SUMMER REWIND: Your Savings Rate Determines Your Future

The Number That Predicts Your Future

Jessica 0:00

In today's episode, we talk about the number one number that determines whether someone is headed towards financial freedom or living paycheck to paycheck. What do you think that number is? Tune in and find out.

SPEAKER_00 0:13

Sugar teddy podcast, yo. Learn how to make the pockets grow. Find mental freedoms where we go. Smart investments, money flow.

Brandon 0:23

Hey babe. What are we talking about today?

Jessica 0:26

Today we are talking about the one number that is really important in predicting your financial future.

Brandon 0:34

You gonna tell what it is?

Jessica 0:36

I didn't know if you wanted to tell him.

Brandon 0:38

Oh, okay, I can do that. Yes, so that is your savings rate. And your savings rate is how much you are saving on a monthly or annual basis. So what percentage of your income are you actually saving? Now that includes money that's going into, you know, say your emergency fund, your 401k plan, IRAs, brokerage accounts, all those count as your savings rate. But how much are you actually saving on an annual basis of your income?

Why Most People Avoid Money Math

Jessica 1:04

How many people do you think know what they are actually saving?

Brandon 1:08

Majority people do not.

Jessica 1:10

Right. Hmm.

Brandon 1:12

Just like a majority of people don't know anything about their finances. They're just kind of living day-to-day, which is just the reality.

Jessica 1:18

Which is crazy when you say it like that. I mean, the amount of people, even guests that we've had on the podcast, that also through their work, whether they're financial therapists, counselor, like all sorts of people, coaches who confirm what you've been saying all along, which is people don't know their paycheck. They don't know how much they make. So you go in. Right. You make it every two weeks on the 15th and the 30th, or bi-weekly, or whatever it is. It's like, how do you not know what you're making? I don't understand. Like, why do you go to work?

Brandon 1:49

Unfortunately, like I mean, I'm not trying to make excuses because I think people need to make time for this regardless of what your situation is. But you have a lot of things that are, you know, just trying to get by day to day.

Jessica 2:00

Yeah.

Brandon 2:01

A lot of people are just trying to get by day to day.

Jessica 2:03

Surviving. Yes.

Brandon 2:04

So them sitting down and doing this seems in their mind pointless. When in all honesty, sitting down and doing this could be the difference on you getting ahead.

Jessica 2:14

Right. Well, and the average American savings rate is three to five percent, which is better than nothing, but it's not great. What do you say to that?

Brandon 2:29

Well, I say first, you know, looking at what your savings rate is, regardless of what that number is, you need to know what it is. And if you are at least saving three to five percent, I am never going to look down on you in that scenario because you're at least saving something.

Jessica 2:45

Yeah, you're planning for something.

Brandon 2:48

And that is to be applauded, you know, that you are at least saving something. Now, with that being said, though, we do have to have realistic goals of where we want to get to, you know, because saving three to five percent of your income, unfortunately, is not going to get you towards financial independence or becoming work optional. No, and that's just the reality, right?

Automate Savings So It Actually Happens

Jessica 3:08

I think too, and we've said this on so many of our episodes, automating that savings, right? If it's whatever is going from a percentage standpoint into a high yield savings account for your emergency fund or your sinking fund, and then also, of course, any kind of brokerage accounts, 401ks, et cetera. I mean, I know that the only reason my 401k is the way it is, and it definitely could still be better, but it's because it automate it automatically comes out. I'm not manually doing something. Because if you manually do it, guess what? You're probably not going to do it.

Brandon 3:45

That's an intentional structure for a 401k plan.

Jessica 3:48

Yeah.

Brandon 3:48

And that is one of our responsibilities. Grateful for it's a potential and plan that automating it has a higher probability of people, you know, actually following through with the contributions.

