Focus on Savings Rate Percentage Over Specific Numbers

When you talk about saving money, there are typically two ways to approach it. The first is to look at how many dollars you’re able to save over a given time period – such as a year or each month. This is helpful sometimes because it gives hard numbers to things. Everybody understands what it means to save $100. Perhaps it’s easier or more difficult for some people to save a specific dollar amount – after all, you can’t really save more than you earn – but it’s to-the-point.

A second way to look at the equation is to not focus as much on a specific dollar amount, but instead pay attention to what percentage of your income you’re able to save. This is effective for a couple reasons.


First, it genericizes the numbers. Whether you earn $20,000 or $200,000, you’re able to understand what saving 10% means to you. This can make it much easier to understand and apply principles to your own life.

Often when people read success stories of others, they’re amazed at how individuals are able to pay off massive amounts of debt or save up tens or hundreds of thousands of dollars. Their rebuttals will include things like “of course it’s easy to amass $20k in an emergency fund when you’re making $100k a year. It’s impossible for me, I only make $50k.”

These arguments focus strictly on the first method – of looking at savings as a number equal to everyone across the board. If the individuals who make these arguments instead look at the equation with a percentage view, it changes the tone. Instead of comparing salaries, they can compare savings rates.

Let’s say the individual making $100k/year has a savings rate of 25%. Applied to the lower salary, they’ll naturally save half as much. But when you don’t need to spend as much money to live your life, you don’t need to save as much, from a dollars perspective.

Savings Rate

Understanding this concept is a key to really getting at the root of lifestyle inflation and how it can be like a weight around your ankles. As you earn and spend more money, it’s easy to see how it feels like a never-ending rat race. Sure you may be able to save more, but since you’ve got this new fancy standard of living, you now NEED more as well.

It can be deceiving if you don’t understand this. Let’s say for example that you are currently earning $4000 a month. You’re able to save $1000, for a savings rate of 25% (yes, I know this is overly simplified…deal with it). You bust your butt at your side hustle, and next month you’re able to bring in $5000. Overjoyed with the increase in income, you try to be a little smart with it. You decide to save an extra $200, and spend the $800 to enjoy the fruits of your labor. After all, what’s the point in earning money if you can’t spend some of it?

You’re happy, right? By earning that extra money you were able to save an extra $200 this month!

Except your lifestyle just inflated, and your savings rate went DOWN to 24%.

Rinse and repeat over a lifetime of earnings, raises, and lifestyle inflation decisions. It’s easy to see how you can get into the habit of thinking that you’re better off, but when your expenses increase at a rate higher than your savings, you’re in a vicious cycle that can be difficult to get out of.

Grow the Gap, Bank the Gap

The easiest way to avoid this sort of trap is to focus on growing the gap between your income and your expenses. There are obviously two sides of the coin, and depending on what kind of person you are, you may enjoy focusing on one over the other. There are pros and cons to both, and easy aspects and difficult aspects to both as well.

Decrease Expenses

On the spend side of the equation, there are likely at least a few things you can do to cut down on your expenses. I was looking at our cable, internet, and phone bills this month and figured that we can probably shave about $160/month off of these expenses if we do some shuffling around. It’ll require an initial investment for some new phones, but it’ll pay itself off in a few months and then keep our expenses low. Unfortunately we’re locked into contracts right now, but I’ll make a post about this once we can make the change.

There will be people who say they have no way to lower their expenses. Generally speaking that’s a false statement. If you consider yourself in this camp for whatever reason, there are one of two things happening. Perhaps you’re either already extremely frugal (as in, Early Retirement Extreme who lives on $7k/year frugal). If that’s the case, awesome; you are well on your way and have half the battle figured out already. Otherwise, you’re not looking – or don’t want to look – hard enough to find savings.

Decreasing expenses is a great maneuver to help keep your costs down over time. Cutting out an expense can save you money in the short-term, and if you don’t go back to that habit, you save money every single month.

Increase Income

Income can be the fun side of the equation to impact. Seeing more money come in can be a great feeling. You’ve worked hard for that money at some point, and it’s nice to be rewarded for your work. The nice thing about focusing on income is that it has virtually unlimited potential upside. All you need is the determination and wherewithal to grow your income, and you could feasibly start a multi-million dollar business.

Just increasing income is a slippery slope if you haven’t nailed the basics yet. Depending on where you are in your journey it might make sense to start on the expenses side of the equation first.

If you’re still working a 9-5 like me, chances are pretty good that your job is your biggest income generator. While there is opportunity to increase income through raises, new jobs, and bonuses, the fact is that unless you’ve got a side hustle, you’ll likely see a more immediate pay-off if you focus on decreasing expenses.

Ninja Hack Your Savings

If you seem to struggle with savings, inching toward your goals can make it a lot easier. If you’re currently only able to comfortably save 4% of your paycheck in a 401(k) and need to contribute 24% to max it out, that extra 20% is going to hurt most likely. Don’t try to do it all at once. That’s a recipe for disaster and disappointment. Instead, start increasing your contribution percentage by 1-3% every month or two and slowly grow to hit your goals.

This isn’t a race, and it’s not a competition. Instead of looking at people and seeing how many digits their savings are, focus on how you can increase your own savings rate. The less you need to live, the less you need to save, and as you inch your savings rate higher, you’ll naturally get there more quickly.


When you figure out how much you’re saving, do you focus just on the dollar amount, just on the savings rate, or both?

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  1. You know, since we started calculating our savings rate, we focus on that number. We generally shoot to save 50% of our income, but as of late that hasn’t been happening (car repairs are bleeding us alive, I swear).

    1. Car repairs can be a huge dinger! But if it’s cheaper than buying a different car, I typically suck it up and deal with it. Sucks, but such is life sometimes…

      Since we are able to live off one income, we’re always saving a fair amount. I’d love to get us to the point earnings-wise where we’re able to live off the smaller of our two incomes, that way our savings percentage by definition is more than 50%! We’re not there, but we’re inching toward it…

  2. I need to go back and recalculate our savings rate after a lot of changes this year, but I really like this metric as an indicator of our financial health and savings goals. Like you mention above, the savings rate is the great equalizer and is does not lie when your income increases.

    1. Yeah it’s not exactly the most straight-forward thing to calculate since you need to take taxes into account as well, but it’s definitely worth the effort. For us, I just kind of gut-check it, and if we’re able to save 100% of one income and a chunk of another it is easy enough to estimate that way. 🙂

  3. I have never focused on the savings rate. In fact, until this month, I’ve never even calculated it, monthly or even annually. If I’d kept track, I’m pretty sure that we would have saved around twice our annual expenses (~2/3 of our income).

    I have tried to focus on ensuring that all our needs are met and the important wants (travel, experiences and a small fun money allowance).

    Fortunately, over time, that has grown enough for us to reach financial independence.

    Aside from saving and living below our means, I give ignoring my investments and compound interest a lot of credit for getting us where we are today.

  4. Totally agree with you! I earned a lot more in 2016 than I will in 2017 because I had a higher paying internship, but my savings rate has been the same. This makes me feel like I am doing all that I can even though I am not saving the same amount.

    1. Yeah it definitely flexes with income nicely…

      Going down in income isn’t ideal, obviously, but having some consistency and knowing you’re still making good progress is very important.

      Thanks for commenting Patrick!

    1. You’re welcome! Let me know how it goes.

      Biggest drawback is that it isn’t the easiest to set up systems to automatically do this. 401k you can most of the time but not for others.

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