Developing strong savings habits is an essential part of achieving your financial goals. Your ability to save money during your working years will directly impact the quality of your life both now and in the future. Your cash flow is limited so keeping as much of your hard-earned money in your pocket as possible is prudent. Becoming a world class saver puts you in more control over your financial future.
We define a world-class saver as someone saving 15-20% of their income. This is a notably higher savings rate than the 10% number that you’ve certainly heard from someone in your life – the finance guru on the radio, your coworker, your parents, or maybe even another financial advisor. Unfortunately, common financial wisdom and a lower savings rate rarely results in achieving your desired retirement lifestyle, and increases the risks to your financial security.
If you feel like you are fighting an uphill battle to increase your savings rate, consider these questions:
How much money did I save last year as a percentage of my income? How much money would I like to save this year?
How much money do I have saved in readily accessible accounts in the event of an unexpected expense or emergency? Do I feel comfortable with this level of liquid savings?
Am I confident in my ability to reach my savings goals? Do I know why I am not currently meeting my savings goals?
Your savings rate is how much money you save each year as a percentage of your total income. If you make $100,000 per year and you save $15,000, you have a 15% savings rate.
Your rate of return measures how much you earn on the money you have saved and invested. If you have $50,000 invested in a mutual fund and it grows by $5,000 over the course of a year, your investment had a 10% rate of return.
Your savings rate is 100% within your control. Your rate of return is not and will vary year to year and is not within your control.
Focusing on increasing your savings rate is an attainable goal that will positively impact your financial goals. Alternatively, attempting to increase your rate of return may cause you to take unwanted and unnecessary risks.
Today, it is common for people to invest before developing saving habits. This approach may encourage higher levels of risk and volatility. Before taking high risks with your hard-earned money, focus on the following:
Become A World Class Saver
Calculate your current savings rate and work toward saving 15-20% of your total income.
Build up your easily accessible cash reserves. Start by building up 3-6 months of household expenses in savings and then consider accumulating one year of annual household income.
Protect your balance sheet and cash flows against life events that could affect your ability to save the money you’ve already saved.
Highest & Best Use
Ensure each dollar is put to its highest and best use. Become more efficient by considering taxes and other expenses that can erode your savings and investment returns.
Most people want to save more money. In theory, increasing your savings rate is easy. In practice, saving money can be challenging without the help of a professional. Our advisors understand this reality and follow a proven process that incorporates the financial aspects of increasing savings and the psychological aspects required to change mindsets and build world-class saving habits.
We start by getting an understanding of where you are today and where you would like to be in the future. We will help you get financially organized and will work with you to find opportunities for additional savings while maintaining your lifestyle. Together, we will make incremental changes, take meaningful steps toward your goals, and develop a clear path forward. As you become a world-class saver, we will monitor your progress to ensure that each dollar in your life is put to its highest and best use to seize opportunities that come your way.
A world class saver is person who saves at least 15-20% of their income.