Calculating Personal Savings Rate
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Calculating Personal Savings Rate
Hi Bogleheads! I have a question about calculating personal savings rate. I'm just curious about how people do this...
I have 401k and H.S.A contributions that come out of my paycheck weekly.
I also have money that I randomly/occasionally move from my bank account into a brokerage account.
And a yearly Roth IRA contribution I make each year.
How would you calculate a personal savings rate based on this? I guess I'm trying to understand what would go into the numerator and denominator.
1. For example, would you include the 401k and H.S.A contributions into both the numerator and denominator?
2. Does it matter that some of my savings/contributions are pretax (401k, H.S.A) vs. post tax (Roth and brokerage contributions)?
3. Would you factor in your mortgage payments since technically you are reducing the principal owed and therefore owning more of your house which can be considered part of your net worth?
4. One of the biggest things that trips me up is the money I occasionally move from my bank account to my brokerage account; does all of the money here go into the numerator or the denominator or maybe only gets factored in when actually moving some of it into the brokerage account?
Thank you for any advice you can give!
I have 401k and H.S.A contributions that come out of my paycheck weekly.
I also have money that I randomly/occasionally move from my bank account into a brokerage account.
And a yearly Roth IRA contribution I make each year.
How would you calculate a personal savings rate based on this? I guess I'm trying to understand what would go into the numerator and denominator.
1. For example, would you include the 401k and H.S.A contributions into both the numerator and denominator?
2. Does it matter that some of my savings/contributions are pretax (401k, H.S.A) vs. post tax (Roth and brokerage contributions)?
3. Would you factor in your mortgage payments since technically you are reducing the principal owed and therefore owning more of your house which can be considered part of your net worth?
4. One of the biggest things that trips me up is the money I occasionally move from my bank account to my brokerage account; does all of the money here go into the numerator or the denominator or maybe only gets factored in when actually moving some of it into the brokerage account?
Thank you for any advice you can give!
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Re: Calculating Personal Savings Rate
I keep it simple. It's basically my monthly expenses divided by my "normal" net salary (i.e. when I'm done contributing 401K).
Mortgage payments would be part of my monthly expenses if I were paying them.
Mortgage payments would be part of my monthly expenses if I were paying them.
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Re: Calculating Personal Savings Rate
We just had a long post on this but I can't remember what the original question was and you'll get different answers
I simply add all my yearly savings by my gross income. I don't even use a calculator or pencil because it's not important to me (the exact percentage).
I saved 30k and made 67k, so I saved about 40%
I wouldn't count a mortgage on house I bought to live in but too each his own
I simply add all my yearly savings by my gross income. I don't even use a calculator or pencil because it's not important to me (the exact percentage).
I saved 30k and made 67k, so I saved about 40%
I wouldn't count a mortgage on house I bought to live in but too each his own
Re: Calculating Personal Savings Rate
OP,
Why are you calculating this number?
A) To compare with others?
B) To calculate how close are you to reach your financial goal?
(A) is totally pointless. Comparison is the theft of joy!
For (B), it should be based on your current annual expense? Is it 100%? 50%? What is your gross income?
KlangFool
Why are you calculating this number?
A) To compare with others?
B) To calculate how close are you to reach your financial goal?
(A) is totally pointless. Comparison is the theft of joy!
For (B), it should be based on your current annual expense? Is it 100%? 50%? What is your gross income?
KlangFool
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Re: Calculating Personal Savings Rate
Agreed - keeping track of metrics is great if there is a compelling reason to do so. Using a metric where savings relates to expenses either now or in a future plan makes a whole lot of sense.KlangFool wrote: ↑Sun May 28, 2023 12:44 pm OP,
Why are you calculating this number?
A) To compare with others?
B) To calculate how close are you to reach your financial goal?
(A) is totally pointless. Comparison is the theft of joy!
For (B), it should be based on your current annual expense? Is it 100%? 50%? What is your gross income?
KlangFool
Klang has a great metric and a good reason to track it.
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Re: Calculating Personal Savings Rate
Hi All, thank you for the replies! Yeah, really just curious. I had heard a podcast discussing this and was a little interested in it since I didn't know much about it.
