Why I Don’t Calculate my Savings Rate: My Savings Goal Explained

My Savings Goal

My Savings Goal

Hello readers! Thanks for vising The Green Swan. As we all know, to retire early one must live well below their means, tuck away the extra and invest it wisely. Lately I have talked a fair amount about the investing side. Today I will be going though the savings side of the equation. More specifically, allow me to explain my savings goal and approach toward saving.

Savings Rate, Right?

What is my savings goal? Quite simply, my goal is to save as much as I can. I know many folks out there set their savings goal based on a savings rate. That is great, but it is not for me. The savings rate methodology is very, very common among personal finance buffs and I respect that and there is nothing wrong with it. But let me explain why it doesn’t work for me.

A certain savings rate doesn’t mean anything to me. Say my goal is a 40% savings rate…great you may say, but what does that really mean? If I reach 40% is that a good thing? What if I didn’t reach my performance objectives at work and my bonus was cut in half…all of a sudden my 40% jumped to 50%…that’s good right?

Maybe if it means that the numerator came down (because my bonus was lower) and I cut back expenses in order to maintain my investment contribution levels. Say I cut out a vacation to offset the drop in income and I still saved the same dollar amount…so in reality I exceeded my savings rate goal, but invested the same dollar amount I had originally planned. If saving the same dollar amount is the ultimate objective, why not focus on that rather than the less meaningful savings rate.

When my retirement day ultimately comes, what will I need? I’ll need dollars saved in my investments to live on, not percentages or savings rates. If I know how much I plan to spend in retirement, and therefore can calculate how big my investments need to be to retire, I can then determine how many years of a certain level of contributions it will take to reach “my FIRE number”. So why not just set the goal for a certain dollar amount of contributions rather than savings rate?

For those reasons I have never been that big on calculating or tracking my savings rate.

Save as Much as I Can

So instead my goal is quite simply to save as much as I can. Each year my wife and I go through a budgeting process. We estimate our income and corresponding taxes as best we can, but more importantly we outline our expenses in fine detail and the resulting amount we have left over to invest. If we end up making more / less during the year, we will save and invest more / less.

It is truly as simple as that. We usually budget out our expenses fairly well, we are quite a predictable family at this point. Even with the little one these day, we can map out our expenses each year within a 2-3% variable. Last year was an exception though as we came in about 5% over budget. The large variance last year was due to an unexpected health issue with the little guy (ear tube surgery), although that was offset partially by the unexpected drop in gas prices (woo-hoo). The year before though, we came in with an approximate 1.5% variance overall.


The bottom-line is we keep our expenses low and we do our best to earn the most we can and advance our careers. The savings rate will work out however it will, but it ultimately doesn’t matter to us as long as we are saving the most we can. Ideally, so long as we can manage our expenses and keep advancing our careers, our savings rate will go up and up and up.

What is our savings rate?

Like I said, I’ve never used that as a measure so I couldn’t even tell you. For us, it would be a tireless exercise to determine the appropriate way to calculate it, and then actually running the numbers for each year. If I had to guess what it is currently though, I would give it a SWAG of somewhere between 65% to 75%.

How much do we save each year?

As much as we can! I am sorry for being intentionally vague, but I’m doing so for privacy reasons as well as the difficulty in figuring out how to share such a figure based on a number of unusually large discretionary purchases / investments we’ve made in recent years which add noise to the numbers (e.g. new roof, solar panels, LASIK, healthcare expenses, and the purchase of a small business).

And for the sake of privacy, I just need to determine how much I want to divulge and the most appropriate manner. For instance, maybe I show the expense side but ignore the income side, etc. But what might not be a secret these days is the fact that my wife and I do save a lot. As you can already see from the Net Worth Explosion post a few months ago, it has been increasing rapidly. So it is safe to say that our annual savings has been north of six figures for a few years now.

The Real Goal

While we don’t really have a definite goal with regards to how much we save each year, besides as much as we can (are you sick of hearing this already ☺), our real goal is to accumulate as much wealth as possible and retire young. To do this, we try to meet or beat the S&P 500 each year and double our net worth every four years.

