Calculating Personal Savings Rate

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Calculating Personal Savings Rate

Post by harvestmoon »

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!
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Calculating Personal Savings Rate

Post by Marseille07 »

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.
Johm221122
Posts: 6372
Joined: Fri May 13, 2011 6:27 pm

Re: Calculating Personal Savings Rate

Post by Johm221122 »

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
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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
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
runner3081
Posts: 5978
Joined: Mon Aug 22, 2016 3:22 pm

Re: Calculating Personal Savings Rate

Post by runner3081 »

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?
KlangFool
Maybe because he is just curious? Not everything in life needs a reason!
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

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
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.
Klang has a great metric and a good reason to track it.
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Re: Calculating Personal Savings Rate

Post by harvestmoon »

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.
User avatar
tetractys
Posts: 6194
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

Re: Calculating Personal Savings Rate

Post by tetractys »

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…
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.

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.
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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.
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.

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
toddthebod
Posts: 5600
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating Personal Savings Rate

Post by toddthebod »

I predict a sequel! viewtopic.php?p=7271689
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Re: Calculating Personal Savings Rate

Post by harvestmoon »

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
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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.
The best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.

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
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Re: Calculating Personal Savings Rate

Post by harvestmoon »

KlangFool wrote: Sun May 28, 2023 2:15 pm
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.
The best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.

KlangFool
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.
Juice3
Posts: 531
Joined: Sun Nov 05, 2017 6:40 am
Location: Auburn, CA

Re: Calculating Personal Savings Rate

Post by Juice3 »

harvestmoon wrote: Mon May 29, 2023 10:20 am
KlangFool wrote: Sun May 28, 2023 2:15 pm
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.
The best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.

KlangFool
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.
Ratio of your retirement targeted savings to your expenses.

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.
JayhawkGolfer
Posts: 79
Joined: Sun Jul 12, 2020 8:17 pm

Re: Calculating Personal Savings Rate

Post by JayhawkGolfer »

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.
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

harvestmoon wrote: Mon May 29, 2023 10:20 am
KlangFool wrote: Sun May 28, 2023 2:15 pm
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.
The best metric is something that measure what you are trying to achieve. Anything else is pointless. So, you should start with your goal.

KlangFool
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.
harvestmoon,

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
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
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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.
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.

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
sailaway
Posts: 8188
Joined: Fri May 12, 2017 1:11 pm

Re: Calculating Personal Savings Rate

Post by sailaway »

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.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Mon May 29, 2023 11:14 am
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.
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.

B) 401K match and HSA contribution are savings.

C) Mortgage payment including principal are not saving.

KlangFool
"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."
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?
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

smitcat wrote: Mon May 29, 2023 11:28 am
KlangFool wrote: Mon May 29, 2023 11:14 am
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.
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.

B) 401K match and HSA contribution are savings.

C) Mortgage payment including principal are not saving.

KlangFool
"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."
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?
smitcat,

A) In general, folks do not have pension or retired expense at 100K or above.

C) It is an expense.

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
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Mon May 29, 2023 11:30 am
smitcat wrote: Mon May 29, 2023 11:28 am
KlangFool wrote: Mon May 29, 2023 11:14 am
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.
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.

B) 401K match and HSA contribution are savings.

C) Mortgage payment including principal are not saving.

KlangFool
"A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired."
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?
smitcat,

A) In general, folks do not have pension or retired expense at 100K or above.

C) It is an expense.
KlangFool
"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?
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: Calculating Personal Savings Rate

Post by 8301 »

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
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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?
smitcat,

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
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
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
You have not answered any of the questions...
- 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.
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: Calculating Personal Savings Rate

Post by 8301 »

KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

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
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: Calculating Personal Savings Rate

Post by 8301 »

KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
No end to the screwed "math." Hope mathematicians do not smack me for help molesting good word "math.,"

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.
User avatar
SB1234
Posts: 1089
Joined: Sat Mar 10, 2018 6:41 pm
Location: Laniakea

Re: Calculating Personal Savings Rate

Post by SB1234 »

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.
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)?
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.
If you take a 401k loan then the loan amount needs to be subtracted from the savings in numerator.
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?
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.

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
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: Calculating Personal Savings Rate

Post by Jags4186 »

KlangFool wrote: Mon May 29, 2023 11:14 am
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.
A) Taxes are not expense. You can avoid/eliminate/minimize it when you are retired.

B) 401K match and HSA contribution are savings.

C) Mortgage payment including principal are not saving.

KlangFool
If taxes can be avoided, eliminated, or minimized then they are an expense you’re managing.
User avatar
Hacksawdave
Posts: 784
Joined: Tue Feb 14, 2023 4:44 pm

Re: Calculating Personal Savings Rate

Post by Hacksawdave »

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.”
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

Hacksawdave wrote: Mon May 29, 2023 2:42 pm
If the goal to say, “I saved 15 percent like everyone recommends”
Hacksawdave,

Except that we know the recommendation is bad. Since almost everybody is in financial trouble. Hence, their recommendation has to be bad.

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
8301
Posts: 942
Joined: Thu Dec 22, 2022 1:52 pm

Re: Calculating Personal Savings Rate

Post by 8301 »

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.”
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.

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?
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
KlangFool - your home is now paid off, how do you count the asset?
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

smitcat wrote: Tue May 30, 2023 7:58 am
KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
KlangFool - your home is now paid off, how do you count the asset?
I do not count/measure asset. I only care about my portfolio value.

