3656: How to Save 20% of Your Income (Consistently) Each Year in Your 30s by Philip Taylor of PT Money on Retirement Planning

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[00:01:00] This is Optimal Finance Daily. How to save 20% of your income consistently each year in your 30s. By Philip Taylor of PTMoney.com. And I'm Justin Malek. I read articles to you every day of the year with permission from the authors. This one covering how one couple managed to save 20% of their income for retirement through their 30s. So with that, let's get right to it as we optimize your life.

[00:01:33] How to save 20% of your income consistently each year in your 30s. By Philip Taylor of PTMoney.com. Today I want to show you how over the 10 years of our marriage, my 30th through my 39th year, we've saved an average of 20% of our pre-tax income towards retirement. In our worst year, we saved 10%. And in our best, nearly 40%.

[00:02:02] Not bad, right? 20% just happens to be one of the most commonly recommended percentages for retirement savings. Total coincidence, I swear. Regardless, saving this much money has led us to look at our balances and ask the question, should we stop saving for retirement altogether and start focusing on other goals? The mortgage, college, fun, etc. I'm by no means taking a victory lap here.

[00:02:30] We're not prepared to retire early. But I do hope this article will give you a snapshot of what's possible over a 10-year period. Today I want to share the why and the how of our retirement savings history. But first, some caveats. Number one, we didn't blow the other 80%. This is only retirement savings, not all savings.

[00:02:55] Over these 10 years, we've also saved up for 20% down payments on two homes, paid for a new van with cash, started some taxable investing, and paid off large debts like our student loans and old car notes. If I had to calculate our actual living cost percentage after taxes, tithing and charity, and non-retirement savings goals, I would put it at around 55-60% of our income.

[00:03:22] Number two, I became self-employed in 2010, which allowed us to open up solo 401k accounts and significantly increase our annual tax-advantaged retirement savings abilities. This, in combination with getting rid of debts, has led us to be able to save more and more each year. And number three, finally, I'm not sharing our income here, but I can give you some examples

[00:03:48] of what saving 20% for 10 years might look like for certain incomes. It assumes a 6% return. Someone with an income of $25,000 saving 20% would be able to amass $69,858.21 over 10 years. That amount would turn into $224,044.74 over the next 20 years without saving any more.

[00:04:18] Someone with an income of $125,000 saving 20% would be able to amass $209,574.64 over 10 years. That amount would turn into $672,134.26 over the next 20 years without saving any more. So as you can see, saving 20% in your 30s will have you well-earned.

[00:04:43] Someone with an income of $125,000 saving 20% would be able to amass $349,291.07 over 10 years. That amount would turn into $1,120,223.78 over the next 20 years without saving any more.

[00:05:07] So as you can see, saving 20% in your 30s will have you well on your way to a healthy retirement account. Why we saved the percentage we did. My motivation for saving for retirement in our 30s was twofold. First, and maybe surprisingly so, I don't like paying federal income taxes. Any chance I get to escape a few taxes, I'll take it, even if temporarily.

[00:05:34] So when I started earning good money through my job, I saw my company 401k as a way to reduce my current tax bill. Sounds crazy, I know. But it's honestly a big part of my motivation. Much of this passion was driven by reading personal finance blogs in my late 20s and early 30s and being inspired by those stories, which is why I'm sharing this post today.

[00:05:59] Secondly, I value security, personal responsibility, and my independence. I don't want to depend on anyone for assistance when I'm old and too tired to work for myself. Having a nice retirement savings will allow me to rest a bit easier in my older age, knowing I'm not a burden on my fellow man. For Mrs. PT, she's simply more conservative financially and values security even more than I do.

[00:06:27] So she never lacked any motivation to save for the future. She's frugal by nature. We didn't set out to save 20%. In fact, we've never sat down to determine an actual percentage. Our approach has always been about saving as much as possible and, at a minimum, getting our employer matches and hitting our maximum annual contribution limits. 20% is probably a great percentage for anyone to aim for

[00:06:55] if you're considering building up enough savings to comfortably retire, possibly a bit early. But don't think you need to start out there. We started around 10%, and I was saving even less than that when I was in my 20s. Just get started saving now, and you'll find that as you mature financially, you'll want to save more. How we saved 20% of our income for retirement. While 20% isn't a mind-blowing percentage of savings,

[00:07:24] there's a new movement of 50% savers out there, which I highly applaud, it is consistent and significant for our long-term financial future. Here's how we did it. Number one, we used the tax-advantaged accounts available to us. When I was working in corporate from 2006 to 2009, I used the company 401k and match, while Mrs. PT used her 403b.

