Author Topic: When you refer to your "savings rate"  (Read 17182 times)

Dora the Homebody

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When you refer to your "savings rate"
« on: May 15, 2017, 06:02:42 AM »
Are you talking about only the money that you are putting away for retirement, or do you include money that you are saving for emergency funds, home repairs, auto repairs, etc?

I have a budget at this point where I have allotted funds in my savings account for things like "home repair" "auto repair" "vacation" "furniture/appliance" "emergency"  (my larger emergency stash is invested), and I add small amounts to each category on payday.

Just wondering if some/most/all of you consider this money "saved" or money "spent"?

obstinate

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Re: When you refer to your "savings rate"
« Reply #1 on: May 15, 2017, 06:22:18 AM »
If it's earmarked for short-to-medium-term spending, it's not part of long term savings. Otherwise, it is.

From your examples: home repair, auto repair, vacation, furnture/appliance are all not really savings, in that they don't increase your 'stache in the long term. Another example: money I'm saving to make my quarterly estimated tax payments.

On the other hand, emergency fund savings are savings.

TheAnonOne

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Re: When you refer to your "savings rate"
« Reply #2 on: May 15, 2017, 06:30:19 AM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!

The grey area is paying down debt on consumer goods. If you go buy a $100,000 car and then pay down 5k a month on it, it's technically digging you out of the hole by 5k a month but not furthering your FI journey either.

To get around this we use a long term savings rate 12 months or more. This catches most bigger items. (With the notable exception of maybe the rarer car purchase)

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canadian bacon

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Re: When you refer to your "savings rate"
« Reply #3 on: May 15, 2017, 07:00:44 AM »
Savings rate = savings / (savings + expenses)

I consider savings = the amount that my bank account increases each month + my contributions to 401k + employer contributions to 401K
I consider expenses = all expenses from personal capital or mint.   

I consider any purchases to be expenses even if they create assets.  This can create conflicts if things are sold but it is close enough for me to keep me sane.

inline five

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Re: When you refer to your "savings rate"
« Reply #4 on: May 15, 2017, 07:22:28 AM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!

The grey area is paying down debt on consumer goods. If you go buy a $100,000 car and then pay down 5k a month on it, it's technically digging you out of the hole by 5k a month but not furthering your FI journey either.

To get around this we use a long term savings rate 12 months or more. This catches most bigger items. (With the notable exception of maybe the rarer car purchase)

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Paying down debt doesn't increase net worth. It's just a transfer of money from one column to another.

Your example...

$100k car (liability) | $100k cash (asset)

Net worth $0

Pay off $100k car with $100k cash and is your net worth +$100k? No, it's still $0.

ducky19

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Re: When you refer to your "savings rate"
« Reply #5 on: May 15, 2017, 07:36:50 AM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!

The grey area is paying down debt on consumer goods. If you go buy a $100,000 car and then pay down 5k a month on it, it's technically digging you out of the hole by 5k a month but not furthering your FI journey either.

To get around this we use a long term savings rate 12 months or more. This catches most bigger items. (With the notable exception of maybe the rarer car purchase)

Sent from my SM-G935T using Tapatalk

Paying down debt doesn't increase net worth. It's just a transfer of money from one column to another.

Your example...

$100k car (liability) | $100k cash (asset)

Net worth $0

Pay off $100k car with $100k cash and is your net worth +$100k? No, it's still $0.

I agree with you when the example is a car since 98.7% of the time they are depreciating assets. When you use a house as an example though, I tend to include debt paydown in our net worth. I realize that a house is not liquid, however it does hold its value and in most cases appreciates in value. There are those who don't include home equity in their net worth and those who do - I don't know that either is right or wrong.

RWD

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Re: When you refer to your "savings rate"
« Reply #6 on: May 15, 2017, 07:39:12 AM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!

The grey area is paying down debt on consumer goods. If you go buy a $100,000 car and then pay down 5k a month on it, it's technically digging you out of the hole by 5k a month but not furthering your FI journey either.

To get around this we use a long term savings rate 12 months or more. This catches most bigger items. (With the notable exception of maybe the rarer car purchase)

Sent from my SM-G935T using Tapatalk

Paying down debt doesn't increase net worth. It's just a transfer of money from one column to another.

Your example...

$100k car (liability) | $100k cash (asset)

Net worth $0

Pay off $100k car with $100k cash and is your net worth +$100k? No, it's still $0.

