Savings Rate: How Much Of Your Income Do You Spend?

Apparently last week was America Saves Week.  Does that mean the other 51 weeks a year are America Spends Weeks?…(ba dum dum)

Anyways, lately we talk a lot about specific numbers and what role they play.  There’s the big names like Net Worth and lesser known (but equally important) Real Hourly Wage.  There’s one more number I want to discuss – Savings Rate.

Your savings rate can tell you a lot.  How debt is impacting your financial progress, how many years until you no longer need to work for money, and how much of your income goes to what.  But there’s another side to the equation.

Your Spending Rate

The goal for most people working towards Financial Independence and Early Retirement is typically saving at least 50% of their income.  For someone new to examining their finances together this can seem like a tall order.

It’s also a popular point nowadays to note that the Average Savings Rate for Americans is around 5 or 6%, so maybe it would help to look at it another way.  I think the bigger the number, the more people pay attention.  Some folks are also just not that interested necessarily in savings at the moment – maybe they’re focused on budgeting or growing a business or whatever.

By thinking about your Spending Rate, you can easily see

  • How much of your income you need to survive.  This is the big one.  If you’re spending 90% of your income every month, that’s how much you would need to replace in the event of a job loss.  If you’re Dual Income No Kids and decide to have a kid, and that one person is going to stay at home, you just cut out a chunk of your income – are you going to start spending 100% or more of your now single income?
  • A sum of your monthly expenses.  You might never overdraw your checking account and always have enough to make your bill payments on time, but how financially stable are you really?  You might be living paycheck to paycheck and not even realize it.  I bet most people know how much they make a month but don’t have a very good grasp on what they spend.  The shock value of this could easily motivate someone to take a closer look at exactly where their money is going.

I think for most people, roughly figuring their spending rate would be much quicker than figuring out their Savings Rate – It’s simply all the money that left your checking account divided by all the money that went into your checking account.

Calculating your Savings Rate isn’t that much more difficult.  Really it comes down to

401k contributions and matches + transfers to savings + debt payments / After tax income + 401k contributions (no match).   

So not that difficult, but perhaps more difficult than simply figuring out your spending rate.  And possibly just as effective.  

Track Monthly AND Yearly!

It’s important to understand that finances balance out over the course of the year.  

Besides recurring monthly expenses you also have things like vacations, holidays, insurance premiums (like every 6 months or yearly), big expenses and purchases, and emergencies.  You also might have fluctuating income, tax refunds, bonuses, months where you get 3 paychecks, or windfalls.  It’s hard to make good decisions based on one month of data alone.  

If you got 3 paychecks, a bonus and a tax refund in one month you might feel pretty confident – that month your spending was probably a much lower percentage of your income, even if your spending crept up.  Likewise, if you go on a big vacation one month, it will skew your spending higher even if you saved up for it the entire year.

For example, for the last 2 years I’ve made a ton of progress through March.  I get a 3 paycheck month, a bonus, dividends, and a tax refund.  The next few months are much slower.  At first I got frustrated because I didn’t understand that even though I wasn’t making huge progress over the summer (I pretty much had my base income to work with), staying the course and being consistent STILL grew my wealth, while being smart about windfalls was just icing on the cake.   

For tracking, I like the idea of using one of those little $1 notebooks you can get at the grocery store.  Each month gets a page, divided into two columns with monthly and yearly totals.  I think it makes the math easier to write everything down and you’re automatically creating a record of your progress.

Image by Sira Anamwong at

3 thoughts on “Savings Rate: How Much Of Your Income Do You Spend?

  1. Ahhh, excellent point. Mr. Picky Pincher and I like to focus on our savings rate more than our spending rate, but the spending rate is just as important. Our focus is to have our savings rate be as high as possible, which is a goal that works for us. But you need to know what your saving/spending rate is before you can work on improving them!

    1. I thought a lot about whether to focus on spending or savings rate and after dissecting some pay stubs for me calculating spending was less complicated, but the great thing is it’s a zero sum game – whatever’s leftover after your spending rate is your savings rate and vice versa.

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