Savings Rate

Every once and a while, if you’re lucky, you stumble across something or someone that takes a belief you have, confronts it, and forces you to change.

Yesterday, that happened to me.

I’m an avid listener of the Tim Ferriss Showa massively successful and popular podcast where Tim interviews the most interesting people in the world (for lack of a better description). The most recent podcast was an interview with Pete Adeney, better known as Mr. Money Mustache.

Before even listening to the podcast, I was so intrigued by the name that I went straight to the blog and started reading.

Here’s the big moment. Pete talks about having a savings rate of at LEAST 50%. Some of his readers are in the 90%+ range, meaning that if they make $100k a year, they’re living off of only $10k.

So many questions.

First off, how have I never heard of this guy? I’m pretty into reading about financial planning and lifestyle design, how had I never seen this guy before? But that’s besides the point.

I’ll let you go down the rabbit hole if you’d like, as I currently have 15 tabs with his posts open in my browser, but seeing this and reading a few posts on the concept completely changed my paradigm. While I’m struggling to save even 5% of my income, my goal should be to live on half of what I make.

The real kicker happened when Pete linked to networthify.comwhich shows you how soon you can retire based on how much you save and how much you plan to draw every year.

Say, for example, you make $50k per year. If you save merely 5% of your income, it would take you 65+ years in order to amass an amount that you could live off of. But by that point, you’ll probably be dead. Bump it to 20% and you’re down to under 37 years. 20% is probably doable, at least that’s what I thought, but man. 37 years? I’m already 33, so that means 20% is the MINIMUM amount I should be saving every year in order to retire around the time I’m 70.

Now, look at what Pete recommends. Saving half your income means you can retire after 16 years. At 60% that drops to 12 years, and at 67% you enter the single digits.

Look, it all depends on what your goals are, but what I realized that my goals weren’t big enough. I need to be massively restructuring my spending in order to save more and get ahead faster than I do now, which isn’t fast at all. In fact, I went into massive amounts of debt over the last two years after buying a home and another vehicle for our family. Whoops.

What’s something that you read or learned recently that gave you a massive paradigm shift? Let me know in the comments.


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