How to Have a HUGE Saving Rate

Isn’t it funny how something to me is so incredibly obvious that I almost laugh out loud when I read the following comment from Nelson over at Financial Uproar.

But, I’d like to see less of the psychology behind why you want to retire early and more of the specifics of what you’re actually doing. How do you achieve such a high savings rate?

Um, I hate to give circular answer, but how can you achieve a high savings rate…see the obsession with psychology.  Really that is the reason, but perhaps I should explain that a little better.

My current saving rate is about 50% if you ignore my highly inflated and accelerated mortgage payments, if you include those it jumps up towards 75% of my take home pay.  Yes, it’s a HUGE number.  That comes about from two main reasons.  First off with all income sources my wife and I earn about $110,000/year, so start with a higher income and then do some good tax planning to keep most of it.  Then second don’t spend that income, instead get a low set of expenses that are perfectly balanced to your particular needs and wants so I feel just as content as many people who spend double what I do.  How?

Ah, now we are into the psychology part of the answer. Being somewhat obsessed with psychology of happiness and spending I’m actually aware of how people can spend money like water and not be happy.  We buy things on impulse, we treat ourselves (because we deserve it), we lust over the latest movie or gadget or shoes or (…insert obsession of choice here…) but we still aren’t happy and go buy more.  The main difference is I know what I need to buy to be happy and what won’t make me happy.  Now what works for me won’t work for you so you have listen to your own subconscious, but here are some general hints.

1) Buy Experience over Stuff.  New hardwood floor or that kitchen reno won’t bring lasting happiness, in all likely hood it will turn into your new baseline in under a month.  Then the happiness is gone.  So save up for a trip instead, you likely will be more happy with your memories than the new floor.  (Or in my case next year…do both.  As I said these are hints, not rules, you can break them.)

2) Delay Buying Things.  Well most people understand that not buying on credit is a good thing, since you save the interest cost.  What we often don’t know is the lusting after your purchase prior to getting it can bring just as much happiness as buying the object.  So even when I could just pay cash for something, I tend to save up for it.  Why? To drag out the happiness and make sure I buy the right thing.  So more often than not I don’t screw up and instead I buy the right thing for my wants and I’m more satisfied with my spending.

3) Focus on Equal Outcomes.  I tend to really like to watch movies, but I’m often just about 3 to 6 months behind what came out in cinemas.  Why? I realized I really don’t care when something was released, when I get around to watching it.  So yes I do hit up the cinema, but only like once or twice a year for the movie that I’m REALLY WANT TO SEE.  Otherwise, I hit up the library or Netflix to feed my habit.  I focus on the equal outcome for me: I just want to watch the movie, I don’t care about where that much.  So I spend like a fraction of what others would for a similar movie habit.

There are obviously more tricks, but that should get you started on why I have a high savings rate.  I focus on what matters most to me and screw what other people think.  I am the Joneses of my life, so I don’ t have to keep up with anyone.

So how about you?  What do you do to keep up your savings rate?

30 thoughts on “How to Have a HUGE Saving Rate”

  1. Experiences can be just as expensive, if not more expensive than stuff 🙂 If I focused on experiences, I would probably spend more money. I managed to keep a saving rate around 30-40% by simply asking myself, honestly, if what I was spending money on would benefit my life. The tough part is that it can be really easy to lie or convince yourself of something…

  2. What kind of ‘tax planning’ do you employ, being employed, to keep most of your taxes?

    Kinda late to ask now that I’ve already filed but maybe for next year!


  3. Avoid recurring expenses… don’t sign up for cable/satellite TV, newspapers, magazines, gyms, cellular data plans, lawn service, etc.

  4. Do that aleady! 🙂

    My question was focused on the tax planning side of things. Those are all consumables.

    Aside from RRSP’s what are you setting up to help minimize the taxes?


  5. The suggestions work for you. Not necessarily for others.

    I have a high savings rate too. Largely due to high pay and moderate desires.

    But I take exception with #1. I cook all the time. I love cooking. Outside of my bedroom, I spend more time in my kitchen than anywhere else in my home. It started falling apart (literally – it’s 30 years old) a few months ago and that finally got me around to getting the renovation. Full tear-out and rebuild. It’s not cheap, but I’ll undoubtedly enjoy the new one for years to come, because it’s not just a cosmetic change.

    I’ve taken plenty of trips in my life, and while they’ve provided plenty of memories, I can’t feed myself or my friends and family from them.

