Definition of Parity – “the state or condition of being equal, especially regarding status or pay.”
Savings parity could be defined as your savings per year being exactly equal to your expenses. Said another way, money staying in your pocket matches money going out. Can you imagine?
Annual expenses – $75,000
Annual savings – $75,000
Let’s just say for a minute that you were able to pull this off. Your 401k contribution maxes out, under 50 years of age, at $18,500. So if you’re married and both max the 401k, you have a total of $37,000. This still leaves $38,000 left on the table to put somewhere. You save another $5,500 to your Roth IRA’s after tax, assuming you are eligible, for another $11,000. Still $27,000 to go. You don’t have to put any into a retirement account, so you put $1,000 a month in an online savings account, which leaves $15,000. That $15,000 your advisor tells you to invest in a traditional brokerage account, so you set up a $1,250 deposit to that investment account.
Phew.
Savings parity attained, but doesn’t seem like a ton of fun either.
Maybe we should strive for a more practical approach. My newly minted idea of goal parity, not savings parity. Goal parity could be defined as money being saved for a worthwhile goal matching money being spent on a frivolous expense.
The first step is to find an expense that is super common, seemingly worth it from day to day, but that we could definitely live without.
One of my favorite examples of this is your cable bill. I have not run the numbers, but I would use with confidence an average cable/internet (and oh yeah we have a landline, but no phone, cause we had to bundle to get the deal 🙂 is $1,800 ($150 per month).
The next step in my goal parity universe is to choose a goal that is underfunded and start saving the equal amount of this expense, in our case..cable.
Expense – Cable which costs $1,800 per year
Goal – Week Vacation – $1,800 with the hope of doing once per year
Goal Parity attained.
The last step, put it in writing!!
Action Statement – “I will start saving $150 per month into an online savings to reach parity by July of 2019.”
Chances are you won’t even miss that $150 once it’s being saved either.
You have now brought confidence and clarity to a goal that has never previously been given a chance. If you go through your finances, and get serious about diverting dollars towards new and more purposeful places, I would imagine there are 2 or 3 “goal parity” opportunities waiting for you.
Don’t wait!
“Nothing is worth more than this day”
~Johann Wolfgang Goethe