Re: Calculating Personal Savings Rate
When I was saving I just maxed out whatever I could afford. I never thought in percentages. Roth was always first and ASAP. For a 401k or 357b I would divide it evenly across the first 10 months of the year if possible. If I needed cash I’d cut back saving. When I was able I would also build in taxable.harvestmoon wrote: ↑Sun May 28, 2023 12:29 pm Hi Bogleheads! I have a question about calculating personal savings rate. I'm just curious about how people do this…
Empire builder planning tactics can be tempting. Probably fine for those making or imagining multi-millions.
Last edited by tetractys on Sun May 28, 2023 1:24 pm, edited 1 time in total.
Re: Calculating Personal Savings Rate
You can safely ignore anyone that recommend calculating saving rate based on income. That is a good test on whether the person provide useful information.harvestmoon wrote: ↑Sun May 28, 2023 1:08 pm Hi All, thank you for the replies! Yeah, really just curious. I had heard a podcast discussing this and was a little interested in it since I didn't know much about it.
KlangFool
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Re: Calculating Personal Savings Rate
I predict a sequel! viewtopic.php?p=7271689
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Re: Calculating Personal Savings Rate
This is all very helpful, I appreciate all of the replies. Admittedly, I am not super savvy when it comes to investing or knowing the best metrics to track.
Re: Calculating Personal Savings Rate
The best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.harvestmoon wrote: ↑Sun May 28, 2023 2:03 pm This is all very helpful, I appreciate all of the replies. Admittedly, I am not super savvy when it comes to investing or knowing the best metrics to track.
KlangFool
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Re: Calculating Personal Savings Rate
Are there any specific metrics you suggest tracking for personal finance? I've read so many articles online about what I should be tracking that it can get a bit overwhelming.KlangFool wrote: ↑Sun May 28, 2023 2:15 pmThe best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.harvestmoon wrote: ↑Sun May 28, 2023 2:03 pm This is all very helpful, I appreciate all of the replies. Admittedly, I am not super savvy when it comes to investing or knowing the best metrics to track.
KlangFool
Re: Calculating Personal Savings Rate
Ratio of your retirement targeted savings to your expenses.harvestmoon wrote: ↑Mon May 29, 2023 10:20 amAre there any specific metrics you suggest tracking for personal finance? I've read so many articles online about what I should be tracking that it can get a bit overwhelming.KlangFool wrote: ↑Sun May 28, 2023 2:15 pmThe best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.harvestmoon wrote: ↑Sun May 28, 2023 2:03 pm This is all very helpful, I appreciate all of the replies. Admittedly, I am not super savvy when it comes to investing or knowing the best metrics to track.
KlangFool
Practically everything talked about here can be broken down into that framework as a detail.
For example, this question "Personal Savings Rate" to me; is income - expenses. Said another way, it is how much you are adding to your savings.
Klang is right on the money as usual. Within this framework you want to measure things than can be measured, can be changed, and have impact.
For example, you might want to be aware if when you retire you will stop getting job subsidized health insurance and will start needing to pay 30K in marketplace. That would be a big change to most people expenses. If you know this will be applicable to your situation, you may want to use that as your expense number rather than your current numbers.
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Re: Calculating Personal Savings Rate
Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
529 seems like a wash - did not include.
Re: Calculating Personal Savings Rate
harvestmoon,harvestmoon wrote: ↑Mon May 29, 2023 10:20 amAre there any specific metrics you suggest tracking for personal finance? I've read so many articles online about what I should be tracking that it can get a bit overwhelming.KlangFool wrote: ↑Sun May 28, 2023 2:15 pmThe best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.harvestmoon wrote: ↑Sun May 28, 2023 2:03 pm This is all very helpful, I appreciate all of the replies. Admittedly, I am not super savvy when it comes to investing or knowing the best metrics to track.
KlangFool
1) What is your gross income?
2) What is your annual savings/investment? (S)
3) What is your current annual expense? (E)
4) What is your current portfolio size in terms of your your annual expense? 1X? 2X? 3X?
5) What is your annual savings/investment in terms of your current annual expense?
6) When do you plan to retire?
7) Based on all the numbers collected, assuming a range of return rate (5% to 10%), can you reach your goal as per (6)?
8) Gross income = annual savings + annual expense + taxes. Use this formula to verify your annual savings and expense.
This is very simple. You are only tracking 4 to 5 numbers.
KlangFool
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Re: Calculating Personal Savings Rate
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.JayhawkGolfer wrote: ↑Mon May 29, 2023 10:58 am Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
B) 401K match and HSA contribution are savings.
