80% Savings Rate

[RWD]

I think we were around 63% in January (77% without the pets!). I don't really like the idea of calculating savings rate on a monthly basis though, as there are expenses that don't occur with a monthly frequency (e.g. car insurance). If I reach my goal of 70-75% savings rate I'm sure we'll have some select months at 80%.

[MonkeyJenga]

I've seen people amortize annual expenses to even out the monthly reporting. I don't have any annual costs, so my only variation comes in income: bonus and 3-paycheck months. (In the future also side income.)

I'm lazy, so I don't bother amortizing income. Since the goal is 80% for the year, I just know my regular months need to be around high- 70's. I am not there yet. But even occasional months with 80% is great!

[RWD]

I've seen people amortize annual expenses to even out the monthly reporting. I don't have any annual costs, so my only variation comes in income: bonus and 3-paycheck months. (In the future also side income.)

I'm lazy, so I don't bother amortizing income. Since the goal is 80% for the year, I just know my regular months need to be around high- 70's. I am not there yet. But even occasional months with 80% is great!

At the very least I suppose it can be motivating.

[NearlyThere]

• Get a raise
• Bring in substantial side income

These two points can make the biggest difference to your savings rate, hands down.

If you doubled your income and your spending stayed constant, then you'd notice a huge jump in the savings rate. When I started my business I earned 4% of my fire rate annually. I spent the lot = 0% savings rate. Now my spend is about 5% of my fire target annually, but this year I brought in over 25% of my fire target. This equals 80% savings rate.

If you're happy to put the effort it, being in business is the fastest path to FI. Also business deductions  such as costs for equipment and phones etc are a big help when offsetting taxes to be paid.

[JZinCO]

That is very true, though as MMM has pointed out, arithmetically an existing dollar not spent increases one's saving rate moreso than an additional dollar earned and not spent.
In my case, while I am pursuing additional income fairly fervently, I realize that I can save a larger proportion of my income just by not spending it.
edit: I realize the italicized part sounds like a informationless tautology..

[MonkeyJenga]

• Get a raise
• Bring in substantial side income

These two points can make the biggest difference to your savings rate, hands down.

If you doubled your income and your spending stayed constant, then you'd notice a huge jump in the savings rate. When I started my business I earned 4% of my fire rate annually. I spent the lot = 0% savings rate. Now my spend is about 5% of my fire target annually, but this year I brought in over 25% of my fire target. This equals 80% savings rate.

If you're happy to put the effort it, being in business is the fastest path to FI. Also business deductions  such as costs for equipment and phones etc are a big help when offsetting taxes to be paid.

If I doubled my income, yeah, that would help! I did rapidly increase my income over a period of five years. I went from about $12/hr as a temp to around $100k. At this point, to get a substantial raise in the office environment would require managing people, which I don't want to do again. I'm working on a professional cert which would line me up for a promotion in a year or so, but I'm not excited about it.

I have also read a few books about becoming a business owner and decided that route wasn't for me. Wouldn't fit my personality. My plans for side income are centered around writing. Romance novels, like I mentioned, and possibly other ebooks with a blog backing them up. If writing becomes a more serious money-maker, I will look into available deductions, like home office and internet.

And along the lines of what JZinCO said, cutting expenses would get me across the goal line much faster. Cutting my rent in half would have a bigger impact than adding the same amount of money to my salary.

[NearlyThere]

What about putting some more marketing behind your books. If they are already selling, then thats a great opportunity to be your own boss. In fact thats the dream for many entrepreneurs. Create once, sell often.

[MonkeyJenga]

What about putting some more marketing behind your books. If they are already selling, then thats a great opportunity to be your own boss. In fact thats the dream for many entrepreneurs. Create once, sell often.

That is the dream! I had started working on a financial coaching gig last year, but it was too labor intensive.

We only have one book up so far, so not many sales yet. Experienced writers have said you need a decent back catalog before you start making money.

Marketing is a must, and it's going to take some time. Right now we're testing different approaches and evaluating ROI. If you've got any good references on the topic, I'd love to check them out!

[McStache]

January      93%
February    87%
------------------
Average     90%

[Bardo]

January      93%
February    87%
------------------
Average     90%

I am in awe of you!  I was at 66% in February. 

