How I Calculate My Savings Rate

Savings rate are subjective, as are net worth calculations. I thought I would share with you how I calculate my savings rate and why. I would be very interested to hear your thoughts and how you calculate yours. Or if you're new to this calculation, please feel free to reach out with any questions.

Basically any money we (my husband and I) are tucking away that should pay us back later (in theory), is included my savings rate calculation.

Income

To calculate our net income I include only what my husband and I take home (after tax) from our 9-5 jobs. We do not include anything from side hustles, because side hustles IMO, should be fun and something we would do if we aren't working at our 9-5. I do this so we don't rely on that money. We do not include bonus money, because that's exactly what they are...bonuses, not to be relied on.

Employer Match RRSP

My husband's company has an employee RRSP matching program (Canada's version of a 401K). They match up to 6% of his salary and that automatically is taken off his pay check. We don't include this as income or part of our savings rate...most people probably would, but I like to think of this as an added bonus to our net worth and focus on our increasing our savings rate without this. We don't ever touch this money.

Investments (RRSPs)

Everything we put into our RRSP's on a monthly/annual basis is included in calculating our savings rate. I do not include the growth from our compound interest / market growth in our savings rate.

Tax Returns

Every year we get a decent tax return from the RRSP's we've been paying into as they are tax deductible. We repurpose the return differently each year, depending where we need it most or what our goals are.

Emergency Fund Savings

Right now, we have this in a very accessible, high interest savings account. Anything we put into it, is calculated as part of our savings rate.

Mortgage

I find different folks have different opinions on whether the mortgage should be included in a savings rate calculation. In my opinion and based on where we live/own real estate (Vancouver, BC), the track record and trend of our city is growing. When we eventually sell it, likely to retire a bit earlier in a slower, less expensive city, I believe that we will gain at least the same rate as our stock portfolio. Having said that, interest is an expense. So I break out two line items on my budget for the mortgage: one for mortgage principal payment and the other for interest payment. The mortgage principal payment is calculated into my savings rate.

Another reason for my logic on this, is that once my mortgage is paid off, I can use the same value of contribution from the principal and interest and use it toward investments savings. So eventually, it will increase our savings rate by not having the interest expense of the mortgage.

EXAMPLE SUMMARIZING IN SIMPLE MATH:

$50k Savings/Investments ÷ $100k Take Home Income From Regular Job = 50% Savings Rate

I would love to hear your thoughts on this subject and how you handle yours! Leave a comment or send me an email.