What is your savings rate?

When I was a kid many of my friends got a generous weekly allowance, and they weren’t expected to do much of anything to get it. Most everyone seemed to be getting a weekly handout. Except me that is. My parents never gave me an allowance, and it drove me crazy.

Yep, from the ripe old age of 4 I had to work for my money. My folks told me straight up they would never give me a dime.* On the flip side, there would always be a job if I wanted to earn some spending cash. And so I worked. In the winter I shoveled snow. In the summer I mowed the lawn (it was a couple acres so there was lots of work available). My first job, which I know was before I turned 6 as we only lived in that house till grade 1, was bringing wood from the basement to the main floor fireplace that we used to heat the house. I got paid in change at that stage, and this was before we got rid of the $1 bill so we know I wasn’t making a lot of money.

Besides the value of (hard) work, there was another habit that my parents were teaching: saving. The deal when working for my folks was that I had to save 10% of everything I earned. For a kid under the age of ten, that is a good start. It is a much higher rate than the average Canadian household in 2016 is current putting away (that number is 4.2%, apparently). But the more I consider that old 10% saving rate which my parents pushed on me, the less I am convinced that it’s high enough.

Our family hasn’t landed on a specific savings rate, and it changes somewhat from year to year. But I am aiming for 30%. And yes, I realize it is a privilege to be able to save this much. Many of us at various stages of our lives don’t have the ability to do so. That said, I also believe that we are often able to adjust our lifestyles to be able to save, even when we don’t think it is possible. For instance, I earned $1600 a month in one of my first paying jobs after university and yet I was able to save $400 or 25% of my gross pay. “How is that possible? Rent alone can cost you close to $800/month!” True, but this is what I am talking about when I say that we are often able to adjust our lifestyles in order to save. In my case, I found a family that was willing to rent out a room and gave me room and board for $400/month. Yes, likely not a possibility for everyone and especially for those with a family. But you are missing the point if you stop there.

Back to the 30% savings rate goal. This helps us live (well) below our means, and provides a significant margin of safety in the event our household income suddenly drops for any reason (most recently this was because of having a child). The money left over each month is a steady stream that we can use for a downpayment (done) or investing for the long term (in process). That savings rate may sound high, but the way I see it is I would rather be on the high side than realize 30 years down the road I was aiming low. And it is not unreasonably high when you look beyond our borders. In Japan for instance, the national savings ratio is about 25%. Even in Canada it was into the 20% range in the 80s.

Some questions I have asked myself are: am I willing to sacrifice some current spending to:

  1. give ourselves a margin of safety financially
  2. reduce our need to work as much or as long over the course of our lives, and
  3. give our money a chance to work for us (so we can have more time and money to enjoy ourselves in the future).

I say yes to all three. What about you? If yes, what is the savings rate that you are aiming for, and how did you land on that number?

[*They changed their tune later in life when it came to education: I don’t the exact amounts but they paid for half or more of my undergraduate tuition expenses.]

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