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Savings Rate: Focus On What You Can Control

Savings Rate: Focus on What Your Can Control

Market Returns.

Interest Rates.

My Hairline.

Everyday, we experience things that we have no control over. It doesn’t matter if it is related to our investments or lifestyle – things are going to occur that we have no to directly influence over. Instead, we set ourselves up as best we can but have to roll with what life hands us. The lack of control can be a bit defeating. So how do we get around this?

Focus on the things we can actually control.

You can’t control what the market does on any given day.  You can, however, control how much money you invest into it.

You can’t, after the fact, control how much money you borrowed.  But you can control how much you pay towards that debt each month.

So why should I focus my goals around something that I can’t control?

That is why I choose to focus on my savings rate. When it comes to growing wealth, it is one of the few things that each individual has control over.

How do you calculate your savings rate?

Everyone seems to have a slightly different way to calculate their savings rate.  Some calculate it off of gross wages. Some include debt payments. Others are only worried about money they actually invest each month.

While each method has its pros and cons, I calculate my savings rate in the following way:

Savings Rate = (All Savings – Including Debt Principal Repayment)/(Gross Wages – Taxes)

If you look at each individual component of a savings rate, there is very little that we can’t control.  We can’t control the fact that we have to pay taxes, but we can utilize strategies to lower how much we pay. I can determine how much I save into my 401k. I can control how much I spend each month on groceries or eating out.

Your savings rate is about making decisions on how put as much money to work for you as possible. And it all comes down to your decisions.

Why I Include Debt in My Savings Rate

When it comes to calculating your savings rate, one thing no one seems to agree on is if you should include debt or not.

Some people believe it doesn’t belong since you aren’t actually putting money aside. Others say it shouldn’t be there because it could encourage you to borrow more in the future since the principal payments will stay included in your savings rate, thus keeping your rate high (effectively masking your debt).

While both of these are good points, I don’t agree with them entirely.

Your savings rate is a tool to put as much of your money to work as efficiently as you can.

It doesn’t matter if that is putting money into an emergency fund, 401k or paying off your student loans. Setting a goal and calculating your rate each month is a form of motivation to continue putting a high percentage of your after-tax money to good use.

As I talked about above, one of the arguments against including your debt payments is that you may just borrow more in the future because paying back the money can keep your savings rate high, so in a way you are “hiding” the borrowing from yourself. In my opinion, people need to take responsibility at some point for their financial life. If they are going to look for ways to continue taking on debt to fund their lifestyle instead of saving and investing, then they really aren’t motivated to achieve financial freedom.

I believe that by including your debt in your savings rate it actually encourages saving more once the debt is paid off.

Imagine you are saving 55% of your after-tax money, with 15% of that being student loans. Once you pay the loans off, are you more likely to drop your rate to 40% or keep striving to hit a savings rate of 55%? If you made your savings rate the key item in your financial plan, I believe you will save more to continue to hit 55%.  It is like the Jerry Seinfeld chain method, once you begin racking up month after month of high savings rates, you aren’t going to want to see it drop significantly.

My Savings Rate

I don’t share a lot of numbers on the blog, but I believe that savings rate is one of the most important financial KPIs (key performance indicators) on your journey to financial freedom and a remarkable life.  Because of this, each month I am going to start sharing our savings rate from the month before and how we got there. Just like how many bloggers share their net worth and budgets, I think sharing real life information can help people get a handle on their own financial situation and help them realize that a lot of the things bloggers talk about are actually possible.

So far this year, we have been able to achieve a savings rate of 60.15%, with approximately 64% related to saving and investing, and 36% related to debt principal payoff.

Since our goal for the year was 50%, I am very happy with where we are at. This number is propped up a bit due to the fact that our company distributes profit sharing payments during the first quarter of the year and since we have implemented a cash priority plan, the extra money from these payments go straight towards our money goals.  I have seen our savings rate slowly come back decrease over the last couple months.  However, we have continued to hover around 50%, keeping that goal within reach for 2016!

Final Thoughts

When it comes to finance and investing, there are so many things that affect us that we have no control over. The market makes sure to remind us that we can’t predict what returns will be any given year. We have no control over when interest rates will rise or fall. The only thing that we are in control of is how much money we save and put towards improving our net worth each month.

