In only a few years, we were able to drastically alter our financial situation. We increased our savings rate by 65% (from 13% to 78%) – 6 times our initial savings rate – and increased our income by 437% – 5 times our initial income – all without impacting our standard quality of living.
The steps we took to get here might not be as drastic as you’re initially thinking. We didn’t live out of a van and we didn’t eat ramen for 3 years straight (we’re plant-based). We did so with dedicated effort and purposeful plans to take control of our financial lives and future. Focused spending, strategic cost-cutting, and intentional saving enabled us to increase our savings rate to 75%+. Obtaining marketable skills, focusing on high ROI ventures, and continuous learning enabled us to increase our income by 5x.
And we know that if we could do it, so can you.
What is a Savings Rate?
Before we begin, it’s important to know what a savings rate is. A savings rate is integral to helping you map out your personal finances. It helps you understand what you’re saving, and a higher savings rate will enable you reach financial independence sooner.
To figure out your savings rate, simply take your monthly savings and divide by your monthly income. Then multiply by 100 to get your savings rate percentage. As an example, if you had $2,000 in savings and $6,000 in income each month, your savings rate would be 33% ($2,000 / $6,000 = .3333 or 33%).
The more you are able to save, the higher your savings rate. If you are able to save and invest your money with a 5% annual return (assuming a current zero net worth), you will be able to cut down the amount of working years until retirement.
| Savings Rate | Working Years Until Retirement |
|---|---|
| 5% | 65 |
| 15% | 42 |
| 25% | 32 |
| 50% | 17 |
| 75% | 7 |
| 95% | 2 |
For everything you need to know about savings rates, check out our guide here. If you know your way around the calculations and popular strategies on how to increase your savings rate, feel free to continue on to our story. A lot of the strategies in our savings rate guide are emphasized below, but shown in a way that illustrates how to apply these basic financial principles. So if you’re ready to begin, let’s climb.
How We Increased Our Savings Rate From 13% to 78%
We have always been pretty frugal by nature, so it was with a fair amount of ease that we were able to keep our spending within reason. We lived within our means and didn’t spend more than we had. When we first got married we didn’t have much money at all. While we were still students finishing out or final years of schooling, we were blessed to have avoided student loans and graduate without any debt. We worked hard for scholarships and were disciplined in our studies and our financial habits. We didn’t operate fully on a scarcity mindset, but we were mindful of our resources and avoided debt while living within our means.
Focused Spending
We determined early in our relationship what was important to us, which allowed us to focus our spending on things that would return a high value on our happiness and quality of life. To us, that meant things like our home. Small and simple wall art and a few plants made our tiny apartments feel like a place we could call ‘home’. The hanging of a few inspirational pieces gave us space to remember our beliefs, and provided a place for us to find refuge from the storms of life. We simply didn’t spend on things we didn’t need. And that pattern has continued even though our discretionary money has increased.
We developed a budget early and stuck to it (granted, we didn’t have the money to budge it at first). We opened a select few credit cards to take advantage of the points to find ways to travel and visit family, but paid them off every month and kept our utilization under 10%. Other than the basic necessities of life, we didn’t spend much. We saved money for date night (because dates don’t stop after you say ‘I do’) and to dine out once or twice a month. However, we never felt to spend on those activities lavishly (our happiness always seemed to top off around $40 for a meal out. Anything beyond that spending level provides us a diminishing return for what we feel we’re getting out of it).
While we could have cut back more on spending in other, more drastic ways, we didn’t feel pressed to. We were already living pretty frugally and without a lot of excess (we Marie Kondo’ed our apartment and scaled down our wardrobes and items to the things we enjoyed). But we weren’t afraid to spend on things within reason if we felt it could add to our lives. We were deliberate in this way. Given Bethany’s health complications, sacrificing the quality of life that was inside our control wasn’t something we felt inspired to do. Considering the cards we were dealt, we played them the best we knew how, and found ways to optimize the other spheres in which we lived our lives.
