Your savings rate is 50% because you save 50% of your net pay

or

Your savings rate is 58% because you save 50% of your net pay + mortgage principle

Either way, your stash is growing at the same rate. Either way, you'll be FI in the same amount of time. So why does it matter if you classify your savings rate at 58% instead of 50%?

You're considering a knowledge error rather than a truth error.

In navigation, if you have a course error and no estimation error, then you can use your knowledge to correct your course. This is like having a 30% savings rate, deciding that's too low, learning how to be more frugal, and ending up at 50%.

If you have an estimation error and no course error, then you might end up doing the wrong thing. You might have a 45% savings rate, but think you have a 55% savings rate, resulting in a difference of more than 5 years. If you knew your savings rate was only 45% instead of 55%, then you might learn how to be more frugal, but since you don't, you might not have enough motivation to keep reducing expenses. Everyone has their equilibrium point.

Or suppose it goes the other way. You want to retire before you have kids, but you're really feeling the pinch when you try to cut expenses. You think your savings rate is 55%, which won't get you to retirement until your late 30s, so you decide to work extra hours in your contracting business. In reality, your savings rate is 65%, so you didn't need to take on those miserable extra hours.

I get it. I understand that your savings rate directly affects how long it takes to reach FI. I also get that cutting your expenses or increasing your savings is a double whammy, as your stash grows faster AND you need a smaller stash to live off of because your expenses are lower.

My question is why the *specific* number matters. Maybe an example will help.

Your savings rate is 50% because you save 50% of your net pay

or

Your savings rate is 58% because you save 50% of your net pay + mortgage principle

Either way, your stash is growing at the same rate. Either way, you'll be FI in the same amount of time. So why does it matter if you classify your savings rate at 58% instead of 50%? To me, there is no difference between those numbers, so I'm viewing the specific number as irrelevant, while at the same time, the concept or the act of increasing savings and lowering expenses is extremely important.

It's probably just semantics. I promise not to disrupt any other savings rate threads with this. I personally feel that figuring out whether my number is 50% or 58% is irrelevant. But if it helps you all challenge yourselves and stay motivated to save, I'm glad it helps.

I think I actually understand BOTH of you perfectly (wow! light bulb moment for me)

so basically, eric is suggesting that if the information you gain from the equation is not

**actionable**, then what is the difference? and on some level he is totally correct.

Velocistar is suggesting that the

**perception** that the information is not actionable could

** preven**t you from optimizing.

But I have to award the debate points to Velocistar because if any of us believed that we couldn't affect this equation in some way by our choices and actions, then we wouldn't be in this thread or possibly even on this forum to begin with.

A couple of scenarios in which case I could imagine it truly doesn't matter: A) you're in prison but you are earning money in some way (maybe you have a business, an annuity, whatever). Your expenses are essentially zero and you save 100% of your wages. Substitute prison for "you're on a crabbing boat" "antarctic research trip" "space station" or basically any situation where you have no opportunity to change your spending habits, but you are earning an income.

The other scenario that I could imagine where it actually doesn't matter is that you have a big enough "cushion" between your savings rate and your minimum retirement age that a few % points won't make one lick of a difference. For example, you cannot retire from your company before age 55 or you lose your entire pension. You're on track to be ABLE to retire at 40 years old with a 50% savings rate, but even if you achieved it you wouldn't be able to do it. So there is enough flexibility built in that exact numbers won't affect your retirement age.

But for the rest of us, I think calculating an accurate number (for our purposes) and repeating that calculation in a consistent matter will be able to show us over time how we're doing, if we're making improvements if we have certain strengths or weaknesses, if we should consider taking on a part time summer job etc...