Our 2015 Savings Rate

Savings rates are great. How much money do you need to live vs. how much money do you make? Are you kidding me? That’s a perfect measure of how efficient you are behaving! I am a fan of savings rates.

What I’m NOT a fan of is calculating savings rates. What do you include as an expense and what don’t you include? Do you include 401(k) contributions as income? Is the whole debt payment an expense or just the interest part? Is home maintenance an expense or an asset?

Everyone seems to have their own method of calculating their savings rate, and just to muddy the waters, I’m going to introduce my own!

Unrelated picture of rabbits

Unrelated picture of Cornelius & Klaus

Expenses: Here’s our 2015 expense report. For this report, I will exclude the principal payments on debt and include only the interest portion as an expense.

Income: Here’s where it gets complicated. This will be all of our take-home income, after everything gets taken out, with our 457 and 401(k) plan contributions added back in… but at 60%.

I know, I know, it sounds crazy. But hear me out. We can safely assume that if we had been paid those contribution amounts as income instead of putting them in tax deferred accounts, they would have been taxed at a 25% federal rate, plus state taxes and various payroll taxes. So let’s estimate that 40% would disappear before it hit our bank account. By adding back the contributions as income at 60%, we are mocking up what our take-home pay would have been if we took our entire paychecks home.

But what about our rental property? I am excluding all of our rental property income and expenses because I like to treat that as its own self-supporting business, separate from our personal spending. And the way I see it, the rental is an investment, so all of the start-up costs we endured this year (down payment, closing costs) are by default included as savings, same as if we had invested it in the stock market.

Caution – I will be showing you our after-tax income! Since it’s inherent in any savings rate calculation, I know you’d just be doing it in your head anyway, so why not just include it.

I can never think of any good pictures for these number-based posts…

Goats in Trees

So here’s a picture of a goat calendar.

From our annual expense report, we know that…

Expenses Excluding All Debt Payments = $35,373.10. Now add…

Interest Paid On Debt

Mortgage Interest $2,413.02
Student Loan Interest $172,18
Car Loan Interest $85.52
Total $2,670.72

So for our purposes, Total Expenses, Less Principal Payments = $38,043.82

We put almost $20,000 into tax deferred accounts (would’ve been more if it weren’t for Marge’s terrible 401(k) choices!), so our mocked up After Tax Income is $89,354.48. The difference is our savings at $51, 310.62.

Savings Rate = Savings / Income = $51,310/$89,354 = .574

So our Savings Rate is 57.4%! I was hoping to hit 50%, so I’m happy.



Another utterly irrelevant picture

Hey kids! Here’s a lesson I wish someone had taught me years ago. Through determining your savings rate, we can discover how many years it will take until your investments will cover those expenses, and you can retire! Incredibly, there is a formula for that and it works.

Mr. Money Mustache teaches us that a 57% savings rate means you only have to work about 14 years until your assets support your lifestyle.

Here’s a fun chart



What does the average Joe save?

The Federal Reserve keeps stats on this. Ever since the early 1990s, the average individual’s savings rate has hovered around 5%. During one month (December 2012) it peaked at 11%, and the highest the savings rate has been in the observable past is 17% in May 1975. I got you beat, Average Joe! I beat your ass two time! Three time!

At a 17% savings rate, you’ll still have to work for 40 years like a sucker before you can be financially independent. And at 5%? Well, I don’t even want to think about it! If you save 5% of your income, you’ll hopefully be relying on a pension or Social Security, or else be enjoying a restful retirement from the grave.

What’s your savings rate for the year? What convoluted method did you use to calculate it?



  1. Ummm, I don’t really use a particularly convoluted method to calculate these.

    Basically I just wait until we get our W-2s and our taxes done. Then I calculate:

    Gross Income = Gross from W-2s (+ 1099s, etc) + Income- Cash Expenses (I don’t do depreciation here because I’m lazy) From Investment Properties

    Total Tax Paid = FICA + Federal Income Tax (I ignore property taxes even though we don’t have a state income tax)

    (our tax guy has all of these numbers listed on an easy-to-read summary page for our altogether too long tax return)

    Then I pull from either our Mint/Excel records:

    Total Spending = Total Personal Spending for the year (this includes principal payments on loans, as well as any CapEx spending we did like installing our solar panels in 2015)

    Then I run two calculations: Total Tax/Gross Income & Total Spending/Gross Income. The remaining portion is generally what went into various saving and investment vehicles, so you could call that our “savings rate”. But honestly, I don’t really think a whole lot about the implied savings rate calculations like this or other savings rate calculations like yours. Instead, I think of the calculations I run instead as our total tax rate and our total spending rate. Those feel like more useful numbers to us.

    • Norm

      January 6, 2016 at 6:45 pm

      AH! MY EYES!

      No, really I see the value in doing a total tax ratio. Now that I’m trying to reduce our tax bill, it would be good to track how we’re doing. But the personal finance “blogosphere” never gets atwitter about tax or spending ratios. So I guess with a savings rate I’m attempting to compare ourselves to others. But everyone’s methods vary. Where are the GAAP guidelines on this??

  2. I use the Don’t Quit Your Day Job blog’s method to figure my savings rate. It does consider 401(k) and HSA contributions & matching as income. Your method of considering those at less than 100% is interesting. Using our end of the year paystubs, I’ve calculated a strict savings rate of 39% (43% if we add principal paydown as savings), but I’m wondering how I want to handle our income tax refund. Doing quick math I think we’ll get a tax refund which will appear to increase the income we received in 2015 by reducing the taxes paid, but we’ll actually receive it in 2016. We normally put it toward additional retirement savings so it isn’t really consequential, but I’m wondering if I want to handle it differently going forward. Thanks for sharing your calculations and raising some interesting questions!

    • Norm

      January 6, 2016 at 7:42 pm

      I wouldn’t count 401(k) as income without applying some kind of reduction to it. If you’re adding it in with the post-everything dollars you see on a paystub, it screws up a calculation supposedly based on take-home income since you wouldn’t have gotten that entire deferred amount.

      And tax refunds. I didn’t even think of that! Come April, we usually owe money, and I don’t count it as an expense or a reduction of income. Ugh, it’s all so complicated, Angie! True, things like that aren’t very consequential, but I like things to be exact! I guess a tax refund is an amount you should have received after taxes, so you could throw it in as if it’s take-home income. And the reverse for money owed, it would get taken out of take-home income.

      • Ultimately I think consistency is the most important part of this exercise so that you can compare your own results from year to year. If there was a standardized way to calculate savings rate so you knew you were comparing apples to apples with everyone else, that would be nice. But for most people calculating this, it is a number that we use to pat ourselves on the back for our good work and to drive us to do even better next year.

        • Norm

          January 7, 2016 at 10:24 pm

          I totally agree about consistency. Sometimes I don’t even care if something’s wrong, because as long as it’s consistent, it’s comparable.

  3. Mine was higher than I expected this year at about 64% (401k + HSA + Investments) / (Take home + 401k + HSA). Hoping to bump that baby up this year!

  4. I am uber impressed by all of you and I want to put my head through a wall and call it a day. Just kidding – just gotta get my sh*t together and join the party! Congrats to you all. Truly inspiring!

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