How Do You Calculate Your Annual Spending/Saving Percentage?

[brett]

We have only based our finances on after tax income.

At the end of the day these are the dollars that we have. Pre tax is a little meaningless to me when it comes to a spend budget.

 

[zippy2020]

We have only based our finances on after tax income.
At the end of the day these are the dollars that we have. Pre tax is a little meaningless to me when it comes to a spend budget.

+1. Looking at pre-tax #s always depressed me, LOL. Unlike some folks, I don't quibble with what the government did with the $$$. My father was on SSDI for almost 30 yrs after developing Parkinson's, so I figured my SS withholdings were helping to support him.

We were much more fortunate than most as Spouse had a government pension coming if he lived long enough - something that wasn't for certain after he had a moderately severe stroke at age 50 - but he fought thru it and recovered, was back at work in 2 months and worked until he was 57 when he was eligible for full benefit ER.

As his pension covers all our overhead costs in a HCOL area, any overhead costs plus discretionary expenses are paid by my much smaller pensions, my SS (Spouse falls under WEP so we will wait until he is 70 before applying), and a modest 3% distribution from the portfolio.

Overhead costs include a small new 1st mortgage taken out in Jan 2021 when interest rates were 2.75%, to free up some equity (our CFP firm agreed it was a good idea as a couple of large home maintenance projects are planned), plus all insurance including umbrella, quake, and individual LTCi policies. We have a specific savings account with auto monthly transfers going in, for property taxes which are paid 2x/yr.

"Discretionary" is my category for anything where we could easily cut back expenses, if necessary. Discretionary income covers food, dining out (major expense; it's my hobby), charity donations, and monthly transfers to an on-line savings acct that I use as an "extra" back-up in case of emergencies. The latter I raid once or twice a year so it stays below $3K for the most part - last time it was for a new Samsung laptop for Spouse.

He clings to his old tech stuff even when it barely works, so I considered it a major victory I managed to talk him into finally buying a new one...but of course, he still kept his old ASUS tablet (which he cusses at every day) as he can carry it around the house more easily, using wireless headphones as he listens to YouTube podcasts!

 

[SunGuy]

I account for investments first, 401k, Roth IRA, HSA, then split my expenses into each of my paychecks.

I have a cushion of cash that is always in my account, but I also like to still pay everything manually.

My first paycheck is the bulk of my fixed costs, rent, insurance, (cc mins if any), phone, internet, gas/car stuff

Second paycheck is incidentals, food.
Between the two net savings is around 30%-40%, gross is another 10%

 

[scrinch]

I would use money actually deposited in the bank as the numerator rather than savings account growth. Interest on savings will result in savings account growth even if you save nothing (or even if you overspend your income) with a high enough savings balance. Or calculate the numerator as Savings Account Growth - Interest Credited during the year.

 

[TheWizard]

I'm starting my eleventh year of retirement and have excess income each month due to a healthy pension/annuity plus SS claimed at 70.
I compute my annual savings AMOUNT each January by totalling up the amounts I transferred from checking to the settlement fund of my taxable investment account over the year.

It doesn't matter where the money came from to get into my checking account, it all contributes to my AGI for the year.

I don't explicitly compute percentages or try to divide my spending into basic expenses and discretionary ones.
I suppose that if my amounts going into my investment account started shrinking and getting close to zero for the year, that would be a sign that I'm spending too much and should cut back somewhere. But so far, that isn't happening...

 

[target2019]

There's never one number. People are too complicated to rest easy with one number.

Do it like the Feds.
1) Gross Income / Savings
2) Adjusted Gross Income / Savings
3) Taxable Income / Savings
...

I never calculated this number. Probably a shortcoming on my part.

 

[brett]

Our focus was not on percentage.

It was on the amount that we were able to save and our estimated cash requirement at early retirement net of other cash flows that we would have by that time.

And...the fact that saving became a habit. Ten years prior to retirement our after tax percentage of savings was huge. Much larger that it was when we were in our 30's.

Having a DB plan also impacted our rate of savings in terms of what we would need to augment our projected DB pensions, etc.