### Author Topic: Your savings rate?  (Read 2394 times)

#### mistymoney

• Pencil Stache
• Posts: 975
##### Your savings rate?
« on: October 21, 2019, 04:53:44 AM »
Hi All!

Some questions for the group!

What is your savings rate?

How do you calculate it? (percent of gross or net, before after benefits, how is employer match added - numerator only?)

How has the savings rate changed over your working career?

#### fire100xz

• 5 O'Clock Shadow
• Posts: 36
##### Re: Your savings rate?
« Reply #1 on: October 21, 2019, 06:16:04 AM »
24 percent on net pay, excluding retirement contributions

#### DadJokes

• Handlebar Stache
• Posts: 2091
##### Re: Your savings rate?
« Reply #2 on: October 21, 2019, 07:37:38 AM »
For this month, mine is 47%.

I calculate mine as:

(Invested money + monthly cash flow) / (Gross income - payroll taxes)

Some people also exclude income taxes from the denominator, but I expect to pay the same ~1% effective tax rate in retirement, so it makes sense for me to include them.

If you have an employer match, it should be included in both the numerator as invested money and in the denominator as income.

Some also include mortgage principal in the numerator. I choose not to, because I prefer a more conservative approach, but neither method is wrong.

It's really not important how you calculate it. It only serves as something for you to compare to yourself.

#### 35andFI

• Bristles
• Posts: 291
##### Re: Your savings rate?
« Reply #3 on: October 21, 2019, 07:46:47 AM »
My average monthly savings rate is 70% gross and 79% net.

I calculate gross savings rate as total saved divided by total income.

Total income includes dividends, employer contributions, credit card cash back used, savings account interest, realized capital gains, full-time income, and part-time income.

Total saved is total income minus total expenses.

Total expenses include all taxes, insurance, and spending.

I calculate net savings rate as total saved divided by (total income - taxes and health insurance).

#### fire100xz

• 5 O'Clock Shadow
• Posts: 36
##### Re: Your savings rate?
« Reply #4 on: October 21, 2019, 08:23:19 AM »
Wow that is really a high saving rate, and excellent.

#### ontheway2

• Stubble
• Posts: 195
##### Re: Your savings rate?
« Reply #5 on: October 21, 2019, 08:46:08 AM »
I calculate income as gross income plus employer match. Savings/income. You could probably subtract FICA from income, but I leave the other taxes in there as it is an expense.  Technically, I should include my tax refund in income as it is refundable credits and not a refund of taxes I have paid; I don't though.
I'm conservatively at 42%. I save more than that, but most of the extra savings is in sinking funds to be spent later and not saved for retirement.

#### bbates728

• Stubble
• Posts: 201
• Age: 28
• Location: PNW
##### Re: Your savings rate?
« Reply #6 on: October 21, 2019, 09:09:58 AM »
I hover around the 65% range.

I calculate it as all cash inflows (note that this excludes taxes) / all cash outflows that aren't a true investment (stocks, my wife's masters degree that will result in a huge pay bump, my student loans that would carry interest). Note that I exclude taxes because, due to the work from the Mad Fientist and GoCurryCracker, I don't expect to be paying much if anything in taxes after I am done working. Taxes are instead a cost of doing business. Speaking in CPA lingo, I feel comfortable recording it as a contra-revenue instead of an expense.

#### 35andFI

• Bristles
• Posts: 291
##### Re: Your savings rate?
« Reply #7 on: October 21, 2019, 09:44:01 AM »
Wow that is really a high saving rate, and excellent.

Thanks! My current spending is only around \$1,000/mo (not including taxes or health insurance) and will likely be temporary.

I live in a fairly high cost of living area but found a "cheap" room to rent (a few steps above a cardboard box) that I've been in for about 10 months and bike to work which keeps those expenses low.

I work about 50-55 hrs/week in decent paying jobs which helps the savings rate increase.

