Surprisingly, this is something that I had gotten away from looking at monthly this year; however, it is time to start keeping score on my savings rate again! Can’t make progress towards a goal if you don’t have a compelling scorecard and if you are not keeping track.

**What is a Savings Rate?**

A Savings Rate is the percentage of your total take home income you save and/or invest versus spend.

**How to Calculate Your Savings Rate?**

I want to preface this by saying there are *hundreds *of ways you can calculate your Savings Rate. I am going to detail out to you how I determine mine, but this is not to say it is the only way to calculate it. To calculate your Savings Rate properly, there are two pieces of information you need.

- Take Home Pay
- Expenses

**How to Calculate Take Home Pay?**

To calculate how much money you take home after taxes, the right way IMO, first determine on what frequency you are paid. If you are paid every two weeks then you need to find out how much money you make per day. This is important as each month of the year has varying number of days. To get a true percentage, you need to take your total income on your pay stub and divide it by the number of days in the billing cycle.

For example, if you make $1000 every two weeks, you make $71.42/day.

A few key things to ensure you are using the correct take home pay number. If you contribute to any tax advantaged accounts like a 401(k), IRA, HSA, etc. you will want to add that to your total income. Only do this if this money is taken automatically out of your check and you don’t the money hit your bank account.

**How to Calculate Expenses?**

There are also many ways and platforms you can use to help you do this. A very common platform used by many people who track their Expenses is Mint. I currently go old school and use an Excel sheet for all my expenses to track what kind of expense they are as I use my personal cards for work travel so a lot of my expenses are mingled together.

Housing will typically be the largest expense for an individual. I am in a unique scenario where I house hack. My mortgage payment is $1,777 per month and I currently bring in $2,300 per month renting out three of the rooms in my home. Because I cover my entire mortgage payment with rental income, I don’t put down any expense for my mortgage. This is a big reason why my savings rate will naturally be much higher than most.

**Finally, how to calculate your Savings Rate?**

Now that you have both your total take home pay and your expenses, you are ready to calculate your Savings Rate. To do this use the below equation:

Savings Rate = (Total Take Home Pay – Expenses) / Total Take Home Pay * 100

For example, if:

- Total Expenses = $1,500
- Total Take Home = $5,000
- Savings Rate = ($5,000 – $1,500) / $5,000 * 100 = 70%

**Why is your Savings Rate important?**

The F.I.R.E. community talks a ton about savings rates and how to maximize them as much as possible. The bottom line is this, the higher your savings rate, the less time it will take you to retire. So take the leap and figure out what your current savings rate is!

In the next post I will talk about what my actual Savings Rate was for the month of May!

What is your savings rate? Any questions still on how to