Author Topic: Cash Gifts In Savings Rate Calculation  (Read 4600 times)

2Birds1Stone

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Cash Gifts In Savings Rate Calculation
« on: December 24, 2016, 09:18:22 PM »
Do you count cash gifts/spending of said cash in savings rate?

For example. If I earn $100k for the year and spent $25k my savings rate is 75%

What if I get a gift of $500 for xmas, and it's earmarked for something. In my case my parents wanted to give me money towards a specific purchase instead of buying said item for me.

If they bought the item, my SR is unaffected. Since they gave cash, would you count income in the above example as $100,500 and spending at $25,500?

I know in this example the SR % doesn't change all that much. But these can add up over time.

lifeminimalized

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Re: Cash Gifts In Savings Rate Calculation
« Reply #1 on: December 24, 2016, 10:44:03 PM »
Personal Income (Main Category)
  Personal Income:Payroll (Subcategory)
  Personal Income:Gift (Subcategory)


This is the way I would do it that way I could still search for overall income over the year or search for strictly gift or earned income.


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Re: Cash Gifts In Savings Rate Calculation
« Reply #2 on: December 25, 2016, 12:23:44 AM »
If they want me to buy something specific with it, I generally just exclude both transactions from tracking for simplicity. I guess I see someone giving me a coat and someone giving me money to buy a coat as the same thing. I don't have enough rich family members or friends for it to ever amount to much, in any case.

arebelspy

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Re: Cash Gifts In Savings Rate Calculation
« Reply #3 on: December 25, 2016, 02:00:33 AM »
It reduces your spending when you use it.  No need to count it as income.

It would inadvertently boost your SR, so you can compensate for that if it matters that much.

Savings rate literally is nothing but a number for keeping score or tracking progress. It doesn't FIRE you, the way hard numbers do. If it's rough, it's okay.
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2Birds1Stone

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Re: Cash Gifts In Savings Rate Calculation
« Reply #4 on: December 25, 2016, 05:45:33 AM »
Thanks guys, I appreciate the feedback. Since this is cash that is indeed earmarked for a specific gift I will just exclude it from both the income and spending side of the equation.


It would inadvertently boost your SR, so you can compensate for that if it matters that much.


The way I worked out the math, it actually lowered the SR% a bit. Since in this scenario you are spending 100% of the gifted "income".

We can make the example for extreme.

ARS makes $10k/yr and spends $5k/yr which is a 50% savings rate.

Instead of giving ARS a boat his friend gives him $5k and tell him he HAS to spend it on the boat he would have otherwise received as a gift.

ARS's new income is $15k and spending $10k which is a 33.33% savings rate.


arebelspy

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Re: Cash Gifts In Savings Rate Calculation
« Reply #5 on: December 25, 2016, 06:07:49 AM »
Yes, I said that under the context of excluding it, whereby it would have no effect if you spent it on something you wouldn't otherwise, or lower spending if you spent it on something you would, not counting it in income either way.

Your example doesn't apply, because you counted it in income, something I was specifically saying not to do.  :)
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2Birds1Stone

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Re: Cash Gifts In Savings Rate Calculation
« Reply #6 on: December 25, 2016, 06:45:50 AM »
Yes, I said that under the context of excluding it, whereby it would have no effect if you spent it on something you wouldn't otherwise, or lower spending if you spent it on something you would, not counting it in income either way.

Your example doesn't apply, because you counted it in income, something I was specifically saying not to do.  :)

Ah! That makes sense then, I misunderstood.

Retire-Canada

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Re: Cash Gifts In Savings Rate Calculation
« Reply #7 on: December 25, 2016, 09:29:17 AM »
The only gifts I get are from my aging parents. The gifts roughly equate [as close as I've bothered to calculate] to the cost of the airfare to visit them. When they die [they are in 90's] the gifts will stop, but so will any reason I have to fly to the other side of the country. So I don't factor in the gifts or worry about the impact on my savings rate.


« Last Edit: December 25, 2016, 09:56:06 AM by Retire-Canada »

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Re: Cash Gifts In Savings Rate Calculation
« Reply #8 on: December 25, 2016, 09:41:41 AM »
I'll admit to being slightly relieved to see that others are comfortable excluding cash gifts from income and spending. My mother gave me money for prescription sunglasses from Zenni for my birthday, and before I left for Christmas she gave me $300 "to have a good time with [brother]" while visiting with the instruction not to bring any of the money home.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #9 on: December 25, 2016, 11:32:37 AM »
If i get a cash gift with no strings i count it as income, because it's money literally entering my wallet that i can spend or save, and however it affects my SR that's on me.  If i get a cash gift with the expectation that it goes toward something, i don't count it at all, just like i don't count receiving a gift card as income (unless i sell on my Facebook Buy/Sell group, LOL). 

