Seriously, I have never calculated our savings rate. Since I discovered that keeping track of things really helps to achieve your goals (by now, I think it’s the most useful device to achieve your goals) I actually haven’t thought of keeping track of this.
Today’s MMM article is another great piece on the snowball effect of saving. I get that when saving 50% of one’s income, one could comfortably retire within 14 years or even less. However, without tracking the amount we save I can already state that we don’t save 50% at the moment.
After a really quick scan in my Excel sheet I think we roughly “save” 20% a year, which I am rather proud of. By saving I also mean paying off the mortgage.
Now I am motivated to keep track of the actual percentage we’re saving and I will make an effort to track this percentage in retrospect. Obviously, I am going to track the number from now on as well.
After having done that I will discuss a new target with my husband. Will it be 25%, 30% or straight to 50%? I’m not sure yet…nevertheless I am positive we’ll never decrease the percentage from now on.
Do you know your savings rate?
Kind regards,
Mrs EconoWiser
EconoWiser 
Last month I only saved about 10%, which is a low number for me. Next month I’ll get a big pay check (I work irregular hours) and I think I’ll be able to save about 65% of that. That’s a really cool and high percentage for me. I know that in 2012 I saved on average around 40% of my income. That money was put into savings accounts and into investments, my intention is to save for goals that are years from now.
Sometimes I see people calculate money going into short term savings as part of their savings rate; for example they’ll save up for a holiday and claim they are saving money; but actually they’ll use that money within the year to go on holiday, so I don’t consider that a part of one’s savings rate. (But of course, saving up for a holiday is still much better than paying for it with your credit card and having to repay that (plus interest) after the holiday).
PS. I find it rather hard to reduce my spending so that the savings rate increases. That is what I’m struggling most with and also one of the reasons I’m blogging as well. It is relatively easier for me to try and work more hours, so that the income increases.
PS2. The calculations to show that when saving 50% of one’s income, one could comfortably retire within 14 years or even less DO assume a quite high profit on your savings; the article satates a 5% after-inflation return. I would re-do the calculations with more moderate assumptions on the profit-after-inflation; maybe one can count on getting 1-2% profit after inflation (and taxes!) are taken into account. Still, I guess you’d reach financial independence before twenty years are up… Which is pretty cool.
Yeah, I totally agree with your explanation on saving. By saving I meant the amount we throw in our mortgage, in investments and into savings accounts. So I looked at our earnings over a year and extracted our expenses from that. I need to come up with a way to do this thing efficiently.
You should be very proud of the amount you’re saving!
Thanks.
I don’t think there’s a much easier way to calculate this; except instead of your total amount of spending you could also work out your total amount of saving (might be a lower number of transactions to calculate with).
I’ve got a smartphone app that makes it easier for me (gives me totals of income and totals of expenses).
Hi again! We do calculate our savings rate because I think it’s “the one” metric that really matters relating to FI. However, we have some confusion regarding pre-tax and post-tax funds. For example, we save into a 401k and an HSA pre tax, then Roth IRAs and extra mortgage payments post tax. Basically, we co-mingle the “savings” funds and divide against both our pre-tax gross income and then again against our take home net income, to come up with two savings rates. It’s still not a perfect system, but it’s what we got.
Thanks again for this post, and I’d love to hear how other people have cracked the pre and post tax income nut!
Ah, pre and post tax….don’t think that’s something I have to worry about. I’ll talk to my husband about your thoughts.
45% including mortgage payments, 53% after the mortgage is done. If we abandon 1 car (out of 2) and our 2 children have moved out certainly the rate goes up!
Wim, you ROCK!!! How soon will you be FI?
If you don’t steel, win the lottery jackpot and no future beneficiary I think FI is not the right periphrasis. Financially LESS dependent to hold a job would apply much better to me.
Hi Wim, I’m still positive we can reach FI…but your explanation sounds valid indeed.
I try to have as less money on the bank as possible. Even if Triodos is not such a bad bank -at least they are not in bio-industry or weapons or biotechnology- it is still a bank. All we do, besides spending it on the oldtimer, is paying off our mortgage.
Same here, we try to store as little as possible with the bank. The surplus flows towards the mortgage and index funds. However, we do have an emergency fund which I think is rather high…the husband does not want to lower that amount. Marriage is about compromises, isn’t it?!