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14 Day Trial – Increase Your Savings Rate

Posted by Fred Tracy January 8th, 2012 21 Comments

Man, with all the posts I’ve been doing lately about money this is starting to look like one of those personal finance blogs. That’s okay though, because money is definitely an important aspect of personal development and life in general.

The purpose of this trial is to increase my savings rate while decreasing how much I spend. So, what is a savings rate? Well, let’s assume you make $1000 a month to make it easy. If you’re like most people, you spend that entire amount (and then some) without saving any of it back. If you save even 10% of that $1000, then you’re considered highly responsible.

This is what most people end up doing. They save back a very small amount of their income for the purposes of retirement throughout the course of their career. Typically this rate is 10-15%, and assuming you work roughly 40 years, you will have enough to live on in retirement. The problem is that I, and many people like me, have no intention of working that many years. Even 20 years is asking a lot. It’s a values thing. If you value luxuries like a big house and a bunch of stuff, but it makes sense to work a long time for them. But if you value freedom and time, then making some sacrifices upfront so you can choose how to spend your time for the rest of your life sounds like a pretty good deal. And that’s what this trial is all about.

The reason I’m only doing it for 14 days is that I thought it would be easier to start with a simple 2-week commitment right when I got paid. While I could go for a month, I don’t want to just yet because I’m going so extreme with this trial. It seems like a much better idea to try it out for just a couple weeks of first and see how it suits me.

Did I mention I’m going extreme? Like I said, consumer culture would have you spend about 90% of your income while saving 10%. What I’m looking to do here is to nearly reverse those two numbers, that is, a 80-90% savings rate and a 10-20% spending rate. And if that’s going to happen then I need to limit my spending much more than I already do.

Changing how I handle money

I’m actually not much of a spender. I don’t buy many new things, and when I do, it’s usually because they are immediately useful for me, like the pair of gloves I bought last month so my hands wouldn’t freeze when I deliver mail. I don’t collect anything (except for maybe books, which I need to sell actually) and I don’t buy anything just for the sake of having it.

While this is all good, one thing I have been known to do is to waste lots of money on eating out. Going out and getting food, whether it be fast food or dining in at a restaurant, has been a form of entertainment for me for quite some time. I can remember a few years ago when I had a nice summer job, I ate out every single day I worked. If I had to estimate how much that cost me, it was well over $500 just for those three months. What a waste of money!

I’ve cut back my spending in that regard lately to a maximum of $200 a month, but that’s still a lot of money, especially with the kind of lifestyle I’m trying to create (more on that in an upcoming article). So rather than trying to tone down the spending to a smaller amount, I’m going cold turkey. I decided that for this two-week trial, and probably for a long time thereafter, I’m going to cut spending to a bare minimum.

What this really means for me right now is I won’t be eating out anymore. I didn’t spend money on much else before in terms of non-necessities, so while this isn’t a HUGE sacrifice, it will require some discipline. It will also have the side benefit of making me consciously create a cheap form of entertainment that doesn’t involve unhealthy food and spending money.

Spending less means saving more

This also means a lot for my savings rate. Like I said, the, convention at least here in America is to save approximately 10 to 15% of your money for retirement. While this works for some people, I’d rather not work 40 years and retire when I’m 60+. If you can switch those two rates (yes, it is possible.. more on that later) and save 85-90%, and spend only ~10%, then you’re looking at retirement, at least in the sense that you could quit your job and live off the interest you have in savings and investments at any point, in about 5-10 years.

I don’t want to get too far off topic though, as I’m going to go into early retirement in an upcoming post. If you’ve been following my Twitter then you already know I’m talking about. Still though, let’s do some math just for fun.

Right now, I’m living with my parents. My necessary bills consist of gas money and car insurance. That’s about $130 a month total. I’m also going to give $50 a month to a friend I’m staying with part-time, as I don’t think it’s all that fair to eat her food for free. I quit the gym a few days ago in favor of running, so my only other bill is hosting for this website, but luckily the site has paid for itself for the past six months or so and then some. Therefore, my bills cost a grand total of $180 a month.

Even after I move out I’ll still be under $400 a month, plus my income should be much higher by then. Read my article about avoiding a mortgage if that figure made your brain explode.

If I can get a piddly part-time, minimum wage job to supplement my income, I could easily earn enough per month to save back well over $15000 a year. It simply requires that I don’t waste money on junk I don’t need.

Now, almost everyone spends more than they have to, especially if you live in a consumer-based culture like the United States. The real question and purpose behind this trial is to find out if I can lead a satisfying, happy life without doing that.

Can I substitute free hobbies in place of expensive hobbies and enjoy them just as much? Can I choose to eat at home instead of going out and have just as much fun? Can I be perfectly happy without a bunch of “stuff”?

I’m guessing the answers to these questions are all “yes”, but I’ll know for sure at the end of the trial.

Oh, and I’ll soon be covering why on earth I’d want to save a whopping 80%+ of my income as well as how I’m going to retire by age ~30 while still making less than most people.