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Re: Cash Gifts In Savings Rate Calculation
« Reply #10 on: December 25, 2016, 11:53:36 AM »
My basic overly conservative approach is this:
* include all expenses, no matter what in savings rate
* exclude non-repeatable income

So, in short, I *record* things like cash gifts as income.  But when my savings rate is calculated, I exclude various categories like Income:Gifts Received.

A snippet of my config file that I use:
Code: [Select]
[Income_expense_ignore]
# some bookkeeping just doesnt seem to work with graphs... or it is our
# fault for not keeping it correctly or ... whatever
# the purpose here is to ignore various income and expenses
# In other words, tracking "gifts" doesn't give you meaningful data
# unless you get the same gift every year forever.
Income:Found Money=1
Income:Inheritance=1
Income:Gifts Received=1
Income:Home Appreciation=1
Income:Rebates & Refunds=1
Income:Reimbursed Expenses=1
Income:Reimbursed Expenses:Medical=1
Income:Reimbursed Expenses:Other=1
Income:Reimbursed Expenses:Work=1
Expenses:Adjustment=1
« Last Edit: December 25, 2016, 12:49:52 PM by Spork »

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Re: Cash Gifts In Savings Rate Calculation
« Reply #11 on: December 25, 2016, 12:19:58 PM »
If I receive any cash gifts (which would really be just on bday or anniversary from parents and in laws) I include it as part of the revenue line item of my savings rate calc.

Saskatchewstachian

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Re: Cash Gifts In Savings Rate Calculation
« Reply #12 on: December 29, 2016, 11:10:57 AM »
I think you would have to count it as income. To scale the logic up slightly, if you received say 10k from inheritance, unexpected windfall, lottery (doubtful for a MMMer), etc. would you count it?

For myself I got a small inheritance when my Grandma passed, this was before discovering MMM and I spent it upgrading vehicles. Looking back on the data for the past year I now have one month with an incredibly high income and very little savings i.e. savings rate for that month was just 12%. Overall on the year if I count the gift as income it gives me a SR of 48%, if I remove it and pretend like I never got it then my yearly SR would be 55%.

Both numbers are still useful as 55% is my savings rate based on my own employment income and 48% is the actual savings rate of what came in and when out of my bank account. Personal preference on which number to track.

mskyle

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Re: Cash Gifts In Savings Rate Calculation
« Reply #13 on: December 29, 2016, 11:39:18 AM »
This is something I'm thinking about a lot lately; I'm getting married next year and my parents want to pay for it. Basically my plan is to just count all the inflows and outflows as "wedding" and expect that they will to some extent cancel each other out.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #14 on: December 29, 2016, 11:54:12 AM »
I think you would have to count it as income. To scale the logic up slightly, if you received say 10k from inheritance, unexpected windfall, lottery (doubtful for a MMMer), etc. would you count it?

For myself I got a small inheritance when my Grandma passed, this was before discovering MMM and I spent it upgrading vehicles. Looking back on the data for the past year I now have one month with an incredibly high income and very little savings i.e. savings rate for that month was just 12%. Overall on the year if I count the gift as income it gives me a SR of 48%, if I remove it and pretend like I never got it then my yearly SR would be 55%.

Both numbers are still useful as 55% is my savings rate based on my own employment income and 48% is the actual savings rate of what came in and when out of my bank account. Personal preference on which number to track.

I semi agree, but the inheritance is not necessarily earmarked for a purchase.

I got a cash gift from my parents in lieu of something tangible they would have bought me. The instructions were simple "spend this on some "thing or experience" that you otherwise would not buy, on us."

Since I'm going on vacation tomorrow I will use it as spending money on my 5 day trip. 

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Re: Cash Gifts In Savings Rate Calculation
« Reply #15 on: December 29, 2016, 01:14:21 PM »
I think you would have to count it as income. To scale the logic up slightly, if you received say 10k from inheritance, unexpected windfall, lottery (doubtful for a MMMer), etc. would you count it?

If I won $10K I'd just dump it into my investments I wouldn't count it as income. I wouldn't track it at all. It's essentially a random event and has no bearing on my financial planning or decision making.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #16 on: December 29, 2016, 05:49:31 PM »
I think you would have to count it as income. To scale the logic up slightly, if you received say 10k from inheritance, unexpected windfall, lottery (doubtful for a MMMer), etc. would you count it?

No.

If I won $10K I'd just dump it into my investments I wouldn't count it as income. I wouldn't track it at all. It's essentially a random event and has no bearing on my financial planning or decision making.

This.  It's not sustainable/repeatable going forward.

