Ready to calculate your savings rate? Use the Savings Rate Calculator
What Is Savings Rate? #
Your savings rate is the percentage of your after-tax income that you save rather than spend.
The formula is very simple:
Savings Rate = (Income - Spending) ÷ Income × 100
If you make $5,000 per month and spend $3,500, your savings rate is 30%.
Calculate your actual savings rate right now using historical data, not what you think it is. Check your bank statements for the last three months. The real number is usually different from what you’d estimate.
Why Savings Rate Matters More Than Income #
Most people think the path to wealth is earning more money.
That might be partially true.
A higher income makes saving easier, sure. But it doesn’t guarantee wealth. You know why? Because spending scales with income.
This is called lifestyle inflation, and it destroys savings rates.
The harsh truth: Someone making $60,000 with a 40% savings rate ($24,000 saved annually) will build wealth faster than someone making $120,000 with a 10% savings rate ($12,000 saved annually).
The lower earner literally saves twice as much despite making half the income.
Check this Example #
Let’s break down three scenarios using the same spending level but different incomes:
graph LR
A[Person A
$100k income
$40k spending
60% savings rate] --> D[20 years to FIRE]
B[Person B
$70k income
$40k spending
43% savings rate] --> E[25 years to FIRE]
C[Person C
$50k income
$40k spending
20% savings rate] --> F[37 years to FIRE]
Same spending. Wildly different timelines.
Person A reaches financial independence 17 years earlier than Person C, despite only earning twice as much.
The Relationship Between Savings Rate and Years to FIRE #
Your savings rate directly determines how long until you can retire.
Check out this chart:
Notice how the curve is exponential? Small increases in savings rate at lower levels produce massive time savings.
Going from 10% to 20% cuts 14 years off your working life. Going from 50% to 60% only saves 4 years.
If your savings rate is low, even modest improvements create huge results.
Maria makes $70,000 per year after taxes. She currently saves 15% ($10,500 annually). If she increases her savings rate to 25% ($17,500 annually), she’ll reach financial independence roughly 12 years earlier.
How to Calculate Your Savings Rate (The Right Way) #
Most people calculate savings rate wrong. They include things they shouldn’t or exclude things that matter.
Here’s the accurate method:
What Counts as Income #
Include:
- Take-home pay (after taxes)
- Side hustle income
- Rental income
- Dividends and interest
- Any money that hits your bank account
Don’t include:
- Pre-tax income (you never see it)
- Employer retirement contributions (you didn’t choose to save it)
- Investment gains (unrealized wealth doesn’t count)
What Counts as Spending #
Include everything you actually spend:
- Housing (rent/mortgage, insurance, maintenance)
- Food (groceries and restaurants)
- Transportation
- Utilities and subscriptions
- Entertainment
- Travel
- Healthcare costs
- Everything else
Don’t include:
- Taxes (already removed from income calculation)
- Money that goes straight to savings or investments
The Formula #
Savings Rate = [(Monthly Income - Monthly Spending) ÷ Monthly Income] × 100
Check out the calculator? Use the Savings Rate Calculator
What’s a Good Savings Rate? #
Context matters, but here are realistic benchmarks:
Don’t get discouraged if your number is low. Most people start there. The goal is progress, not perfection.
A high savings rate built on deprivation isn’t sustainable. You’ll burn out. Find a balance between saving aggressively and actually enjoying life today.
How to Improve Your Savings Rate #
You have two options: increase income or decrease spending. Most people default to “earn more,” but that’s actually the harder path.
The Spending Side (Easier, Faster Results) #
Cut the big three first:
- Housing: Downsize, get roommates, move to a lower cost area.
- Transportation: Drive used cars, use public transit, bike, eliminate car payments
- Food: Meal prep, cut restaurants by half, shop sales. No take aways.
These three categories typically eat 50-70% of spending. Small optimizations here create massive results.
Cutting $500/month from these three categories is way easier than earning an extra $500/month after taxes.
Then optimize everything else:
- Cancel subscriptions you don’t use
- Negotiate insurance rates annually
- Buy used instead of new
- Wait 48 hours before non-essential purchases
Track spending for 30 days without changing behavior. Just awareness causes most people to cut 10-15% automatically. You suddenly notice the daily coffee habit or the streaming services you forgot existed.
The Income Side (Slower, But Compounds) #
Increasing income takes longer but has unlimited upside:
- Negotiate your salary: Most people never ask.
- Switch jobs: Job hoppers earn 50% more over their careers than people who stay put
- Start a side hustle: Even $500/month extra is $6,000 annually to invest
- Upskill: Learn high-value skills that increase your market rate
- Freelance or consult: Monetize expertise you already have
The catch: increased income only helps if you don’t increase spending proportionally.
Earn an extra $1,000/month and spend an extra $1,000/month? Your savings rate stays exactly the same.
Change your Mindset #
Here’s what actually works:
Live like you got a 0% raise.
When your income increases, pretend it didn’t happen. Save 100% of the increase. Your lifestyle doesn’t change, but your savings rate skyrockets.
Someone making $50,000 at 20% savings rate who gets a $10,000 raise and saves all of it jumps to 33% savings rate.
That’s 9 years shaved off their path to financial independence. From one raise. That they didn’t spend.
Common Savings Rate Mistakes #
Mistake #1: Not tracking accurately
People guess their savings rate based on intentions, not reality. Check your actual bank statements. The truth might surprise you.
Mistake #2: Comparing to others
Someone living in a expensive city with dependents can’t compare their savings rate to a single person in a low-cost area. Your situation is unique. Compare to your own past performance.
Mistake #3: Going too extreme too fast
Don’t jumping from 10% to 60% savings rate overnight. Increase gradually.
Mistake #4: Ignoring quality of life
A 70% savings rate where you’re miserable isn’t better than a 50% savings rate where you’re actually living. Find your sustainable balance.
Mistake #5: Forgetting irregular expenses
Car repairs. Holiday gifts. Annual insurance. These occasional costs tank your savings rate if you don’t account for them in monthly budgets.
Track Your Progress #
Calculate your savings rate monthly or quarterly. Track it over time. Watch it improve.
This one metric predicts your financial future better than net worth, income, or investment returns.
Because you control it completely.
Ready to see where you stand? Calculate your exact savings rate