Author Topic: Question about Savings Percentages  (Read 1470 times)

fields

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Question about Savings Percentages
« on: April 21, 2014, 09:12:04 AM »
When people say that they save a certain percent of their income, how do they generally figure that?  Do they mean percent of their gross or net income?  If I were to save 30% of my gross income, I'd save $24000/year, or $2000/month.  I'd have to live on approximately $1600/month, which is less than my mortgage.  If I were to save 30% of my net income, I'd save just under $13000, or $1083/month, and have to live on $2517.  Or, I could figure that the approximately 10% of my gross income that goes to my pension plan is savings, and save 20% of my gross, or net...

I know people do this differently, it's just that I'm shocked when people say they save a high percentage, and wonder exactly how they figure it. 

senecando

  • Bristles
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Re: Question about Savings Percentages
« Reply #1 on: April 21, 2014, 09:32:40 AM »
There are threads about this, but I think a common way is this:

[savings + pretax ret + invest] / [take home + pretax ret]

So, that's net if you're counting pre-tax retirement accounts as "take home".

senecando

  • Bristles
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Re: Question about Savings Percentages
« Reply #2 on: April 21, 2014, 09:34:23 AM »
And here's a thread about it: http://forum.mrmoneymustache.com/ask-a-mustachian/probably-answered-already-but-i-can't-find-it-calculating-your-savings-rate/

"Savings rate" will get you more hits than "savings percentage", FYI.

Welcome to the forums!

Spork

  • Walrus Stache
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Re: Question about Savings Percentages
« Reply #3 on: April 21, 2014, 09:36:43 AM »

unfortunately everyone does it ever so slightly differently.

My formula (which I believe to be accurate according to accounting principles)

(income - expense) / income

...where I very meticulously categorize income and expense.  (And, as mentioned in previous threads, payments to principal on a home loan is not an expense.... It's an asset/liability transfer.