Lessons from Failing to Double Our Savings Rate Three Years in a Row

Up until the year 2016, it was a goal of mine to double my savings rate by that following year. Almost like clockwork each, I failed, each year for three years in a row.

When I’m looking at single digit savings rates, I thought, it would be EASY to double or even triple my savings rate.

I was wrong.

Today’s post shares why I failed and how you can avoid the same pitfalls and mistakes.

Lessons from
Failing to Double Our Savings Rate
Three Years in a Row

Knowledge is Useless

Back in 2012, I went on my largest reading spree, ever. I’m not quite sure what inspired the idea, but I set a goal to read 100 books by the end of the year.

I ended up reading 72 books cover to cover, and countless chapters from other books. Over half my reading was focused on investing, savings, personal finance, money management, accounting, finance, etc. etc.

So, with all the knowledge in my head I was all set to go, right?

Nope.

I fell flat on my face!

Money was often the center of my attention and my big #1 goal for the year.

Managing my personal finances was supposed to be my thing, yet here I was failing to implement the habits and routines that I KNEW would help me.

So, how did I finally, “snap” out of it?

The answer was, by, truly giving a damn.

You’ll see what I mean as the first key step is actually a mental one….

One Mental Shift

If you read the paragraph below, you will have won for the day as there’s no doubt in my mind, it is the highest value idea in today’s post. For many, they may already be on board with the message described below, but for anyone in those early stages like I was back then, you might gain a different perspective that helped me get that initial acceleration towards increasing my savings rate.

Spending must include one additional category each month that I’m currently labeling as, the “Snowballing Liability of Retirement,” and in general, the money ‘put-aside-for-future-money-needs’ category. The reason I say, “Spending must include,” is because the liability will only grow more expensive over time and because it is easier to start the habit building process of investing now, today, as opposed to tomorrow or next month. Finally, there is also the benefits of becoming an investor, and starting the process of developing a skillset in that area of your financial life.

Click here, to read more on the Snowballing Liability of Retirement. Another way I love to view this is, if you save $100k by 25, you’ll never need to save another dollar if you plan on retiring at 65. Of course, 100k by 25 is nearly impossible, but the analogy helps get across the early opportunity with savings.

I understand when people say, “I can’t afford to put money into my 401k,” because they mean they have too many expenses and investing is not a priority. This is why you always hear people say to that person, “You can’t afford not to put money into your 401k.”

Or at least, know that the longer you wait, the growth will be exponential on your retirement liability.

So, what’s the first step? For me it was giving a damn, seriously. When I wrote up my 17 strategies to save 50K, I reserved the #1 slot for ‘give a damn’, because that slight shift to making it a priority was enough to build out our savings and increase our savings rate.

Avoid my mistake and take massive action, early.

Turning Knowledge into Spending and Investing Habits

Building habits takes a lot of time.

And, we might only be able to develop one habit at a time.

So, if I could go back and do it again, I would avoid needing to implement all the habits I have today and instead, rely on technology (some of which is 100+ years old) to get me there ASAP.

Avoid my mistake and utilize technology first, instead of trying to willpower new habits into existence. (more on the tech below)

Great onion model of change from https://handlingresistance.wordpress.com/2011/09/14/creating-the-onion-model/

Props to this post here: https://handlingresistance.wordpress.com/2011/09/14/creating-the-onion-model/

Pro Tip: If you still can’t change your ways, then give this article a scan or scan the picture below from the awesome post by another blogger on his Onion Model of 5 resistances to change.

Redirect the Spend

The first breakthrough that allowed me to really get closer to doubling my savings rate, was to redirect my income.

Instead of me investing the cash personally, I upped my 401k contributions to max it out.

I didn’t find some awesome online app.

There was no great investment that I discovered.

I picked up the damn phone and called HR.

IT WAS SCARY because I was going from about a 10% contribution rate to 25%.

My spending was being redirected and I had to live with it.

Avoid my mistake – Don’t try to “solve” spend- instead, redirect your income so you never see it.

