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: