In two months we were able to increase our savings rate from 25% of our net income to 50%. Since we gave ourselves a 7 year deadline to call it quits from the rat race, the importance of jacking up our savings rate in a timely manner was number one on our FI course correction list.

Achieving a 50% savings rate in such a short amount of time is not impossible, as long as you don’t have a lot of debt to pay down, and you can stomach the shock to your ecosystem.

If you don’t already have a high savings rate, it’s likely the excess money you are spending funds a hobby or social activity you enjoy. To suddenly cut your spending, means to suddenly cut out a portion of your life. You have to fill the void you create when you begin to curb your expenses. Otherwise, you will feel deprived, and this will lead to failure.

There is a balance to quickly jacking up your savings rate, while maintaining maximum happiness. The point after all is to be Happily Disengaged from the pit falls of consumerism, not unhappily disengaged.

You’ll see below how we made this savings rate change so quickly, while trying our best to maintain what we value in our life.

Track Every Single Dollar

Great book keeping starts with a purpose and close tracking of every dollar. What is your purpose? Why do you want a higher savings rate?

Early retirement became our purpose and Personal Capital helped us closely track our dinero.

Start tracking every dollar coming in and out of your bank account. If you really want to up your savings rate, then your lifestyle has to change. There’s no way around this. Prior to committing to FIRE, we didn’t check our bank account nearly enough. Once we started tracking every dollar, we were astonished by our wastefulness.

There are two categories that you have when it comes to expenses. Hard Expense and Soft Expense. These are the two buckets that you can use to separate your transactions as you go down your list of spending to get under control.

Hard Expense Vs Soft Expense

Hard Expenses are immovable. These are the things you pay to the government or banks. Yes, you can cut these down, but your monthly output is an agreed upon amount, and will not fluctuate month to month, unless you have been over paying.

• Mortgage or rent- can be reduced by refinancing, selling, moving, or getting roommates
• Student/Boat/Car Loans-can be reduced by refinancing to a lower interest rate.
• Taxes-can be reduced by getting into a lower tax bracket. Maxing out a traditional 401k is an easy way to get your income down.

Soft Expenses are movable. They will vary month to month.

• Groceries- I personally struggle with this one, my goal is to get it down to $200 a week or less.
• Gas/fastrak/car maintenance
• Restaurants- This is an easy one to get rid of. This was our savings rate destroyer.
• Clothing
• Amazon/General Merchandise- this was very tough for us to cut down. I’m a self diagnosed bookaholic that will now have to get my fix from the library once they reopen.
• Vacations
• Alcohol/Bars/Clubs
• Cable and Internet
• Personal Care
• Insurance
• Phone Bill

The list of soft expenses can be much longer than what I’ve listed above. Summed up, it’s what you don’t owe anybody. You soft spend on yourself or your family. This is the category where you can make the most strides at upping the savings rate. An easy way to decide what is essential soft spending is to write out a list of what makes you happy in everyday life. Then see how each expense line item correlates into your happiness, because at the end of the day, it’s all about happiness, right?

Restaurants Ate Our Money (and savings rate)

We ate out a lot. Hijole de la chingada did eating out add up. When we didn’t eat out for dinner, we Door Dashed in. For lunch, the both of us ate out, every single day. It was the rare occasion that we brought lunch to work, and there were times I’d drop $20 dollars a day on food at work. $8 for coffee and croissant on my walk to the office from my car. $10 easy dollars on a burrito or deli sandwich for lunch. The weekends were no different, except we brought the girls along and alcohol added to the bill.

Our biggest and easiest excuse to spend this food money was: “I’m too tired to cook. Let’s just pick something up.” or “I’m too tired get up earlier to make a sandwich. I’ll buy lunch.”

We both work and commute, but being too tired (lazy) equated to a loss of $15,204 spent on eating out in 2019. This is also compounded by a hefty average monthly grocery bill of $1,200 or $14,400 annually. So in essence, we spent $29,604 in 2019 on food! Ridiculous.

Here’s what we spent on restaurants and eating out for lunch in 2020 to date:

A Savings Rate On FIRE

We thought a 25% savings rate was above average, until we started reading up and listening to podcasts about FIRE.

When we were living with our eyes closed the Unhappily Engaged savings rate was just 25%

Since we’ve awakened and become Happily Disengaged from consumerism, our current savings rate is now 50%

Below are a few personal instances where we almost succumbed to lifestyle inflation, and got ourselves into debt. We dodged some bullets and here are our survival stories:

Case #1 The Home Improvement Bullet

In 2017, we decided to replace the carpet in our home with hardwood flooring using a $3,000 bonus I’d received from work. The carpet had a number of stains on it and it was time to upgrade. We found a product we both really liked, but it was way over our initial budget. After some fast debating in the store we talked ourselves into being able to afford it, if we put it on credit.