The line above reads, “so you never see it,” as opposed to “so you never feel it,” because you should feel it.

Spending is Relative

This was a big breakthrough I discovered as soon as I started scouring the web for other people’s budgets and lifestyle expenses.

Many people who spend 30K a year can be extremely happy and people who spend 100K a year can be miserable.

If the goal is happiness or joy or living a life of freedom, then spending is completely relative. Find what makes you happy, not what society will tell you will make you happy, and pursue that.

For me, that’s stuff like reading books, thinking of ways to save and invest money and failing miserably at attempting some delicious meal planning recipes.

Sure, I get a funny look from people at times since the expectation is my weekends might be filled with College Sports or talking about how terrible the Chicago Bears are.

Avoid my mistake – Don’t get pulled into society’s standards of what you should be spending your time and money on.

Shouldn’t I Be Focused On Net Worth Instead of Savings Rate?

Lastly, if you’re not focused on your savings rate, then you’re doing something horribly wrong.

Focusing on net worth is tricky because we have our money in the stock market and I do not want to weigh our quarterly performance against how well the S&P 500 did or didn’t do. I would rather look at my income, my expenses, and my profits which are being funnelled into investments and debt.

You can do both just fine, but the ‘horribly wrong,’ part is for anyone not looking at their savings rate but looking at their net worth meticulously.

Avoid my mistake and focus on metrics you can control.

I promise you – make this change and you will not beat yourself up next time the market drops and you fall short of your “Net Worth” target.

Why is Savings Rate So Important?

As for why the savings rates are so important, well, thankfully the numbers make it extremely clear.

If we can save 10-15% each year, then we are maybe on track to retire by the age of 65. If we can save 20%+, then we often eliminate at least a decade of work. If we can invest and save more, much more at say 50%+, then you will not need to work for more than two decades.

Lastly, pushing your savings rate to 70% means you will be financially independent within 7 years. (I speak more on this topic and the math in my post on how 1% extra in savings = 2 years more of freedom/retirement.)

Avoid my mistake by understanding earlier, the “why,” to the Savings Rate.

Have you failed time and again on your money goals, but then eventually found a way to succeed? What were your takeaways from failure?

-Matt

 

P.S. Is Frugality Required to Double Your Savings Rate?

Yes.

That’s my short answer. 🙂

To learn more about frugality and how it can help you save more money and solve some of the spending issues in your life, then I’m glad you’ve read this little PS part.

I created a frugality course list a few weeks back and with only one email I was able to link together a few people on a real eye opening call. We dove into some critical pain points and how to push past those barriers. I had a lot of people sign up, but not everyone attend the call, so I’m still trying to figure out the best route to get a premium frugality product into your hands.

Individual blog posts are great, but I’m looking to finalize my magnum opus on frugality and, of course, give it away 100% for free. With the revenue from my other two launches, I figure I have some leeway now to build out my dream product, even though it doesn’t align with “making money now.” Let me know if you’re on board to help me create this bad boy by signing up for the frugality list here.

For those already on the list, you will be receiving a few more emails in the next few weeks.



5 comments… add one
  • elsie Oct 30, 2017, 8:24 am

    I love that you started by telling us how you failed for a couple years. I’ve been failing at Roth IRA contributions this year, mainly because I took a $5 pay cut to change careers. Excuses…I think I’ll wait until stocks go on sale again and throw some extra cash into my index fund after maxing out next year. I agree that knowledge is useless. Habit is a much stronger actor in my life than reason ever will be. *shakes fist*

  • Lisa Nov 9, 2017, 3:00 pm

    Wow – 75 books on personal finance! Didn’t they get monotonous after awhile? Any favorites?

    • Distilled Dollar Nov 10, 2017, 7:02 am

      I view it similar to going to the gym or eating healthy. Repetition is the mother of success.

      As for favorites, I have possibly a dozen that are “must reads” but if you’re only looking for one book to recommend- I would need to know more about your level of PF know how. For a blind recommendation – I still recommend Millionaire Next Door.

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