Investing in stocks doesn't increase your net worth either. $100k cash -> $100k VTSAX is still $100k net worth.

So really, "savings" are any place you put your money that doesn't decrease your net worth.

meatface

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Re: When you refer to your "savings rate"
« Reply #7 on: May 15, 2017, 08:42:51 AM »
I've seen two ways to calculate savings rate - Method #1 is based on gross income and Method #2 is based on take-home income. In the end, both are calculated by: Savings/(Savings + Expenses).

If you make $100k/year and save a total of $40k/year, then by
Method #1 (gross income) your savings rate might be $40k/$100k = 40% savings rate,
whereas by
Method #2 (take-home income) your savings rate might be more like $40k/$75k = 53% savings rate.

To me, the method based on gross income (Method #1) is easier to think about and is the default method in my mind, but either option is legit. In the end you're saving the same amount of money. Note: I think the Frugalwoods use Method #2.

lifeanon269

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Re: When you refer to your "savings rate"
« Reply #8 on: May 15, 2017, 10:14:44 AM »
When I refer to my savings rate for retirement, I am only counting savings that are specifically allocated for the direct purpose of funding my retirement. Any savings that I have for vacations, repairs, etc are all just expenses in my budget that are accounted for.

My savings rate is calculated on my take-home income + my pre-tax retirement savings since that is money I specifically allocate for retirement, but isn't included in my take home pay.

Also, as part of my overall 12 year retirement plan, the first 3 years were spent paying down some debts. I don't include paying down those debts as part of my savings rate since really those were just expenses from previous years that I had yet to pay. So for the first 3 years, my savings rate was lower, then after those debts were paid, my savings rate jumped up to a higher percentage once I was able to allocate the money used to pay down previous debts to funding my retirement.

So your savings rate will fluctuate over time and it is important to calculate your rate as you go to make sure you're meeting your goals adequately.

boarder42

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Re: When you refer to your "savings rate"
« Reply #9 on: May 15, 2017, 10:25:15 AM »
savings rate is money saved for retirment.

savings rate is mostly useless and just a good hook to get you to understand how what you spend and save effects how long you'll need to work.  Once you get dug into this and cutting your expenses, you just need to know what do you plan to spend once Retired.

Then you can take how you're saving and investing and build your own spreadsheet or use one like in the case study to determine when you can FIRE.   

Savings rate is overstated here a lot, and comes up alot in new people.

1. know what you need annually in FIRE
2. know how much youre saving and where
3. develop spreadsheet to extrapolate those gains based on expected returns.
4. give your self a window of 2 years on either side as to when you could fire based on those calcs. 

EnjoyIt

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Re: When you refer to your "savings rate"
« Reply #10 on: May 15, 2017, 10:43:04 AM »
Taxes can also affect your savings rate.  Someone making $50k/year and maxing 401k, HSA, and IRA pays very little in taxes.  Someone living in California making $300k/yr can pay 30% in taxes despite similar pretax savings.  That alone makes a huge dent in their savings rate. So I agree with boarder. The savings rate is actually a useless figure other than for bragging rights in a early retirement forum.

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Re: When you refer to your "savings rate"
« Reply #11 on: May 15, 2017, 11:14:00 AM »
I consider my savings rate to be money I didn't spend, but earned this year.
So retirement savings, my bank accounts, and the money I put into taxable investment accounts (but not their gains).

I consider my mortgage to be money spent, when I sell the house I'll then consider it income, but right now I don't see it as savings anymore than my paid off beanie baby collection.

Spork

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Re: When you refer to your "savings rate"
« Reply #12 on: May 15, 2017, 11:30:15 AM »
savings = (income - expense) / income

If you identify everything correctly as asset/liability/income/expense... it just works.

I track it in rolling chunks of 30day, 90day, 1year and 5 years.

If I pidgeonhole money for a future spend, I do not count it as spent.  It counts as spent when the expense hits the books.

mrteacher

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Re: When you refer to your "savings rate"
« Reply #13 on: May 15, 2017, 11:34:17 AM »
savings = (income - expense) / income

If you identify everything correctly as asset/liability/income/expense... it just works.

I track it in rolling chunks of 30day, 90day, 1year and 5 years.

If I pidgeonhole money for a future spend, I do not count it as spent.  It counts as spent when the expense hits the books.

