What does a 64% Savings Rate Actually Look Like?

In a recent update, I got SUPER excited after calculating that I had averaged a 64% savings rate in Q3’17… like, wtf?! In retrospect, I’ve realized I should add some additional clarity on what that looks like for me. That 64% was calculated by looking at my savings over my take-home income. I’ve seen a savings rate calculated two different ways. One looks at a base of your take-home income, and the other uses your gross income (essentially counting the taxes you pay as an expense).

Is one better than the other? That depends. By looking only at your take-home income, you’re not including the full picture. Taxes and insurance take a significant amount out of most paychecks, and they should be treated as costs. As an individual with no dependents who still gets health insurance from her parents, I really haven’t taken into account how much health insurance costs will take out of my paycheck. I’ll discover that joy in 2018…

Using the gross income method, I had a savings rate of 48% in Q3’17. That’s not bad, even if it doesn’t sound as nice as 64%. The big thing is to be consistent. For me, it’s a key performance indicator of my trajectory toward FIRE (Financial Independence, Retire Early).

Your personal savings rate is a KPI for financial independence.

Why is it important to know your savings rate?

Good question. Your savings rate tells you how you’re doing financially. It visualizes how much money you’re spending on yourself now vs saving for your future. If you have large amounts of debt or very little savings, it can be hard to imagine being debt free or having a high net worth. Instead, your savings rate gives you a pulse of how you’re trending with your spending. Knowing your savings rate is obviously useful, but what use does it have in relation to FIRE? Well, you’ve probably seen these charts floating around:

Hopefully, they look familiar. They’re from Mr. Money Mustache, Four Pillar Freedom, and My Money Blog. If you don’t have a FIRE number (the amount of savings/income you need to be financially independent and retire early), you can look at your savings rate to estimate how long it will take you to reach financial independence given your current lifestyle. These are helpful tools, but I’m here to say that when you’re as early in your career as I am, it doesn’t make a difference.

“Whaaaaaat!” you say?

Here’s the truth: I may be on track to retire by 40, but I can’t stand the idea of working at my current job or in my field for that long. I want to do work that is more personally fulfilling, but I’m also unwilling to do work for low pay. I’m used to a high salary now; giving that up would mean not maxing out my retirement contributions and saving a lot less… I just can’t make that step right now. Fighting between those two conflicting desires takes up a lot of mental effort. Honestly, discovering the FIRE movement this early in my career may have been a bit of a mistake.

I don’t plan on leaving my job anytime soon, but seeing how far away I am from FI is frustrating. To me, these charts are a constant reminder of one big thing: I need to figure out how to create alternative income streams.

What goes into improving your savings rate?

This essentially boils down to two things: increasing income and cutting expenses. I’ve already cut down my expenses significantly. My food spending, once way more than necessary, has gone down considerably. My rent is cheap, I don’t buy as much stuff as I used to, and the one big monthly expense I have, I’m not planning on giving up just yet. That leaves me with increasing income.

You may have noticed that the frequency of posts has gone down in the last two months. That’s because work has been crazy. I work longer hours than I used to, and that doesn’t make me happy. It pays well, but it’s stressful. As my current situation stands, I don’t want to move further up my company’s corporate ladder.  It pains me to write that, but it’s true. I’m a huge advocate for interviewing frequently, negotiating salary, and stepping up when it comes to your career. Perhaps I’ll write another post on what my work situation is, but for now, just know that I am content with the challenges I’m facing in my current role.

I’m not actively looking for a new job (remember, my motto is to take all recruiting calls, just to keep my interviewing skills sharp). With no pay increases on the horizon, my job does not give me the opportunity to increase my savings rate by increasing income.

That leaves… *drumroll* the magical unicorn of side hustles! This is a something I would love to do, but don’t know where to start. It’s not just about making more money. If I really needed the additional funds, I could dogsit, sell old belongings on eBay, flip items on Craigslist… the possibilities are endless. But that’s not what I want. I want to create something of my own. It’s something I’ve only started to think about this year, and I know these things don’t happen overnight. But clearly, I’ve got to boost my funds from somewhere if it’s not coming from my employer.

So, what does a 64% take-home savings rate look like?

I spend roughly $700 a month on dance lessons. I buy lots of fresh vegetables and cook predominately vegetarian meals at home, rarely eating out for lunch. Still, I eat out a few times a month, whether for date night or catching up with friends. I do have an extremely low rent, which is the single biggest advantage I have living in NYC. I max out my retirement savings, and I have auto-deposits timed with every paycheck for my other savings goals. Also, I (finally) don’t have debt.

I’m well aware that a savings rate of even 50% is difficult for many people. High living costs, debt, and raising a family can all get in the way of that. That’s why the charts at the top of this post may seem scary – if you’re like me, the savings rate you need to reach your dream goal is way higher than what you can reasonably achieve. Instead, calculate what your current rate is, then give yourself a reachable target. If you’re at 10%, aim for 20%. If you’re at 35%, shoot for 40%. Make it a Q4 goal for yourself, or a Q1 New Year’s resolution. Once you’ve adjusted your spending habits for three months, it’ll be much easier to maintain. Me? Since we’re going into the holiday season, my goal is to keep my Q4 savings rate as close to 60% as possible.

Do you track your savings rate over time? What method do you use to calculate it?


  1. “Honestly, discovering the FIRE movement this early in my career may have been a bit of a mistake.”

    Haha- while there are things I wish I learned even earlier… I feel this way too sometimes! Knowing about and pursuing FIRE is a blessing and a curse. We simultaneously look to build our future and our lifestyle while still keeping with our current jobs/life in order achieve that goal. I’m so glad I’m not the only one who feels that way sometimes 😉

    1. Author

      Agreed! I wouldn’t change my path, but it doesn’t make things any less frustrating. 😖
      Pursuing FIRE with only a three-year working career is such a double-edged sword.

  2. For my savings rate, I take my pre-tax and post-tax income, and have my savings equal my net cash for the month + any investments and equity build on my mortgage or debt payments.

    My roommates are moving out this weekend, so no more house hacking and my savings rate is going to take a decent hit… (probably 50% to 30%)

    1. Author

      That’s a savings rate formula that makes sense to me!
      House hacking sounds so nice… it’s good to take advantage of things like that as much as possible. I’m going to see a large drop in my savings rate too over the holidays, although mine is more related to traveling.

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