How to calculate savings rate???

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Chiadog2000
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Joined: Tue Feb 09, 2016 10:20 pm

How to calculate savings rate???

Post by Chiadog2000 »

Hi everyone!

How do I calculate my savings percentage when I have a mix of pre and post tax accounts? Let’s say I make $100,000. If I put 15k in a 401k, 6k in a Roth and 3k in a 529, what is my actual savings rate? Is there an easy way to figure this out or is it based on tax bracket, state tax rate, etc.? I would just add them all together and say it’s 24% of gross even though I know it’s not accurate. What do you do?
sailaway
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Re: How to calculate savings rate???

Post by sailaway »

Saving rate isn't particularly useful, and so there is no standard answer. So, do as you please, just be consistent.

We actually look at a 3 way ratio: savings/spending/income taxes

This leaves a payroll tax gap, but satisfies our curiosity.
catlady
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Joined: Sat Mar 26, 2016 8:31 pm

Re: How to calculate savings rate???

Post by catlady »

I add them all together and say it’s X% of gross. The result is only for my own curiosity to see how we’re tracking each year.
Count of Notre Dame
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Re: How to calculate savings rate???

Post by Count of Notre Dame »

catlady wrote: Sat Sep 19, 2020 11:11 am I add them all together and say it’s X% of gross. The result is only for my own curiosity to see how we’re tracking each year.
Calculating it based on gross income makes the most sense, because then you can holistically look at your tax rate as well (i.e. 33% to taxes, 33% to savings and 33% spending is a common makeup for high earners).
pasadena
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Location: PNW

Re: How to calculate savings rate???

Post by pasadena »

I used to calculate two rates: one on gross income, one on take-home. Now that I max-out my 401(k), I just look at the savings on net income, once a year after I file my taxes. Doesn't tell me much, but I like numbers :)
jebmke
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Re: How to calculate savings rate???

Post by jebmke »

IMO the key "rate" is the absolute dollars and does it put you on track to meet your goals, whatever they may be.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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vineviz
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Re: How to calculate savings rate???

Post by vineviz »

Chiadog2000 wrote: Sat Sep 19, 2020 10:43 am Hi everyone!

How do I calculate my savings percentage when I have a mix of pre and post tax accounts? Let’s say I make $100,000. If I put 15k in a 401k, 6k in a Roth and 3k in a 529, what is my actual savings rate? Is there an easy way to figure this out or is it based on tax bracket, state tax rate, etc.? I would just add them all together and say it’s 24% of gross even though I know it’s not accurate. What do you do?
Your calculation of 24% is accurate.

Income is all the money you earn, whether actively (by working) or passively (interest/dividends). By the way, this includes any vested 401k match from your employer.

Consumption is all the money spent on stuff you use

Savings = Income minus Consumption.

Savings Rate = Savings/Income
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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FiveK
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Re: How to calculate savings rate???

Post by FiveK »

Chiadog2000 wrote: Sat Sep 19, 2020 10:43 am How do I calculate my savings percentage...?
...
What do you do?
Ignore it, and focus on amounts, pretty much as jebmke mentioned.
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: How to calculate savings rate???

Post by KlangFool »

OP,

It is easy when it is based on your annual expense instead of annual income. And, it is more meaningful.


Do you save 50%, 100%, 150% of your annual expense every year?


KlangFool
Kelrex
Posts: 241
Joined: Wed Aug 26, 2020 1:32 pm

Re: How to calculate savings rate???

Post by Kelrex »

It really depends on the purpose of calculating the rate.

What info are you trying to get from the figure itself?
If it's only to measure relative success year over year, then virtually any method will work as long as it's consistent.
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