So instead of worrying about how much the market needs to return this year, focus on increasing your savings rate as high as you can. There are so many things we can’t control in the world – it might be time to finally focus on something you can.

Do you track your savings rate? What financial metrics do you track?


  1. I track many things related to my personal finances, but believe it or not I’ve never calculated my savings rate. I have all they info to do so going back ten years so it might be interesting to take a look. What I’ve focused on instead is maximizing my investment contributions and set goals around that rather than a target savings rate, but they effectively do the same thing. Thanks for sharing!
    The Green Swan recently posted…My Actively Managed FundsMy Profile

    • Thias Thias

      Nice job! You are essentially maximizing your savings rate except concentrating on the dollar values instead. Any sort of goals that you can work towards are great motivators.

  2. I track my savings rate regularly and actually use our savings rate goal instead of a budget.

    I don’t include debt payoff, but agree with your point above – if you are going to invest/save the money after the debt is gone, using it in a savings rate calculation works

    Nice work! Even without counting your debt payoff you have a great savings rate!
    Apathy Ends recently posted…Real Costs of Poor PlanningMy Profile

    • Thias Thias

      Thanks AE! The best part is we are down to our mortgage now so a majority of our savings rate will be savings/investments moving forward!

  3. Great post, Thias! Great work on your savings rate this year!

    I have never really sat down and calculated my savings rate, which is funny since I track net worth and expenses religiously every single month. I did a quick calculation (though I know I’m missing some things, such a mortgage principal) and came up with 42% for the year so far. Not bad, but I’d like to do better.
    Amanda recently posted…Are you scared to invest? How to get past your fear and get startedMy Profile

    • Thias Thias

      That is a great number! Especially if you haven’t been using it as your motivation so far. Hopefully utilizing your savings rate can help you push that number up to where you would like it to be!

  4. Wow, 60%+ savings is an amazing savings rate! To be honest, I don’t track my savings rate on a monthly basis, but more so on an annual basis. I do agree that we need to focus on what we CAN control and not what we can’t control. I actually bring that concept into my work life, fitness, and relationships.

    • Thias Thias

      That is good that you track is on an annual basis. I like to do it monthly because it helps me make sure we are staying on track. I need to try and bring the concept more into my fitness. That area is lacking right now.

    • Thias Thias

      Good to hear Brian! I have found it very helpful in motivating me to keep up with our savings goals.

  5. I don’t generally calculate our savings rate much because so much of our money gets sucked away in [expletive]ing home repairs and medical expenses. Mainly the latter, but the former bugs me too. This year along, we’ll spend at least $2,000 on prescriptions. Not co-pays. Just medications.

    Anyway, I have done a year-in-financial-review post the last two years. So I guess I did it that way. I went based off gross savings, but I think I *will* do them after taxes this year. Because I pay a fair amount of FICA as an S-Corp in addition to regular taxes. I don’t think I’ll calculate mortgage payoff, which is our only debt at present. Or maybe I’ll offer it as a second perspective. You’ve definitely got good reasoning in that regard.
    Abigail @ipickuppennies recently posted…America’s (and my) financial anxietyMy Profile

    • Thias Thias

      Medical bills can be such a killer! I couldn’t imagine that much in just prescriptions.

      I like calculating my savings rate net of tax because unfortunately there is no getting around paying taxes so in theory there is only so much we can save. It is just important to find a system that works well for you!

  6. My savings rate is around 25% right now. It could be higher, but I like to keep a buffer in my checking account – so there’s extra money each month in there. I’d like to get to 50% (which was your goal as well). It seems like a healthy number to aspire to.
    Aliyyah @RichAndHappyBlog recently posted…Two Solid Reasons You Should Invest In StocksMy Profile

    • Thias Thias

      25% is a great number to be at, especially when you consider that most people would be lucky to be saving 10%! Good luck on increasing it!

  7. After reading your article and the comments, it appears I should be hopping aboard the savings rate tracking train, Thias. I like your rationale for including debt principal repayment. I know everyone won’t agree, but it makes perfect sense to me. Congratulations on maintaining a great savings rate, by the way.