Same here. I think this makes it easiest.

inline five

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Re: When you refer to your "savings rate"
« Reply #14 on: May 15, 2017, 01:31:59 PM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!

The grey area is paying down debt on consumer goods. If you go buy a $100,000 car and then pay down 5k a month on it, it's technically digging you out of the hole by 5k a month but not furthering your FI journey either.

To get around this we use a long term savings rate 12 months or more. This catches most bigger items. (With the notable exception of maybe the rarer car purchase)

Sent from my SM-G935T using Tapatalk

Paying down debt doesn't increase net worth. It's just a transfer of money from one column to another.

Your example...

$100k car (liability) | $100k cash (asset)

Net worth $0

Pay off $100k car with $100k cash and is your net worth +$100k? No, it's still $0.

I agree with you when the example is a car since 98.7% of the time they are depreciating assets. When you use a house as an example though, I tend to include debt paydown in our net worth. I realize that a house is not liquid, however it does hold its value and in most cases appreciates in value. There are those who don't include home equity in their net worth and those who do - I don't know that either is right or wrong.

My point is ANY debt reduction is simply an accounting trick. It doesn't change net worth.

You owe $100k on a house. You have $100k in cash. If you pay it off, has your situation changed? What is your beginning and ending NW?

(hint, it's still $0)

Typically most count it in their NW as that is the governments view. I would. It's an asset and if sold would yield the same amount in the asset column just listed as cash and not property.
« Last Edit: May 15, 2017, 01:34:52 PM by inline five »

Zikoris

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Re: When you refer to your "savings rate"
« Reply #15 on: May 15, 2017, 01:41:11 PM »
I just don't save for anything except retirement. That makes it easy!

Whatever method you use, make sure you don't double count anything - so if you list transferring $500 into savings for car repairs as an expense, then don't count it as an expense again in a few months when you get a repair bill and pay for it through savings.

Dora the Homebody

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Re: When you refer to your "savings rate"
« Reply #16 on: May 15, 2017, 01:58:34 PM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!


Where do you pull money to buy them?  From savings? Like you put in 70% of your income into savings and then you spend it when you need vacation or auto repair?

That's where I'm not understanding some of the posts of people saying they save 50, 60 70% of their paycheques. 

Cookie78

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Re: When you refer to your "savings rate"
« Reply #17 on: May 15, 2017, 02:05:13 PM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!


Where do you pull money to buy them?  From savings? Like you put in 70% of your income into savings and then you spend it when you need vacation or auto repair?

That's where I'm not understanding some of the posts of people saying they save 50, 60 70% of their paycheques.

Savings is anything I do not spend. (Income - expenses = savings) I put it in a variety of places: Investments, bank accounts, cash. If a big expense comes up I pay for it and the expense is reflected in my savings rate for the month in which I spent it.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/
"The savings rate is simply the percentage of your take home pay that you’re not spending."

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Re: When you refer to your "savings rate"
« Reply #18 on: May 15, 2017, 06:34:34 PM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!


Where do you pull money to buy them?  From savings? Like you put in 70% of your income into savings and then you spend it when you need vacation or auto repair?

That's where I'm not understanding some of the posts of people saying they save 50, 60 70% of their paycheques.

It's saved until I spend it. 
I'm hoping my lifetime savings rate is near 0%, but most years, my annual savings is close to 50-60%. That is, my accounts, not including investment gains, increased by a dollar amount equal to 50% of my gross income that year. (My largest expense is taxes. Then mortgage, soon to be displaced by daycare)

The idea that money that will eventually be spent is not savings makes no sense to me. Doesn't everyone plan to spend their retirement account someday? How is that different from the vacation account?  Is it only savings if you die with it?


I also don't relate my savings percent with my net worth. I include investment gains and other assets in that. But I didn't save there. To me saving means not spending income

boarder42

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Re: When you refer to your "savings rate"
« Reply #19 on: May 16, 2017, 04:59:48 AM »
Dora are you trying to figure out how people save that much.  It's higher income and lower spending.  If you want to see how to get to a rate over 50% do a case study and people will tell you.

Ocinfo

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Re: When you refer to your "savings rate"
« Reply #20 on: May 16, 2017, 05:34:31 AM »
I don't really pay too much attention to savings rate. What I do look at is the multiple of my savings versus my estimated FI expenses.

