I know a retired school teacher whose annual salary never exceeded $60,000. Yet, when he retired early in his late 50s, he had a portfolio worth nearly $2 million by employing a simple strategy. Both he and his wife worked and they saved 50% of their income. This 50% savings rate was one part of their strategy, the other part was investing the money in conservative stock and bond funds; nothing fancy.
When I first began working out of college, a colleague and her husband also saved 50% of their income. This aided them in buying a home in a short amount of time and prepared themselves for living on only one salary for a while when they expect to have young children. I later learned that another couple I know had the same 50% savings plan as soon as they got jobs out of college. By saving at such a high rate, 18 years later they were able to buy a second home, a lake house with all of the aquatic toys.
I am acquainted with a real estate investor that saved 50% of his day-job income for many years for down payments on single-family homes. Once he had a large portfolio of homes making him income every month, he ratcheted up his purchases to small apartment buildings. In middle-age, he quit his job to manage his growing real estate empire and he now lives in a spectacular home and enjoys a very high standard of living from all of his rental income. But he never reduced his savings rate; he actually increased it and now lives very well but only spends 17% of his income.
- Can you save 50% of your income? Of course you can.
- Will you do it? That is a personal choice that is up to you.
- How about starting with a 25% savings rate to pile up a little money?
- Or, you could join the average American and only save 5.7% of your income, and live in continual financial stress and struggle.