Strategic Cost-Cutting
As John entered the workforce, we found that money wasn’t as tight any more. Despite that fact, we noticed that our spending began to shift in certain categories. Suddenly transportation costs began increasing as he had to find his way to and from work each day. Housing also began to get a lot more expensive outside of student housing. Thankfully, our food costs stayed relatively the same, since the only times we weren’t eating a home-cooked meal was to go out for a pre-budgeted dining experience.
Strategically cutting back our major expenses – housing, transportation, and food – made an incredible difference with our savings. We took the opportunity to move downtown and be closer to John’s work. There was a slight bump with our housing costs increasing, but the decrease to our overall transportation budget far outweighed that increase. We were now living downtown with greater access to everything we once needed a car to enjoy. We could walk places, enjoy a healthier lifestyle, decrease our carbon footprint for the planet, and only need to fill up a tank of gas once a month. We took this a step further when we went full-time remote, allowing us to rely on a car even less.
We started optimizing our food costs as well. We began batch cooking meals, where we could save on larger amounts of ingredients that we would use up instead of purchasing ingredients for a recipe that we would only use once. Not only that, but we always had fun together in the kitchen!
Housing, of course, was still our biggest expense. But the previously strategic decision to move downtown paid off when a house-hacking opportunity in our neighborhood arose. We had considered purchasing a home to begin building wealth, but ended up taking an after-hours job as night managers for the building we were living in instead. As a result, we were able to decrease our housing costs by ~98% without compromising our quality of living (in fact, we ended up doubling our square footage and quintupling our window count, and only had to move to the other side of the block). Strategically keeping our housing costs low has been a consistent goal of ours, and doing so has paid off no matter where we’ve lived. Keeping a focus on and an eye out for opportunities to save on your biggest expenses will always reward you.
Intentional Saving
Our religious and personal finance beliefs guided us to live within our means, and to prepare for the future. We believe in self reliance, and we started contributing (meagerly) to investment vehicles that we knew were available to us. John had access to his 401(k) account and an HSA savings account. We had no idea what we were doing initially, and it was difficult to forward that money to an account that wasn’t our bank. However, as we began learning more about personal finance and what to do with money (once we finally had money to consider doing something with), we learned how to leverage these tax-efficient resources. They lowered our taxable income while pumping money into our savings, and as our accounts began to grow we began to understand the value of saving.
We also learned about the magic of compounding, and how to take advantage of it by investing in low-cost index funds. This way, we could begin making our money work for us, and kept the coinciding negatively compounding fees as far away from our growing nest egg as possible. What started out as a few hundred dollars invested each month doubled suddenly with employer’s 401(k) and HSA matching benefits. We learned never to leave free money on the table. And the more we saved, the more the balances in our accounts grew.
We did our best to read up on investing, and determined that the money we had left over needed to do something besides sit around in our bank accounts and lose value (since the interest rate of our savings account would never keep pace with inflation). We set up personal IRA’s for each of us, and maxed them out. And we began maxing out our 401(k) and HSA accounts as well. The more money we had available, the more we started saving and investing. We eventually opened up brokerage accounts with Vanguard and started investing in their index funds as well.
We did this all while keeping our spending level relatively the same. We found a flow that was sufficient for our needs, and the excess we put to work so that we could be faithful concerning the few things we had been given (Matthew 25:14-29). The more money we made, the more we saved. And we started to really focus on how to increase our income, which continued to drive our savings.
Increasing Savings Rate By Increasing Income
Before continuing, we want to emphasize our core strategy behind increasing our savings rate. We believe that you can increase your savings rate in the short term by cutting back on expenses today, but that the best way to increase your savings rate over time is to continually increase your income (while holding your expenses at a relatively constant level). You can’t spend less than zero dollars, but you can tap into limitless earning potential.
