Well Hot Damn, Frugality Works! Our 2014 Savings Rate Revealed.
Mr. Frugalwoods and I finally did the arithmetic on our 2014 savings and expenditures (as I’m sure you’re all relieved to know). While in any given month of 2014 we vacillated between saving 65%-82%, our average savings rate for all of 2014 is 71.4%. Woot!
How did we determine this savings percentage for the year? I’m so glad you asked! Turns out, that simple number is pretty complicated behind the scenes. There’s no “right way” to calculate your savings, but here’s the Frugalwoods methodology:
Calculate our annual change in liquid net worth. Take the balances of our checking and taxable brokerage accounts on December 31, 2014 and subtract the balances as they were on January 1, 2014.
- Subtract any major non-salary inputs. For us this includes investment appreciation (or depreciation!) and our decently sized tax refund from our 2013 taxes. This gives us how much we “saved” this year (another way to think about it is that this is the remainder of our paychecks that we didn’t spend).
- Divide by our net take-home salary (the total amount of money we make every year, minus taxes and 401K contributions).
This number does not include two other major forms of “savings”:
- 401Ks. We both max out ($17,500 each in 2014), and our employers each match a certain percentage.
- Mortgage principal. And it’s not chump change.
We don’t exclude these from our savings percentage for any ideological reason, it’s just that we’d do those things anyway. We want to know how much money we could’ve spent, but didn’t.
If we include both of our 401K contributions (not the employer match, just the money we put in), our savings rate is 93.07%.
Pretty nuts, and not entirely straightforward since it’s a pre-tax deduction and we’re using a post-tax denominator… but you get the idea. We’re really pleased with these figures!
I go into depth on our specific tactics for attaining these high savings rates in my post How We Save 65% Annually and so I’m not going to recap those here. If you’re interested in the steps you could take to boost your savings, I encourage you to check out that post as well as my Uber Frugal Month Challenge and How We Manage Our Household Finances.
What I want to share today is how Mr. Frugalwoods and I arrived at a point in our lives where this level of savings is possible and not painful.
Frugal From Birth?
A question I’m asked all the time, both online and in real life, is:
Have you always been this frugal?
My answer is usually a quick “no” followed by,”well sort of yeah, I mean…” and then I either get into a protracted conversation or quickly change the subject to Frugal Hound. Mr. Frugalwoods and I have always been frugal–it’s just how we’re wired–but we haven’t always been frugal weirdos, as we so fondly call each other nowadays.
And I don’t think that’s a bad thing. I admit that we tend to the extreme in our frugality and it would’ve been challenging, if not impossible, for us to be this frugal without having first experienced a slightly more, shall we say, spendy lifestyle…
I’m Glad We Were The Spendywoods
We used to spend more money! Gasp! It’s true. But I don’t anguish over decisions we made in the past that cost us percentage points off our savings rate. Over the years, our rate has waxed and waned and was rather low at the outset of our marriage (we just didn’t have any money!). In more recent years, it’s been anywhere from 50% to 65%. But we’d never saved 71% before 2014. And that’s OK.
Before we could comfortably settle into extreme frugality, Mr. FW and I needed to test out a range of consumerism. For me, it wouldn’t have been possible to commit myself so singularly to this level of saving without prior bouts of spending. Neither of us was ever much of a spender, so in addition to avoiding debt (other than our mortgage), we didn’t leak exorbitant amounts of dough.
However, we used to go out to dinner once a week, we bought vastly more expensive groceries, and we were just generally less conscious of our monetary outlay. Believe it or not–we didn’t even monitor our spending all that closely! We knew we wanted to save a spectacular portion of our incomes every month, but we weren’t the hawk-like stalkers of our expenditures that we are now.
No Regrets (YOLO, sort of)
Far from regretting our former quasi-spendy ways, I’m grateful for them. Sometimes I have a pang of remorse and bemoan buying our rowing machine or taking those vacations to Europe or the Michelin-star meals we’ve eaten, but I snap myself out of it and realize how fortunate I am that we had those experiences and were able to spend that money. Each of those things helped us evolve into the Frugalwoods.
