### Author Topic: 50 percent club question  (Read 8047 times)

#### unix_kung_fu

• Stubble
• Posts: 101
##### 50 percent club question
« on: July 11, 2014, 03:26:20 PM »
I want to try to save 50% of my salary. How is this normally calculated? Gross or Net?

I get paid on the 1st and 15th of each month. Gross is \$2,708 (discarding the cents). My stub shows that federal taxable wages are \$2,524.

So I figured I'd just take 2,524 and divide it by 2: \$1,262. However, I am contributing to my retirement plan - just \$81.25 each check which technically is saving, and I plan to jack this way up. Also \$25 each check for FSA, do I count this?

Should I just take me entire gross, divide it by two, then again by 12 and try to save that each month, but count my employer sponsored retirement plan and FSA contributions towards overall saving? Minus the FSA contributions?

A little lost here.

#### mxt0133

• Handlebar Stache
• Posts: 1552
• Location: San Francisco
##### Re: 50 percent club question
« Reply #1 on: July 11, 2014, 03:33:48 PM »
The way I calculate my savings rate is:

Denominator = gross - taxes (which include federal, state, local) - fica

Numerator = savings + 401k contributions + Roth contributions + HSA contributions + Mortgage principal (if I had one)

I wouldn't get too caught up on comparing how you calculate it, I would focus on optimizing expenses and spending and your savings rate will take care of itself.

Note this doesn't include investment income.  Some people do it that way as well.

#### okashira

• Bristles
• Posts: 416
##### Re: 50 percent club question
« Reply #2 on: July 11, 2014, 03:41:14 PM »
I propose a new metric: Savings Ratio.

In a prior thread, we had some disagreement on Gross vs Net savings ratio.
I see the downsides of both, and I think this address both issues:

Savings Ratio = Savings all sources(401k, debt principle, taxable, roth, etc) / Spending all sources(debt interest, food, insurance, toys, cars, etc)

The equivalent of the 50% club would be the 1.00 club. :-)
« Last Edit: July 11, 2014, 03:42:57 PM by okashira »

#### RyanHesson

• 5 O'Clock Shadow
• Posts: 69
##### Re: 50 percent club question
« Reply #3 on: July 11, 2014, 04:01:39 PM »
I look at things as what is the relative size of what I save to what I spend. So I save \$3500ish a month, and spend \$1800ish a month, so I save approximately twice what I spend. If you're looking at a strategy of slowly drawing on the account until you die (the "normal" way) you can look at a months savings as buying you:

0.33% of it's value each month between when it's invested and when it's divested.
+(Monthly Savings)/(Monthly Spending) months of retirement.

#### okashira

• Bristles
• Posts: 416
##### Re: 50 percent club question
« Reply #4 on: July 11, 2014, 04:03:24 PM »
I look at things as what is the relative size of what I save to what I spend. So I save \$3500ish a month, and spend \$1800ish a month, so I save approximately twice what I spend. If you're looking at a strategy of slowly drawing on the account until you die (the "normal" way) you can look at a months savings as buying you:

0.33% of it's value each month between when it's invested and when it's divested.
+(Monthly Savings)/(Monthly Spending) months of retirement.

Great. That's exactly what I posted. Your savings ratio would be 1.94. Starting from zero, retirement would be 25/1.94 = 13 years, ignoring investment gains/losses.
I guess we'll need another club for 2.0 and 3.0 :-)
« Last Edit: July 11, 2014, 04:05:35 PM by okashira »

#### Thegoblinchief

• Guest
##### Re: 50 percent club question
« Reply #5 on: July 11, 2014, 04:15:09 PM »
I do it as (delta in net worth) / income, typically net income.

With  that metric we are at 80% on \$65K with three kids.

#### RyanHesson

• 5 O'Clock Shadow
• Posts: 69
##### Re: 50 percent club question
« Reply #6 on: July 11, 2014, 04:20:26 PM »
I do it as (delta in net worth) / income, typically net income.

With  that metric we are at 80% on \$65K with three kids.

You spend only 20% of 65K (so 13K) a year for a family of 5? If I understand that right, you guys got some crazy mustaches there.

Or did "net income" not include investment returns or what?

#### okashira

• Bristles
• Posts: 416
##### Re: 50 percent club question
« Reply #7 on: July 11, 2014, 04:25:39 PM »
I do it as (delta in net worth) / income, typically net income.

With  that metric we are at 80% on \$65K with three kids.

This method would be highly influenced by investment gains, and could result in > 100%.
The benefit is that it is easier to track.

#### Thegoblinchief

• Guest
##### Re: 50 percent club question
« Reply #8 on: July 11, 2014, 05:04:47 PM »
I do it as (delta in net worth) / income, typically net income.

With  that metric we are at 80% on \$65K with three kids.

This method would be highly influenced by investment gains, and could result in > 100%.
The benefit is that it is easier to track.

Not much on the investment front yet as we're still in our first year of the journey and I'm primarily chasing the guaranteed return on our higher interest debt. About \$50K in 401(k) accounts, and the last quarter we had very little gain to throw off that number.

When the stash gets bigger I may need to reevaluate the metric, but the shockingly simple math equation is based on time to 25x, irregardless of investment income. Jacob at ERE has also repeatedly stressed that over the timelines of ERE (sub 10 years), compounding doesn't come into play much.

Surviving retirement, yes, absolutely you need investment to outpace inflation, yadayada, but savings rate is brute force consumption reduction and income juicing.

