Your savings rate is the most important factor to your long term wealth creation.

That’s right, it has far less to do with your income, investment return or time in the market. When starting a journey like mine, 100% of your effort should be focused on the proportion of your take home pay you are able to save. This savings rate is directly related to your attitude, your dedication and your discipline.

Allow me to elaborate.

How many times have you heard that as soon as someone earns more, their lifestyle enhances to absorb that extra income? All of a sudden, they are living in a nicer apartment or have a new car. All that extra money that they thought they were getting has now disappeared.

Can you think of a time that is has happened to you, since your last pay increase, promotion or new job?

The thing is, no matter how much we earn, we can always find a way to spend it -and we often do. There is always a more expensive car, gadget or hobby we can buy.

“…[wealth] has nothing to do with how much you make, it has to do with how much you keep” (MJ Harris, 2016)

Once you learn how to keep your money, only then will a higher income have a positive impact on your wealth.

By reducing expenses and increasing your savings, you propel yourself toward financial independence (FI) in 2 ways:

You can invest more. You require a smaller total to retire on.

This is assuming you are happy to maintain the same ‘standard of living’ before and after retirement.

If I assume a 6% real return on investments and a 4% dividend income during retirement, this is how your savings rate relates to your time until financial independence.

This calculation holds true regardless of income.

However, I’m not daft!

I understand that life has a minimum fixed cost. These are the costs that are the bare minimum to be safe and healthy. This is why a person on a higher income can more easily hit these higher savings rates.

So after learning how to keep your money, you can focus on earning more money. You can then think seriously about an investing strategy like mine.

Before I started this journey to FI, my savings rate was around 30%. Now that I am focused on early retirement, it is at about 55% – 60%. I doubled the amount I save by reducing ongoing expenses, making lifestyle tweaks and by cutting away the useless and unnecessary money wasters.

Now with each salary increase, I plan to keep my spending and lifestyle the same. I will use any extra money to increase my savings rate instead of it disappearing into the hole in my pocket. This is the opposite of what most people do.

I got on just fine before my salary increase, so why do I need to spend any more!

While continuously trying to increase my income and reduce my expenditure, I am aiming for a 70% saving rate. This will help me escape the unhealthy obsession that seems to be so acceptable in society.

So do you believe that you can achieve financial independence in 10 years?

How large is your savings rate?

Always shuffling.

Pat the Shuffler

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