How I Organize My Savings

Having a nice mental model, and some numbers behind how I’m structuring my savings gives me a lot of peace. I was constantly getting that nagging feeling that I should be putting away as much as possible, and running the numbers helped me find a comfortable figure I can save each month to get started without feeling overwhelmed.

First, get insurance

Quite simply, get some decent insurance coverage. The most important one is medical, which if you live in a country with universal healthcare this is already taken care of by your taxes. Still, there are other categories you might need to consider too: auto-, renters-, or liability-insurance (for freelancers and contractors) for instance.

As I’ve written before, this is a no-brainer, if I’m going to take saving seriously, I don’t want an unexpected event to throw all my effort to waste.

Currently, I’m only getting health insurance (through Safety Wing) since I’m traveling around, and I’m planning to upgrade to something with more coverage soon.

I think the trick here is to not hesitate, it’s a big-ticket item and it’ll only be worth it if something bad happens, which sucks, so instead of taking it as a gamble, just take it as a duty and get through with it.

Second, set up an emergency fund

A good second step is to build up your emergency fund. A typical rule of thumb is to keep three to six months’ worth of expenses in a savings account you can access easily.

When it comes to figuring out the exact amount, what I can recommend is to have a clear idea for how long it might take you to find a job and a clear picture of how much you actually spend per month. I have found people are quite terrible at estimating their expenses unless they actively track them, so I insist on that.

Right now I have six months of expenses in my emergency fund. This felt like a good figure for me because I stress a lot about money, but at the same time, I rarely go more than a month without finding projects. So six months is more than enough, which is what I’m aiming for.

If I’m out of work longer than usual or I have to travel back home fast, replace my computer or pay a rental deposit, it’s not going to hurt me, to me, this is worth having some idle money sitting in the bank.

Ideally, you should put this fund in a high-yield savings account. At least in the US, it’s easy to get around 1% per year of interest, which doesn’t sound like much, but is better than nothing.

As a side-note, if you’re also having trouble setting up a decent savings account, please [reach out](/contact), I’m trying to solve this problem for us nomads and third-world citizens and I would love your feedback.

Third, start on retirement early

It seems crazy to think about this before 30, but I know at some point in my life I won’t be able or willing to work. Most of my life I have acted like at some later moment I’m going to hit a home-run and not need to worry about money ever again, but as I have consistently increased my income, I have realized this is a stressful approach. Instead, I’m now trying to get my shit together, so I can take care of myself without needing more luck.

My approach to getting started is simple, set a retirement age for yourself, figure out how much you would need to put away each month until you’re that age so that by that time, you have enough money to pay yourself your current expenses throughout your retirement. This will give you a baseline for what you need to be saving. As your expenses grow (and hopefully your income too), you can re-adjust this number. I put the formula I used into a little calculator you can use too.

I’m obviously going to try to grow this input, I’m going to have to figure out taxes and a lot of more stuff, but I have something I can get started on right now and put on auto-pilot. One thing I’ve learned recently is that there is nothing more powerful than something you repeat consistently for years and years.

If on the one hand, your number seems out of reach, I feel you, I was there not long ago. The most important take away there in my opinion, is that you now know you’re not actually making enough money. That clarity is very powerful, and among other things, it should give you a confidence boost to ask for a raise or increase your freelancing rates.

If on the other hand, you run your numbers and you’re already well above this, maybe you can start making bigger plans.

Fourth, plan for big-ticket items

I’m not here yet, but I’m hoping to open a second savings account soon, where I can start putting away money for other stuff I want to do. The first one is to spend a year without working while I’m still young, to do outdoor sports, study, and volunteer.