Let me know what you think in the comments below? Do you track savings by using a “savings rate” or “dollars saved”? No right or wrong answer to that, it is just a matter of how your mind processes it best. What’s your primary reason for monitoring your savings rate?

And bonus question, should I begin sharing the expense side of the equation with readers? Monthly, quarterly?

Thanks for taking a look!

The Green Swan

Work Harder, Word Smarter, Retire Earlier and Find Your Beach






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  1. Same here! We try to just simply make a game out of saving and earning as much as we possibly can each year, rather than getting too focused on a certain percentage of any sort. For me, its all about the tax-advantaged savings in our 401k, IRA, and SEP IRA. A dollar saved is 25 cents I didn’t pay into taxes. So to max out as many of our accounts as we possibly can is practically putting thousands of more dollars back in our pockets!

    1. Yeah good way to look at it. Optimizing investments for taxes saves with both federal and state taxes so it may be North of 25 cents on the dollar. Taxes are most folks’ largest expense so it is important you focus on how to lower that as much as legally possible. Thanks for sharing, DW.

  2. We have never tracked a savings rate either. We do the same as you – as much as we can, and it has worked out fine. I am not a spreadsheets person but I do see the benefits of tracking! I wonder if it would have made me to hyperfocused (to the detriment of other important things though!) I think quarterly reports are great in terms of expenses too 🙂

    1. Sounds good Vicki. I’ll start thinking more about regular expense reporting. I’m tracking it already so it should be easy. Thanks!

  3. I save as much as I can, as well. Instead of tracking savings rate, I have been tracking the ratio of spending to the amount contributed to investment accounts. I have found that this avoids some of the noise in measuring savings rates (especially savings rates measured monthly). I also don’t have a specific numerical goal, but rather just try to consistently improve. This has worked well for me so far, but we will see if it is a functional long term solution.

    1. I think that’s great, Matt. Save as much as you can and try to improve and do better every year… Well done! I think it’s functional long term, especially if you track expenses to ensure lifestyle inflation doesn’t creep in. Thanks for sharing!

  4. First of all, wow! Congrats on your savings rate – you are well on your way to FI very, very soon! I’m jealous. As for us, I actually track the savings rate because the bulk of our savings are automatically taken out of my paycheck every two weeks as a percentage, so it’s easy to think about it that way.

    It’s also aligned with how I taught my kids to handle money from a young age (ages 14 and 16 now). Put 10% into long-term savings, invest 10%, donate 10% and then save up the other 70% to spend on something you will really enjoy. At this point, they still save over 50% of their money which is nice to see. The percentages allow them to learn the principles of savings even when their “earnings” are low.

    The third reason I calculate a savings rate is that it makes it easier to discuss it on my blog. You don’t know how much money your readers are making, but if you can get them to think about a savings rate, then it’s easier to have a conversation about when they can reach FI. Check out my post today on this very topic!

    You raise a good point about tracking the absolute dollar amount as well, and I think focusing on a number can work equally well. Especially when you are up north of 50% savings rates, the percentages may not matter as much. At that point, you’ve definitely gotten the concept that savings is a good thing and it’s just about the dollars!

    Once again, congrats on the savings rate, that is really awesome!

    1. Thanks Jon! I think that it’s a great method to help teach the little ones, I may implement something very similar when mine get to that age.

      I think your post today was great, I loved the visual your chart helped create in my mind, making it easy to correlate savings rate to years of work.

      Thanks for stopping by Jon!

  5. With tools like Personal Capital and Mint, we can see where we are getting outside our plan and why. That has helped greatly and allows real time adjustments to to get back on track.

    As much as I get some value from monthly budgets posts, they start to quickly get old. And often not much relevance as each family situation is fairly unique. For example, the couple with no kids can’t imagine what it is like to feed a growing family with pre-teens or teens for a month. Hence those $250 monthly grocery budget posts are mostly alien to many with a growing family. Throw in cost of living differential from places like NY, CA, MA to less costly states makes a budget win for one family look like a failure to another family. Just too many variables to makes these sort of posts very useful. Just an opinion though.

