How to Calculate Your Personal Savings Rate

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Savings is a huge part of personal finance. In general, you can always do two things to improve your financial situation: save more and earn more. Although earning more is a lofty goal, income is never guaranteed. But if you have solid savings and have established good spending habits, you can pretty much live on any income.

To understand where you currently are in terms of savings, it’s best to know your personal savings rate. Read further to learn how to calculate your personal savings rate.

What’s Your Personal Savings Rate?

Your personal savings rate is how much money you set aside for savings goals compared to how much money you bring home. In mathematical terms, it’s your total personal savings divided by your total income after tax.

Personal Savings Rate = Total Personal Savings / Total Income After Tax

According to the Bureau of Economic Analysis, the average personal savings rate among adults in the U.S. is 5 percent. Have you calculated yours and do you know how you stack up?

How to Calculate Your Personal Savings Rate

There are three steps in calculating your personal savings rate. In the first two steps, it’s best to make sure you account for all monies possible. You want your rate to be as accurate as possible.

Step One: Calculate Your Total Personal Savings

To calculate your total personal savings, you’ll want to include all money that you set aside for various savings goals. This could be things like:

It’s easier to calculate your monthly savings than your yearly savings since goals and contributions can change throughout the course of a year. So it’s best to stick with how much you save in a given month.

Step Two: Calculate Your Total Income After Tax

To calculate your total income after tax, first count how much money you bring home from your day job. Simply add the amount of net income from each paycheck for the month. Next, add in any additional income you receive each month. If you babysit, do freelance work, or own rental property, this additional money should be included in your total income. Make sure to estimate the after tax amount if tax hasn’t been deducted yet.

Step Three: Divide Your Total Personal Savings by Your Total Income After Tax

Once you have your two numbers totaled, it’s time to calculate your personal savings rate. Simply divide the first number (your total personal savings) by the second number (your total income after tax).

You’ll get a decimal number which can be turned into a percentage. Simply move the decimal point twice to the right; and that gives you your percentage.

Personal Savings Rate Example

Let’s take a look at the calculations in action:

  • A single person contributes $100 per month to his emergency fund.
  • He contributes another $500 per month to short-term savings accounts.
  • He contributes $400 per month to his retirement account; and his employer matches half of that at $200 per month.
  • He also contributes $200 per month to other investment accounts.
  • His take-home pay from his day job is $3, 500; and he earns $700 per month from side jobs.

This person’s total personal savings is: $1, 400. His total income after tax is $4, 200. That gives him a personal savings rate of 0.33 or 33 percent.

What About Debt Payments?

If you are paying off debt, you may be wondering how this factors into your personal savings rate. Unfortunately, debt payments aren’t traditionally considered as part of your total personal savings. So if you’re aggressively paying off debt, it’s natural for your personal savings rate to be lower.

There is no hard and fast rule that states you must follow the specific formula laid out in this article. If you want to include your debt payments in your total personals savings for the purpose of better tracking your finances, by all means do so.

Final Thoughts

Calculating your personal savings rate is a useful exercise to see how much of your income you’re able to hold onto each month. It’s also a good measure of financial health.

To increase your personal savings rate, first consider contributing more to your retirement account(s). After that, you could allocate more to other savings and investment accounts. (Be sure to use high-yield savings accounts as much as you can!) As your income increases, remember to increase your total personal savings to make sure your personal savings rate doesn’t decrease.

2 Responses to “How to Calculate Your Personal Savings Rate”

  1. A few thoughts:

    You’re missing a division symbol in the statement “Personal Savings Rate = Total Personal Savings Total Income After Tax”

    It’s important to note that when you calculate personal savings, it’s the **contributions* that get added up. That’s clear from the bullet points, but the section title “Step One: Calculate Your Total Personal Savings” makes me think of looking at my savings account balances and adding them up.

    Finally, if you get a paycheck biweekly, but make savings contributions monthly, you can get an effective monthly paycheck by taking your real paycheck amount and multiplying by 26, then dividing by 12. (26 biweekly periods in a year; 12 months in a year)

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