am trying to be more like person A! Currently our savings rate is hovering right around the 50% mark. This year it has fluctuated more than usual due to one-time expenses related to our wedding. For instance, January was around 75% but then April we saw our lowest rate ever of Negative 10%! That one hurt but I’m thankful they are only 1 time expenses. Overall, I’m satisfied that even with wedding expenses we are still around 50% of our income. If that continues for 15 years, just like person A, we would be able to retire. However, I do not see a 50% savings rate continuing for more than 2-3 years. At that point, we will be trying to have a baby and my fiancé will be a stay at home mom so long as we are able to do so.

Monthly Investing:

The second most important thing to become financially independent is to invest your hard earned money and make it work for you! As I alluded to above, this year is rather unusual since we are budgeting to pay off a wedding. Currently, my 401K invests $175 per paycheck which works out to $4,550 per year. A special 2% bonus is awarded to employees who still work with the company in December which for me would be around $1,000, totaling $5,550 per year into my 401K. At the same time, I am investing $650 per paycheck into my taxable accounts which works out to be $16,900 per year. This total fluctuates from month to month based on any extra money that is left over in our savings accounts but is never less than $16,900. Therefore, I am investing $22,450 per year.

My fiancé is the wild card here. She works for the state as a social worker and can be fully vested after 10 years and eligible for a pension at retirement age. Since we both want her to be a stay at home mom in 2-3 years, she would only be at the 5 year mark out of 10. She will get a lump sum payout when she leaves which to be completely honest I have no idea what that would be. One of my goals this winter after we are married is to go through her retirement documents/options and see what it says. Currently, I think she is paying into her pension at around a $150 per paycheck rate. She has worked at the state for 2 years which would mean she would have around $7,800 invested depending on any capital gains. Once again, I do not know how any of that works.

But essentially, that is it! We have a 50% savings rate and invest a total of $26,350 per year. Not too shabby for a 26 and 27 year old with a house and a wedding to pay for.

My next post will be what you are all waiting for: Our investments/portfolio!

How are you doing? What’s your savings rate?

Thanks,

Scott

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