A strong savings rate is the cornerstone of early retirement and financial independence. A low savings rate means you’ll have to work longer to retire, while a high savings rate will allow you to retire earlier.
The idea of saving, specifically, spending less money than you earn and, say, stuffing the extra money under your mattress, has been around forever. The basic savings rate formula is savings divided by income, where savings is income minus spending. So if I make $40,000 per year and spend $30,000, my savings rate would be 25%, or $10,000 (savings) divided by $40,000 (income).
As I said, this concept has been around forever, and I don’t intend to take any credit for linking high savings rates with early retirement and financial independence. For me, that credit goes to Mr. Money Mustache, a regular dude that retired with his wife at age 30 after working less than 10 years, earning about 20% over the median U.S. household salary (each), and saving 66% of their take-home pay.
Read more