The Surplus

Today’s post is a follow-up on yesterday’s post about the percentage we save. I only have data for 2012 and in that year we saved roughly 17% of our total earnings. By saving I just extracted our total expenses of that year from our total earnings. These days we’re doing sensible stuff with the surplus such as throwing it into our mortgage, buying index funds and storing it in a savings account. By the way, our emergency fund is sufficient so we don’t have to throw any money in there nor do we expect to having to use it in the near future. But one never knows when it comes to unexpected expenses…right?

I know we can do sooo much better than that lousy 17%. Therefore I am going to set a new goal for us this year. Our target percentage will be….drum rolls please…..25%!

I’ll inform my husband about this later today… 😉

Hmm…if we hang on to a 25% savings rate we’ll be able to retire in 25.3 years according to the table in this great post. 😦 However, we’ve obviously already made a start. Don’t know how many years we’re from actually retiring…but I guess we need to aim for a 50% savings rate rather soon?!

My husband also remarked that we automatically already save near to 10% of our incomes automatically. See, here in The Netherlands employers have to deduct a part of your salary and put that into a retirement fund by law. So, in theory we’re already saving more than 25%. The downside of this system is that the employer usually doesn’t have a choice with which retirement fund your money is invested. This certainly counts for myself and my husband. An even bigger downside is that the government won’t just allow you to cash in on this money. Retirement age used to be 65 and it will be 67 shortly. By the time we’re old enough to retire “officially” the retirement age will be 70+. This means that we just ignore whatever we have sitting in those funds, since we aren’t the ones calling the shots about the dough.

Do you have a certain savings percentage in mind for this year?


Mrs EconoWiser


18 thoughts on “The Surplus

  1. Done by Forty

    Hi Mrs. Econowiser. My wife and I are aiming for 75% this year, but last year we were around 45% (I’ve been too lazy to compile all the figures, but the 2012 monthly numbers were around that). We’re aiming for that goal due to a new job I took in January. It allows me to work from home (bringing down our gas expenses) and gave a good bump in salary. But in this economy, I’m not taking anything for granted and who knows what I’d be making at the next employer.

    I’ve found that aiming for incrementally larger savings rates has worked well for us. We are still using a budget and we’ll try to ratchet up the savings by a set figure, say 3% or 5% over the past month, and then decide where we can optimize spending to make that happen.

      1. Wim

        Savings rate – time off.
        5% – after 19 years you can take 1 year off.
        10% – after 9 years you can take 1 year off.
        20% – after 4 years you can take 1 year off.
        25% – after 3 years you can take 1 year off.
        33% – after 2 years you can take 1 year off.
        50% – after 1 year you can take 1 year off.

        It is getting interesting:
        60% – after 1 year you can take 1.5 years off.
        75% – after 1 year you can take 3 years off.
        80% – after 1 year you can take 4 years off.
        90% – after 1 year you can take 9 years off (remember you will have to live on only 10% of your current income!)
        If you pay some 10% (or 12%) for benefit insurance system (by law) the other 50% will be paid by your employer. After approx. 42 of working years (25-67 age) you will have earned enough savings to be secured till you die (around age 79,9) meaning another 23 years insured.
        So with 20% savings we actually saved 10.5 years off. The rest is interest accrued. Normally one’s needs are lowering as we increase in age.
        Interest and compound interest is the magic trick. So if you save 2/3 (meaning 66%) after tax you can save 20 years off by investing 10 years of working (no interest) but including 4% interest rate you can add another 10 years to it meaning a total of 30 years off!

      2. econowiser Post author

        Whooooohooooooooooooo, thanks for the mathematics there! That’s extremely motivating!!! And it helps me a lot not to want to buy MORE STUFF!

  2. Anonymous

    Are you taking into consideration that savings rates mentioned on US websites often include retirement savings, which are done by the government in NL? Of course it’s not sure what part of these involuntary contributions you will ever receive yourself, but it is a significant amount of money either way. Surely that will crank up your savings rate.

      1. turboseize

        I beg to disagree. Are you ever going to see this money? I doubt that.

        We Germans have seen the public pension funds (wich actually is not a funds in the strict sense, but more like an insurance) being plundered twice to help with general gevernment expenditures.
        Pension age has risen considerably, and pensions have been reduced. Who knows what little there will be once we are old enough…

        In terms of financial independece it’s much more realistic to consider your contributions to public pension plans as losses and to write them off.

      2. econowiser Post author

        I have some serious doubts about ever seeing this money back as well. Ouch…writing them off feels horrible…but then again, my husband and I have already convinced ourselves that the pension is not something we expect to pay out. Wish we could legally retreat from having our money thrown in there and invest that money ourselves.

    1. econowiser Post author

      That also sucks…I feel it’s extremely unfair we don’t have a choice and no power over our own money. I guess it’s to make sure that everyone contributes…because some people who don’t understand the concept of saving would end up having not a dime saved for their old age.

      1. Wim

        Well, the system worked very well for a lot of citizen but is now outdated for the current structure of population in most modern countries. And for the rest of us: rely on yourselves, don’t rely on the government.

      2. econowiser Post author

        I think the majority of the population haven’t quite come to terms with you correct observation just yet…are we the early adapters?

  3. Bas

    You have to make a distinction between company pension fund and federal AOW. AOW I can agree that it is uncertain to get in 35 or 40 years, but company pension fund is your money and that will certainly pay out.

      1. Bas

        Yeah, then the good news is that you only have to take care of the years between 50 and 72! 🙂 After that you’re covered.

      2. econowiser Post author

        Exactly what my husband told me! I hadn’t thought of that before (duh, I’m a blonde ;-)) It could just so happen that looking at it like that you’d need even less than the 4% rule (25x your annual spending) in order to retire here in The Netherlands. Woohoooh!

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