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What the f is my savings rate?

So many pennies!

Savings rate. I have been ignoring this aspect of knowing thyself because shame. Because in the FI movement, everybody else seems to have savings rates of 70%, or 90%, or a million percent. We’ve spent the last decade building up debt, trying to get our educations in order and having kids and buying houses and getting brain surgery, so our savings rate is…not a million percent.

I’ve been putting 8% into my 401K since I started my current job, and they match 2%, so that’s something. I’ve also increased it a bit every year, and we do $100 per month per kid in 529s. My husband is putting something like 15% into his. But we also don’t have anything being taken out of our freelance gigs, which is actually a big part of our income at this point. So maybe 10% overall? Ugh it seems so paltry.

Then I saw an article that mentioned that savings rate wasn’t that simple – and lots of people have lots of ideas about how best to calculate it. To me, there are a couple of important points that make a lot of sense that make me feel much, much better about our rate:

  1. It never occurred to me that you could calculate your savings rate using “gross income minus taxes” because those taxes aren’t really a part of your income, sort of, right? They’re just making all those fat cats in Washington and people on food stamps rich. (I jest, I am happy to share a bit of money to make sure people don’t go hungry. Not the fat cats, though. Go fuck yourself, fat cats.)
  2. It’s a matter of how much your net worth is increasing. Our net worth is increasing by a lot, much more than what’s going into our 401Ks, because we are aggressively paying off debt.
  3. It also makes sense to think about how much you are saving with regard to how much you are consuming each month – because ultimately, isn’t that what your goals should be based on? How much money you are eventually going to need?

At any rate, I pulled out Excel and did some estimations.

Savings rate (investments as a part of gross income): 13.4%

Savings rate (investments as a part of gross minus taxes): 16%

Savings rate (investments + additional debt principle as a part of gross): 27%

Savings rate (investments + additional principle as a part of gross minus taxes): 32%

If you look at “what we are paying toward increasing net worth as a percentage of what we blow on housing and kid activities and food and lap dances and cocaine,” it’s 32%. Thirty-two percent! That seems so not awful! Thank God we only spend a small amount on lap dances and cocaine.

Within the next year, we’ll have about $700 more per month from small debts that have been repaid. Within the year after that, another $700. My goal is to take basically all of that and allocate it to investments and the longer term debt we have, so that within a year after that, we’ll have another $600 per month, and then a year after that, my student loans will be forgiven. In theory, after about 4 years, we could be doubling our mortgage payment every month, putting money into short-term savings, and getting our “investing” savings rate up much higher. This is not including any raises we might have, or increased income from side hustles.

Maybe by the time I’m ready to retire, our savings rate will be at a million percent.

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