Optimizing both short term and longer term savings rate strategies will bring immediate growth while also securing growth over time. But as your income grows and your expenses remain constant, you’ll be able to reach financial independence quicker than any other way. To us, that’s the main point with increasing your savings rate. While it may be tempting to inflate your lifestyle as your income grows, you don’t need to.
If you’re perfectly happy with your life at a $50,000 spending level, there’s not a huge reason to change it. Spending more won’t make you happier. If you don’t need more don’t spend more. You can also find a much more comfortable standard of living at a higher income and expenses ratio than a lower one. We illustrate this example of a 75% savings rate below.
| Annual Income | Annual Savings | Savings Rate | Annual Expenses | FI Number (Annual Expenses / 4%) | Years to FI |
| $75,000 | $56,250 | 75% | $18,750 | $468,750 | 7 |
While possible to some, it may be very difficult to live off of $18,750 each year. Especially for a family. Instead, focusing on the upside provides a lot more comfortable standard of living while still achieving the same savings rate percentage.
| Annual Income | Annual Savings | Savings Rate | Annual Expenses | FI Number (Annual Expenses / 4%) | Years to FI |
| $200,000 | $150,000 | 75% | $50,000 | $1,250,000 | 7 |
Enhancing your income means that you can continually scale your savings rate. If your income continues to increase, your savings rate can increase to 80% or 90% without having to change your lifestyle, versus cutting back your expenses every time you want an extra percentage point of savings. For more details on this point, check out our article here.
How We Increased Our Income by 5x
The difference maker for scaling our savings rate was the emphasis we put on increasing our income. We didn’t cut back drastically after after having found a comfortable level of spending. Given our life circumstances, it would have been harmful in far too many ways to compromise our standard of living and to cut deeper into our spending. We believed that we couldn’t spend less than $0, but that our earning potential was unlimited – and we would later discover that to be true.
We lived within our means and spent enough for our needs and a few wants from time to time. But other than that, that was it. We enjoyed this approach because it meant we could maintain this standard despite the potential upside. We didn’t want to inflate our lifestyle, and we didn’t. We eventually were able to 5x our income in only a few years. Keeping our spending level the same meant that our savings rate began to skyrocket. Here’s how we did it.
Obtaining Valuable Skills
We began investing in ourselves and our skills. We both took time seek out programs where we could gain marketable skills in an industry with high demand. We made a calculated decision not to pursue extremely advanced degrees that would take years or decades of additional training, schooling, and cost us money we didn’t have. As a principle, we don’t believe in debt and weren’t willing to make it a master to us (Proverbs 22:7). We had been living debt-free and maintained to keep it that way.
We found programs we could take full or part time that would put us in favorable positions in the technology industry. We worked hard and dedicated ourselves, often putting in 12 hour days. Months went by, but we kept at it. We staggered our pursuits, so Bethany could get her additional education while John held down the fort at home. After her program ended, we reversed. Bethany managed life’s challenges while John focused on work and study. Within 11 months we were both able to finish our education and begin new, higher-paying jobs. It took time to transition to a new industry without experience initially, but once we were in, the floodgates opened.
Focus on High ROI (Returns On Investment) Pursuits
Instead of taking 10 years to begin earning a six-figure salary at the cost of several six-figures, we looked for opportunities that had a shorter time-horizon and marginally bigger payout. Our investment in schooling for more technical skills wasn’t particularly cheap, but compared to the salary we would make right out of school it was an incredible 272% ROI for Bethany and 825% ROI for John. Since our skills were in high demand, opportunities began coming our way as well. We didn’t seek out new opportunities at every corner and worked hard at our companies, but we would both step into higher paying jobs with those same skills. Over time the ROI on that initial investment would become 1,172% and 1,800% returns on investment respectively. Not only that, but we were able to do this in a matter of 26 months.