    Personally, I like the posts on investment strategy and you have done a few of those that I very much enjoyed and learned from.

    1. Thanks Mr Pie, I very much appreciate the feedback!

      I like personal capital and I’ve tried mint before as well. Their tools are very helpful in monitoring expenses etc. I use primarily PC in combination with excel to track everything.

      Thanks again!

  6. We don’t make a big deal of our savings rate. I wonder if some do it as a way to avoid sharing exact numbers. But then others avoid sharing it because of not wanting to be competitive about it. I agree that it makes sense to save as much as possible, that the numbers can be skewed based on shifts in income, and that ultimately it matters what your dollar goal is. That’s a neat goal you have to double your net worth every four years.

    1. Yeah that makes sense, Kalie.

      I’ve managed to meet the 4 year goal so far but the thing about it is It keeps getting harder and harder. It really challenges you to make more and save more.

  7. Agree with you 100%.

    I NEVER calculated my savings rate and did well enough to retire at 52 and live off my assets.

    Now maybe I would have saved more if I had calculated it, but I doubt it.

    Keep up the great work and you’ll be where you want to be in no time.

  8. I’m the same as you. Until I ran across a formula for calculating saving rate recently, I never even gave it a second thought, we just save as much as we can. My guesstimate is we save around 40% of our income – not bad since we live on one moderate income.

    I understand your discretion with sharing numbers (I am not sharing either). But I do always find expenses to be interesting, particularly because I learn how to save more on some of my expenses when I see how others do it.

    1. 40% sounds pretty good all things considered!

      Yeah good point on sharing expenses, I’m sure it is helpful or useful for some readers.

      Thanks for the comment, Amanda!

  9. You share the same thinking as me. We don’t typically tracking our savings rate or have a savings rate goal. Rather, we just try to save as much as possible to invest that money.

  10. I track our savings rate and think it is a valuable metric, part of the reason is I actually use it as our budget. We set a goal, we save that much throughout the year and I don’t do any other formal budgeting. I also like knowing the percentage of our take home pay we are saving as a way to keep lifestyle inflation in check. It does help because our incomes are pretty steady, we don’t get a lot of bonuses at our current employer.

    At the end of the day, the only wrong answer is no saving

    1. Sounds like using a savings rate is appropriate for you and works well. It’s great you can use it to monitor lifestyle inflation. If you can do that proactively and your incomes stay stable then it sound like we are doing the same thing with different methods. I’m sure each year you reevaluate to account for raises or other income changes appropriately. Thanks for sharing Mr AE!

  11. We don’t really have a savings rate %, although I will say we try to save at least 10% each month, but we calculate it in dollar amounts so it’s more tangible. We have variable income and we know what our minimum expenses are each month. If we have extra beyond the minimum 10% budgeted for savings each month, it’s gravy on top.

  12. I’m a big believer in tracking my savings rate but it is only a piece of my financial life. I set a goal each year that I need to hit to stay on plan for financial independence. If I save more, fantastic. If less, I may need to review my plan of figure our why income was lower or expenses higher. The rate only serves as motivation to work towards the plan. It might not be for everyone but it works for me and that is what important – finding the system that motivates you! Nice post!

  13. Your perspective is very thought-provoking, JW. This quote especially resonated with me:

    When my retirement day ultimately comes, what will I need? I’ll need dollars saved in my investments to live on, not percentages or savings rates.

    That said, my approach aligns closely with your approach. I am all about saving as much money as I can. When I tabulate income and expenses and reconcile at the end of each month, I make a conscious decision to save/invest any “extra” money by default. I don’t use savings rate as a goal setting tool, per se, but more as an after-the-fact barometer from month to month.

    1. Thanks FS! That sounds pretty similar to my approach month to month with how you tick in your excess cash flow straight to investments. And that makes sense how you use the savings rate calc as a barometer and an extra tool to monitor your finances. Thanks so much for sharing, I’m sure that’s a helpful approach for many folks.