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21 Responses so far.

  1. Bart says:

    I like your way of thinking, downsizing your needs and living simply. I just suspect that you’re being a little over-optimistic on certain points, but you’ve got the right attitude so you’ll get through OK.

    In the end, what you’re saying and what I agree with, is that the most important things in life aren’t dependant upon a price tag. Some of the best things in life are indeed free, and some of my most (costly) investments have paid off extremely well in terms of utility, learning stuff and magnifying the things I already do well.

    Bart recently posted..Online Compulsive DisorderMy Profile

    • Fred Tracy says:

      overly optimistic? ME? Okay, maybe. ;-)

      What you said describes the big picture pretty well. Price tags do not really affect overall happiness very much. It’s up to us to create that!

  2. Hi Fred,

    Amazing idea :-) I’m very curious to your extreme experiment. It is all about managing your money and your money doesn’t manage you.

    If you can create a life style which you truly appreciate, it could be possible to retire soon. It all depends on what you truly value in life.

    marc van der Linden recently posted..What are your core values in life? – the series (1)My Profile

    • Fred Tracy says:

      Definitely, thanks man. And also, I’m sure that I’ll continue working in some way after I retire. Really what I’m talking about here is more a state of “semi-retirement”, where you pretty much have enough to live on for the rest of your life if you want to, but you work at various things anyway, just for fun.

      So far it’s gone pretty easily. I actually technically have one expense that I have to pay for, which is my new header, but I decided to get that done before the 14 day trial – it just wasn’t completed until I already put the post up. The only real difficulty I’ve had is what I’ve worked all day, and then then really tempted to go out to eat instead of eating in. I’ve been able to be that temptation rather easily though, and my happiness levels in such haven’t dropped as a result.

      Go figure – money can’t buy happiness. :-)

  3. Ok, well, I can’t say that I’ve ever saved 80-90% of my salary, but I’ve always managed to have a financial buffer – enough so that if I earned no more money, I’d be ok for at least 6 months. That gives me freedom and flexibility. I’d love to live rent free, but I also love having my own place. And living in the City. And traveling. And Spas. I love spas. Hmmmm. I think the trick here is to earn a lot more money. Then that 10% will go a LOT further. LOL.

    Melody | Deliberate Receiving recently posted..Finally!! Deliberate Receiving’s Online Coaching Is Live!!!My Profile

    • Fred Tracy says:

      Spas.. I don’t think I’ve ever set foot in one. Times like this make me so happy to have been born a guy. I’m allowed to not care about stuff like that.. Or even shaving half the time.. And I’m still socially approved. You girls have SO much work you have to do. I do not envy you. :P

      Yeah, that’s the thing. When I become a regular carrier, I’ll make plenty of money for this project. Until then, I’m stuck with one day we can the post office and working wherever else I can find, probably close to minimum wage. Now, I could go back to school, as I have about half of the computer science degree and half of the psychology degree completed, but I am not interested in working in either of those fields. Computer science because of my carpal tunnel, and psychology because it doesn’t pay very well anyway.

      I could put in a Steve Pavlina-esque 2 years to get a different degree, but would the student loans and time spent be worthwhile endeavor at the chance of a higher salary when I will make about as much being a regular carrier in roughly 5 years anyway? It’s a strange time, and if I were planning on working the rest of my life, I’d probably go back to school, but right now this seems like the best thing.

      I am almost done with my e-book though, so hopefully that will supplement my income. Yay!

      • Oh dear, dear Fred. *shakes head in pity*. We don’t HAVE TO do all that stuff. There are plenty of women out there that don’t pamper the way I do, and they don’t all look like Sasquatches. I WANT to do this stuff. I love it. It’s my crack, yo. Wait, maybe not crack. Something more relaxing. It’s my weed? My booze? My ritalin if I had ADD? Whatever. It’s not a burden, it’s FREAKING AWESOME!! You may want to try it sometime. I nice pedicure to soothe those postal worker footsies. A Massage, a facial, perhaps a body scrub. Then a sauna and some rest. Time to read a trashy novel. Time to mediate for hours. Time to look out over a beautiful landscape and let your thoughts float where they may. A gorgeous meal, eaten while someone plays a baby grand piano. There is no discomfort. You’re in a bathrobe all day (except for dinner, where everyone dresses up a bit and it feels all festive and twinkly). It’s cozy and warm and wonderful and it’s just so easy to be grateful and satisfied and happy. How exactly does this cause you to pity me and my entire gender? He, he, he.

        Congrats on the e-book! Can’t wait to read it.

  4. John says:

    Hmm, I guess anyone could save 80-90% of their income if they were living off their parents.

    • Fred Tracy says:

      “Even after I move out I’ll still be under $400 a month, plus my income should be much higher by then.”

      I’ll still be able to save 85% after I move out. Easy peazy. Living off of the parents is a great help though. I could probably get to 95% if I REALLY wanted to.