C) Mortgage payment including principal are not saving.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Calculating Personal Savings Rate
Whatever makes sense to you, just keep it consistent to compare year on year. We happened to notice one year that our taxes and spending were about the same and our savings were twice that, so we tracked that ratio for awhile.
If you are trying to follow someone's guidelines, you will need to follow their method for the calculations.
If you are trying to follow someone's guidelines, you will need to follow their method for the calculations.
Re: Calculating Personal Savings Rate
"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."KlangFool wrote: ↑Mon May 29, 2023 11:14 amA) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.JayhawkGolfer wrote: ↑Mon May 29, 2023 10:58 am Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
B) 401K match and HSA contribution are savings.
C) Mortgage payment including principal are not saving.
KlangFool
It may be possible for some people to lessen taxes but saying that taxes can generally be avoided/eliminated is not good advice.
"C) Mortgage payment including principal are not saving."
If mortgage principal is not savings, then what is it categorized as?
Re: Calculating Personal Savings Rate
smitcat,smitcat wrote: ↑Mon May 29, 2023 11:28 am"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."KlangFool wrote: ↑Mon May 29, 2023 11:14 amA) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.JayhawkGolfer wrote: ↑Mon May 29, 2023 10:58 am Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
B) 401K match and HSA contribution are savings.
C) Mortgage payment including principal are not saving.
KlangFool
It may be possible for some people to lessen taxes but saying that taxes can generally be avoided/eliminated is not good advice.
"C) Mortgage payment including principal are not saving."
If mortgage principal is not savings, then what is it categorized as?
A) In general, folks do not have pension or retired expense at 100K or above.
C) It is an expense.
KlangFool
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Re: Calculating Personal Savings Rate
"A) In general, folks do not have pension or retired expense at 100K or above."KlangFool wrote: ↑Mon May 29, 2023 11:30 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:28 am"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."KlangFool wrote: ↑Mon May 29, 2023 11:14 amA) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.JayhawkGolfer wrote: ↑Mon May 29, 2023 10:58 am Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
B) 401K match and HSA contribution are savings.
C) Mortgage payment including principal are not saving.
KlangFool
It may be possible for some people to lessen taxes but saying that taxes can generally be avoided/eliminated is not good advice.
"C) Mortgage payment including principal are not saving."
If mortgage principal is not savings, then what is it categorized as?
A) In general, folks do not have pension or retired expense at 100K or above.
C) It is an expense.
KlangFool
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
Re: Calculating Personal Savings Rate
For a given period, e.g., a calendar year,
a) income during the period
b) net worth = asset - debt (n1: beginning and n2:ending)
c) spending (voluntary, and involuntary such as taxes)
d) investment gain/loss
a = (b2-b1) - d + c + Saving
a) income during the period
b) net worth = asset - debt (n1: beginning and n2:ending)
c) spending (voluntary, and involuntary such as taxes)
d) investment gain/loss
a = (b2-b1) - d + c + Saving
Re: Calculating Personal Savings Rate
smitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
And, the lesson will be taught to those that treat the mortgage principal payment as savings in the coming recession.
KlangFool
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Re: Calculating Personal Savings Rate
You have not answered any of the questions...KlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
- how do expenses determine taxes in retirement?
- how will you 'eliminate' taxes in retirement?
- how does a home value go to zero over 20-30 years?
- do you value gold but not housing?
- why will you not sell your home now as you continue predicting a housing crash and rents are lower than owning?
PS - we have owned a number of homes over many year's and they all made out pretty well.
Re: Calculating Personal Savings Rate
All the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
Re: Calculating Personal Savings Rate
Do you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
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Re: Calculating Personal Savings Rate
No end to the screwed "math." Hope mathematicians do not smack me for help molesting good word "math.,"KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
Sadly, some people lack a basic concept. Money flowing out of your control is a saving if it is for future benefit. If not, it is spending.
Re: Calculating Personal Savings Rate
In personal finance journey, Total Savings or Net Worth tells how many resources you could put to use. Its difficult to forecast how life will be 20 or 30 or even more years in the future. But for sure you will be able to utilize all your net worth to use as necessary. e.g. some may need more housing in the future. Some may choose to down size to save on housing costs. Or someone may need more medical care. Someone may need to spend more to care for dependents. Who knows really? But the net worth will be what will allow you to do that.