[2Birds1Stone]

January      93%
February    87%
------------------
Average     90%

That is incredible!!

[FrugalFan]

January      93%
February    87%
------------------
Average     90%

Wow, how is this even possible? Curious about how much you make/spend?

[McStache]

January      93%
February    87%
------------------
Average     90%

Wow, how is this even possible? Curious about how much you make/spend?

My net income is about $5,500 per month and I'm saving +/-$5,000 per month.

I'm currently living rent free, have no debt, and travel all of the time for work (on a per diem to cover those expenses).  So while my numbers are really fantastic right now, they aren't indicative of what my FI date can be.  Adding in rent and some of the expenses that are masked by travel, I would probably be in the high 70's.

[MonkeyJenga]

Nice going, McStache!

[JZinCO]

McStache, you're doing too good. i'd tell you to make your own 90% thread but you'd be lonely there ;)

[RWD]

Just calculated my 2015 savings rate to be 63%. 2016 should bring higher gross income but also higher expenses, so I'm not holding my breath for any huge [calendar year] improvements.

[abhe8]

I used the calculation in the OP. Savings rate is not so great (49%)....but, savings + student loan payments + charitable giving is 81%. Once the loans are gone, savings will improve drastically. (Although I'll never change the charitable giving.)

[2Birds1Stone]

If I could just maintain 75%+ I would be done working in 4.5 years ............damn you volatile and unpredictable income!!

[RWD]

I used the calculation in the OP. Savings rate is not so great (49%)....but, savings + student loan payments + charitable giving is 81%. Once the loans are gone, savings will improve drastically. (Although I'll never change the charitable giving.)

I'm at 31% for 2016 according to my plan. This is up from 15% last year.  Over the next 2.5 years I'll be debt free and will increase to 50%-60% very quickly and will continue to increase more slowly until 75%.  80% is an awesome goal maybe I'll get there someday.

Looking forward to working my plan and hopefully exceeding it!

I'm of the opinion that you should count debt principal repayment as part of your savings rate because it increases your net worth.

[2Birds1Stone]

I'm of the opinion that you should count debt principal repayment as part of your savings rate because it increases your net worth.

Ditto

[manonfire1007]

13k/month take home after 2500/m 401k w/match and deferred compensation. Live on 5331/ month. The rest goes to debt.
If we count debt payment as pseudo-savings as it increases net worth, I'm at a 65% savings rate.
Balancing need to get out of debt with need to stay married, and honestly she is more supportive than most.

[Rural]

Okay, I just calculated for last year (doing taxes). Going to max out IRAs for both of us tomorrow, which will bring us to 70.1% of our pretax income into investments and retirement vehicles this year. Then we pay taxes, then we get to spend the rest.


Probably we are skimming about $3-$7k from 2014 and 2016 combined to make this work - a lump sum into taxable this summer may have included some from 2014, and the combined $11k into IRAs may include some money earned in Jan or Feb 2016. But not much. It's a pretty good deal, regardLess.

[MonkeyJenga]

Just calculated my 2015 savings rate to be 63%. 2016 should bring higher gross income but also higher expenses, so I'm not holding my breath for any huge [calendar year] improvements.

63% is great! Are any of the higher future expenses avoidable?

Kmiller and abhe8, good luck destroying those loans!

Rural, 70% pretax is incredible. Have you calculated the post-tax SR?

manonfire1007, good luck keeping the marriage going. ;)

I think I mentioned that I finally got a bike, so my transit costs will go down in a few months. I may also be getting a free helmet from the DOT this Friday!

[RWD]

Just calculated my 2015 savings rate to be 63%. 2016 should bring higher gross income but also higher expenses, so I'm not holding my breath for any huge [calendar year] improvements.

63% is great! Are any of the higher future expenses avoidable?

Thanks. Well we're buying a house (our offer has already been accepted), so that is essentially unavoidable. Including one-time closing costs we're probably looking at $6-8k more for the year compared to our current rent. The other big expense is pills for one of our cats (see my journal)... That just jumped up to about $450+/month. But I've done some research and it looks like we can bring that down to around $100/month. This could also be halted if the cat dies. :(

[JAYSLOL]

I've got lots of room for improvement, last year I was only 25% or so, but this year I'm hoping to get to around 40%, and break 50% in the near future.  With my income and current financial needs/responsibilities my options to get to 80%+ would be some thing like
- Rob banks
- Win lottery
- Live under bridge
- Sell organs
 
But in all seriousness, I'm going to be hustling my ass off this year and continuing to lower expenses as much as I can. 

