If you are new to my blog, or this series of “State of the Stash” posts, I am tracking my liquid savings/marketable investments. These posts are sort of a finance and investing journal, so I can look back and see what I was thinking and (hopefully) how I achieved certain financial and savings goals. The primary benefit for me is to have a “forcing function” to make me drill down and see what’s going on. If you’re more interested in electronically chatting about investments, these posts are probably not of interest to you.
Setting Savings Goals and Automating
Over the last several years, I have generally published a goal setting post at or near the beginning of the new year. I am a little late this year. One of the goals has typically focused on my savings for the year. This also kind of makes tracking easier because I have set up my automatic savings into my various investments accounts and unless I have affirmatively deviated from the automated plan, I know what I have saved during each month.
I am a big fan of automating your savings. I think some of David Bach’s early books were good advocates for this technique. There have also been some things published in the behavioral finance literature which I interpreted to support the efficacy of this approach. I do not, however, really ever automate my spending. I want to be forced to pay attention to spending and notice just about every dollar that is going “out the door.”
Prior savings Goals and trends
I started getting somewhat serious about saving some $$$ in 2015. I started tracking here in 2018. I was staring down the barrel of middle age with basically no net worth. I had earned a decent salary (not 6 figures) for about 5 years or so (although, I had large student loans related to my professional education). For 2015, I saved like $25K. I maxed my 401(k) and put some $$$ in a Roth IRA. For 2016 and 2017, I saved about $30K. In 2018, I upped my savings to about $36,000 annually. In the last quarter of 2019, I began contributing to another of my wife’s tax deferred accounts, pushing the savings up to about $40K per year.
In 2020, I hit my goal of $50K. In 2021, I was able to get that up to about $60K (all figures include 401(k) match). Then in 2022, it was more like $70K. I maxed a 401(k), a 457, an HSA, bought $10K in i-bonds, and put a bit into IRAs.
Coasting (for a bit)?
In 2023, I may have to ease off the saving efforts and coast for a bit. My projected household cash flow is getting a little tight. We are expecting our second kid in 2023 (yas!). My wife is also considering taking some time off from her career while the kids are young. We also have a fair amount of deferred spending on our home. I am going to have to get a new (to me) car at some point (I’m just trying to wait for that carvana inventory liquidation fire sale).
So, I think I’m going to plan to dial back the savings, at least for a few years while my kids are young, and get some of this spending knocked out.
I’m framing it as coasting for a few years (probably like 5+ if I’m being honest). Coast FI is a concept commonly discussed within the “Financial Independence Community.”
The basic idea is that you save until you accumulate an amount of savings which should compound and provide for your future financial independence or retirement over a given time frame. Then you can basically stop saving or at least take your foot off the pedal and you should still be good to go in the future.
For example, let’s say I have $500K invested (basically accurate). At a 7% CAGR that should double about every 10 years. So in 20 years, I would have about $2 million.
That should be ample for my purposes, especially with my other available sources of retirement income. I’m middle aged, so that wouldn’t be an especially early “retirement” for me, but it wouldn’t be abnormally old either.
2023 Savings goals
With all that self-justification and rationalization out of the way, I’m going to set reduced savings goals for 2023. I’ve already basically been implementing these so far this year via my automated saving levels. First, I’m going to contribute enough to get the match on my 401(k). No way am I leaving a guaranteed ~100% rate of return and the related tax deferral benefits on the table. Second, I’m going to max my HSA. My contributions are made via payroll deductions, so the contributions avoid income and employment taxes (that’s like a 40% marginal rate if you factor state taxes too). It’s too good to leave on the table. After that, I’m also going to try and max out my 401(k).
All together, I’m going to be trying to save about $30,000. This includes my match and it pre-tax so, it’s probably only costing me like $15,000 in cash flow.
This means I am saving about $40K less than I did last year. That’s probably only going to get me about $30K per year in extra spendable money. Here’s hoping that’s enough (that doesn’t seem like a ton especially if you’re losing a spousal income). I could probably free up about another $10K in spendable funds yearly if I dialed back the 401(k) to just the match.
I guess I will see how it goes during 2023 and adjust if needed.
TLDR
We’re having another kid. Even without that, I’ve got some bigger household spending requirements coming up. So in 2023, I’m going to dial back savings from $70K in 2022 to $30K. I am adjusting to this by looking at it through a “Coast Fi” lens. This lens tells me that even with no additional savings, based on some reasonable assumptions, I would still be good to go in a couple of decades. That being said, the market will likely crater to a CAPE of 8 over the next few years while my savings rate is lower. Thanks for reading (or skipping to the conclusion)!