Author Topic: Confused About Shockingly Simple Math  (Read 3896 times)

oldtoyota

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Confused About Shockingly Simple Math
« on: July 15, 2013, 05:17:04 PM »
After reading MMM's post on the Shockingly Simple Math, I calculated our savings. Eventually, it got to 50% and then 61%.

I did the above by taking the amount I save pre-tax and adding it "savings" when I calculate the percentage I save.

Then, I realized some folks are including their mortgage.

If I include the mortgage, I am "saving" over 100%. This is because I am adding in the amount we save pre-tax.

Is there a way to correct for this? If so, what is it?

There's a really cool calculator or Networthify but it doesn't seem to recognize that I could be saving more than my take home pay since I count pre-tax savings as part of my overall savings rate.

I'd really like to get a real percentage so I can verify number of years to retirement.

Hope this question makes sense!




kkbmustang

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Re: Confused About Shockingly Simple Math
« Reply #1 on: July 15, 2013, 05:20:23 PM »
I am by no means a math genius (in fact, quite the opposite), but I think you take net take home pay plus pre-tax contributions as the denominator. In the savings for the numerator, you include pre-tax contributions plus principal repayment on the mortgage (not the interest) plus whatever else you save (and, I presume also debt repayment not including the interest).

Anyone can feel free to correct me if I'm wrong.

oldtoyota

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Re: Confused About Shockingly Simple Math
« Reply #2 on: July 15, 2013, 05:25:01 PM »
I am by no means a math genius (in fact, quite the opposite), but I think you take net take home pay plus pre-tax contributions as the denominator. In the savings for the numerator, you include pre-tax contributions plus principal repayment on the mortgage (not the interest) plus whatever else you save (and, I presume also debt repayment not including the interest).

Anyone can feel free to correct me if I'm wrong.

If that is the case, then huzzah! In one attempt to come up with a real number, I cancelled out the pre-tax contributions. I was not sure if that was the right thing to do. Thanks!

kkbmustang

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Re: Confused About Shockingly Simple Math
« Reply #3 on: July 15, 2013, 05:33:35 PM »
I am by no means a math genius (in fact, quite the opposite), but I think you take net take home pay plus pre-tax contributions as the denominator. In the savings for the numerator, you include pre-tax contributions plus principal repayment on the mortgage (not the interest) plus whatever else you save (and, I presume also debt repayment not including the interest).

Anyone can feel free to correct me if I'm wrong.

If that is the case, then huzzah! In one attempt to come up with a real number, I cancelled out the pre-tax contributions. I was not sure if that was the right thing to do. Thanks!

Yay!

arebelspy

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Re: Confused About Shockingly Simple Math
« Reply #4 on: July 15, 2013, 06:10:23 PM »
Subtract the numerator from the denominator.  That should equal the amount you spent that year.

If it doesn't, you did something wrong.
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oldtoyota

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Re: Confused About Shockingly Simple Math
« Reply #5 on: July 15, 2013, 08:05:42 PM »
Thanks, you guys!

62%. Phew. I was doing something wrong before.

worms

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Re: Confused About Shockingly Simple Math
« Reply #6 on: July 15, 2013, 11:18:40 PM »
Then, I realized some folks are including their mortgage.
Only the capital element of your mortgage!  The interest is gone forever!

oldtoyota

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Re: Confused About Shockingly Simple Math
« Reply #7 on: July 16, 2013, 07:18:02 AM »
Then, I realized some folks are including their mortgage.
Only the capital element of your mortgage!  The interest is gone forever!

Yes. Good point!