Keeping Track of My Personal Savings Rate

One thing that I didn’t do a good job of last year was keeping track of how much I was saving and spending month to month. Because of this, I was unable to determine my personal savings rate, or the percentage of income saved.

I am now outlining my budgeted expenditures in all of my net worth updates. And while, I don’t directly mention how much I save, I can extrapolate this number by looking at my goal progression.

In order to calculate my personal savings rate I take the following steps:

Calculate the amount of income saved
Determine total income earned
Divide income saved by total income

When I do this, I get a savings rate of approximately 45% of my gross income. This is for the first 2 months of 2017. This is quite a bit higher than I was expecting, but I did have three paychecks in January and received a tax return.

I live in a city with one of the highest costs of living in the nation. I make enough money to live comfortably, but I’m pretty far off from a six-figure salary. Given that I live by myself, due to my health condition, I’m pretty happy with this savings rate.

As a statistician, I like graphs, so I broke down my spending a bit further to better illustrate my savings and all other categorical expenditures. As you can see, most of my income goes towards taxes and deductions, rent, and my 401K contributions.

jan-feb-gross-savings

I know some calculate the personal savings rate based on net income, which is defined as gross income minus taxes. If I were to use net income my savings rate jumps to 60% so far in 2017.

Personally, it’s easier for me to use gross income. Additionally, since I will be paying taxes in retirement, it doesn’t really make sense to look back on net income statistics. For example, knowing that I saved 27% of my gross income towards retirement tells me I could most likely live comfortably on 75% of my current income in retirement, even if it’s taxed. The fact that I contribute to a Roth IRA should shelter me from some of the tax burden, but I’d rather overestimate the money I need as opposed to underestimate.