Who saves more than 20% of their income? How do you do it?

[awakenedsoul]

These are inspiring percentages...wow! I saved $3,000. out of $25,000. last year. I bought some used furniture and paid cash for some remodeling, so I plan to save more this year. I should easily be able to save 20%, hopefully more. I have an older home, so I also need to budget for things like termite work, a new roof in ten years, etc...

Today I went to Starbucks and ordered a cup of tea. I haven't done this in years! When I was spending all of my income, I used to go to Starbucks regularly. Now I buy Starbucks at Costco in bulk, and make it at home. Driving very little has saved me a huge amount. I ran into a mother and daughter at Starbucks and they were shocked that I had driven my car there. (They see me riding my bicycle around town running errands and exercising my dogs.) Yeah, so that was a huge splurge today. I spend a lot more time at home now, and have cheap hobbies like knitting, reading library books, growing food, writing letters to International pen pals, and doing yoga. I also rarely buy clothes anymore. I found a few things I really liked at the Salvation Army the other day, but I put them back. I'd rather wear what I have and keep my cash in the bank.

[try2bfrugal]

Though under my current projections, I do go broke at age 158 due to the ravages of inflation and the fact that costs of maintaining my modest, beer-and-bait life style will have crept up to over $1 million per year compared to its present, under $20k.

Charlie

Just curious - Do you invest in TIPS or I bonds? Social Security, I bonds and TIPS would all be indexed to inflation. I think we actually come out ahead in our retirement planning under high inflation.

[Laser_Cat]

Single here, and I save more than 30% of my income. (Currently though it's going straight towards paying off debt) I'd like to actually work towards saving 50% but I'll need to make a lifestyle change for that. Housing / utilities are just more expensive for us single people if you decide to live alone, so next year I might try to go back to sharing with a roommate if I can find someone cool to live with. (maybe also a frugal minded person, who doesn't leave lights and AC on when they're not at home =P)

The single biggest thing that contributes to me saving money is not owning a car. A monthly pass on public transit is around $65 and that's quite low to the $550 of car related expenses I was paying beforehand. Also I just am not a huge fan of shopping. I might be one of the few females out there who wears the same pair of boots every day and hates clothes shopping, so that helps. =) I think the one place where I've lost the frugal fight is gardening. I have trouble not spending money on "cool heirloom seeds" or "hey I want to build that trellis I saw online!" =P

[pinkytoe]

We are older (58), married and with one grown child. We did not start saving seriously until dd was grown and on her own - about eight years ago. We are now saving 45% of our take home pay, ie my salary - just trying to play catch-up for all the years we did not save. We could save more if we tried. I was just discussing our finances with dd and she was blown away that we can save so much on very average salaries. How - she asked. I reminded her that I did not go buy a new car like she did and I still haven't replaced the sofa though it is looking a bit shabby. I don't eat out 5-6 times a week or have a closet full of clothes and shoes. We live pretty simply and save extra for things like vacations. Often, a nature walk around the neighborhood is our entertainment. I have an auto draft of $100 a month for the vacation fund. That is our splurge. When we get cash for something like selling a piece of furniture, I stick it in an envelope hidden away. Last time I checked, there was $600 in it. These days, I get mch more of a high from saving than spending. I just wish we had started much sooner.

[Blackdog Lin]

We are much like pinkytoe. It has just been the stage of our life - 50's and empty-nesters - that allowed us to save 35% of our income the last 8-10 years.

No more (or very little) offspring expenses, got out of debt and stayed that way, got the vehicles paid for and kept driving 'em, learned to shop at home first for wants, and mostly realizing that we have too much crap around the place as it is, so definitely don't need any more. Makes saving a higher percentage of income easy. If we were younger it would be much harder. Frankly, I didn't get bit by the frugality bug till we hit our early 40's.

'Course we're now on a fixed income with my retirement, so no more saving 35%. Just enjoying living the frugality lifestyle, living on that fixed income.

[lhamo]

Dual income couple with two young kids (11 and 7). We save about 50% of our gross income, which includes maxing out our 403b plans (including catchup contribution for DH), maxing Roth IRAs to the extent our earned US income allows, monthly contributions to DKs college fund, plus extra cash savings. If you add in the employer match we get on the 403bs (DH gets 2% of annual salary, I currently get 7.5% and will get 10% () as of Jan 1), it bumps the percentage of gross income up a bit over 50%. MOnthly cash savings varies so that is another factor that makes the percentages a little wobbly.

DH and I both earn decent middle-management type salaries, and our expat status means we don't pay US federal income tax. We do pay a bit in Chinese income tax, but less than we would pay on comparable salaries in the US due to the way our employers are set up and our compensation is structured. We live a pretty luxurious life by most standards -- our cost of living here in Beijing is probably a bit higher than it would be in the US due to high housing costs (though DH does get a partial housing allowance that offsets the cost of our mortgage), the need for private schooling for the kids (which we pay a portion of after the allowance DH gets), and our very high annual travel costs (we typically visit my family in the US at least twice a year ($4000-6000/trip just for plane tickets) and DH's family 2-4 times a year (another $600-800/trip). There are definitely areas we could cut if we had to, but for now I think hitting a 50% savings rate is pretty good so we might as well enjoy our lifestyle and not feel too pressured to cut further.

