In a word, no.
But what a great experience! I always believe that you should shoot for the heavens because when you miss you will still fall among the stars—and the stars are a beautiful place to be. Here is a great example of this in action: in 2010 we had a personal savings rate (to permanent savings) of 29%…and this year we added an extra 9% to that, making our total 2011 PSR 38%! If we had not set this goal in the first place, we probably would not have made as much of a conscious effort to save a large percentage of our income.
A Few Large Purchases Held Us Back
Ultimately what happened is, well…life! We had several large purchases that we made with cash that would have gone to our savings account. These include a foundation repair, a second (beater) vehicle after ours broke down, and pre-paying the cruise portion of our Alaska trip for 2012 earlier than expected (due to my Mom finding a sale a week ago on the cruise liner we were going to use anyway for a savings of over $600!).
The great news about all of this is that we were able to preserve most of our savings by paying cash for these items. So while we did not meet our goal, being able to preserve and add to savings despite large expenses is a big accomplishment to me. In fact, if we added in the large purchases we had, our PSR would have been 46.9%.
How We Put 38% of Our Income into Permanent Savings
While I cannot declare a victory, a 38% savings rate to permanent savings accounts (retirement/pension, long-term investment account, and a savings account we use as a last resort) is nothing to sneeze at. I’d like to mention a few ways we were able to achieve this.
You might feel the need to bop yourself on the forehead with a “duh” while reading these, but sometimes the truth is boring. If I can help just one person meet their financial goals while boring a few others, I will have done my job. So here goes:
- We set the goal. I cannot stress enough how important it is to give your money a purpose, and setting a goal is a great way to do this. Dave Ramsey has been stressing for years that if you don’t give your dollars a purpose they will leave you.
- Once setting the goal, we worked backwards to achieve it. This meant that we calculated what 50% of our take home would look like, divided it by 12, and figured out how much we needed to save each month to meet this goal. Then we worked out a spending budget from what was left over. Finally, we set up automatic payments to our savings and retirement accounts based on the pre-planned amount. This meant that if we needed extra money in a month, we would have to go through the painful act of withdrawing it from savings and putting it back into checking—a feeling of defeat that made us resort to this only if we had no other options and only if the expense was necessary.
- We did not purchase a home that we could “afford” according to a bank’s pre-approved loan amount. We purchased one well below that, and within our comfort zone. Our home mortgage, insurance, association fee and property taxes are 17% of our overall income and not the 30% that many financial experts and institutions advise.
- We paid off all of our non-mortgage debt in September 2010. This amounted to an extra $950 a month in cash flow for us.
Our Financial Goals for 2012
Paul and I discussed what we would like to accomplish financially in 2012. We both agree that we want a second go at achieving a 50% PSR to long-term savings/investments. On top of this, we want to continue with our donations to the causes we have chosen.
Did you meet your financial goals in 2011? Have you set any for yourself and your family in 2012? How do you plan on achieving this goal?