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Posted: 2018-03-20 14:59:00

Finance writer Trent Hamm divides people into categories based on their financial decisions.

I love reading The Simple Dollar, and Trent Hamm's articles in particular. He offers great insights into saving money in practical ways, which I appreciate as a mother to young children. Sometimes his articles are more philosophical, such as a recent one called "The Spectrum of Personal Finance." It got me thinking hard about my family's savings rate, which is something I need to do more often.

The idea of a savings spectrum, as described by Hamm, intrigues me. It makes it easier to understand the differences between households and how one can save so much more than another, and how lifestyle choices affect that. Seeing an actual savings rate portrayed in percentages is helpful too; it makes it easier to see where I fit in, relative to where I want to be -- and what I need to do in order to get there.

Hamm's finance spectrum consists of seven categories. These are differentiated by colors.

RED are those people living paycheck to paycheck, with a savings rate of 0% to 2%. These people usually have nice things, expensive homes and new cars, take swanky vacations, and treat their possessions as disposable. This comes with a downside:

"They’re usually carrying some debt and paying it down slowly. They typically struggle mightily to come up with money during an emergency and usually deal with emergencies with more debt by putting it on a credit card and then paying that debt off slowly."

Shockingly, this describes 75 to 80 percent of Americans.

ORANGE has a savings rate of 2% to 8%. These people plan to retire at a normal age (around 65) and do not want to compromise their lifestyle. They still have nice vacations, new cars, big houses, but are a bit more frugal in day-to-day life. Hamm estimates that 10 to 15 percent of Americans fall into this category.

YELLOW folks save between 8% and 15%. They may plan to retire somewhat early, want a comfortable lifestyle, and so live slightly below

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