    • Thias Thias

      Thanks! I have found it to be very motivating and if you start tracking yours, I hope it is for you too!

  8. Your title was really great and captures the essence of your article. I do not calculate my savings rate as I do not have a salary as yet. Once I graduate this is something I hope to track as I want to have 40% straight out the gate. I think your savings rate definition should be unique for your lifestyle, like many things in personal finance. I see nothing wrong with your calculation and wish you all the best. 60% is amazing and you sir are on the fast track to FIRE!
    Stefan – The Millennial Budget recently posted…Rationalizing the Price of RentMy Profile

  9. I’ve never considered a savings rate as you’ve described it, but I can agree that including debt would encourage you to continue living on the same amount after you pay off debt. That’s an awesome tactic to achieve financial independence!
    Latoya @ Life and a Budget recently posted…How to Earn Passive Income on EtsyMy Profile

    • Thias Thias

      Anything to provide a little extra motivation is okay in my book!

  10. IPD,

    Great article. I never thought of including normal principal debt reduction in the savings, interesting and I could agree, I typically am between 50-80% savings rate; but adding that in there will definitely pump that up. I highly encourage over 50%, no doubt and think if you can go higher, then do it. Control the things you can and do not stress/worry about the rest. Savings is the most critical and is controllable.

    Dividend Diplomats recently posted…Crushing $7,000 in Projected Dividend IncomeMy Profile

    • Thias Thias

      80% is huge Lanny! We have mainly been hanging out around 50-65% but would like to get it a bit higher in the future!

  11. Great post, and definitely something people should be more aware of. At the end of the day getting a return well above the market isn’t really that impressive if you have a misely savings ratio! Cranking it up to the maximum you can (or want to) afford is always going to bring financial independence that one step closer!
    Elliot @ Our Growing Wealth recently posted…Having a Joint Account.My Profile

    • Thias Thias

      Great point Elliot! If you don’t save any money, your return doesn’t mean as much!

  12. Great read and I absolutely agree that your savings rate is one of the factors you can control on your journey to financial freedom. As I often say, “it isn’t about how much you make, it’s about what you do with what you make.”

    The last time I ran the numbers, my savings rate was 32%.
    James recently posted…Education Department Recommends Killing Accreditor of For-profit CollegesMy Profile

    • Thias Thias

      Completely agree James!

  13. We include debt in our savings rate. If it’s not money that I cannot make passive income off of either in a bank or investment account, it doesn’t qualify as savings. Even if it might be paying the mortgage or student loans (“good debt”).
    Josh recently posted…Amish Money HacksMy Profile

    • Thias Thias

      Nice Josh – Just shows that everyone has their own definition and way to motivate themselves towards their goals!

  14. We haven’t calculated our savings rate before, but maybe we’ll start and use that as a goal. Like Abigail, much of our budget is eaten up by medical expenses ($6k last year in prescription costs, not that we’re competing!). To keep us on track, we measure our budget each month and our net worth every quarter. Congrats on your savings rate this year, it’s great that you are exceeding your goal!
    Gary @ Super Saving Tips recently posted…5 Life Lessons I Learned the Hard Way (So You Won’t Have To)My Profile

    • Thias Thias

      It makes it a bit more difficult when you have some big expenses like medical making a dent in your budget each month. Glad you found a system that works well for you!

  15. Such a great reminder! While we still track our net worth, of course, we shifted our mindset to focus most on what we can control during the volatile market period last summer, and it has really paid off. Now we know that we still had a good month even if the markets make it seem like a bad month — super relevant right now, with the market reactions to the Brexit vote! We could let ourselves get bummed that we just “lost” a lot of money, or we could remind ourselves that things will bounce back at some point, and high five ourselves for still having a good savings month. Great post!
    Our Next Life recently posted…What If the (Almost) Worst Happens?My Profile

    • Thias Thias

      Great point ONL! And the last thing people need to do is get down on themselves just because the market isn’t doing the best. You are in more control of your life when you concentrate on the things that you can actually effect!