That’s why I’m now so fully bought into our life of frugal autopilot. I don’t crave coffees out or new clothes because I know what it feels like to buy that stuff on a regular basis and I don’t want that more than I want financial independence. Mr. FW and I know how lovely it is to eat at a different local restaurant every week, but we don’t want that more than we want a homestead in the woods. I know what it feels like to buy as much thrift store clothing as I please, but I don’t want that more than the freedom from my 9-5.
Everything in life is a trade-off, and unless you’re a billionaire or Frugal Hound, you’ll have to make choices on how you allocate your time and your money. I’d like to quote the fabulous Paula Pant of Afford Anything: “You can afford anything, but you can’t afford everything.” So perfectly said.
Another reason why I have no regrets about our previous spending is that we didn’t have the homestead vision back in those days. We honestly didn’t know what we wanted our lives to look like and we were still exploring what fulfilled us and made us tick. In much the same way as we lived in cities for years before deciding that our true calling is life in the woods, we needed to eat dinner out weekly to realize that’s not what we want out of life. I don’t feel deprived on our current regime of savings because I don’t need or want the things that my money can buy me.
Just Start and Do It Now!
The origin of Frugalwoods, our homesteading plan, and our epic savings rate are synonymous and all began on Saturday, March 29, 2014 (thank goodness I obsessively track everything in our shared google calendar… please tell me I’m not the only one). Mr. Frugalwoods and I were having a coffee date (at a coffee shop! try not to faint) on this particular Saturday afternoon and we were both in a funk. We were frustrated with our jobs and the apparent trajectory we were on.
We’d been loosely tossing around the homestead idea, but hadn’t made any concrete plans. But that afternoon, we were fired up and our conversation morphed into an absolute, watershed turning point.
I distinctly remember us agreeing: “we need to change our lives and we need to start today.” It sounds overly simplistic, but it’s not. If you want to change something in your life, you can literally start right now. There’s no reason to wait until next week or next year. I’m not kidding you, folks, just freaking start right now. That’s what we did.
And so, on March 29, 2014, we decided to go all in on the financial independence/homestead dream and set a target date of fall 2017. From that point forward, every single decision we’ve made has been in service of that larger goal. We’d actually planned to go out to dinner that very night and we didn’t. It was night one of eating every meal at home.
There’s never a perfect time to ramp up your savings rate or get married or start a new job or pay off your debt or move to a rural homestead. You just make these decisions as they organically rise in your life and then you do everything it takes. If you want something badly enough, you will make it happen.
This laser-like focus on our goal is what has brought about our 71.4% savings rate. It’s frugality yes, but it’s frugality in service of a larger aim. We haven’t deviated from this plan since that fateful day in late March. And without this level of intensity, I don’t think it would be possible for us to propel ourselves forward on such an aggressive timeline.
Frugality without a goal or vision is terrible. That’s when you devolve from being frugal to being miserly. But when you’re working towards a defined goal, frugality ceases to be about what you’re giving up and becomes about what you’re going to gain.
Mr. Frugalwoods and I find that minimizing the number of exceptions to our “we’re not going to spend any money” approach has fostered our success. This is largely because I have a hard time with exceptions.
For example, with my no-clothes-buying ban, if I allowed myself to buy only, say, work clothes, you better believe I’d be trying to pass off some yoga pants as “work” trousers. Nice try, Mrs. FW. Same deal with eating out. If we allowed ourselves to order take-out “when we’re really tired and/or stressed,” I bet you Frugal Hound’s tail we’d be “tired and/or stressed” at least once a week. And if we allowed Frugal Hound to have a limited texting plan, you know she’d be texting her hound friends about BYOB(one) parties all night long, running up our wireless bill. Hence, much easier just not to give her a phone (she is a dog, after all).