For example, if FI expenses are $50k and I save (define as you will) $100k then I'm saving double my future expenses. It doesn't matter if I'm making $150k or $250k, it's focused on the end goal of reaching my FI income number.

I find this far more useful for people that will have FI expenses different than working expenses because of moving from a HCOLA to LCOLA or international.


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Mezzie

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Re: When you refer to your "savings rate"
« Reply #21 on: May 16, 2017, 05:40:19 AM »
I count retirement funds and taxable accounts I don't intend to touch until retirement. In the off-chance that I wipe out my emergency fund (not counted as savings) and then have another expensive energency, then I'll dip into the taxable accounts, but that isn't their primary purpose. I could see it happening in an extended layoff situation or expensive medical problem, though.

RWD

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Re: When you refer to your "savings rate"
« Reply #22 on: May 16, 2017, 06:38:47 AM »
Our savings rate is around 70% we don't have accounts for auto repairs or vacations. We just buy those when they come up.

We don't spend 2k on a vacation in a month and count it as 'savings' that would be insane. It's clearly a spending item. Otherwise, I would spend as much as I could on trips!


Where do you pull money to buy them?  From savings? Like you put in 70% of your income into savings and then you spend it when you need vacation or auto repair?

That's where I'm not understanding some of the posts of people saying they save 50, 60 70% of their paycheques.

We had a 70% savings rate last year. The 30% of expenses include "unexpected" events. Without the unexpected expenses, vacations, and other uncommon one-time costs our savings rate would have been closer to 79%.

I suppose you could think of it as starting at a 100% savings rate when you get paid and it decreasing as you spend it. Whatever you still have left (after your desired time interval) is your savings rate. I think annual time periods are the most useful for savings rate because there are some expenses that only happen once per year (real estate tax, for example).

boarder42

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Re: When you refer to your "savings rate"
« Reply #23 on: May 16, 2017, 06:44:42 AM »
dora,

most of the people here are high income earners.  so when we put money into savings baring job loss it stays there.  when we take vacations we just put less money into savings in that given month but you dont count money intended to be spent on vacations or car repairs as savings. 

you should make a case study, it sounds like you're trying to manipulate a savings rate for i dunno what reason. 

guess what if you "put everything you make into savings" and then spend it all that year you cant retire today like the saving rate would indicate.  I'm really at a loss for what your goal is why dont you start with that and then we can help you understand how to get there.

Dicey

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Re: When you refer to your "savings rate"
« Reply #24 on: May 16, 2017, 07:43:32 AM »
Feedback from a not-high income earner here. I'm FIRE now and did most of my groundwork long before Pete became MMM.

Savings rate, as others have mentioned, is just a measuring tool, and not a particularly accurate one*. After a career in sales, I can assure you, it's the dollars that matter most, not the percentages. The way you deploy those dollars has a significant impact on reaching FI. If you invest early and well, your savings percentage becomes even less significant. (This is what the pay the mortgage off first, then save contingent just doesn't understand.) The earlier you shovel money into retirement and low-cost equity accounts, the smaller the shovel you will need. If you save a huge percentage of your income, but you don't invest it well, you're not necessarily better off, because inflation will always nibble at your money.

*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

RWD

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Re: When you refer to your "savings rate"
« Reply #25 on: May 16, 2017, 08:14:36 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?

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Re: When you refer to your "savings rate"
« Reply #26 on: May 16, 2017, 08:24:47 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?

I totally agree.

I would say that not accounting for some bit of income is going to give you incorrect outcomes.  401k matching is income.  It is accounted for as income. 

Savings calculation is as easy as properly categorizing income/expense.

I graphed savings rates for almost 20 years.  I found it a useful tool.  And it's not just what the rate is NOW... it is what direction the rate is heading.  If you see it turning down, it is time to look at expenses and see what you're doing wrong.

Cookie78

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Re: When you refer to your "savings rate"
« Reply #27 on: May 16, 2017, 08:27:15 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?

Agreed.

Do we have the savings rate police now? Savings rate was helpful for me, but as a comparison tool with myself over time. It's a fun way to challenge myself to make more, spend less and try to increase my savings rate over time. It's not particularly helpful to compare yourself to others, because as this thread indicates everyone calculates it differently.

