Tag: saving rate

Furloughs Show Why You Need Savings and Parachute Money

Making headlines this week, the federal government shut down, resulting in hundreds of thousands of federal employees being furloughed.

When someone is furloughed, he doesn’t receive a paycheck. Even if that person eventually receives backpay, furloughs can be a huge problem for those individuals.

Why?

Because most people, even high-earners, live paycheck to paycheck.

When you’re furloughed, money stops coming in. But, money keeps flowing out.

The mortgage still needs to be paid.

The kids still need to eat.

The credit card balances are still due.

As reported by CBS News:

But even federal workers who eventually receive back pay can suffer during a shutdown, as many of them live paycheck to paycheck, [Dan Koh, former chief of staff of the Labor Department] added.

“Even if you are entitled to back pay, a lot of people can’t go even a couple of days without their regularly scheduled paycheck,” he told CBS News. “If you have to pay your subway fare, for gas, if something breaks in your home, and you’re not getting paid, it places extreme stress on government employees,” he said.

So, what can we do to help protect ourselves from furloughs or any other sudden loss of income?

We can protect ourselves in two ways.

First, we can protect ourselves with an emergency savings account.

Second, we can protect ourselves with parachute money.

For the ultimate protection, we can have a fully-funded emergency savings account and parachute money.

Let’s take a look at exactly what that means.

Photo by Austin Distel on Unsplash

Protect yourself from a sudden loss of income with an emergency savings account.

The first savings account you need is commonly referred to as an emergency savings account. This is your ultimate security blanket for whatever life throws at you.

For example, if you are furloughed and lose your source of income, your emergency savings will keep you afloat until you’re working again.

The idea is to use your savings so you don’t have to pull from your long-term investments.

Your emergency savings is not just for when you get furloughed or lose your job. Your emergency savings will also protect you in times of emergency (brilliant, huh?), like unexpected medical bills or expensive home repairs.

The idea remains the same: instead of pulling from your investments, you will have cash available in your savings account to cover your needs.

Aim for 3-6 months of Now Money saved for emergencies.

Aim for building up 3-6 months of your Now Money saved in a dedicated emergency savings account.

In your Budget After Thinking, Now Money represents the consistent, reoccurring expenses that you need to pay every month to take care of yourself and your family.

Since you will only be using this money in times of emergency, you can, and should, forego some of life’s luxuries until you get back on track.

The same is true for fueling your Later Money goals. Take a pause until you sort out whatever it was that caused you to spend your emergency savings in the first place.

While your emergency savings account is your first line of defense when you are furloughed, I prefer having an extra layer of protection.

I refer to this additional protection as Parachute Money.

What is Parachute Money?

Parachute Money is one of my favorite concepts in all of personal finance.

The analogy goes like this:

Pretend your life is like flying on an airplane.

For whatever reason, you decide you need to get off this airplane. Maybe conditions outside of your control have forced you to jump. Or, maybe you’ve decided that it’s time to take control and make a change.

Either way, you’re ready to jump.

All you need is a parachute.

You have a choice between the only two parachutes on the plane.

The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”

Then, you look at the second parachute.

The second parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”

It’s obvious which one of these parachutes to choose, right?

OK, cool.

But, what does a parachute have to do with money?

Each of your income sources is like a string on your parachute.

The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source.

Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is.

With Parachute Money, if one of your sources of income dries up, like when you are furloughed, you are more than covered with your other income sources.

Of course, the more sources of income you have, the stronger your personal finances are.

Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.

The key to Parachute Money: protect yourself with as many investment and income sources as you can.

That’s why in addition to my primary job as a mesothelioma attorney, I invest in the stock market, own rental properties and am an adjunct law school professor.

It is not easy to maintain an emergency savings account of 3-6 months.

Having 3-6 months of emergency savings is a wonderful achievement. It takes time and discipline to build up that level of savings.

Personally, I’ve struggled to accumulate a sufficient emergency savings account.

It’s not that I have a low saving rate.

It’s that I’ve chosen to prioritize investing in real estate for the past seven years. Whenever I had enough money saved up for a down payment, I bought another property.

Admittedly, this was a risky strategy.

