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Tag Archives: Savings
The only data I’ve been able to get for all the countries at once, is for the year 2010. Luckily, it isn’t so far off from 2013, and the savings rates at a quick glance, haven’t really changed much from 2010, except in the fractions of percentages:
Here’s the chart I created in order of highest to lowest savings rates around the world for 2010
(Click to biggify anything)
China and India are the two towers of savings you see on the left.
New Zealand and Denmark are the two towers of not-saving you see on the right.
SAVE LIKE A DEVELOPING NATION FOR OPTIMAL RESULTS
It’s cultural as well, I’m sure, but China and India are blowing everyone else out of the water in terms of savings rates.
…OR AT LEAST SAVE LIKE SOME EUROPEANS
Aside from India or China, if we take a look at the next tier of double-digit savers from Turkey, France, Spain, Germany, Belgium and Portugal, their savings rates of 10.20% to 19.50% are nothing to sneeze at.
I received an email from a lovely reader (*waves!*) in Germany who told me that she recently read a statistic that young people (aged 14-25) are now saving about 28% of their income, and 20% of them, have already started saving for retirement, above their national average of 13.6%.
She also goes on to note that they can save 28% because they’re also living at home, so it helps.
AND WHERE DO WE STAND?
Clearly for Canadians and Americans, we’re not doing as well as we could.
The estimated savings rates for 2013 are actually lower than that.
Canada is set for a savings rate of 4.3%, and the U.S. is set for a savings rate of around 4%.
Australia will also up its game at 12.10%.
In detail, here are the specific numbers:
Data taken from: GFMAG, Business Week
ARE YOU KIDDING ME? LESS THAN 5% IS NOT ENOUGH
If we only save about 4.3%, it is for one thing, not even close to the PF maxim of save at least 10%, and certainly not enough to secure your future.
Let’s say you make $30,000 a year.
Your net income is $25,942, which is about $2161.83 a month.
4.3% for Canada, is about $92.96 a month.
In 30 years, it’d be $93,379.71.
Now it makes so much more sense why the average retirement savings for a person about to retire is only about $100,000.
Furthermore, with 4.3% as the average, it means that there are people saving less or more than that!
WE AREN’T SAVING ENOUGH!
In contrast, if you saved like other countries mentioned above, it’d look like this with a $30,000 salary per year:
Looks like China, India or Turkey would be my role model if I was earning $30,000 gross a year.
Obviously if you earn more, you could afford to save a bigger percentage of your net income, but you’d have to hit at least the same absolute dollar savings of about $10,000 a year to reach those numbers.
It’s why it’s better to look at your net savings per year rather than as a percentage of things.
You can get lost into thinking that you’re doing well, and you can afford to upgrade your lifestyle when you should really be doing much more.
That’s a rather high percentage of savings however, almost 40% is crazy, especially with the higher cost of living here versus a developing nation.
How do you figure out how much to save without starving?
To do all of the above, you need to know how much you spend on average, and where you can cut back on your spending.
If you have NO IDEA where your money is going, you can’t make any changes.
Estimations are for people who don’t have facts.
If I only estimated how much I spend each month rather than really tracking it, I’d be consistently under by a solid 30% – 50%, no doubt, and I would have been hard pressed to remember each category as an average each month.
Plus, I wouldn’t be saving as much as I am today, because I’d be out there wasting my money on crap without knowing where it’s really going. I’d probably be appalled at my spending once faced with the numbers on some debt show that I would eventually end up on.
HOW MUCH DO YOU THINK YOU NEED TO SAVE?
Most books and PF authors will tell you the rule of thumb on budgeting is to take a percentage of your income and it looks something like this:
If you look at it on a monthly basis, it looks like this in your budgeting tool:
But that’s kind of useless if you don’t know what these vague categories contain.
Does “Housing” include utilities?
Does “Life” mean things for your pet as well as your own groceries?
The answer to both questions above: Yes.
The trickiest category is Housing for me because it can be hard to think about what goes into it, whereas the category of Life is the fattest one.
Here’s how I see it:
HOUSING is anything to do with SHELTER = 35%
- Utilities (Water, Gas, Heat, Electricity)
- Rent Insurance
- House Insurance
- Home Maintenance (not buying furniture, actual home repairs)
- Condo Fees
LIFE is pretty much everything else = 25%
- Eating Out
- Pet Stuff
- Furniture for the home
- Home renovations and maintenance
- Medical needs (medicine or doctor/dentist visits)
- Bank Fees
- Holiday Spending
TRANSPORTATION is how you get to where you’re going = 15%
- Public transportation
- Maintenance for the car
- Car insurance
- Driver’s License/Vehicle Registration Fees
- Parking costs
- Parking Tickets (you better not get any…!)
