How I save money each year by following 3 steps

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Every year, goal planning and intention setting content floods my social media feeds. Friends show off their shiny new calendars for the new year. Acquaintances publish their annual theme, usually a one-word concept like “Clarity”, “Focus” or “Joy”.

Like for me? I really like it idea to set resolutions. But historically, I avoid setting specific, concrete goals for myself. This is not my most beautiful feature, but I know the truth: I’m afraid of failure, and it didn’t take me long to realize that if I didn’t have a specific goal, there was nothing for me to fail.

In my own defense, I tend to focus more on habits than goals (like “doing yoga every day” or “writing a new essay once a week”). I am also intrinsically motivated enough to perform objectively very well, even without the SMART goals to cross off my list.

I’m just objecting to the idea of ​​the structure and the confrontation of have-you-or-haven’t done this, I guess.

Even with all of this, however, it is a financial goal that I set for myself every year, no matter what: devote at least 30% of my gross household income to savings and long-term investments.

Our goal of saving 30% of our income makes it easier for us

While I try to focus on others financial achievements each year saving 30% of our income is always the # 1 priority for my husband and I.

This focus is part of what makes such a lofty goal easier to achieve: We have a clear goal. There may be other things we want or need to do with our money in any given year, but those things need to match that top savings goal.

For us, we target this percentage of our gross income (although you could also argue for setting a savings goal based on take-home pay).

“Long-term savings and investments” means silver intended for use in 10 years or more. We contribute to a variety of accounts throughout the year, including 401 (k), IRAs, HSAs, and brokerage firms, to achieve this goal. The total amount of contributions must be equal to 30% of what we have done in the year.

We chose 30% because it matches our individual goals

Whereas most financial experts suggest that saving 10% to 20% of your income is enough, wondering why the hell we are saving 30% (and sometimes even more, which we discuss in this episode of our podcast) is a reasonable question.

The answer is because that’s what we need to do to reach our specific financial plan.

Based on the financial planning we have done, we have determined that saving at least 30% of our income is what needs to happen in order to meet our goals, which include:

  • Create wealth and assets. Neither my husband nor I come from wealthy, independent families and cannot rely on financial support or an inheritance now or in the future to support ourselves.
  • Retire before your sixties. While extreme early retirement don’t interest us, we would like to get to a point where work is optional in our 40s and 50s
  • Enjoy the flexibility to use our money freely in the future for things we might want to pursue
  • Have enough money saved so that even if our plan does not go as planned, everything will be fine

These last two points are greatly underestimated when it comes to set financial goals. At the moment, we have nothing specific to buy. But we are still saving. You don’t have to have one thing, one purchase, or one concrete goal in mind to make saving more money a good idea.

And while we have a plan, we also know that things just don’t go in your favor all the time. Despite the best intentions, the right decisions, and a lot of skill, there is still room in life for chance.

Sometimes luck works in your favor. This is called luck. But other times things fall apart, the unexpected happens, or we realize the downside of an opportunity and things just don’t work out. It’s a risk, and it’s costly if you can’t afford it.

We always want financial might to be able to handle bad luck or the realization of risk, and that means having the ability to bounce back even after a bad break. Saving 30% of our revenue each year is what we believe we need to maintain this capability.

How we save 30% of our income

We start by clarifying our values

Setting priorities and clarifying what is most important is a big part of how we save so much money every year.

Without this clarity, I would find it nearly impossible to make the commitment to transfer large chunks of money to savings or investments when I could spend it on other things that seem more attractive at the moment.

We set up automatic deductions to save before you even see the money

The order of operations in how we manage our cash flow is a big part of our strategy. For us, putting our savings first is essential to achieving our financial goals. When you put your savings first, you put a work hard on yourself when it comes to spending – but I’d much rather use that framework than spend what I want first and then try to figure out how I’m going to save. later .

With that in mind, the first thing that happens to our money, before we even get paid, is automatic deductions from our paychecks. A certain percentage of our regular salary goes directly into retirement accounts. We never see this affect our bank account, so using it for anything other than contributing to the long-term savings goal is just not an option.

We fund our other savings and investment accounts right after they’ve been paid

Once we get paid, we immediately fund other accounts (like our brokerage account) with the amounts needed to reach our goal by the end of the year. Only after that do we look at what’s left, which needs to be split between fixed spending, discretionary spending, and other savings goals.

This approach isn’t for everyone, but it’s the one financial goal I set for myself each year and work towards. It’s a useful tool that has enabled me to reach even more ambitious financial goals, like progressing towards financial independence and increasing my wealth along the way.

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