Dicey

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Re: When you refer to your "savings rate"
« Reply #28 on: May 16, 2017, 08:39:24 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Because you aren't saving those dollars from your actual income. It's misleading. Don't get me wrong, the dollars certainly count, but patting one's self on the back by counting the employer's match just to inflate your "savings rate" is disingenuous, IMO. This site is about hard-core saving. It is not a competition to see who can achieve the highest "savings rate". As an old boss used to say, "Percentages don't buy groceries, dollars do."

I posted this as food for thought for the OP. Everyone is free to do whatever they wish.


NotJen

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Re: When you refer to your "savings rate"
« Reply #29 on: May 16, 2017, 08:40:11 AM »
Oops, took too long to reply and everyone is saying the same thing...

*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

Yeah, this is definitely NOT cheating, and these ARE actual dollars (assuming you are 100% vested - I'm immediately vested so I don't have to worry about this).  You include the number in both your income (since it is) and your savings (since it is).  Otherwise, where do you account for it?

I personally think looking at a monthly savings rate is meaningless.  I calculate it annually, as things even out a little more on that time scale.  If I "save" $1000 in January, but spend it in May for an auto repair, it will be an expense for the year.  If I save $1000 in January, but spend it in January of next year, it effectively lowers my savings rate for the next year.

My savings rate calculation is  SR = (all income - all spent money) / all income.  I do versions where I include taxes in money spent, as well as an "after tax" version, just for kicks.

Savings rate is a personal calculation, and you should do what makes the most sense for you.

most of the people here are high income earners.  so when we put money into savings baring job loss it stays there.  when we take vacations we just put less money into savings in that given month but you dont count money intended to be spent on vacations or car repairs as savings.

Like you said, I do cash flow most unexpected expenses, vacations, repairs, etc.  But it's not necessarily because of a high income, it's because of a high savings rate.  High income does help you get to a high savings rate, though.

Spork

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Re: When you refer to your "savings rate"
« Reply #30 on: May 16, 2017, 08:45:45 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Because you aren't saving those dollars from your actual income. It's misleading. Don't get me wrong, the dollars certainly count, but patting one's self on the back by counting the employer's match just to inflate your "savings rate" is disingenuous, IMO. This site is about hard-core saving. It is not a competition to see who can achieve the highest "savings rate". As an old boss used to say, "Percentages don't buy groceries, dollars do."

I posted this as food for thought for the OP. Everyone is free to do whatever they wish.

It is income.  Actual income. 

Income comes in many forms.  Big CEOs often get paid some amount that "appears low" ... but get stock options that are ridiculously high.  That's income, too.  Income doesn't mean "paycheck".  As a salaried employee, I never got tips.  Does that mean people that get tips shouldn't count that as income?

Better question:  You're going to track that transaction in a balance sheet.  How do you categorize it?  Your choices are income, expense, assets, liabilities.

And no, it's not a competition between you and me.  But it is a competition between me and "last year's me."

RWD

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Re: When you refer to your "savings rate"
« Reply #31 on: May 16, 2017, 08:53:59 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Because you aren't saving those dollars from your actual income. It's misleading. Don't get me wrong, the dollars certainly count, but patting one's self on the back by counting the employer's match just to inflate your "savings rate" is disingenuous, IMO. This site is about hard-core saving. It is not a competition to see who can achieve the highest "savings rate". As an old boss used to say, "Percentages don't buy groceries, dollars do."

I posted this as food for thought for the OP. Everyone is free to do whatever they wish.

Buy they are part of my actual income... My savings rate calculation is: (base pay + employer matching - taxes - expenses) / (base pay + employer matching - taxes). I'm not trying to inflate my savings rate, I'm trying to account for actual pay.

Let's say I have a job that makes $50k (after tax) and no employer match. I'm spending $30k. My savings rate is 40%. Say then I change jobs to another job that also pays $50k and but the employer contributes $3k to my 401k. Is my savings rate still 40% even though I'm saving more money? No, it should be ($20k + $3k) / ($50k + $3k) = 43%.

Spork

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Re: When you refer to your "savings rate"
« Reply #32 on: May 16, 2017, 08:59:32 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Because you aren't saving those dollars from your actual income. It's misleading. Don't get me wrong, the dollars certainly count, but patting one's self on the back by counting the employer's match just to inflate your "savings rate" is disingenuous, IMO. This site is about hard-core saving. It is not a competition to see who can achieve the highest "savings rate". As an old boss used to say, "Percentages don't buy groceries, dollars do."

