At the beginning of the year, I laid out our savings goals for 2019. Well now that we are halfway through the year… how are we doing?
Our 2019 Goals
You can read the original post HERE. But briefly summarizing it, the goals are:
- Increase our savings rate by 5%
- Reduce Discretionary Spending by 20%
- Save $12,000 in our high-yield savings account
- Contribute a minimum of $5,000 to our taxable investment account
- Develop or acquire an additional income source that earns at least $500
Increase our Savings Rate by 5%
Your savings rate is defined as what percentage of your income goes into savings. Maximizing your savings rate is a critical when you are pursuing financial independence. There are a number of ways to calculate this, so first I will explain what method I use.
The savings component consists of contributions to 401ks, HSAs , our High-Yield savings account, and our taxable investment account. The income component is after tax income, plus 401k, HSA, and FSA contributions as well as employer matches for the 401ks and HSAs.
Anyways… with a savings of $48,992 divided by an income of $93,067, yields a savings rate of 53%.
Last year I reported a 51% savings rate, so at first it appears we are behind on this goal, but for some odd reason last year I included employer contributions in the savings portion (numerator), but left them out of the income side (denominator). These contributions should be on both sides of the equation. Anyways, if I calculate the rate incorrectly as I did last year our savings rate jumps to 70%. Reverse engineering last year’s numbers using my current (and more reasonable method) gives me a 2018 savings rate of 46%. Increasing that rate by 5% would put us at a goal of 51%.
So, two things: 1. we are doing quite well working towards this goal. 2. It’s amazing how much difference that contribution error makes.
Reduce Discretionary Spending By 20%
I am including retail purchases, dining out, entertainment, vacation and booze in this category. On a monthly basis so far, we have decreased this spending by 28%!
Most of the decrease is due to reduced vacation spending. Last year we went to Disney for a week, and both Huntsville and Nashville for a weekend each.
Sure, that is a good amount of travel. But we are not exactly skimping this year: we’ve already spent a week in Gulf Shores, we have long weekends upcoming in San Francisco, Sonoma and Napa in a couple weeks, and in Rocky Mountain National Park in August. We earned quite a bit of travel rewards from credit card signup bonuses that significantly reduced our travel costs.
Outside of travel/vacation, our spending is down around 7%. Not too shabby.
Save an Additional $12,000 in our High Yield Savings Account
So far this year we’ve crushed this goal by saving $17,252. Woohoo! But wait! There may be a large caveat in store here. We purchased a new car for my wife at the end of April and later this year, we are considering paying it off. This would drain roughly $14,000 from this account. Additionally, we are refinancing our house into a 15-year mortgage that will increase our monthly payment about $300. As a result, our monthly savings contributions should drop accordingly. When it’s all said and done, I suspect this goal will come down to the wire.
Contribute a Minimum of $5,000 to our Taxable Investment Account
The intent of this goal was to have some cash that is accessible for shorter term opportunities that wasn’t languishing in the savings account. Additionally, if we want to retire early then we will need some savings to bridge the gap until we can draw down from our retirement accounts. This could be at least 5 years of expenses, so we need to get money into the market and let compounding do its thing.
As it stands, we have invested $2,050. Just off the pace, but this goal is within reach.
Stretch Goal: Develop or Acquire at Least One Additional Income Source Earning at Least $500
The intent of this goal was to help reduce our reliance on our W2 jobs. So far, we’ve sold a few no longer needed items on Craigslist which has generated roughly $250. This puts us on pace. Ideally, I would love to generate a passive income source that provides year over year income, but income of any kind meets the goal.
Savings Breakdown
Below is a breakdown of where are savings have been placed:
| Category | Amount |
| 401K Contributions | $26,388.46 |
| Health Savings Account | $3,301.76 |
| High Yield Savings | $17,251.55 |
| Taxable Investment | $2,050.00 |
| Grand Total | $48,991.77 |
| Average Monthly Savings | $8,165.00 |
Savings and Investment Income
I mentioned earlier that I wanted to develop passive income that can be generated year over year. Here is a breakdown of dividends and interest received so far this year:
| Category | Sum of Amount |
| Dividend Income | $4,260.21 |
| Savings Account Interest | $147.22 |
| Grand Total | $4,407.43 |
| Average Monthly Income | $734.57 |
Our monthly spending is $8,391, so $734.57 is a small fraction of our spending needs. This is a gap that we will need to close quite a bit before we reach Financial Independence. Nonetheless, that extrapolates out to roughly $9,000 per year. I don’t have to lift a finger to earn that. And that number will continue to grow with contribution.
In Summary
The first half of this year has us tracking towards meeting most of our goals. That’s great to see for sure, but perhaps an even better feeling is that I don’t feel like we’ve been sacrificing much in the process. That reassures me that this can be sustainable. With all that said… let’s bring on the second half of the year!
I love how analytical you are and specific with your numbers. Keep up the good work and congrats on being mostly on track for the year!
Much appreciated Joel!