Author Topic: 70% savings rate  (Read 15903 times)

Blunderbuss

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70% savings rate
« on: August 14, 2014, 11:38:34 AM »
I was just doing the math and realized I could bump my savings rate up to 70% with a little belt tightening, so I pulled the trigger.

I'm super excited!

My formula is
(Total savings) /(net pay +401k contribution+hsa cintribution)

I thought about taking the easy road and modifying the formula to include my employer 401k match and/or principle payments on my house, but that wouldn't have been an actual increase in savings so instead cut spending and increased saving.

As a secondary achievement I recently jumped over the 100k net worth milestone. (again excluding home equity). There seems to be some sort of correlation between net worth and savings rate.

Now I just need to find a way to get up to my goal of 80% savings rate. If I pull the trigger on getting rid of the car I will be there. But that is so much easier said than done...

kyanamerinas

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Re: 70% savings rate
« Reply #1 on: August 14, 2014, 11:54:09 AM »
wow! 70% is amazing! Is it just you? Because doing it alone is even harder to a certain extent (you can only get rent so low having a room/house to yourself). Congrats!

dude

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Re: 70% savings rate
« Reply #2 on: August 14, 2014, 12:17:40 PM »
B.A.

Grid

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Re: 70% savings rate
« Reply #3 on: August 14, 2014, 12:28:37 PM »
As a secondary achievement I recently jumped over the 100k net worth milestone. (again excluding home equity). There seems to be some sort of correlation between net worth and savings rate.
Lol.  And congrats!  We'll see if I can top your badassity based on the job I get out of grad school.

fmzip

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Re: 70% savings rate
« Reply #4 on: August 26, 2014, 11:07:05 AM »
Nice job!

Just checked my YTD savings rate and we are at 81%. Big jump from last years 46%!

Can't believe we are saving so much, 10 more years of work. So excited!

TurtleMarkets

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Re: 70% savings rate
« Reply #5 on: August 26, 2014, 11:33:54 AM »
70% not counting 401K? That is amazing

hexdexorex

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Re: 70% savings rate
« Reply #6 on: August 26, 2014, 11:58:19 AM »
Why not count 401k? I dont get it.....are you maxing it out? If so that's pretty great.

stuckinmn

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Re: 70% savings rate
« Reply #7 on: August 26, 2014, 12:04:45 PM »
I think 401k is included but it is counted in both the numerator and denominator to keep it from artificially inflating the percentage.   

boarder42

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Re: 70% savings rate
« Reply #8 on: August 26, 2014, 12:05:58 PM »
i like that method... it factors out the tax benefit of the pre tax 401k contributions.  puts me at 60% which seems about right... trying to figure out how to save some more. 

boarder42

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Re: 70% savings rate
« Reply #9 on: August 26, 2014, 12:08:23 PM »
he is counting 401k.  look at it this way he is taking out the tax break.

so if i contribute to a 401k it comes out of my paycheck at work.  so my net pay is lower.  but its not 17500 lower... its .725% of that lower b/c of my effective tax rate. ... so i need to add it back to the denominator to factor it into my income since i'm saving it. 

boarder42

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Re: 70% savings rate
« Reply #10 on: August 26, 2014, 12:24:25 PM »
do you count your mortgage principal as savings.  i do b/c its equity i'm gaining.  but just wonder if the OP is including that.

merula

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Re: 70% savings rate
« Reply #11 on: August 26, 2014, 01:12:42 PM »
do you count your mortgage principal as savings.  i do b/c its equity i'm gaining.  but just wonder if the OP is including that.

It doesn't sound like it. I can't speak for chogan, but the rationale I've seen for not is that you're paying for a place to live, not an investment.

My method is to include mortgage principal, but also include the value of a home in my FIRE target. So, I'm saving 69% as follows: (Accounts + 401k contributions but not match + mortgage principal) / (Gross income - taxes). BUT, my target isn't "X plus a paid-off house", it's "X, inclusive of a paid-off house".

