# what should your personal savings rate be?



## the-royal-mail (Dec 11, 2009)

A comment from MG about personal savings rate in another thread got me wondering what the target number is for a personal savings rate. I know we've discussed the tiers of savings many times, but that is usually expressed in terms of time or dollars, and not as a _percentage_ of your salary.

I searched CMF for past discussions about target "savings rate" but couldn't really find much. 

So CMFers, what is the ideal personal savings rate? That is, disposable income after your bills and payments are paid each month/year.


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## brad (May 22, 2009)

As we've said before, percentages are meaningless. If I earn $20,000/year I might be very lucky if I can save 1% of my income. If I earn $200,000/year and I'm only saving 1% of my income that would make me a spendthrift. If I earn $200,000,000/year I could probably save 95% of my income and live comfortably on the leftovers.


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## KaeJS (Sep 28, 2010)

Ideal is 50% for me.

However, I realize that if you're single and living on your own, it can be hard to do if you have a low salary.


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## hboy43 (May 10, 2009)

Hi:

I was probably at 30 or 40% until I married at age 35. My wife and I are likely at about 20% average the last 14 years.

For a more balanced life, probably 15 to 20% will leave someone in good shape by the time they are 50, without missing out on much in between.

hboy43


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## Montrealer (Sep 13, 2010)

Minimum 10% of my income goes into a HISA (high interest savings account) for a rainy day, future investment opportunities or as an emergecy fund etc. 

The rule is to pay yourself first and ALWAYS live on the 90% as if that is what you make. 

I always pay myself first...


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## CanadianCapitalist (Mar 31, 2009)

brad said:


> As we've said before, percentages are meaningless.


I agree. The savings rate will also depend on family circumstances. Example: a young couple with a couple of kids likely have less capacity to save compared to a DINK family. I think it is important for all of us to save "something". But it is up to us to find that balance between living today and saving for tomorrow.


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## marina628 (Dec 14, 2010)

I set my five year goals for savings and investments and figure out how much I need to put aside each month to get there.


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## Guigz (Oct 28, 2010)

Ours hovers around 60-70% (of net) if I include the amount that I am prepaying to my mortgage. We are DINKs in our late 20s.

Saving rate is highly relevant to when you want to retire. If you save 5%, for each 20 years that you work, you get to take 1 off (ignoring returns). If you save 70%, each year that you work allows you to take 2.5 off.


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## uptoolate (Oct 9, 2011)

Agree that the percent rate is not very useful. I think the same is true when one is doing retirement planning and aiming for 70% of pre-retirement income or some other percentage. 

We have tried to make it 50% of net for the last 10 years as trying to do the Freedom 55 thing! There was no way to do that early with young kids and less income.


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## crazyjackcsa (Aug 8, 2010)

Two kids, mortgage, combined net income of about 45k. Savings rate of 8% (when you include tax refunds, which goes to savings).

It can be done, but percentages aren't useful, nor are averages.


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## Guigz (Oct 28, 2010)

uptoolate said:


> Agree that the percent rate is not very useful.


It is not very useful as a comparative tool. However, it is highly relevant to your own retirement date as explained in my post earlier.

If you plan on spending 70% of your pre-retirement salary, for each year of saving X%, you get 1/3X years of retirement.


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## Plugging Along (Jan 3, 2011)

Savings calculations just like net worth are somewhat subjective. It's easy to save cash savings, investments, rrsps. Do you include your pensions contributions? Employer contributions? Pre mortgage payments? RESPs? Is it just retirement or long term savings, or how about if you are saving for the vehicle that will eventually breakdown. What are the time frames to consider it savings? Just curious. 

In terms of percentages, I think it really depends on the specific life situations. Right now, our savings rate seems relatively low, even though we are high income. We are only saving under 20% of our income. We currently have two young kids that cost us alot. Once our kids are both in school full time, and hopefully public school, we will be able to save alot more.


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## MoneyGal (Apr 24, 2009)

I'll throw human capital into the mix too. It's (maybe) still my most valuable asset, although I can't trade it, it isn't liquid, and I can only monetize it slowly and with some effort.