Jessica 3:56

Because if you don't see it, then it's gone, right? Like if it comes out of your paycheck, and this is a call out, we've said this before as well. A lot of employers will allow you to split your paycheck to go into different accounts. Yeah. And so you can, of course, you have, you know, your 401k hopefully coming out or 403B, whatever your retirement is through your employer. And then you can also have, even if it's 20, 30, 40 going into a separate account from your paycheck that maybe is filtering into that uh high yield savings. Again, if you don't see it in your bank account and you don't know it exists, but it's stacking up on the side, that is the optimal scenario. Because you, if it's not in your face, you don't want it. You don't miss it. There's nothing to miss. It's already taken care of.

Brandon 4:43

I can tell you from you know my years of working in financial services that savings rate is the number one indicator of success.

Debt Reduction Help Without Shame

Brandon 4:56

All right, real quick, I want to speak to the person listening who feels like they can't work with a financial planner yet because they're carrying a lot of debt. First of all, I see you, and I need you to know you're not broken, you're not behind, you're just in a tough season. I created something just for you because I've had people reach out who are serious about changing their money story, but the full financial planning package just wasn't the right fit yet. So I built a new service through Oak City Financial that's focused completely on debt reduction. No fluff, no shame. You'll get a one-time planning session, a personalized payoff strategy, your own financial dashboard, and monthly coaching if you want extra support while you climb out. It's $300 to get started, and $100 a month if you want that ongoing guidance. That's it. This is about helping you get unstuck, not making you feel like you failed. If this sounds like what you've been needing, go ahead and schedule a call with me. The link is in the show notes. Let's take the first step together.

Why Saving Beats A Big Salary

Jessica 5:55

Well, and you say that a lot too with your clients that it's not how much you make. Right.

Brandon 5:59

It's how much you save. Because I've sat down with people that have a great income, but they're not saving anything or they're saving very little.

unknown 6:07

Yeah.

Brandon 6:07

As compared to someone that maybe their income is not as high as they would like, or you know, as somebody would deem a good income, but they have a high savings rate, you're gonna have a lot more success than the person who has maybe making three or four times as much as you, but they're not saving anything.

SPEAKER_04 6:22

Mm-hmm.

Jessica 6:23

What do you think is the difference there? Like if you're thinking about, you know, a lot of um, and I when I say a lot, I don't have a percentage, but teachers, right? Teachers we know historically in the US don't make very much, but there are teachers who are retiring millionaires. Yeah. They are good with their money, they are saving, maybe they have a side hustle in the summer or on the side in in general. But like, what do you think what's the difference? You know, because everybody can make an excuse. Like, life is expensive.

Brandon 6:55

I would say one going into being a teacher, you already know you're not gonna make a lot of money. Yeah, you know that from the get-go. You're not going into this career to make a lot of money as compared to other people choosing certain careers where their goal is to make money. They might not be making money now, but they always like, I'm in a career where I can make money. Right. That's not what that's not a teacher's thought process at all. Yeah, they're in a career where they know like I'm doing this for the passion and the love of teaching, not for making money. Now, also I'd say good teachers are organized.

Jessica 7:23

That's true.

Brandon 7:24

You are an organized person because you and you can't be a good teacher and not be organized. It's it's impossible because your classroom is just gonna be in chaos. Yeah, and part of financial planning is organization, so it pairs very well, but then also um how some of the like you know, 403Bs and you know, uh retirement plans for teachers are set up, it also is helpful the way that theirs are structured.

Jessica 7:47

What do you mean by that?

Brandon 7:49

Um, so some of them have a required minimum that you have to contribute. Oh, like it automatically comes out, and you know that's a teacher that you had a amount that automatically was gonna come out. You didn't even have the option.

Jessica 8:00

Which was good because I definitely was not contributing above and beyond whatever they were taking.

Brandon 8:06

But the amount that was coming out, you didn't have an option, it was already coming out. Right. Whereas compared to with you know most corporate America jobs, you could shut off your 401k plan and not contribute at all.

Jessica 8:15

Yeah, that's true.