That’s why I do not recommend this approach for most people.

Instead, for just about everyone reading this, I would recommend you build up your emergency savings account before moving to other financial goals.

Photo by Yuri Krupenin on Unsplash

Did you notice that I said “just about everyone reading this”?

That’s because I think people who are protected by parachute money have earned the right to take more risks at the expense of their emergency savings.

Let me explain.

If you have parachute money, you can get away with a smaller emergency savings balance in the short run.

I was comfortable underfunding my emergency savings account in the short run because I had a strong parachute with multiple income streams.

As I mentioned, my wife and I were both working as attorneys and had various income streams. If one of our income streams dried up, such as during a furlough, we would have been protected by our other income streams.

Because of these multiple income streams, we were comfortable taking on the risk of having a low emergency savings balance.

If you are in a similar position and have multiple streams of income, you may also feel comfortable with a smaller emergency savings balance.

From where I sit, you’ve earned the right to invest your money rather than letting it sit in a savings account. If that’s your choice, I wouldn’t blame you. I made the same choice.

That said, I would not recommend you shortchange your emergency savings in the long run. While it’s OK to temporarily prioritize other investments, I still believe that an adequate emergency savings account is essential to a healthy financial life.

That’s why I am now focused on building up my emergency savings instead of acquiring more real estate. I’ve reached a good place with my investments. Now it’s time to focus on protecting my family.

I think of it like this: my parachute is otherwise very strong between my primary job, my adjunct teaching job, my rental properties, and my other investments.

The one string that I need to add is a sufficient emergency savings balance. That’s why building up my emergency savings will be my top money goal for 2026.

When you combine emergency savings and parachute money, you are as protected as possible.

The ultimate level of financial protection comes from having an emergency savings account and parachute money.

You are protected in a variety of ways if one of your income streams dries up.

If you haven’t prioritized an emergency savings account or developing parachute money, let the recent government shutdown serve as a reminder of how important these concepts are.

Whether you are in the tech industry or an attorney or a consultant, there’s no guarantee that your job will last forever.

The overall economic outlook is hazy at best right now. Ask five “experts” what the economy will look like in two years and you’re likely to get five different answers.

It’s up to each of us to build in multiple layers of protection in our financial lives to avoid disaster if our primary source of income dries up.

Do you have an emergency savings account?

How strong is your parachute?

Let us know in the comments below.

October 5, 2025
How Much Money Did You Actually Keep This Week?
The alarm clock goes off at 6:30 a.m.

You groggily brush your teeth and hop in the shower.

The hot water feels nice. Should I skip work today?

Then, reality sets in. What time is my first meeting today?

Shower done. Now, what to wear? The blue shirt? Again?

Let’s go, let’s go! Pick up the pace! The kids need to get dressed and eat breakfast.

Why are we always so rushed before school? Tomorrow, I’ll wake up earlier.

The train will be here in 10 minutes. “Bye kids! Bye Honey!”

I gotta get across the tracks! Speed walk!

Phew. Made it.

30 minutes to catch your breath before work starts.

What day is it today? Tuesday?? It’s only Tuesday?!?!

I’m tired.

Do you ever notice the people on the train?

Does this routine sound familiar to anyone?

At least you’ll have something to show for it come pay day.

Wait, you go through all that effort every day and you’re not saving a good portion of your paycheck?

Let’s talk about that.

When I take the train downtown, I can’t help but notice my fellow passengers.

Some people are already cranking away on their laptops. Some are even on conference calls, which always surprises me.

Why don’t they care that everyone is annoyed with them? Do the other people on the call know that they’re talking to someone on a train?

But, I digress.

Some passengers are reading books. A good portion of passengers are doomscrolling. Just about everyone has headphones in.

It’s not that people look unhappy. They just seem to want to be somewhere else.

Do you have similar observations?

Most people don’t have a plan.

It’s at times like these when I start to wonder how many of these people have a plan.

I’m not talking about a plan for lunch or for getting to the gym after work.

I mean a plan for how to spend their time and their money.

Ideally, this plan would be based upon spending time on meaningful pursuits with meaningful people.

My guess is most people have never really thought about this kind of plan.

