We all know we need to set money aside for our retirement, emergencies, and short-term financial goals, but there are those among us who commit to a higher savings threshold — who sock away far more money on a monthly basis to build a financial arsenal.
Some funnel 20 percent or more of their income away to fund an early retirement or leave a financial legacy for their heirs. Others are willing to sacrifice luxuries today in exchange for a more extravagant lifestyle later on. And still others simply can’t sleep at night without a few extra zeros in their savings account.
“We typically recommend that clients save between 15 percent and 20 percent of their gross income into retirement accounts, but I occasionally run across people who save 20 to 30 percent or more,” said Paul Tokarz, a MassMutual financial professional, in an interview. “It’s rare, because in today’s society there are so many distractions on things to spend money on. It’s usually about their upbringing and how they were raised.” (Related: Saving strategies)
There may also be a cultural component at play.
According to a recent survey by The Ascent from The Motley Fool, “people of color” (which refers to all non-white respondents) are less likely to have savings accounts than white Americans, but when they do save, they tend to save a higher percentage of their income. Roughly 54 percent of people of color with savings accounts put away more than 10 percent of their income per year, compared with 36 percent of white Americans.1
Off all ethnic groups, Asian Americans were most likely (27 percent) to sock away more than 20 percent of their income, followed by Black (25 percent), Hispanic (21 percent), and white (15 percent) savers. Asian Americans were also most likely (91 percent) to invest in stocks, followed by white (83 percent), Black (70 percent), and Hispanic (63 percent) investors.
Super savers can teach the rest of us a lot.
Here, experts offer four easy ways to join the ranks of the super savers without disrupting your lifestyle.
Use new money
Indeed, while financial professionals typically recommend that working Americans save from 15 percent to 20 percent of their gross income each year to maintain their standard of living in retirement, those looking to boost their annual savings often have more luck building slowly into the 20 percent or more savings club, said David Bize, a financial professional with First Allied in Oklahoma City, Oklahoma.
“The pattern I encourage is to start saving as soon as possible, preferably 10 percent, and then increasing incrementally with promotions and raises,” he said in an email interview. “Then, when the nest is empty and the finish line is in sight, save as much as possible if they want to reach the end zone as soon as possible.”
Bize said he instructs clients to increase their savings by 50 percent of any promotion or raise, and to keep the other half for lifestyle expenses.
“The trouble was that there was always something getting in the way of saving — a new child, new roof, new car, or bigger house, which is why I tend to focus on the empty nest period when most of those growing pains have subsided and they can see the light at the end of the tunnel,” he said.
Set a goal
Bize emphasizes the importance of planning. Money should not be saved simply for the sake of saving, he said, but with a specific goal in mind. By crunching the numbers to determine how much you need to reach your goal, you can develop a meaningful budget for saving and spending.
Importantly, a financial road map also keeps savers motivated as they set and reach attainable milestones. (Calculator: Setting financial goals)
“Money saved should have a goal, so the amount and how it should be invested (CDs, stocks, etc.) can be calculated,” he said.
Generally speaking, Bize does not recommend saving every penny of disposable income, but promotes instead enjoying life at every phase.
“Life is a journey, and I honestly think people should have a balanced lifestyle, which is different for everyone,” he said. “If people live too frugally to reach a goal, then their life’s journey may not be all that enjoyable.”
Balance is also central to a productive investment strategy. If you save all of your money in a federally insured bank account, that money is technically safe, but it could be losing purchasing power due to inflation.
Indeed, an overly conservative savings strategy presents a risk of its own, denying those dollars the opportunity to grow through more aggressive savings products or investments.
On the other hand, those who invest all their savings into more aggressive vehicles may be putting too much of their money at risk, especially if they try to time the market or fail to diversify their holdings. Dollar cost averaging, which entails investing a fixed dollar amount regularly into a portfolio of stocks or mutual funds, may help reduce the impact of market volatility over time. That, in turn, experts say, may help super savers (and all investors) stay the course when the markets take a dip. (Learn more: Understanding asset allocation)
A financial professional can help investors develop a balanced asset allocation strategy that factors in their time horizon, goals, and tolerance for risk.
Start a side gig
There’s no better way to boost your savings, of course, than to make more money. If you can’t manage a promotion at work, you may be able to augment your income by starting a side job or business.
If you’re an IT professional, for example, try consulting during your downtime. Teach English (or a foreign language) at home. Rent a room out in your house, start a blog, or become a virtual assistant. There are literally dozens of creative ways to create more cash flow. (Learn more: Summer job ideas for making extra money)
A 2022 Bankrate survey found 31 percent of U.S. adults have a side hustle, bringing in an average of about $996 per month. Millennials are most likely to have a side hustle (38 percent), followed by Gen Zers (34 percent) and Gen Xers (33 percent). Just 21 percent of baby boomers have a side gig.
If saved or invested with purpose, that money can make a big difference to your long-term savings and you won’t have to downsize your lifestyle today.
Whether you plan to retire early, wish to leave your grandkids an inheritance, or simply prefer a bigger financial safety net than most, chances are good that you can boost your savings significantly by making smart choices today. All it takes is a little sacrifice and some vision.
“The people who are systematically saving 20 percent or more have a very defined vision of what they want their future to look like,” said Tokarz. “They have goals. It’s very hard to mold financial habits if you don’t have that vision.”
Discover more from MassMutual…
Calculator: How much should I save for retirement?
This article was originally published in August 2019. It has been updated.
1 The Ascent from Motley Fool, “Study: Race and Personal Finance in America,” Oct. 15, 2020.