How to calculate one's savings rate

[juxy4]

Hello,
I am new to this blog. My husband and I are working towards FIR, not early since we are both in our 50's. I have always been interested in numbers and finances and started educating myself on the FIRE movement and FI last couple of years. The question I am looking to have answered is "how are people calculating their savings rate"? I searched through this forum and didn't find the answer to this question.... or gave up before I came across it (more likely). If the answer is here and some one could point me in the right direction, I would appreciate it. If not, I am interested in what people in the forum include in their calculation. I have seen it done different ways and am not sure I agree with some of the inclusions. Looking for some guidance. Thank you.

[IlliniDave]

There's a number of ways to do it. I actually compute it two ways. Total savings/gross income and total savings/after tax income. For savings I only count money that I put into an investment account. For income I only count income from my job.

Sometimes people will include things like mortgage principal paid as savings. I don't but depending on exactly what you are interested in measuring, there's nothing wrong with that. Some people count investment income in the denominator, and presumably reinvested distributions in the numerator. Nothing wrong with that--for me it's too much hassle to keep up with.

[Lemur]

Have always used Savings / After-Tax Income.

Never owned a home but I probably would not include the principle since I wouldn't consider equity in homes as savings...I've to imagine that would be offset by the numerous repairs and upkeep over the years. Plus it is illiquid. This is an opinion that is surely debatable.

[take2]

I do the same - after tax income from job only (no investment income) in denominator. Then savings in numerator, though actually I do [1 - (total expenses / after tax job income)]. Mainly because I already track my expenses so it’s just easier.

Ultimately it comes down to what you’re trying to measure. I suspect you want to measure against yourself, as in whether you’re improving or not. If that’s the case it shouldn’t matter too much, as long as it makes sense to you and you’re consistent.

[2Birds1Stone]

Just wanted to add the opinion that there is a benefit to counting/tracking/improving gross savings rate as well. If we consider taxes an expense that can be managed/reduced like any other, it can help think of ways to take home more of our pay.

Personally I do count interest and dividend income but not capital gains.

For the purposes of accuracy also count pretax health insurance cost as an expense, and the gross income that pays for that in my net savings rate calculation, since it's not going away in non working years.

[sodatrain]

My apologies for the comment on a 2 year old post, however I had the same question posed here and found an answer I like from Mr. Money Mustache. It's simple and helped me get my head wrapped around the concepts. https://www.mrmoneymustache.com/2015/01 ... net-worth/

[theanimal]

My apologies for the comment on a 2 year old post

FYI, Commenting on and resurfacing old threads is encouraged here.