DEBT REPAYMENT means: Money you are using to clear your debt = 15%
- Pay down your debt with the the highest interest rate
- …then take that money after that debt is gone, and pay extra on the next debt
- …all the way until you are debt free!
SAVINGS means: Money you don’t touch on a daily basis! = 10%
- Retirement savings
- Emergency funds
- Short-Term savings like a Travel Fund
- Home Maintenance Fund (should be 3% of your home’s gross value in an account)
WHY DOESN’T THE TELEVISION, INTERNET, OR THE TELEPHONE GO UNDER “HOUSING”?
Because you don’t need either to have shelter.
Plenty of people live without any of those things.
I only have a cellphone, and even that plan is shared with BF, so we treat it like our portable home phone.
Housing is a roof over your head. What does it take to run a place like that? Insurance, Utilities and the Rent or Mortgage payment.
Therefore, stuff you pay for that you use to entertain yourself or communicate with others as part of your Lifestyle goes under Life.
WHAT DOES YOUR GENERAL BUDGET LOOK LIKE?
As we all live in different parts of the world, in different areas of the country, and have different incomes, this will definitely NOT be personalized to you.
For instance, you may have a pet, whereas I don’t, and you need to budget for that.
Or you live in the U.S. and you need to budget for healthcare, whereas I don’t in Canada.
Here’s what a typical budget would be if I made one for myself for a month, living in a hotel with a car.
I don’t have a car right now, but I would get one secondhand in cash if I had to use it for work and I couldn’t take the bus.
MY IRREGULAR INCOME AT ~$70K AND WHY I CHOOSE A BUDGET AT ~$40K
Since my income is so irregular, I gave myself a generous ~$40,000 gross income a year as a budget because I assume I can always get a job that pays at least that per year if times get rough.
Basically, the less I spend, the less money I need to earn per year (gross).
Since I can always spend less than ~$40,000, but that’s the right gross income to maintain my current lifestyle.
As I’ve really only been working full-time 2 out of the 5 years or less than 50% of the time, if I am being honest.
So my income to date has been on average $70,000 gross per year as a freelancer for 5 years.
That is about $54,700 net per year as an income in Ontario.
As I’ve amassed around $200,000 in my net worth to date, I’ve saved $40,000 net a year.
Actually, it’s $60,000 more than that because that’s how much my debt cost when I started working, and cleared it in 18 months with my budgeting tool, but I digress.
All this really means I’ve been spending a lot less than $40,000 gross a year, even with all my traveling, and dipping into savings when I want to buy things, and that’s partly due to being a consultant and having your life subsidized because you’re always traveling.
Therefore ~$40K is my maximum budget because I account for if I have a car, pay for gas, insurance, license plate renewals and so on, which I haven’t had to in about 2 years.
I also always max out every retirement fund you can think of which helps my taxable income, and save a lot of money because I share the costs 50/50 with BF.
Click to biggify and read my notes, hopes and dreams…
DEBT = I don’t owe anyone, anything, which helps a lot.
SAVINGS = All the rest of my money. See above about saving everything else.
You will notice that I spend a lot of money on Food, Clothes & Electronics for instance, but barely anything on Cellphone, nor on anything like Furniture or Household stuff.
This is in line with my minimalist philosophy to spend on what you care about, but not on things you don’t.
I have less things in terms of quantity, but each item costs more money because of I am willing to shell out for quality because it lasts longer.
There you have it, my general household budget that I’ve been entering in my budgeting and expense tracking tool.
I also plan on lowering this spending for 2013.
My new Ideal Household 2013 budget is coming up next week.
Enough is enough.
Back to you!
WAIT, THAT 15% DEBT REPAYMENT AMOUNT IS TOO LOW FOR MY DEBT
Where you start to get a problem, is where you realize that your debt repayment minimums may be bigger than 15% a month, maybe even double.
In which case, you need to do two very important things:
- Make more money
- Start cutting back on other parts in your budget
You can’t put more money on your debt if you don’t have it to spare.
There is also no other choice, and no other way.
Pick #1 or #2.
