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Savings rate to the rescue

Super hero with binoculars to illustrate focusing on your savings rate

This article on the importance of your savings rate is by Budgets and Beverages from Team Monevator. Check back every Monday for more fresh perspectives from the Team.

I have a new hero in life. His name is Tony Stark.

You might know him as Iron Man.

Tony Stark is a superhero and plays a key role in The Avengers. He’s witty, confident, driven, ambitious, and at the top of his game.

What’s not to like?

Sure, I know he’s not real. And that I’m about ten years late to The Avengers.

But I’m currently going through a marathon of watching the huge Marvel catalogue of films. This after revealing to my partner I’d never seen one of them during lockdown last year.

(Apparently that’s quite the sin.)

And while I can’t be Tony Stark, I can aim to emulate him – sort of.

Spoiler alert! This article won’t include images of me in tight, bright, superhero pants. Nobody needs to see that.

Rather, with my first year of investing ended, I want to tell you about my own superpower: the savings rate.

It ain’t new

So the idea of zeroing in on your savings rate isn’t novel.

In fact, it’s one of the pillars of financial independence.

But used well, your savings rate is arguably the best financial superpower you could ever have.

In one of his many brilliant articles, Mr Money Moustache describes the savings rate as follows:

… simply the percentage of your take home pay that you’re not spending.

Straightforward, right?

Yes, straightforward, but most people still treat savings as an afterthought. Whatever is left over at the end of the month is shoved into some low-interest, easy access savings account.

Earning nothing – yet so many of us do it believing it’s a good thing!

Few of us save enough, either. There are always demands on our money.

Before Covid, the average UK savings rate was between 7.5 and 8.5%. Measly.

Yet it has been estimated that in lockdown at the end of 2020 UK households had an average of 19.9% available to save from their gross disposable income. That’s much higher than before the Covid pandemic, thanks to less temptation – and ability – to spend money.

It was proof that a higher savings rate was achievable for many people.

Not easy. But possible.

One rule to rule them all

But why do all these numbers matter? Well, the higher your savings rate, the sooner you can reach financial independence.

“It’s not that simple!” I hear you cry.

It really is.

As Mr Money Moustache’s famous article The shockingly simply math behind early retirement stated:

It turns out that when it boils right down to it, your time to reach retirement depends on only one factor:

Your savings rate as a percentage of your take-home pay.

It’s that powerful.

Target locked

So what’s a good savings rate percentage to aim for?

10%? 15%? 25%?

Try 50%.

If you can get to a position where you can save half your pay packet, then you can retire in 17 years. Save even more and achieving financial independence gets ever closer.

You could start at 21 and be done before you’re 40.

For many Monevator readers, that’s exciting. But still, so many of us struggle to pay ourselves first.

The savings rate in the UK fluctuates a lot. Methodologies vary as to how to measure it. Some studies have found that the average household savings rate for the UK has been as low as 2% at times.

At that pace it would take 61 years to retire!

No wonder so many of the population seem set to work into their 70s.

How then do you reach your target?

Well, as The Accumulator says:

Hitting your target comes down to how much you can save and the returns you earn on your investments.

The second part of that statement can really accelerate your journey.

Because, while saving 50% of your pay is amazing, putting your savings back into money-making assets catapults you to a new level.

Compounding the rate

As soon as you start saving and investing money, it starts earning money itself.

Those earnings then start earning, too.

That’s the beauty of compound interest. (If I really were a superhero, I’d want compound interest to be my trusty sidekick.)

Time for an example.

Let’s say Gary saves 50% of his pay every month, without fail. That equals an annual saving of £30,000.

Gary could put that into an easy access cash savings account, which right now would earn 0.1% on average in the UK:

After a year, Gary would have made £13.75 extra.

At the end of five years, he would have saved £150,000, with £382 interest on top.

At the end of ten years, he would have saved £300,000, with compounding interest giving him an extra £1,518 on top.

Yikes. Nobody is likely to achieve financial independence ever – let alone early – this way.

Gary could instead put his savings into low-cost global index funds. These have historically earned a real return of around 7% a year.

And at 7% the maths is very different:

At the end of the year, Gary would have made £1,162 extra.

After five years, he would have saved £150,000, with £30,026 on top.

At the end of ten years, Gary would have saved £300,000, with compounding giving him an extra £135,236.

“I am Iron Man”, says Gary with pride.

See how compounding growth can super-charge your investments with our compound interest calculator.

Even Hawkeye can get in on the action

Sadly, a 7% annual return from the stock market isn’t guaranteed. But there are enough studies and examples to trust that history is on your side if your time horizon is long enough.

The power of the savings rate isn’t discriminatory, either.

If someone earns £200,000/year and their friend earns £50,000/year, but both have a savings rate of 50%, then they will be able to retire around the same time and at the same (relative) standard of living.

There really is no excuse not to get started.

How do I work out my savings rate?

The savings rate maths is easy.

Both Mr Money Moustache and The Accumulator have explained how to calculate it on an annual basis.

Says Mr Money Mustache:

(Take home pay – spending) / (take home pay) x 100 = savings rate %

Or, more wordily, from The Accumulator:

  • Take your annual net income
  • Subtract your annual expenses
  • Add all your other income streams including rentals and bank interest
  • Add pension contributions and employer matches if pensions are a factor in your plan. Gross them up to account for tax relief.
  • Don’t add investment income and gains. These are accounted for in your return assumptions.

However I’m too much of a control freak geek to wait a whole year to work out my savings rate…

Monthly magic

So I calculate my savings rate monthly and update that figure each month.

I direct a big chunk of my payslip towards the following destinations:

  • 10% to cash savings (I’m forever paranoid about my emergency fund)
  • £333.33 into a LISA (to ensure I max it out at £4,000 over the year)
  • The rest into low-cost index funds in a Vanguard ISA

I first aimed to put away a challenging 50% of my income. But I was fortunate enough to discover I could save even more.

