It Doesn’t Matter How Much You Make, It Matters How Much You Save

Basics, Financial Education, Save Money, Thoughts of a Mastermind 14 Comments


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In a recent post, I talked about how 2017 was a record year for me for income. I broke the 6 figure mark for the first time in my life. Today, I want to share with you why it doesn’t matter how much you make, but that it matters how much you save.  I could make $1 million dollars in a year, but at the end of the year, if I’ve spent it all, it doesn’t matter. It matters so much more how much you save, and I’m sure you will be convinced by the end of this post.

Saver Sally vs. Spender Sam

I want to share with you a story. I have 2 friends, Saver Sally, and Spender Sam.

Saver Sally makes $60,000 a year at her corporate job. She has a husband and a family, lives in a nice neighborhood, and drives a dependable car. She saves $10,000 a year in her retirement accounts.

Spender Sam makes $150,000 a year through his entrepreneurial efforts. He’s single and loves going to the bar to show off his most recent Rolex. Driving his new BMW to work, and hitting the clubs each weekend, he believes he will be able to save once he cashes out of his equity holdings, and only puts $1,000 a year towards his retirement.

Who is Wealthier: Saver Sally or Spender Sam?

Compound interest 8th wonderIf you saw Sally and Sam at the same time, you’d guess Sam was the wealthier one. With a nice car and great taste in the way he dresses, he has to be the wealthier one… right?


After one year, Sally has $9,000 more than Sam. But, Sam has a nice Rolex and a sweet BMW!

Yes, that is true, but does it really matter? With $150,000 in income, that’s great, and I’m sure he is having a lot of fun. What happens if his business goes belly up? That BMW won’t feel as nice to ride in without his paychecks rolling in!

The Power of Compounding

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

Compound interest is an multiplier of wealth. Let’s see the impact if Sally keeps saving $10,000 a year, and Sam saves only $1,000 a year. In 30 years, the results are shocking. Sally will be nearly $900,000 richer than Sam. Take a look at the calculations below:

how much you save matters

Still not convinced? Who do you think is wealthier now?

Practicing What I Preach – How I Saved 48% of My Income in 2017

I track every dollar I earn and spend. In 2017, I made just over $107,000, I saved roughly $51,000, I spent about 33,000 and paid roughly 23,000 in taxes.

While my taxes will be adjusted up a little bit because of my withholding’s on my W2, I can safely say my pre-tax savings rate was roughly 61% and post-tax savings rate was roughly 48%.

Of the $51,000 saved, I was able to put $36,000 of that towards retirement and various other investments (business and taxable account). $18,000 of that went towards paying down various debts of mine (my mortgage). I had a decrease of cash by $3,000 throughout the year.

income and savings 2017

Breaking Down My Savings into 3 Buckets: Cash Savings, Debt Reduction and Investments

I consider there to be 3 ways to save: reducing my debt, putting money into a checking or savings account, and investing in my retirement accounts, investing in my taxable account, and my business.

In 2017, I reduced my mortgage by a little nearly $18,000. This was above and beyond the roughly $6,000 I would have eliminated through the monthly principal pay down. Last February, I thought it would be a great idea to pay an extra $25,000 of my mortgage and get rid of PMI. After starting a business, and putting my money to work elsewhere, I’ve put this goal to the side. I have a 2.625% interest rate, and while $144 in private mortgage insurance adds up, I’m still about $13,000 shy of getting rid of private mortgage insurance. We will see if I get rid of it in 2018.

Putting Money to Work For the Future

In 2017, I ended up putting about $36,000 to work for the future through my investments in my retirement, business, and taxable account.

I ended up doing both my 2016 and 2017 Roth IRA contributions in full in 2017, and as well as contributing a decent amount to my 401k.

With overall savings of nearly 50% of my income, I’m very pleased with my performance. Obviously, this can be improved, and I’m going to look to save at least 40% of my income in 2018. I’ve already maxed out my Roth IRA for 2018, and will be looking to max out my 401k. We will see if I can get there!

My Tips for You to Increase Your Savings

There are 3 tips I have for you to increase your savings:

  1. Look at your expenses and identify any areas of weakness you could work on
  2. If you are employed, set up your retirement account and increase your contribution
    • At the end of 2017, I was saving roughly 6% of my pre-tax income in my 401k. Bumping it up to 20% only resulted in a decrease of cash to me of $300. I was able to up my investment amount by over $500, while only losing out on $300 in cash, for a net gain of $200 in the long run (ignoring taxes in 34 years).
    • Try bumping your contribution up by 1%. I know you can do it.
  3. Destroy Your Debt!
    • Debt is typically the biggest deterrent of saving cold hard cash. That being said, I consider debt reduction to be savings, even if it’s technically paying back your lenders for previous purchases.
    • Use your identified savings from step 1 to up your debt payment over time. Check out my free Debt Destruction Tool if you haven’t already for guidance on how to destroy your debt.