Instead, it’s go to work. Get a paycheck. Pay the bills.

Same thing tomorrow. That’s as far as the plan goes.

This routine may be enough for some, or even most, people. If that’s enough for you, there’s no shame in it. Holding down a steady job and providing for your family are accomplishments to be proud of you.

But, let’s be real.

You’re reading a personal finance blog.

We spend a lot of time talking about financial freedom and creating options.

You wouldn’t still be reading if you didn’t feel there was more to life than the daily train ride, right?

You may not know how or when to get off the train, but you’re interested in finding out if it’s possible.

Well, it’s definitely possible. But, you need to break the cycle and commit to a plan.

Here’s a question to help you get started.

How many hours do you work to make money?

Photo by Volodymyr Hryshchenko on Unsplash

Let’s say you work 2,000 hours per year to make money (40 hours per week, 50 weeks per year).

We won’t even count all the hours you spend getting dressed and riding the train.

Also, we will pretend you’re not looking at your emails in the evening, on weekends, and on family vacations.

We definitely won’t count the hours you’re staring at the ceiling fan worried about tomorrow’s challenges at work.

OK, so you’re working 2,000 hours (plus) per year to make money.

My question is:

How many hours per year do you think about what to do with that money?

Let that sink in for a moment.

You work a lot of hours. I’m guessing many of those hours are stressful.

Yes, you get paid money in exchange for those hours.

But, do you still have any of that money?

Do you care more about making money or keeping money?

Think back on how much time, energy, and sacrifice you dedicated to making that money.

Hopefully, you saved and invested a good portion of that money.

The problem is that most lawyers and professionals work incredibly hard, make good money, and don’t keep enough of it.

They somehow find 2,000 or 3,000 hours per year to work.

But, they won’t set aside even a few hours per month to think about what to do with all that money.

This is why I am passionate about money wellness.

Most people spend the vast majority of their lives worried about making money and practically no time at all thinking about what to do with that money.

No, I’m not suggesting that you need to think about money for 2,000 hours per year.

What I am suggesting is that even a little bit of time each week spent thinking and talking about money is just as important as the time you spent earning it.

That’s how you break the cycle of mindlessly riding the train to work and start progressing towards financial freedom.

It’s not how much money you make. What matters is how much you keep.

Robert Kiyosaki put it best in Rich Dad Poor Dad, “It’s not how much money you make. It’s how much money you keep.”

If you knew someone who made $1,000,000 per year, and at the end of the year, had only saved $20,000, what would your reaction be?

Sadly, this is how most people behave with their money.

They inherently know that they should be saving more, but they come up with excuses. They assure themselves that they’ll start saving more next year.

On the other hand, what if you knew someone who made $100,000 per year and saved $40,000?

Did your reaction change?

This is the kind of person who will actually achieve financial freedom and have choices in life.

It all comes down to how much you keep, not how much you make.

It’s why your personal saving rate is so important.

Don’t forget, your saving rate is the one thing you can truly control.

Photo by Superkitina on Unsplash

What is a saving rate?

Your saving rate is simply the amount of money you save each month divided by the amount of money you make.

Saving rate = Money Saved / Money Earned

Just like staying on budget with two simple numbers, you can monitor your progress with this simple formula.

I find it helpful to measure your saving rate based on your monthly income and savings. This way it matches up with your Budget After Thinking.

Tracking your saving rate will help you understand if you are making progress over time.

It’s not about comparing yourself to someone else. Whatever your current saving rate is, the goal is to seek personal improvement.

Just like with tracking your net worth, the purpose is to see if you are making personal progress over time.

How can you make progress with your saving rate over time?

When it comes down to it, there are really only two ways to improve your saving rate.
1. You can spend less, and save more, of the money you’re currently making.
2. You can make more money and save most of that money, all while keeping your expenses the same.
Combining those two ideas is even better: make more money, spend about the same.

Use the excess money you make to fuel your Later Money goals.

If you can do that, your saving rate and your net worth will steadily climb.

You’ll realize that you’re closer to getting off the train than you think.

How much money did you keep this week?

When you get your next paycheck, pay attention to how much of that money you actually keep.