The only point of savings rate is score keeping and calculating time to FIRE.

Having your savings rate annually be (pretending): 50%, 50%, 70% (because of an inheritance boosting it from 50% to 70%, because you decided to count it), which would you use?

I'd use 50%, not count the windfall, other than it would be counted in your stache amount as you calculate time to FIRE.  Expected savings and spending, plus current stache is what you need to know.  Windfall events play into the "current stache" part of it, not the "expected savings" part, since it likely won't happen going forward.

:)
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Saskatchewstachian

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Re: Cash Gifts In Savings Rate Calculation
« Reply #17 on: December 30, 2016, 06:17:50 AM »

The only point of savings rate is score keeping and calculating time to FIRE.

Having your savings rate annually be (pretending): 50%, 50%, 70% (because of an inheritance boosting it from 50% to 70%, because you decided to count it), which would you use?

I'd use 50%, not count the windfall, other than it would be counted in your stache amount as you calculate time to FIRE.  Expected savings and spending, plus current stache is what you need to know.  Windfall events play into the "current stache" part of it, not the "expected savings" part, since it likely won't happen going forward.

:)

And this is why I love the MMM forum, I would love to hold my previous statement but the above points are just too darn rational.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #18 on: December 30, 2016, 07:06:52 AM »
my parents are transferring wealth which goes 100% into savings so i count it on both sides of the line. 10k income 10k into savings.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #19 on: December 30, 2016, 05:51:47 PM »

The only point of savings rate is score keeping and calculating time to FIRE.

Having your savings rate annually be (pretending): 50%, 50%, 70% (because of an inheritance boosting it from 50% to 70%, because you decided to count it), which would you use?

I'd use 50%, not count the windfall, other than it would be counted in your stache amount as you calculate time to FIRE.  Expected savings and spending, plus current stache is what you need to know.  Windfall events play into the "current stache" part of it, not the "expected savings" part, since it likely won't happen going forward.

:)

And this is why I love the MMM forum, I would love to hold my previous statement but the above points are just too darn rational.
And that's why I love the MMM forums; people learning and sharing and being willing to change their opinion (a rarity on the internet). :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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boarder42

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Re: Cash Gifts In Savings Rate Calculation
« Reply #20 on: January 05, 2017, 06:21:56 AM »
yeah at the end of the day savings rate is a good start.  and the shocklingly simple math is what i believes "hooks" most people.  but once you get into to it you just need to figure out what you spend ... and then how you plan to meet that spending goal when you consider yourself FIREd ... ie what the passive income stream(s) will be.  i'm all in the equity markets so my projections are all just extropolated out based on historical returns.  i may get there sooner or later... but savings rate wont really tell the story of how it happened.  partially yes .. but market gains and private stock ownership gains will be a huge roll.

Inaya

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Re: Cash Gifts In Savings Rate Calculation
« Reply #21 on: January 05, 2017, 06:34:09 AM »
I get $10k per  year from my dad,  ostensibly for an eventual mortgage down payment down the road (Dad, don't you know millennials don't buy houses?). I count it towards my annual savings goal,  which  is a flat  number rather than a %.  (It's also a minimum I plan to  exceed as often as possible.)  It's invested, so it'll grow along with the rest of my net worth.

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Re: Cash Gifts In Savings Rate Calculation
« Reply #22 on: January 05, 2017, 06:35:43 AM »
The only reason that I would possibly count cash gifts in my savings rate calculation, is to make my savings rate look lower and force myself to save even more.  For now I am more than content to tell myself ...  I am just not saving enough...  lol

Metric Mouse

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Re: Cash Gifts In Savings Rate Calculation
« Reply #23 on: January 05, 2017, 07:35:01 AM »
I get $10k per  year from my dad,  ostensibly for an eventual mortgage down payment down the road (Dad, don't you know millennials don't buy houses?). I count it towards my annual savings goal,  which  is a flat  number rather than a %.  (It's also a minimum I plan to  exceed as often as possible.)  It's invested, so it'll grow along with the rest of my net worth.

Wow... I'd take that kind of yearly gift.

boarder42

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Re: Cash Gifts In Savings Rate Calculation
« Reply #24 on: January 05, 2017, 07:51:41 AM »
I get $10k per  year from my dad,  ostensibly for an eventual mortgage down payment down the road (Dad, don't you know millennials don't buy houses?). I count it towards my annual savings goal,  which  is a flat  number rather than a %.  (It's also a minimum I plan to  exceed as often as possible.)  It's invested, so it'll grow along with the rest of my net worth.

Wow... I'd take that kind of yearly gift.

thats about what mine is ... i've heard it will go up once my dad's RMDs hit. in 2 years. i dont calculate it into my plans for FIRE though.  just an added bonus on the ride up.