Two final resources would be to read my article for other ideas, 9 Ways to Save Thousands Each Year, as well as my friend Gary’s website, Super Saving Tips. There are so many ways to save money. Hopefully this article provides you some ideas to implement in your life.

It Doesn’t Matter How Much You Make, It Matters How Much You Save

At the end of the day, end of the year, the true winners are the savers, not the spenders.

I hope this article has inspired you to save more. It’s very possible to improve your financial situation through income creation, but also expense reduction and paying down debt.

It doesn’t matter how much you make. It matters how much you save.

Readers: how much were you able to save in 2017? Do you have any savings goals in 2018? Do you have any super saving tips?


matters how much you save
Why Saving is the Secret to Becoming Rich
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Comments 14

  1. Tracking and analyzing is key because you gain knowledge and with that, you can make smart decisions. If people don’t track, they can be in for a real shocker when they find out oh my goodness, I spent over 1,000 last year on a little thing like coffee! Saving that and compounding it as you stated can be worth thousands and thousands over the years.

  2. While I agree with this, I think you have to always realize that saving is limited to what you spend, but your earnings potential is, in theory, unlimited.

    To kind of flip your example, say that both suddenly decided that they wanted to save $20,000 per year. Who would have the easier opportunity to make that happen? Answer: the person with the higher income.

    So, while your example puts the person making ahead less today, that could be flipped pretty quickly.

    Another thing to consider, if the lower earner wanted to save even more, that could again potentially be accomplished by making more money versus making more cuts.

    I think what I’m saying is that the opportunities presented by higher income often make the pursuit of this more attractive when limited by time, which we all are.

    Just something to consider.

    1. Post

      I completely agree with you that someone with a higher income can save much more in a short amount of time – and it’s much easier as well, since a 10% increase savings relative to income would result in so much more money for a high income vs. low income individual.

      While my goal is to increase my income, in an effort to increase my absolute savings, it’s important to ensure that the extra income is allocated to savings, and not wasted.

      So while my goal and philosophy is to increase my income over time, I want to stress and point out for the average person, even with a high income and appearance of being wealthy, that there is no guarantee to wealth except saving money.

      Thanks for your counter thought.

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  3. Thanks for including me in your post, Erik! And congrats on a phenomenal savings rate! Savings should always be a consideration and tracking your expenses is definitely the way to start. There are so many ways to save on your expenses without sacrificing your quality of life.

    1. Post

      Spoken like a true saver. I appreciate your kind words and you are welcome. I love spreading the love and giving credit were credit is due.

  4. My financial goals are very simple every year. I try to increase my net worth by $100k or 10%. I am happy to share that I was able to increase my net worth by 16.8% last year.

    Saving money is not very hard. All you have to do is start making the automated deduction and direct the money to your retirement account before it gets to you. Over time, you will not notice that money and you will adjust your lifestyle to spend less.

    I have been doing this ever since I started working. Now, my savings is working very hard for me and I don’t need to save as much going forward.

    If you haven’t started, just do it.

    1. Post

      That’s a great goal and I’m really glad you were able to achieve it.

      100k on $1m is the breakeven point. Would you be happy with $500,000 on $5M or $50,000 on $5m? Just curious.

      Happy New Years Leo!

  5. Very impressive income and savings rate, Erik! That PMI though. 😉 lol Now that you don’t have roommates helping you pay it, it may become more annoying.

    We are continuing to max our savings in retirement accounts and just bumped our monthly automated after-tax savings up a bit.

    Keep up the great work!

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      Thank you Amy for your kind words and support…. but yeah… that PMI though! HA!

      I have plans to get rid of it 🙂

      2018 will be a great year!

  6. Great analytical work!

    This concept of savers being the true winners in society instead of spenders needs to be shared more. I see it way to often of colleagues who get sudden raises and then increase their living style as well.

    Also BIG CONGRATS on a post-tax savings rate of 48%. That is a major accomplishment by itself!

    Keep up the great work!

  7. I was able to get rid of my PMI by hiring an appraiser for $300. Then, I presented it to my mortgage company saying that the house is valued more than 80%. They removed the PMI. Hope this helps. All the best, Nevada

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