FIreDrill

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Re: 70% savings rate
« Reply #12 on: August 26, 2014, 01:33:33 PM »
Congrats on reaching such a solid savings rate!  It is especially impressive since you don't include employer matches or principal pay down.  Keep it up!

boarder42

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Re: 70% savings rate
« Reply #13 on: August 26, 2014, 01:34:45 PM »
it isnt paying for a place to live. the taxes, insurance, hoa etc. is the part that you're paying for to live there.  the principal is something you typically will see an inflation based ROI on and is something you will get back when done. 

this is a mixed school of thought

forummm

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Re: 70% savings rate
« Reply #14 on: August 26, 2014, 01:58:15 PM »
I count:
[(take home pay) - (total expenses including interest)] / (take home pay)

Take home pay = income-income taxes-health insurance

I don't count income taxes since I can't do anything to change them, and I won't be paying them in retirement. It would artificially depress my savings rate dramatically. But I also count property taxes and sales taxes, which are things I will have to keep paying. The health insurance is questionable to not count, but it's what I do. One reason is that the cost of health insurance will be very different when my employer isn't paying a portion of it. When I plan for FIRE I add in the estimated cost of health insurance.

So all loan principle payments, including mortgage, are savings. Whatever account I put it in (checking, IRA, 401k, investment, loan) it's still me saving the money instead of spending it.

steveo

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Re: 70% savings rate
« Reply #15 on: August 26, 2014, 03:37:36 PM »
I calculate my savings rate as:-

savings (mortgage payments including interest+ retirement accounts)/take home pay excluding day care fees. I know that this bumps the savings rate in my favor but interest payments and day care fees will be finished in 2 years time.

If I'm talking about when I retire I consider this starting from when the mortgage is paid off.

At the moment we are at 69% savings however I have my annual bonus coming next month and this will tip the savings rate to over 70%.



fmzip

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Re: 70% savings rate
« Reply #16 on: August 27, 2014, 10:12:13 AM »
I calculate mine like this:

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate

My savings rate for 2013 came out to 46.84%.

YTD, my savings rate looks like this:


Wife and I:
Gross Income $82,100
401K Contribution $22647
Taxes $25179

$82,100+$22647-$25179= $79568(X)

401K Contribution $22647
HSA Contribution $3644
401K Employer Contribution $14537
Savings $19,100
Mortgage Principle $4000
Total $63828 (Y)

$63828/$79568=80.21% YTD Savings Rate

merula

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Re: 70% savings rate
« Reply #17 on: August 27, 2014, 12:54:01 PM »
steveo, what's your rationale behind including mortgage interest in savings, and excluding day care costs from income? It seems to me that both of these are expenses, even if they're ones that you don't expect to continue in ER.

steveo

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Re: 70% savings rate
« Reply #18 on: August 27, 2014, 03:36:53 PM »
steveo, what's your rationale behind including mortgage interest in savings, and excluding day care costs from income? It seems to me that both of these are expenses, even if they're ones that you don't expect to continue in ER.

Basically because they are expenses that won't continue in retirement and they are out of my control. In more detail day care is basically a cost of going to work so I remove the fees from my wife's pay. The mortgage will be paid off within 2 years so I figure its not something to worry about.

I also though do not consider the equity in our house as part of my assets. I'm not really considering us savings towards retirement until the mortgage is paid off.

Technically I'm not doing this correctly however it gets me in the right direction and I understand what I am doing.

makinbutter

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Re: 70% savings rate
« Reply #19 on: August 27, 2014, 05:35:00 PM »
I calculate mine like this:

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate

My savings rate for 2013 came out to 46.84%.

YTD, my savings rate looks like this:


Wife and I:
Gross Income $82,100
401K Contribution $22647
Taxes $25179

$82,100+$22647-$25179= $79568(X)

401K Contribution $22647
HSA Contribution $3644
401K Employer Contribution $14537
Savings $19,100
Mortgage Principle $4000
Total $63828 (Y)

$63828/$79568=80.21% YTD Savings Rate

Looks like you're including something in your numerator that isn't in your denominator [the 401k employer contribution].  Mathematically, that has to be included in the denominator, too, making your savings rate a still-respectable...

(63828) / (79568 + 14537) = 68%

ETA: Actually, your numbers are confusing me.  Are you saying that your TOTAL 401k contribution [including employer match] is 22647, or that you put in 22647 of your own dough and the employer coughed up 14537?

If the 22647 figure is the TOTAL put into the 401k, then just add that number to the top and bottom and don't mess around with adding in how much was your employer's contribution and how much was yours.  If that were the case, that would make the number...

(63828 - 14537) / (79568) = 62%
« Last Edit: August 27, 2014, 05:38:52 PM by makinbutter »

fmzip

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Re: 70% savings rate
« Reply #20 on: August 27, 2014, 05:46:43 PM »
I calculate mine like this:

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate

My savings rate for 2013 came out to 46.84%.

