Saving vs. Saving

[Independent]

When I calculated this number, it was only to provide a simple way to communicate with my wife. "Last year we spent about 1/3 of our income, saved about 1/3, and used the other 1/3 for taxes and charity." When that's the purpose of the calculation, the last few percents weren't critical.

I did consider the principal payments on the mortgage "saving" as I viewed them as pre-paying some retirement living expense.

Like Brewer, we had ups and downs. When the kids started college, our savings rate went down. That didn't bother me. I wasn't trying to hit any particular number, just have some sense that we were living comfortably within our means.

[Major Tom]

Like brewer, I never calculated my savings rate, as it varied so much. I always saved as much as I could (within reason). Some years, that was zero, while others, it was around 40% of my income. Most of the time it was somewhere in between.

A good portion of my portfolio came from the purchase and subsequent sale of several properties, so calculating a savings rate wouldn't have told the whole story.

The main reason though, is that although I am in many ways numbers-oriented, I didn't feel the need to know my savings rate. How would it have helped me? I was already saving as much as I could.

[scrabbler1]

Back in my working days, I calculated my savings rate as my total change in taxable (non-retirement) investments plus my contributions to my 401k plus any investment income from my taxable investments, as a percentage of total wage plus investment income. I did not include employer match or investment earnings from my 401k. I did not include unrealized gains or losses in my portfolio.

Most years it was between 30% and 60% but if I had a large expenditure such as a new car, buying my apartment, or paying down/off my mortgage/student loans, the savings rate took a hit that year.

[Apex1]

IMHO, savings rate is important because it determines how many working years it takes until becoming FI. I've saved over 50% of gross income for 12 years and will be FI in 4 more years. Had I saved 30% on average, it would have taken almost 30 years, rather than the current estimated 16!!

Implicit in the savings rate is also your spending rate (and your "LBYM factor").

[A Bird In Hand]

Quote:

Originally Posted by rodi There have been a few threads about this topic.

Here's one: http://www.early-retirement.org/foru...ved-66625.html

[nash031]

Quote:

Originally Posted by Apex1 Implicit in the savings rate is also your spending rate (and your "LBYM factor").

This is precisely why I calculate it as part of my semi-annual "analysis". While I am certain that I could establish a standard of living well below my means and never change it, life is about having fun, too. As I progress and my and my wife's earnings increase, we allow our standard of living to increase a little bit. Knowing my savings rate, and trying to ensure that it tracks upwards over time and with raises gives us a numerical "benchmark". It's not something where we have a goal or something I brag about. Rather, it's just a measure to help us understand how well we are meeting the mark of LBOM, and gives an easy-to-calculate indication of when we might be straying. If we see a dip in our savings rate, we can figure out why.

That said, our savings are on autopilot, so in order for our savings rate to dip either (1) I have to go in and actually change an autodraft; or (2) our income increased and thus the dip is an indicator that we need to increase our savings accordingly. So, I do think calculating savings rate has some value.

[A Bird In Hand]

Quote:

Originally Posted by Independent I did consider the principal payments on the mortgage "saving" as I viewed them as pre-paying some retirement living expense.

That's an interesting way of looking at principal payments. I assume you're referring to the 'P' part of P&I, and not extra principal payments to pay down the mortgage earlier. The former I never really thought of as savings, but rather a current living expense. If you're going to stay in the same house in retirement, or you will sell the house and use the proceeds to buy a new house outright, then I can see how you might count principal mortgage payments -- or at least a portion of them -- as a pre-paid retirement expense.

As for extra principal payments, I definitely count those as part of my savings since the money would otherwise go to my brokerage account. Hmmm...I wonder if I should also count the interest I'm saving by paying off my mortgage early as savings?

[W2R]

Quote:

Originally Posted by ProGolferWannabe In the past I have seen posts here where people share/compare their savings rates. I have always been super impressed with the thriftiness of some of those who participated in discussions---lots of savings rates reported in excess of 50%. For us, we are at 30% (give or take a point or so)--I always thought that was pretty good until I started reading the posts here (sometimes ignorance is bliss!?) Anyway, when I calculate my savings rate, I only count the money I am putting away for the long haul---basically retirement at this point. I am not counting money I am setting aside for purchasing/replacing cars, putting a new roof on the house, etc. I always felt like those sorts of items that I am "saving" for, are not really savings, but incremental expenditures that I am paying for on an on-going basis. Not that it really matters (we are just categorizing different classes of "savings"), but for folks who report savings rates in the 50%+ range, when you figure your savings rate relative to your income, do you count "everything", e.g. even the money set aside each year to buy that new car 5 years from now, or do you just count the "longer term savings", e.g. money for retirement? Really am just curious to get a perspective on how much I am saving relative to others here, and wanted to make an apples-to -apples comparison. Thanks!

When I was working, I saved a lot but I only counted money that was going towards my retirement. Mostly this was my investment portfolio, which money went into but never came out of until ER. I also included the extra principal required to pay off my mortgage in full, because a paid off home would lower my expenses in retirement. I paid off my (modest, inexpensive) home in 4 years.

I did not count money to be used for cars or other pre-retirement expenditures.

To me, the most important metric was not whether I was saving a bigger percentage than the next person (really, what do I care what somebody else saves?). Instead of looking at that, I played a silly little game with myself that could be called, "Can I save more than I ever did previously?" I would save what I thought was as much as I possibly could, and then I would try to break that record. Actually, it was kind of fun at the time, and it pushed me to look at my spending in a new light and consider cutting expenses that I thought I could never cut.

