I was reading an article about maxing out one’s savings rate to the hallowed 70%. Is it possible to achieve this ‘holy grail’ number while maintaining a comfortable way of living?
If our personal finance was a business, what we save could be considered our profits.
When you earn a profit (savings), you don’t have to worry about how you’ll pay your bills. Profit lets you chip away at the chains of debt. Profit removes the wall of worry and grants you control of your life. Profit frees you to do work that you want instead of being trapped by a job you hate. When you make a profit, you truly become the boss of your own life. With even a small surplus, the balance of power shifts in your favor.
The greater the gap between your earning and spending, the faster your net worth grows (or shrinks). This may seem obvious, but it’s important. Everything you do should be done to increase your profit and wealth.
But profit doesn’t mean much on its own. Is a $1000 monthly profit good or bad? Well, it depends on your circumstances.
[ul]
[li]If your income is $2000 per month (or $24,000 per year), a $1000 monthly profit is great. That’s a saving rate of 50%. Congratulations![/li][li]On the other hand, if your income is $20,000 per month (or $240,000 per year), a $1000 monthly profit gives you a saving rate of 5%. That’s average at best.[/li][/ul]
You see, it’s not your total income that determines how wealthy you are and will become. Nor is it your monthly surplus. The true measure of progress is your saving rate — how much you save as a percentage of your income.
Talkers, what percentage of your income do you save? Do you wish it was higher? If so, what steps are you taking into making it a reality? Remember, the more money you save, the quicker you achieve FIRE (Financial Independence, Retire Early).
Just having cash in the bank is not good. Save your money in assets that depreciate, reinvest in your business can also be seen as ‘saving’ because it is adding value. Liquidity, I think it is recommended you have at least a years salary kwa account.
So you want to cap the amount of profit your business generates? If YOU are the product of a business called ChifuMbitika, then whatever you retain after deducting expenses is your profit.
Not a matter of capping. Just implying that whatever you should save comfortably from your total income after deducting the marginal costs should range from a tenth to a third of the profit.
I don’t save . I just have structured withdrawals that my money goes to . Saving is a bad way of keeping money. I put it to some imblocks:
Of my salary :
5% goes to rent
5% goes to insurances, phone and petrol
5% goes to family upkeeps and food
2% goes for kid fees
35% tax
4% miscellaneous(car repair,…)
Total is 56%. The remaining 44% goes to some structured equities
10% goes to money market
10% goes to sacco: sic,umeme, muramati
10% mashambas all over
10% Nse
4% others ( emergency)
This is how I live month to month