    So in cases other than yours, “stuff” can be more valuable with better returns than an experience.

  6. @Ron,

    RRSP would the obvious one, but I also make sure to keep my TD1 forms up to date. That keeps more cash in my pocket rather than waiting to get it back at tax time. I also plan for a zero tax refund each year by keeping my deductions low at my second job. While that often means I will owe a little at the end of the year, I’m ok with that.


  7. @Astin,

    I totally get what you mean. Experience vs stuff is a broad statement, but obviously some stuff can enable more experiences like cooking for friends and family. So I understand and support your investment. It’s sort of like buying some equipment to take up a new sport, it might be stuff, but if it enables fun experience it can be a good investment.

    Enjoy the new reno,

  8. My wife and I are saving at a 70% rate. Our montly take home pay is $8500 and we spend around $2500. The scary thing is we could easily pare hundreds off our budget. We eat out quite often, enjoy good wine, and I quite like electronic gadgets, and my wife has a fixation with footwear that I don’t comprehend. We have a deluxe HD TV setup with every channel known to man, and an ungodly fast internet connection.

    So how do we still manage to save $6000 per month? Apart from our solid incomes, we drive a 12 year old vehicle (hence no car payments), our mortgage is tiny ($250 monthly), and here’s the kicker: NO KIDS.

    My plan for retirement is simple: once our income from dividends hits $2000 monthly, I will stop working. I hope this happens before I hit 42 (2 years to go). This will only replace about half of my current salary, but my wife will continue working ( she actually loves her job), god bless her. Instead of saving 6k montly, we will be down to 4k… I think we will manage. 🙂 I suppose if my wife is working while I am not, I am not really “retired”… I am okay with being a kept man.

  9. Yeah, I thought that was a question with a pretty obvious answer.
    My savings rate is about the same at ~70% (with mortgage included in the ~30% of what I spend). Just like Nelson said in one of his articles that he has the habit of eating out every day at the same place – I have the habit of bringing my lunch every day (because one of my hobbies is cooking too). And not liking movie theaters… or shopping… and…

    The income is the biggie though at the low $200’s – this year/job (see why it’s hard to walk away?) but spending like I’m still pulling in $50 a year. My wants never changed, even though I tried to step it up. Just wasn’t me. I think it will make it easy to know when I’m done saving by knowing that sweet spot.

    Plus I’m getting fond of the anticipation of saving up for things that I technically don’t “have to” save up for. It’s like waiting for Christmas or something.

  10. Jon_snow, your story is similar to mine in some key ways. No kids, no debts was my mantra and my goal was to be able to generate $2,000 a month from bond fund’s monthly dividends (I also have dividends from stock funds and some cap gains distributions). My personal savings rate in my working years was 30%-60% (toward the higher end of the range after I paid off the mortgage) which, along with the booming stock market of the 1990s, got me to the point where I could retire in 2008 at age 45.

    I never had a lavish lifestyle so my goal of being to maintain it after I stopped working was important but not that difficult.

    It is far more fun to see the same amount of dividends electronically added to my bank account each month than it was to see a biweekly paycheck get added there because I don’t have to commute to my old office to get the paycheck. I still describe the end of each month as “paycheck time” LOL!

  11. @Jon_snow,

    Kept man? Cute, I like it. I know what you mean my wife won’t pull the plug at the same time as me. She plans to pull out of work slower than me, so I could end up being in the same place. It’s a hard life, but someone has to do it. *grin*


    $200K this year!?! Holy overly high income! Ya, I get why it would be hard to walk away if you liked what you are doing.

    On the other hand, if you didn’t like it I don’t any amount would be enough. I once told a co-worker I won’t take a VP role in my company even if they paid a million a year…the stress and unreasonable expectations are nuts.


  12. With some of these high income figures being thrown around,I think early retirement should be more of an expectation than a dream.

    It should be noted that it can be done on a lot less as well…expenses may need to be cut more though.
    But its not just for the rich folks.

  13. I am surprised at the number of people who think they have to choose to remain childless in order to save money. We are a couple with five children who work full-time and are pulling in $180k/year. Our saving rates are not as high as some of the contributors, but the joy that our offspring have brought to our life is immeasurable – hmm maybe there’s a blog in there somewhere?

