What’s Your Savings Rate?

As financial literacy month draws to an end I hope you’ve learned some new things about your money, heck even a I picked up a few new tips. I noticed throughout the month that many articles focused on investing, but if we just focused on increasing our savings rate instead, we would be much further along with our net worth.

Your savings rate is the amount you put aside from your disposable towards savings. It should be no surprise that with rising debt levels, Canadians overall savings rate has dropped over the years.

It can be easy to increase your savings rate as long as you’re willing to make sacrifices. Here’s a general breakdown of my budget and savings rate.

My Monthly Expenses

  • Rent
  • House maintenance/supplies
  • Home insurance
  • Entertainment
  • Internet / home phone
  • Cell phone
  • Transit pass
  • Car insurance
  • Gas
  • Monthly parking
  • Gym
  • Groceries

savings rate

I split most of my expenses with my wife. Being in a dual income situation makes expenses a bit easier to manage. To keep our savings rate high we cut our cable years ago; a bit ironic since I work in television. We also try to keep other costs at a minimum, our internet / home phone is through TekSavvy which offers much cheaper rates compared to the big players in Canada.

My expenses remain relatively low since I’ve cut out unnecessary spending. Overall my expenses take up about 40% of my net income.

 Related: Achieving a 100% savings rate

My monthly savings

  • Employee Share accumulation plan
  • Defined benefit pension plan
  • Long term savings
  • Car maintenance
  • Personal spending
  • Presents
  • Vacation savings

IMG_7262

I’ve set up all of my savings to be automatic. What that means is, every paycheque or once a month (depending on the item), the desired amount is automatically taken directly from my paycheque or account. In other words, I’m paying myself first.

These savings equate to 59% of my net income, since the remaining 1% is not formally in my budget so I consider it float/spending money. Yes I budget everything.

 Related: Track your spending now!

Some would argue that vacation, car maintenance, personal spending, and presents shouldn’t be considered “savings” since the plan is to eventually spend that money. I see their point but I look at this way; I’m saving in advance so when those eventual expenses do come up I won’t need to charge it on credit, I’ll always have the funds available.

That being said if I just calculated my employee share plan, pension, and long term savings for my savings rate I would still be at 46%

Final word

It took me a while to get to where I’m at now and I’m pretty happy with my savings rate. I know moving forward saving nearly 60% of my salary may be impossible so that’s why I’m trying to bank as much as possible now.

If you’re able to trim your expenses here and there, you’ll quickly see your savings rate increase too.

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Image courtesy: Matt MacGillivray via StockPholio.com

By | 2016-10-17T12:42:24+00:00 November 27th, 2014|Personal Finance|

16 Comments

  1. Mark Seed (@myownadvisor) November 27, 2014 at 6:37 am - Reply

    Impressive, that’s quite high. Excluding our pensions at work, and extra mortgage payments, after-tax, my wife and trying to save and invest 20% per year.

    If you could continue your savings rate around 50%, for about 20 years overall, you would have financial independence. The math says so!

    Keep up the great work Barry!
    Mark

    • Barry Choi November 27, 2014 at 9:29 am - Reply

      Hey Mark,

      Once we have kids, I expect my savings rate to drop significantly, but that being said I know when that day comes, we won’t be taking yearly trips so maybe my savings rate won’t fall off too much.

  2. Cindy November 27, 2014 at 12:29 pm - Reply

    Is your savings rate before or after tax? I think I’m ~50% after tax income.

    • Barry Choi November 27, 2014 at 12:31 pm - Reply

      Cindy,

      That’s an awesome savings rate! I calculate everything after tax.

  3. Tawcan November 27, 2014 at 1:29 pm - Reply

    Great work on having such high savings rate. We are averaging about the same as you according to my rough calculation.

    • Barry Choi November 27, 2014 at 2:01 pm - Reply

      Tawcan,

      Thanks! Honestly though, in a 2 income situation there’s really no excuse to not be banking that much.

