### Author Topic: Calculating Savings Rate  (Read 3321 times)

#### CC

• 5 O'Clock Shadow
• Posts: 37
##### Calculating Savings Rate
« on: March 08, 2017, 06:55:56 AM »
Let me preface this by saying that I tried to leverage the search function to get this answer, but all of the links lead to 404s. I just read this article: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/ (and I've done so a few times before) and for some reason, I get myself tripped up on how to account for before-tax and after-tax savings. I know having an exact number for savings rate isn't necessary but in the interest of leveraging this tool, I'd to get as close as I can. (http://networthify.com/calculator/earlyretirementincome=68780&initialBalance=44200&expenses=38517&annualPct=5&withdrawalRate=4)

26 pays per year
Gross Bi-Weekly: \$2645
Pre-Tax Savings: 401k (\$661); 401k match (\$158); HSA (\$131)
After-Tax Savings: Roth IRA (\$211; usually saved as \$5500 lump sum for the year)

This gives me \$1162 savings before any investing. Would you just do 1162/2645= 44%?

I guess my main tripping point is the after-tax savings and the 401k match (whether or not it should be included).

I appreciate all the help!

#### boarder42

• Walrus Stache
• Posts: 9341
##### Re: Calculating Savings Rate
« Reply #1 on: March 08, 2017, 06:59:59 AM »
make your own tool or spreadsheet and project out your own earnings and contributions its not hard and you will get a much more custom answer than that tool.  you need to nail down your spending more than your savings rate.  b/c right now you have costs like higher taxes and maybe lower healthcare costs.  so you should determine what you plan to spend in FIRE.  then just plug all of your numbers into a spread sheet and extrapolate for the future.  include any expected raises over inflation.

the match can be included but should be added to both sides it will increase your income and your savings side. if you want to calc it this way which is incorrect. IMO.

#### rubybeth

• Handlebar Stache
• Posts: 1398
• Location: Midwest
##### Re: Calculating Savings Rate
« Reply #2 on: March 08, 2017, 07:19:49 AM »
All savings should be included, including after tax savings and any employer contribution. I can see how employer contribution can be confusing, because you don't necessarily thing of it as income, so you can either count it as both income AND savings, or just savings (the latter makes your savings rate higher). This doesn't really matter much in the end, though.

I also agree with boarder that you should just make your own savings spreadsheet, including income, taxes, expenses, and all savings, and use that to estimate. Just work on saving toward a certain goal, not so much on the "savings rate."

#### Morning Glory

• Magnum Stache
• Posts: 4023
• Location: The Garden Path
##### Re: Calculating Savings Rate
« Reply #3 on: March 08, 2017, 01:47:26 PM »
MMM uses spending instead  of saving in the calculation to make sure you are not living off of savings from previous years. For example, if you need to use your emergency fund for a large home repair, your spending +your "saving" could equal more than your income for the year.

Savings rate is (gross pay+employer contributions-taxes - spending)/( gross pay + employer contributions- taxes).

#### PDXTabs

• Magnum Stache
• Posts: 4765
• Age: 39
• Location: Vancouver, WA, USA
##### Re: Calculating Savings Rate
« Reply #4 on: March 08, 2017, 04:26:31 PM »
Everything I have ever read says that the US Government calculates the personal savings rate as (dollars saved)/(disposable income). Disposable income of course being your gross income minus taxes.

However, this makes for some funny units when you start thinking about pre-tax vs post-tax dollars.

#### TheAnonOne

• Handlebar Stache
• Posts: 1699
##### Re: Calculating Savings Rate
« Reply #5 on: March 09, 2017, 03:42:26 PM »
Meh, it's simply...

Savings / income

That being said

Savings can include, principal payments and debt reduction.

Income can include, pretax deductions (401k)

You HAVE to do it this way to make the math work out and be accurate.

However, I run a second number where I exclude a few spend items that I won't have in FIRE to help track time to FIRE a bit more accurately, but this is a custom solution.

Sent from my SM-G935T using Tapatalk

#### CC

• 5 O'Clock Shadow
• Posts: 37
##### Re: Calculating Savings Rate
« Reply #6 on: March 09, 2017, 04:02:07 PM »
All savings should be included, including after tax savings and any employer contribution. I can see how employer contribution can be confusing, because you don't necessarily thing of it as income, so you can either count it as both income AND savings, or just savings (the latter makes your savings rate higher). This doesn't really matter much in the end, though.

I also agree with boarder that you should just make your own savings spreadsheet, including income, taxes, expenses, and all savings, and use that to estimate. Just work on saving toward a certain goal, not so much on the "savings rate."

Yeah, good point from you and Boarder. I'm just going to focus on nailing down my monthly spending (extrapolate it to yearly) and focus on savings 25x that (per MMM's 4% safe withdrawal rate) instead of worrying about what rate I'm saving at.

#### rubybeth

• Handlebar Stache
• Posts: 1398
• Location: Midwest
##### Re: Calculating Savings Rate
« Reply #7 on: March 10, 2017, 06:48:11 AM »
All savings should be included, including after tax savings and any employer contribution. I can see how employer contribution can be confusing, because you don't necessarily thing of it as income, so you can either count it as both income AND savings, or just savings (the latter makes your savings rate higher). This doesn't really matter much in the end, though.

I also agree with boarder that you should just make your own savings spreadsheet, including income, taxes, expenses, and all savings, and use that to estimate. Just work on saving toward a certain goal, not so much on the "savings rate."

Yeah, good point from you and Boarder. I'm just going to focus on nailing down my monthly spending (extrapolate it to yearly) and focus on savings 25x that (per MMM's 4% safe withdrawal rate) instead of worrying about what rate I'm saving at.

Good plan. That's pretty much what I do in my elaborate series of spreadsheets. Your spending is really what dictates how much you need to save, anyway. Good luck! :)