Savings Rate Calculator
Your Monthly Savings:
Your Savings Rate:
Understanding Your Savings Rate
The savings rate is perhaps the most critical metric in personal finance. Unlike your total income, which only tells half the story, the savings rate measures the percentage of your disposable income that you actually keep after all expenses are paid. It is the primary engine behind wealth building and financial independence.
How to Calculate Savings Rate
The formula for calculating your savings rate is straightforward:
Savings Rate = ((Income – Expenses) / Income) × 100
To get an accurate result, use your "Net Income" (the amount that actually hits your bank account after taxes) and subtract every expense, including rent, food, utilities, and entertainment. The remaining amount is your surplus, or savings.
If you earn $4,000 per month after taxes and your total spending (rent, groceries, car, fun) adds up to $3,200, your calculation looks like this:
1. $4,000 – $3,200 = $800 Saved
2. ($800 / $4,000) = 0.20
3. 0.20 × 100 = 20% Savings Rate
Why the Savings Rate Matters More Than Salary
High earners often fall into the trap of "lifestyle inflation," where their spending increases alongside their raises. Someone earning $200,000 who spends $190,000 has a savings rate of only 5%. Meanwhile, someone earning $60,000 who spends $45,000 has a savings rate of 25%. Despite the lower salary, the second person is technically building wealth at a faster relative pace and is closer to financial flexibility.
What is a Good Savings Rate?
- 5-10%: The "Getting Started" zone. This provides a basic safety net.
- 15-20%: The "Gold Standard" for traditional retirement planning.
- 30-50%+: The "Aggressive" zone, often targeted by those in the FIRE (Financial Independence, Retire Early) movement.