Savings Rate Changes
I’ve written in the past about how my high savings rate has been the key to being able to semi-retire after only three years of full time work. In fact, savings rate is the single most important factor in determining your financial independence date and has been the primary focus for me on my path to FIRE. Last year when I calculated my 2017 savings rate, it was the lowest that it had been since I began working full time in 2015, possibly due to some increased expenses that year.
In practical terms, beginning semi-retirement last year for me meant working only six months of the year, with plans to continue to work six months or less per year for the foreseeable future. Knowing that I would only be working six months during 2018, I knew that my savings rate would decrease, and I projected that I would only be saving around 70% of my income instead of the 85%+ I had achieved in the prior years. Still, being able to save 70% while working only half of the year seems ridiculous, but when living frugally and making a much higher pay rate as a travel physical therapist, it is definitely possible. In the end, this estimate was pretty close to my actual savings rate for 2018, but since our 5 month international trip costs ended up being less than I anticipated, I was actually able to do a little bit better!
How Do You Calculate Savings Rate
As a reminder, There are a lot of different ways to calculate savings rates as Big ERN, from Early Retirement Now, points out in his post on the topic. For me, savings rate #3 in his post seems to make the most sense. Calculating savings rate based on after tax compensation and spending leads to the most pure picture of how much is being consumed and how much is being saved.
Here’s the calculation I’ll use in this post to determine my 2018 savings rate:
- Numerator: Gross 401K Contribution + Gross 401K Match + Total Income after Taxes + Tax Free Reimbursements – Total Expenditures
- Denominator: Gross 401K Contribution + Gross 401K Match + Total Income after Taxes + Tax Free Reimbursements
- Numerator / Denominator x 100 = Savings Rate
My 2018 Savings Rate
After plugging my 2018 numbers into the formula above, I calculated my savings rate at 72%!
As I mentioned, to my surprise my monthly costs while traveling around the world were actually a little less than my normal expenses while living in the United States! That significantly helped with my savings rate for the year. In addition, the blog brought in about twice as much income in 2018 as it did in 2017, which made a decent difference. The blog income, combined with money earned from credit card and bank account bonuses, actually covered all of my expenses for the year! That means that the income I earned while working for the first half of the year all went to savings/investments!
My expenses for 2018 ended up being very close to the same amount as my expenses for 2017, so the only real change was the income side of the equation.
Estimated 2019 Savings Rate
We’ve already started planning a 3.5 month trip during the summer this year that will just be exploring around Europe. You can check out a rough outline of that upcoming trip here. Since Europe is significantly more expensive than SE Asia, where we spent the majority of our last trip, I anticipate that my expenses for those 3.5 months will be about 1.5-2x what they would normally be while living in the US. We’re also planning a 21 day road trip in the Fall to Las Vegas and back for a conference that will probably be a pretty expensive 3 weeks. Due to this, I anticipate my total yearly expenses to be higher in 2019 than they were in 2018.
As far as income, I only plan to work for 3 months in 2019. This will likely be a travel PT contract from February to May prior to leaving for our trip to Europe. It’s possible that we could end up working for a few months again at the end of the year either in the form of a travel contract or with part time physical therapy work in our hometown, but that’s doubtful. I anticipate that the blog income will remain about the same in 2019 as it was in 2018, and although it would be wonderful, I doubt that it will cover all of my expenses for the year like it did in 2018. I’m also having more and more difficulty finding credit card and bank account bonuses that I can be approved for and haven’t already done in the past. That means that my income from bonuses will probably be about half of what it was this past year.
With higher expected expenses and my income cut nearly in half again, I’m projecting a saving rate of only about 30% in 2019. For only planning to work one three-month contract during the year and spending a few hours per week on this blog, which I don’t really consider work, I will be very happy with having any sort of savings rate at all!
What was your savings rate for 2018? Are you anticipating it will increase or decrease this year? Let me know in the comments!