Financial Independence, How Much Do You Want It?
“How do you save 33% of your income? I could never do that!” Surely many of you financial warriors and frugal freedom fighters have heard something like that before.
Once you’ve been outed as a being frugal or a saver or insert whatever label, it’s very common to get shocked reactions and push back from others who claim it’s impossible for them.
They cite the cost of living in their area, or their kids, or whatever.
Well, the savings rate in America hit 33% back in April. Yes, that was the savings rate for the whole country!
In May it was still 24%, and in June it was 19%. All of those are more than the previous record of 17.3% in May 1975, which was at the tail end of a recession and the Vietnam War.
As a comparison, during the 2010 – 2020 bull market it hovered in the 6 – 8% range.
So for three solid months this year Americans saved well above the the highest rate that had ever been recorded. We all know why, and I’m not saying that COVID-19 is a good thing because it’s getting people to save more.
But as a student of behavioral finance, I find this fascinating.
How Much Do You Want It?
To try to understand this amazing savings rate change, I compared it to a personal change I’ve made this year during the pandemic.
For years and years I did most of my workouts in the late afternoon. Because of my job I could either try to wake up extra early and workout before work, or I could do it afterward. I chose the latter.
I always told myself “I’m just not a morning exerciser, I never have the energy that early”.
But I often competed in organized running and cycling races (ahh, the pre-pandemic days…), and they’re almost always early in the morning. That’s when it’s easiest to get a permit to close roads and block intersections.
An 8:00 running race requires a super early wake up time to eat, hydrate, and get to the start line. Every time I’d finish a race, usually with great results, I’d think “Hmmm, I seem to do good in races and they’re early, why can’t I do that with my regular workouts?”.
But still I wouldn’t, and I’d go back to my usual routine.
Well it took a combination of COVID-19 and a nasty hot summer to get me to change, but I did. This summer I’ve done most of my workouts early in the morning. There’s fewer people out and about to pass so I can stay distanced much easier, and I avoid the scorching hot temperatures and horrid air quality that come with them.
How did I really do it? I just embraced discomfort more, plain and simple. I made myself do what I do not enjoy. And funny enough I adapted and now I enjoy it a whole lot more.
Put another way, I just wanted it more, and was willing to embrace the discomfort and do what to me was hard.
So to those who say they can’t save 30% of their income, I say “how much do you want it, how much are you willing to embrace discomfort?”
Yes You Can
If you say you can’t run a 5k, and then someone holds a gun to your head and tells you to, you’ll run a 5k. So you could after all.
What most things in life really come down to is – how much do you want it?
So many Americans who claimed it was impossible to save 20 or 30% of their income just did for three months straight. Depending on your situation, you may be saving more or less than that, but as a whole Americans are saving WAY more than the 6-8% of the past decade.
“But I’m different and I can’t save that much!”
Well, for so many (not all… I get it) yes you can. This is especially true where I live in the metro D.C. area. The D.C. region has the highest median household incomes in America, yet so many people normally live paycheck to paycheck, and save nothing.
Millions in my area have realized in 2020 that they can save after all, and save quite a lot. It just took a pandemic and the closing of all the places they like to spend money frivolously to make it happen. So in pre-pandemic times, they basically just didn’t want it enough.
It wasn’t a matter of “I can’t”, it was “I choose not to”.
The COVID pandemic has shown them that they’re capable of way more than they thought they were. It doesn’t mean they have to love it, it simply exposes the falsehood of the “I can’t” narrative.
Ask Yourself
So financial warriors, when things go back to normal are you still going to claim you can’t save that much?
Put another way, if you could have what I have – financial independence, a 20 hour per week part time schedule, and the freedom to quit working for someone else entirely if I wanted, forever – do you think you could save more when things get back to normal?
Think about it…. how much do you want it?
Hello! Yes, the pandemic forces us to change our daily routine, but in the end it’s not a bad thing … As for saving, I’m somewhere in the middle of the way, saving, but I never counted how much in%. It will be very interesting to check this out. Thank you, I’m inspired! Good luck!
The middle isn’t last 🙂 Thanks for the comment!
It is true that people are capable of things they think are impossible. It just takes framing a different mindset to achieve it.
My workout regimen is after work during a narrow window that sometimes gets interfered with (daughter’s extracurricular activities mainly). Still can’t bring myself to waking up earlier to workout tho.
I imagine kids mess with any attempt at a routine
if you think you can or you think you can’t you’re right. i would say to anyone “go ahead and don’t do it. it’s your life but it would be a more comfortable life if you saved.” what really baffles me is not that people want the occasional nice item or splurge. it’s the damned quantity and frequency of it all. sometimes i think “hey, didn’t you just renovate/replace that 2 years ago?”
so so true. my neighbors are really good folks but super spendy, especially on house stuff. Every week it seems there’s a contractor van in the driveway doing something. I don’t thing they’ll ever be content with what they have.
I’m going to have to embrace discomfort here and start calculating my savings rate. Something I’ve been wanting to do for awhile but have put off for years and years. Right now it’s the old “save more than you spend and then stick my head in the sand” trick.