Right now I'm single but I have a sneaky suspicion that my expenses are going to double once my decisions affect other people than myself. Hopefully by then, my income rises enough to account for that :)

#### Zikoris

• Magnum Stache
• Posts: 4168
• Age: 35
• Location: Vancouver, BC
• Vancouverstachian
##### Re: Your savings rate?
« Reply #8 on: October 21, 2019, 10:55:33 AM »
Right now we're at 61% for 2019. We generally fall somewhere between 60-70% depending on the year.

We calculate based on net pay, but find it a lot simpler to do the indirect calculation - calculate our spending rate instead, and whatever's left is our savings rate. This is way easier because our spending is automatically tracked in Mint, so at any time I can just grab our current spending number without having to do any additional work.

So my formula would be: (spending)/(net pay + pre-tax retirement account contributions and match) = 0.39, leaving us with a 61% savings rate.

#### DeniseNJ

• Pencil Stache
• Posts: 600
##### Re: Your savings rate?
« Reply #9 on: October 21, 2019, 12:24:27 PM »
I think about 40%.  Basically everything we save (included 401K contributions) divided by (net plus 401K contributions).  I'm thinking that's not right though.  So much comes out of my pay. State and federal tax, retirement, 401K, life ins., health, ins., Medicare, SS, FSA.  I only end up with half my check.  Should I consider all those deductions as money I'm spending?

#### 35andFI

• Bristles
• Posts: 291
##### Re: Your savings rate?
« Reply #10 on: October 21, 2019, 12:44:56 PM »
I think about 40%.  Basically everything we save (included 401K contributions) divided by (net plus 401K contributions).  I'm thinking that's not right though.  So much comes out of my pay. State and federal tax, retirement, 401K, life ins., health, ins., Medicare, SS, FSA.  I only end up with half my check.  Should I consider all those deductions as money I'm spending?

In my opinion, if you're looking to calculate gross savings rate, I would include as spending everything listed except for retirement (I'm assuming this is some kind of retirement contribution other than 401k), and 401k contributions.

For net savings rate, I would not include life ins, health ins, state, federal, SS, or Medicare tax.

At the end of the day, it's whatever makes sense to you.

Any contributions to investment accounts (including retirement accounts) are not spending, those are savings.

For the FSA, I would probably include it as spending once I used it but the problem with that logic is that the funds go away at the end of the year if you don't use them so maybe it's best to write it off as it comes out of your paycheck.

#### MDM

• Senior Mustachian
• Posts: 10765
##### Re: Your savings rate?
« Reply #11 on: October 21, 2019, 12:52:15 PM »
How do you calculate it?
We don't, and that avoids the need to worry about all the permutations of how one could calculate it.

#### Philociraptor

• Handlebar Stache
• Posts: 1034
• Age: 32
• Location: DFW, TX
• Eat. Sleep. Invest. Repeat.
##### Re: Your savings rate?
« Reply #12 on: October 21, 2019, 01:53:23 PM »
40% of gross, 47% of net.

Gross = (gross income - all spending) / (gross income)
Net = (gross income - all spending) / (gross income - fed tax - FICA)

Taxes are spending, it's our highest single line item each year.

#### diapasoun

• Magnum Stache
• Posts: 4399
• Location: California
##### Re: Your savings rate?
« Reply #13 on: October 21, 2019, 02:34:45 PM »
There's no "standard" savings rate calculations. You need to calculate based on what your questions and needs are.

Trying to become more aware of the effect of taxes/focus on tax optimizing/etc? Then calculate your savings rate out of your gross income.

Trying to become more aware of your saving compares to your everyday spending? Then calculate your savings rate with your after-tax net. Are you focusing on your retirement savings? Then your 401k counts as part of your calculations. Are you focusing more on cashflow/what you're doing with the money that hits your checking account? Then count your savings rate after ALL deductions have been taken out.

