How do YOU calculate your savings rate?

[cylint]

Lets say my wife and I make 200k post taxes.

We each fully fund our 401ks (18k each this year)

We save roughly 50k in "cash".

We also got 10k in tax returns this year which I'm including in the "cash" savings.

So is the equation: (50k + 36k) / (200k + 36k + 10k)?

[Retired To Win]

Lets say my wife and I make 200k post taxes.

We each fully fund our 401ks (18k each this year)

We save roughly 50k in "cash".

We also got 10k in tax returns this year which I'm including in the "cash" savings.

So is the equation: (50k + 36k) / (200k + 36k + 10k)?

The short answer is "yes" to your equation.

The more targeted answer is that, for FIRE purposes, what really counts is your savings for retirement (as opposed to saving for a vacation).  So, back out of your gross savings whatever is NOT going into the retirement stash pot (tax deferred and taxable) and then recalculate to arrive at your retirement savings rate.  (IMHO)

[Mississippi Mudstache]

I don't, because I haven't found it to helpful to do so. Mostly because my income varies so much from year to year. The only number I care about is (Stash) / (Expected Annual Retirement Expenses). When it hits 25, I'm done.

[plainjane]

The more targeted answer is that, for FIRE purposes, what really counts is your savings for retirement (as opposed to saving for a vacation).  So, back out of your gross savings whatever is NOT going into the retirement stash pot (tax deferred and taxable) and then recalculate to arrive at your retirement savings rate.  (IMHO)

And be aware that the standard 4% recommended withdrawal rate assumes that your retirement money is in a mix of different investment vehicles that will grow, not in cash that loses ground with inflation.

[spaghettivillage]

I calculate my savings rate against my expenses, vice my (and my wife's) income. Income changes, but I find my expenses changing more rapidly in the optimization phase. Percent of expenses saved (or POES) is Annual Savings / Annual Expenses, irrespective of income level.

Hypothetically, if my expenses are $40,000, and my savings are $50,000 (ex: $18,000 401K, $4,500 401k-matching, $5,500 Roth, $22,000 taxable), I'd have an expenses-driven savings rate of 125% - it's just an alternate view of the "Simple Math" post. I made a rudimentary spreadsheet to try and illustrate (cross-post from Reddit awhile back):

https://docs.google.com/spreadsheets/d/1D3z0S2svj4ECGJMZ6TWl6PBJH2rR8NFbdXZMn_xfKBo/edit#gid=899477575

Plug-in expenses, savings, desired-RoR, and your starting balance/net-worth, then match the POES-output to the chart. Like I said, rudimentary, but it's rough starting point, anyway.

edit: clarity.

[user43423]

I think most people calculate this differently. The question should be whether you're calculating savings from your Gross (pre-tax) or Net (post-tax) income? Say your compensation is as follows:

Salary: $100k
Bonus: $15k
Stock: $20k
Total: $135k
401k Match: $9k

So if you put $72k into your various accounts at the end of the year, you're saving 53% pre-tax, but probably more like 80% post-tax. Which # are people usually calculating their savings rate from though?

[Retire-Canada]

Savings Rate = inputs to long-term investments in a given year/after tax income for that year

[MDM]

...for FIRE purposes, what really counts is your savings for retirement (as opposed to saving for a vacation).

The only number I care about is (Stash) / (Expected Annual Retirement Expenses).

And be aware that the standard 4% recommended withdrawal rate assumes that your retirement money is in a mix of different investment vehicles that will grow, not in cash that loses ground with inflation.

+1 to all the above.

The "savings rate" question, and associated "how does one deal with mortgage principal and interest payment?" topic, can be more confusing than helpful.  Not wrong, but maybe not as clear as one would hope.

If you are interested in a back-of-the-envelope “time to FIRE,” consider the following.  You need numbers for
1)   Total (including taxes) annual expenses in retirement.  Call that “E”.
2)   Annual amount invested in funds you will draw upon in retirement.  Call that “S”.
3)   Asset amount currently invested in funds you will draw upon in retirement.  Call that “A”.
4)   Withdrawal Rate planned for retirement, using Trinity Study definitions.  Call that “WR”.
5)   Return on invested retirement funds.  Call that “i”.

Time in years to FIRE = Ln((S + i*E/WR) / (S + i*A)) / Ln(1 + i)

Networthify  uses an equivalent form of this equation, with
“Current annual savings” = S,
“Current annual expenses” = E,
“Current portfolio value” = A,
“Annual return on investment” = i,
“Withdrawal rate” = WR.

This avoids ambiguity about what "savings rate" is or isn't.

[Zikoris]

That works well. I do essentially the same thing, but just in a different format - Our income fluctuates like crazy month by month so I do an annual calculation, but I go from expenses rather than savings.

(annual expenses)/(take-home pay + retirement account contribution and match + other income). That gives me my spending percentage. Whatever's left is my savings. It's easier for people like me who track spending to the penny but basically ignore savings.

[MrsPete]

I don't.  I don't particularly care about my percentage; rather, I care to see how my dollars are adding up and how I'm progressing towards my goals. 

[minority_finance_mo]

I calculate it as a savings as a percentage of all gross income. In other words:

(Gross Income from all sources - Monthly Expenses)/Gross income

Really simple. I don't have a ton of random expenses throughout the year, so I don't really count amortize them; I just count the expense in the month it is incurred, which forces me to try to minimize it so my numbers don't look awful.

[Pooperman]

Take home - expenses + savings deductions (401k and HSA) / (take home + savings deductions) * 100

[Retire-Canada]

I calculate based on savings because that's 3 or 4 numbers I need to add up and it's hard to miss something or make a mistake.

Calculating by expenses would work as long as your records are robust.

-- Vik

[G-dog]

If your employer matches any 401k, or equivalent type account, do you include that in your savings rate (and "income")?

I think I've seen this before, but just want to clarify.

[Rural]

Total money into retirement accounts and HSA/ gross income * 100


I tend to forget the 6% of my gross that goes into pension, so it's never been in my rate. I also generally ignore employer contributions to that pension because it would be a pain to figure out what to do with them (and there are none to anything else).

[cbgg]

Here's how I do it:

[Total money not spent this year] / [Total take home income (not just salary, but all forms of cash income including 401k contributions, cash gifts, etc)]

In the past I've kept an "income statement" style spreadsheet that shows all of my income and expenses by category so things like savings rate are super easy to calculate.  I'm trying to switch to Mint.com this year to automate and I'm finding it IMPOSSIBLE to get the reports that I want.  I'm thinking I'll switch back to at least partially manual to get the data the way I want it.

[Retired To Win]

That works well. I do essentially the same thing, but just in a different format - Our income fluctuates like crazy month by month so I do an annual calculation, but I go from expenses rather than savings.

(annual expenses)/(take-home pay + retirement account contribution and match + other income). That gives me my spending percentage. Whatever's left is my savings. It's easier for people like me who track spending to the penny but basically ignore savings.

So you are working the math backwards.  You calculate your spending and then from that arrive at your savings.  Sounds good to me.  In fact, doing a similar backwards calculation is how I figured out the rate at which I would need to save to be able to retire at a given age.

Yep.  Backwards can be simpler sometimes.