Lifestyle Creep And Keeping Up Pressure

Jessica 8:16

I think too, one thing that I was thinking about, uh, just in talking about teachers in general, and we've talked about this, is that lifestyle creep, which if you're working at the, you know, in the corporate tech maybe kind of world, which is where I am, there's a lot of that, like you got to look good, you got to drive the fancy car, you got to fly business, you got to do these things, right? To like keep up appearances, keep up with the Joneses. Nobody's telling you to do this, right? This is totally things that people have in their in their heads, but like, yeah, you do want to look nice when you go to conferences or when you're going to business meetings, or there's I think there's a difference when you're in that teaching field. It's like, yeah, no, we're all broke, we're all making it. You know, it's like there's not that air of I need to look a certain way or I need to drive a certain car, or you know, I think that that, I mean, how and where you work, I think feeds into your lifestyle.

Brandon 9:13

Also, too, like as a teacher, if you start to have nice things, people start to wonder, like, what are you doing?

Jessica 9:17

What are you doing?

Brandon 9:18

I remember when I was in uh fourth grade, we had a teacher that drove, like she was a little bit older, but she drove a Corvette, like a newer Corvette. But her husband had a great job and whatnot. And I'm gonna also use, I'm gonna date myself here, but any of you guys that watched uh the movie Varsity Blues back in the day, there was a teacher who had really nice cars and stuff like that. And they're like, what does this teacher do? And then there's a scene where they go to a strip club and they find out their teacher's strips on the side.

Jessica 9:44

Oh no. We watched varsity blues back in the day. Oh my gosh. Okay, well, hopefully that's not the case. No judgment. Um, okay. Well, but I but you know what I mean. Like, there is that that air. Um, or even think about people in the medical field. Like, sure, during the day you're wearing scrubs and like you're unassuming, but then it's okay, well, I have to have the big house and I have to have the nice car, and I've got to look like a doctor, whatever that means.

Brandon 10:10

Or you mean specifically doctors.

Jessica 10:12

Yes, doctors, lawyers, right? No, but you know what I mean? Like, there is that again, that societal pressure, whether it's in our head or in our circle, where you just depending on who who's in your crew and like who you run with, like, are you just keeping up with the Joneses? Yeah, you know, so there's something there too.

How To Calculate Your Savings Rate

Brandon 10:34

So one thing we should also explain to you is how do you actually calculate your savings rate?

Jessica 10:39

Yeah, perfect. Let's let's get into that.

Brandon 10:41

So there's two different ways you could do it because you can either do like your gross savings rate or your net savings rate. And the difference between that is gross is your paycheck, obviously, before taxes are taken out, and net is after taxes taken out. It's what you take home. I think you should do it based off of your net because that's ultimately whatever you want to do. What you have what you actually have. Yeah.

Jessica 11:02

So we're I know, and the gross, you know, if that number is great, then your net is not because you have all this stuff coming out.

Brandon 11:10

The hard part there is that, like, for example, um, if you're doing pre-tax contributions, oh, I see. It's taken out prior to taxation.

Jessica 11:18

Yeah, yeah. Okay.

Brandon 11:19

But I think the easiest way for most people just to do the net. So for example, if you make a hundred thousand dollars, I mean sorry, if you make a hundred, if you make a thousand dollars a month and you're saving a hundred dollars of it. So that's ten percent.

Jessica 11:31

Yeah.

Brandon 11:32

So that's all you're doing is you're dividing how much you're saving divided by your take home pay.

Jessica 11:38

Okay. I mean, that's but I think too, don't you? I mean, taking a step back, going back to budgeting, knowing your numbers, knowing your cash flow, if people don't know how much they're making and bringing home, they also then assuming don't know what their monthly bills are and like what's actually left. You know, whether you're doing like whatever the uh the 20% of your income is for fun, 10% is for savings, 50% is for whatever way that you're budgeting, right? If you don't know what your income is, you probably don't have a budget in place. And then you don't know what your savings rate is or could be because you're just kind of like willy-nilly, just surviving.