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## brad (May 22, 2009)

Guigz said:


> If you plan on spending 70% of your pre-retirement salary, for each year of saving X%, you get 1/3X years of retirement.


But even that 70% figure isn't universal and doesn't apply to everyone, so it should be adjusted for individual goals. Some people can get by happily on 30% of their pre-retirement salary, for example. You have to look at your current expenses and figure out which ones will be going away (e.g., mortgage, RRSP contributions), add inflation assumptions, build in a cushion for emergencies and repairs, tax hikes, etc., and take a guess. But it's not going to be 70% for everyone.


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## the-royal-mail (Dec 11, 2009)

I mean pure savings after your bills are paid. I guess you could break it down one step further by giving the % before and after savings for things like RRSPs and pensions. I just manage things differently. I save all year and then at the end of the year I evaluate everything and make decisions then about where to allocate the funds. Maybe this % thing isn't so meaningful. It was that 12% comment MG made in the other thread that sort of sparked the question in my mind "if 12% isn't acceptable, what is?"

Maybe I should just stick to my tiers lol.


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## Ihatetaxes (May 5, 2010)

Will probably put $100k into savings/investing accounts in 2012. The last few years the emphasis was paying off the mortgage as long as RSP's were maxed. Now that its gone (as of last May), the RSP's, TFSA's, RESP's are easily maxed and should be able to put another $50k into non-registered this year.

Also budgeting $25k for some home renos that have been on the waiting list for few years, $10k for vacations, $35k for daycare.


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## Guigz (Oct 28, 2010)

brad said:


> But even that 70% figure isn't universal and doesn't apply to everyone, so it should be adjusted for individual goals.


I was not saying that 70% of pre-retirement is needed for everybody (actually, I dont think it is _needed_ for anybody, but that is another story), I was responding to Uptoolate's comment. 

My point was mainly that saving rate in % is very pertinent to when you can retire since the more you save and the less you spend, the earlier you can retire...


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## Plugging Along (Jan 3, 2011)

the-royal-mail said:


> I mean pure savings after your bills are paid. I guess you could break it down one step further by giving the % before and after savings for things like RRSPs and pensions. I just manage things differently. I save all year and then at the end of the year I evaluate everything and make decisions then about where to allocate the funds. Maybe this % thing isn't so meaningful. It was that 12% comment MG made in the other thread that sort of sparked the question in my mind "if 12% isn't acceptable, what is?"
> 
> Maybe I should just stick to my tiers lol.


I think everyone should just stick to whatever makes sense for them. If they are savings, staying out of debt, and able to manage the larger purchases later in life, and have money to retire, I think how ever they do it is fine. I seem to think how I do is really different from most here, but it works for me.

In terms of percentages, our focus has really been paying off our non deductible mortgages. Last year we didn't max our rrsps, haven't started out Tfsa, however we did put over 100k in our mortgages last year and paid off our main house. I don't count that as savings though.



Ihatetaxes said:


> Also budgeting $25k for some home renos that have been on the waiting list for few years, $10k for vacations, $35k for daycare.


Have you ever considered a nanny. I found we pay a little less than that and we get so many other benefits compared to daycare.


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## Ihatetaxes (May 5, 2010)

Plugging Along said:


> I think everyone should just stick to whatever makes sense for them. If they are savings, staying out of debt, and able to manage the larger purchases later in life, and have money to retire, I think how ever they do it is fine. I seem to think how I do is really different from most here, but it works for me.
> 
> In terms of percentages, our focus has really been paying off our non deductible mortgages. Last year we didn't max our rrsps, haven't started out Tfsa, however we did put over 100k in our mortgages last year and paid off our main house. I don't count that as savings though.
> 
> ...


My kids are in a Montessori program that they absolutely love so it's worth it to us. They are learning a lot plus having tons of fun with other kids. With colour webcams we can check in anytime to see what they are up to and they have an onsite chef cooking all the food from scratch (they eat better lunches than I ever do). I know there are great nannies out there but around here most are Pilipino and barely speak English plus behind closed doors you never know what is going on especially with infants and toddlers who can't talk yet to tell you about their day. Yes the cooking/cleaning/babysitting at night would be great but I would never want a live-in as I value my privacy too much.


