Saturday Critical Action – Save Some for Your Future Self
Welcome to the Saturday Critical Action. Each Saturday we take the weekly action from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements is a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s critical action:
SAVE SOME FOR YOUR FUTURE SELF. Looking to lose weight? At restaurants, transfer half your serving to a second plate and ask the waiter to box it up. If the food will make good leftovers, it’s easy to do, because you know you’ll have a treat tomorrow. Want to save more? Think about it the same way—and set aside some of today’s spending money for tomorrow.
How much should you set aside? Here’s an excerpt from our 5th step to financial freedom:
Recommended Savings Rate
A common recommendation from financial planners is to save 10-15% of your pre-tax/gross income for retirement, but part of the reason I’ve been so successful saving for retirement is because I read a book about being an automatic millionaire. In that book, it stated that in order to be rich you needed to save 20-30% of your pre-tax/gross income. As soon as I read that, I said, “Hey, I want to be rich. I better save 30%.”
I started at 20% in my twenties, gradually increased whenever I could (like after my annual military pay raises), and have been at 30% for over 10 years now. Saving 20-30% if you can will ensure you save enough and have options for an earlier retirement or the freedom to cut back on your workload at some point and work part-time.
Total up your household’s gross (pre-tax) income for the year. Include all sources of income, literally all the money you make from anywhere, including any tax-free allowances that you might not consider income. Multiply that number by 20% or 30% or whatever percentage you settle on. That is how much you need to save annually for retirement. If you can’t get to 20-30%, get as high as you can. Anything is better than nothing.
As an example, let’s pretend your household makes $50,000 annually before taxes. Multiply that by 20% and you’ll see that you need to save $10,000/year for retirement.
Every time you get a raise, bonus, or income tax refund, use it to increase the amount/percentage you are investing for retirement. Don’t use it to buy more stuff.