Savings rate

What It Means

A savings rate is the part of your income you keep instead of spending, written as a percentage: what you saved over a period divided by what you earned over that period, times 100. What you count as saved, and which income you divide by, changes the answer, so say which version you're using. Fidelity's retirement guideline, for example, counts your own contributions plus any employer match against pretax pay. The U.S. Bureau of Economic Analysis (BEA) publishes a national version, the personal saving rate, which divides all personal saving by income after taxes.

How It Sounds at Home

• "We got our savings rate up to 20% this year."
• "Does the 401(k) match count toward your savings rate?"
• "Every raise, I bump my savings rate by a point."

The Breakdown

Formula

Savings rate = money saved in a period ÷ income for the same period × 100.

Worked example. Maya's pay for one month:

Her retirement saving is $450, which is 9% of her pretax pay. Adding the $250 transfer, she saved $700 in all, or 14% of pretax pay. Measured against take-home pay alone, the $250 transfer is about 6.4%.

What your number means. All three figures are true, and each answers a different question. To check yourself against a guideline, match its method: Fidelity's 15% counts retirement contributions plus the employer match, divided by pretax pay. Maya would need another 6 points, about $300 a month, to reach it. For your own tracking, pick one version and keep using it, so this month's rate can be compared with last month's. People chasing early retirement aim much higher; Fidelity's guide to fat FIREFIRE movementA personal finance approach, short for financial independence, retire early, built on saving a large share of income so that work becomes optional early. See more says people pursuing FIRE may aim to save 50% of their income.

Good to Know

Fidelity's guideline is to save at least 15% of pretax income each year for retirement, counting any employer match, and it assumes you save from age 25 until retiring at 67. It's a planning rule of thumb with no guarantee behind it. BEA's national personal saving rate is built another way: it takes personal income, subtracts taxes to get disposable income, subtracts spending and other outlays, and divides what's left by disposable income. Since BEA estimates it monthly, look up the latest figure on bea.gov instead of relying on a number from an old headline.

Related Terms and Categories

• Pay yourself first

  Moving a set amount into savings as soon as you're paid, before bills or spending, so saving comes first instead of from what's left.

• Lifestyle creep

  When spending rises along with income, so a raise or a new job leads to a bigger lifestyle but little or no extra saving.

• Automatic savings

  Saving that happens on a schedule without a decision each time, through a split direct deposit or a recurring transfer from checking to savings.

• Emergency fund

  Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.

• FIRE movement

  A personal finance approach, short for financial independence, retire early, built on saving a large share of income so that work becomes optional early.

• Gross income

  The full amount you earn before taxes and other deductions come out. For federal taxes, it's all income you receive unless a law exempts it.

Household money and budgeting