Brandon 12:20

Yeah, like I said, savings rate is the number one indicator of any type of success. So, for example, if I know a client's making a lot of money, like a new prospect, they're making a lot of money, that doesn't get me jazzed.

Jessica 12:29

Does it once I look anything for you?

Brandon 12:32

Once I look through their information and they're great savers, I already see that they have a high savings rate. And by high savings rate, I'm talking, you know, at least 15% or higher. I'm like, yes, because that's the hardest thing to get people to understand and do. It is a habit and it's something you have to learn how to do, is be accustomed to saving a certain amount each month, each paycheck, whatever it may be. And if the person really has that muscle memory built in for that, they're so much easier to work with.

Jessica 13:00

You heard it here first, friends. What gets Brandon Jazz a savings rate at 15% or more?

Brandon 13:07

I'm just saying that, like, so like what comes with a good savings rate um is also eliminates other negative things from your finances. Normally, you don't have a high savings rate and a lot of debt. That's because a lot of debt comes into play because you're overspending, you don't have enough money to pay for something. So if you have a good savings rate, for example, you built up that emergency fund. So when you have that emergency, you have money to pay for that emergency and you don't go into debt.

SPEAKER_04 13:33

Right.

Brandon 13:34

So it just makes your overall financial situation easier. And then, like you said, if you want into working to become work optional, what's the best way to become work optional? Have a higher savings rate.

Cash Flow Steps To Raise Savings

Jessica 13:43

Yeah. How do you propose? Um, like, what are the steps if people are listening and they're like, man, I know I'm contributing to my 401k. Maybe I do or don't know my percentage.

Brandon 13:54

You shouldn't look at that first.

Jessica 13:56

And then I want to do something more. I want to start contributing more to my high yield savings account. Or like, what are the steps that people can take to actually do that? Because again, a lot of the things that we talk about, it's simple, but it's not easy, right? Like it's not easy for people to do.

Brandon 14:13

It takes work and it takes time to do it. And that all comes back down to cash flow. Like I said, I don't necessarily like use the word budget, but it's the one that most people are familiar with. Is that you have to create some form of a budget in you know, understanding what your cash flow is. How much money do you have coming in? How much do you have going out? Where is it going? And then do you have any additional money that you could free up to put towards your 401k plan to put towards your savings? That's the first thing. How much money you have coming in? How much money do you have going out? Do I have any excess money that can I can put towards that benefit me?

SPEAKER_04 14:45

Right.

Brandon 14:45

That's the first step. Now, once you've looked through your finances and you say, like, hey, I have an additional $200 that I could free up, where does it make sense to put it? You know, do you already have your emergency fund built or do you need to work on that? Are you already contributing to your 401k plan where you're at least taking advantage of your employer match? If you're not taking, you know, if you're not taking full advantage of your employer match, maybe it might make sense to increase your contributions there. So at least you're getting that quote unquote free money. Or maybe it makes sense that if you don't have the amount, you don't have six months of an emergency fund or you know, eight months of an emergency fund, maybe it makes sense to start putting money towards that in order to increase, um in order to increase the uh balance of that account. So there's no right way, one right way where to put the money. It's all based upon your situation, but it's all going to start off with understanding where your money is going and then making decisions on how you want to spend your money that best reflects how you want to live your life. And if you're spending money in places that doesn't best reflect how you want to spend your life, cutting back on those to free up that money to put other places that is more beneficial to you.

Jessica 15:55

Yeah. I think too, one of the things that I think is uh important and adds value over time is not feeling like you have to do it all at once. Like you can't jump from 3% to 10%, but maybe you can jump from 3% to 5%. And then in December, you know, maybe you add 2%. Because if you do it slowly, what's what's an additional 2% of $100, right? Like it's not gonna, you're not gonna feel it. You're not gonna miss out on something because you added 2% to wouldn't be 2% of $100, it'd be 2% of your whatever, yeah. What I'm but you know what I'm saying, if you do it, if you do it slowly, yes, always do it slowly. Don't do like these big, oh, I'm gonna do 20% right off the bat. You're gonna be like, wait, where did all my money go?