It also tells you how far you have come and how much further you need to go in terms of financial security. This is done in terms of multiples of your yearly expenses required in the future when you are no longer earning salary. For a decent financial security a 25x multiple is recommended. So for example you may be just starting out, you don't have any savings or very little savings (less than 1x perhaps) at that point 25x seems so far away. And you don't know on a year to year basis how you are doing.
Calculating your Savings Rate tells you that. It tells you how fast you are adding to your pile. And on a year to year basis you can compare how you are doing. It also lets you compare your progress irrespective of market returns. e.g. last year everything went down. so net worth declined for many people. But savings rate did not need to change just because market tanked. So it is better to focus on savings rate because thats the only thing you can control.
Keeping a steady savings rate is useful as you update your lifestyle as you earn more. Personally I don't want to leave all spending to years in the future. I want to spend some today also. Focusing on Savings Rate allows me to do that. But for that purpose understanding what is savings is crucial.
So two concepts of Savings Rate and Savings Multiple are both very extremely useful for me today. Mid-career and and still years away from FI.
If you take a 401k loan then the loan amount needs to be subtracted from the savings in numerator.
Basically to calculate savings you just add whatever went into accounts and subtract what was taken out of the accounts.
It also tells you how far you have come and how much further you need to go in terms of financial security. This is done in terms of multiples of your yearly expenses required in the future when you are no longer earning salary. For a decent financial security a 25x multiple is recommended. So for example you may be just starting out, you don't have any savings or very little savings (less than 1x perhaps) at that point 25x seems so far away. And you don't know on a year to year basis how you are doing.
Calculating your Savings Rate tells you that. It tells you how fast you are adding to your pile. And on a year to year basis you can compare how you are doing. It also lets you compare your progress irrespective of market returns. e.g. last year everything went down. so net worth declined for many people. But savings rate did not need to change just because market tanked. So it is better to focus on savings rate because thats the only thing you can control.
Keeping a steady savings rate is useful as you update your lifestyle as you earn more. Personally I don't want to leave all spending to years in the future. I want to spend some today also. Focusing on Savings Rate allows me to do that. But for that purpose understanding what is savings is crucial.
So two concepts of Savings Rate and Savings Multiple are both very extremely useful for me today. Mid-career and and still years away from FI.
I include self contributions + company contributions in both numerator and denominator for 401k and HSA. And I calculate saving rate in terms of pretax amounts only. e.g savings rate = savings/(salary + company contributions). But to calculate savings multiple i discount the pre-tax portion by my future tax rate (20% for federal+state). The future tax rate is just an educated guess.harvestmoon wrote: ↑Sun May 28, 2023 12:29 pm 1. For example, would you include the 401k and H.S.A contributions into both the numerator and denominator?
2. Does it matter that some of my savings/contributions are pretax (401k, H.S.A) vs. post tax (Roth and brokerage contributions)?
If you take a 401k loan then the loan amount needs to be subtracted from the savings in numerator.
For calculation of savings rate, i do it on an yearly basis. And savings is the sum of all the money that went into brokerage, 401k, HSA, 529 and all the principal reduction for all loans (i.e. mortgage and also credit cards). If principal reduced then it is savings and if principal increased it is negative savings and needs to be subtracted from the savings in the numerator. I also use how much the bank accounts changed in the year. add the increase in bank accounts to savings in numerator and subtract from savings in numerator if bank accounts decreased.harvestmoon wrote: ↑Sun May 28, 2023 12:29 pm 3. Would you factor in your mortgage payments since technically you are reducing the principal owed and therefore owning more of your house which can be considered part of your net worth?
4. One of the biggest things that trips me up is the money I occasionally move from my bank account to my brokerage account; does all of the money here go into the numerator or the denominator or maybe only gets factored in when actually moving some of it into the brokerage account?
Basically to calculate savings you just add whatever went into accounts and subtract what was taken out of the accounts.
superstition: belief that market will one day come around to your concept of fair value
Re: Calculating Personal Savings Rate
If taxes can be avoided, eliminated, or minimized then they are an expense you’re managing.KlangFool wrote: ↑Mon May 29, 2023 11:14 amA) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.JayhawkGolfer wrote: ↑Mon May 29, 2023 10:58 am Interesting calculation - if we take out my 401K match, HSA contributions, and taxes, my annual savings is equal to my annual spend. If I add back in the taxes as a spend, and the HSA and 401K match as savings, my savings/spend ratio drops to 46/54.
