3

Surely it's not nearly as simple as (amount saved)/(take-home pay), since if I make pre-tax contributions to a 401(k) or HSA I pay less in taxes, and money I save in not being taxes is, well, money being saved.

But it's not necessarily (amount saved)/(gross wages), because after-tax savings such as to a Roth IRA or even just to a savings account are, well, after-tax, whereas gross wages are a before-tax number.

I have a feeling that an understanding of what I am paying/not paying in taxes is important to this question, but I can't come up with a simple SAVINGS_RATE = X + Y + Z equation that also accounts for taxes.

Note that I define savings as "money not to be actively spent" - so retirement accounts, emergency funds, short-term savings for vacations, etc.

1 Answer 1

3

It's the percent of your gross income put into savings. You make 60000/year, and save 6000, that's 10%. You can certainly say that you paid 10000 in tax so you really saved 6000/50000, or 12%, if that will make you feel better, but the saving rate is typically based on gross income.

1
  • This makes sense, because theoretically if I save every single penny (0% spent) I still have to pay out in taxes. So there's kind of an "efficiency limit" that prevents me from literally saving 100% of my gross wages.
    – Dang Khoa
    Apr 3, 2015 at 0:34

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .