EOM July 2013

My savings rate for July was 73%.

Instead of diving into different spending categories this month I just want to reflect for a moment on what it really means to save three quarters of your after-tax earnings.  I wish I could have done just a little better because a 75% savings rate is really wonderful when you think of it this way:

I saved enough money in this one month to sustain my current lifestyle for three additional months, with no need to change my spending habits or behavior.  If I were able to maintain this savings rate for an entire year, I could afford to “retire” for three years.

As it stands now, my YTD (year-to-date) savings rate for 2013 is more or less exactly where my 2012 savings rate ended up: 67%.  Still, two years of retirement for one year of work ain’t bad.

But because I continue to work and save, I don’t spend that money on retirement (yet).  I invest it.  Although it doesn’t enter into my savings rate calculations at all, I also keep track of how much I earn on my different investments.  If I take the value change of my investments over a time period, and divide by my total expenses for that same time period, I get the percentage of my spending that is covered by my passive income.

Last year (2012) that number was 7.4% for the whole year.

This year so far (2013 YTD) 41.5% of my spending is covered by the passive income that my investments generate.

Now, to be fair, not all of this money is at my fingertips.  Much of it is tied up in investment vehicles with penalties for early withdrawal.  But I don’t want to withdraw it just yet anyway.  This encouraging percentage is a reason for me to continue adding to my savings and my investments even as they grow themselves, under their own momentum, so to speak.  And when it gets to 100% it will be one indication that I am prepared to retire!

Another caveat is that this 41.5% is also very much a function of how well the market is doing.  If this number doesn’t average out to be 100% over my lifetime then whoops, time to get a job again.  Doing well one year doesn’t mean it won’t be halved the next.  But even if it does, it always comes back.  I’ll leave my investment strategy as a topic for another post, but I guarantee that you’ve heard it before, and that it is safe and boring.

Even when you take these caveats into consideration, these numbers are so encouraging.  They make me really glad that I’ve made a habit of taking 15 minutes a week to collect all of this data, and put time and thought into analyzing it and using it to inform my financial decisions.  And I don’t plan on stopping anytime soon, so stay tuned, and happy saving!


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