Ask HTM - The Key Personal Finance Metric, Negotiating A Lower Car Loan Rate, & WTD When Your Cheese Is Moved #805
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Episode Highlights
Savings Rate
Joel and Matt emphasize the critical role of savings rates in achieving financial independence. They note that the national average savings rate is alarmingly low, around three and a half percent, which has declined post-pandemic 1. The CFP board recommends higher savings rates based on age and earnings, especially for those starting late in their savings journey. Joel highlights the power of compounding returns and the importance of starting to save and invest early in life.
A higher savings rate is, of course, for instance, is going to mean you can take that six month sabbatical in your thirties or quit your job for a less lucrative passion gig.
--- Joel Larsgaard
Matt adds that financial independence is not an all-or-nothing proposition, and a higher savings rate can significantly impact one's life choices 1.
Strategies
The duo discusses strategies for calculating and improving savings rates. Joel advises against including employer contributions in savings rate calculations, as these can be unreliable and may disappear during financial downturns 2. He suggests aiming for a personal savings rate of 15% or higher, independent of employer matches. Matt supports this by explaining that relying on employer contributions can create a false sense of security and hinder the development of a robust savings habit.
The motivation matters on how you're going to calculate that savings rate.
--- Joel Larsgaard
They also touch on the concept of 'coast fire,' where individuals can reduce their savings rate after building a substantial nest egg 2.
Mindful Spending
Joel and Matt explore the transition from being a dedicated saver to spending money mindfully. They stress the importance of aligning spending with personal values and financial goals 3. Joel mentions that intentional spending can be challenging for those who have been focused on saving for a long time, but it's essential to enjoy the fruits of one's labor without going overboard.
It takes time and intentionality to transition from being a dedicated saver to someone who can spend money on things they enjoy without going overboard.
--- Joel Larsgaard
Matt shares personal anecdotes to illustrate how mindful spending can enhance life experiences without compromising financial stability 3.