I remember standing in line at Lowes, waiting to try and get approved for a credit card so that we could buy the top end flooring for $8,000. Looking back, I’m so happy now that the line for customer service was long. This gave me time to reflect. In the pit of my stomach I knew something was wrong. It was that same type of instinctual feeling I got when I enter a bad neighborhood at night. Standing there, with the wrinkled paper quote in my hand that they’d printed for me in the flooring section, I had time to think about the price. I needed time. A buffer. We walked out of the store empty handed. Eventually we paid $2,000 cash a week later for an equally great Chinese product that has lasted years.

Bullet dodged.

Lesson learned: Do not impulse buy. When buying a big ticket item, do not go into a store without an exact product in mind…or this will lead you off the path. Follow this advise for purchases.

Case #2 Upgrade Furniture Near Miss

When you walk into our house there is one big room with high ceilings and a combined dining and living room space. Its a huge space, nearly 700 square feet. And this giant room remained completely empty for four years. A few times we felt the need to go out and buy big expensive dining table and couches to fill in the room. Some days we’d take a stroll through Ashley Furniture or Import 1, but the prices always scared us. $4,000 for a couch. $3,000 for a table. $900 for wall art.

Luckily, we didn’t buy a dining table till we hosted Thanksgiving last year, and we’ve only eaten at it twice since. The table we purchased at IKEA for $300. The couches in front of the TV are second hand; passed down from Mrs. Disengaged’s sister to us some years ago. I’ve been thankful for the used couches since my daughters are known to use it as a napkin.

The same goes for our mattress. We’ve had the same mattress since 2011. It’s a cheap mattress, but good enough for us. Every time I used to see a mattress commercial my ears would perk up. I equated being tired with not having a good mattress. We even went down to the mattress store once and laid down in all the different types of over priced foam. $4,000 dollars for a mattress? Are you kidding me?

But you’re investing in your sleep, in yourself. No, no you are not. Investments appreciate. The mattress will depreciate. Here’s how I get the mattress bug out of my brain: For centuries, did not having a memory foam mattress hinder the progress of the human race? What kind of mattress did Hannibal sleep on as he campaigned successfully for over a decade in Italy? Did sleeping on a Tempur-Pedic inspire Johnaes Gutenberg to invent the printing press? Did George Washington sleep on a Sleep Number dreaming of paying less taxes? Was Emiliano Zapata cuddled up tight on a Casper each night as he rode on Mexico City?

Bullet dodged.

Lesson Learned: Don’t let marketing and HGTV fool you into thinking you need to fill your home with new things we may hardly use. Don’t let the consumerist culture brain wash you into thinking “you need XYZ to live better”. The human race has done fine for centuries without XYZ product.

Case #3 Pay Raise Ready For A Boat Bullet

In 2018, I jumped ship and went to work for a smaller, up and coming company. I received a massive pay increase of 33k per year. This sudden flood of money suddenly sparked ideas that I now needed a boat or RV. Luckily, when we purchased my home, I was blind to the lot line on one side of the house.

It’s amazing to me that I didn’t consider this lot line issue until after I purchased the home and lived in it for a few months. I’m not saying I didn’t know anything about the reduced lot line and driveway. I was just blinded by love of the house. After our first year there, the lot line started to bother me. I started to think I rushed into buying the home. Everything was perfect with the house, except for the lack of driveway space to park a trailer or boat.

Why hadn’t I considered a space for my future boat or RV? How could I have been so dumb? These were my thoughts when I drove past boats and RV’s happily parked in their owners driveways. Look at those lucky bastards, I would grimace. I can afford one of those (not really, I would have had to get a loan). I could be like them (in debt up to my nose), if I only had a bigger driveway.

But now, I thank the Money Gods I didn’t have the driveway space…or I’m certain I would have a large hunk of expensive fiberglass sitting in my driveway, smothering out any potential high savings rate.

Bullet dodged.

Lesson Learned: This was just sheer luck I bought a house with a small driveway. The saying “everything happens for a reason” comes to mind. Buy a small house. This way you can’t physical fit things into it or around it.

Here are some adjustments we made that attributed to our 50% savings rate. Cost is in monthly expense:

SiriusXM-$20.63 CANCELED I now listen to podcasts on my commute.

Old Gym-$49.99 CANCELED Mrs. Disengaged’s old membership and unused for nearly a year. The gym locked us into a contract. She does a cross fit type gym these days, which is actually more than this monthly expense-but brings her happiness.

Home Depot, Lowes, Capital One Credit Card-$150.00 CLOSED Just paid these suckers off. Total balance was around $700. These stupid cards offered no rewards, and we always paid the minimum. Que tontos.

Amazon credit card- $75 CLOSED Why we had this, I’ll never know. But this is proof of our prior financial idiocy.

Not Eating Out-$1200+ HABIT CHANGE Game changer right here. To beat out this expense, the both of us will take an active part in cooking every night. We do have a plan to eat out, just once or twice a month. We love food. The hope is that the experience of eating out will be even more special when we don’t do it all the time.

