# The Money Mustache Community

## Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cawiau on December 04, 2015, 12:17:16 PM

Title: Saving rate... Is is gross or net?
Post by: cawiau on December 04, 2015, 12:17:16 PM
Ok I am new around here and I have been seeing some impressive (to say the least) saving rates and I got to ask:

- is that %!gross income or net income?

Not that it makes a difference really because would still be impressive but would like it as a point of reference! Do you guys use % of gross or you are going of net?

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Title: Re: Saving rate... Is is gross or net?
Post by: Pooplips on December 04, 2015, 12:18:06 PM
Everyone does it differently. I do Gross - Taxes FWIW
Title: Re: Saving rate... Is is gross or net?
Post by: seattlecyclone on December 04, 2015, 12:20:56 PM
I think most people here calculate it as a percentage of after-tax income, but there's no One True Way To Do It.
Title: Re: Saving rate... Is is gross or net?
Post by: KittyFooFoo on December 04, 2015, 12:23:37 PM
According to Lord Emperor MMM:

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

This seems to be the most common method I see on the forums, but it's always a little ambiguous when someone says their savings rate is X%, because people do use various methods.
Title: Re: Saving rate... Is is gross or net?
Post by: maco on December 04, 2015, 12:39:44 PM
According to Lord Emperor MMM:

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

This seems to be the most common method I see on the forums, but it's always a little ambiguous when someone says their savings rate is X%, because people do use various methods.
And because if you have your 401k withholding set at 30% that significantly decreases what's in your paycheck but does not at all decrease what you're saving.
Title: Re: Saving rate... Is is gross or net?
Post by: cawiau on December 04, 2015, 12:54:30 PM

According to Lord Emperor MMM:

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

This seems to be the most common method I see on the forums, but it's always a little ambiguous when someone says their savings rate is X%, because people do use various methods.

Wouldn't that be skewed a bit with a person putting money on their 401k?

I feel the one "true" number would be really % of gross income because depending on the individual there many way to lower or increases one "take home pay"
- 401k contributions
- Other expenses : like my wife gets to purchase the costs of her train passes and parking pre-taxes

Not everyone has all or the same deductions, so going by "gross" would put everyone on equal footing for "comparison" purpose or to grasp a true idea of how much someone is savings.

Anyway just my personal \$0.02 and was curious. Thank you for the responses...

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Title: Re: Saving rate... Is is gross or net?
Post by: flan on December 04, 2015, 01:10:09 PM

According to Lord Emperor MMM:

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

This seems to be the most common method I see on the forums, but it's always a little ambiguous when someone says their savings rate is X%, because people do use various methods.

Wouldn't that be skewed a bit with a person putting money on their 401k?

I feel the one "true" number would be really % of gross income because depending on the individual there many way to lower or increases one "take home pay"
- 401k contributions
- Other expenses : like my wife gets to purchase the costs of her train passes and parking pre-taxes

Not everyone has all or the same deductions, so going by "gross" would put everyone on equal footing for "comparison" purpose or to grasp a true idea of how much someone is savings.

You know what, per the MMM article I have been doing my SR wrong, because I HAVE been including 401K, HSA, and other deducted savings in my total "income" since technically it's money I CAN take home if I wanted to, you know!? So basically I've been doing EXPENSES / (GROSS PAY - TAXES) for my Saving Rate, and it's what I've been plugging into the Networthify ER calculator to get my projected ER date.

Can someone explain why there's a more ideal way to calculate Savings Rate that would work with the math of MMM's Shockingly Simple Math (http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement) post?
Title: Re: Saving rate... Is is gross or net?
Post by: rpr on December 04, 2015, 01:13:56 PM
Different people use different methods.

Economists use Disposable Income. Here is a definition from Investopedia     (http://www.investopedia.com/terms/d/disposableincome.asp#ixzz3tNt0QoBk) :
Quote
DEFINITION of 'Disposable Income'
The amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.

Thus, Disposable Income = Gross Pay - Taxes.

Personally, in  Gross Pay,  I include employer made 401K contributions as I feel that even though it is not available immediately, that money is still mine when I retire or leave the employer. However, in GROSS pay, I do *NOT* include other employer  paid benefits such as portion of health insurance premiums, employer FICA contributions etc.

Income Taxes are Federal Income Taxes + State Income Taxes  + Local Income Taxes + FICA/Payroll Taxes

Also savings is somewhat loosely defined here. Does one treat debt principal repayment as savings?

Title: Re: Saving rate... Is is gross or net?
Post by: JPinDC on December 04, 2015, 01:15:28 PM
It's relevant that the article describes take-home pay thusly (for the example person in the article):

Quote
The MMM Take Home Pay calculation would thus be:

Gross Pay + Employer 401(k) match – taxes and fees
= \$8620 gross pay + \$300 employer 401(k) match – \$1724 federal tax – \$689 state tax -\$200 professional fees
= \$6407 biweekly or \$13,839 per month
Title: Re: Saving rate... Is is gross or net?
Post by: flan on December 04, 2015, 01:18:26 PM
Actually, I figured it out. "The savings rate is simply the percentage of your take home pay that you’re not spending" was too simplified.

In his footnotes MMM states ** definition of take-home pay: gross income minus all taxes. Remember to add back in any 401k or other savings deductions to the paycheck you see, since these are really part of what you are “taking home” – you just happen to be saving it automatically.
Title: Re: Saving rate... Is is gross or net?
Post by: shotgunwilly on December 04, 2015, 01:42:11 PM
Actually, I figured it out. "The savings rate is simply the percentage of your take home pay that you’re not spending" was too simplified.

In his footnotes MMM states ** definition of take-home pay: gross income minus all taxes. Remember to add back in any 401k or other savings deductions to the paycheck you see, since these are really part of what you are “taking home” – you just happen to be saving it automatically.

Yes, I use the following formula:

(After tax savings + 401k contribution + 401k employer match) / (Gross pay)

You can calculate a savings rate many different ways, and can argue one way is right over the other.  But all that matters is the savings itself.

When one person on here says they have a 50% savings rate, they have a 42% savings rate according to someone else' way of calculating it. (as an example). No reason to compare your saving rate to another, just try to get it as high as you can.
Title: Re: Saving rate... Is is gross or net?
Post by: cawiau on December 04, 2015, 01:45:50 PM

In his footnotes MMM states ** definition of take-home pay: gross income minus all taxes. Remember to add back in any 401k or other savings deductions to the paycheck you see, since these are really part of what you are “taking home” – you just happen to be saving it automatically.

That would be closer to what I thought, thank you!

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Title: Re: Saving rate... Is is gross or net?
Post by: boarder42 on December 04, 2015, 05:10:14 PM
Savings rate and the shockingly simple post are a great way to get you hooked. Once you're hooked its just a matter of what you plan to spend in retirement. Make your own projection calcs using a spreadsheet. Trying to optimize a tool like networthify is a waste of your time when you can make your own spreadsheet and tweak numbers to your own liking.

Personally I have to bc part of my compensation is company stock which is insanely good and is privately held and destroy market returns. I mean just puts them to shame. So none of those calcs work. Make your own it will give you much more flexibility
Title: Re: Saving rate... Is is gross or net?
Post by: Icecreamarsenal on December 06, 2015, 05:25:55 PM
I use take home pay, as per the mmm post minus the asterisks. If possible, max your tax advantaged accounts, and forget about them. The rest is controllable monthly, and that's the data I want to see improve every month. The metric is more for my present self to improve on my past self, rather than a means to compare myself to others. It's also a great way to underestimate in the early to mid accumulation phase.