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Enjoying Life AND Planning For the Future – Building a Savings Plan

There’s a famous saying that states “coffins have no pockets”.  I could not agree more.  While my role as a financial planner does lend itself to encouraging saving, it’s just as important to encourage spending when I work with clients.

In step #1 we spoke of the importance of having a well-defined set of goals.  To reach those goals, you’ll need to put in place a savings plan.  That leads us to rule #3:

Rule #3 – Save ½ of every raise, bonus, or unexpected/unplanned income you receive.  Use the other half for your enjoyment.

That’s right, the key to achieving financial independence is to BOTH spend and save.  If you save ½ of all of the “new” income you receive, you’ll find that in a very short period of time you’re saving a significant amount.  Let’s look at an example.

Suppose you’re making $50,000 per year and you receive a 2% annual raise.  If we assume a 8% return on your investments, here’s what your savings schedule would look like over 30 years:

Year Salary Additional
Savings This Year
Total
Savings This Year
Savings
Rate
Total
Investments
1  $    50,000.00  $      1,000.00  $      1,000.00 2.00%  $                 1,000.00
2  $    52,000.00  $      1,000.00  $      2,000.00 3.85%  $                 3,080.00
3  $    54,080.00  $      1,040.00  $      3,040.00 5.62%  $                 6,366.40
4  $    56,243.20  $      1,081.60  $      4,121.60 7.33%  $              10,997.31
5  $    58,492.93  $      1,124.86  $      5,246.46 8.97%  $              17,123.56
6  $    60,832.65  $      1,169.86  $      6,416.32 10.55%  $              24,909.77
7  $    63,265.95  $      1,216.65  $      7,632.98 12.06%  $              34,535.53
8  $    65,796.59  $      1,265.32  $      8,898.29 13.52%  $              46,196.66
9  $    68,428.45  $      1,315.93  $   10,214.23 14.93%  $              60,106.62
10  $    71,165.59  $      1,368.57  $   11,582.80 16.28%  $              76,497.95
11  $    74,012.21  $      1,423.31  $   13,006.11 17.57%  $              95,623.89
12  $    76,972.70  $      1,480.24  $   14,486.35 18.82%  $            117,760.15
13  $    80,051.61  $      1,539.45  $   16,025.81 20.02%  $            143,206.77
14  $    83,253.68  $      1,601.03  $   17,626.84 21.17%  $            172,290.15
15  $    86,583.82  $      1,665.07  $   19,291.91 22.28%  $            205,365.27
16  $    90,047.18  $      1,731.68  $   21,023.59 23.35%  $            242,818.08
17  $    93,649.06  $      1,800.94  $   22,824.53 24.37%  $            285,068.06
18  $    97,395.02  $      1,872.98  $   24,697.51 25.36%  $            332,571.02
19  $  101,290.83  $      1,947.90  $   26,645.41 26.31%  $            385,822.11
20  $  105,342.46  $      2,025.82  $   28,671.23 27.22%  $            445,359.11
21  $  109,556.16  $      2,106.85  $   30,778.08 28.09%  $            511,765.91
22  $  113,938.40  $      2,191.12  $   32,969.20 28.94%  $            585,676.39
23  $  118,495.94  $      2,278.77  $   35,247.97 29.75%  $            667,778.47
24  $  123,235.78  $      2,369.92  $   37,617.89 30.53%  $            758,818.64
25  $  128,165.21  $      2,464.72  $   40,082.60 31.27%  $            859,606.73
26  $  133,291.82  $      2,563.30  $   42,645.91 31.99%  $            971,021.18
27  $  138,623.49  $      2,665.84  $   45,311.74 32.69%  $        1,094,014.62
28  $  144,168.43  $      2,772.47  $   48,084.21 33.35%  $        1,229,620.00
29  $  149,935.17  $      2,883.37  $   50,967.58 33.99%  $        1,378,957.18
30  $  155,932.57  $      2,998.70  $   53,966.29 34.61%  $        1,543,240.05

 

That’s right – in 30 years, you’ll have amassed over $1.5 million dollars!

There’s three important take aways here:

  • Saving a little bit more each year adds up
  • Allowing the power of compounding to work for you is a huge benefit
  • You don’t need to go crazy with your savings to accumulate a sizeable nest egg

ACTION ITEM – Implement the “save one-half, spend one-half” savings strategy immediately.

 

[author] [author_image timthumb=’on’]https://www.f5fp.com/wp-content/uploads/2012/02/100_3458-Cloned-background-1-214×300.jpg[/author_image] [author_info]F5 Financial Planning, L.L.C. (F5FP) is a comprehensive, fee-only, financial planning firm serving Naperville and surrounding communities.

Led by Curt Stowers, F5FP focuses on providing corporate executives, entrepreneurs, and families with comprehensive financial planning that leads to financial security, simplicity, and success. As an executive with Caterpillar for 18 years, Curt brings real, practical experience to financial planning. Curt has successfully passed the examination to be awarded the CERTIFIED FINANCIAL PLANNER™ credential.[/author_info] [/author]

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Curt Stowers

Curt Stowers

Curtis Stowers helps individuals and families across the United States grow their financial assets, particularly in the Naperville, IL region. He is a Certified Financial Planner, holds a Ph.D. in Industrial Engineering from the University of Illinois, and is the founder of F5 Financial.