How Do You Calculate Savings Rate
There are a lot of different ways to calculate savings rates as Big ERN, from Early Retirement Now, points out in his post on the topic. For me, savings rate #3 in his post seems to make the most sense. Calculating savings rate based on after tax compensation and spending leads to the most pure picture of how much is being consumed and how much is being saved. Here’s the calculation I’ll use in this post to determine my 2017 savings rate:
- Numerator: Gross 401K Contribution + Gross 401K Match + Total Income after Taxes + Tax Free Reimbursements – Total Expenditures
- Denominator: Gross 401K Contribution + Gross 401K Match + Total Income after Taxes + Tax Free Reimbursements
- Numerator / Denominator x 100 = Savings Rate
My 2017 Savings Rate
Based on this calculation my 2017 savings rate comes out to 85.29%!
That’s much higher than I anticipated since we have had such bad luck this year with truck and camper repairs. My savings rate was actually right at 90% in 2016, so it’s down a little this year but definitely nothing to complain about!
I also did some awesome things in 2017 including a trip to Aruba and countless weekend trips to explore new areas. Living frugally doesn’t have to be depriving and can include having a lot great experiences!
This also includes having to maintain a tax home while traveling, meaning duplicating living expenses which increases my costs significantly. This is something that I won’t have to worry about once I reach financial independence and stop traveling. Without this additional cost factored in, my savings rate would have been around 89%.
Estimated 2018 Savings Rate in Semi-Retirement
Based on this calculation for 2018, I’m anticipating that my savings rate will be about 70%. That would be pretty amazing considering Whitney and I plan to take half of the year off to travel around Europe, Africa, and Asia! One great thing about our trip is that by utilizing credit card points for free flights and 20+ free hotel nights, while also staying in a lot of cheaper Airbnb accommodations, I plan to spend about the same amount while out of the country as we do while in the country. That means our spending should stay about the same for 2018 as it was in 2017 even including this trip!
I plan to bring in a little over half of my 2017 income in 2018 while working only half of the year since my tax rate will be significantly lower and I anticipate a little more money coming in from the blog in 2018 since I’ll have more time to spend on it while not working.
A 70% savings rate while working only half of the year sounds pretty awesome to me. This will definitely make me consider working even less in 2019 and on since even with only working 3 months per year I would expect to make more than enough to cover all expenses and still have a decent savings rate. At 3 months per year of work, I would anticipate a 50% savings rate for the year which is pretty awesome.
What was your savings rate for 2017 and what do you project it to be in 2018?