Retirement might seem light years away, but it’s guaranteed to be even further.
Saving enough over a 40-year career to maintain your lifestyle in retirement is challenging. But there’s a lot to be learned from the people who have managed to hit their savings goals well before that point, even if you haven’t been bitten by the early retirement bug yourself.
Grant Sabatier, a 30-something self-made millionaire, and founder of Millennial Money, pointed out on his website that the average American spends 70% of their money on housing, transportation, and food (not including income taxes and Social Security).
In some parts of the country (hi, New York and the rest of the Northeast), the percentage spent on housing, transportation and food can be even higher. That might leave you feeling defeated before you even start saving, but for Sabatier and others striving for early retirement, it’s an opportunity. Here’s Sabatier:
“If you can spend less on [those expenses] (say 25% or so) then you can bank the difference. If you move to a smaller apartment, walk to work, and cook at home, you could realistically increase your savings rate to 25%+ or even higher,” he wrote on Millennial Money.
To do this, you might have to get creative. But there are some guidelines you can follow.
If you’re part of the one-third of Americans who overpay for housing, start by looking for a place that meets the standard measure of affordability: 30% or less of pre-tax income. But to really make progress on your savings goals, you’ll want to limit it as much as you possibly can. If you can find a place that allows you to spend 25% or less of your after-tax income on housing, your savings account will thank you.
Even billionaire Warren Buffet keeps his housing costs low. Buffett lives in a modest house that’s worth .001% of his total wealth.
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