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moneysense.ca, 15/03/06
How Much Do You Save?
Current issue:
I read an interesting post on The Dividend Guy Blog that he invests about 16% of his earnings and I thought it would be fun to find out how much of their after-tax savings do people save. For example, Frugal Canadian saves an impressive 50% of her income.
Since I have been religiously tracking our income and expenses for many years, the percentage of savings of our household income (excluding capital gains but including interest and dividend income) for the past few years are:
2001 – 55%
2002 – 51%
2003 – 65%
2004 – 68%
2005 – 61%
Note that until recently, we had two incomes and no kids and I count only the interest portion of a mortgage payment as an expense. So, how much of your household after-tax income do you save?
moneysense.ca, 15/03/06
To be fair, I’ve only been acheiving a 50% savings rate of my after tax income since October 2005. Prior to this, I was saving only 25%. Hopefully I can keep this up, although I am planning a wedding and, oh boy, these things are expensive!
wow, those are some huge numbers. how can you possibly save 61% and have newborn twins (as per your about page)?
awardtour: Our twins were born late last year and we typically tend to save one of our incomes. This year, I am expecting a savings rate of much less than 50%
I am in a bit of a unique situation which enables me to save a lot of money. I am 27 and no kids. I currently manage the building I live in so I don’t pay rent. I am a software developer in a niche market so I make pretty good money. The car is paid off and I have no debt anymore. I cut most of our expenses to a bare minimum(Got 50% of on our cell phone subscriptions without changing anything, no fee bank account, cheap broker etc) I have steadily been increasing this savings rate when I get pay raises. So far I have been following this approx. savings rate for about a year and a half.
Here’s normal savings rate taken from my budget xls:
Regular Savings account (For holiday, backup etc): 21.71%
Invest account: 51.09%
RRSP: 7.34% (Very low since I didn’t have much income last year since I just moved here)
Total with RRSP: 80.73%
Without RRSP: 72.81%
When I receive a bonus the same percentage goes to savings, the rest is for fun. I put my investments on standby about two month ago since I am saving up to start my own business. So right now the Investment Savings are going to my ING Account. I will be able to feel that A LOT on my investment return but to me it’s worth it. I am also purposefully lowering how much money we spend each month since I know I will take a huge hit when I quite my job.
Oddly enough we don’t miss out on anything. We go traveling, we shop, and we go out every weekend; once in a while to pretty expensive restaurants. Pay your self first is a very powerful thing. To me it took at couple of years to fully understand how extremely powerful it can be.
Michael: That is awesome! You are well on you way to retiring soon
I should clarify that my savings includes RRSP contributions which are really pre-tax savings. Also, we only have a small mortgage outstanding, so our housing expenses are very low, which could partly explain our high savings rate.
Thank you
I was a bit worried that people wouldn’t believe it which is why I put in so much detail.
And I agree to have these very high savings rates it needs to be a special situation, but it is also an excuse for other people. Im my case I would still be able to save around 50% (Taken from the prices we have in our building) if I paid rent.
I started at the 10%, which was actually tougher than what I do now, and then just kept tweaking it. It definitely becomes easier with time and it is extremely satisfying to know tha t you have a safety net instead of living paycheck to paycheck
But thanks for you blog. I read it daily.
In 2005 we invested about 30% of our after-tax income. In 2004 it was about 39%. Also, that doesn’t include what my wife submits to a company pension (which works out to about 7% of her before-tax income). We actually saved more than that but it is a little bit hard to figure out for us because we use our home equity line of credit like a high-interest bank account and I don’t have our tracking set up to easily tell how much went into that (from a net of withdrawals perspective).
80%. now that’s nuts. Not having to pay rent (or interest on a mortage) is huge though.
and why is it that most people on these “frugal” blogs work in hightech?
Should I include our line of credit interest payments as a savings or an expense? I mean it isn’t an expense. It isn’t going towards “things.” And if our line of credit was suddenly paid off tomorrow, we wouldn’t divert what was previously going to the line credit into spending.
It is think for me I would word it as “how much am I NOT spending” rather than “how much am I saving.”
awardtour: Maybe because we’ve been burned by too many layoffs
Dave: I count interest as an expense even if I borrow to invest. I don’t think too much about how to classify an expense, as long as I am consistent.
How you spend, how much you earned. how much you save. In the end if your networth not including inflated real estate prices is what matters most. Many a person today has RRSP’s and then tens of thousands of dollars of loan debt, credit card and line of credit debt. Debt interest is a killer of wealth generation, especially with rising interest rates…I Never count investments as part of my savings cause in the end there is no guarentees with anything! Cash is King. After everything I save $300.00 a month hope you save more and most importantly have cash outside of the banks as well!
We’ve always lived off one income
and invested the other
(equal incomes)
but now that we have no mortgage,
we invest more.
No kids but a money sucking travel habit.
[...] I noticed an interesting post on Hedonic Adjustment about how much of his pre-tax income he saves and spends on taxes, mortgage and other items. About six months ago, I went through a similar exercise computing our household savings rate as a percentage of net income. Here is the breakdown using gross income and last year’s numbers: [...]
20% pre-tax to savings/RSPs/pensions
35% after-tax to mortgage
the rest for cars, property taxes, utilities, furniture, fun, etc., etc.
Once the mortgage is paid, I figure our savings rate will likely be around 40% (we earn about $165k pre-tax combined; no kids). There are just too many things that require money these days. I am amazed at those of you that can save more than 50% of your income. Your incomes must be very high, or else you’re doing something different than I am. I am in my mid-30’s and the amount of money going towards 2 cars, furniture and house stuff, LCD TVs, computers, an annual vacation, property taxes, utilities, even lawn care for goodness sake, burns through a big chunk of our income. Throw in the recent engagement ring and the eventual wedding rings and wedding itself…there is no end of places to spend money.
I think it’s funny reading the posts to this question, and other questions. Those of us who frequent this blog (and I’m including myself) are definitely not “typical” people. The average family, making the average family income, living near a major work centre, has no hope of saving anywhere near the percentages I see above. With today’s house prices, most younger families are lucky to have anything left to save at all. About half the population has a net worth (including their homes) of something like $50k or less…and my guess is most of us on this blog saved that within two years. I just hope we don’t forget that we are fortunate to be in the positions we are in financially.
BTW: We try to live on one salary and bank the other. So, before we had kids it was very easy to save more than half of our household income. Also, our mortgage is close to being paid off, so our housing costs are very low, as I noted in another post. The point is not having the biggest percentage of savings, but rather knowing what the percentage is and being comfortable with it.
We live off hubby’s salary. I save all of mine and have been for many years. I spend some now and then, probably ~10%. So, I save ~90% of my salary.
I have no idea what people spend so much money on.
Oh, I agree with the other poster that I’m very, very fortunate.
Like Kimber, my one big expense is a love for travel.