Brandon 16:41

Yeah. If you look sit down and you have currently a savings rate of three percent, like you just said, don't try to jump to 20%. That's right, that's crazy. You were just sending yourself up crazy sauce. Do five percent, see how that's working for a few months. Yeah, if your increase from three percent to five percent over a few months, you don't feel it, you feel fine, then increase it to six, yeah, maybe up to seven. It doesn't need to be, it never should be this big jump because that's not sustainable, it's not realistic. And also, like, you want to have some like you know, better ideas as far as like benchmarks you should be working for. Yeah, ideally, 10% should be your minimum, and that's just for like covering emergency savings. I mean minimum to maybe have some stability in your life. Now, um, if you're you know being you know solid and on a good track, 15 to 20 percent.

Jessica 17:30

Which sounds like a lot because again, most people are living paycheck to paycheck, and life is so expensive.

Brandon 17:37

Like, I don't want to discount that either. Yeah. That's a reality based upon your own individual situation. So if you are in a hard situation, you're in a hard time of you know, hard period of life, then you just need to figure out some things on your day-to-day basis. And maybe this should not be a focus at this moment in time, right? But this is not to shame anybody, but these are just the numbers that from a statistical standpoint, if you're doing these things, it leads to a higher, it leads to a better outcome that you'll be able to retire one day, become work optional.

Jessica 18:08

Now, like if you're and most people aren't saving anything, yeah.

Brandon 18:11

So if you want to fast track it, 30 plus percent. 30 plus percent. Yeah, and that's more or less honestly when you hear those people that are in fire, which is financial independence, retire early, those are the people that are doing, you know, 30% and more. I have my own feelings about that, to each of their own, do whatever you want to do. For most people, that's just not realistic, especially for what I would say, like our demographics, because like if you already have kids, yeah, how are we starting to put away you know 40% of your income, especially depending on where you live, that's almost unrealistic in this day and age.

Jessica 18:40

So the idea And how are you living? Like you still want to live life, we still want to live life.

Brandon 18:44

I agree, and a lot of people are very lean and not necessarily doing all the things that you do now, but like I said, to each their own. But the idea here is to have a conversation so that you have a starting point of understanding hey, I do need to understand what my savings rate is. I do need to understand, hey, if I'm not contributing, I'm saving as much as I would like to, what are some of the things that I need to do in order to get there?

Jessica 19:07

I think another thing, and I would just have this conversation with a friend of mine is saving is an expense. Yes, you know, and you really do need to think of it like that optional.

Brandon 19:18

I don't I don't when I work with clients, I don't consider it an option.

Jessica 19:21

Yeah, it is a line item.

Brandon 19:22

Even if it's only three or four percent, it is it is there.

Jessica 19:26

It is a line item and it is it is an expense, just like your mortgage, just like your cell phone bill.

Brandon 19:31

Um, just like sorry, you save intentionally, you don't save what's left.

Jessica 19:35

Well, and that's what I was gonna feed into is pay yourself first. Wealthy people pay themselves first in their savings, in their retirements, in their brokerage accounts, all those things. It is an expense for them that they put into their budget. And then what is left they spend. So once you've covered all your bills, which includes saving and your retirement, then you can go to dinner, then you can book the vacation, then you can upgrade your flights, then you can do the kitchen remodel. It is an expense.

Brandon 20:06

Yes. Let's say people who set it up for automating and do it at the beginning of the month are significantly more successful than those who try, like, oh, you know, I'll do it at the end of the month. And I'll just never works. It doesn't happen.

