While personal finance advice can take you in many directions, generally the underlying theme is the same.

Acquire some kind of assets so that you can build up your net worth, which will generate some kind of passive income, so eventually you can stop working and retire.

However, as the saying goes, there are many roads to Rome.

How do you get money to acquire assets? Which assets should you acquire? How big should your net worth grow to? And so on and so on.

But among every strategy, there is one factor that will have the greatest influence on your success.

Your savings rate.

Your savings rate is the foundation upon which all other aspects of your wealth are built.

So what is a savings rate?

Your savings rate is the percentage of your income that you don’t spend.

For example, let’s say you bring home $4,000 per month.

You spend $3,500, and save $500.

Your savings rate would be 12.5%.

($500 out of $4,000).

This number is more important than any other – regardless of your income, your investments, your age, your job, if you just focus on improving your savings rate, you will be on your way to early retirement.

Let’s look at a few examples.

In the above example, your savings rate is 12.5%, which gives you $500 each month to invest.

If the market returns ~10% per year, as it has over the last 100 years, we’ll have a million dollars in 29 years:

But let’s look at what happens if we could improve our savings rate just a little.

Perhaps, we are spending $5 on a coffee each day, so let’s cut that out, for an extra saving of $150 per month.

That will bring our monthly savings up to $650 per month, for a savings rate of 16.25%.

How much difference will that make?

We can retire as millionaires two years earlier – 27 years:

But what if we did something drastic and went all in? Moved into a smaller house, closer to our workplace so we could walk or bike to work, slashed our grocery bill, started buying second-hand clothes and furniture and kitchenware, stopped eating out at restaurants, and went full psychopathic FIRE so we could save 70% of our income?

That would mean you bring home $4,000 each month, and save/invest $2,800 of it.

This savings rate of 70% would allow you to retire as a millionaire after just 14 years:

That means if you start at 18, you’d be there by 32!

As you can see, your income barely matters.

$4,000 per month is not far from minimum wage.

In fact, in almost any job, you’ll naturally surpass $4,000/month by age 32 just by showing up to work every day and getting your regular pay rise.

What matters is how much income you keep, in other words, your savings rate.

If you earn $20,000 per month, but your saving rate is only 5%, you still won’t retire by 32.

And if you’re like most people and your savings rate is 0%, you’ll work forever.

Why This Is Good (Great!) News For You

Understanding that your savings rate is the foundation of wealth is good news for everyone.

This is because improving your savings rate is something everyone can do.

Not everyone has the skills to make $200,000 per year, and that’s okay.

In fact, many skills required to reach that income are either very expensive to learn (med school) or require you to be extremely intelligent (rocket scientist) or both.

Thankfully for me (and maybe you too) we don’t need them, because I didn’t go to any expensive school, and I’m not very intelligent either.

All we need to do to build wealth is improve our savings rate, and stay consistent over an extended period of time.

How Do You Improve Your Savings Rate?

Basically – everything you don’t spend money on will improve your savings rate.

For example, say you bring home $4,000 per month.

You’re in the mall, and you see a pair of $50 shoes that your lizard brain tells you to buy.

Simply by carrying on walking and not going into the store, you improve your savings rate by $50, or 1.25%.

If you’re at lunch and the waitress asks if you’d like a drink for $6, just by saying no and having water you improve your savings rate by 0.15%.

More examples of simple improvements you can make are:

• Walking or biking to work
• Carrying a water bottle with you everywhere
• Buying generic/non-brand groceries
• Switching to a cheaper power provider
• Switching to a cheaper phone provider
• Switching to a cheaper internet provider
• Switching to cheaper car, house and health insurance
• (hint: there is always a cheaper option)
• Using a cashback card
• Taking your own lunch to work
• Stop snacking
• Cancel Netflix/Spotify/Prime
• Buy second-hand

Obviously, the list is endless.

And remember – you don’t have to go on a blitz and implement them all at once.

Just adopting one or two new habits per month over the next few years can make a huge difference to your finances in the long run.

Whether you want to build your savings rate up to 30% or 70%, it’s up to you.

As long as it’s not zero, and it’s being maintained or improved, you’re on the right track.

And as you embrace these habits, many of them you will find so satisfying they will stick with you for life.

As an example, I’m currently travelling and needed some new clothes.

While I certainly have the means to just go to the mall and buy whatever shirts I want, I went to the second-hand markets with a friend and bought four cool t-shirts for four dollars.

That’s not four dollars each – in total!

And while they’re all great quality, I love that I never need to worry about losing them, someone stealing them, spilling food on them, and that I could even happily give them away if someone wanted them.

And what did I do with the $100 that I might have otherwise spent on four new shirts?

I invested it!

If you embrace new habits, and experience the positive effect they have, it becomes easier to maintain them and even enjoy them, even when you no longer need to.

As with everything in finance, small actions, compounded over time, lead to great results. Build your savings rate 1% at a time, and you’ll be amazed at how far it can take you.