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## Sampson (Apr 3, 2009)

I don't think it is meaningless.

As long as you are using the same units (i.e. savings AND spending rates as a % of income) then you are fine.

The problem is many people think savings rate in %, but expenses as absolute values.


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## Plugging Along (Jan 3, 2011)

Ihatetaxes said:


> My kids are in a Montessori program that they absolutely love so it's worth it to us. They are learning a lot plus having tons of fun with other kids. With colour webcams we can check in anytime to see what they are up to and they have an onsite chef cooking all the food from scratch (they eat better lunches than I ever do). I know there are great nannies out there but around here most are Pilipino and barely speak English plus behind closed doors you never know what is going on especially with infants and toddlers who can't talk yet to tell you about their day. Yes the cooking/cleaning/babysitting at night would be great but I would never want a live-in as I value my privacy too much.


Got it. My kids are in Montessori too, best choice for my kids too. Unfortunately, the best Montessori program in our area, does not have daycare, so we have a nanny on top of that too. I feel your pain on the costs. For us, I think kids are the most expensive expense we have. We could have done it alot cheaper too, but have decided to be frugal in others ways. I can't wait into both are in school, no more private school fees (hopefully), and no more child care expenses. I think we will be increasing our savings by another 15% then. Well maybe not, there always seems something we have to pay for, man kids are expensive.

Oh, don't think that you get free babysitting at night, you don't!


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## meddlesomemarmots (Feb 16, 2011)

Our household savings rate is around 50%, at a combined salary of just over 50k - but as everyone has said, everyone is different, and at different stages. We're trying to save up for 5 years to be able to start a family, and then the savings rate will fall off a cliff.


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## steve41 (Apr 18, 2009)

This is not a tricky subject.... you can rattle off a few simple numbers...

-salary, when you expect to retire, expected salary growth trajectory
-how much already in savings (reg, nonreg, tfsa)
-loan/mortgage stats
-goals (die broke or leave an x$ estate)
-pre-post lifestyle differential (70%, 80%...)
-your estimate of market&inflation %s

Plop these into a calculator and immediately come up with a savings rate, both current, and future. (it will change over time, BTW)

You can do this in about the time I took to compose this post.


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## mind_business (Sep 24, 2011)

The ideal savings rate is dependant on your circumstances and goals. My wife and I are 45, no kids, single income family. We no longer have a mortgage and don't have expensive tastes. This affords us the ability to save at a relatively high rate. 

Savings rate comparison to net income = 59%

Savings rate comparison to gross income = 39%


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## Jon_Snow (May 20, 2009)

Our mortgage has recently been reduced from 1200 monthly to 300. As a result our monthly savings rate is 67%. 5000k (or more if we are particularly frugal that month) is available at the end of the month for savings ... I'll leave the fancy investment strategies to KaeJS, ddkay, and the rest of the whizzes - this is my own path to Financial Independence.


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## MoneyGal (Apr 24, 2009)

My original comment (that TRM was responding to with this post) wasn't intended to suggest there is a "right" personal savings rate. 

I was just thinking that a single guy, with that level of income, is not saving very much. He doesn't have the kind of unavoidable expenses that others have detailed in this thread, and relative to what I can intuit about his needs based on what he said, he isn't saving very much. And then I expressed it as a percentage, to go beyond the raw number.


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## doctrine (Sep 30, 2011)

The Wealthy Barber has long been the measuring stick on this subject. He originally said 10% of income. In his new book, he suggests with lower investment returns, that should increase to 20%. 

If you save 20% of your gross income throughout the 30-40 years of your working life, you will be able to achieve your retirement goals. You don't need to save 75% of your income.

Someone I knew died, his wife predeceasing him died a few years before, had no kids and more than a million dollars in the bank. Makes you wonder what is most important in life.


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## slacker (Mar 8, 2010)

Run RRIFmetic, and figure out how much to save, so that you don't over spend and you don't under spend. Smooth it out.


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## nathan79 (Feb 21, 2011)

25% is my personal target... that's on a after-tax income of 27,500. I hope to hit 50% in a couple years with expected earning increases.