  14. Hardworker, for many of us childfree people, our decision to be that way is because we simply don’t want to have children in our everyday lives – they would bring no joy to us whatsoever. If that happens to make it easier to retire early then that’s gravy. Many of us made this choice when we were very young and not thinking abour any early retirement.

    I knew I would be childfree when I was 20, 2 years before I began working full-time, 15 years before I began seeing ER as a possibility, and 25 years before I would realize my ER. My ER at age 45 would have been impossible if I had children, and my life would be far worse if I had taken that route.

    That being said, if someone has an early retirement as a major life’s goal and is “on the fence” about having children, I would strongly recommend remaining childfree to make that early retirement far easier to achieve.

  15. If I had met my wife in my mid 20’s instead of our mid 30’s kids may have been in the cards. But without them, the lifestyle possibilities are endless…. If we wanted, my wife and I could both quit our jobs tomorrow, sell our condo, invest the proceeds into our current nest egg, move to our island acerage and live off the dividends of a 700k portfolio… Certainly not a lavish lifestyle, but without a couple of human beings to nurture, it is achievable. Kind of exciting just to think about it… I expect the regret about not having children will hit us at some point, but this is our path in this life.

  16. Err. I think Tim (and I) have shown that kids or no kids does not a savings rate make. No correlation, no causation, nothing. Unless you think that 70% vs. 71.5% is somehow significant.

  17. You haven’t convinced me, Jacq, that spending ZERO versus at least a few thousand dollars of one’s income per year raising kids will cut into one’s savings rate of 1-2%. Food, clothing, housing, medical costs are hardly insignificant.

    Skip the kids, boost your savings rate, a LOT!

  18. I don’t take issue that having kids prevents anyone from still saving tons of money. But its certainly more challenging…. and you can retire EARLIER with LESS income without them. This can’t really be argued.

  19. I bought a fixer-upper of a home and did this so I could renovate to make it a home of my dreams. I have done this, almost completely on my own, and take extreme joy every day in the work we have accomplished. I can appreciate those who like to travel, but to say that doing renovations to your home doesn’t bring lasting happiness is painting everyone with the same brush.

  20. deegee and Jon –

    It’s like if someone asked you “what is the cost of food?” (Or housing or entertainment or pretty much anything…)

    The answer is “I don’t know – how much do you want to spend?”

    Kids are a pretty variable, not fixed, expense. It’s Accounting 101. It’s just that *most* people see a fixed expense when that doesn’t have to be true. I bet if either of you had kids, you’d only set your FI age back by a couple of years, if that – because you’re inventive and you’d make it work.

    Interestingly enough, Stats Canada shows that – see average income after tax by family types – non-elderly unattached males make less than sole parent female households (very interesting) and 2 parent families earn more than families with no children. I couldn’t find the stats, but I’ll bet that the savings rates are pretty much the same.

    Having said that, I have no dog in this convo (actually my dog probably costs more than the kids ever did – how come there’s no pet-free ideology?) – it’s all personal choice and I could give a flying ferret what child/no-child choices anyone makes. Most of my best friends have no kids (some by choice, some not) and my savings rate is WAY higher than theirs. That’s only because I value FI more than a Mercedes or a 2 week trip to Europe. Good old lifestyle inflation.

  21. Jacq, if I had kids, my expenses woudl grow so much that I would not be able to FI at any time nclose to what I did.

    Housing – I live in a studio apartment. If I had kids, that would not be possible. I would have to upgrade to either a bigger apartment or perhaps a small house. (I am single so there would probably be a wife in there, thereby tripling the size of my family unit.) My mortgage would be much higher, as would other recurring expenses such as property taxes, insurance, electric, heat, etc. On that basis alone, my debt would be higher and my expenses higher, too.

    As I wrote earlier, food, clothing, and medical expenses (I live in the US with its screwed-up health system, not Canada) would all rise, further raising my expenses. And that doesn’t include other more discretionary expenses involved in raising children. (And what about college expenses?)

    So, with children, my (variable and especially) expenses would rise and my debt would rise. I would have less money available to pay off my bigger mortgage early, a key element to retiring early. And less to save and invest towards becoming FI and RE.

    No way I could be FI or RE if I had children.