  14. Good post. A 4 year doubling rate is terrific, and I’m sympathetic to the desire to share without sharing too much. Hubby wants us to be very careful about what and how we share.
    I haven’t been as aggressive at saving as I could have been, or as goal oriented. Remembering that ultimately the rate won’t matter as much as the total is a great focus.

  15. I love numbers, metrics, and spreadsheets. I’ve learned that I will generally only make improvements when I track a metric. However, the savings rate seems like a tough one because it doesn’t have a clear definition for how to calculate it, at least that’s what I’ve seen. I asked Google for metrics to track financial health and never heard anything about savings rate, for whatever that’s worth.

    I track my net income (among other things) and seek to increase it (reduce expenses, increase income) over time. That net income is what I use for investments, emergency fund, debt payments, vacations, health care expenses, home improvements, etc. That’s where my focus is and what I will strive to improve. Maybe that is a savings rate, I don’t know. As long as I’m tracking a metric, I will attempt to improve it. Just natural.

    1. That’s interesting and a little surprising since I thought savings rate was fairly popular. That’s true though that I’ve seen numerous methods for calculating it… Makes it a bit confusing hug?!

      I’m pretty similar to you with tracking my net income. I track my income after non discretionary expenses and then also after more discretionary items like vacations, gifts, charity, etc.

      Thanks for stopping by, Brian!

  16. Agree with you. Another issue that makes the calculation of the savings rate harder: The difference between pre-tax and post-tax savings. It’s much easier to save $1 of pre-tax money (in 401k, HSA, etc.) than saving $1 after it has been taxed at 35% Federal and ~10% State. So you may have 40% savings rate every year but it was much easier to achieve that number when you were younger (with a lower salary) and you simply loaded up on the 401k. After all the “easy stuff” is maxed out, it gets a bit harder to save post-tax, especially for high-income earners.
    So, I calculate my savings rate once as a raw number and once using the thought experiment of discounting all tax-deferred investments by my marginal tax rate.

    As for handling purchases of investment/durable goods (Solar panels, new roof, etc.): The solution would be to book them like the accounting department of a business: Book the expense as an investment and only depreciation as a cost. But that’s a big hassle just for accurate calculations of a savings rate…

    1. Very good point about the difference in before and after tax contributions. Those dollars should not be treated the same since the pre tax contributions will still be taxed eventually!

      Yeah I hear you with using the true accounting methods for factoring in purchases of long term assets… And you’re right that it is too much of a hassle! Especially considering it is a meaningless statistic for me.

      Thanks for the comment!

  17. We saved as much as we could too. Our saving rate is a little less than 50%. I think it’s good to keep track of your saving rate. You don’t need to set a goal if you’re already saving as much as you can.
    The truth is when people say they are saving as much as they can, their saving rate is very low. For frugal people like us, saving rate doesn’t make a huge difference. Still good to track your expense. 🙂

  18. We have a set savings rate (amount that is automatically transferred into savings account) but then we also fall into the save as much as you can category like you do. It’s sort of a game for us to see how much more than the set rate we can funnel into our savings after all expenses at the end of the month. Some people watch movies, play video games, etc. for fun… we save money. Man I need to get a life. 😉

    1. Ah I see! You use the savings rate to automate investing and then supplement it with excess cash flow, I like it and glad it not only works for you but also provides entertainment! That’s one way to get jazzed up about investing :)!

      Thanks for sharing, Preston!

  19. Before retiring early, we definitely saved a lot relative to what we made. That’s not to say we didn’t spend money too (because we did), but when large chunks of income would arrive (cash outs, bonuses, etc.) I would stash these away for a rainy day.

    These days, I’m happy to save anything in a given month. 🙂

    Don’t worry about not disclosing your financials yet. It’s not for everyone. It took me quite awhile before I was comfortable sharing a lot of our details.

