Savings Rates & Reaching FIRE

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Are you saving enough?  It’s the most basic of questions.  Yet, I’m always so disappointed when I see an article showing how low the US savings rate is.  A recent study by Fidelity showed that the average American is saving about 8.5% of their after-tax income – including the value of any employer matches.

Even though 8.5% savings is far less than is typically suggested (15%) to build a solid nest egg, the tone of the study was positive.   The US savings rate has actually been going up since hitting rock bottom in 2010.  Still, most people are saving way less than they are going to need and few will have the chance to reach FIRE.

Anyone that is serious about reaching FIRE (financial independence & retiring early) knows that the key to saving much more is managing lifestyle inflation – especially when you are in your 20s and 30s. That is the time for people to get ahead of the savings game by banking their pay increases as they start to build their careers.

Why don’t people simply celebrate a big promotion with a great dinner out instead of a bigger car payment? We drove practical economy cars – all but one purchased well used – until well after I reached a Director role at MegaCorp. (Even then we only upgraded vehicles when I noticed out 16 year old babysitter drove a nicer car than I did!)

Even in your 40s and 50s you have a big opportunity to radically change your savings rate. The longer you work, the more likely you are to have a big portion of your income come from performance bonuses and long-term compensation. For me, this part of my pay was worth about two-thirds of my pay. By basically living on my base pay, we were able to invest the rest in stocks and other appreciating assets. You can always spend it later!

With most MrFireStation readers, I am probably preaching to the choir. I think it is good to see national averages so we can compare to how we are each doing.  Still, of the thousands that will read this article, many have room to boost their savings rate.  I would say before you do any work for anyone else this Monday morning – spend 10 minutes boosting your direct deposit or 401k savings rate.  You’ll be happy you did it later!

Image Credit: Pixabay

8 thoughts on “Savings Rates & Reaching FIRE

  1. Preach, Chief! Those with FIRE dreams can never hear this enough. I started long term savings in my 20s. That practice and habit from an early age made all the difference in the long run. Spend less than you make. As you make more, save more. Build capital and invest wisely. Not magic, not guanteed, but far more likely to pay off.

    Liked by 1 person

    1. It all seems pretty basic, but it’s amazing how few people follow simp,e financial advice like that. Astounding more than amazing, perhaps!

      Liked by 1 person

  2. People look at me funny when I drive to one of my investment properties in my 27 year old Nissan, parking it in the underground garage filled with Porsches, BMWs, and Masseratis. Believe it, that I used the same car used during my University days and it didn’t have any maintenance done since. Today the annual third party insurance and road tax costs more than value of the car. I am often thinking to upgrade it, but since it still runs, there is really no need for it (other than for looks?). If it survives another three years I will get my Heritage car plates. Can‘t wait for that day!

    Liked by 2 people

    1. It’s easy for me to picture a 27 year old Nissan, because my wife and I just celebrated our 28th wedding anniversary last Saturday and I can remember really wanting a Maxima at that point in our life (no, we didn’t buy one). That’s funny to think that you are parking amid the ‘fancy cars’ as you collect rent from the people who drive them!

      Liked by 2 people

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