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
toddthebod
Posts: 5600
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating Personal Savings Rate

Post by toddthebod »

smitcat wrote: Tue May 30, 2023 7:58 am
KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
KlangFool - your home is now paid off, how do you count the asset?
Your expenses have gone down.
Kaizen Soze
Posts: 351
Joined: Thu Apr 11, 2019 1:47 pm

Re: Calculating Personal Savings Rate

Post by Kaizen Soze »

KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am
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?
smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
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.
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.
Kaizen Soze
Posts: 351
Joined: Thu Apr 11, 2019 1:47 pm

Re: Calculating Personal Savings Rate

Post by Kaizen Soze »

KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?

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.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Tue May 30, 2023 8:26 am
smitcat wrote: Tue May 30, 2023 7:58 am
KlangFool wrote: Mon May 29, 2023 12:16 pm
8301 wrote: Mon May 29, 2023 11:47 am
KlangFool wrote: Mon May 29, 2023 11:41 am

smitcat,

C) Very useful and valuable in a housing crash/recession. The home equity disappear.

KlangFool
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. QED :beer
Spend, spend, spend.
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.

So, the mortgage principal is not the same as VTSAX or AAPL.

KlangFool
KlangFool - your home is now paid off, how do you count the asset?
I do not count/measure asset. I only care about my portfolio value.

KlangFool
You now own the home - your rule is to rent when the numbers favor that.
Why not sell now and rent per your own rule?
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

Kaizen Soze wrote: Tue May 30, 2023 8:57 am
KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?
Kaizen Soze,

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
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
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

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.
Kaizen Soze,

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
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
Kaizen Soze
Posts: 351
Joined: Thu Apr 11, 2019 1:47 pm

Re: Calculating Personal Savings Rate

Post by Kaizen Soze »

KlangFool wrote: Tue May 30, 2023 9:08 am
Kaizen Soze wrote: Tue May 30, 2023 8:57 am
KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?
Kaizen Soze,

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
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.
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
toddthebod
Posts: 5600
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating Personal Savings Rate

Post by toddthebod »

Kaizen Soze wrote: Tue May 30, 2023 8:57 am
KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?

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.
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.

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.
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Calculating Personal Savings Rate

Post by KlangFool »

Kaizen Soze wrote: Tue May 30, 2023 9:28 am
KlangFool wrote: Tue May 30, 2023 9:08 am
Kaizen Soze wrote: Tue May 30, 2023 8:57 am
KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?
Kaizen Soze,

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
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.
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
Kaizen Soze,

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
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
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: Calculating Personal Savings Rate

Post by pizzy »

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.
toddthebod wrote: Tue May 30, 2023 9:30 am a reverse mortgage
That’s exactly what you have.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Calculating Personal Savings Rate

Post by smitcat »

KlangFool wrote: Tue May 30, 2023 9:33 am
Kaizen Soze wrote: Tue May 30, 2023 9:28 am
KlangFool wrote: Tue May 30, 2023 9:08 am
Kaizen Soze wrote: Tue May 30, 2023 8:57 am
KlangFool wrote: Tue May 30, 2023 8:26 am I do not count/measure asset. I only care about my portfolio value.

KlangFool
You don’t have assets in your portfolio?
Kaizen Soze,

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
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.
If I had $50,000 stuffed in my mattress, I’d certainly count it. You wouldn’t count a significant amount of cash?
Kaizen Soze,

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
"You count whatever you considered as significant to you"
Interesting - but you do count 1.5% of emerging markets as significant.
35% VWENX | 13.5% VFWAX/VTIAX | 12.5% VTSAX | 19% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 35% Wellington 45% 3-funds 20% Mini-Larry
toddthebod
Posts: 5600
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating Personal Savings Rate

Post by toddthebod »

pizzy wrote: Tue May 30, 2023 9:37 am
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.
toddthebod wrote: Tue May 30, 2023 9:30 am a reverse mortgage
That’s exactly what you have.
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?

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.
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: Calculating Personal Savings Rate

Post by pizzy »

toddthebod wrote: Tue May 30, 2023 9:46 am
pizzy wrote: Tue May 30, 2023 9:37 am
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.
toddthebod wrote: Tue May 30, 2023 9:30 am a reverse mortgage
That’s exactly what you have.
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?

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.
I have no problem with you pretending an asset doesn’t exist.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
YeWill
Posts: 83
Joined: Sat May 20, 2023 1:21 am

Re: Calculating Personal Savings Rate

Post by YeWill »

toddthebod wrote: Sun May 28, 2023 1:19 pm I predict a sequel! viewtopic.php?p=7271689
What an interesting thread it was!! I still don't know if paying debt is a saving. Do you?
toddthebod
Posts: 5600
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating Personal Savings Rate

Post by toddthebod »

pizzy wrote: Tue May 30, 2023 9:50 am
toddthebod wrote: Tue May 30, 2023 9:46 am
pizzy wrote: Tue May 30, 2023 9:37 am
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.
toddthebod wrote: Tue May 30, 2023 9:30 am a reverse mortgage
That’s exactly what you have.
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?

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.
I have no problem with you pretending an asset doesn’t exist.
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
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: Calculating Personal Savings Rate

Post by pizzy »

toddthebod wrote: Tue May 30, 2023 9:55 am
pizzy wrote: Tue May 30, 2023 9:50 am
toddthebod wrote: Tue May 30, 2023 9:46 am
pizzy wrote: Tue May 30, 2023 9:37 am
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.
toddthebod wrote: Tue May 30, 2023 9:30 am a reverse mortgage
That’s exactly what you have.
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?

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.
I have no problem with you pretending an asset doesn’t exist.
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.
What about the asset itself? Do you value it as $0?
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Post Reply