When I started out in my first full-time job out of uni, I was saving around 25% of my gross salary, of about $10K pa in today's money. This obviously had a huge impact on how fast my net worth increased - in the second year my savings alone boosted my net worth by around 100%, and the relative impact of how much you save is massive when you first start out.
These days I save around 35% of my gross salary - as my salary has increased I've tended to spend roughly the same amount on "needs" and not increased my consumption of "wants", so I'm able to save a bigger slice of my salary. However, now that my net worth is around $1.15m this years "savings" will only add 2.6% to my net worth. It's still worth saving, as it helps boost my overall rate of increase in net worth from what can be achieved from my investment income and capital gains, but it's not hugely significant any more.
My contributions into my superannuation account are similar. The 9% employer contribution and my 13% salary sacrifice add around 4.5% to my retirement account balance - nice, but these days my asset mix and investment returns are getting to be much more significant that saving a few more percent of my salary.
I intend to boost my savings into my retirement account via salary sacrifice for the next couple of years, but that is in order to arrange my income and investments in the most tax efficient manner rather than a need to boost my savings rate in order to meet a retirement target.
In a few more years the impact of my savings will be negligible on my net worth, but I still intend to save the same amount. Why? Several reasons:
1. I intend to live of the same amount during retirement as I currently spend, so any increase in spending now will have a large impact on how much I need put aside to fund my retirement years.
2. I enjoy my current lifestyle and don't actually enjoy "wasting" money. I used to spend more on books, hobbies etc. but I now have more than enough "toys" to last the rest of my life.
3. One of my more nebulous goals is to leave create the basis of a "family fortune" - although it will take more than one generation to accumulate significant wealth based on modest living and sensible investing rather than a establishing family business empire.
So the answer for me is "never", but I suspect that this isn't the answer for most people.
When is it OK to stop Saving?
May 8th, 2007 at 02:31 pm
May 8th, 2007 at 04:54 pm 1178643276
Then again I'm one of the weird people who isn't here to save as much as possible. I'm here to help ensure that my use of money allows me to accomplish what I want to accomplish both now and in the future.
So what do you want to accomplish with your life and how can money get you there?
May 8th, 2007 at 07:13 pm 1178651588
May 8th, 2007 at 10:03 pm 1178661821
I like the levels of wealth defined by The Complete Idiot's Guide to Getting Rich. (My notes on it are here: http://zetta.savingadvice.com/2007/01/15/thoughts-on-the-com...)
I would say there's not much need to continue "saving" if you reach Level 3, where the returns from your investment portfolio exceed your annual living expenses. I'd guess that you are currently at level 2b or 2c -- where your returns are equal to 2 or 3 times the amount you would need to save each year to meet your retirement goals. Your desire to create a family fortune is similar to Level 4, where it's possible to leave a major legacy to your family or a charitable institution.
May 8th, 2007 at 10:04 pm 1178661881
I like the levels of wealth defined by The Complete Idiot's Guide to Getting Rich. (My notes on it are here: http://zetta.savingadvice.com/2007/01/15/thoughts-on-the-com...)
I would say there's not much need to continue "saving" if you reach Level 3, where the returns from your investment portfolio exceed your annual living expenses. I'd guess that you are currently at level 2b or 2c -- where your returns are equal to 2 or 3 times the amount you would need to save each year to meet your retirement goals. Your desire to create a family fortune is similar to Level 4, where it's possible to leave a major legacy to your family or a charitable institution.
Personally, when I get to 2b or 2c, I plan to enjoy more of the money myself!