Author Topic: When you refer to your "savings rate"  (Read 14147 times)

StacheyStache

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Re: When you refer to your "savings rate"
« Reply #50 on: May 21, 2017, 07:07:01 AM »
Is saving for a down payment on a home considered part of a savings rate?

I save about 50% of my take home income after tax, health insurance and 9% for pension, but since I want to buy a home in a year or so it's all being funneled into a short term savings account earmarked for a down payment (goal should be met at the end of this year).  I can see arguments for and against why this should be counted as savings rate:  Buying is cheaper than renting in the vast majority of my state and I'm not building any equity by renting.  For me, this makes buying a better financial decision once I figure out where I want to stay for 5+ years and saving for a down payment is key to reaching that goal, which will help build wealth and eventually eliminate housing costs once I pay off the mortgage.  On the other hand, I will eventually be 'spending' the majority of my short term savings other than an emergency fund and I'm not investing them or using them to fund retirement accounts.  So is my savings rate technically 0%? 

twistedfirestarter

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Re: When you refer to your "savings rate"
« Reply #51 on: May 21, 2017, 07:36:27 AM »
In the U.K. we can't access what is in our "private pension pots" (not ss, this isn't due until age 67) until we reach 55 years old. After this point 25% of the total pot can be withdrawn tax free and the rest is available but taxed as income so careful drawdown is required.

As my company puts in 10% if I put in at least 6% it'd be mad not to pay in but I hope to have been FI for a decade so it'll be a bit late to the party.

Do you have these sort of age restrictions?

boarder42

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Re: When you refer to your "savings rate"
« Reply #52 on: May 21, 2017, 11:07:32 AM »
Is saving for a down payment on a home considered part of a savings rate?

I save about 50% of my take home income after tax, health insurance and 9% for pension, but since I want to buy a home in a year or so it's all being funneled into a short term savings account earmarked for a down payment (goal should be met at the end of this year).  I can see arguments for and against why this should be counted as savings rate:  Buying is cheaper than renting in the vast majority of my state and I'm not building any equity by renting.  For me, this makes buying a better financial decision once I figure out where I want to stay for 5+ years and saving for a down payment is key to reaching that goal, which will help build wealth and eventually eliminate housing costs once I pay off the mortgage.  On the other hand, I will eventually be 'spending' the majority of my short term savings other than an emergency fund and I'm not investing them or using them to fund retirement accounts.  So is my savings rate technically 0%?

Yes if you plan to live in your home after retirement.  But who the f cares what your rate is. That's just the teaser to hook you everything depends on expected spending once retired.  So in your case your saving all this money for a home. So if that home doesn't decrease retirement expenses than you're saving 0 or negative. If it does decrease retirement expenses then it would count towards that small value. 

These threads pop up all the time. Everyone should take away that your savings rate and how you calculate it is worthless towards figuring out when we all will each fire. It's useful in showing the shockingly simple math and the double edged sword. But at the end of the day figure out what you plan to spend in fire. Then develop a savings plan to meet that goal. Then build a simple spreadsheet and extrapolate your expected returns. When the total accounts not including property you plan to keep surpass 25x what you spend that's the year you are FI and can RE whenever you choose.  This isn't rocket surgery.  Just remember those are projections based on market returns typically that are non linear so you could reach FI a few years earlier or later depending on market performance.

twistedfirestarter

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Re: When you refer to your "savings rate"
« Reply #53 on: May 23, 2017, 05:35:48 AM »
In the U.K. we can't access what is in our "private pension pots" (not ss, this isn't due until age 67) until we reach 55 years old. After this point 25% of the total pot can be withdrawn tax free and the rest is available but taxed as income so careful drawdown is required.

As my company puts in 10% if I put in at least 6% it'd be mad not to pay in but I hope to have been FI for a decade so it'll be a bit late to the party.

Do you have these sort of age restrictions?

I think I should start a new thread on this

BlueHouse

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Re: When you refer to your "savings rate"
« Reply #54 on: May 23, 2017, 02:16:41 PM »
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"?

I have a checking account, and I have savings/investment accounts.  Every time money moves into or out of my life, it must move through the checking account.

I get a paycheck, it goes into the checking account. 
I don't need to spend all of that money in the checking account, some moves into Savings, or an investment account.  Anything that goes into a Savings Account or an investment account is "Savings" and gets added to a box in my spreadsheet called "Savings".
If I have an unexpected large expense that isn't covered in checking, I transfer money from Savings to checking or from an investment to checking.  This transaction means I subtract the transferred amount from my "Savings" cell in my spreadsheet. 

