Savings Strategies

1 Book Topics

  • Pay yourself first: automate savings before anything else hits the checking account
  • Savings rate: the single most important financial metric; higher rate = faster wealth accumulation regardless of returns
  • Benchmarks: <10% danger zone; 10–20% average; 20–30% strong; 30%+ path to early financial independence
  • Sinking funds: pre-save for known future expenses (car insurance, vacation, gifts) so they don’t hit as surprises
  • Target: save as much as you can sustain; a consistent 15% beats a sporadic 30%

2 Savings Rate

The savings rate tells you how much of your income you’re keeping, expressed as a percentage.

Formula: Savings Rate = (Income − Spending) ÷ Income × 100

Annual dollars saved at four savings-rate tiers on a $60,000 income

Annual dollars saved at four savings-rate tiers on a $60,000 income
show/hide 
savings_rate <- function(income, spending) {
  ((income - spending) / income) * 100
}

savings_rate(income = 5000, spending = 3500)
#> [1] 30
show/hide 
def savings_rate(income, spending):
    return ((income - spending) / income) * 100

savings_rate(income=5000, spending=3500)
#> 30.0

With income in A2 and spending in B2:

=((A2-B2)/A2)*100