What’s your savings rate?

Arguably, the most important piece to the retiring comfortably puzzle

If I’ve read it once, I’ve seen it 10 times across a variety of blogs and newsletters.  Sure, making 12% consistently on your stock picks or investments in general will definitely help; but, if the ratio between your savings rate and expense rate is favoring your expenses, you are fighting a losing battle.

Take a look at Mr. Money Moustache savings calculator, or read anything from Dr. David Eifrig, Jr (Stansberry), Janet Yellen of Bank on Yourself, Robert Kyosaki (pay yourself first), or a myriad of others, and the key is your savings rate.  Shed those expenses and increase your savings rate.

Why is that?

Beyond the obvious, saving more is better.  The reality is that increasing your savings rate also directly impacts the amount of money you need to live on.  If you can decrease this amount, what you need to live comfortably in retirement is less as well.   So, the lower your required living expenses are, the less you need your investments to earn for you.

Mr. Money Moustache had a link to this calculator on Networthify.   Basically, it is determining when your portfolio is annually earning enough to cover your annual expenses.  It is that simple.  Your current results might be scary, but the idea is sound.  You can tweak every element of the calculator.  Don’t be too aggressive on your annual rate of return.

Tricky

The other challenge is that the calculator is static and life is not.  As your career changes and your life situation evolves (marriage, children, etc) your set of expenses may be increasing as well.  Controlling the expense column is so critical if you want to retire early, or at least live a comfortable financial life.