Living beneath your means: saving money means more financial freedom

Saving money to the max
KJ: We’ve written about the concept of living beneath your means before, but there really is a powerful impact to you and your family’s bottom line of living beneath your means (whatever that may be). Not only by living on a lower living expense level than what your income(s) could otherwise afford, you benefit from:

(1) Saving more money, and
(2) Reducing the amount you NEED to save to be financially independent.

With this dual benefit working for you and your family, there’s an exponential impact of how quickly saving more will afford you more finanical freedoms sooner. Let’s look at some numbers (we’ll use all round numbers to make the illustration easier and ignore taxes, earnings, and growth for simplicity):

Saving 10% of your income:
If your family makes $100,000, and you save 10% of your income that means you’re saving $10,000 and living off of $90,000. At this rate, it will take you approximately 9 years to save for one year’s worth of your expenses.

Saving 20% of your income:
At this rate, you’re saving $20,000 per year with living expenses of $80,000 per year, so it would take you only 4 years to save one year of living expenses. So, by saving double the 10% rate, you actually end up reducing the time it would take by MORE than half.

Saving 25% of your income:
If you save 25% of your income, then you’re saving $25,000 per year with living expenses of $75,000. After just 3 years you’ll save a year’s worth of your living expenses.

Saving 50% of your income:
At a much higher rate of 50%, each year worked is equal to one year of expenses saved. Exponential! Even though it’s five times as much savings as the 10% level, it’s close to one tenth the time it would take to save for financial independence.

Saving 75% of your income:
At an extreme savings of 75% of your income, each year worked is equal to saving 3 years of living expenses. Wow! While a difficult feat, the illustration alone is amazing just how quickly you can reach your goals.

AJ: When you consider the idea of saving 75% of your income it feels impossible, and really, why would you need to save that much? It’s a very lofty amount and can be very difficult to achieve, but the point of the illustration is to look at trying to save more regardless of where you are. For us, the bigger consideration became that we were senselessly spending on stuff that we didn’t really want or need, so we came to save a larger percentage as a product of need vs. want. Being self-aware with regards to your spending and saving habits is imperative and you’ll be surprised by how much more you can contribute when you reel in the wants.

    So what’s stopping you from reaching financial independence?
    How much are you saving?
    What areas of your budget could you trim to save more and get more financial flexibility?

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