For many people, the savings rate recommended by financial planners is outrageous whether it’s 10% or 15% of their annual income. For others, it’s a piece of cake. Increasing your savings rate by a significant percentage and on a consistent basis really does require a lifestyle change. You really have to give up some things or find cheaper ways alternatives and stick to them.
But I’ve wondered what if everyone started being frugal and saving huge percentages of their income. Wouldn’t that cause significant damage to our economy?
I mean we depend on people to spend so much money on random things every month because that helps many of us to keep our jobs, continue to save, and continue to look forward to one day relax in retirement.
For now and since the economy is continuing to boom, I don’t see any glaring indicators of everyone in the country suddenly becoming a super-saver with a big green cape and a money-sign etched on their chest.
According to the National Retail Foundation, jobs in retail are 42 million and the industry contributes to $2.6 trillion to the US GDP annually. And retail sales are tied to consumer spending which makes up about 70% of economic growth.
It’s so easy for people to spend money nowadays. Shopping sites will automatically save your credit card information unless you tell them not to, there’s Apple Pay, there are smartphones where you can scan it on the register and it will deduct from the balance on your virtual card.
Then there are incentives to spend more like spend $50 and you’ll get free shipping, spend $1,000 and you’ll get 500 bonus points on a particular credit card, spend $5,000 and you’ll get $2,000 back – ok maybe not this last one because that’s just silly 🙂
Retailers are doing everything they can to make it more efficient for the busiest people to shop at their stores. Target is implementing tracking technology in its stores so when you open up its app you know where you are and where you need to go to the store to find something. Customers may be pleased with this experience and thus be enticed to visit and consequently spend more.
It’s important to understand that there is a dual motive behind these kinds of convenience: yes they can help the consumer out but they can help the retailer out too – I’ll scratch your back and hopefully, you’ll scratch mine. Even this year’s Black Friday sales were 17% more than last year. And a lot was contributed to online sales as reported by Amazon.
Whenever I go into a store I usually know where things are. It’s because I shop at pretty much the same (discount/wholesale) stores all the time. I’m never buying anything in a hurry anyway. Instead, I’ll just walk out of the store to research an item more, determine whether or not I still need it, and then I may or may not come back; no pressure here 🙂
Embrace Crazy Saving
I suppose if everyone were to turbo charge their savings rates it would help the banking and financial industry; deposits would increase and assets under management for Portfolio Managers. It would give more for banks to lend too.
Nevertheless, even if you are helping me with your crazy spending habits, I’d like to help you with some crazy saving habits. I get it; 15% may be a lot and let’s say you are only saving around 3-4% as many other Americans are per Business Insider.
How about trying to increase that to a half a percent by the end of the year? So if you calculate your savings rate and it’s at 8%, try to get to 8.5% by the end of the year. And once that’s achieved try to get to 9% by the end of the first quarter of the following year.
Here is a simple way to calculate your savings rate. As you can see, I inserted some hypothetical numbers and the calculation just adds up all your savings (i.e., retirement contributions for the month, regular savings, interest earned, dividends earned and reinvested, and any other savings and dividing that by your total net income for the month:
|SAVINGS % Per Mo. Based On Net Income|
|Your Income||$ 2,000.00|
|Spouse’s Income||$ 2,500.00|
|Spouse 401K||$ 175.00|
|After-tax Savings||$ 125.00|
|Savings Account Interest||$ 15.00|
|Brokerage Dividends||$ 50.00|
|401k Dividends||$ 80.00|
|Other Savings||$ 25.00|
|Total Income||$ 4,500.00|
|Total Savings||$ 770.00|
Everyone’s goal is different and it’s important for goals to be reasonable as well so that you can strive for them and achieve them. If you’re just starting out, don’t try to bite off more than you can chew. In other words, don’t say ok that’s it I’m saving half my income no matter what an then a month later give up and not save anything because you thought it was impossible because maybe it kind of was. Instead, take small steps so that they are attainable and can help you move forward. As Lauren Lyons Cole from Your Money Editor puts it, that gives you momentum to move forward and establish new and more challenging goals.
For now, the goal is to just to establish a goal. So work toward becoming a super-saver like I mentioned earlier whose super-power is to be able to put money away for tough times and retirement, increasing those contributions periodically, all while not even feeling the pain. Because don’t feel a lot of pain right? 🙂
Do you feel good or bad when you’re friends tell you about their crazy spending, while you’re trying to save more? Do you sometimes feel deprived? If so, how do you deal with this feeling?
I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!