I posted this as food for thought for the OP. Everyone is free to do whatever they wish.

Buy they are part of my actual income... My savings rate calculation is: (base pay + employer matching - taxes - expenses) / (base pay + employer matching - taxes). I'm not trying to inflate my savings rate, I'm trying to account for actual pay.

Let's say I have a job that makes $50k (after tax) and no employer match. I'm spending $30k. My savings rate is 40%. Say then I change jobs to another job that also pays $50k and but the employer contributes $3k to my 401k. Is my savings rate still 40% even though I'm saving more money? No, it should be ($20k + $3k) / ($50k + $3k) = 43%.

I'll also mention: I accounted for EVERYTHING on that check:  health insurance expense, dental insurance expense, federal income tax expense, FICA expense, medicare tax expense, life insurance expense...  Those expense were much more than the amount of employer contributions to my 401k.  In essence -- fully accounting for everything on my checks meant I had LOWER savings rates, not higher savings rates.

twistedfirestarter

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Re: When you refer to your "savings rate"
« Reply #33 on: May 16, 2017, 09:21:03 AM »
I think it makes sense to look at it as the money you have control of (take home pay plus employer match) vs money into savings account.

Out of interest, how would you catigorise money spent on renovating a rather dilapidated house? It is adding value to an asset with an expected return that is greater than the cost of the materials as I am doing most of the work myself. 

RWD

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Re: When you refer to your "savings rate"
« Reply #34 on: May 16, 2017, 09:39:47 AM »
I think it makes sense to look at it as the money you have control of (take home pay plus employer match) vs money into savings account.

Out of interest, how would you catigorise money spent on renovating a rather dilapidated house? It is adding value to an asset with an expected return that is greater than the cost of the materials as I am doing most of the work myself.

There are several ways to handle that, though it can be a bit of a grey area because it's hard to pin down the exact value of a house. I would probably transfer the assets to the house category (e.g. decrease cash -> increase asset value). Then adjust the value of the house periodically based on current condition and market (capital gains/loss). I would consider all of this to have a net-zero effect on savings rate.

twistedfirestarter

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Re: When you refer to your "savings rate"
« Reply #35 on: May 16, 2017, 09:52:24 AM »
 I like working it out with renovation costs added to savings total, makes my percentages look better.

I realise this is not the point but it's not been long since I converted to Moustacheism and I don't have a big total to track so this makes me feel like I'm on the right track.

RWD

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Re: When you refer to your "savings rate"
« Reply #36 on: May 16, 2017, 10:26:37 AM »
I like working it out with renovation costs added to savings total, makes my percentages look better.

I realise this is not the point but it's not been long since I converted to Moustacheism and I don't have a big total to track so this makes me feel like I'm on the right track.

As long as you don't count savings twice I think this is fine (i.e. once for saving it to a savings account and again for transferring it to renovations). The key thing to look at is what transactions actually affect your net worth.

Dora the Homebody

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Re: When you refer to your "savings rate"
« Reply #37 on: May 16, 2017, 11:13:56 AM »
dora,

most of the people here are high income earners.  so when we put money into savings baring job loss it stays there.  when we take vacations we just put less money into savings in that given month but you dont count money intended to be spent on vacations or car repairs as savings. 

you should make a case study, it sounds like you're trying to manipulate a savings rate for i dunno what reason. 

guess what if you "put everything you make into savings" and then spend it all that year you cant retire today like the saving rate would indicate.  I'm really at a loss for what your goal is why dont you start with that and then we can help you understand how to get there.

I'm not trying to manipulate any data, just trying to understand when people refer to a savings rate what is included, and what is not.  I kind of wondered if people are saving 70% of income for retirement (only) AND ALSO set aside separate accounts for things like a new roof, a major car repair, etc... or if they just pay those things out of "emergency" funds.

I don't need to post a case study; y'all would just facepunch me :)

I  have a savings account (separate from retirement account and separate from emergency fund) for all kinds of things I might need/want, in various lengths of time, and I was wondering if some people put money into a savings account for things they might need, and include it as savings rather than expenses.  I consider them expenses.




RWD

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Re: When you refer to your "savings rate"
« Reply #38 on: May 16, 2017, 12:38:40 PM »
I  have a savings account (separate from retirement account and separate from emergency fund) for all kinds of things I might need/want, in various lengths of time, and I was wondering if some people put money into a savings account for things they might need, and include it as savings rather than expenses.  I consider them expenses.

