Photo: I was in my hometown's post office this weekend and found the old rustic style of the post office to be neat. I took some photos to use on this blog (be looking for more in the future).
One of the best ways to build wealth and reach the financial summit is to have a high savings rate. As I detailed in an earlier article, our savings rate has continued to increase since last June. So, I decided to do a monthly article on our savings rate and explain what caused the increase or decrease in the rate. Our goal prior to purchasing a house was 50%, but now a decent chunk of our income will be going towards the mortgage payment. I do include a portion of the mortgage payment as savings. This is because the payment that goes towards principal is paying off the house and that money is an investment. Our first mortgage payment was due October 1, 2015, but most of our monthly savings was done in the middle of the month, so we started paying our mortgage early and made the first payment on September 14, 2015. The monthly mortgage payment percentage breakdown currently looks like this:
- Principal: 42.7% (Savings)
- Interest: 31.8% (Mortgage)
- Homeowner's Insurance: 4.3% (Insurance)
- Taxes: 22.2% (Mortgage)
In the month of September, we paid our first month's mortgage payment, saved some money, spent some money on travel (rental cars and parking), and bought a new mattress for our house. All of these expenses effected the savings rate, but I am still impressed with the amount of money that was placed towards saving and investing.
The image above shows our 2015 September spending rate, which shows most of our spending going towards Mortgage and Savings. Below is the percentage breakdown of the spending rate.
- Savings: 37% (include principal from mortgage)
- Mortgage: 12% (only include taxes & interest)
- Household: 10% (purchase of new mattress and frame)
- Vacation/Travel: 8% (rental car, airport parking and hotel)
- Donations: 8%
- Auto 5% (gas and repair)
- Groceries 4%
- Other: 16%
The Savings rate was only a measly 37% in September, which includes principal paid on the mortgage. We paid the bare minimum on September 14th, and on September 28th we paid and extra amount on the principal. We paid whatever money was leftover in our budget. I will continue to do this monthly. Anything extra leftover will be thrown at the house to try to pay it off early.
Now, let's look at the yearly spending rate to track our yearly savings:
You will notice that the savings rate is the largest amount of our monthly spending. Below is the complete data of the yearly spending rate.
- Savings: 41% - No Change from August
- Education: 11% - decreased 1% from August
- Donations: 10% - No Change from August
- Auto: 5% - decreased by 1% from August
- Vacation/Travel: 5% - No Change from August
- Groceries: 5% - No Change from August
- Health and Fitness: 3% - no data
In August, I mentioned that we had a 50% savings goal. This goal will be re-evaluated after a couple months of mortgage payments. We are still going to try to put a decent amount in savings and I would consider 35% a decent number (since we are losing money to homeowner's insurance, mortgage interest and taxes on the house). I will continue to update you on our monthly spending and hopefully we can get a grasp on how much we will be saving monthly.
As always, the more you can save, then the faster you will reach financial independence. Financial independence has been slowed a little bit due to the expenses associated with a house (homeowner's insurance, mortgage interest and taxes). Without these expenses, our savings rate would be much higher. I don't regret the decision, but I do understand that it will slow up financial freedom. Take a look at your finances. Can you make any changes to get yourself to a higher savings rate? What goals can you set to improve your financial footprint?