Once you pay the mortgage/rent, car payment, and credit card bills, is there anything left for you?

If your saving rate is low, this exercise should make you mad.

Seeing 95% of your hard-earned money disappear as soon as it comes in should inspire you to make some adjustments.

Those adjustments may be small at first. Over time, you’ll experience that it feels better to keep money than to spend money.

Keeping money leads to options.

Spending money leads back to the train.

Have you ever observed your fellow commuters in the morning? What are your takeaways?

Do you have a plan to get off the train, should that be your choice?

Let us know in the comments below.
September 26, 2025
Your Saving Rate is the One Thing You Can Truly Control
On your journey to financial freedom, there is only so much you can control.

The reality is, like most things in life, much of our financial journey is out of our hands.

If your gut reaction is that I’m wrong about that, that’s OK. I get it. I used to be in denial, too.

Really smart people, like Think and Talk Money readers, don’t want to acknowledge that they aren’t in complete control of their financial lives.

To illustrate my point, here are just a few things that you can’t control on your way to financial freedom:
1. You can’t control the returns you’re going to get in the stock market. It’s reasonable to project 10% average annual returns based on historical performance. Also, we use 10% merely as a projection for planning purposes. But, there’s no guarantee anybody will earn 10% per year.
2. You can’t control whether a real estate investment appreciates. We all certainly hope our properties increase in value over time. We do our best to target areas where appreciation is likely. But, once again, there’s no guarantee.
3. You can’t control if your employer is going to give you a raise. Of course, you can work hard. Also, you can outperform all the metrics. You can go above and beyond to deliver massive value to your company. However, when it’s time for your annual salary review, it’s not up to you how much all that is worth.
So, am I wrong about any of that?

Gee, thanks for the doom and gloom, Matt.

I know, I know. Not what you want to hear.

Don’t be discouraged. All is not lost.

There is one crucial element that you can control on your way to financial freedom.

Today, we’ll focus on the one crucial element that you actually can control on your way to financial freedom.

It’s such an important concept that Mr. Money Mustache’s blog post from years ago is still a classic: The Shockingly Simple Math Behind Early Retirement.

Even more so, it’s such a powerful concept that you won’t find a personal finance blog, book or podcast that doesn’t emphasize its importance.

What is the secret?

What is the one thing you can control above all else?

The one thing you can truly control is your saving rate.

If you ignore every piece of investment advice out there and focus on your saving rate, you are going to be in great shape.

Let’s examine why.

What is a saving rate?

Your saving rate is simply the amount of money you save each month divided by the amount of money you make.

Saving rate = Money Saved / Money Earned

Just like staying on budget with two simple numbers, you can monitor your progress with this simple formula.

I find it helpful to measure your saving rate based on your monthly income and savings. This way it matches up with your Budget After Thinking.

I also find it most useful to express your saving rate as a percentage. To see your saving rate percentage, all you need to do is multiply your saving rate by 100.

Saving rate % = (Money Saved / Money Earned) x 100

Moving forward, when I refer to saving rate, I will be talking about your saving rate percentage. It’s more informative to see what percentage of your money you are saving, rather than an amount with no context.

What I mean is this: if someone asked me if saving $10,000 per year was a good target, I wouldn’t be able to comment with more context.

If that person was making $75,000 per year, I would say that seems OK. That’s a saving rate of more than 13%.

On the other hand, if someone told me they were making $750,000 per year, and only saving $10,000, I would recommend that person revisit their Budget After Thinking.

That’s a saving rate percentage of only 1.3%.

That’s… bad.

Photo by Chris Leipelt on Unsplash

What can I learn from tracking my saving rate?

Tracking your saving rate will help you understand if you are making progress over time. It’s not about comparing yourself to someone else.

Whatever your current saving rate is, the goal is to seek personal improvement. Just like with tracking your net worth, the purpose is to see if you are making personal progress over time.

When it comes down to it, there are really only two ways to improve your saving rate.
1. You can spend less, and save more, of the money you’re currently making.
2. You can make more money and save most of that money, all while keeping your expenses the same.
Combining those two ideas is even better. Like we just said, make more money, spend about the same.

