burn rate /control/ and saving habit are closely related. The differences can be subtle. In everyday English, “saving/saver” can mean both spend-control and reserve-building.
As of 2019, the typical Black or Hispanic family has up to $2,000 in liquid savings, the typical White family has more than four times that amount.
https://www.bankrate.com/banking/savings/financial-security-0118/ is a 2018 article, quoted in CNBC. ( https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html is a 2022 update) Bankrate.com conducts numerous surveys every year. I decide to believe in this survey. The question posed:
Q: How would you deal with a major expected expense, such as $1000 for an emergency room visit or car repair? Each respondent can only choose one option below
Lower wage earners, those making less than $30,000 a year, were twice as likely to use some form of borrowing than savings, while households making more than $50,000 were more apt to use cash.
This result dovetails with a recent Federal Reserve report that found 44 percent of Americans couldn’t cover a $400 emergency expense out of their pocket.
19% of Americans also report that they have $0 set aside to cover an unexpected financial emergency, according to another survey.
— an exemplary saver featured at the end of the article:
Timothy Wiedman had around $25,000 in his emergency fund in September 2016 when he slipped on wet grass in poor visibility, and ended up in the hospital. The recently retired Doane University associate professor shelled out around $1,700. He was able to cover the hospital bills out of savings rather easily. Amassing such a large cache (25k) is no easy feat, especially as health care and college costs rise dramatically.
Personally, I will be targeting a similar amount of liquid cash reserve.
— Now I have more appreciation that large portions of the American families can’t afford the expensive colleges, even though colleges provide financial aid to ensure every admitted student can afford it. Many of the struggling families would not be able to support their kids adequately during the 12 years before college
Luxury education, big homes are priced out of reach for more than half the population.
Average value of liquid assets among white households was $8,100 in 2019 compared to $1,500 for Black households. (Does the negative data points go into the “average”?)
Furthermore, 72 percent of white households say they could get $3,000 from family or friends compared to 41 percent of Black households.
See also 20% savings rate^lifestyle creep
There’s another blogpost on plowback of spare time.
Opening example: professional NBA athletes (and some entertainment stars) — most of them earned huge salary but ended up in poverty, because they didn’t /squirrel away/ their high income during their peak years. Contrast them against my friend JackZ, who lost his MS in early 2020 but could survive as family of four without any salary.
U.S. job market is more age friendly (among other advantages), but U.S. healthcare, social support,, are not great. When I get older I may have to return to SG and Live with the challenges in SG. (For a similar example in my family, look at grandparents — they rely on their home country healthcare because SG healthcare is too expensive.) When I am forced to return to SG, I would appreciate the savings habit during my peak earning years.
By the way, In addition to the savings habit, my healthy living habits will be greatly appreciated, too.
Critical review .. How have I done so far in my saving “project”?
In conclusion, I feel I have done well to put aside a good portion of my peak-time salaries to prepare for my declining years + rainy days.
— plowback is tricky. My only (arguably)successful plowback was investment.
We often notice the cumulative effect of saving a few dollars here and there are completely dwarfed by huge savings in big-ticket purchases like education, housing, car, vacation… So we ask
Q: saving a dollar here and there, calculating … is it worth it?
A: yes over the long run
A: yes if it is a consistent habit
Q (more relevant): saving $200/month on accommo, is it worth it?
A: yes over the long run.
Q: saving $400 on a family reunion trip … is it worth it?
A: yes as a consistent habit. 5 trips could save $2k.
Also remember my financial freedom hinges on burn rate (control). That freedom means low-stress for life!
Case study: Kenny Zhu once suggested “why don’t you just buy the Chinese version of richDadPoorDad and give to your parents. Don’t worry if they would read it. If you don’t buy they won’t read. It’s only $10”. That was pretty careless spending. Indeed my parents had no interest in the book. This is not an isolated example but a sign of a habit. People with this habit waste not just $10 like in this case, but thousands in a year!
Case study: Junli told me he had to work on the lawn. The professionals can save you the time and effort but cost you $2k, so why not? Well, this is not just one isolated incidence. There are many other things you can DIY and save many thousands.
Some argue that it’s more important to save on the bigger ticket items. I agree it’s more important. The small savings are a different habit.
I am a firm believer of burn rate, which could (intensify or) reduce the burden and psychological stress. A carefully controlled burn rate makes me nimble so I could take on more opportunities.
Remember the question from financial planners — how much would you need during retirement? Once you establish your lifestyle (spending pattern) you are unlikely to change it after you retire.
I think my live-alone burn rate (ex-housing) is below $1k either in U.S. or Singapore. A typical burn rate for a peer is perhaps $2k to $4k depending on his/her income. If I save additional $2k/m, over 10 years I would have 240k more in the bank. I would feel the difference when I buy a home.