  22. Deegee, I think you COULD be FI with some co-dependents. I think you have the motivation to do whatever you set your mind to do. To paraphrase Jacq, I think she is saying ‘Where there is a will, there’s a way’. If I hadn’t had children, then I would continuing to spend, spend, spend. I go to work and my colleagues seem to try to outdo each other with the number of vacations and the farthest distance they have to travel ‘to get away’ at the weekends, all done on credit. The reason we save is not for college education (we’ll help the kids out, but they all know they will have to find grants/earn the tuition during holidays) or for health insurance (none of the kids have been near a dr in more than a year thanks to healthy homemade meals and lots of outdoor sports and play), but just because we want to work and invest money now while we are young-ish and enjoy the fruits of our labours DF sooner rather than later! Somehow this Type A Personality became a wife and parent and as well as having my heart melt on a daily basis (sorry!) – it has also given me the kick up the behind I needed to work, play and save harder than ever before !

  23. Sorry Hardworker, the “when there’s a will there’s a way” doesn’t apply. The math just doesn’t work.

    I was already living a frugal life, not going on costly vacations, rarely buying a car (3 in 26 years), not accumulating debt, and saving heavily. Why do parents too often assume that the childfree are living some kind of lavish lifestyle (“spend spend spend”) which can be “traded in” for having children? If I had lived that kind of lifestyle, I would not have been able to retire early, either. Being childfree was PART OF my frugal lifestyle even though I chose to be childfree years before I started living on my own.

    No way I could be FI or RE if I had children.

  24. Perhaps I might offer a comment on this debate: everyone with kids won’t change deegee’s mind. That’s ok because it’s just his mind, he can think anything he wants. Just because you don’t agree means either of you are wrong.

    On the other hand I do agree with some of Jacq’s comments. Kids are a choice like any other expense. Pets, vacations, food are just as all over the map for expenses. We don’t cut down people’s choice for travel when they say it is important to them, so we should offer others some respect on other expenses as well.
    My wife even pointed out when we were discussing this debate that most of the time you choose to have kids for non-financial reasons. So to get hung up on one optional category for expenses is just plain nuts.

    In my opinion the cost difference is grossly over rated as people buy into that bullshit number of $250,000 per kid until their 18. I get tax deductions for the kids, I get government grants (child tax benefit) and huge top up to their RESP savings (20% grant) which all help offset my costs. Yes the kids have costs: eating, clothes, daycare, healthcare (more a US thing), but they also offer savings as my entertainment some nights are my kids! I spent last night watching them play soccer and I have fun. Yet to compare my expenses to someone without kids is just plain nuts…the lifestyle is so different there really isn’t much of a point.


  25. Your life would bore me to death.

    No kids and goal is to retire (I assume to live 365 days a year on the beach, siping your drink…) all without purpose… sad.

    I enjoy a week on the beach in Cuba or Cancun… but two? Boring!!!

    High savings rate or kids? I’ll take kids… and save a little less.

    It’s a life without purpose; living off dividends on some deserted island. Fun as vacation. But boring as a lifesytle!

  26. Goldberg, why do you equate “life without kids” to “life without purpose?” Typical “bingo” from the childed. Can’t we childfree people have a life with purpose and without kids? I sure do. People who don’t ski have a life with purpose. People who don’t collect coins have a life with purpose. It is no different with kids, they are a lifestyle choice, and a choice not everyone makes. For me, a life with kids, even one which included an early retirement, would be truly awful.

    I find it sad that some people see no purpose in life unless they have had kids.

  27. deegee notes that FI and RE wouldn’t be an option if you had kids. That’s possible, it really depends on your situation and income. One thing that single people can do is just…work more. You know, my boss is giving me tax advice (we are a high income couple), including owning ranch/farmland that you can depreciate the crops on and setting up a side business as a consultant also. That’s what he’s done.

    It’s great advice. But he had his kids earlier than we had ours (by 5-10 years). So when he was our age, his kids were old enough that he could do a consulting job here and there. With a kindergartener and soon to have an infant in our 40’s, that’s just not happening for several years, if at all.

    People assume that being single means you are living it up for the same reason that people generalize that working moms like me are working for the vacations and fancy cars and big house. They just like to pass judgment. I’m a saver. I have a 2BR, 1 BA house and a Civic.

    I can’t imagine my life without my son, but I wouldn’t say my life didn’t have purpose before him. I was ambivalent about kids before my husband wore me down. Kids aren’t for everyone, and you shouldn’t have them if you don’t want them. They are a huge time suck. I have lots of childfree friends, and they all have “purpose”. In my town, they are the people who are doing most of the volunteering for our nonprofits. It’s the same reason I really appreciate the SAHMs, because otherwise our school PTA would be decimated.

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