If #2 is not an option and you can’t cut back, make more money.
WHAT DO I DO IF I DON’T HAVE ANY DEBT?
People say that the 15% of the Debt Repayment should be absorbed into other areas of your spending so you can have a nice life, but I am a big proponent of sticking it all (or at least the bulk of it) into savings, and saving a hefty 25% of your net income per month if you can.
If you’ve already lived without that 15%, what’s it to you?
I’ve always felt that 10% of your net income is far too low of a number to be saving in general for short-term funds, retirement and anything in between.
I like 15% – 20% instead as a rule of thumb, although my personal rule of thumb is: as much as is reasonably possible.
What’s your household budget? Do you use the same categories?
I’ve always wondered what the benchmarks were for saving, net worth and retirement numbers by age.
It can be so hard to judge all of that, seeing as our income varies over our lifetime, and we don’t know how long we’ll live or how much we will really need.
According to Fidelity, here are some numbers they tried to pony up for us:
By age 35, your goal is to save an amount equal to your annual pay.
By 45, you will want to have saved about three times your salary, rising to five times your salary by 55.
Typical wage earners should aim to save at least eight times their final annual pay to be sure they can afford basic living expenses in retirement.
Naturally, this is assuming that you will eventually get promotions and climb that proverbial ladder to earn $75,000 by the time you’re 55 or so.
Let’s say you get a 3% raise per year as an average, and you started working at 24 for about $30,000 a year.
Here are your numbers:
35: Saved $41,527 as your net worth (1 time)
45: Saved $167,426.51 as your net worth (3 times)
55: Saved $375,012.05 as your net worth (5 times)
65: Saved $806,375.74 as your net worth (8 times)
These numbers are not terribly realistic, as not many people at 65 will reach $100,000 as their annual income, but they’re a start for people to see where they’re at.
So if I made a chart for myself, it’d look like this:
- 35: Saved $221,377
- 45: Saved $750,000
- 55: Saved $1,250,000
- 65: Saved $2,000,000
(Adjusting for: 1) I’d DEFINITELY max out at around $250,000 a year for an income, and 2) my average income has actually been around $75,000, accounting for the fact that I’ve been working 2 out of the 5 years.)
I’m on track then.
I am also aiming to save $1,000,000.
I don’t think I need $2M, and it’d be nice to have, but I’m not going to kill myself for it.
What about you? What do you want to have saved by the time you retire? Are you as freakily obsessed about having enough money at retirement as I am?
Really, all of my savings = my savings.
It goes into one big category of “savings”, but within that category, I have allocated parts of my money to different priorities.
At any given time, here are the following funds I have:
- Short-Term Savings
- Emergency Fund
- Retirement Savings
- Investing Fund
- Other Funds
- PRIORITY: Pay the bills
- MONEY RISK: Very Low
I have a short-term savings fund which is just my chequing account.
I put money in here about $2000 or so, to cover bills like my rent, utilities, cellphone, groceries and so on.
It’s my daily banking account, and I keep a fairly low balance in there because I don’t want to miss out on higher interest rates by leaving my money elsewhere.
Going to max out my retirement, and here’s where the money is going and its asset allocation:
Vanguard 500 Index Signal — 45 %
- MER: 0.6%
- Return Since Inception: 3.17%
Vanguard Balanced Index Signal — 45%
- MER: 0.12%
- Return Since Inception: 5.44%
Selected American Shares D — 5%
- MER: 0.6%
- Return Since Inception: 4.47%
Invesco Stable Value — 5%
- MER: 0.2%
- Return: 5.39%
HOW I DECIDED
- Betting on the American economy to bounce back — I am very confident here
- Looked at MER (management expense ratios) for the cheap ones
- Looked at their returns since inception (good range covering the highs & lows of economy)
- Looked at the stocks the fund was made up of — big ones, etc
- Kept in a moderate risk frame of mind for now — I can always change later
I am interested in returns, but I think just a moderate return is fine for a retirement plan.
I like a “set it and forget it” sort of thing, but I don’t want the expenses of an actively managed fund where they target your retirement date and shift the assets into bonds as you age.
WHAT I MAY DO IN THE FUTURE
Change a few funds. I am going to do more research (it was a quick, 1-hour scan and pick situation), and re-allocate as I see fit.
I am also going to be moving my money over here, so I need to figure out if I want to put my money into the same brokerage, or go with Vanguard directly.