Saving 50%- what is that??

[teamzissou00]

Ok.  So..I've read all the blog posts, and a lot of this forum.  I'm still not sure what we mean when we talk % saved.

What is my denominator? - gross or net?  If gross, that's easy, but net....what about pre-tax 401k dist?

My numerator- does that include 401k contributions, Roth, mortgage principal reduction, ....what else?
What if we saved 4k cash and used at some point (that year or later) to remodel house?  Did I save something earmarked?

Thanks!

[Paul der Krake]

This is recurring question, and there is no consensus on the matter. Not everybody has the same savings options available because of differences in local laws, real estate ownership, or even jobs.

Long story short, it doesn't matter.

[Cecil]

When I work it out, my denominator is the net income (the amount into my bank account) plus retirement deductions on my paycheck. The numerator is that number minus my expenses for the month. Mortgage principal reduction doesn't count as an expense.

If you spent 4k on remodeling your house, then that money gets added to your expenses for that month.

[marty998]

It doesn't matter. If you earned $500k we would facepunch you for saving "only" $250k. If you earned $20k we would say you are doing well saving $10k.

I get irritated with %'s, because of the way they can mislead. Starting from a high base, low base etc etc. Dollar values make more sense.

Save as much as you can and spend as less as you can.

If you really feel the need to calculate a %, then I suggest you include all income less tax in your denominator, and for the numerator use (denominator minus expenses).

Pretax retirement contributions are not expenses, mortgage interest is an expense, mortgage principle is not. $4k to spend on renovating the house is capex, not an expense. Meaning you have swapped cash for an asset and you are no better or worse off, unless the house has gone up in value by more than the $4k.

You would hope it doesn't go down in value because you chose granny's wallpaper from the 1930's that nobody finds attractive anymore :)

[Joel]

It doesn't matter. Saving money is about the best you can do. Who cares about how your percentage compares to others!

[sol]

As long as the percentage that you're saving goes up every year, you can pretty much pick any method as long as you stick with it.

My denominator is our total compensation before taxes, because it's easy to look up and I don't need to calculate it.

My numerator includes all of the money we specifically set aside for retirement, including retirement accounts and matching funds, and non-retirement taxable accounts mentally earmarked for retirement.  I ignore home equity and consider taxes an expense.

It really only matters if you're trying to use one of those "years to FI" graphs, in which case you should probably be using after tax income divided up into only the "saved" or "spent" buckets.  Even then, the total dollar amounts involved will matter because it might influence your post-FI tax liability.

[tuyop]

Man, I just took my historic take-home pay per month, multiplied it by .6, and then scheduled that number as an automatic transfer. In my case I divided by 2 (and scheduled the transfers for 1 day after my direct deposit paycheque) because that's how many times per month I get paid. Everything in excess of that that I make from freelancing or whatever also goes to savings.

The percentage is just good for working out your goals. If you want to retire in five years or something, set a goal of 80% of your takehome pay. It's not perfect but it's a good start.

[arebelspy]

I found at least 8 links to previous discussions.

Here's a few of them.

Enjoy your afternoon reading. :)

https://forum.mrmoneymustache.com/ask-a-mustachian/calculating-savings-rate/
https://forum.mrmoneymustache.com/ask-a-mustachian/probably-answered-already-but-i-can't-find-it-calculating-your-savings-rate/
https://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/how-do-you-calculate-your-savings-rate/
https://forum.mrmoneymustache.com/ask-a-mustachian/best-way-to-calculate-to-savings/
https://forum.mrmoneymustache.com/ask-a-mustachian/saving-50-of-gross-or-net/