YTD, my savings rate looks like this:


Wife and I:
Gross Income $82,100
401K Contribution $22647
Taxes $25179

$82,100+$22647-$25179= $79568(X)

401K Contribution $22647
HSA Contribution $3644
401K Employer Contribution $14537
Savings $19,100
Mortgage Principle $4000
Total $63828 (Y)

$63828/$79568=80.21% YTD Savings Rate

Looks like you're including something in your numerator that isn't in your denominator [the 401k employer contribution].  Mathematically, that has to be included in the denominator, too, making your savings rate a still-respectable...

(63828) / (79568 + 14537) = 68%

ETA: Actually, your numbers are confusing me.  Are you saying that your TOTAL 401k contribution [including employer match] is 22647, or that you put in 22647 of your own dough and the employer coughed up 14537?

If the 22647 figure is the TOTAL put into the 401k, then just add that number to the top and bottom and don't mess around with adding in how much was your employer's contribution and how much was yours.  If that were the case, that would make the number...

(63828 - 14537) / (79568) = 62%

Yes, employee portion of both 401K's is 22647 and employer portion is 14537

I came up with the formula based on the input from my thread here:

http://forum.mrmoneymustache.com/ask-a-mustachian/savings-rate-calculation/

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate


What are you suggesting it should be, this?

Gross Income+Employer 401K Contributions+ Employee 401K contribution-Payroll Taxes=X
Employess 401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate


« Last Edit: August 27, 2014, 05:51:40 PM by fmzip »

makinbutter

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Re: 70% savings rate
« Reply #21 on: August 27, 2014, 05:53:52 PM »
I calculate mine like this:

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate

My savings rate for 2013 came out to 46.84%.

YTD, my savings rate looks like this:


Wife and I:
Gross Income $82,100
401K Contribution $22647
Taxes $25179

$82,100+$22647-$25179= $79568(X)

401K Contribution $22647
HSA Contribution $3644
401K Employer Contribution $14537
Savings $19,100
Mortgage Principle $4000
Total $63828 (Y)

$63828/$79568=80.21% YTD Savings Rate

Looks like you're including something in your numerator that isn't in your denominator [the 401k employer contribution].  Mathematically, that has to be included in the denominator, too, making your savings rate a still-respectable...

(63828) / (79568 + 14537) = 68%

ETA: Actually, your numbers are confusing me.  Are you saying that your TOTAL 401k contribution [including employer match] is 22647, or that you put in 22647 of your own dough and the employer coughed up 14537?

If the 22647 figure is the TOTAL put into the 401k, then just add that number to the top and bottom and don't mess around with adding in how much was your employer's contribution and how much was yours.  If that were the case, that would make the number...

(63828 - 14537) / (79568) = 62%

Yes, employee portion of 401K is 22647 and employer 14537, I am self employed, wife is not.

I came up with the formula based on the input from my thread here:

http://forum.mrmoneymustache.com/ask-a-mustachian/savings-rate-calculation/

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate


What are you suggesting it should be? If you could rewrite it, I'd appreciate it. Thanks!

I remember reading the 80% figure you'd quoted in the other thread and scratching my head... respectfully, I think their formula is 'off' on one critical component.  Your denominator [the 'x' in your equation] mathematically has to contain the sum toto of all of your earnings and anything that you could possibly save.  Otherwise, say hypothetically your employer contribution was something ridiculous like 100k - since you're only accounting for it in the numerator [your 'y' in the equation], your savings rate would be > 100%, or literally more than you earned.  The maths don't lie! :)

To fix it - just make it look like this:

Gross Income+[ALL TOTAL 401K Contributions]-Payroll Taxes=X
[ALL TOTAL 401K Contributions]+HSA Contributions+Mortgage Principle+YTD Savings=Y

Y/X=savings rate


That should show that 100% of your contributions - yours and your employers - were saved, since that number appears both in the numerator and denominator. 

Either way, 60%+ is pretty fucking fantastic.  Kudos.

makinbutter

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Re: 70% savings rate
« Reply #22 on: August 27, 2014, 05:59:12 PM »
FMZIP: Also, I wanted to say again that I'm not singling you out here - honestly, 60%+ savings rocks the socks.