529 seems like a wash - did not include.
B) 401K match and HSA contribution are savings.
C) Mortgage payment including principal are not saving.
KlangFool
- Hacksawdave
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Re: Calculating Personal Savings Rate
If the goal to say, “I saved 15 percent like everyone recommends” then it has some meaning, unless the percent amount equation to reach the end goal is higher than the 15 percent being put into savings. When I was much younger it was just a mere ‘feel good’ that I ‘seemed’ to be saving more than ‘average’ did.
When I implemented the 15-year plan to retire at 50, the percent saved metric didn’t matter anymore. After 15 years that plan was scrapped as even though I made the Dollar amount goal, the landscape changed so much and no retiring at 50.
Never limit how much you want to save. I have never heard of anyone saying “I regret having saved so much for my financial independence and retirement.”
When I implemented the 15-year plan to retire at 50, the percent saved metric didn’t matter anymore. After 15 years that plan was scrapped as even though I made the Dollar amount goal, the landscape changed so much and no retiring at 50.
Never limit how much you want to save. I have never heard of anyone saying “I regret having saved so much for my financial independence and retirement.”
Re: Calculating Personal Savings Rate
Hacksawdave,Hacksawdave wrote: ↑Mon May 29, 2023 2:42 pm
If the goal to say, “I saved 15 percent like everyone recommends”
Except that we know the recommendation is bad. Since almost everybody is in financial trouble. Hence, their recommendation has to be bad.
KlangFool
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Re: Calculating Personal Savings Rate
When I started out, somebody recommended saving a minimum of 15% of my salary, but I ignored it. When I look back, 15% was a good default target or maxing out 401k contribution, whichever greater. It was not easy to hit the target without sacrifice in those days even with earnings above the maximum SS wages. I had to play a catchup game later. With increased earnings and many years of aggressive savings, savings percentage is meaningless and now I have to face RMD, taxes and surcharges.Hacksawdave wrote: ↑Mon May 29, 2023 2:42 pm If the goal to say, “I saved 15 percent like everyone recommends” then it has some meaning, unless the percent amount equation to reach the end goal is higher than the 15 percent being put into savings. When I was much younger it was just a mere ‘feel good’ that I ‘seemed’ to be saving more than ‘average’ did.
When I implemented the 15-year plan to retire at 50, the percent saved metric didn’t matter anymore. After 15 years that plan was scrapped as even though I made the Dollar amount goal, the landscape changed so much and no retiring at 50.
Never limit how much you want to save. I have never heard of anyone saying “I regret having saved so much for my financial independence and retirement.”
Any way, a savings goal of 15% is a good goal post. As a reference, SS tax is 2x6.3%. How much would be the SS benefit at FRA after 35 years of max SS contributions in the absence of the benefit bend points?
Re: Calculating Personal Savings Rate
KlangFool - your home is now paid off, how do you count the asset?KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
Re: Calculating Personal Savings Rate
I do not count/measure asset. I only care about my portfolio value.smitcat wrote: ↑Tue May 30, 2023 7:58 amKlangFool - your home is now paid off, how do you count the asset?KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
KlangFool
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Re: Calculating Personal Savings Rate
Your expenses have gone down.smitcat wrote: ↑Tue May 30, 2023 7:58 amKlangFool - your home is now paid off, how do you count the asset?KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
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Re: Calculating Personal Savings Rate
Let’s say you paid $50,000 in principal over a few years. That coming recession hits and you’re underwater. Do you owe the bank the same amount as if you didn’t pay the $50,000 in principal? Obviously not.KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.8301 wrote: ↑Mon May 29, 2023 11:47 amAll the money we put into VTSAX or AAPL may disappear in an economic disaster. So buying VTSAX or any financial instrument is not saving, but spending. QEDKlangFool wrote: ↑Mon May 29, 2023 11:41 amsmitcat,smitcat wrote: ↑Mon May 29, 2023 11:34 am
"A) In general, folks do not have pension or retired expense at 100K or above."
Pensions have nothing to do with it.
Please describe how you will avoid all taxes yourself?
"C) It is an expense."
Completely disregarding the asset as if you were renting?
How accurate/valuable would that metric be?
C) Very useful and valuable in a housing crash/recession. The home equity disappear.