I personally calculate two rates. The first is my net savings rate after taxes but including 401k/other deductions; I calculate this because I'm focusing on retirement and general financial strength, and so my 401k is very relevant, as are deductions like my dental insurance premiums. I also calculate what I call my "strength rate," which includes student loan repayment as part of my "savings." I started doing this because seeing how much I was putting towards student loans depressed me, and I wanted to shift my thinking from "this sucks" to "this is me putting myself into a better financial position." It's definitely been effective and has helped me stick to good financial choices instead of flipping a table and going out for dinner.

#### Malcat

• Walrus Stache
• Posts: 9069
##### Re: Your savings rate?
« Reply #14 on: October 21, 2019, 03:01:37 PM »
How do you calculate it?
We don't, and that avoids the need to worry about all the permutations of how one could calculate it.

Same.

It means so little for us that we don't bother.

#### Indexer

• Handlebar Stache
• Posts: 1463
##### Re: Your savings rate?
« Reply #15 on: October 21, 2019, 03:47:50 PM »
Here is the list since I found about FIRE. It's encouraging to look at. If you asked me in 2013 if I could save 2/3 of my income I would have never believed it.

On after tax income:
2012: 10% (Estimate based on 401k cont.)
2013: 25% (When I found MMM)
2014: 46.16%
2015: 53.33%
2016: 50.23%
2017: 60.41%
2018: 65.97%

After tax savings rate =  Savings / (All income - taxes)

Or if you want to include principal payments as a form of forced savings(they do raise your net worth):
(Savings + principal payments) / (all income - taxes)

#### js82

• Bristles
• Posts: 478
##### Re: Your savings rate?
« Reply #16 on: October 21, 2019, 06:05:02 PM »
At the end of the day, it's whatever makes sense to you.

Agreed.  On a practical level, savings and assets relative to long-run expenses is what matters when considering FIRE, not savings vs. income.

Just as an exercise in silliness, I ran the numbers on my 2018 finances, and my savings rate can come out to anywhere from 38 to 63%, depending on what I choose to include/not include.  There's no "official" number here, and it certainly shouldn't be a measure of anyone's "success" within this community.

« Last Edit: October 21, 2019, 06:06:44 PM by js82 »

#### SpareChange

• Pencil Stache
• Posts: 583
##### Re: Your savings rate?
« Reply #17 on: October 21, 2019, 06:57:28 PM »
I generally only calculate savings rate after the end of the year, to keep an eye on efficiency. For 2018, gross savings rate was 70.7%. After tax rate was 80.1%.

#### Firehazard

• Stubble
• Posts: 156
##### Re: Your savings rate?
« Reply #18 on: October 21, 2019, 08:27:37 PM »
I am only working part time this year, but so far YTD it's been about 66%.  I calculate like this:

Net paychecks, plus pre-tax 401k contributions plus employer matching = Income

401k contributions, plus employer matching, plus any deposits to savings or investments = Savings

I was able to save this much thanks to a PTO payout of around \$10k when I switched to part-time and more hours than anticipated spent training my replacement.  Next year, I expect my savings rate will be much lower, more like 25% or so, since I am now only working around 10-12 hours per week on average, and expect that to continue.

#### thesis

• Bristles
• Posts: 361
##### Re: Your savings rate?
« Reply #19 on: October 25, 2019, 11:08:30 AM »
I have typically just gone off of how much I elect to put into my 401k each paycheck, which was 50% this past year. Technically, I was saving more than that, as I usually had some leftover cash that I would put into savings, so I often ballparked this as "a little over 50%".

Of course, this only lasts until the 401k is maxed out, after which I'm usually saving a commensurate amount, but it also gets weird because I have giving goals, which I don't consider to be "savings", and I occasionally do buy some more expensive items for myself. I should probably track that more closely. New job does not currently allow me access to a 401k but pays more than the last, so I think I can expect to be hitting 60% easily starting in January :)

#### mistymoney

• Pencil Stache
• Posts: 975
##### Re: Your savings rate?
« Reply #20 on: October 26, 2019, 06:46:48 AM »
Looks like the only big variable is how people include or exclude taxes.

And most here have amazing saving rates!! Well done!