DH will turn 55 in February, which means if his job situation were to deteriorate he could quit/retire and we could access his 403b funds penalty free. That doesn't seem likely to happen at this point, but nice to have the fall back if we need it, especially considering that given current market values we could sell our Beijing apartment, move to either his parents town or where my family lives in the US and pretty much be FI (not 100% sure, as we haven't lived in the US for awhile, but I think we could do it). For now we both are pretty happy in our jobs, so we'll probably just keep at it for a few more years at least and continue to build up the stash. Our net worth has been growing at impressive rates the past several years, so if that momentum continues we could be in very comfortable FI range in just a few more years.

lhamo

[junkman]

Just curious - Do you invest in TIPS or I bonds? Social Security, I bonds and TIPS would all be indexed to inflation. I think we actually come out ahead in our retirement planning under high inflation.

try2bfrugal,

IBonds and TIPS are NOT indexed to inflation, especially not 'inflation' as normal households experience it. I-Bonds and TIPS are indexed to the CPI, which is a very imperfect, highly-manipulated number whose chief purpose is to enable the US Gov't to continue borrowing at low interest-rates. In other words, I-Bonds and TIPS are a way to short the CPI. But they aren't an effective way to hedge against inflation as we ordinary people experience it.

Every household will differ in their expenses. But any household that tracks their expenses on a year-to-year basis can report to two decimal points exactly what their personally-experienced rate of inflation is. E.g., mine is currently running 4.67%, which I round up to 5% for planning purposes, and which I'll increase to 6% or 7% when I'm stress-testing my retirement assumptions. But it sure ain't the 2.1% that the CPI reports, much less the 1.7% that the Social Security Dept will use as their adjustment factor for 2013.

No, I do not buy I-bonds or TIPS, because only someone who wants to lose their purchasing-power would buy them. Run the numbers. First, pay taxes at ordinary-income rates any gains those bonds might offer. Then subtract a realistic rate of inflation from what remains. Then try to spend that amount at the grocery store. The clerk will ring up the bill and then tell you that you are still short.

For a bond to offer even just a break-even rate of return on an after-tax, after-inflation basis, it has to be offering at least a nominal 8%. I-bonds and TIPS don't offer even half of that, nor do CDs, nor do Agencies, nor do high-grade corporates or munis. But there is an area of the bond market where fat yields are still available, namely spec-grade bonds (aka, junk bonds), which most investors avoid, because they don't understand them. But when a portfolio includes a judicious weighting of junk, then the lesser yields of the higher-quality, fixed-income stuff can be tolerated. But I use 8% as my threshold, and over the past 12 years, that's close to my average gain across an all-bond portfolio. (Actually, 8.17% per year from Jan, 2001 to Dec, 2011. But who's counting, right?) In other words, I'm not trying to make money with my fixed-income investing. I'm just trying to move my purchasing-power forward against the time I might need it.

And, "NO!", you probably won't do well financially under high inflation unless you are a debtor trying to pay off your loans with cheaper money. Debtors will benefit from inflation, but no one else. For everyone else, inflation is a not-so-hidden tax that destroys income and wealth. The subject of inflation is one that Joe Dominguez didn't understand, just as he really didn't understand the bond market, either, nor how to use it effectively. So everything he says on those topics has to be discarded and replaced by the current realities of a Keynesian Fed whose policies will bankrupt this country if they aren't reversed.

Charlie

[Zoebird]

When DH and I were DINKs, we managed to save about 20% (pay off debt and stuff along the way, too).

Now we are one-income, one kid, and with our new business. we currently save about 10% of our income right now, and that's going to go up next year. we have two goals: to save 20% of our income, and then to earn a bit more (which will change the percentage) to improve quality of life.

That is, we have decided to look for a two bedroom place. LOL

[bae]

Let's hear from those who save a big proportion of your income. Even those who save 15%+.

• Also, are you a couple or a single?
• Are there certain things you have cut way back on, in order to achieve this?
• What is your secret?
• How do you feel about your savings?

Inspire us!

We're a couple, we could easily save 95% of our income if we chose to realize the income, our secret is that we simply spend far far less than we can potentially earn because we already have pretty much everything we need, our expenses are mostly maintenance expenses and taxes at this point.

As to how I feel about our savings, I agree with Junkman, I think they are highly at risk, which is why I invest mostly in things that produce real cash flow, or that have use-value to me. (Good farm and timber lands, for instance...)

[try2bfrugal]

And, "NO!", you probably won't do well financially under high inflation unless you are a debtor trying to pay off your loans with cheaper money. Debtors will benefit from inflation, but no one else. For everyone else, inflation is a not-so-hidden tax that destroys income and wealth. The subject of inflation is one that Joe Dominguez didn't understand, just as he really didn't understand the bond market, either, nor how to use it effectively. So everything he says on those topics has to be discarded and replaced by the current realities of a Keynesian Fed whose policies will bankrupt this country if they aren't reversed.

Charlie

Just to use a hypothetical example, if a person A had say a $1M portfolio in 2% TIPS, and 50K expenses, and inflation measured by the CPI went to 10%, then his expenses would increase by 5K to 55K, and the TIPS interest plus the inflation factor would be worth an extra $120K, for a net gain of 120 - 5 = 115, wouldn't they? I think he would be coming out pretty good. Even if real inflation is 20%, wouldn't he still be ahead $110K?

I think with TIPS the general consensus among most of the investors on the investment forums is to keep them in retirement accounts so you aren't paying tax on the interest or tax on the phantom interest from the inflation factor, and then just cash them in when you are in a low tax bracket in retirement, perhaps between when you stop working and before collecting Social Security payments. I think I bonds do not have interest reported until you cash them in.

I don't know what investments returns will be like in the future, so we just hold a mix of investments that each do well under different types of economic conditions. We even have some junk bond funds, too.

I also agree that the inflation indexes are understated, but there aren't very many inflation proof investments to pick from.