How to Calculate Your Savings Rate
Your savings rate is the biggest predictor of financial independence. The exact formula, what to include, and what a good savings rate target looks like.
Two people earn $80,000 a year. One saves $8,000. The other saves $40,000. In twenty years, the gap in their net worth will be staggering — not because of salary, but because of savings rate. Your savings rate is the percentage of your income that you keep and invest rather than spend. It is the most powerful lever you have in personal finance, and most people have never calculated it.
The savings rate formula
The core calculation is straightforward:
Savings Rate = (Amount Saved ÷ Gross Income) × 100
Example: $2,000 saved ÷ $8,000 gross income = 25%
The debate is whether to use gross income (before taxes) or net income (take-home pay). There is no universally right answer, but here is the practical difference:
- Gross income basis is used in most FIRE and academic literature. It makes comparisons between people easier because tax rates vary. Your RRSP or 401(k) contributions come out before tax, so using gross income captures them correctly.
- Net income basis is more intuitive for day-to-day tracking. You only control your take-home pay, so measuring what you save from it feels more honest.
Pick one and be consistent. The method matters less than the habit of measuring it monthly.
What counts as "savings"?
Savings is not just money sitting in a bank account. Include everything that is building your net worth:
Retirement account contributions
RRSP, TFSA, 401(k), pension contributions — these are savings even though you cannot immediately access them. Include employer matching contributions as income and as savings.
Non-registered investments
Money you put into a brokerage account, index funds, ETFs, or individual stocks. Include net new contributions, not investment returns.
Mortgage principal paydown
The principal portion of your mortgage payment reduces your debt and increases your net worth. The interest portion is an expense. Most people ignore this — it often adds 3–5% to your effective savings rate.
Cash savings
Net increase in your bank or HISA balance. If your cash balance is flat month to month, it contributes zero savings regardless of the balance.
What is a good savings rate?
The conventional advice is to save 10–15% of income. That is enough to retire at 65. If you want to retire earlier — or simply reach financial independence faster — you need to think bigger.
| Savings Rate | Years to Financial Independence* | What it looks like |
|---|---|---|
| 5% | 66 years | Saving almost nothing |
| 10% | 51 years | Conventional advice |
| 20% | 37 years | Solid foundation |
| 30% | 28 years | Ahead of the curve |
| 50% | 17 years | FIRE territory |
| 70% | 8.5 years | Extreme FIRE |
* Assumes 5% real investment return and the 4% withdrawal rule from a zero starting balance. Actual results vary. See our FIRE calculator for a personalized estimate.
How to increase your savings rate
There are only two ways to raise your savings rate: earn more or spend less. Most people try to cut spending first because it feels immediately controllable. But the math of income growth is usually more powerful over time.
Spending-side levers
- Find your largest expense categories. Housing and transportation typically represent 50–60% of most budgets. Optimizing these two has more impact than cutting everything else combined.
- Audit recurring subscriptions. The average household has 12+ active subscriptions. Many are forgotten or duplicated. A subscription audit often frees up $100–$200/month with one afternoon of work.
- Delay major purchases by 48 hours. Most impulse spending doesn't survive a two-day waiting period.
Income-side levers
- Negotiate your salary at annual review — or change jobs. Switching jobs typically delivers 15–20% raises versus 2–3% internal increases.
- Maximize employer matching first. A 5% employer match on your retirement account is an immediate 100% return before any investment growth.
- Bank windfalls entirely. Tax refunds, bonuses, and inheritances that go straight to investments cannot inflate your lifestyle.
How to track your savings rate month over month
Calculating your savings rate once is interesting. Tracking it every month is transformative. A consistent monthly snapshot lets you spot the months you overspent, measure whether a raise actually improved your financial position, and keep the number honest rather than relying on memory.
The simplest method: at the end of each month, compare your total net worth to last month. The increase — adjusted for any one-time windfalls — is your actual savings. Divide by monthly gross income.
TrackWorth's monthly snapshot feature does this automatically. Each snapshot captures all your assets and liabilities, so you can see month-over-month net worth growth without building a spreadsheet from scratch.
The bottom line
Your savings rate is the number that actually controls how fast you build wealth. A high-income person saving 5% will always fall behind a middle-income person saving 30%. Calculate it now, track it monthly, and focus your energy on improving it by even a few percentage points per year.
If you want to understand where a given savings rate leads you, the FIRE calculator turns your current rate and net worth into a projected independence date — which is a far more motivating number than any absolute dollar target.