5 Steps for Large Savings

Early Retirement Planning Series
I often wonder if attitudes toward saving and spending are cultural.  When I look back to my high-earning corporate days, I recall having an understanding that it would be good to save a good chunk of income.  Perhaps it was the influence of my parents who were never wasteful with money; or the fact that my first job out of graduate school was lowly paid, thus putting me on a reasonable spending trajectory; or perhaps the fact that I knew I wouldn’t stay at my corporate job for too long (didn’t enjoy it enough) that led me to save substantial portions of my paycheck each month.

A large pool of savings, rather than smart investments, was the main thing that gave me the flexibility to leave the corporate sector altogether and embark on a journe to try new things.  I understand there are different philosophies out there for those who desire early retirement.  Again, I am not necessarily recommending the following, but they represent the analysis of my experience.  My 5 steps to accumulate a large pool of savings:

1) Have a large salary — There are two schools of thought among early retirement bloggers which relate to the basic equation of spend less than you earn. Some people advocate really controlling the expenditure element; my own experience was in maximizing the salary component.  I believe my basic thinking was that the expenditure side had lower bounds (needs) that were not flexible, while the upper bound on salary was basically infinite.

2) For your biggest expense, spend below the recommended ratio — the biggest expense for most people is housing whether it’s rent or a mortgage.  One of the ways that I kept savings high was to live in more modest circumstances than many of my colleagues.  With the biggest expense under control, there were more $$ to be flexible with.

3) Find a pattern that is sustainable for multiple years — my general philosophy is that sustainability is more important than living in a way that can only be sustained for a few months.  In my view, this is a similar view to dieting where drastic crash programs don’t really work and can backfire.  The way that I accumulated savings is to accumulate each month for several years.

4) Have insurance against financial disaster — With medical expenses accounting for a large percentage of bankruptcies, having insurance is important.  Although the premiums cut into cash that can be saved, protecting from a financial disaster is prudent

5) Don’t sweat the small stuff — although I never thought of myself as wasteful, when I was working in the corporate world, I emphasized the major portions of the paycheck, earnings, taxes, and housing.  Small day-to-day expenses were generally kept in check, but I didn’t scrutinize them heavily, mostly because when I was working 80+ hour weeks, I think the money spent on convenience things was worthwhile.

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