It is savings until you prove otherwise by spending it. Savings rate is calculated by looking at the past so the longer your calculated time frame the more little bumps like temporary savings will get averaged out.

Zikoris

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Re: When you refer to your "savings rate"
« Reply #39 on: May 16, 2017, 01:35:53 PM »
Add us to the list of people who just cash flow everything that comes up. Our regular savings rate is over $3000/month, so it's no trouble to just redirect that amount as needed.

Dora the Homebody

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Re: When you refer to your "savings rate"
« Reply #40 on: May 16, 2017, 06:04:02 PM »
Add us to the list of people who just cash flow everything that comes up. Our regular savings rate is over $3000/month, so it's no trouble to just redirect that amount as needed.

Maybe this is also part of my issue.  I have a set amount auto-deducted from my checking account into my investments and I don't want to go through the hassle of cancelling a pre-authorized withdrawal and then setting it back up again.  I do keep an extra "withdrawal" amount in the account so I can skip one if I need to.

Dicey

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Re: When you refer to your "savings rate"
« Reply #41 on: May 16, 2017, 11:59:02 PM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Maybe re-read the question, then re-read my answer? My response reflects my personal feelings and what I did pre-FIRE, which is what the OP asked.. Please feel free to do whatever you want or whatever it takes for you to hit your own goals. Getting there matters most.

RWD

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Re: When you refer to your "savings rate"
« Reply #42 on: May 17, 2017, 07:43:10 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Maybe re-read the question, then re-read my answer? My response reflects my personal feelings and what I did pre-FIRE, which is what the OP asked.. Please feel free to do whatever you want or whatever it takes for you to hit your own goals. Getting there matters most.
Okay, I re-read the question and your answer. I feel you are going beyond just explaining your personal method when you state that others are cheating and hurting themselves by including employer matching as income. I agree that getting there matters most but I don't like being called a cheat for trying to be accurate.

Also, you didn't comment on my example of two jobs with the same base pay but one with employer contributions and one without. Should you really come up with the same savings rate for both, everything else equal? Because that's what happens when you don't "cheat" and exclude the employer contributions from your income.

patchyfacialhair

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Re: When you refer to your "savings rate"
« Reply #43 on: May 17, 2017, 01:31:01 PM »
I calculate savings rate and net worth but those are just "fun" exercises to see how I measure compared to other mustachians. Percentages are fun as a measuring stick but for me don't scratch the itch.

For me, the only metric that matters is my time to FI using MDM's "time to FI" formula:

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

A = Asset amount currently invested in funds you will draw upon in retirement.
E = Total (including taxes) annual expenses in retirement
i =  Real return on invested retirement funds, e.g., 3% (conservative - we hope...)
S = Annual amount invested in funds you will draw upon in retirement.
WR = Withdrawal Rate planned for retirement, using Trinity Study definitions (e.g., 4%)

It uses real dollars, a guesstimate for real rate of return, and algebra. Seeing that "time" decrease with every optimization and pay increase is more motivation for me than saying "my savings rate went up 2%."

Tyson

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Re: When you refer to your "savings rate"
« Reply #44 on: May 17, 2017, 01:39:57 PM »
Emergency funds are just deferred spending.  So I don't count them. 

NotJen

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Re: When you refer to your "savings rate"
« Reply #45 on: May 17, 2017, 10:22:46 PM »
Emergency funds are just deferred spending.  So I don't count them.
Isn't it *all* deferred spending?  I intend to spend as much of my money as possible before I die... so, savings rate of 0?

Dicey

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Re: When you refer to your "savings rate"
« Reply #46 on: May 18, 2017, 12:21:39 AM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Maybe re-read the question, then re-read my answer? My response reflects my personal feelings and what I did pre-FIRE, which is what the OP asked.. Please feel free to do whatever you want or whatever it takes for you to hit your own goals. Getting there matters most.
Okay, I re-read the question and your answer. I feel you are going beyond just explaining your personal method when you state that others are cheating and hurting themselves by including employer matching as income. I agree that getting there matters most but I don't like being called a cheat for trying to be accurate.