[Rural]

Just calculated my 2015 savings rate to be 63%. 2016 should bring higher gross income but also higher expenses, so I'm not holding my breath for any huge [calendar year] improvements.

Rural, 70% pretax is incredible. Have you calculated the post-tax SR?

Thanks; im pretty psyched even if some of it was snuck out of the other years. I'm actually not sure of a fair way to figure post-tax with so much going into pretax funds but then some post tax, and the standard IRAs on top. What we put away is twice what we actually brought home, but it's got to be more complicated than that, right?


We won't beat this in 2016; once we knew my husband would be leaving his job (starting with his March 2015 paycheck) we put 100% of his pay into his 457 so we could roll it over and buy vested status in his pension with pretax money. Now we're single income.

[zephyr911]

I keep seeing this thread in recent replies, and finally got in for circumstantial reasons, as opposed to increased badassery. I'm not really sure what my SR is right now and it is a really tumultuous time financially - not in a bad way, just tons of moving parts. I know I crossed well above 50% and have flirted with 75%, probably held it for a couple months at a time, if not continuously, in the last year. This month is kind of a fluke, with almost $6K in nonrecurring income and no big spending, so I'm probably around 85%. And the coming months are shaping up nicely too, so 80% may not be the unsustainable dream I had imagined.

The biggest challenge for me will just be to get back on top of my accounting to ensure accurate evaluations.

I've got lots of room for improvement, last year I was only 25% or so, but this year I'm hoping to get to around 40%, and break 50% in the near future.  With my income and current financial needs/responsibilities my options to get to 80%+ would be some thing like
- Rob banks
- Win lottery
- Live under bridge
- Sell organs
 
But in all seriousness, I'm going to be hustling my ass off this year and continuing to lower expenses as much as I can. 

Hustling works man. Open doors and get your name out there.
I got my real estate license (a few months of early mornings and late nights) to represent my own investing partnership, and have put in plenty of time since then working our own deals. The incidental transactions outside of that, things that just came along because someone knew I was licensed and happened to ask me first, are snowballing, and will pass five figures this year. The most recent surprise referral was actually what got me into this thread. And there are any number of side gigs that could produce those kinds of happy surprises.

[JZinCO]

January
Savings rate 86%

February
Savings rate 79%

March
Inflow (source/% of total inflow)
w-2 income: 64%
401(a) employer contribution: 7%
Promotions/Bonuses for banks, credit cards etc: 2%
misc income (private sales, side-work, etc): 3%
tax return: 22%
Outflow (source/% of total inflow)
rent: 7%
bills: 2%
groceries: 1%
taxes: 2%
discretionary spending: 4%
Savings rate 84%

---
Made more this month than Jan or Feb due to tax return and raise at work. Also spent more.
When I did my taxes, I opted not to receive cash and got cash equivalent gift cards. Coupled with a promotion, I ended up making 4.6% (using XIRR) returns. I decided to set my allowances to 0 this month (and for the rest of the year) so that next year I can do the same, thus marginally lowering my savings rate for Feb (and withholding more I predict a 6% return). I know, it's silly but in a low yield environment....

[RWD]

Made more this month than Jan or Feb due to tax return

So you essentially stole from your 2015 savings rate?

[RWD]

Made more this month than Jan or Feb due to tax return

So you essentially stole from your 2015 savings rate?

I want to expand on this just a little bit. In my opinion your tax refund is like withdrawing money from a 0% interest savings account that you had been contributing to the previous year. So when I calculated my 2015 savings rate I used my actual tax liability instead of my tax withholding numbers.

[JZinCO]

Made more this month than Jan or Feb due to tax return

So you essentially stole from your 2015 savings rate?

I want to expand on this just a little bit. In my opinion your tax refund is like withdrawing money from a 0% interest savings account that you had been contributing to the previous year. So when I calculated my 2015 savings rate I used my actual tax liability instead of my tax withholding numbers.

