Are You a Saver?

Here's a piece from MSN Money that lists what they think it takes for a person to be called a saver. They say that you are a saver if you:

• Save more than 20% of your earned income each year.

• Spend and give away less than 3% of your total net worth each year.

• Increase your net worth by more than 5% from year to year.

Here's where I fall on all of these:

1. Yes, we save more than 20% of our earned income each year.

2. Not exactly sure what they're talking about here. Our net worth is always increasing (unless the market tanks like this year), so we don't lose anything (much less 3%) -- if that's what they are suggesting (which I think it is). I find it hard to believe that they mean you spend/give an amount that's equal to less than 3% of your net worth (for instance, if your net worth is $1 million, then you'd have $30,000 to spend/give.) This seems overly restrictive and not very likely. So I'm going with the first option (and thus we meet the criteria.)

3. Over the past 12 years or so (how long we've been tracking our net worth), we've seen average annual gains in the 16% range. That will drop big-time when this year's numbers are factored in, but it will still be way above 5%.

Given these responses, we would be classified as savers. How about you?

Comments

[Christy]

I probably don't qualify on any of these items. Only contribute 5% to 401K and keep $1000 in savings (still paying off debt), not tracking spending, and i'm sure although my net worth is getting better, it's not growing by 5% a year. However, I do "experience a rush of good feelings -- happiness, relief or optimism -- after making a bank deposit, reducing spending or making a long-term investment." as the article says, and I actually enjoy saving. I would consider myself a saver (or saver wanna-be). The thing I didn't like about this article on MSN was that they make saving sound like a bad thing.

[Foobarista]

The second criteria is pretty much impossible to meet unless you're fairly old and have a very large net worth. To qualify, you'd need to spend $30K on a million dollar net worth! That seems rather impossible to meet.

We definitely do the first and third, but we do the >3% thing by just paying income taxes...

[F]

Apart from criterion #1, their definition of being a saver makes no sense. The least one can say is that it is not clearly explained.

[rwh]

I agree with the previous posters. #1 is a good goal to strive for and we achieve that. The other two goals, while maybe not impossible, are pretty darn hard to meet. Our net worth is probably 700 to 800k. We probably spend and give away 60k per year, not counting taxes. That's way above 3%. And even with 25k in savings this year alone, that won't make up for the close to 100k hit our retirement portfolio has taken this year.

But I'll still say we're savers.

[Kevin M]

Yes on 1 & 3, no on #2. I guess you could call me a "saver in progress".

[Miss M]

I definitely don't meet number two, if you look at my "net worth" numbers that would mean I spend less than $1000 a year. It's simply not possible unless you have a high net worth. Any relatively new saver wouldn't meet this criteria. The other two aren't so bad, other than the awful year on the market. I would have increased my net worth by 5% if the market hadn't decreased it by 25%!

[poor boomer]

I wonder that they think it takes to be called a spender!

[James]

Lesse... I'm 25, so...

1) I saved 78% of my post-tax income this year

(I'm able to live with my parents rent-free, and they're happy to have me save for grad school)

2) My net worth is around $25,000, so 3% = $750. In an entire year?!

3) My net worth increased 225% YTD.

2 outta 3 ain't bad, eh?

[Param Iyer]

As always, MSN is all hype, with little substance...

1. 20% of earned income - is this gross (before taxes) or net (after taxes)? If gross, we are looking at living on 50% (assuming 30% taxes). Does this refer to wage income only? If a significant portion of my income is from investments (bank interest, dividends) due to higher net worth and (relatively) lower salary, I would still regard myself as a saver if I reinvest the investment income and survice on lower salary.
2. This one assures perpetual existence of your net-worth adjusted for inflation, despite continuous withdrawal. What has that got to do with saving? It seems more related to controlling spending. As others rightly pointed out, this is only feasible if your net worth is high enough, which might correlate to age.
3. This contradicts with #2. If your net worth is high enough, despite a diversified portfolio (50:50 debt:equity besides cash for regular needs) & low costs (Vanguard Index funds), your net worth can go down as much as 10-20% in bad years. And even a decent salary coupled with very high savings cannot replenish these losses within a year. So, this might be feasible only if your net worth is low enough, which might correlate to age, but this time inversely.

Unfortunately, the article does not throw any light on how the people featured managed to handle all three items at the same time. Too shallow to be respected.

[kitty]

#1 and #2, but not #3 (this year). #3 is impossible for me this year. I would need to save the amount equal to my yearly gross if not more - I lost a little over 100K. I wasn't even fully invested, more like 60/40. Three reasons I can meet #2: a) I have a paid off home hence I have lower expenses b) I live in an expensive area and the value of my home went up a lot in 2000s, so home equity is a pretty large part of my net worth c) I am single and don't have kids. It is close though, I am not sure I really counted all of the expenses...

I think #2 depend a lot on one's net worth, net worth "make up" (401K, non-retirement savings, home equity), age and family status. As to #3, I'd imagine most people whose stock investments are greater that their income would find it difficult this year.

[Cramer]

So much for dollar cost averaging into index stock funds. Dollar cost averaging won't save you when the market is tanking. Hopefully things will be better in 20 or 30 years.