Hi Money Minder,
Hey Money Minder,
I’m always scratching my head about how to figure out savings rates and what’s considered “normal.” Right now, I’m doing my calculations like this:
– “% of Gross” = Savings amount / Total Earnings
– Total earnings = all the money I make before Uncle Sam takes his cut (wages, bonuses, OT, tax refund, etc.)
– “% of Net” = Savings amount / (take-home pay + 401k contributions + HSA contributions)
– Take-home pay is what I actually see in my bank account every two weeks after all the deductions (insurance, 401k, HSA, etc.)
– “% of Take Home” = Savings amount / take-home pay
I’m seeing my after-tax savings as a ratio of my take-home pay and my pre-tax savings as a ratio of my net pay. Got any better ideas on how to do this? I’m all ears for suggestions!
Thanks a ton,
Money-Savvy Seeker.
Response from THE MONEY MINDER:
Thank you for reaching out to us. How can we assist you today?
"Hello There,"
It’s completely normal to feel confused when calculating savings rate percentages, but you’re on the right track by breaking it down into different categories such as % of Gross, % of Net, and % of Take Home. Your method of calculating these percentages is actually quite practical and gives you a good understanding of how much you’re saving in relation to your various income streams.
However, one recommendation might be to consider including any additional sources of income or windfalls you receive throughout the year, such as gifts, bonuses, or tax returns, in your calculations. This can give you a more accurate picture of your overall savings behavior and help you identify opportunities to save more.
Additionally, it might be helpful to analyze your expenses and see if there are any areas where you could potentially cut back in order to increase your savings rate. Sometimes, small adjustments in your spending habits can lead to significant improvements in your ability to save for the future.
Overall, it seems like you have a solid framework for calculating your savings rate percentages, but don’t hesitate to tweak it as needed to better suit your financial goals and lifestyle. Keep up the great work and continue finding ways to prioritize saving for your future financial well-being.
Farewell from THE MONEY MINDER.
