How to save 65% of your pay without being deprived
I have previously mentioned that I save 65% of my income in order to give myself options down the line. I want to be able to quit a job if it gets too toxic, I want to be able to retire when I feel I’m done with my working life, not when I reach a particular age, and generally have the confidence that comes from knowing that I have the financial stability to roll with lives punches. Bring them on!
I save 65% of my income by spending on what I love, but only enough to make me happy.
Before you think that I’m a crazy woman living in a carboard box eating instant noodles I want to assure you that I live a perfectly normal middle class life and that none of my neighbours or friends would know there was anything “weird” about me (unless I tell them!). I drive a sports car, go on holiday, have a nice house in a good part of town and generally look perfectly respectable.
Instead, over the course of my life I have made a number of priorities when it comes to my structural expenses allowing room for both savings and occasional indulgences (like my beloved Gucci scarf!), making sure that I never feel deprived but make sure that I spend my money mindfully and in line with my values. Some of these decisions and priorities have been with me for many years whilst others have developed more recently since I’ve become more intentional with my money.
For those of you wondering how I calculated this number, I have taken my monthly expenses and divided it with my take home pay, including my pre-tax contribution to my retirement account, and on average that lands at around 35% (I spend 35% of my take home salary) giving me a 65% savings rate. One could argue that the part of my mortgage that’s not interest payment should be included in the savings rate as this is money, I’m in a way paying to myself and if I do include that, my savings rate actually gets closer to 75%
What did I actually do? Here’s the list!
(You will not be able to implement all of these at once, but I challenge you to find one you can implement immediately and one that you can shew on to implement down the line!)
1.Increased my income
It’s easier to have a high savings rate on a higher income. There I said it. Now that doesn’t mean it’s not possible to have a high savings rate on a lower income but there is a lower limit to how much you can save without sacrificing things that add value to your life, but there is no upper limit to what you can earn.
I personally have achieved a good income by doing career within a company, getting regular promotions and negotiating my salary. As an actionable example I received my largest promotion and was able to negotiate a 45% salary rise after securing an offer from a competitive company that I was willing to leave my current role for.
A corporate career is far from the only way to increase your income though, you can start your own company as a side hustle or day job, you can invest in properties or do some work on the side. Just make sure that whatever you do is something you enjoy - don’t add another “must” to the list just for the sake of increasing your savings rate. If you really feel you don’t want or can earn more - you can get far by just making conscious decisions with the money you do have! Remember that if you save a pound you will have one pound more, but if you earn one pound more the tax man will take a large chunk of it so you will have a lot less than one pound!
Final note on earning more - remember that more income will only increase your savings rate if you save or invest it! By all means, get yourself something you want to celebrate but make sure the bulk of the money do what they are intended to do.
2. Bought used cars and paid in cash
I’ve only bought two cars in my life and both were about 10 years old. And I loved them both! The first one (A Peugeot 106 from 2000) was really a quite rubbish car but it was well maintained and because it was my very first car, I loved it all the same!!
My second car is a BMW Z4 from 2009 that I still have. For those of you who don’t know cars it’s a 2-door sports car that you can drive with the top down. I love it!!!
My point here is that I’ve bought cars I love. I have loved driving them and they have brought me both convenience and joy.I have done so by picking good used cars at good value and as I’ve paid in cash I’ve ever only paid the actual cost of the car, instead of adding a ton to the cost with financing. As an example, buying a car for £15 000 at 5% interest and paying it of over 5 years will actually end up costing you £17 000.
3. Limit my driving - but taking a taxi!
In addition to not buying new expensive cars on finance, I also don’t drive my cars that much and under long periods I haven’t even owned a car. I actually bought my first car when I was 32 years old! Instead I use public transport and I walk. Between the cost of driving with petrol, car maintenance cost and parking and the time to get through traffic, finding said parking space and so on, I usually prefer other modes of transport. I have made it a point to always live close to good public transport, and most of my life I’ve lived within walking distance of a train station.
If you have read this blog previously you also know that I’m a big fan of walking and getting a walk at the same time I’m running errands just waists a lot less time than sitting in traffic and then finding time for a walk later on.
My personal rule of thumb is that if it would cost less to take a taxi (or possibly rent a car for longer journeys) then I shouldn’t own a car and instead spend freely on making transport comfortable and I’ll readily take a taxi or book a first class train ticket to make sure that the years I don’t own a car feels like luxury, not deprivation!
Walking, taxi or public transport not your thing? Try an electric bike! Scooter? Tandem bike? Hot air balloon?? Just think if there is another way you can get where you’re going other than always taking the car and you will be surprised!
4. Not buying a lot of tech
Tech can be a lot of fun but when I was younger I never had the money for the great laptops or new (smart)phones and now that I do, I don’t see the value of upgrading to the next version when the one I use works just fine. I also don’t need a ton of gadgets doing the same thing like a phone, a tablet and a laptop.
When I do buy something like a new phone, I usually buy a good new model to make sure I’m happy with it for a good few years - I usually get a new phone about every four years. I bought my laptop six years ago (I do have a company laptop though that’s a bit newer). I have a tablet which was a bonus from my company a few years ago that I don’t intend to replace as I only use it to watch movies on flights. We do have Sonos speakers in our house as I love playing music everywhere so that’s been my Christmas and birthday presents for the last few years!
5. Have a separate low cost mobile contract
Once in my early twenties I bought a phone with a contract. I had it for two weeks before I dropped it in a pint of beer and as it wasn’t insured, I had to buy another phone and keep paying for the dead one for two years. Never again.
