Savings Rate 101: The Key Metric for Achieving FIRE
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Listen up, folks.
If you’re serious about reaching FIRE, there’s one metric you need to be paying attention to: your savings rate.
No, it’s not the stock market, your portfolio performance, or the interest rate on your savings account. It’s the percentage of your income that you’re able to save and invest each month.
Saving Is Your Superpower
Saving money is like a superpower, and tracking your savings rate is like keeping tabs on your superpower’s strength. And if you’re interested in achieving Financial Independence, Retire Early (FIRE), then your savings rate is an incredibly important metric to measure.
Let’s break it down: your savings rate is the percentage of your income that you save. So, if you make $50,000 a year and save $10,000, your savings rate is 20%.
Why is this so important? Because your savings rate is the key driver of your ability to accumulate wealth. The higher your savings rate, the faster you’ll be able to reach your FIRE goals. It’s as simple as that.
Get There Faster
Saving more means you’ll be able to reach your FIRE number (the amount of money you need to have saved to be financially independent) sooner.
That’s because on the one hand, you’re keeping your expenses low and sustainable. On the other hand, you’re contributing even more to your ever-growing nest egg.
Look at it this way: if you save 20% of your income, it will take you 20 years to reach FIRE.
But if you up your savings rate to 65%, it will only take you 10 years.
That’s 10 whole years you get back to live your best life!
Where Should You Start?
Here’s the thing: most people have no idea what their savings rate is.
They know how much they’re spending each month, but they have no idea how much they’re saving.
That’s a problem, and it needs to change.
Start tracking your savings rate and make a plan to increase it. Cut expenses, increase your income, do whatever it takes. But don’t neglect this key metric.
And don’t think that a high savings rate only applies to those with high incomes. Even if you’re living on a low income, you can still save a significant percentage of it if you’re mindful of your spending and make smart financial decisions.
You can take action today by signing up for Vermillion! We’ll help you with your budget so you can focus on what matters most.