Does Saving Money Really Matter?

I’ve been writing a lot about ways that my family is saving money for retirement, which begs the question: does saving money really matter?

The amount of money needed to retire seams so huge that saving a measly $5 on a latte can’t possibly make a difference. Better to enjoy life to its fullest and count on social security and whatever employee retirement fund your job offers, right? Sure - you can absolutely do this, although this didn’t work for me.

Yes, we have social security coming to us, several retirement accounts that we set up when we were in our twenties, 401k’s from our work, and even a pension from my husband’s work. Basically, our retirement is done. If we want to wait until we are 65. Which we don’t.

We want to retire now! Spend time together as a family while my daughter is young, and travel the world free from physical ailments that tend to creep up as you age.

Once we decided that retiring as soon as possible was the goal, the math was pretty simple. There are only two things that matter:

How much you spend each month

How much you save each month

Lets say, you don’t ever need to spend any money (pretty unlikely). Well, then the time to retirement is 0 years. If you only need to live off of $1 per year, you only need $25 invested to create that $1 per year in passive income.

Here is an early retirement calculator that I use when determine when we can retire.

You simply enter in your income and how much you save each year. It will magically tell you how long it will take to retire.

Notice that higher percentage of income that you are able to save each year, the sooner you are able to retire. This is because not only are you saving that money towards your retirement investments, but that is less passive income that you need to generate once you are retired.

Lets say you make $100,000 a year but you only spend $10,000 a year. You are saving 90% of your income and it will only take you 2.7 years to retire. In other words, it will only take 2.7 years worth of savings to generate $10,000 a year in passive income. For the rest of your life! I know, 90% savings is a pretty unrealistic number so not the best example, but you get the point.

Currently, my family has a savings goal of 65% of our income. Do we always achieve this goal. Hell no! In fact, December was abysmal. We only saved 15%, however, that was a 15% savings rate AFTER we took a trip to Disneyland, bought a bunch of holiday gifts for family and invested money in energy upgrades to our home. Not too bad.

The take-away point is that every dollar that we save DOES put up closer to retiring early. Saving is absolutely worth it as long as you can save from a place of abundance and not a place of deprivation - which I talked about in my last post.

Finally, since people have asked, here are our current stats:

Percentage of the way to our goal of early retirement: 23%

Percentage of the way to our goal of paying off our home: 31%