02 April 2017

What's Your Savings Ratio?

Posted in Savings

Whats your savings ratio?

Your savings ratio or savings rate shows how much of your household income is redirected to savings. According the the US Bureau of Economic Analysis (BEA), April 2017 indicators report our US personal savings ratio at 5.60%. While this is slightly higher than in January 2017, we are still in a 5 year downward savings trend as also reported by the BEA.

How much of your income are you saving today? It's a simple calculation. Here's the formula:

Your Annual Savings / Your Annual Income

Example: Annual savings = $3,000 / Annual Income = $40,000 = 7.5% Savings Ratio

Here's a few tips to get the most accuracy:

  • Use your gross income as a base. This gives you a true picture of your savings rate taking your true household income as a base.

  • Include all income. Have a part-time job? Realized portfolio income? Income from sales of property or pension distributions. Include it all as income!

  • Include all of your savings. Retirement savings from your paycheck, automated bank transfers to savings accounts, what you're dropping in your change jar. Everything counts!

I recommend that we strive to save at least 10% of our household income. During different seasons of life this savings amount should appropriately change to fit the situation. When going through a season of serious famiy illnesses, I reduced my savings amount and spent the income on travel and family support expenses instead of creating debt. When that season lifted, I resumed my savings routine. I also recomend that you increase your savings rate as you age. My rationale here is that as you mature your earning power increases and you're eliminating debt. This makes for a smoother transition as you prepare for retirement.

Know your savings ratio and make sure that you're saving as needed. It's a crucial factor to a healthy financial life and future!

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