  20. I’d never heard of using a savings rate before, but MMM (see below) makes a compelling case for it. Regardless of whether you agree on how the rate should be calculated (endless arguments there even without factoring in owning your own business like I do), the focus is on the spending rate vs. savings rate. People rarely have financial windfall events that significantly change their lives. It’s typically minor increases/decreases over a lifetime until you hit retirement or whatever you’d like to call it.

    If you’re saving the magical 15% recommended by many financial planners, that means you’re (a) pretty remarkable compared with the typical person and (b) spending 85% of your income. That means your lifestyle is built around the 85% figure which dramatically increases the amount of savings required for FIRE. If you’re only spending 35% of your income (as did MMM for ten years) and have become comfortable at those expenditure levels, FIRE comes far sooner. Even without the maintaining the same level of frugality indefinitely, that 25x annual expenditures in total savings should compound much faster than your spending habits over the years.

    I’ve always used specific dollar amounts for retirement planning, but he’s got a point with the spending / savings ratio.


    1. Thanks Chris! Good points and thanks for the link. It’s great to spread awareness and let folks determine how best to manage their personal finances. I appreciate the comment!

    1. That’s one of the challenges I see with the savings rate as well, it only seems to be applicable over long periods of time. Thanks for sharing DFG.

  21. Totally see where you’re coming from JW. We do exactly the same as you do – at the start of each (financial) year we set out our income and expenses and try to do as best we can with that. We also do as you do – try to do it as good as possible.

    You may recall that we do savings rate posts (where we include numbers and the %), obviously every family is different, but we do so to 1) Document our financial journey, 2) Keep ourselves accountable, no matter what our earnings are and 3) Show that it’s possible to save a good amount of your income for a young couple in a major Australian city (to hopefully inspire other Australians to do the same). Whether we did savings rates posts or not, our expenditure would probably still be the same, but it’s nice to share it for other people to see and also try to beat it.


    1. That’s great Tristan, thanks for sharing and adding to the conversation. I think that is a great purpose for calculating your savings rate and hopefully help inspire others to save more. Thanks and keep up the good work!

  22. We don’t calculate a savings rate and go by that metric, although I think Mrs. SSC calculated a quick one for last year as a year end wrap up. Then you get into the “is it before tax or after tax”, is it “employer contributions or just yours” sorts of pandora’s box questions, so we generally just avoid it. Like you, we try to save as much as we can and go that route.

    With Mrs. SSC’s income dropping 6 figures this year, we could still maintain the same savings rate, but it’s going to be MUCH less than we saved last year, so how is that helpful or relevant? We like having a chart of where we need to be to hit FI and where we are currently. That seems helpful because anyone can plug in their goal, and then their current savings and have their own pretty quickly, whether they make $40k/yr or $400k/yr.

    1. Yeah I hear you, Mr SSC. Who knows, maybe I’ll calculate it at the end of the year for giggles and to wrap up the year.

      Your situation is a great example of how relevant it is though. Thanks for sharing!

  23. I love this approach. It feels more natural than aiming for a specific target (guilty here).

    We set ourselves up to double our savings rate ~23% to ~46%, but realistically we’re looking for every opportunity to enhance it. This year so far we’ve been approach 50% but we’ll see long it lasts.

    That being said, our goal next year will not be a # amount, but rather as you put it, save as much as we can.

  24. Interesting approach.

    I think my way is similar to Preston @TheDrunkMillionaire – every month, 30% of my net income is automatically transferred into savings/investment accounts. Then, whatever is left after my expenses at the end of the month also gets transferred. Obviously, if I haven’t kept an eye on my spending, this doesn’t come to the 20% needed to achieve my goal of a 50% savings rate.

    It’s a real challenge for me as I’m currently at around 41%, but it’s something for me to aim for. My income is generally steady, with only an annual bonus to consider.

    Someone mentioned keeping lifestyle inflation in check and I find that the savings rate helps with this too.

    1. That’s great, I like Preston’s approach. It definitely helps with lifestyle inflation as does tracking and reviewing expenses. Thanks for sharing!

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