Don’t Save 10% Of Income, Spend (Just) 50% Of Every Raise And Systematically Save More Tomorrow!

For those of you who find it tough to save more, this is a different (and great) approach from fellow financial planner Michael Kitces.  This is a reminder that one key to a successful financial life is to spend less than you earn.

Steve

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The approach of “save a percentage of your income” is a staple of retirement planning. While much debate exists about the exact ideal percentage, the concept is relatively straightforward – have savings to be one of the slices of your income pie, ideally automate the process with an ongoing percentage of your income that always gets saved first, and you’ll be well on your way to retirement.

Yet the reality is that saving something like 10% of your income also implicitly means you’re spending the other 90%, and continuing to do so over time means you’ll also be saving (only) 10% and implicitly increasing your standard of living by 90% of ever raise you receive in the future. As a result, your standard of living rises as fast as your retirement savings, which means the amount needed to reach retirement gets larger and larger given the retirement costs to be supported, and in the end it’s surprisingly difficult to ever reach retirement at all as the goal forever outpaces the savings to reach it!

via Don’t Save 10% Of Income, Spend (Just) 50% Of Every Raise And Systematically Save More Tomorrow! | Kitces.com.

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