KlangFool
Spend, spend, spend.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
You’re making it sound like having home equity isn’t an asset. Home equity provides more options, such as downsizing in retirement and using the proceeds to increase your portfolio size.
Or in the case of being underwater and having to liquidate from your portfolio, in the above example that’s $50k less you need to liquidate.
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Re: Calculating Personal Savings Rate
You don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
I’m not meaning to derail. Savings rate as a measure of future expected annual expenses is the most meaningful metric towards financial independence.
Savings rate as a measure of gross income still provides value but is more of a feel good metric if it’s not anchored to a goal.
Re: Calculating Personal Savings Rate
You now own the home - your rule is to rent when the numbers favor that.KlangFool wrote: ↑Tue May 30, 2023 8:26 amI do not count/measure asset. I only care about my portfolio value.smitcat wrote: ↑Tue May 30, 2023 7:58 amKlangFool - your home is now paid off, how do you count the asset?KlangFool wrote: ↑Mon May 29, 2023 12:16 pmDo you have to pay the bank in order to sell VTSAX or AAPL? No. But, for an underwater house, you may have to pay the bank in order to sell the house.
So, the mortgage principal is not the same as VTSAX or AAPL.
KlangFool
KlangFool
Why not sell now and rent per your own rule?
Re: Calculating Personal Savings Rate
Kaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 8:57 amYou don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
Do you count how many coins is in your house? Obviously, you have coins in your house. But, you do not count them because they do not matter to you.
The house is not part of my portfolio.
KlangFool
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Re: Calculating Personal Savings Rate
Kaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 8:48 am
Or in the case of being underwater and having to liquidate from your portfolio, in the above example that’s $50k less you need to liquidate.
You have 50K in home equity and 450K mortgage. Both the house and the stock market drops 50%.
A) The house is worth only 250K. You have to pay the bank 200K in order to sell the house. How does the 50K "savings" in the home equity really helps you.
B) Versus, you have 50K in VTSAX that is only worth 25K now. It helps you to pay the mortgage for 3 more months.
If you have more money in your portfolio, you do not need to sell the house immediately.
KlangFool
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Re: Calculating Personal Savings Rate
The reason I don’t count how many coins are in my house is because all the coins add up to an insignificant amount, less than $10.00, which agreed, does not matter to me. If I had $10.00 in home equity, I also wouldn’t count that.KlangFool wrote: ↑Tue May 30, 2023 9:08 amKaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 8:57 amYou don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
Do you count how many coins is in your house? Obviously, you have coins in your house. But, you do not count them because they do not matter to you.
The house is not part of my portfolio.
KlangFool
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
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Re: Calculating Personal Savings Rate
Correct, which is why you count your paid off mortgage as a reduction in future expenses, not as a an increase in current savings. If I am planning to retire with a million dollar house and no mortgage, I may have $5,000 less in housing expense every month than I currently have. What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.Kaizen Soze wrote: ↑Tue May 30, 2023 8:57 amYou don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
I’m not meaning to derail. Savings rate as a measure of future expected annual expenses is the most meaningful metric towards financial independence. Savings rate as a measure of gross income still provides value but is more of a feel good metric if it’s not anchored to a goal.
And while I recognize there are ways you can use your home equity as savings, like downsizing in retirement, a reverse mortgage, or selling the house and renting, I don't want to be forced to leave my home because I didn't save enough in my portfolio.
Re: Calculating Personal Savings Rate
Kaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 9:28 amThe reason I don’t count how many coins are in my house is because all the coins add up to an insignificant amount, less than $10.00, which agreed, does not matter to me. If I had $10.00 in home equity, I also wouldn’t count that.KlangFool wrote: ↑Tue May 30, 2023 9:08 amKaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 8:57 amYou don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
Do you count how many coins is in your house? Obviously, you have coins in your house. But, you do not count them because they do not matter to you.
The house is not part of my portfolio.
KlangFool
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
You count whatever you considered as significant to you. I do not consider my house as significant. Hence, I do not count them.
To each its own. You do you.
KlangFool
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Re: Calculating Personal Savings Rate
toddthebod wrote: ↑Tue May 30, 2023 9:30 am What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.
That’s exactly what you have.
