Something he mentions quite often is a metric he devised: power percentage. I've not been able to find this metric discussed anywhere yet on this forum. It is similar to savings rate though more inclusive of activities that are likely to improve one's net worth. Basically, it's your savings rate plus the percentage of your gross pay being used to pay off non-recurrent debt (i.e. mortgage, student loans, medical debt). Rather than go through all of the specifics in its calculation, I will simply copy what he says about it below.
http://petetheplanner.com/power-percentage/"Begin by adding up the following monthly activities: retirement plan deposit, employer match, college fund deposits, savings deposits (which won’t be immediately spent on vacations, holidays, etc.), other investment deposits, HSA contributions (which you don’t have immediate plans to use), mortgage principal payment (not interest, property taxes, or insurance), medical debt payments, credit card payments (from cards which you’re currently not using), student loan payments (above and beyond interest-only payments), and any other debt in which you are making consistent money payments (except car payments).
Once you add all of those healthy financial activities up, divide by your gross (pre-tax) monthly income. For example, if you add up all your monthly activity and arrive at $1,500, and your gross monthly income is $5,000, then your Power Percentage™ is 30 percent ($1,500 / $5,000 = .30)."
I like the fact that, unlike a savings rate, it takes into account activities that reduce one's debt. Two people could have the same savings rate, for instance, but one could be paying off a lot more debt than the other; the power percentage would reflect that. And debt reduction and eventual elimination can go a long way toward helping people achieve financial independence.
He elaborates on how to interpret one's power percentage as discussed below.
http://petetheplanner.com/power-percentage/"The Power Percentage™ scale is as follows. Less than 10 percent, and you’re in big trouble. You’re way too dependent on your income. Relief is not on the horizon because you’re not doing anything about it. You are consuming your entire income while not saving money and not paying on debts. If your Power Percentage™ is between 11 and 20 percent, you’re doing okay, but your Power Percentage™ has a long way to go prior to retirement. A Power Percentage™ of 21 percent to 34 percent indicates you’re living a healthy financial lifestyle. And finally, a Power Percentage™ of 35 percent or higher proves to you that you’re well on your way to mastering your financial life."
I generally agree with his assessment, although I think that it's possible that someone could have a high power percentage and still have a long way to go before reaching retirement. For instance, someone might be saving a lot of their income but just leaving it in cash (i.e. savings account). Without being properly invested, it's possible that such a person might not ever be financially independent. Pete usually asks callers about their investments in very general terms, but the power percentage certainly doesn't capture AA, a vital element of financial independence for most of us.
Even with that caveat, I still think that power percentage (PP) may be a more appropriate metric of gauging one's financial performance than savings rate alone.
Thoughts about this metric?