How I Saved This Year

I'll admit it. I'm a financial planner who is relatively lazy when it comes to his own plan. I don't have a spreadsheet that tracks every dollar coming in and going out. I automate everything I can. There is no formal, written document. That all said, I do an exercise around this time every year that is always an ongoing focus and priority and has the ability to override other shortfalls I could be criticized for.

How much of our income were we able to save and invest? 

I'm happy to report that our 'number' was at 30% this year. It's been a long grind to get there, and our goal is to continue saving at an upward trajectory. Overall, I think we've done a decent job keeping expectations below income, and being consistent over time. The savings was broken up between my 401(k), IRA's for Lauren and I, 529 accounts for the kids, a savings account for a home renovation, and a general brokerage account. I largely invest in the same portfolios that many of our clients use. I also continue to invest in my own business, which is kept separate from this exercise.

Calculating this figure literally took me ten minutes. I have peace of mind and confidence that our work is largely done before money hits the checking account, all due to  automation. This in itself makes spending decisions easier because I know we've already hit our savings bogey.

I write this to show that it is possible to measure progress without being overly specific. And it's possible to do this with something that should be the absolute priority of anyone trying to build wealth. A consistent and increasing savings rate over a long period of time will provide a margin of safety to cover up other notoriously unstable factors that are inputs into the process, like investment returns. And with our current reality being a combination of low bond yields and historically expensive equity markets, investors should be prepared for a world of lower than average returns in the coming years. If your savings rate is great, you can overcome that. If you're relying on high investment returns to offset a poor savings rate, you're likely to run up against problems.

So if you're not sure if you're doing the right thing with your money, start here. Don't overcomplicate things. Keep it simple. Be patient. If you consistently get cash flow right, you're probably 80% of the way towards where you need to be.