  5. I’m finally back Fred!

    Good to stop by and see how you’re doing. Don’t worry about the finance blog tangent, I’m seeing this topic come up a lot currently. Must be a new year thing.

    Well, I hope to be back soon, and doing some saving of my own.

    Bryce Christiansen recently posted..Oh, The Places You’ll Go! (Video Mashup of Dr. Seuss and Burning Man)My Profile

  6. Oh, my oh, my!!!… I had to write this to you, Fred!

    Eating out is a big spender. People don’t realized that! I remember my ex-husband before we got married who was like you, no a big spender at all, but who ended up wasting a lot of money… In what? In eating out! I so know what you mean here!

    When we got married I showed and taught:) him, how much he could save by “cooking” and bringing his lunch at work. He was amazed!

    At one point he say, hum that’s were all my money was going! People have no idea how much money they are wasting buying food out every day, no idea!

    I am proud to say that eat excellent food everyday, and I have no weight problem, so I am in no diet:) but I eat my own cooking. I save bunches!

    Thanks for letting people know this, Fred :)
    Sylviane Nuccio recently posted..Why Has The Law Of Attraction Not Worked For You?My Profile

    • Fred Tracy says:

      YES! That is exactly what I’m looking forward to. I can’t believe how expensive eating can be.. even cooking at home can cost a lot if you let it.. when you add in all the costs a restaurant has, they really shoot through the roof. It’s just a bad idea!

      Looks like you have enlightened him.. and me – thanks! :D

  7. Bah, finances. I hate finances.

    I agree, though. There’s a paradox there somewhere.
    Like, a contradiction.


  8. Agota says:

    I think you might be interested in Ramit Sethi’s material, his book “I will teach you to be rich” is the best personal finance book ever in my opinion.. :)

    The problem I see with most personal finance books is that they focus on saving, not on optimizing finances and earning more. I mean, I don’t want to cut my budget, I want to earn enough money so I could live the life you want. I’ve read quite a few personal finance books and they might get you very excited about the idea of cutting costs, but really, why is eating out a waste of money if you enjoy it? ;)

    I think focusing on earning more is much more enjoyable (and effective, because there’s a limit for cost cutting but not for earning more) than focusing on cutting costs :)

    • Fred Tracy says:

      Hmm this is an interesting kind of continuum, between saving and spending. Personally, I’d like to save a maximum amount and earn a maximum amount. Few people seem to max out both things.

      The reason why something like eating out is a waste of money is because of hedonic adaptation, which I just learned about. Basically, people adjust to whatever their surroundings are, in almost any circumstance, and return to a baseline level of happiness. That’s why the richest countries with the best lifestyles aren’t the happiness for instance.

      So when you apply that principle to something like eating out.. I could stop eating out and instead cook all my own food. At first, it will sting a little (it has), but I’ll eventually adjust and be just as happy eating in, and more healthy (I am!).

      But I see the principle you are talking about. Earning more definitely doesn’t get enough focus, at least in what I’ve been reading. Because I get off on discipline and frugality, I could probably actually spend nothing other than necessities and feel quite content, but even if I do that, I’ll still need X amount of years to retire (anywhere from 4 to 10, depending on a lot of variables.) If I could double my income, that’s 2-5 years. Quite an increase indeed! Thanks for the comment.. seems like the universe is telling me to get that book a lot lately. :)

      BTW you need a gravatar!

  9. pea says:

    Excellent post Fred, it’s all about the big picture isn’t it and deciding upfront what really matters to you, short term pleasure or long term satisfaction.

    It should be an interesting journey to watch.
    pea recently posted..Huh?My Profile

  10. Jo Pilkington says:

    Fred, when I was your age, a whole 7 years ago, the message most of us got was, “Get in debt now, and pay it back when you’re earning. That’s what I did.” Then there was a recession and none of us ended up doing much earning.

    I’m kind of jealous of people a bit younger than me, who are starting out with lots of messages of scrimping and saving… my life would be so much different if I’d done that.

    Anyway just wanted to say you’re a very sensible young man so well done, don’t make the same mistakes I did, and other such phrases that make me feel very old!

    • Fred Tracy says:

      Lol Jo! You aren’t very old yet. Although it may be cliché, I think age is a mindset. Melody from deliberateblog doesn’t even regard herself as having an age. I think that does a lot for keeping your inner child active. And besides, look at Eckert Tolle – he practically looks like an overgrown toddler. I remember that being in the comments of one of his videos and thought it was hilarious.

      Anyhow, I’ve been saving and saving even more. I’ve hardly spend anything at all on anything but very affordable food (grapes, oats, lentils) and officially paid off my credit card last week. It feels great to know that all the money in my bank account is actually mine. I don’t know your financial situation, but I can say that it is quite easy to pay off debt when you really decide that you want to.

      Thanks and take care!

  11. I think this is one of the most vital info for me. And I’m glad reading your article. The site style is wonderful, the articles is really great.
    Brace Phillips recently posted..Destroying Fear With 5 Personal Improvement SecretsMy Profile

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