I think it's safe to say most of us would love to reach financial freedom. The problem is we have no clue how to get there.
Whether financial freedom means early retirement, the ability to work a more fulfilling job or simply less time on someone else's watch—it feels elusive and out of reach for many of us.
Stagnating wages, skyrocketing costs of living and unpredictable stock market returns are a few reasons why taking the reins of our finances feels more challenging than ever.
However, all hope isn't lost. There's one thing we do have control over, and that's personal savings rate.
We're Not Saving Enough
The Bureau of Economic Analysis found our personal savings rate dropped to 5.3% in March.
5.3% may sound encouraging compared to our 2005 low of 1.5%, but it's still nowhere near enough. While it varies depending on an individual's goals, most experts recommend a personal savings rate of at least 10-15%.
And this is the recommendation for individuals hoping to reach retirement in their mid-sixties, not someone trying to reach financial independence.
It took me several months of saving 40-50% of my income to reach a point where I felt comfortable quitting my last job.
I was incredibly burnt out and the four months between full-time jobs gave me the chance to recharge and rethink my goals.
I took long, thought-provoking walks in the middle of the day, stayed hydrated, ate more fruits and vegetables, reconnected with friends, and caught up on my self-care routine.
This break allowed me to pivot into a more sustainable long-term career, and it would never have been possible without seriously stepping up my personal savings rate.
To me, financial freedom means pursuing the amount of work you desire when you want, from where you want, without ever feeling the pressure to sacrifice quality of life for compensation.
America's Best Savers Aren't the Wealthy
It's a misconception that a high personal savings rate is only possible for the wealthy, and I'm proof!
A recent Bankrate report found 1/4 of middle-class Americans (earning $50,000-$75,000 per year) save 15% of their income for long-term goals. However, only 17% of higher earners (making $75,000 or above) tucked away this percent of their salaries.
Greg McBride, Bankrate's chief financial analyst claims the need is higher for middle-class families because they don't have higher salaries to lean on for larger unexpected expenses, costly healthcare, education, or retirement.
How To Calculate Personal Savings Rate
There a several different ways to look at it, but I personally like this formula:
Net Savings / Total Income = Personal Savings Rate
If you've never calculated your personal savings rate, I'd recommend starting with your most recent month's income and expenses.
Then, add previous months, or if that feels too overwhelming, commit to including each month going forward.
It feels less tedious after you've done it once, and you'll feel much better knowing exactly where you stand.
Arming yourself with this knowledge puts you in the drivers seat and will help you be more prepared to make future decisions about your lifestyle.
Readers: Have you calculated your personal savings rate? What's your goal?