I think an easier formula should be this:

Mortgage principle + savings + HSA + all 401k contributions
-------------------------------------------------------------------------------
net income + all 401k contributions



Keep it simple - no sense worrying for tax up in there.  Just check what you took home all year. 

Now let's all go get filthy rich and slap our debt.

fmzip

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Re: 70% savings rate
« Reply #23 on: August 27, 2014, 06:34:50 PM »
I certainly appreciate the input, did not feel at all like you were singling me out.

I too thought 80% seemed ridiculously high. Just trying to come up with a correct equation and stick to it! :)

Just trying to follow the advice of the wise mustacian elders here

« Last Edit: August 27, 2014, 06:37:35 PM by fmzip »

G-dog

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Re: 70% savings rate
« Reply #24 on: August 27, 2014, 07:47:52 PM »
I haven't calculated my savings rate yet - but you are all damn impressive! Great examples of what you can do when you put your mind to it!

makinbutter

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Re: 70% savings rate
« Reply #25 on: August 27, 2014, 08:38:26 PM »
I certainly appreciate the input, did not feel at all like you were singling me out.

I too thought 80% seemed ridiculously high. Just trying to come up with a correct equation and stick to it! :)

Just trying to follow the advice of the wise mustacian elders here

Word - dude I certainly appreciate seeing other people with such high numbers.  You're putting me to shame, homey - I make more but have a far, far lower savings rate (both on an absolute AND relative level!!).  Ugh.  Shamed! :)

This helps me to dial it in - my friends certainly don't.  I literally heard one say they didn't *want* to get over a 15% savings rate because the financial advisor said that's all they needed, so what was the point of saving more.  AND THIS PERSON HATES THEIR JOB AND WANTS DESPERATELY TO BUY A HOUSE.

*FACEPALM*

Anyhow, after some light face punches from the peanut gallery here I have managed to keep it cheap in the past week and genuinely question every outflow - do I NEED this item, and will it bring me joy commensurate with selling my time?  I bought damn good 3rd gen coffee at a local place and it absolutely fit the bill.  Shitty after-work appetizers at the local watering hole, not so much....

boarder42

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Re: 70% savings rate
« Reply #26 on: August 28, 2014, 06:26:42 AM »
So really savings rate is semi irrelevant.  yeah it plugs in nicely to that chart.  but really you have to figure out what you want to spend in today's dollars... to me spending rate is much more important than savings rate... yes i know they are linked ... but its easier to just say we spent x this year multiply that by 25 or 28.6 and call it a day.  When you savings reaches that you're done.  you cut your spending you get there faster.

fmzip

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Re: 70% savings rate
« Reply #27 on: September 02, 2014, 07:44:57 AM »
FMZIP: Also, I wanted to say again that I'm not singling you out here - honestly, 60%+ savings rocks the socks.

I think an easier formula should be this:

Mortgage principle + savings + HSA + all 401k contributions
-------------------------------------------------------------------------------
net income + all 401k contributions



Keep it simple - no sense worrying for tax up in there.  Just check what you took home all year. 

Now let's all go get filthy rich and slap our debt.

Okay so here's my revised numbers:

Total HSA 3644
Total 401K 37184
Total Savings 19000
Total Mortgage Principal 4000

Total Gross 101972
Total Tax 25180
Net Income 76192

So your formula is

63828 divided by 76192+37184= 113376 = 56% ?






tomsang

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Re: 70% savings rate
« Reply #28 on: September 02, 2014, 08:12:19 AM »
Technically the denominator should include everything that your employer provides. If your employer provides a cell phone it should be included if you plan to have one when you retire, if your employer provides housing then it should be included, the portion of medical insurance that they cover should be included, monthly gym fees, etc. 

So anything that they provide that you plan on keeping should be included as income in the denominator. Maybe the denominator should be valued at replacement value vs. what they would payment.  Ie a $100/month cell phone may be replaced with a $15/month. This will then show what your true income and savings is. It also will allow the math to work.

So someone who gets everything paid for including food, housing, insurance plus a $1,000 a month who saves $800 doesn't have an 80% savings. When you add back all of those areas it is significantly lower. This will allow the calc to work to estimate the true number of years to FIRE.




TrulyStashin

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Re: 70% savings rate
« Reply #29 on: September 02, 2014, 08:26:19 AM »
What's the formula when you're aggressively paying down debt?   I'm reassured by the idea that paying down my student loans generates a guaranteed 7.5% return, but how do I  account for this in figuring my savings rate?

