Is Not Spending the Same as Saving?

SavingIn our budget, we currently set aside between 42%-48% of our after-tax income. It is also worth pointing out that 10% of both our salaries is taken out pre-tax and put into our pension funds. So on the surface, it looks like were are living on a fairly small portion of our income.  But just because we aren’t spending it, doesn’t mean we’re actually saving it. Or does it?

Currently, 16% of that money is being funneled into extra mortgage payments. That doesn’t include any side hustle income that also gets thrown towards our mortgage. That side hustle money is too irregular to account for in our budget*. I know the invest-your-money versus pay-off-the-mortgage-early debate will rage on in perpetuity in the blogosphere. For us, the peace of mind and the guaranteed shaving off of interest is what makes the most sense for that slice of our money right now.

So what about the other 27-35%? That’s where things get really tricky. We’re actually technically spending 8% of that money every month to pay for Mr. P’s graduate degree–because the only way to get a raise in education is to learn stuff buy your next degree. His contract is so garbled that it probably wouldn’t do any good to explain it in depth here. Basically, he gets a small portion of some credit hours added to his current pay as retro-pay. Then, he’ll see a partial increase in his salary next school year and another increase for the full degree the following year…even though he is done with the program this summer. Still, the degree essentially pays for itself within two years and will help him push further over on the pay scale. So, this isn’t conventional savings by any means. But it is an investment of sorts. It will just take another year or two to really reap the benefits of the return.

That leaves another 18-24% that is transferred into actual savings. A portion of that gets put into our Roth IRAs every year. Since we now have a fully-funded emergency savings account at Discover (yes, I created the account for the $20,862!), the next task is figuring out what else to do with the other portion of savings. I’m still working on that particular goal, but it looks like the majority of it will be going toward investment accounts, since we try to pay for travel and home renovations with side hustle funds.

A big part of me wants to let my chest swell with pride when I think of the fact that we are able to put aside so much money every month, in addition to already diverting 1/10th of our income to our pensions. The part of me that really likes round numbers wishes we’d get a little more serious about reducing expenses or land raises beyond the 0.8% cost-of-living increase I get every year**. And another part of me that spends way too much time reading about FIRE has major anxiety that this doesn’t even seem like a drop in the bucket. No matter how I slice it, the quest continues to find more ways to save money and make money.

*I know there are plenty of people who have mastered the art of the zero-sum budget and all sorts of other clever strategies for flexible income, but $100-$400 isn’t worth the trouble to me right now. So it goes in a separate “top off” category.

**Teachers live the dream. Don’t let anyone else tell you otherwise.

So Tell Me…How do you distinguish between saving and not spending?

Is Not Spending the Same as Saving?

6 thoughts on “Is Not Spending the Same as Saving?

  1. Hey, Penny. Where do I begin? First, you’re doing awesome. In terms of saving as a percentage of income, you and Mr. P are definitely one-percenters. Second, I think graduate degrees for teachers are a scam. I’d much rather see a salary bump based on tenure alone and not an advanced degree. Get tenure, get your bump. But maybe I’m wrong? Do you learn anything in graduate school that you couldn’t learn from reading the leading education journals? Third, I’m with you. Pay off that mortgage. Mrs. Groovy and I have been mortgage free for ten years now. The security from knowing that our house won’t be in jeopardy if both of us lose our jobs is priceless. And, finally, four, Mrs. Groovy and I don’t really make a distinction between saving and spending. We spend one hundred percent of our income. We make a distinction between two spending categories, though: freedom and consumption. Any money we put into increasing our net worth (Roth IRAs, 401(k)s, HSAs, home improvements, etc.) is money spent on freedom. The rest of what we spend–food, utilities, car repairs, dinning out, vacations, etc.–is considered consumption. Right now, a little over fifty percent of our income is spent on freedom. I hope this helps. I know it’s a weird way of looking at saving and spending.

    1. Uhhh…if by weird, you mean awesome, then I agree. That’s a fantastic way of looking at saving (spending on freedom!). As for grad class, it’s consistently inconsistent. We have both had some courses where they’ve really changed the way we teach. But we’ve also had some that…didn’t. I’m working on my National Board certification now, and that’s been way more beneficial. It’s basically an intense scrutiny of your own practices (videos, reflections, etc.). It’s a two-year process, and I don’t get nearly as much as I would get for another degree in terms of pay. But I’m getting a lot more in terms of how I teach my kiddos!

  2. You ARE doing awesome. And I agree with you on so many things. I think we’re in similar places right now. If we can just get our mortgage gone… think of the possibilities! I’m all for education (especially if it gets repaid), so I guess I disagree with Mr. Groovy on that one (but that’s speaking from the person that only got hired because I have a Masters degree… and not remotely in the field I work!… The advanced degree allowed them to hire me without any experience in the field, so it’s worked out for me). Increasing Mr. T’s 401k contributions was precisely because I wanted to make a better distinction between saving and not spending. 🙂

  3. I know what you mean–though we live about half our income, we are throwing a lot extra at the mortgage right now, giving away a certain percent, and saving toward kids’ college, as well as investing money in retirement accounts. So our savings rate gets a bit hard to nail down sometimes. We feel that if we’re meeting our early pay off and investing goals, we aren’t going to fuss over creating zero-sum monthly budgets. In fact, we seem to spend less this way.

  4. That’s a tough call. I find that even when I don’t spend, somehow that money disappears if I don’t move it into savings or put it towards my mortgage or financial goal…I do think you can’t really have one without the other though!

  5. I thought you were going to go in a different direction and talk about how if you see some pair of shoes you want, but then you don’t buy them, have you just “saved” money? Or if you buy something on big discount, have you “saved”? And even though that’s not the question you were asking, I’ll answer it anyway: NO! You’re not saving just because you didn’t spend, or spent less than you might have. 🙂 Haha.

    I think it’s awesome how much you guys are saving, especially given that you don’t even plan to retire early. It sure seems like you’re working with a pretty optimized budget, you’re rocking it on the house payoff, and you’re funding your retirement at strong levels. I dunno… it sure looks like you’re saving to me!

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