Yes that is EXACTLY what I did.
I'm using cash accounting that has strict time boundaries. So for example

time 1
inflow: $100
outflow: $50
Savings: $50

Let's say for time 2, I receive a refund of $25 from the $50. Time 1 savings does not change because it is strictly bounded.

time 2
inflow: 100+25=125
outflow: $25
Savings: $100
--
If the time step boundaries are expanded to incorporate both time 1 and time 2 then we end up with:
Total time
Total inflow: $225
Total outflow: $75
Savings: $150

As you can see, when we expand the temporal boundaries, it is a wash. However, the liquidity of having $50 in savings in time 1 and $100 in savings in time 2 is not the same as the liquidity of having $75 in savings in time 1 and $75 in savings in time 2. The liquidity matters because if I want to purchase something worth $75 in time 1, there is a cost related to holding debt which would not occurred had I had $75 in savings spread across time steps.

I do not use an accrual basis of accounting for myself or my business and the reason for that is I care about liquidity or 'What do I actually hold at any given point in time?'.
So per my example, the extra tax withheld is outflow incurred for those months in 2015 and the tax refund incurred in 2016 is an inflow. Over lower resolution time steps, it is a wash. side note: Though not really as per my XIRR calculations. Had I spent those dollars in 2015 they would have provided 100% of their value but by 'investing' them with the IRS and taking a promotional bonus, I end up with $105 or so of value. Of course I could have not spent the $100 in 2015, put them into a different investment and earned some other, higher or lower return.

edit: The really nice thing is that by using monthly cash flow statements, it lines up perfectly with net worth (minus investment earnings or losses, I don't count those as 'savings') and my holdings across my accounts at the end of every month. Also cleared words to make the msg for brevity.
Oh and sorry for the rant if you didn't need lecturing. I just want to be very transparent.

[RWD]

Made more this month than Jan or Feb due to tax return

So you essentially stole from your 2015 savings rate?

I want to expand on this just a little bit. In my opinion your tax refund is like withdrawing money from a 0% interest savings account that you had been contributing to the previous year. So when I calculated my 2015 savings rate I used my actual tax liability instead of my tax withholding numbers.

Yes that is EXACTLY what I did.
I'm using cash flow accounting that has strict time boundaries. So for example

time 1
inflow: $100
outflow: $50
Savings: $50

Let's say for time 2, I receive a refund of $25 from the $50. Time 1 savings does not change because it is strictly bounded.

time 2
inflow: 100+25=125
outflow: $25
Savings: $100
--
If the time step boundaries are expanded to incorporate both time 1 and time 2 then we end up with:
Total time
Total inflow: $225
Total outflow: $75
Savings: $150

As you can see, when we expand the temporal boundaries, it is a wash. However, the liquidity of having $50 in savings in time 1 and $100 in savings in time 2 is not the same as the liquidity of having $75 in savings in time 1 and $75 in savings in time 2. The liquidity matters because if I want to purchase something worth $75 in time 1, there is a cost related to holding debt which would not occurred had I had $75 in savings spread across time steps.

I do not use a cash accrual basis of accounting for myself or my business and the reason for that is I care about liquidity or 'What do I actually hold at any given point in time?'.
So per my example, the extra tax withheld is outflow incurred for those months in 2015 and the tax refund incurred in 2016 is an inflow. Over lower resolution time steps, it is a wash. side note: Though not really as per my XIRR calculations. Had I spent those dollars in 2015 they would have provided 100% of their value but by 'investing' them with the IRS and taking a promotional bonus, I end up with $105 or so of value. Of course I could have not spent the $100 in 2015, put them into a different investment and earned some other, higher or lower return.

I'm very clear and consistent with my framework. For example, in January I did not double-count my IRA contributions because those $ were inflow during 2015 and the movement from cash to paper assets was not an additional inflow nor outflow but simply a transfer.

I do understand where you are coming from. I dislike when people refer to 'savings' as deferred spending and neglect to account for the spending when it occurs. My point is that it is impractical to carry forward on an accrual basis forever. For example, everything I am saving is for retirement which I intend to spend. Using an infinitely wide time step the actual savings is $0 because each $ earmarked for retirement will be spent or given away at death. So in my opinion it is very necessary to use clear and consistent boundaries of time during accounting.

edit: The really nice thing is that by using monthly cash flow statements, it lines up perfectly with net worth (mnus investment earnings or losses, I don't count those as 'savings') and my holdings across my accounts at the end of every month.
Oh and sorry for the rant if you didn't need lecturing. I just want to be very transparent.