Thanks!

Bob W

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Re: 70% savings rate
« Reply #30 on: September 02, 2014, 09:19:12 AM »
You Rock!   

Would you be so kind as to present all the expenses and income?

We could then consult with your regarding the opportunities here.    I bet this community could get you to a 90% savings rate in no time!    For example -- If you could ad 5% to income (not impossible) this year and reduce expenses by 5% you would be doing great.

At 90% savings rate you would be basically 2.5 years from FIRE even if you don't have any current savings.   

fmzip

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Re: 70% savings rate
« Reply #31 on: September 02, 2014, 07:32:57 PM »
Technically the denominator should include everything that your employer provides. If your employer provides a cell phone it should be included if you plan to have one when you retire, if your employer provides housing then it should be included, the portion of medical insurance that they cover should be included, monthly gym fees, etc. 

So anything that they provide that you plan on keeping should be included as income in the denominator. Maybe the denominator should be valued at replacement value vs. what they would payment.  Ie a $100/month cell phone may be replaced with a $15/month. This will then show what your true income and savings is. It also will allow the math to work.

So someone who gets everything paid for including food, housing, insurance plus a $1,000 a month who saves $800 doesn't have an 80% savings. When you add back all of those areas it is significantly lower. This will allow the calc to work to estimate the true number of years to FIRE.

To me, "savings rate" and expenses are two completely different animals. Tracking my savings rate allows me to gauge how I am doing to get me to where I need to be. Tracking my overall expenses determines what my "magic number" is.

Total annual expenses is more important (company paid and or paid for by me). That number x 25-30 is the magic number. When will that date come that I have my magis number? WHo knows and it has very little to do with savings rate in my mind. It depends more so on market returns than my diligent saving to some degree. I can save till the cows come home but if the market goes south, I need to keep working. You can only save so much.


tomsang

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Re: 70% savings rate
« Reply #32 on: September 02, 2014, 09:33:38 PM »
Technically the denominator should include everything that your employer provides. If your employer provides a cell phone it should be included if you plan to have one when you retire, if your employer provides housing then it should be included, the portion of medical insurance that they cover should be included, monthly gym fees, etc. 

So anything that they provide that you plan on keeping should be included as income in the denominator. Maybe the denominator should be valued at replacement value vs. what they would payment.  Ie a $100/month cell phone may be replaced with a $15/month. This will then show what your true income and savings is. It also will allow the math to work.

So someone who gets everything paid for including food, housing, insurance plus a $1,000 a month who saves $800 doesn't have an 80% savings. When you add back all of those areas it is significantly lower. This will allow the calc to work to estimate the true number of years to FIRE.

To me, "savings rate" and expenses are two completely different animals. Tracking my savings rate allows me to gauge how I am doing to get me to where I need to be. Tracking my overall expenses determines what my "magic number" is.

Total annual expenses is more important (company paid and or paid for by me). That number x 25-30 is the magic number. When will that date come that I have my magis number? WHo knows and it has very little to do with savings rate in my mind. It depends more so on market returns than my diligent saving to some degree. I can save till the cows come home but if the market goes south, I need to keep working. You can only save so much.

It is no big deal, we just have people shouting out savings rates that are calculated completely differently.  So comparing somebody who get his housing, food, insurance paid for vs. somebody who is picking up the tab is kind of irrelevant.  Also, if you are using the shockingly simple math to calculate the years to retirement, you need to be adding it to the denominator the items that I listed.  Otherwise, those who are stating that they are saving 90% because their housing, food, insurance, and other expenses are covered would be able to retire in 3 years according to the shockingly simple math article when that is clearly not the case as they are not saving enough to cover all the employer expenses in retirement. 

 If you don't add them into the denominator it isn't a big deal, but the result is not really an accurate picture of how frugal someone is or how close they are to retirement. 

YMMV

fmzip

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Re: 70% savings rate
« Reply #33 on: September 03, 2014, 07:54:20 AM »

It is no big deal, we just have people shouting out savings rates that are calculated completely differently.  So comparing somebody who get his housing, food, insurance paid for vs. somebody who is picking up the tab is kind of irrelevant. 