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Re: Calculating Personal Savings Rate
"You count whatever you considered as significant to you"KlangFool wrote: ↑Tue May 30, 2023 9:33 amKaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 9:28 amThe reason I don’t count how many coins are in my house is because all the coins add up to an insignificant amount, less than $10.00, which agreed, does not matter to me. If I had $10.00 in home equity, I also wouldn’t count that.KlangFool wrote: ↑Tue May 30, 2023 9:08 amKaizen Soze,Kaizen Soze wrote: ↑Tue May 30, 2023 8:57 amYou don’t have assets in your portfolio?KlangFool wrote: ↑Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.
KlangFool
Do you count how many coins is in your house? Obviously, you have coins in your house. But, you do not count them because they do not matter to you.
The house is not part of my portfolio.
KlangFool
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
You count whatever you considered as significant to you. I do not consider my house as significant. Hence, I do not count them.
To each its own. You do you.
KlangFool
Interesting - but you do count 1.5% of emerging markets as significant.
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Re: Calculating Personal Savings Rate
When your neighbor sells their house for a lot of money, do you think, "yay, I saved an extra $100,000 this year?" If not, what's the difference between that and a principal payment?pizzy wrote: ↑Tue May 30, 2023 9:37 amtoddthebod wrote: ↑Tue May 30, 2023 9:30 am What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.That’s exactly what you have.
But seriously, I do not want to be forced to sell my home or take out a reverse mortgage in order to pay for food. I count housing on the expenses side of the equation, not the savings side. If I never move or refinance again, my expenses will go down when I'm 75. That's the value in a paid off house.
Re: Calculating Personal Savings Rate
I have no problem with you pretending an asset doesn’t exist.toddthebod wrote: ↑Tue May 30, 2023 9:46 amWhen your neighbor sells their house for a lot of money, do you think, "yay, I saved an extra $100,000 this year?" If not, what's the difference between that and a principal payment?pizzy wrote: ↑Tue May 30, 2023 9:37 amtoddthebod wrote: ↑Tue May 30, 2023 9:30 am What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.That’s exactly what you have.
But seriously, I do not want to be forced to sell my home or take out a reverse mortgage in order to pay for food. I count housing on the expenses side of the equation, not the savings side. If I never move or refinance again, my expenses will go down when I'm 75. That's the value in a paid off house.
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Re: Calculating Personal Savings Rate
What an interesting thread it was!! I still don't know if paying debt is a saving. Do you?
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Re: Calculating Personal Savings Rate
I'm not pretending it doesn't exist. It exists and has a very real, quantifiable value to me. That value is in the housing it provides for which I currently pay the bank $3,000/month.pizzy wrote: ↑Tue May 30, 2023 9:50 amI have no problem with you pretending an asset doesn’t exist.toddthebod wrote: ↑Tue May 30, 2023 9:46 amWhen your neighbor sells their house for a lot of money, do you think, "yay, I saved an extra $100,000 this year?" If not, what's the difference between that and a principal payment?pizzy wrote: ↑Tue May 30, 2023 9:37 amtoddthebod wrote: ↑Tue May 30, 2023 9:30 am What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.That’s exactly what you have.
But seriously, I do not want to be forced to sell my home or take out a reverse mortgage in order to pay for food. I count housing on the expenses side of the equation, not the savings side. If I never move or refinance again, my expenses will go down when I'm 75. That's the value in a paid off house.
Re: Calculating Personal Savings Rate
What about the asset itself? Do you value it as $0?toddthebod wrote: ↑Tue May 30, 2023 9:55 amI'm not pretending it doesn't exist. It exists and has a very real, quantifiable value to me. That value is in the housing it provides for which I currently pay the bank $3,000/month.pizzy wrote: ↑Tue May 30, 2023 9:50 amI have no problem with you pretending an asset doesn’t exist.toddthebod wrote: ↑Tue May 30, 2023 9:46 amWhen your neighbor sells their house for a lot of money, do you think, "yay, I saved an extra $100,000 this year?" If not, what's the difference between that and a principal payment?pizzy wrote: ↑Tue May 30, 2023 9:37 amtoddthebod wrote: ↑Tue May 30, 2023 9:30 am What I decidedly don't have is an asset I can withdraw $40,000 from every year to live on.That’s exactly what you have.
But seriously, I do not want to be forced to sell my home or take out a reverse mortgage in order to pay for food. I count housing on the expenses side of the equation, not the savings side. If I never move or refinance again, my expenses will go down when I'm 75. That's the value in a paid off house.
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