Haircuts-$20-$40 a month GONE A strictly Mr. Disengaged line item. Mrs. Disengaged cut my hair with clippers at home this month. Does it look good? Well….Did Mrs. Disengaged get a little too creative on the back of my head and then try to hide it? No, of course she didn’t. Here’s to hoping Mrs. Disengaged starts watching more YouTube “how to cut men’s hair” videos.

It took tracking our expenses and discipline to get from a 13-20% to 50% savings rate. We also cannot discount the COVID induced lock down. It is and was, a savings rate boot camp. This economic shuttering created a gigantic boost to our savings rate. Though it comes at a horrific period in all of our lives.

We did not cut everything…

There were some low hanging Soft Expense fruit that we decided not to pluck. Increased happiness is the driving factor for pursuing Financial Independence after all.

If it makes you happy, continue to buy it.

A couple questions we asked ourselves when red lining our soft expenses:

“Does this bring us joy?”

“Will I be less happier without this in my life?”

“Is there a cheaper way to get the same thing?”

This is what we kept around:

Spotify- $9.99 We need music in our lives. Mrs. Disengaged and I share an account. For the most part it works, nothing like changing Mrs. Disengaged’s song to some Mac Dre or System of A Down while she’s happily jammin’ in her office at work.

Gym Class Account-$79.00 Mrs. Disengaged is passionate about working out. She loves the class room setting and working out around other people. Something she doesn’t get with a regular gym membership or at home. Happy wife happy life.

Marijuana-$100+/- Life is stressful. Somethings are just better when you’re high. We are looking into growing it as a cheaper substitute.

Lastly, we don’t put everything left over into Vanguard. We like to keep roughly 3k to 4k in our bank savings account. An auto transfer $150 bi-monthly into our bank savings account keeps this up. We use this account for travel, date nights, and unexpected expenses…like the looming washer and dryer.

How we calculated our savings rate

Okay, we know that this is a loaded question.

Big ERN has a wonderful article about savings rate calculations.

And Mr. Money Mustache wrote a classic about the power of the savings rate.

Here at Happily Disengaged, we did our savings rate calculations in the simplest manner possible, and yes, feel free to pick it apart. But this calculation works for us and we feel it is a conservative number. Net money in vs money out. We like being conservative in our forecasting and calculations. Included, are our 401k contributions. We ignored employer match. Ignored mortgage principal pay down. Ignored taxes. I ignored my Union Pension and Union Annuity.

Muy facil math!

Total Net Monthly Income – Total Monthly Expense = Savings Monthly

Savings Monthly/Total Net Income x 100 = Savings Rate!

Savings Rate correlation to your retirement date

Your savings rate is inversely tied to your retirement date. For someone like myself, who is planning on retiring in 7 years or less at the age of 43, the savings rate is critical to our Financial Independence plan. Without getting too tied down into the 4% rule, lets go over how early retirement and Savings Rate are joined at the hip.

To retire, the rule of thumb is to save 25x your annual spending. Whatever that savings number ends up being, it’s your Financial Independence number. You will then be able to draw down roughly 4% of this savings for the rest of your life. This is based on the Trinity Study, a retirement study on safe withdrawal rates conducted by professors from Trinity University in Texas.

Your income level is not as critical as you might think. It’s all about the percentage of income you save and invest, and the percentage of income you spend on everyday life. The higher rate at which you save, the number of years you kick off your retirement date.

Check this calculator out.

25% savings rate puts your retirement date out about 32 years.

50% savings rate puts your retirement date out about 16 years.

75% savings rate puts your retirement date out about 7 years.

Keep in mind this all depends on your rate of return on investments. I assume a conservative 4% return in pure equities. Though the next decade is predicted by Vanguard (and other firms) to return much less that what we’ve seen.

Happily Disengaged’s FI number

Here at Happily Disengaged, we are 13% of our way to our FI number of 25x our annual expenses.

My 5-7 year retirement date is on the optimistic side, but there are a few things that will help us keep or beat this self-imposed time line.

We will rent out our primary home to generate cash flow, and we likely will purchase another rental property in the next 1-2 year horizon to add even more cash flow and diversify.

I also will receive a pension from the Northern California Carpenters Union that I can collect at age 55.

In the past, I’ve had an annual bonus (pre COVID it was 10% of annual gross income, they’ve already hinted that this year expect nada) from my employer. And I receive a vacation check from the union once a year on February 1st. I am not factoring in the income from the vacation and end of year bonus. These will be sweet surprises to our nest egg.

My salary has also been cut 20% due to the COVID crisis (all of my math for our 50% savings rate is based on this reduced 20% income). If and when my salary is reinstated (fingers crossed), the 20% will go right into investment vehicles, effectively upping our savings rate by 15%-20% depending on the exact after tax amount.

Happy Savings.