Who gets their housing, food and insurance paid for other than kids on the parent plan? ;)
« Last Edit: September 03, 2014, 08:27:39 AM by fmzip »

tomsang

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Re: 70% savings rate
« Reply #34 on: September 03, 2014, 09:53:25 AM »

It is no big deal, we just have people shouting out savings rates that are calculated completely differently.  So comparing somebody who get his housing, food, insurance paid for vs. somebody who is picking up the tab is kind of irrelevant. 

Who gets their housing, food and insurance paid for other than kids on the parent plan? ;)

There are quite a few people on the boards that teach abroad, are in the military, work in the gas field, work abroad, etc. who are receiving housing, food, insurance, and other perks and are showing savings rates in the 80% - 95% range.  Obviously, they can not retire in 3 - 5 years as the formula would indicate as they will have to fund those expenses in retirement.  If they calculated the value of those items and included them in the denominator their savings rate would reflect what is actually savings as a percentage of total compensation and then shockingly simple math would work.

Again the % are more for entertainment value, but those saying they are saving 95% in a month are probably not calculating the denominator correctly.   

ash7962

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Re: 70% savings rate
« Reply #35 on: September 10, 2014, 11:06:59 AM »
I calculate mine like this:

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate

My savings rate for 2013 came out to 46.84%.

YTD, my savings rate looks like this:


Wife and I:
Gross Income $82,100
401K Contribution $22647
Taxes $25179

$82,100+$22647-$25179= $79568(X)

401K Contribution $22647
HSA Contribution $3644
401K Employer Contribution $14537
Savings $19,100
Mortgage Principle $4000
Total $63828 (Y)

$63828/$79568=80.21% YTD Savings Rate

Looks like you're including something in your numerator that isn't in your denominator [the 401k employer contribution].  Mathematically, that has to be included in the denominator, too, making your savings rate a still-respectable...

(63828) / (79568 + 14537) = 68%

ETA: Actually, your numbers are confusing me.  Are you saying that your TOTAL 401k contribution [including employer match] is 22647, or that you put in 22647 of your own dough and the employer coughed up 14537?

If the 22647 figure is the TOTAL put into the 401k, then just add that number to the top and bottom and don't mess around with adding in how much was your employer's contribution and how much was yours.  If that were the case, that would make the number...

(63828 - 14537) / (79568) = 62%

Yes, employee portion of 401K is 22647 and employer 14537, I am self employed, wife is not.

I came up with the formula based on the input from my thread here:

http://forum.mrmoneymustache.com/ask-a-mustachian/savings-rate-calculation/

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate


What are you suggesting it should be? If you could rewrite it, I'd appreciate it. Thanks!

I remember reading the 80% figure you'd quoted in the other thread and scratching my head... respectfully, I think their formula is 'off' on one critical component.  Your denominator [the 'x' in your equation] mathematically has to contain the sum toto of all of your earnings and anything that you could possibly save.  Otherwise, say hypothetically your employer contribution was something ridiculous like 100k - since you're only accounting for it in the numerator [your 'y' in the equation], your savings rate would be > 100%, or literally more than you earned.  The maths don't lie! :)

To fix it - just make it look like this:

Gross Income+[ALL TOTAL 401K Contributions]-Payroll Taxes=X
[ALL TOTAL 401K Contributions]+HSA Contributions+Mortgage Principle+YTD Savings=Y

Y/X=savings rate


That should show that 100% of your contributions - yours and your employers - were saved, since that number appears both in the numerator and denominator. 

Either way, 60%+ is pretty fucking fantastic.  Kudos.

Ok, so I am possibly just misunderstanding here, but I think the original formula was correct.  That is,

Gross Income+Employer 401K Contributions-Payroll Taxes=X
401K Contributions+HSA Contributions+Mortgage Principle+YTD Savings+Employer 401K Contributions=Y

Y/X=savings rate


is the correct formula.  Here is my reasoning, which will hopefully help figure out what I'm missing.  I think the denominator should represent all the money you have made.  Gross Income is how much you get paid before anything (your 401k, insurance, taxes) is taken out of your paycheck.  So, your personal 401k contribution is included in your Gross Income, but the employer 401k is in addition to your gross income so that is added on after.  Then, you deduct the payroll taxes because you have no way of saving that money so it shouldn't be included.  Then in the numerator you've got *all* 401k contributions (since you are saving all of that money), plus whatever else you consider to be savings.  If you were to say gross income + all 401k contributions - payroll taxes, then I think you're including your personal 401k contribution twice in your income (since you have not deducted it from your gross income).