The following is a rewrite in English of a text I previously wrote in Japanese.
In general, a savings rate of about 20% is considered appropriate.
In May 2019, a report by the Financial Services Agency came out stating that working-age people need to have 20 million yen in savings in order to live comfortably in retirement.
Since that time, many people have been conscious of their savings.
In this article, I would like to write about my experience of saving and investing more than 90% of my take-home income in my 20s.
First of all, why did I start saving 90% of my take-home income?
Have you ever heard of a man named Shizuro Honda?
Shizuroku Honda was a university professor and asset manager, and also the designer of Hibiya Park.
One of the books he wrote is called “Confessions of My Wealth.
In the book, he recommends a savings method called the “one-fourth deduction method.
To put it simply, when you get your monthly take-home pay, you first deduct a quarter of it and put it into savings, and then live on the rest.
If there is a bonus, the entire amount is put into savings.
By this method, Shizuro Honda has been able to build a huge fortune by investing his savings as needed.
When I was a university student, I read this book called “Confessions of My Wealth” and was very impressed.
I was so impressed when I read this book, “Confessions of a Millionaire,” when I was in college.
That’s when I got the idea.
If I were to save 90% of my income, I would be able to build my assets at a very fast pace, which would bring me closer to financial freedom (semi-retirement, FIRE, dividend life).
Saving 90% of take-home income through high income and frugality
In order to save 90% of your take-home income, you need to have a high income and low expenses, of course.
First of all, when I was job hunting, I tried to find a job with the highest income possible as far as my efforts were concerned.
Some people raise their real disposable income by carefully looking into housing allowances, etc., but unfortunately I did not have that much to spare.
If I had worked harder as a student, I would have had many more options. ・・・・・・
I can’t help but think that
However, I think this is unavoidable because it depends on how much effort you put in during your college years.
Another way is to have a spouse who can earn money.
Of course, even if the income is high, marrying a strange person and losing my freedom would be the end of the world for me as I aim for financial freedom, so I want to be careful in this area.
Then there is the second job.
Nowadays, some people seem to be making more money from their side jobs than from their main jobs.
The next important thing is to have low expenses.
I know this can be greatly reduced by living at home, reducing the rent.
A long time ago, the term “parasite single” was used, and more recently, “uncle with a child’s room” has become an internet slang term that is often mocked.
However, living at home actually leads directly to lower expenses, so I think it’s a good idea to consider it if you can.
In my case, however, I am single and live alone. I pay my rent well.
This is to prevent my private space from being eroded by the inevitable influence and interference from my parents when I live at home.
Since we are aiming for financial freedom in order to have freedom, it makes no sense if we don’t achieve this by living alone.
However, I have to live in the city center for work reasons, so the damage caused by the rent has been accumulating soberly.
I tried my best, but it was very difficult to reduce the rent.
In my case, rent accounts for the majority of my expenses. It’s hard.
Still, I succeeded in living under the minimum monthly expenditure of 100,000 yen by reducing other parts of my expenses.
Moreover, I am not living an unreasonable lifestyle, and I am not cutting back too much like a minimalist.
I think I have been able to optimize my life. I am not dissatisfied with my standard of living.
Saving 90% of your take-home income can be overwhelming.
In fact, when you save 90% of your take-home income, you feel overwhelmingly comfortable.
This may be a sense of self-affirmation that you are not spending money that you don’t need, and that you are optimizing your life, even though you could be spending it.
Of course, it is also easy to strengthen the ability to deposit money into investments.
In other words, it is possible to have a very thick cash position, and it is also possible to deposit money at once when the game is on.
On the other hand, it is easy to be calm and say, “Well, that’s okay for now,” even in situations where everyone else might be in a hurry to invest.
Perhaps I would not have felt this way if I had been living on a similar cost of living with a monthly income of only about 140,000 yen.
Margin is important for a happy life.
I feel a strong sense of satisfaction that I have been able to achieve this number after optimizing my life.
In addition, I have recently discovered that this overwhelming margin is making it easier for me to lower my living expenses, as I am rapidly losing my desire for things.
This situation also allows us to withstand unexpected expenses.
There will be times when you need to spend money for your loved ones, and you will not hesitate to do so.
I believe that this is truly a “living use of money”.
Savings rate is the most important factor for financial freedom (semi-retirement, FIRE, dividend life)
Occasionally, I see people who have achieved financial freedom through their trading skills.
Of course, it’s good to take this approach.
However, aiming for financial freedom (semi-retirement, FIRE, dividend life) by increasing your savings rate in a repeatable way, like I did, has the advantage of obtaining “stability”.
Not having to rely on the uncertainty of investment income is a big one.
After all, for young people such as those in their 20s, increasing their savings rate is the most important thing.