  16. I really enjoyed this post Thias!
    Although I’m not currently saving much right now because of the unpredictable income, I completely agree with the (focus on what you can control) concept. I used a similar strategy in that I saved a set rate, paid my bills and then didn’t worry about the rest of the money. I started off saving a minimum of 10%, which went directly to investments. I then increased it in small increments that I was comfortable with up to an average of 35%. I never really saved less than that rate for years. That doesn’t include the debt repayment though. BTW, impressive savings rate. Thanks for sharing that formula!
    Graham @ Reverse the Crush recently posted…4 Reasons Why Online Surveys Are A Humongous Waste Of TimeMy Profile

    • Thias Thias

      Glad to see that strategy worked for you! The bigger idea is finding a strategy that works for you – it doesn’t matter what others use if it doesn’t fit your situation! Nice job Graham!

  17. Great point about not stressing over what we can’t control! We’ve been tracking our savings rate and are currently at 60% (not including our mortgage principal payment). Once (if) I go back to a full time job, and reduce daycare expenses, we will increase our savings to 75-80% and this will accelerate our FI date.
    Christina @ Raising Savers recently posted…How to Raise Smart Savers (in a World of Spenders)My Profile

    • Thias Thias

      That is a fantastic rate Christina! Keep it up and FI date won’t be too far away!

    • Thias Thias

      Glad it helps!

  18. Great work on maintaining your goal so far this year! I have to agree that it is a great KPI for your personal finances. I would have to agree that debt repayment can definitely be part of your savings rate – I think it would apply more so to a mortgage than say consumer debt.

    • Thias Thias

      Consumer debt is the tough one. I can see including it if you already had it and are trying to pay it off. It shouldn’t be included if you just continually take it out because then you aren’t really using your savings rate to make progress.

    • Thias Thias

      Thanks Rhonda!

  19. Wow, 60%+ savings is an amazing savings rate! I have a savings rate of 41% and this is hard. So 60%+ is really really great?

    Keeop up the good worh.
    Pollie recently posted…Month review – June 2016My Profile

    • Thias Thias

      Thanks Pollie! 41% is a great rate! It takes discipline but when you have good systems set up and figure out the things that are important to you, it makes saving high amounts a lot easier.

  20. Our savings rate is pretty substantial right now – we can save about 40-50% of our income each month. When I got laid off for a few months last year we really tightened our budget (while still fitting in fun) and we didn’t go back to spending when I did find a job. Now I’m saving 35% in my 401k to max it out this year and my wife is saving 15% of her income into her 401k. I’m hoping this can decrease our tax exposure this year 🙂

    • Thias Thias

      That is awesome Vic! My wife stayed home with our daughter for the last year and is going back part-time next month and we are hoping to do the same thing – Keep our spending exactly where it has been so we can save/invest the extra money!

  21. I love the mantra of focusing on what you can control! I do track my savings rate (26%), but I don’t include debt in it. If I did I’d only count the principal debt amount and not what I pay in interest. My number would jump to about 35% or so if I did that. Definitely room for improvement.

    Thanks for the post! It reminds me of this great quote: “There are three solutions to every problem: Accept it, Change it, or Leave it.  If you can’t accept it, change it.  If you can’t change it, leave it.
    Ty @ Get Rich Quickish recently posted…Okay, I’m ready to dieMy Profile

    • Thias Thias

      Love the quote Ty! And I agree on not including interest for sure. I’ve actually changed my definition a bit (which I talked about in my June Savings Rate Update) but now I only include extra money applied to principal, not the required payment amount. This way, I am only including the money I have the decision over how it is utilized.

  22. Great tips here. And good timing on finding this post, got cleaned out by an identity thief, so now we’re going to have to start ALL over…….fun, fun. But we’ve definitely made some changes on who we bank with and how much money is all in one place. Good thing is, he gets a great bonus every year, and next year’s is already being tracked at over $12k……a decent start for the savings. Hopefully we can get back on track, we were at 42%…….:/
    Ann recently posted…The Practical Budget Part Two: Average Cash FlowMy Profile

    • Thias Thias

      Wow! I can’t believe you guys got hit that hard by the identify thief! Are you going to be able to recover your money? Any timeline on how long it will take?

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