This article is part of the My FI Journey series – click here to access the full journey.
The Journey Begins
I have started focusing on Investing. I am learning that it is not easy to beat the market – I am making money, but the market is up more. It would have been better just leaving my money in a low-cost, diversified index fund like VOO.
Also, I am spending a lot of time researching and figuring out where to invest – I own more than 20 stocks.
I decide to simplify my investing and build my portfolio with broad-based low-cost index funds. I will still invest in individual stocks, but maybe 2 – 3 companies (and not 20).
Focus on Saving
The more important thing that I am learning is that no matter how much I earn from my job or investments, it does not matter if I do not control my spending. There is no limit to what one can spend. Earning more does not matter if I also end up spending more.
I share my newfound wisdom about spending less with MrsFiner. She points out that she is already frugal – so if anyone has to reduce their spending, it is me!
This is true; I can certainly spend less!
I come across an interesting graph that shows the relation between savings rate and retirement:
Savings rate is how much of your income you save. For example, if you make $100K a year and spend $90K (and save $10K) – your savings rate will be 10%.
My savings rate is around 15%. As per this graph, I would have to work for about 45 years to have enough money to retire. I am in my 30s – this means I will have to work till I am 75! This is depressing.
The Turning Point
I keep thinking about the above graph, and it makes more and more sense. Not only does Saving help you get to retirement sooner, but it also helps you stay retired by keeping your expenses under control after you retire.
It seems like Saving may be the most important pillar of the three!
I now need to figure out how to increase my savings rate. But I don’t know where my money goes – I have never done a budget or tracked my spending.
What is the point of working hard and earning money if you cannot spend as you like? I can come up with ten more reasons why I should not focus on saving. But my perspective on saving has changed now. These reasons do not feel that important – what feels important is that I need to increase my savings rate. And making excuses is not going to help.
The next step is to figure out exactly how to increase my savings rate.
Looking back, it seems obvious that I should have focused on Saving in addition to Investing. But, I guess you have to learn some lessons the hard way in life!
I am now kicking myself for not starting on the Savings path sooner! Well, as they say – better late than never…