While this “no exceptions” policy might seem harsh at first blush, it’s actually quite liberating. When something isn’t an option, you don’t have to labor over making a decision. As I shared on Monday in What A Year Without Clothes Did For Me, I don’t engage in protracted battles over whether I will or will not buy a certain article of clothing, because it simply isn’t an option for me to do so.
I liken this approach to the timeless proverb: “Mrs. FW can’t eat just one Cheeto.” It’s a solid fact that I’m a menace around Cheetos (yes I know they’re fake cheese, I don’t care, I love them). I indulged in Cheetos while I was in grad school because I thought I could moderate myself, well, let me tell you what–I gained 20 lbs (which, thankfully, I subsequently lost).
But why did I eat the Cheetos in the first place?! Because I allowed myself a major exception. It may just be me who has ridiculous trouble with moderation, but I tend to think it’s an ingrained part of our psyche. I operate as a creature of habit and if my habit is never to eat Cheetos, then I really don’t think about them at all (except for right now because I just wrote the word Cheetos a million times. Dang!).
Now Mr. FW and I aren’t militants or robots, so we obviously don’t have ZERO exceptions. I realize this sounds like an exception to a no-exceptions rule, but hear me out. Here’s an example: we last ate out (BBQ take-out) for Mr. FW’s 31st birthday in August and I think we’ll next eat out for my 31st birthday in March. So while those are technically exceptions to our no-eating-out policy, they’re quite rare and contained.
All I’m saying is, you’ve got to be reasonable and know what’s going to fit with your life, but, I find that exceptions are where spending and bad habits creep in.
Making That Money
I haven’t talked a lot about the earnings side of our equation before and I think we’ll do a more in-depth treatment in a future post. But, I do want to share that Mr. FW and I have always considered the income side of things to be as important as the savings side of things. Though what we espouse is extreme frugality, you kinda need to have money to save.
Something you might not know about the two of us is that we’ve worked incredibly hard to scrabble our way up the ladder in our careers. We’ve both advanced and increased our salaries and bonuses over the 8 years since graduating from undergrad. While I think you can save money on just about any income (much like I saved $2,000 of my $10,000 stipend while working for Americorps in NYC), you’ll certainly be able to save more if you make more.
I consider Mr. FW and I to be fortunate products of our environments. We’ve been extraordinarily lucky to find and keep good jobs and we’ve avoided major financial catastrophes, which is certainly due to a combination of kismet and hard work.
That being said, we don’t make absurdly high salaries–thus, the stupendously high percentage of our income that we save every year could easily be spent on the consumer carousel. We don’t go out to eat, we don’t drive a new car (in fact, Frugalwoods-mobile recently celebrated her 19th birthday), some of our shoes actually have holes in them, I haven’t cut my hair in over a year, the sheets on our bed are hand-me-downs (from a family member, stop panicking). But these things are immaterial to us. We could care less. We have our eyes on a peaceful life of fulfillment out on our future homestead and the road-bump opiates of lattes and lunches out won’t stop us.
I doubt we’ll increase our savings rate much, if at all, in 2015. Part of enjoying our frugal existence is knowing when we’re at maximum frugality. Constantly trying to increase our savings percentage year after year is impractical, and at a certain point, impossible. The luxuries that we enjoy right now include travel, plentiful organic produce, good coffee beans, long drives to breath-taking mountains to hike, Frugal Hound (yes, pets are a luxury), seltzer (even the franken-seltzer costs some money), hot showers, and a host of other tidbits that make our lives as the Frugalwoods pretty phenomenal in our frugal book.
Recognizing when you’re at peak frugality is a lot like recognizing when you’re content with life. We don’t ever want to burn ourselves out on frugality, so we make sure to spend on things that add value to our lives–such as our weekend trip up to Vermont to hike and homestead hunt in November.
We’ve optimized, we’ve maximized, we’re at peak frugality, and now we’re coasting. The key for us in 2015, honestly, will be to not mess it up.
How do you motivate yourself to save money? What are your thoughts on exceptions to rules you give yourself?
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