Thanks for the explanation. This makes sense and works since you are consistent. You just end up with some outliers when looking at the higher resolution.

There are certainly practical merits to your method as well. I can't really know what my tax refund will be during the year so it can't be tracked as part of my net worth in real time. And with my method I have to retroactively calculate my savings rate after filing my taxes.

[JZinCO]

Yup. To each their own.
Now if I had a planned, deferred expense on Dec 31, 2016 which would wipe out my accrued savings over 2015, I probably would use an accrual basis. It would be unfair for me to claim such a high savings rate for 364 days knowing that it would be liquidated on the 365th day :)

[MonkeyJenga]

I keep seeing this thread in recent replies, and finally got in for circumstantial reasons, as opposed to increased badassery. I'm not really sure what my SR is right now and it is a really tumultuous time financially - not in a bad way, just tons of moving parts. I know I crossed well above 50% and have flirted with 75%, probably held it for a couple months at a time, if not continuously, in the last year. This month is kind of a fluke, with almost $6K in nonrecurring income and no big spending, so I'm probably around 85%. And the coming months are shaping up nicely too, so 80% may not be the unsustainable dream I had imagined.

The biggest challenge for me will just be to get back on top of my accounting to ensure accurate evaluations.

Belated welcome to the thread, zephyr911! Awesome numbers, you and JZinCO both.

I'm at 79% for March, thanks to a small bonus at work. In April I'm going to be paying a whole lot in taxes... I also follow time-bound accounting, so only the 3-paycheck month may save me from having a negative savings rate.

[McStache]

January      93%
February    87%
March        83%
------------------
Average     87%

[JZinCO]

January Savings rate 86%
FebruarySavings rate 79%
MarchSavings rate 84%

April
Inflow (source/% of total inflow)
w-2 income: 77%
401(a) employer contribution: 8%
Promotions/Bonuses for banks, credit cards etc: 7%
misc income (private sales, side-work, etc): 7%
Outflow (source/% of total inflow)
rent: 9%
bills: 2%
groceries: 2%
taxes: 4%
discretionary spending: 12%
Savings rate 71%

Would have been 80% but I bought a gift card in order to fulfill a CC bonus. Ideally, this should offset future spending so I am still on track. One quarter of the way though this experiment and I realized I can spend whatever I want to be fulfill needs and wants with a 60-70% saving rate. I will shoot for that next year because it makes me happiest and still is financially responsible.
In either case, things are always getting better.

January      93%
February    87%
March        83%
------------------
Average     87%

Impressive!

[McStache]

January      93%
February    87%
March        83%
April          73%  <--- Taxes and medical bills
------------------
Average     84%

Thanks, JZinCO!  Same to you!  Why not shoot for 60-70% for this rest of this year?  When you look at the simple math, the difference in dates is two years, but a happy two years is way better than a miserly two years.

[JZinCO]

I understand. Part of this is (1) to see if I can make it on a low cash flow and (2) pay 0% federal taxes not for any ideological reason but as an optimization challenge.
I mean I'm not missing out on much, it is more that I am avoiding blowing money on wants that I find fun but also wasteful (conflicting, ya).
Either way I don't feel miserly. I enjoy playing this money game!
Plus I don't want to retire early, just flexibility: the option to take a job for less pay, take time off or start a new business without having money related concerns. So two years doesn't mean that much.

[StockBeard]

Saving rate last year was 66%. I think it will go downhill from there, unfortunately, as we feel we've made every compromise we can make without impacting my wife/kids every day activities, and are now dependent on inflation. Increasing to 80% would probably involve a divorce and forgetting that I have children :P

[2Birds1Stone]

This is the one and only month this year where I will have an 80%+ YTD savings rate.

This month will take me up to an ~82-83% YTD savings rate.....after which it will drop like a rock.

[MonkeyJenga]

Awesome job everyone!

I hit 83% in April, thanks to three paychecks and cashing in some credit card rewards. I decided not to count my tax bill, since that reflects lower investment returns from 2015, not underpaid income tax.

