The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: Dora the Homebody on May 15, 2017, 06:02:42 AM
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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"?
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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.
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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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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.
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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.
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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.
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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.
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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 (http://www.frugalwoods.com/) use Method #2.
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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.
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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.
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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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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.
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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.
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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.
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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.
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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.
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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.
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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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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
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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.
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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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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.
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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).
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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.
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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.
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*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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*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.
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*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.
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*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.
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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.
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*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."
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*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%.
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*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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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*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.
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*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.
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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%."
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Emergency funds are just deferred spending. So I don't count them.
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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?
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*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.
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I just wanted to thank everyone for replying. I see everyone is doing things a bit differently which is fine!
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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.
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*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/
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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%?
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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?
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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.
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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
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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.
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*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.
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*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.
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.
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*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.
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...
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/
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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.
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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.
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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!
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Agreed. :)
Thanks! 50 days to go. Looking forward to it. :)