[00:07:52] When we maxed those options out, we opened up Roth IRAs in 2008 to place additional savings. And when I became self-employed 2010, we opened up solo 401ks. Each account has different rules, but we usually were able to use two or more in tandem. Number two, we automated our savings deposits where possible.

[00:08:17] Nothing has led to more consistent savings for us better than the automatic savings approach. It just works. If you aren't automating your retirement savings, go right now and start it up. There are also apps that can help you automate your savings. Number three, we saved the increases. When we got more income, either because debt reduction freed up more money in our budget, or simply because I started making more with my business,

[00:08:44] we always put that extra money towards more savings. We didn't let our lifestyle creep up to match our new disposable income. And number four, we did a few crazy things. Over the years, we've made some sacrifices and lived an unorthodox life in pursuit of a more frugal existence. We've cut the cable, built our own furniture, done some DIY home repair, kept the same car for 10 years, I need to write about this apparently,

[00:09:14] gone on a week-long spending freeze, and most recently switched to a medical sharing program. I share those things to spice this post up a bit and give you a little something interesting to take with you. But my beliefs about frugality have evolved since first setting out to save money by doing some of these things. I think frugality is great, and the practice of it has led to a healthier, happier life. But frugality really hasn't moved the needle for us

[00:09:44] in our ability to save as much as we have. We've saved consistently because we focused on automating our savings. It's the most important thing to do. Takeaways for your retirement savings journey. Number one, a decade of saving consistently can have a significant impact on your retirement. Number two, it's important to find your motivation, but relying on a system of automatic contributions is key.

[00:10:13] Number three, 20% is a great goal for those in their 30s, but you don't have to start there. Start at 10% like we did. And number four, getting rid of debt and building that side income can help you get to your goals faster. You just listened to the post titled, How to Save 20% of Your Income Consistently Each Year in Your 30s

[00:10:41] by Philip Taylor of ptmoney.com. And I'll be right back with my commentary. You know, before I found Warby Parker, buying glasses always felt weirdly complicated. Overpriced frames, outdated styles, and somehow I needed a spreadsheet just to understand what I was paying for. But Warby Parker has changed that. And that's why my most recent two pairs have been from them. My new prescription pair showed up yesterday. I got the Watts style in sugar maple

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[00:11:38] and get 20% off any additional pairs at warbyparker.com slash OFD. That's 20% off any additional pairs when you purchase one pair at warbyparker.com slash OFD. I've tracked my income and expenses since 2010, back when that meant a spreadsheet I built myself and updated every day. I loved it, but I still missed things. Categories changed, and I'd go months

[00:12:08] before noticing my spending had doubled. Monarch Money does in seconds what took me hours, and it catches what I never would have. Last year, the weekly AI recap flagged that my dining out had crept up almost 40% charges I'd stop seeing. My financial picture has never been clearer. My favorite part is the AI assistant. I can just ask, can I afford this trip without touching my savings?

[00:12:35] And get a real answer, not a chart to interpret. It's like having a financial advisor in my pocket. Write your own money story with Monarch. Use code OPTIMAL at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code OPTIMAL. Thank you to Philip. I liked how he was honest about never actually sitting down and picking 20%.

[00:13:04] It just kind of happened. I think that's more relatable than some big master plan because most of us aren't running the numbers to a target. We're just trying to save a little more than we did last year. And it was interesting that frugality wasn't really the thing that moved the needle for them. Automating their savings was. I think that's easy to overlook because cutting the cable or building your own furniture feels like the big money move. It feels more tangible.

[00:13:34] Automating a transfer you never even see is kind of boring by comparison. But boring is the point. The whole reason it works is that you take yourself out of the decision. Another good point he had was saving the raises. When more money came in, they sent it to savings instead of letting their lifestyle drift up to match it. It's really easy to spend more when you earn more, and I've felt it too. A raise shows up,

[00:14:02] but then somehow just disappears. If you're stretched pretty thin, even automating a few dollars is a win. So maybe this week, set up one automatic transfer, however small. And the next time you get a little bump in pay, try sending some of it straight to savings before you get used to having it. And with that, thank you for being here and listening every day. That's what keeps me going. It really means a lot. Have a great rest of your day, and I'll see you tomorrow,

[00:14:32] where your optimal life awaits.