  4. […] Barry at Money We Have notes that you could achieve a high net worth if you not only focused on earning a higher rate on your investments, but also increase your savings rate. […]

  5. […] Barry Choi, at Money We Have, apparently has lots of it! His savings rate is off the charts. […]

  6. Alicia November 28, 2014 at 2:43 pm - Reply

    My savings is paltry… around 15% right now. But I also put around 30-35% towards debt. So I’m living in about half right now. Once debt is fond, a lot of that will be funneled into savings, but I’ll loosen up a little so that I probanly live in 60%.

    • Barry Choi November 28, 2014 at 3:20 pm - Reply

      Alicia,

      That’s awesome that you’re putting away so much towards debt. That’s something to be proud of. Also I’m glad you found my site in the end =D

  7. moneystepper November 30, 2014 at 6:50 am - Reply

    Great savings rate Barry. I have two quick questions:

    1) Why do you include “personal spending” in your savings? Aren’t all expenses effectively personal spending? From a business accounting perspective, you are effectively creating an asset and a liability when you put money in this category as you are saving cash (asset) for money that you will spend definitely in the future (liability).

    2) I’m really an advocate (and Alicia’s comment above is a great example why) that any debt repayment of capital amounts (amounts above interest) should be included within your savings rate. This is effectively saving money at a fixed guaranteed rate (the rate of the loan) and therefore it seems unfair on people paying down debt that this isn’t savings. After all, it is increasing their net worth (and future net worth) whereas the savings towards personal spending actually isn’t because you are just going to spend the money you are saving today towards that goal.

    The reason I ask is that I’ve not included personal spending and have included debt repayment over the top of interest in the “savings rate” for the Moneystepper 2015 Savings Challenge which will be launched tomorrow. I just want to make sure that I understand people’s arguments for other methods before agreeing on one “savings rate” that all challenge participants will be pushing towards.

    Would love to hear your thoughts. Thanks.

    • Barry Choi November 30, 2014 at 9:18 am - Reply

      Moneystepper,

      The reason I include personal spending is because that “budget” I use for things like clothes. I don’t use that budget every month so I consider it saving.

      That being said, I don’t totally disagree with you. My vacation / car maintenance funds give me the same issue. They are savings but will eventually be spent so I’m subconscious of that. The point I try to make though is to save before spending.

      As far as debt repayment is concerned, I find a lot of people just assume because they are paying down their mortgage (minimum payments) they are saving enough. Well they aren’t since much of those payments are actually going to interest.

  8. moneystepper November 30, 2014 at 10:05 am - Reply

    Awesome – thanks for the reply (and message on twitter).

    Regarding the personal spending category, I think its just a difference in terminology and consequent categorisation.

    For the debt repayment, I completely agree! Its important that people understand that making minimum repayments is doing nothing towards their savings.

    However, if I have a minimum payment of £50 (of which interest is £40) and I’m repaying £500 per month, then I think this £460 should be included in savings and the repayer should be “rewarded” for their efforts in the savings rate.

    Really appreciate the reply Barry and look forward to following your blog in the future.

    Have a good Sunday!

    • Barry Choi November 30, 2014 at 10:12 am - Reply

      Moneystepper,

      Yes strictly terminology, as mentioned in the post, I do factor in that those savings are still technically spending.

      For sure that £460 is considered extra savings. Whereas many others would say paying down the £50 minimum is good enough. This of course is the worst if it’t credit card debt they are repaying.

  9. Dan @ Our Big Fat Wallet November 30, 2014 at 8:05 pm - Reply

    Thats impressive Barry. I think you’re right, savings rate is much more important than rate of return for most people

    • Barry Choi November 30, 2014 at 8:16 pm - Reply

      Thanks Dan!

      It helps that my employer gives me a real incentive to save. I tell my coworkers all the time if they joined the DB pension and maxed out on the stock plan, they’d probably be saving much more than the average Canadian.

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