Metric Mouse

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Re: Cash Gifts In Savings Rate Calculation
« Reply #25 on: January 05, 2017, 07:56:33 AM »
I get $10k per  year from my dad,  ostensibly for an eventual mortgage down payment down the road (Dad, don't you know millennials don't buy houses?). I count it towards my annual savings goal,  which  is a flat  number rather than a %.  (It's also a minimum I plan to  exceed as often as possible.)  It's invested, so it'll grow along with the rest of my net worth.

Wow... I'd take that kind of yearly gift.



thats about what mine is ... i've heard it will go up once my dad's RMDs hit. in 2 years. i dont calculate it into my plans for FIRE though.  just an added bonus on the ride up.
With $10K a year, I'd have fired much earlier. I'll have to ask my parents what the fuck their problem is! (Probably I'm not as good a kid as you guys. :) )
« Last Edit: January 05, 2017, 09:29:31 AM by Metric Mouse »

Inaya

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Re: Cash Gifts In Savings Rate Calculation
« Reply #26 on: January 05, 2017, 08:03:33 AM »
I get $10k per  year from my dad,  ostensibly for an eventual mortgage down payment down the road (Dad, don't you know millennials don't buy houses?). I count it towards my annual savings goal,  which  is a flat  number rather than a %.  (It's also a minimum I plan to  exceed as often as possible.)  It's invested, so it'll grow along with the rest of my net worth.

Wow... I'd take that kind of yearly gift.

Story time!

When I nearly failed out of high school, my father was panic-stricken that I would never amount to anything. He had also read YMoYL and was panic-stricken about being saddled with an economic outpatient. I was also dating a hispanic boy pretty seriously, and my father was panic-stricken that I would get pregnant at 17 and/or saddled with my own economic outpatient (thanks, casual racism). So we made a deal: If I held off getting married until after I got an undergraduate degree, he would pay for my wedding. I wasn't into weddings, and he wasn't into throwing money away, so that eventually morphed into down payment instead. Graduated in 2011, married in 2014 (to that same hispanic boy, incidentally). Ergo, future mortgage payment in yearly installments of $10k. (Which I suspect has also become estate planning on his part.)

I also graduated with zero student debt thanks to my parents, and I am thankful every single day for parents who not only provide amazing financial advantages, but also somehow managed to raise me as both frugal and nonconsumerist.

Metric Mouse

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Re: Cash Gifts In Savings Rate Calculation
« Reply #27 on: January 05, 2017, 09:32:19 AM »
Story time!

When I nearly failed out of high school, my father was panic-stricken that I would never amount to anything. He had also read YMoYL and was panic-stricken about being saddled with an economic outpatient. I was also dating a hispanic boy pretty seriously, and my father was panic-stricken that I would get pregnant at 17 and/or saddled with my own economic outpatient (thanks, casual racism). So we made a deal: If I held off getting married until after I got an undergraduate degree, he would pay for my wedding. I wasn't into weddings, and he wasn't into throwing money away, so that eventually morphed into down payment instead. Graduated in 2011, married in 2014 (to that same hispanic boy, incidentally). Ergo, future mortgage payment in yearly installments of $10k. (Which I suspect has also become estate planning on his part.)

I also graduated with zero student debt thanks to my parents, and I am thankful every single day for parents who not only provide amazing financial advantages, but also somehow managed to raise me as both frugal and nonconsumerist.

Funny how when our worst fears come true, they're sometimes not as bad as we feared. :D

Thank you for the story.

Inaya

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Re: Cash Gifts In Savings Rate Calculation
« Reply #28 on: January 05, 2017, 09:39:40 AM »
Story time!

When I nearly failed out of high school, my father was panic-stricken that I would never amount to anything. He had also read YMoYL and was panic-stricken about being saddled with an economic outpatient. I was also dating a hispanic boy pretty seriously, and my father was panic-stricken that I would get pregnant at 17 and/or saddled with my own economic outpatient (thanks, casual racism). So we made a deal: If I held off getting married until after I got an undergraduate degree, he would pay for my wedding. I wasn't into weddings, and he wasn't into throwing money away, so that eventually morphed into down payment instead. Graduated in 2011, married in 2014 (to that same hispanic boy, incidentally). Ergo, future mortgage payment in yearly installments of $10k. (Which I suspect has also become estate planning on his part.)

I also graduated with zero student debt thanks to my parents, and I am thankful every single day for parents who not only provide amazing financial advantages, but also somehow managed to raise me as both frugal and nonconsumerist.

Funny how when our worst fears come true, they're sometimes not as bad as we feared. :D

Thank you for the story.


Haha, I hadn't thought of it that way, but it's so true.