Having been successful in these initial ventures, we turned to pursuits outside of working hours where we could find a similar sort of return. We experimented with a few ideas on how to leverage our skills to leverage similar returns for us, and started working on passive income streams that could supplement our working income. Our vision was to scale these side hustles so that they could become passive income streams and eventually replace the jobs we worked at, allowing us to eventually leave our full-time work and work part-time hours while still making the same, if not more, money. ROI on our time has always been important, and we’ve chosen ventures that can allow us that kind of an upside on our time. Working for others means trading working hours. But working for ourselves allows us to leverage work and pay in ways we couldn’t while working for someone else.
An important note: pursuing advanced degrees is an honorable venture. For us however, it simply was not conducive to our goals and circumstances. All who feel so moved or inclined to do so, we encourage you to do it. For us, the advantage of investing earlier in life was going to create a much higher payoff down the road thanks to compounding than to wait 10 years after receiving a medical degree. Additionally, John needed to be present to help out with Bethany’s condition and wasn’t going to be of much help if he spent every night in a library studying.
Keep Learning
Our goals seemed rather ambitious when we wrote them down on a small yellow sticky note. But they were backed with real motivation and fueled by a desire to continuously learn. We put the sticky note in a place we would more or less remember to see it, and went to work. We knew we wouldn’t wake up overnight with new ideas and skills that we could utilize. It took both time and effort. And a lot of books. We read and consumed content as fast as we were able to get a hold of it. We read it, listened to it in audiobook format, or found helpful resources online. If it was at the library, we rented it. If we needed to buy it, we bought it (we feel it’s always worth it to buy a book, because knowledge is power). We pursued courses we could find online, and leveraged communities who had more information than we had. We didn’t have all the answers for our questions, but we knew that with a little effort and properly pointed focus, we could find them.
The more we learned, the more our goals became attainable. We found out new ways to achieve our goals, and previously vague ideas became strategies that enabled us to put the skills we were learning to work. This desire to learn has never allowed us to get complacent.
How You Can do the Same
Now, you may think ‘the opportunity to live rent-free won’t fall into my lap’ or ‘my work experience isn’t in a profitable industry’. While some things may be true, we would caution you against any pessimism. We had a goal to live mortgage-free for a long while before such an opportunity ever presented itself. We were only open to it because we had a goal and were intentionally working towards it. If we were aimlessly drifting from one day or apartment to the next, we wouldn’t have been running numbers or been prepared for the right opportunity when it came along. Preparation and planning are key, because “a goal without a plan is just a wish” – Antoine de saint-Exupéry.
Additionally, how you approach each task in life is important. Break large obstacles down into smaller, more actionable goals. This is Financial Basecamp, after all. You don’t just ‘climb a mountain’ the same way you don’t just ‘run a marathon’. Your financial ascent will require deliberate, consistent effort and energy. When it comes to career transitions – or even advancing your current skills with certificates or other education – remember that your initial investment up front will pay off down the road. Calculate that payoff and make your decisions accordingly. You can do anything you put your mind to, but set the right goals and understand your why. Doing so will keep you motivated through the long days. There will be highs and lows, but stick with it. You can spend 6 hours trying to chop down a tree that never moves, or “spend the first four sharpening the axe” – Abraham Lincoln.
We only write this in hopes that you will see the human-ness of our situation. We’re no different than anyone else. We have wants and needs like everyone else. We dream, we believe. And we have life challenges like everyone else – challenges that bring us to our knees and tears to our eyes at times. But keep the faith and fight the good fight. You’re not alone in this. Trust the law of the harvest, because we really do reap what we sow. “He which soweth sparingly shall reap also sparingly; and he which soweth bountifully shall reap also bountifully.” (2 Corinthians 9:6).
Focused effort and faith on your journey will help you reach the top of your financial mountain. Remember, as Warren Buffett puts it, sitting in the shade today comes from planting a tree a long time ago.
We know you’ll enjoy watching the sunrise from the summit, and we’re happy to help get you there along the way.
Climb on, FinBase.