Also, you didn't comment on my example of two jobs with the same base pay but one with employer contributions and one without. Should you really come up with the same savings rate for both, everything else equal? Because that's what happens when you don't "cheat" and exclude the employer contributions from your income.
This thread is called: When YOU refer to YOUR "savings rate", so I answered the question, based on MY own personal experience and MY opinion. I'm FIRE, so I like to think my opinion is worth something, at least to myself. I believe I made it crystal clear that this is MY opinion.

I stated what I do and why. You get to use any mind tricks you want to find your way to FIRE. I just know that inflating percentages won't get anyone to FIRE faster. More dollars saved lead to faster FIRE.   

Your examples are your examples and you are free to do whatever you want with them. They are not mine, so I am under no obligation to examine the specifics of your examples.

As to what I said about cheating, I stand by it. I did not call you a cheat. Only you can figure out why you are choosing to interpret this so personally.

Dora the Homebody

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Re: When you refer to your "savings rate"
« Reply #47 on: May 18, 2017, 06:07:55 AM »
I just wanted to thank everyone for replying.  I see everyone is doing things a bit differently which is fine!


BTDretire

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Re: When you refer to your "savings rate"
« Reply #48 on: May 18, 2017, 11:05:16 AM »
I just wanted to thank everyone for replying.  I see everyone is doing things a bit differently which is fine!

  I never calculated a savings rate. Just lived frugally.
I thought I retired 1-1-17. But I just spent 2 hrs help my wife in our small business.


Bicycle_B

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Re: When you refer to your "savings rate"
« Reply #49 on: May 20, 2017, 03:56:23 PM »
*For example, some people count their employer's contribution in their savings rate. IMO, this is totally cheating. Worse still, it's like cheating at Solitaire. The only one you're hurting is yourself. Worry about the number of actual dollars you are amassing and how you are investing them. The results will speak for themselves.

What? Why are my employer's contribution dollars less valid than other dollars? This is actual money that is part of my compensation and being saved. As long as you aren't excluding it from the income side of the equation I don't see the problem?
Maybe re-read the question, then re-read my answer? My response reflects my personal feelings and what I did pre-FIRE, which is what the OP asked.. Please feel free to do whatever you want or whatever it takes for you to hit your own goals. Getting there matters most.
Okay, I re-read the question and your answer. I feel you are going beyond just explaining your personal method when you state that others are cheating and hurting themselves by including employer matching as income. I agree that getting there matters most but I don't like being called a cheat for trying to be accurate.

Also, you didn't comment on my example of two jobs with the same base pay but one with employer contributions and one without. Should you really come up with the same savings rate for both, everything else equal? Because that's what happens when you don't "cheat" and exclude the employer contributions from your income.
This thread is called: When YOU refer to YOUR "savings rate", so I answered the question, based on MY own personal experience and MY opinion. I'm FIRE, so I like to think my opinion is worth something, at least to myself. I believe I made it crystal clear that this is MY opinion.

I stated what I do and why. You get to use any mind tricks you want to find your way to FIRE. I just know that inflating percentages won't get anyone to FIRE faster. More dollars saved lead to faster FIRE.   

Your examples are your examples and you are free to do whatever you want with them. They are not mine, so I am under no obligation to examine the specifics of your examples.

As to what I said about cheating, I stand by it. I did not call you a cheat. Only you can figure out why you are choosing to interpret this so personally.

The bolded parts at the top the quote read as if they are directed to any person who includes employer matching in their savings rate.  The statement "I did not call you a cheat" directly contradicts the plain English meaning of the bolded statements.

MMM himself calculates it the same way as RWD does.

http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/

As to why someone would take it personally to be called "cheating" - well, cheating is an emotionally loaded word with strong negative connotations.  If you use it towards people who use Method X, you should not be surprised at getting an angry reaction from people use Method X. Both RWD and MMM gave reasons besides "cheating" as to why someone would calculate the way they do.

PS.  For what it's worth, it appears to that the IRS considers employer matching of investments to be taxable compensation.  It is tax deductible in most cases when the match is made, but the tax on this income is only deferred; the match will be taxed when a distribution is later made from the investment account.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

Since the government wording is confusing, here's an outside link with simpler explanation.
http://www.bankrate.com/retirement/are-401k-matching-contributions-taxable/
« Last Edit: May 20, 2017, 04:41:49 PM by Bicycle_B »

 

Wow, a phone plan for fifteen bucks!