Use the excess money you make to fuel your Later Money goals.

If you can do that, your saving rate and your net worth will steadily climb. You’ll experience that your Later Money goals are closer to becoming reality than you think.

Why it’s important to focus what you can control, like your saving rate.

My point here is show you how dramatically one decision can accelerate your progress towards your goals.

Each additional amount saved is one step closer to financial freedom.

Sometimes, we all need to ask ourselves:

“Is spending more money right now on things I don’t really care about going to make me happier?”

“Do I even want to go out to more restaurants? Or fancier restaurants?”

“Do I despise my home/my car/my wardrobe so much that I must replace it immediately?”

Only you can answer these questions.

Maybe you’ll realize that your life is pretty good right now as it is.

You might just decide that you don’t need the extra money at this moment.

You’d rather use the money as fuel for what you really want in life.

Here’s an example showing the importance of your saving rate.

Scott Trench, author of one of my favorite money wellness books, Set for Life, is a big advocate of improving your saving rate.

In a recent episode of his BiggerPockets Money podcast, Trench emphasized just how important your saving rate is using a simple example.

Let’s use that example to explore how improving your saving rate can accelerate your journey to financial freedom.

Assume that you earn $100,000 per year (after taxes for simplicity).

You are a pretty good saver and save 20% of your income, or $20,000. For most people, targeting a saving rate of 20% is pretty solid.

Of course, if you save 20% of your income, that means you spend 80% of your income, or $80,000 per year:
- Take Home Pay: $100,000
- Annual Spending: $80,000
- Annual Savings: $20,000
Based on the above, we can project how long you will have to work to fund one year of your life.

Because you spend $80,000 per year and you save $20,000 per year, you would have to work four years to save enough money to fund one year of your lifestyle:

$20,000 saved x 4 years = $80,000 saved (1 year of spending)

In other words, you would need to work four years to buy one year of financial freedom.

Not bad, huh?

But, look what happens when you improve your saving rate.

Photo by Alexandr Podvalny on Unsplash

What happens if you double your saving rate from 20% to 40%?

Now, let’s see what happens if you double your saving rate to 40%. That means you are saving $40,000 per year and only spending $60,000 per year.

The result is that you now only need 1.5 years of work to fund one year of financial freedom:

$40,000 saved x 1.5 years = $60,000 saved (1 year of spending)

Notice that two things are happening at the same time when you increase your saving rate.

First, you are saving more money each year. That’s a good thing.

Second, you are spending less money each year. That’s another good thing.

The result is that when you spend less money, you need to accumulate less money to fund your lifestyle.

It’s a double whammy. In a good way.

Should we complete our example by taking it one step further?

Let’s say you have a 50% saving rate. That means you save $50,000 per year and spend $50,000 per year.

How long do you have to work to buy one year of financial freedom?

Only one year.

$50,000 saved x 1 year = $50,000 saved (1 year of spending).

Now, that’s cool.

It’s motivating to think of your saving rate in terms of years to financial freedom.

So, what’s the takeaway here?

It can be extremely motivating to think of your saving rate in terms of how long you have to work until financial freedom.

Each incremental amount that you save means you’re boosting your savings at the same time you’re reducing your spending.

When you pull both of those levers at the same time, you accelerate your progress towards financial freedom.

This thought process is especially helpful for people who feel that math is not their thing. It doesn’t get much simpler than viewing savings in terms of buying financial freedom.

The cool part is that once you hit a 50% saving rate, you can essentially buy a year of financial freedom for every year that year work.

Keep in mind that that this simple illustration ignores any investment returns you may get from your savings.

Don’t worry, those investment returns will generally reduce the length of time you need to work even more. Check out Mr. Money Mustache’s post for more on that point.

Setting aside investment returns, the purpose here is to drive home the point that the more you save, the faster you’ll reach financial freedom.

That’s why it’s so important to focus on your saving rate. You can’t control everything, but you can certainly work on your saving and spending.

Have you ever calculated your saving rate in terms of how quickly you can achieve financial freedom?

Does this example motivate you to save even more?

Let us know in the comments below.
September 16, 2025