Since then, I have always kept low cost mobile phone contracts separate from my phone purchases to make sure I get the best deal on both. I also have a fairly low amount of monthly data to keep the cost down, I have a good habit of downloading what I need for when I’m out and about and that’s enough for me.
6. Not buying the biggest house we can afford
This is a big one for your savings rate. If all your money is tied up in your housing cost, be it rent or mortgage, it’ll be very difficult to save a significant amount of money. Yes, house prices may go up but there is no guarantee they will increase above inflation. In addition, a big house will cost you more to heat, furnish and maintain. I’m not telling you to go live in a small dark whole mind! We live comfortably in a townhouse in a good part of town, but we did sacrifice on things like size of the garden and the fact that it’s not a freestanding house. By doing those sacrifices we could by a home that we can comfortably afford instead of stretching ourselves to the maximum the banks told us we could get a mortgage for. Our guiding principle when buying the house was that if something happened to one of us, we wanted to be able to survive on one salary. Not living large but survive. Being able to keep the house and feed ourselves while figuring out our next steps.
By usingthis principle, we make sure that there is space in our finances and that we have money to put in other places than into our home.
7. Doing my grooming at home
This is one I have experimented with over the years and I’ve settled on that the time and money it takes to outsource my grooming is only worth it on special occasions. I’ve never gone out for waxing, doing things to my eyebrows or lashes or any other type of “body grooming”. I had a year of doing my nails regularly (after a raise got me to indulge in some lifestyle inflation!) and I still will on special occasions - however the combination of time and money to go to the saloon all the time just isn’t worth it in the long run. For my hair I’ve coloured it at home for most of my life even though I occasionally indulge in some highlights at the hairdressers. Finally, with the Covid lockdown Mr. Habitista and I have experimented with cutting each other’s hair and it turns out he isn’t half bad! Not saying that he will cut my hair forever but if I only need a trim, he will do absolutely fine! Ok, I know home cut hair sounds kind of crazy and I would probably never have given it a go if the world had been normal but there is a lot of trust and intimacy going into cutting each other’s hair and it’s an experience I’m glad I’ve had!
I save 65% of my income by spending on what I love, but only enough to make me happy.
8. Buying quality clothes and furniture
I love nice clothes and a nice home and I would never compromise on that to save a penny or a pound, but instead I focus on buying quality clothes, shoes and furniture that I can take care of and make last for a very long time.
9. Travel Hacking
As I travel a lot for work, I make sure I get all the points and perks associated with that so I can use it to reduce my personal travel costs. This includes picking one airline (living in the UK I use British Airways) and make sure I collect all the miles on my flights. I use Hotels.com for all my hotel bookings where I get 1 night free for every night I book (even if I book for other people - I love booking for a large group!!) and make sure I take advantage of any rewards schemes at hotels I stay often.
Lately I’ve taken travel hacking to the next level using credit card rewards to boost my Avois (air miles) with British Airways, including getting a second ticket for free if we reach the spending level within a year.
I now travel for free regularly including spending free nights in hotels! As always though, only use credit cards if you pay them off on time every month. No awards is worth paying interest on your credit card debt!
10. Cooking at home
I love going out for dinner at a nice restaurant, it is one of my favourite treats! To really enjoy it though, it’s important not do to it too often. It should be a special occasion that you look forward to and thoroughly enjoy. We cook at home most of the time for delicious, healthy food and then splurge on the occasional nights out when it’s really worth it.
11. Wait before I buy
This one is key! I can easily want to jump on a “great” offer or get that jumper in the shop and get that satisfaction of the purchase! When doing that however I do end up with things I don’t really use, or need, like a 10th black jumper that looks like all the others in my wardrobe…. Now I implement a waiting period. If something is not on my shopping list, I’m not allowed to buy it that day. If I still really want it after a couple of days, and think it’s good value, then I will go ahead. In physical stores it’s quite easy to just go home. You can always go back or order it online later if you really want it.
For online shopping I leave the item in the basket or wish list for a couple of days to make sure I still want it. And if I’m getting it off Amazon I make sure I check it on camel camel camel to make sure I’m getting a good price!
12. DIY
I have to thank Mr. Habitista for most of the DIY but I am quite handy with a paintbrush! By limiting what we outsource to things we really dislike or can’t legally or practically do, we keep a nice house without spending an arm and a leg. Think it’s too much effort? Well so is finding the right contractor and oversee the work and by doing the job yourself you get both the free exercise and the satisfaction!
13. Tax Optimising
I could not reach my current savings rate if I didn’t use the tax advantages available to me, the biggest one being making use of my retiring savings allowance. We discussed the importance of retirement savings in the Retirement fundamentals blog post. By making use of your personal allowance (in the UK) you can save up to £40 000 pre-tax. As I’m a 40% tax payer this is huge!! Make sure you are making use of your work place pension or SIP and are putting away a good amount of money before tax. This way you are truly paying yourself first and the government second!
Yes, there will be some taxes as you withdraw your retirement savings but they will be much lower, especially if you are a higher rate tax payer and you will also have the benefit of compound interest until then!
14. Tracking
Finally, you focus on what you track. Do you even know your current savings rate? It doesn’t take long to figure out. Check your income and expenses for the past month and see where you end up. I track my savings rate on a monthly basis, not to berate myself if I spent more one month, but to see that my savings rate is in line with my goals and values. I want to by freedom and that’s more important to me than many (but not all!!) material things.