Author Topic: Saving ratio?  (Read 1793 times)

caherriman

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Saving ratio?
« on: April 23, 2014, 12:53:25 PM »
When you guys talk about a savings ratio is that including everything you save or just what is going towards an emergency fund? I am following Dave Ramseys principals on Sinking funds so do I just add them all up to see what my saving ratio is?

alm0stk00l

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Re: Saving ratio?
« Reply #1 on: April 23, 2014, 01:06:14 PM »
When calculating my saving ratio I count everything I save. It doesn't matter if it is going into an emergency fund, a taxable investment account, or a retirement account. Some people even consider the principal on the mortgage payment as saving. It doesn't really matter where you are saving the money, it just matters that you are not spending it. So you could just calculate what % of your income you spent in a month and subtract that from 100 and that is your saving rate.

jubilantjill

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Re: Saving ratio?
« Reply #2 on: April 23, 2014, 03:15:06 PM »
If you're looking at savings ratio as a guide to when you can retire, then you should only count money that's permanently saved/invested- not money that you've put aside for future expenses- like a car fund, or an emergency fund that you plan to use. IMO those are just deferred expenses. I'm pretty sure the math for early retirement is assuming that what your saving becomes income-producing assets, not whatever you'd spend your emergency fund on. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
 I suppose you could count mortgage principal if you planned to sell your house and invest that profit.  But then you'd need to be sure to include rent in your future cost of living estimates.
But really, you can count whatever you want for your savings ratio- as long as your working to make it go up. Certainly saving up an emergency fund is a great idea.