It's pretty straightforward and easy to track this way.  I have another cell in my spreadsheet that calculates Savings/Income and that is my savings rate.  My goal is to try to keep a high savings rate throughout the year. 

BlueHouse

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Re: When you refer to your "savings rate"
« Reply #55 on: May 23, 2017, 02:27:16 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?
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.

Dicey, I understand where you're coming from, because a lot of people refer to employer match as "free money".  But look at it from the perspective of someone who is self-employed.  I choose my billing rate and I choose the number of hours I work, therefore, I choose and work hard for all the money I've earned.  I've also chosen to take a reasonable salary and max out my 401k contributions.  This way, my company (me) can make a very substantial match into my 401k.  Because I'm a one-person company, it's pretty easy to see that I've earned all of that money and so the match is really part of my "actual income".  Similarly, every employee of every company is "earning" the money they are paid -- whether that money comes in the form of a paycheck or a benefit such as an HSA or vacation days. 

On the flip side, if you want to treat 401k match as deferred compensation (as it is) and wait until you take distributions to count it as income, then you should also deduct the employee-side contributions from both the income and savings side of the accounts until it's time to take distributions. 


Dicey

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Re: When you refer to your "savings rate"
« Reply #56 on: June 13, 2017, 09:37:52 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 know this thread is a little stale. At the time, I knew there had been something on the MMM blog about this. Thanks to another thread today, I found Pete's thoughts on the subject. It's from Jan. 26, 2015.

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.
(Take home pay – spending) / (take home pay) , then multiply by 100 to get a percentage.
 

Cookie78

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Re: When you refer to your "savings rate"
« Reply #57 on: June 13, 2017, 09:52:35 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 know this thread is a little stale. At the time, I knew there had been something on the MMM blog about this. Thanks to another thread today, I found Pete's thoughts on the subject. It's from Jan. 26, 2015.

Quote
The savings rate is simply the percentage of your take home pay that you’re not spending.
(Take home pay – spending) / (take home pay) , then multiply by 100 to get a percentage.
 

From that very SAME article...

Quote
But this is where many people get confused, because this paycheck he takes home is not really his take-home pay. You need to add back in the money that he is actually using – including to pay off loans –  or will get to use – including all retirement and savings account deposits.

The MMM Take Home Pay calculation would thus be:
Gross Pay + Employer 401(k) match – taxes and fees

= $8620 gross pay + $300 employer 401(k) match – $1724 federal tax – $689 state tax -$200 professional fees
= $6407 biweekly or $13,839 per month

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

Dicey

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Re: When you refer to your "savings rate"
« Reply #58 on: June 13, 2017, 06:22:25 PM »
Sure, you can juice it any way you want, but who does that benefit? You retire once you hit your number. The number is what matters, not the percent. It kinds feels like people just want to brag on what percentage they save. Isn't that like kinda like keeping up with the Joneses? The only person you're competing with is yourself.

The beauty of FIRE is that there are a million ways to get there. Getting there is what matters.


Cookie78

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Re: When you refer to your "savings rate"
« Reply #59 on: June 13, 2017, 08:45:30 PM »
Sure, you can juice it any way you want, but who does that benefit? You retire once you hit your number. The number is what matters, not the percent. It kinds feels like people just want to brag on what percentage they save. Isn't that like kinda like keeping up with the Joneses? The only person you're competing with is yourself.

The beauty of FIRE is that there are a million ways to get there. Getting there is what matters.

Exactly!! Calculate it however you like, it's just a comparison with yourself past and future. Why not brag? That's what we are here in this supportive forum for, cheering each other on. I love to see everyone's achievements. I find them inspiring. I don't see how it has anything to do with 'the Joneses'. No one is snubbing noses at other's savings rate, and very few people (just you as far as I've seen) are calling out 'cheaters'. It's just another way to chart your progress and strive to improve.

Dicey

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Re: When you refer to your "savings rate"
« Reply #60 on: June 14, 2017, 12:58:03 AM »
I think that we can agree that we have different points of view.  BTW, I just noticed your siggy line says you are very close to FIRE. Congratulations!

Cookie78

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Re: When you refer to your "savings rate"
« Reply #61 on: June 14, 2017, 09:08:57 AM »
Agreed. :)

Thanks! 50 days to go. Looking forward to it. :)