Why and How We Save Half Our Income

I’m an inquisitive person by nature. I like to ask questions and when someone tells me that something is done a certain way, my first thought is, “why?” Understanding the why behind the way things work is important to me.

When I started asking how much I needed to save for retirement, I wasn’t satisfied with the first and most generic answers I found. I kept asking questions, seeking answers, and considering different opinions.

At the same time, I started asking questions about the traditional work model that most of us follow.

Why are we working in jobs we hate until we’re nearly dead, then retiring into a passive existence because our careers have left us exhausted? For most people, the answer is because, financially, there is no other choice. They have to earn a paycheck – even into their 60s.

In my quest for a better way of doing things, I discovered the idea of financial independence. Being financially independent means that your assets – your investments – generate enough income to cover your expenses. You no longer need to actively earn money via working for someone else and collecting a paycheck.

Financial independence is really appealing to me, because it means more freedom. While I wouldn’t take the early retirement route and simply quit working, life would change in a subtle but extremely important way. I would be free to pursue other interests that I’m passionate about without having to worry about things like, “will teaching overseas provide me a big enough paycheck?” or “how will I put a roof over my head if I want to spend two months volunteering?”

Because my husband and I both want to be financially independent sooner rather than later, we developed a plan to save and invest half of what we make now so we can be free from the obligation of being required to earn a steady, has-to-be-big-enough paycheck.

Here’s how we save half our income right now:

Divide the Budget into Needs and Wants

We don’t have many categories on our budget because ultimately, something is either a need or a want. We need to pay our mortgage, utility bills, and insurance. We have to pick up food to eat for us and our pets, we have to maintain our home, and we have to put gas in our cars to go to work.

Once food, shelter, and basic personal care is accounted for, everything else is only a want. We give ourselves $600 per month to pay for anything else we want to buy. This includes going out to eat, entertainment, buying clothes, and any other shopping we want to do.

Because we have a set amount for our monthly “wants,” we have to get serious about prioritizing our spending to make sure when we do exchange our money for something, we really want it!

Don’t Value Material Goods

Far from feeling deprived, I actually want less than ever now that we’re spending less. I value my experiences and my relationships far more than material goods. Instead of thinking about what I don’t have, I take time to be grateful and appreciative of the abundance of things that already surround me.

We also enjoy doing things over having things. We both love being outside, and are avid runners, hikers, bikers, and swimmers. Most of our hobbies only require our time, not our money.

Keep Fixed Expenses Low

We do everything we can to minimize our monthly bills. We’re mindful of the energy and resources we use, which helps keep our electric, gas, and water bills down. We cut our cable and now only pay for Netflix and Internet service – a move that has saved us over $500 per year. Our cars are both paid off and we plan to keep them until they just won’t run anymore. Instead of making a monthly car payment, we allocate that money to savings.

Find Creative Ways to Do What You Want

We love to travel, and we’re determined to fit trips both around the country and around the world into our plan to save half our income. We do this primarily through travel hacking, or using rewards points from credit card sign-up bonuses. We’ve been able to save hundreds of dollars on flights and accommodations, which has enabled us to travel even when we’re also focused on saving so much.

It may be hard to imagine saving half your income before you’ve taken steps to do it. Three years ago I would have never believed we could save anything at all! I was amazed to realize how much money I had been spending on things that didn’t really mean all that much. Once we aligned our spending with our values and our goals, saving larger and larger percentages of our income became easier to do.

You can save more of your income, as well. Gradually cut what expenses you can and challenge yourself to give up some of the spending you’ve been doing on material possessions. You’ll be surprised how little you miss the majority of what you’re currently overspending on when you eliminate the costs that are excessive or out of sync with your financial goals.