[nash031]

Quote:

Originally Posted by W2R To me, the most important metric was not whether I was saving a bigger percentage than the next person (really, what do I care what somebody else saves?). Instead of looking at that, I played a silly little game with myself that could be called, "Can I save more than I ever did previously?" I would save what I thought was as much as I possibly could, and then I would try to break that record.

I love this, and that's kind of the thought process DW and I use when looking at our savings rate.

[REWahoo]

Quote:

Originally Posted by W2R To me, the most important metric was not whether I was saving a bigger percentage than the next person (really, what do I care what somebody else saves?). Instead of looking at that, I played a silly little game with myself that could be called, "Can I save more than I ever did previously?"

This is far more logical than a contest to see who "wins" by saving the greatest percentage. After all, you aren't in a race against other people, you are racing the clock...

[Andre1969]

When I try to calculate my total savings rate, it starts to get really messy. For instance, if I just take into account my 401k, I put in 25% and the company does a 4% match. So in that respect, I put in 29%.

But, on top of that, I max out my Roth IRA. I also get rent from roommates. And dividends from stocks, although those get reinvested.

And, this year, I paid down the mortgage by a big chunk, but I don't really know how to calculate that. It feels like an expense right now, and a big, painful one at that. And it doesn't change my net worth any, as it reduces my debt, but reduces my portfolio at the same time. However, it will reduce my expenses in the future.

[Surewhitey]

While we saved (we're kinda done for now), we looked at how many month's expenses we saved per month.

On most months toward the last few years, we were saving 3-4 month's expenses every month, so if it was for 48 months, that was 144-198 months expenses saved or 12-16 years worth (roughly).

Didn't care how much %, just how long it would last us...

[tmm99]

I don't even know how it's possible to save 50% of my gross?? My gross was around $150K last year (which means I would have to save 75K to ave 50% of my gross) - but after 401K deduction with catch-up, State/Fed taxes, LTD insurance, dental/HSA/SS, etc, my net is only about $82K, which means I need to live on 30K (82K net - 23K (401K)) and my rent (I live in Silicon Valley) is a little over 20K (in a bad school district) per year, so it would only give me 10K for everything else to live on.

What gives??

I guess I can rent a room for someone and lower my rent from 20K to like 9K so I would be able to eat....

[martyp]

When I was wo*king I didn't really think about putting away a particular percentage. We had a pretty predictable rate of spending and we just saved the rest. Fortunately, we are naturally reasonable about our expenditures (i.e. not extravagant). In the last 7 yrs of our mortgage I started to put more money into my 403b's to offset the reducing mortgage interest deduction. We also knew that we were going to have two pensions as retirement income.

As far as what I count as savings, I have money set aside for short term expenses like appliances and house repairs/maintenance; money set aside for the next car; money set aside for vacations and big fun stuff; and the money set aside for drawdown later in retirement. Yes, it is all money, but thinking about the different pots helps me regulate how much I spend in each category when the time comes to spend.

I ER'd 2.5 yrs ago. DW is still working. We still have money left over each month for savings though I don't put money away for future retirement any more or at least don't think about it in those terms. Now it's just expenses, car, and vacations.

[nash031]

Quote:

Originally Posted by tmm99 I don't even know how it's possible to save 50% of my gross?? My gross was around $150K last year (which means I would have to save 75K to ave 50% of my gross) - but after 401K deduction with catch-up, State/Fed taxes, LTD insurance, dental/HSA/SS, etc, my net is only about $82K, which means I need to live on 30K (82K net - 23K (401K)) and my rent (I live in Silicon Valley) is a little over 20K (in a bad school district) per year, so it would only give me 10K for everything else to live on. What gives??

... And THIS paragraph proves why comparing savings rates (%) between people is useless. My savings rate here in Coronado with a wife that works, no kids, a mortgage, etc., is going to be vastly different than someone in a different location, with a larger family, with different income, etc., etc...

To me, the savings rate is useful to analyze trends in DW's and my ability to LBOM over time. When it changes, I figure out why and adjust accordingly as needed. But really, knowing that I save 40% and someone else saves 20% and others save 60% is completely meaningless and doesn't necessarily mean that I'm better at LBMM or they're worse. Totally different circumstances/expenses/needs/means. It is solely a good introspective personal benchmark, IMO.

[haha]

Almost all the money I retired on came from occasional and irregular LTCG's, either from RE (not my homes) or securities. I've been retired over 25 years, and I never once calculated a savings rate. The way of the squirrel may be effective, but it never appealed to me.

Ha

[RobLJ]

Quote:

Originally Posted by haha Almost all the money I retired on came from occasional and irregular LTCG's, either from RE (not my homes) or securities. I've been retired over 25 years, and I never once calculated a savings rate. The way of the squirrel may be effective, but it never appealed to me. Ha

I can see how calculating a SR could be beneficial, but we mainly made sure to maximize 401k/403b matching while raising the kids and putting them through college. And saved most of DW's bonuses, first to fund college, then as retirement. More important than increasing savings was staying in the same house for 23 years and not buying a new car every four years--even at that, we lived much better than our parents, so it's not like deprivation.
The savings rate recently after the kids finished college ballooned, as did our spending--the Italy vacation to celebrate the youngest's graduation. We've been very lucky.
For those in their 30s or 40s with children, it's tightrope between living in the now with children and stashing away something for the future.
And we both have had good jobs, although there was a rough patch for DW after Enron.

[Semiretired2008]

I never calculated a percentage to what I saved - I saved all I could and hoped it would be enough. Through the years I had to tap it a few times, tut never to the point that I exceeded what I put in - I guess you could say that in those years I tried to save more than I could afford. That is better than spending more than I could afford...