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## Ethan (Aug 8, 2010)

We saved ~40k on household income of ~135k. Largest expenses were mortgage payments, taxes, holidays and the $15k we spent on the house. Expecting a 20k increase in earnings this year but would like to save a similar percentage. Saving as much as we can before kids eat into our ability to save.


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## steve41 (Apr 18, 2009)

nathan79 said:


> 25% is my personal target... that's on a after-tax income of 27,500. I hope to hit 50% in a couple years with expected earning increases.


That's the way it generally works.... when you are starting out, raising kids, paying off debt, early in your career... you have less (maybe even zero) to save. This changes over time. A single pct savings rate is wrong-headed, unless looked at in the context of time and all the other financial entities in one's life.


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## Square Root (Jan 30, 2010)

steve41 said:


> That's the way it generally works.... when you are starting out, raising kids, paying off debt, early in your career... you have less (maybe even zero) to save. This changes over time. A single pct savings rate is wrong-headed, unless looked at in the context of time and all the other financial entities in one's life.


Agree. Most people earn more in later years and can thus save more. I didn't really save anything until I started getting option awards at work in my mid to late 40's.


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## Maltese (Apr 22, 2009)

I'm 56 with a net income of $43,000. No debts and have a grown child living on her own. I live on a budget that allows me to save between $13,000 to $15,000 per year as long as my home does not require any expensive repairs that cost more than what is already in the budget.

Despite my income being significantly lower than many on this forum, I have managed to raise a child, pay off my home, save for retirement etc by living below my means since I started working full-time 32 years ago. Many of my friends in the same occupation as me are still struggling as they never learned the power of saving.


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## KaeJS (Sep 28, 2010)

Square Root said:


> Agree. Most people earn more in later years and can thus save more. I didn't really save anything until I started getting option awards at work in my mid to late 40's.


Yet you make $400k/year in dividends? (IIRC)


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## Four Pillars (Apr 5, 2009)

KaeJS said:


> Yet you make $400k/year in dividends? (IIRC)


Apparently his option awards were pretty good. Sq Rt has indicated that he had some pretty good earning years.


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## Square Root (Jan 30, 2010)

KaeJS said:


> Yet you make $400k/year in dividends? (IIRC)


Correct. I had some very good years toward the end of my career.


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## Jon_Snow (May 20, 2009)

KaeJS said:


> Yet you make $400k/year in dividends? (IIRC)



I was thinking the exact same thing. I am more than willing to sacrifice big earning years down the road in order to quit work while I still have the vigor to enjoy life to its fullest. At some point enough (money) is enough. I am still trying to work out what is "enough" for my situation. I'm thinking 70k in dividends is ample. I'd have to work into my 60's to even think about 400k... Not gonna happen.


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## KaeJS (Sep 28, 2010)

Mr. Snow,

70k in dividends between you and your wife, or for just yourself?


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## Jon_Snow (May 20, 2009)

It would be enough for both of us... but she wants to keep working after I pull the pin. So by the time we are both done, we could be pulling in six figure in dividends. We simply couldn't spend this much in a year, given our innate frugal ways.


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## iherald (Apr 18, 2009)

Every year I look at my savings rates from the previous year and try to do 5% more. 

It isn't as much fun when you get a nice raise but your standard of living doesn't improve because you just save more, but I'm not in a bad position anyway so I can't see how my life improves by spending my raise, but my future improves by saving it.


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## Square Root (Jan 30, 2010)

Jon_Snow said:


> I was thinking the exact same thing. I am more than willing to sacrifice big earning years down the road in order to quit work while I still have the vigor to enjoy life to its fullest. At some point enough (money) is enough. I am still trying to work out what is "enough" for my situation. I'm thinking 70k in dividends is ample. I'd have to work into my 60's to even think about 400k... Not gonna happen.


I retired at 56 and am now 61. I feel very vigorous. Mountain biking, downhill skiing, as well as tough workouts (311 last year). If you keep yourself in shape you should be able to do just about anything well into your 70's. Clearly a balancing act between enough money and enough vigor.


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