Photo: Beautiful sunrise on the beach in South Padre Island, TX. Taken October of 2012.
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 is to reach 50% every month, but there have been a few months this year that have not reached 50%.
In the month of August, we had my wife's last semester of grad school to fund and we bought an October flight to Nebraska for my grandmother's 80th birthday. These expenses affected our savings rate more than expected.
The image above shows our 2015 August spending rate, which shows about the same amount spent on education and savings. Below is the percentage breakdown of the spending rate.
- Education: 32%
- Savings: 25%
- Vacation/Travel: 13%
- Donations: 7%
- Groceries 4%
- Auto 4%
- Health and Fitness: 3%
- Other: 12%
The Savings rate was only a measly 25% in August, which is disappointing, but it would have been 57%, without the Education expenses. This was the last tuition expense for my wife and I, so we won't have to worry about this expense in the future.
Now, let's look at the yearly total and see if we are on track to hit a 50% savings rate:
You will notice that the savings rate is nearly 50%, but the education expense has once again kept us from reaching the 50% savings rate. Below is the complete data of the yearly spending rate.
- Savings: 41% - decreased by 5% from July
- Education: 12% - increased by 3% from July
- Donations: 10% - stayed the same
- Auto: 6% - increased by 1% from July
- Vacation/Travel: 5% - no data on increase/decrease
- Groceries: 5% - no data on increase/decrease
As you will see, we are a little bit under our goal for the year, but hopefully we will be able to catch up over the next few months of the year. I am okay with the lower savings rate, because paying for a master's degree is an investment in ourselves. Not that it is consider savings, but the investment could lead to a higher earning potential.
The higher savings rate in proportion to your income is the biggest factor in building wealth. So, I want to encourage you to start saving more money monthly. How much are you saving monthly? Is it more than us? Comment below.