#### Wesmon

• 5 O'Clock Shadow
• Posts: 46
##### Re: 50 percent club question
« Reply #9 on: July 11, 2014, 08:06:41 PM »
Who cares what your ratio is???

1. What year do you want to retire?
2. How much do you need to save each year to get there?
3. Do it!

#### DollarBill

• Pencil Stache
• Posts: 901
• Age: 45
• Location: Austin TX
##### Re: 50 percent club question
« Reply #10 on: July 11, 2014, 08:18:30 PM »
I do net minus savings. Best thing to do is post your budget to see if there is room for improvement.

#### Wile E. Coyote

• Stubble
• Posts: 225
##### Re: 50 percent club question
« Reply #11 on: July 11, 2014, 08:46:11 PM »
I want to try to save 50% of my salary. How is this normally calculated? Gross or Net?

I get paid on the 1st and 15th of each month. Gross is \$2,708 (discarding the cents). My stub shows that federal taxable wages are \$2,524.

So I figured I'd just take 2,524 and divide it by 2: \$1,262. However, I am contributing to my retirement plan - just \$81.25 each check which technically is saving, and I plan to jack this way up. Also \$25 each check for FSA, do I count this?

Should I just take me entire gross, divide it by two, then again by 12 and try to save that each month, but count my employer sponsored retirement plan and FSA contributions towards overall saving? Minus the FSA contributions?

A little lost here.

My thought would be that this is very simple.  If, as you say, you want to save 50% of your salary, save 50% of your salary.  Your salary is 2,708, so save 1,354.  It seems kind of funny to set a goal to save 50% of something, but not know what that something is.  Don't overcomplicate things too much.  Good luck!

#### theconcierge

• 5 O'Clock Shadow
• Posts: 40
• Location: Australia | Canberra
##### Re: 50 percent club question
« Reply #12 on: July 12, 2014, 05:17:01 AM »
I am only new to this, so take my advice with a grain of salt. I wouldn't get too hung up on the percent, try and save as much as possible, if that's 53%, 61%, or 70% great. Don't just aim for 50% and still be "wasting" money because you have hit the target.

#### Zikoris

• Magnum Stache
• Posts: 3753
• Age: 33
• Location: Vancouver, BC
• Vancouverstachian
##### Re: 50 percent club question
« Reply #13 on: July 12, 2014, 05:23:56 AM »
I calculate it annually, as our month-to-month income seems to fluctuate wildly. I take my total take home pay, including pre-tax retirement plan contributions, bonuses, whatever, and subtract total spending from that. Whatever percentage is "left over" is my savings rate for that year. Boom, done. It's around 60% savings right now for the two of us combined, slightly higher for me, slightly lower for him.

#### Joel

• Pencil Stache
• Posts: 803
• Location: California
##### Re: 50 percent club question
« Reply #14 on: July 12, 2014, 10:24:53 AM »
Save as much as you can. Who cares about the actual percentage. It's only useful to brag about on the Internet!

#### DrJohn

• 5 O'Clock Shadow
• Posts: 83
##### Re: 50 percent club question
« Reply #15 on: July 12, 2014, 10:43:24 AM »
Save as much as you can. Who cares about the actual percentage.

Totally agree.  OK, it's great to track savings and predicted growth in investments vs. a goal, and I some people want to get very granular on the data- but just get after it!  It's not hard once you start...

#### RyanHesson

• 5 O'Clock Shadow
• Posts: 69
##### Re: 50 percent club question
« Reply #16 on: July 12, 2014, 07:10:54 PM »
I look at things as what is the relative size of what I save to what I spend. So I save \$3500ish a month, and spend \$1800ish a month, so I save approximately twice what I spend. If you're looking at a strategy of slowly drawing on the account until you die (the "normal" way) you can look at a months savings as buying you:

0.33% of it's value each month between when it's invested and when it's divested.
+(Monthly Savings)/(Monthly Spending) months of retirement.

Great. That's exactly what I posted. Your savings ratio would be 1.94. Starting from zero, retirement would be 25/1.94 = 13 years, ignoring investment gains/losses.
I guess we'll need another club for 2.0 and 3.0 :-)

Well, I'm making a gamble with some of my money right now, so it'll either be much sooner than that or much later than that. Hoping for sooner obviously. We'll see.

I'm not going to be in the perpetual income train here so I'm going to view things a bit differently than the 4% safe withdrawal rate. I'm purchasing retirement time with my savings. Once I've purchased enough I'll start cashing it out. I'll continue to have "income" from my investments, which I will use to cheapen the retirement I'm spending, or possibly buy more retirement if my income in a particular month was high enough. I've currently bought 2.5 years of retirement and will quit once I've bought 50 years, for instance. About 1.1M. So I've got a long way to go.

#### unix_kung_fu

• Stubble
• Posts: 101
##### Re: 50 percent club question
« Reply #17 on: July 13, 2014, 11:25:57 AM »
thanks for the responses. yeah doesn't matter much if i ultimately save more and more, it's just for me, tracking things and settings goals will exponentially increase my chances of success. that, and I can brag to my friends :)

#### HairyUpperLip

• Pencil Stache
• Posts: 896
##### Re: 50 percent club question
« Reply #18 on: July 13, 2014, 11:35:54 AM »
I don't count my pretax savings in my savings rate.

I just do amount saved (cash for home, EF, kid, investments) divided by net income and my savings rates is usually in the 60-65% range now.

I'm happy with this metric. anything else saved pre tax is icing to me.

once we purchase the house I think we should still be able to do about 45-55%. :)