Do it!
You are spot on. I did a rudimentary check on my Mint.com account from March to August spend. Just looking at after tax income vs spend, I was pleasantly surprised at how little I need to spend for a comfortable lifestyle. This doesn’t even account for the automatic before tax monthly recurring savings into my 401K. Of course, I invested the difference on my FIRE account. More than 50% after tax savings. So, why did I save closer to 35% in the past??? OMG…I could have retire a decade ago… 🙂
Wow, cresting the 50% mark is an accomplishment indeed. I’m right around that number depending on the month. Congrats!
It’s pretty amazing how much you can do if you really want it. Well, for many of us anyway. Some lower income workers are barely surviving and they can’t save much right now.
Yep, I realize lower income folks especially service workers are being hit. My message primarily targets those at or above the median US income levels who are still working. The waste in their spending is being exposed.
Hi Dave! To what extent does the data suggest that the high savings rate can be attributed to the $1200 stimulus check and/or expanded unemployment insurance benefit? (I remember reading something about this but haven’t found it again) Like your metaphor about running a 5k at gunpoint, I agree that fear is a great motivator. When people are unemployed or fearful about impending or prolonged loss of income, we will change our behavior surprisingly quickly.
Well that’s a good question and I have no idea really, itd be hard to figure out where the money is coming from that’s being saved. And yes, fear is a motivator for sure.
Interesting, I hadn’t seen that figure before about savings rate in April. It’s funny that the spike seemed to pretty closely correlate with the drop in the stock market (I’m assuming there was a carryover effect with savings/reporting) and as SR slowly dropped, the market slowly recovered. It’s of course not the only factor and not conclusive, but very interesting anyway. It’s a unique data point in history, since it saw a temporary job loss that recovered after an initial hit, verses the 08 recession where job losses continued to increase over time.
Anyway, great points here. I usually exercise in the morning because I run like a slug after sitting in an office all day (in the morning I run slightly less like a slug). It’s usually either a run or a lift in the morning. Weekends I might wait until the afternoon. But mine is not nearly as early as yours.
I’m getting adjusted to the early thing but it requires really good sleep hygiene and going to bed early. And I’m okay with that.
No workouts in the morning, that is time for the sweet serenity of coffee. Unless it is alpine start time 🙂
I do both coffee and workout now, but as the weather cools I can see me going back to afternoons for winter when it’s warmer outside. And all hail the alpine start!
With a young family, workouts in the morning are the best way to start the day if you can get them done! I find them better than a cup of coffee for feeling alert… and when paired with a cup of coffee, it sure makes the day start on a positive note 😀
Thought provoking post as always, and it pertains to so many other areas of life. I feel like Jocko’s saying “discipline equals freedom” sums it up nicely, especially with regards to savings rates and FIRE mentality.
Yep, Jocko knows what’s real. Ya just gotta do it. If you want to be FI you have to find a way to save more, and make more too. For most folks the former is easier and can be done immediately. Thanks for the kudos!
It’s interesting how we tend to be creatures of habit. Only with a change of external events does our behavior change. It really is quite amazing the increase in savings.
Spot on Shannon
I’ve always done my runs within about 15 minutes of rolling out of bed precisely because I am still too groggy to talk myself out of it. By later in the day, I’d have a million excuses. I also don’t have to deal with as many stoplights and annoying people who are walking while texting and not paying attention.
A large part of my savings increase is attributable to the federal student loan deferments ($750 a month!), the ability to refinance mortgages, and cancelling vacations. And as for those vacations, I am kind of dying to go on a spending spree at this point.
Still though, I hope people more people will use this as an opportunity to reflect on how much of their spending was wasteful. Not only is it harder to spend money right now, it’s easier to take up low-key and inexpensive hobbies. It’s easier to save money when we learn to enjoy doing things that aren’t pricey, and hopefully more people are figuring that out?
Wow, running within 15 minutes of waking up takes big time discipline and is hard, so kudos to you! And that student loan deferment is a much needed blessing I’m sure.
When I was working a corporate job, there was one thing on the top of my list of post-financial-independence fantasies: sleeping in! I worked at a tech company with a pretty laid back schedule, so most days I woke up at 7:30am and rolled into the office around 9am, so not a very grueling sleep schedule compared to most.
And, when I did leave corporate, I enjoyed months of sleeping in. It was amazing and felt like the biggest indulgence.
Then I started making fitness goals. Over a decade working corporate took a toll on my body and fitness, and I thought I’d give athletics a try.
Nowadays, I wake up at 5:30am 4 times a week (3 for running and one for hiking with a group), and 7am the other days to enjoy swimming, cycling, and yoga classes.
It’s amazing how embracing discomfort isn’t so bad when you have the right goals and motivation. Great read 🙂
Sleep is so important for health, every day science learns more about it. I’m now super-protective of my sleep and I can feel the difference. It’s a HUGE benefit to being FI and part time.
And kudos to you on the fitness transformations!
