Your savings rate is a very important aspect of FIRE. The more money you save, the less you spend, and the faster you retire and become financially independent.

With the below simple formula, you can calculate your savings rate too!

The Simple Math
Savings Rate Equation

Savings Rate = Savings/(Gross Income – Taxes)

I will calculate my savings rate as an example, and will use my monthly gross income minus my taxes and monthly savings.

[In the example below I use what my monthly savings would be, if I were out of debt- like I plan to be in Feb 2021]

  • Monthly Savings: $6,800
    • This includes both mine and my wife’s company matches (8% and 4%)
  • Gross Income: $13,500
  • Taxes: ~30% or $4,000
  • Plugging these values into the above equation: 72% Savings Rate
Ways I Plan to Increase my Savings Rate

72% isn’t bad, but it isn’t the best either. We can always do better. Here’s what I will be implementing to increase my savings rate in 2021, when I am out of debt.

  • Reduce HOA fees by $100/month.
    • I live in a new development, HOA is still ran by the developer. In 2021, the homeowners will take over the HOA and remove unwanted services (primarily lawn care) and reduce the HOA from $150 to $50 a month.
    • This change will add 1% to my savings rate
  • Reduce Grocery and Misc Expenses by $150/month
    • We will lock in our budget a little tighter
    • This change will add 1.5% to my savings rate

As you can see, a small change of $100/month adds about 1% to our savings rate.

What can you cut out of your budget to increase your savings rate?

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