Jessica 20:19

No. And I and I can say for myself, if I don't automate, it doesn't happen. And it's not because I don't think it's important, it's not because I don't want to, but I mean, you look up and you're in the middle of the month, right? And then you have extra expenses that you weren't expecting. Things happen, life is lifing, you get busy, and then you look up, it's the end of the month, and what did you put away? Nothing. And you can always find something to spend your money on. Like let's be let's be clear. There's there's ever you can buy whatever you want without a problem. But if you don't set aside your savings, it will go away. It will not be there at the end of the month. And we all know that. So stop playing yourself and pay yourself first because that is what wealthy people do. They pay themselves first.

Brandon 21:05

And the idea behind this conversation, once again, all comes back to the planning aspect and being aware. Where are you today? What is going on in your financial life? Where do you want to be? And what steps do you need to take in order to get there? That is always going to be the foundation of pretty much anything that we're talking about. Because, like you said, people are going to work day after day, working 40 plus hours a week. And what are you doing it for?

Jessica 21:31

You don't even know the numbers at the end of the paycheck coming into your bank account.

Brandon 21:35

Like obviously, we got to, you know, bring in money to live and take care of our family and things of that nature. But hopefully you have a bigger goal that you want to achieve than just that.

Jessica 21:43

Right.

Brandon 21:43

And if you don't, listen to our podcast so that you can get yourself in the mindset and learn some tools to do

The Two-Part Savings Rate Challenge

Brandon 21:49

that.

Jessica 21:49

Absolutely. So if you do not know your current savings rate, take a moment today, tomorrow, this weekend, and figure that out, figure out what you're contributing to your retirement account. Through your employer, what's going into your savings, your cash flow. And again, if you need help, we are not just a podcast with free information. This is what free information. This is what Brandon does for a living. This is what he does with his clients every single day. So reach out, book a free consult, see if the vibe is right. Because you really do have to have a great relationship with your financial advisor.

Brandon 22:25

And I'm being honest, I have to also like you too. Like I'm just being real. Like, I it's true. I don't want to ever, you know, dread like, oh man, I have to meet with this client today. Like, no, I all my clients I genuinely like.

Jessica 22:37

So yeah, that's um a benefit to you being an entrepreneur. Yeah. But reach out, have the conversation, um, and get started. Don't just keep putting this off. You know, you are we're in the middle of the year. By the time we look up, it's gonna be, you know, end of year again, and then we're gonna look back and say, oh my gosh, where did the year go?

Brandon 22:58

Let's issue a two-part challenge. First, figuring out what your savings rate is, what it currently is, and if it's not in that, you know, 20% or above area, try to increase it one or two percent over the next few months.

Jessica 23:13

Okay. Oh, so the first part is find out what your savings rate is. Okay. I was waiting for part two. Okay, what is your savings rate and then increase it by a few percentages, percentage points. Okay, perfect. All right, you know what to do. Go forth, get your finances right, look at your numbers, understand them, and reach out for help. You do not have to go at it alone. We hope this was a fun and informative episode. Share it with a friend, and we'll talk to you soon. Don't forget, Benjamin Franklin said, an investment in knowledge pays the best interest. You just got paid. Until next time.

SPEAKER_00 23:48

Sugar Daddy Podcast, yo, learn how to make them pockets grow. Finance and freedoms where we go. Smart investments, money flow.

Subscribe And Send Us Questions

Jessica 23:58

Thanks for listening to today's episode. We are so glad to have you as part of our Sugar Daddy community. If you learned something today, please remember to subscribe, rate, review, and share this episode with your friends, family, and extended network. Don't forget to connect with us on social media at the Sugar Daddy Podcast. You can also email us your questions you want us to answer for our past the sugar segments at thesugardaddypodcast at gmail.com or leave us a voicemail through our Instagram.

Brandon 24:27

Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based upon your own personal circumstances. You should take independent financial advice from Alliance Professional in connection with or independently research and verify any information you find in our podcast and which you rely upon, whether for the purpose of making an investment decision or otherwise.