The pandemic has me sleeping in later! I was always someone who ran first thing in the AM, still am, but instead of starting 430-5am pre Covid, I’m sleeping in an extra hour. With zero races on the schedule, I haven’t touched my headlamp since early March. Still getting it done but don’t have the pesky school drop off in the mix.
We’ve always been in the 20-30% savings bucket but I’ll be curious to calculate it for 2020.
I’ve been sleeping more during COVID but also going to bed earlier, so I still wake up early. And the lack of races really sucks, big time
The question of how badly one wants something touches so many aspects of all our lives. There are so many things many of us would change if the friction — heavy or not so much — or inertia weren’t keeping us from making the change.
But with respect to savings rates, people have such funny and varying relationships to money. I personally have an after-tax savings rate just above 42%, and even some of the money that doesn’t go to savings/retirement funds goes into part of the mortgage on my three-flat not covered by the rents. On the other hand, my best, longest-term friend has no savings or capital whatsoever despite not being that far away from traditional retirement age and has never even looked at his expected Social Security payments. He frets constantly about the situation but doesn’t act despite my offers of helping him retool his personal finances or little “nudges” to make small changes.
I find it fascinating how some people can have middling to poor money management habits despite how central it is to their well-being in our society, how for others good habits are almost as reflexive as taking your hand off a hot object, and for many it’s somewhere in the middle.
People are funny indeed, and so darn diverse. I don’t think we’ll ever not have folks on both extreme sides of the money equation – those who save diligently and those who just blow everything and go into debt.
Technically, it’s true: people CAN do it, they CAN save for FI at rates that would put them into FI within say a decade or two.
It’s a question of wanting it, but perhaps that’s a little more obvious than we think. People *say* they want to have more freedom from financial problems, but their actions don’t really support it.
That leads me to question whether people *actually* want financial freedom, even as they’re saying they do. Maybe they want luxuries, comforts, and convenience more. There’s nothing particularly wrong with that. Sometimes it makes me wonder if people feel pressure to say they want freedom from financial worry to seem like they’re well adjusted, even if they were honest about it, that wouldn’t be the real answer.
Of course, all that assumes folks can understand that it’s not BOTH, it’s either (or some compromise of the two).
Also, love that we were both skimming by behaviorial finance topics on the same day 😉
I have a friend who, whenever I say something like, “I wish I could just go be a bartender on a tropical island,” responds, “No you don’t, because if you really wanted to, you would.” Always makes me think about whether I really want the things I say I want. Or to start taking action to make things happen.
I think you still want it, but it would just take a ton of action over a long period to get there. Also, you may not want that goal all of the time. In other words, do you think that could be your permanent existence? I think that’d be a cool job and lifestyle too, but maybe for six months or a yer. I doubt I could do that longer. Great comment!
Fair point. And you’re right, I don’t actually want that life. I would miss Amazon Prime and plenty of other things I’m not willing to give up. Thanks for making me think about that trade-off differently!
When people’s actions don’t support what they say they want, I still think they want it, but just not enough to do uncomfortable things. It’s a grey scale. They just want other things more – like not doing the sometimes hard work to get to that goal that they really do want. Great comment and I just love the behavioral stuff more than anything.
Boy I don’t know about that spike up in savings rate, I am skeptical. Maybe there is more to that story and how they are figuring that rate. Did some new number cruncher decide to change the way the rate is figured or make a mistake. Did Americans all of a sudden just change their spending ways? These were scary times but were they more scary than 2008, or the planes flying into the twin towers? Or it could be when I think of savings I think of money I put away and never spend until retirement and maybe this is counting money that wasn’t spent one month but then possibly spent the next month or two. A lot of people consider that savings… ha
I’m a bit skeptical too but the difference between now and 2008 is that many places have been closed or literally illegal to go to. Think of the avg spendy person who eats out a ton which is a HUGE waste of money. In March/Apr/May they were literally unable to do that in most cases – that never happened in 2008. In 2008 no one was told to stay home, not fly, or whatever. It’s very different. So I think for sure folks are saving more, but was it as big as the report claims? Who knows. The measuring methods are imperfect for sure.
You’re totally right, when I started cycling this summer I challenged myself to ride 500 miles in a month, while I missed that mark I came pretty close. I chose to make a change, make it through the discomfort and now I look forward to riding a few times a week and I miss it when I don’t.
It all comes down to what you choose.
Dude, you’re killing it! I ride about 500 a month on average but I’m a cycling freak and realize that while average for me that’s a butt-ton of riding. Major kudos and keep it up!
On one hand I hope everyone continues this high level of savings, but on the other hand it’s probably bad for the economy. GDP won’t get back to the 2019 high anytime soon if we all keep saving at those rates.
For me, financial independence wasn’t so much a “want” but a “need”. It was a necessity for me to survive, and I learned to save between 50-70% of my income.
Not everybody gets a golden ticket (I certainly didn’t), but the strong and determined will always find a way to survive… and perhaps even thrive.
I like that – “necessary for survival”. It makes it an almost foregone conclusion.