How to calculate my personal savings rate?

[dukkar]

Hi:

I am trying to figure out how to calculate my personal savings rate. I'm not sure if retirement funds should be included or not, or whether only take-home pay should be used, etc. Here is the data (made-up numbers, however) I have. Can you please suggest the formula?

GROSS Annual Pay: $120,000
GROSS Monthly Pay: $10,000
Take-home MONTHLY pay (AFTER paying taxes, insurance premiums and 401K contribution): $7000
Take-home ANNUAL pay (AFTER paying taxes, insurance premiums and 401K contribution): $84,000
Annual 401K Contribution: $17,000
MONTHLY savings (does not include IRA and 529 Plan contributions): $2000
ANNUAL savings (does not include IRA and 529 Plan contributions): $24,000
ANNUAL IRA Contribution (NOT included in savings above): $5000
ANNUAL 529 Plan Contribution (NOT included in savings above): $5000
Let's assume that my tax withholding from the pay check is accurate enough that I don't owe any Federal or State taxes in April.

Thanks in advance.

[disneysteve]

ERROR

See below correction

[EconDiva]

Gross annual income: 120K
Total annual savings: 34K

34K/120K = 28.33% savings rate

I have a really dumb question.

Why is it calculated with the gross instead of the net?

I was thinking his rate was 40% (34k/84k)

[dukkar]

Gross annual income: 120K
Total annual savings: 34K

34K/120K = 28.33% savings rate

Thanks for your reply. You included my annual IRA and 529 plan contributions, along with my annual savings in the "Total annual savings". Why aren't my 401K contributions included? That's also saving for retirement like the IRAs.

And I also have the same question as EconDiva. Why do we use GROSS pay instead of NET pay?

[disneysteve]

Why aren't my 401K contributions included?

Because I screwed up.

Let's try this again.

Annual income: 120K
Total savings: 51K

51/120 = 42.5%

[disneysteve]

Why is it calculated with the gross instead of the net?

There are too many factors that can affect the net figure. Plus if some savings are pre-tax and some are post-tax, you need to have some consistent way to measure the overall rate. It would be weird to try and calculate the savings rate based on net since the 401k contributions are based on gross and, in fact, affect the net.

Any time you read recommendations about savings rates, like 15% for retirement, those figures are based on gross income.

[jpg7n16]

This seems like too much of a posted homework problem for a student.

Why are you concerned about how to calculate savings rates?

What are your actual (not made up) numbers?

[bjl584]

Hi:

I am trying to figure out how to calculate my personal savings rate. I'm not sure if retirement funds should be included or not, or whether only take-home pay should be used, etc. Here is the data (made-up numbers, however) I have. Can you please suggest the formula?

GROSS Annual Pay: $120,000
GROSS Monthly Pay: $10,000
Take-home MONTHLY pay (AFTER paying taxes, insurance premiums and 401K contribution): $7000
Take-home ANNUAL pay (AFTER paying taxes, insurance premiums and 401K contribution): $84,000
Annual 401K Contribution: $17,000
MONTHLY savings (does not include IRA and 529 Plan contributions): $2000
ANNUAL savings (does not include IRA and 529 Plan contributions): $24,000
ANNUAL IRA Contribution (NOT included in savings above): $5000
ANNUAL 529 Plan Contribution (NOT included in savings above): $5000
Let's assume that my tax withholding from the pay check is accurate enough that I don't owe any Federal or State taxes in April.

Thanks in advance.

Why not use your real numbers? If the numbers are made up, then this whole post is sort of pointless isn't it?

[disneysteve]

Why not use your real numbers? If the numbers are made up, then this whole post is sort of pointless isn't it?

Not everyone is comfortable posting the details of their personal finances on the internet for all to see. If we tell OP how to calculate the savings rate, he/she can then use the actual numbers to get the actual personal savings rate.

[dukkar]

Not everyone is comfortable posting the details of their personal finances on the internet for all to see. If we tell OP how to calculate the savings rate, he/she can then use the actual numbers to get the actual personal savings rate.

Correct. Plus, another reason to use fake numbers is for making calculations easier. It's a lot easier to add up 10000 + 15000 rather than 13574 + 18875! If I'm asking for your time in answering my question, the least I could do is make things easier for you.

Thanks a lot, disneysteve, for your posts.