Saving rate last year was 66%. I think it will go downhill from there, unfortunately, as we feel we've made every compromise we can make without impacting my wife/kids every day activities, and are now dependent on inflation. Increasing to 80% would probably involve a divorce and forgetting that I have children :P

If I had children, my first order of business would be forgetting I had children. But that's why you're a better parent than I would be.

[Metric Mouse]

Awesome job everyone!

I hit 83% in April, thanks to three paychecks and cashing in some credit card rewards. I decided not to count my tax bill, since that reflects lower investment returns from 2015, not underpaid income tax.

Saving rate last year was 66%. I think it will go downhill from there, unfortunately, as we feel we've made every compromise we can make without impacting my wife/kids every day activities, and are now dependent on inflation. Increasing to 80% would probably involve a divorce and forgetting that I have children :P

If I had children, my first order of business would be forgetting I had children. But that's why you're a better parent than I would be.

I would imagine if I had children like me, they would be pretty forgettable...

[Shor]

I haven't calculated it out completely, but I think if I got married, the SR would jump through the roof.
Taxes would be generally brought down to the 15% federal, rent would stay the same, food costs might increase, transportation costs would definitely decrease.
Possibly transition from 2 cars to 1..

*cough* Not that I would get married solely based on income benefits... HaHa, that would just be crazy!....

[CorpRaider]

I'm running at ~ 65%; excluding contributions to defined benefit/deferred comp plan.  I really hope to get that up closer to 80%. 

[Metric Mouse]

I haven't calculated it out completely, but I think if I got married, the SR would jump through the roof.
Taxes would be generally brought down to the 15% federal, rent would stay the same, food costs might increase, transportation costs would definitely decrease.
Possibly transition from 2 cars to 1..

*cough* Not that I would get married solely based on income benefits... HaHa, that would just be crazy!....

I wouldn't think finances would be any less of a reason to get married than any other. Certainly it may be better than some others.

[Eric222]

I have dreams about an 80% savings rate.  They mostly involve making much larger amounts of money.

Expense justifications *cough, excuses, cough*
  -I could cut more expenses if I forgot about the kids....not going to happen.  After-school care costs are ridiculous  they are my second biggest expense after rent.  Rent is minimized given my constraints. 
  -I got rid of my car, which helped.  Spending on the bike has gone up somewhat, especially now that it is mission critical - still cheaper than buying gas. 
  -The biggest thing I can do is pay off my debts so there are no longer the fucking interest costs every month.  Working on it like there is a massive fire. 
   -There are small things around the margins that would move my SR a few %, but would likely lead to burnout and a lower SR longterm (further decrease in grocery bills, no dating). 

SR for the year (Jan-Apr):  30% - I think this is the lowest in the thread!

Increasing income:
  -My tack is making more money and keeping my costs fixed at their lowest, sustainable levels.  I started my second job at the end of last month ($$), so the goal SR for the rest of the year is 50%.  I could probably work a bit more at job2 - but that way lies extreme burnout. 

  -If I get the loan repayment grant (and counted it as income each month), then I could conceivably hit 75% for the second half of the year.

  -80% would be a good goal for something like 2018....when I've transitioned to the next phase of my career. 

*cough* Not that I would get married solely based on income benefits... HaHa, that would just be crazy!....

Ha! Being married is part of what got me into my mess in the first place...make sure you get married to someone on board with the high SR! :P

[RWD]

Well for the select month of July we managed to save 82% of our post-tax income! So far for the year I calculate we are just over a 70% savings rate.

[2Birds1Stone]

I'm at 81% YTD as of August 1st.....but I am projected to drop to 76% by years end.

This is due to lack of commission for the remainder of the year, 1x a year payments coming up in September for insurance, and holiday season spending.

76% for the year still ain't bad =D

[2Birds1Stone]

Since my December spending is going to be fairly predictable and I am finished with my 2016 commission payouts the #'s are pretty certain.

I never thought this would be possible but I will be finishing 2016 with a 80.1% net savings rate!

$126,036 - Income
  $25,000 - Spending (give or take a couple of dollars)

$101,036 - Saved/Invested

[Metric Mouse]

Wow. Amazing work 2Birds! That's quite an accomplishment.