Today we have a guest post. Rob Bennett is the author of “Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work.” It is available for sale at his web site, www.PassionSaving.com, which includes nearly 200 articles on saving and investing strategies developed in the Retire Early Community.
The conventional advice is that all workers should aim to save 10 percent of income. I reject this idea.
It is a bad idea to consult a rule of thumb when deciding how much to save. Effective saving plans are customized saving plans, not prefab saving plans. What you need to determine is, what percentage of income should someone pursuing your particular Life Goals and faced with your particular financial circumstances be pursuing?
Someone working a low-paying job because she believes that the skills she is acquiring will pay off big down the road may well not be able to afford to save 10 percent. Someone who has recently received a 50 percent raise can almost certainly afford to save far more than 10 percent.
There are many people today saving negative percentages of income (by going into debt). But a high percentage of effective savers save far more than 10 percent of income. It is not uncommon for effective savers to save 50 percent. In my best year, I saved 80 percent of post-tax income.
It is hard to save 10 percent of income if you are not pursuing a saving goal that provides strong motivation. That’s why most today are poor savers.
For those who are effective savers, saving 10 percent per year is usually a frustrating experience. When you only save 10 percent, you only save enough to be able to afford an old-age retirement. That’s none too inspiring a saving goal. Who gets excited about giving up things he could be doing with his life in his 20s, 30s, 40s, and 50s to provide for his needs in his 60s, 70s, 80s, and 90s? Most effective savers quickly graduate to more inspiring saving visions and higher saving percentages.
Save more and you will see results from your saving effort far more quickly. That will cause you to love saving more and more. Saving begets saving. It is when you begin saving more than 10 percent that your saving efforts kick into high gear.
Telling people to save 10 percent places a ceiling on their saving efforts as often as it places a floor on them. The save-10-percent advice encourages a way of thinking about saving in which people see it as something that must be forced, something that is boring, something that requires self-denial. Saving 10 percent is death.
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