Savings rate calculation: Do I make it too complex?

In theory, the savings rate is easy, it is a simple formula that takes 2 input parameters: income (take home pay) and saving. Being an engineer and handy with spreadsheets, it should be easy. To be sure, here is the formula #amount saved/#amount take home pay. An 8 year old could do this, right? I do struggle with amount saved. The reason is the way I budget: not only for emergencies, but also for longer term goals and some general goals: like the kids. Do I complicate the issue? After some reflection, here is the result per savings category

1- I set aside each month 1/12 of known yearly expenses like the house tax, car maintenance… As this is front running on a genuine known expense, it feels correct to count it as an expense: NOT included in the savings rates.

2- As a family, we subscribe to a plan that covers our health insurance as from our pension age. We had medical acceptance tests last year, and we make monthly down payments now in a savings fund. It is also some sort of front running on a future expense, but the expense is optional. Included

3- monthly mortgage payment: Each euro that goes into the mortgage principal repayment is for me a euro saved, as it counts towards the increase of my total net worth.  Included. That being said, I do not include my house in my F-money.

4- monthly saving for future holiday. This is a tough one. It is front running of expenses, but at the same time, it is not sure that the expense will occur. Included

5- monthly contribution to tax advantaged pension accounts. This is money that I set aside for later, and is strongly regulated by the belgian laws. Included

6- emergency fund saving: Included. To compensate, I count using the money as an expense, thus lowering the savings rate of the month when the emergency fund is used.

7-  other saving: house upgrade, general saving for the kids,… Included. To compensate, I count using the money as an expense, thus lowering the savings rate of the month.

8- employer contribution to pension plan (only the part that is not for insurance): NOT INCLUDED. I think I actually should include this, but getting the correct data is not straight forward (it is a contribution that combines a health insurance and pension saving) I will analyse at one point in time what would happen if I only include the savings that truly go the freedom saving. It will disappoint me I am afraid…

Some interesting literature on the topic:


2 thoughts on “Savings rate calculation: Do I make it too complex?

  1. Hi ATL,

    Thanks for including a link to my post.
    I’ve since had some more thoughts on Savings rate (as if that first post wasn’t long/complicated enough) so really I should post an update. It’s more related to Net Worth and Savings rates and mortgages, which pretty much everyone will run into at some point or another.

    From your above list the things I would do differently are:
    2. Not sure – depends how likely this expense will be. If very likely then don’t include
    3. Not included – You are paying off debt so this for me is not savings (As you mention it is not going into your FU Money). It’s kind of a neutral as it’s not saving but it’s also not spending (the interest is spending, obviously). Maybe I am onto something there… 🙂
    4/6/7 – I think you have hit the nail on the head with this to keep things simple. Money not spend that month is savings pure and simple as you don’t know when the spending will happen. As long as you count the spendings on holiday, emergencies and house upgrades when they happen then fine. You may find you end up having negative savings rates in certain months if expenses are large… so what? The long term picture is what is important so don’t threat about month to month swings, looking at the yearly or longer terms it where you want to focus.
    8. I would definitely count this so you need to find out how much is going into your investing pot!

    Cheers 🙂


    1. Thx for the feedback. I am in the process of rethinking my Savingsrate definition and will update once I have a better view.
      It is related to the mortgage (see saving rate update of May – coming soon)

      Working with a negative savingsrate seems to be the logical thing to ,do for me in case of the use of money for the house or holiday…

      Let me sleep some more nights on it


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