How Much Should You Be Saving? It Depends on What You’re Saving For

Now that I’ve completely paid off my non-mortgage debt, I have been trying to figure out my next money goal.

I know I don’t want to live as lean as I did during the 16 months I was paying off my debt—mostly because I want to add back travel—so I will not set as a goal to save almost $60k in 16 months. But a figure close to that? It may be in the cards.

Unleashing My Inner Saver

I have always considered myself a natural spender which made my debt payoff goal that much more daunting (so if you think of yourself as a spender too, take heart!).  What I learned along the way, however, is that a spender can become a saver.

I have been amazed with how easy it has become to live without the non-travel things I scaled back on—such as regularly buying new clothes, shoes and purses, and eating out more meals than I was eating in.

The decreased desire to eat out has been an especially interesting development: now that I don’t have to be quite so frugal, I’ve found eating at home comes more naturally.  I chalk this up to my occasionally contrary nature. Tell me I can’t do something and that’s what I want to do.  Now that I can eat out more often, the appeal has evaporated (at least to some extent, anyway—I still don’t like to cook).

So, as a self-proclaimed reformed spender, increasing my savings rate was top of my list of possible new money goals.  Many in the on-line personal finance space brag about their savings rate and I figured, if they could do it, so could I (and by that I mean setting a rate not bragging about my rate).

However, after reading a couple of posts about calculating a savings rate, my eyes started crossing with the complexity (and this from someone who loves spreadsheets!).

Should I base it on pre-tax income? Post-tax income? Does the amount I am paying on my debt count (in my case, this would be the amount of mortgage principle I pay off each month)? Does my employer match count? There were just too many variables.

Finally, I came across a post from Chief Mom Officer titled “Why Your Savings Rate is Meaningless.”  It helped clarify the issue for me by arguing it’s less about savings rate than what you’re saving for.

What Am I Saving For?

The easy answer is I am saving to make my good life an even better life (it’s in the site’s name 😊).  Of course, while I’m sticking by Good Life. Better. as the title of my blog, as a SMART goal—specific, measurable, actionable, realistic, and time bound—it is somewhat lacking.

So, after some contemplation, here are my current savings “whys” (and I say current because it could change—if you’d told me five years ago I would be where I am today, I would have thought you were nuts!).

Why #1: I want to retire at age 57 at the very latest (twelve years from now) with enough money saved that between retirement savings, a pension I’ll receive, and Social Security, I will be able to harvest an annual income of around $80,000.

I think I’ll be able to live off less but like having a cushion in case I need to help out my family and because who the heck knows how much health insurance will end up costing me.

Why #2: I want to take at least one international and two-three domestic trips a year.  I have a friend who is currently traveling the world who I envy more than I can say.  She and I met in a support group for survivors of suicide having  both lost siblings (she lost her sister and I lost my brother).

While I wouldn’t necessarily say we feel obligated to live our lives for them, I think we have both responded with the desire to never let life happen to us and to not let fear dictate the choices we make.

I’ve been a little slow on the uptake—prior to her  world tour she hiked the entire Appalachian Trail by herself!—but I plan on making up for lost time now that I am debt free.

Why #3: I want to be able to continue to help out my sister and her kids without it becoming a source of tension in our relationship.  She and her husband work full-time but neither has a higher paying job and it scares me that they have no buffer.

I don’t mean covering their day-to-day expenses: I earn a good salary but not enough to support a second household.  But I do want to have a pot of money set aside that I can draw upon if they experience an emergency and need my help that is separate from my own emergency fund and retirement savings.

So My New Money Goals Are . . .

Goal #1: Max out all of my retirement accounts (401(k), Roth IRA, and my HSA).  Adding in my employer match, for 2018, this will total around $32,000.  Once I have fully funded my personal and family emergency funds (described below), I will begin contributing to a brokerage account in addition to my retirement accounts.

Goal #2: Build up a personal emergency fund of $12,000 by the end of 2019 and keep it in a higher-interest savings or money-market account.

Goal #3: Build up a family emergency fund of $5,000 by the end of 2019 and keep it in a higher-interest savings or money-market account.

Goal #4: Deposit $400 each month in a travel fund and start doing some travel hacking so I can reduce my travel costs with points I earn on credit cards that I pay off in full every month.  I’ve been reading up on this and have opened my first card in the last few weeks.  Given my history with credit card debt, however, I have vowed to take it slow.

Establishing these goals will help me stay on the path I started on when I decided to get out of debt in 16 months and continue to fight the two culprits that got me into debt and kept me there: lifestyle inflation and mindless spending.

What are Your Money Goals?

What are your current money goals?  To get out of non-mortgage debt so you can increase the amount you have to invest?  To have a fully funded emergency fund?  To put money aside so after your next big trip you don’t come back to a mountain of credit card debt?

All of these are great goals but the best one is the one that’s best for you!