When it comes to planning your financial future, it’s common to look at how much your investments are making or your employee benefits. One number can give you a birds-eye view on your overall situation: your personal savings rate.
Australian money photo by Shutterstock
Simply put, your personal savings rate is the percentage of your income that gets put towards your savings/investments and not spent. Calculating your savings rate can quickly tell you what you need to prioritise. If you’re saving 2 per cent of your income and can’t afford anymore, you may need to either reduce expenses or find a better-paying job. If you’re saving 4 per cent, but blowing 12 per cent on entertainment activities, it might be time to re-balance. As personal finance blog DQYDJ (Don’t Quit Your Day Job) explains:
More appropriately, I like to direct people to savings rates by age group and savings rates by income. Those calculators give a (still rough, but more refined) estimate of how others in your demographic are saving. If you’re 30 years old it’s better, for example, to compare yourself to 30 years olds than 65 year olds — you have completely different goals. Ditto for folks with wildly different incomes.
Your personal savings rate is obviously not the only piece of information you should be paying attention to. But it can be more important than other numbers that get more attention. How much you save is the foundation that all your other long-term financial health is built on.
Why Should You Track Your Savings Rate? [DQYDJ via Rockstar Finance]
Comments
2 responses to “Calculate Your Overall Savings Rate To Measure Your Financial Health”
What is the point of this article? What is it really suggesting? Where is the formula to check/calculate the overall rate? How can you simply say 2% or 4%, do you not take into consideration the exorbitant rates that the local councils are enforcing, the total cost of living and every insurance company, be it health, vehicle, home, etc are all increasing by 10-15% every year. What do you do? Find a job that increases your pay every year by 10-15% just so that these guys can be paid?
Say you are not able to save 2% even after shaving off all expenses – the suggestion –> Find a better job… Where from?
There are 100’s of jobs on Seek, but there are 2 bottlenecks there – 1. the inexperienced backpacker agents, that can speak the queens English (their only qualification at that job) who cannot understand much other than buzzwords. 2. The lack of real jobs, if 5 agencies advertise the same job, that’s not 5 jobs.
How save more – earn more or spend less. One of those is often harder to affect than the other, and most people get that wrong.