How To Save More Than Half Of Your Income For Early Retirement

Our Tips for Ways to Save Money

We were never people who bothered to keep a budget or even track our spending. Money came in, money came out and, as long as we tucked something into our investments each month, we were happy with this situation. Then we discovered the concept of financial independence and the fact that, if we saved and invested enough, we would never have to hold a corporate job again

This was the turning point for us. Suddenly managing our household finances went from being a tertiary activity to our means of saying goodbye to Monday morning meetings and endless email strings. With that as motivation, in the year leading up to our early retirement, we were able to save 70% of our after tax income. This high savings rate was instrumental in helping us achieve financial independence even earlier than we expected.

As we tackle this topic, first we want to address the question you must be asking, which is: Why? Why did we feel the need to drive up our savings rate to 70%? Obviously there would be some sacrifice in lifestyle in order to get to that level of savings. Why not just be satisfied with a savings rate closer to 40 or 50%, which is still much higher than average. The answer is simple: the more we saved, the sooner we could walk away from work. The less we saved, the longer we would need to show up at the office.

With that in mind, let’s review how we achieved such a high savings rate and how you can do something similar. Saving 70% might not be accessible to everyone but, if you use the strategies below, you will definitely see an increase in the amount you’re saving.

Know what you’re spending today

As mentioned, we didn’t track our spending for most of our lives. But once we set our early retirement goal, tracking every dollar and penny became second nature. When we started tracking our spending — first using an app called Spendee and eventually switching to You Need A Budget – we felt certain that we already had good spending habits in place. We knew we were avoiding obvious luxuries. For example, we didn’t have an expensive car or buy the latest technology or spend a lot on clothing each month.

Yet when we started to track each penny, it opened our eyes to the many surprising ways that money flowed out of our household each month. It also forced us to look at our spending categories in aggregate. For example, ordering a meal in on a Friday might be a pleasant splurge to take the edge off the week. But when it’s a weekly habit that gets tallied up over a three month period we had to admit that it was a luxury that was costing a lot and didn’t bring much value.

Identify and reduce the biggest costs

Now that we had some data at hand, we were ready to address our largest household costs. Every month, we went through our monthly spending line-by-line to understand where we could make cuts and drive up our savings rate. We focused on our biggest expenses, as those represented the easy opportunities for bumping up our savings rate.

The biggest costs are, of course, different for everyone. Most commonly they are housing, transportation and food. For us, the biggest expenses were housing, food and fitness. Food was the easiest to address quickly. We began by eliminating our excessive dining out and by shopping smarter for our groceries. Gone were the days when we would fill up the cart with specialty items and premium-priced meats; we looked for house brands, sales and lower-cost proteins. However, we were still foodies at heart so we balanced out our grocery cost cutting with more inventive recipes and theme nights.

For fitness, we tearfully said goodbye to our boutique CrossFit gym and took up a membership at a standard fitness chain where we followed a self-directed program. It was tough to give up our beloved gym and its community but we quickly realized that our gym friendships didn’t need to end and, furthermore, it was empowering to design our own fitness program.

Finally, we dealt with our housing costs. We had spent many years living in a two-bedroom apartment, ostensibly because we wanted to have a room available for visiting family members. However, we realized that visitors weren’t actually that frequent and our money would be better off invested versus paying for an empty room. With that in mind, we downsized to a junior one-bedroom in a large-sized condo close to our workplaces. Suddenly we had even more savings because we were walking to work and paying utilities for a much smaller space.

Automate savings

Another important strategy for improving a savings rate is to automate your approach to saving money. This can take the form of automating deposits from your main bank account into a savings account (which would then ideally make its way into a form of investment so that the money continues to grow). Another consideration is to redirect any extra inflows of money right into your savings account. This could include bonuses, tax refunds, credit card rebates or side hustle income. Every little bit will make a difference to your savings rate.

We always had good habits when it came to saving a portion of our salaries. However, we saw that if we wanted to get to financial independence faster, we needed to become much more disciplined. We decided that one of our paycheques would be used to cover any and all monthly expenses — even if it was a bit of a stretch some months — while the other went straight to savings.

Visualise progress

Ultimately, the only way to know for sure if all your efforts are paying off is to track the growth of your total savings and your savings rate. This can be done with the most basic of methods — a pen and a piece of paper — or a spreadsheet of your own design or you can use one of the many net worth tracking apps available. We personally use a simple Excel spreadsheet that we have tailored to our own specific needs.

Experiment

All of the strategies mentioned above — tracking spending, shrinking our biggest expenses, automating our savings, visualising progress — were helpful in getting us most of the way to our goal of a very high savings rate. We were hovering at a 65% rate but we felt that we could achieve even more.

Then we landed on the one strategy that supercharged our savings rate and pushed us to a 70% savings rate. This was experimenting, lots and lots of experimenting. We experimented with dozens, if not hundreds, of tiny lifestyle changes to see if they could deliver further savings. Individually, these experiments only contributed a ting improvement to our monthly savings rate. But in aggregate and over time, these tiny incremental changes ended up getting us to the 70% savings rate.

Here are a few of the experiments we ran in the year leading up to our early retirement:

Replacing commercial beauty products with ones that that I made myself
Replaced purchased digital books with free books from the online library
Baked our own bread
Cancelled all subscriptions (e.g. The Economist, Netflix, Spotify, Calm) to see which ones we actually missed
Stopped using milk in coffee
Cancelled caller ID service for cell phone
Replaced paper towels with reusable cloth
Replaced commercial household cleaning products with baking soda and vinegar
Planned more vegetarian meals and snacks
Tried free online yoga instead of going to a class
Switched to a less expensive protein powder

This is just a small sampling of all the different experiments we tried. Some failed miserably but many were successes and resulted in a new way of doing things and ongoing savings. Overall the journey was quite a turnaround for two people who had never previously kept a budget or tracked their savings. If we could bring this level of discipline to our household management, it’s certainly accessible to most.

How To Save More Than Half Of Your Income For Early Retirement