I upped my target to 55%, and then to 60%. As the year came to a close, I found I had an average savings rate of 61%.

And although I’m self-employed, one of my clients pays into a pension for me. This means my effective savings rate is actually even higher!

Track your savings rate

For me, tracking my savings rate has been key. By following my numbers monthly I can see if my percentage goes up or down.

If it’s down, I’m furious with myself.

If it goes up, I want to challenge myself to up it again.

Yeah, I’m rather competitive.

But then again, so is Tony Stark!

But you don’t have to go so big. Find out what is right for you.

Start with 10% or 20%. That’s still so much better than doing nothing – and at the top end far better than average.

If you can save 20% rather than 10% of your income, you could take up to 14 years off your future retirement date.

Now that’s what I call a superpower.

Happy saving!

{ 36 comments… add one }
  • 1 Clara October 11, 2021, 1:06 pm

    Great reading. I’ve been putting away roughly 50% each month (albeit some savings get taken back out for lifetime purchases and special holidays….)

    How is it that someone who earns £200k and £50k can retire at roughly the same time and at same lifestyle when both putting away 50%?

  • 2 A Fan October 11, 2021, 3:28 pm

    Nice article, thanks. Out of interest, how do you treat the capital repayment portion of mortgage payments?

  • 3 trufflehunt October 11, 2021, 4:30 pm

    I prefer to use the term ‘discretionary’, which implies a rather more responsible attitude to money than ‘disposable’, as the latter reeks of consumerism, and waste.

    Is net take home pay considered to be money available after rent, or investment debt in the form of mortgage costs ? Or what arrives in your bank account after tax/employer deductions, but before any other costs?

  • 4 The Investor October 11, 2021, 4:59 pm

    @Clara — It means the same relative lifestyle. 🙂 So let’s say you were earning £50K and living of £25K after savings. You’d be able to keep that same lifestyle post-FIRE. Similarly someone on £200K living off £100K post-savings would be able to continued on their £100K lifestyle. (Presuming they followed the MMM path).

    I agree it’s a bit ambiguous — I introduced ‘relative’ into the copy in my edit but maybe I/The Treasurer should have spelled it out more.

  • 5 Al Cam October 11, 2021, 5:20 pm

    MMM gets a lot of credit for savings rate amongst other things. Try googling for a 2000 paper called “Drive Your Financial Advisor’s Porsche and Retire Before 40 — The simple arithmetic of saving and investing” by John P Greaney (JPG). Nowadays, JPG seems to be largely forgotten but IMO he comes pretty close to a FIRE superhero, see e.g. https://forum.earlyretirementextreme.com/viewtopic.php?t=10436

  • 6 Neverland October 11, 2021, 7:41 pm

    “The power of the savings rate isn’t discriminatory, either.”

    That just isn’t true though is it? Saving a high percentage of a very high income is a damn site easier than saving a high percentage of an average income. Also you just save more in nominal terms.

    Also, I have to love this example: “Let’s say Gary saves 50% of his pay every month, without fail. That equals an annual saving of £30,000.”

    Gary in your example is in the top decile of earners in the UK “With a household after tax income of £811 per week, you have a higher income than around 92% of the population – equivalent to about 60.4 million individuals.” Source: https://ifs.org.uk/tools_and_resources/where_do_you_fit_in

  • 7 never give up October 11, 2021, 7:44 pm

    I enjoyed reading this. Yes the savings rate really is a super power. Just as important though is not being scared to invest. That was always my problem but thankfully MMM and Monevator helped cure me. I just wish I didn’t look so ridiculous wearing a cape.

    What I think is so powerful about the savings rate (other than the maths you have clearly articulated) is the cascading knowledge that comes with calculating it. If someone knows their savings rate then they are tracking their expenses. Tracking their expenses means they know where the money is going. Knowing where the money is going helps someone understand their relationship with money. This helps them question how they want to spend their money, the consequences of spending it e.g. the environment, and how their expenses may change over time.

    The very nature of the savings rate leads to an estimated time to retirement. This provides someone with a path to learning about withdrawal rates and well just the knowledge that a number does exist that could be retired on. Retirement is possible! How exciting!

    Phew, I’m exhausted just from the excitement of thinking about it all. I wouldn’t make a good super hero!

  • 8 Christopher Howes October 11, 2021, 8:53 pm

    The best planning for your savings is to die with no assets….Spend it, give it away while you’re alive, enjoy it and let people in your life enjoy it and ‘die with nothing …….’

  • 9 Gary Cooper October 12, 2021, 3:25 am

    @ Neverland ………I think this was aimed at me.
    I was putting 20k into an isa, minimum of 1k into a gia and 14k(gross) into a pension each year; giving a 52% savings rate ! and my name is Gary !!!!

  • 10 Neverland October 12, 2021, 9:19 am

    @Gary

    Congratulations you earn more than 92% of the UK population. Now, why do you think you can save so much, because you are good at earning or good at saving?

    The elephant in the room in all FIRE conversations is that it is easy to save a lot under certain lucky circumstances earn a lot, live with parents, etc.

  • 11 The Investor October 12, 2021, 10:13 am

    @Neverland — We all understand it’s easier to save £20,000 if you’re earning £50,000 than, say, £20,000.

    The reason people don’t bang on about it is because it’s bleedingly obvious.

    The point is to get started however you can. If that involves getting a pay rise / side hustle to boost your savings, then I’d applaud it.

    But if we ran such an article I am 100% certain you’d be first to comment about how most people who earn more money have high-spending lifestyles, with a link to one of those “struggling on £100,000 a year” articles.

    As intermittently is the case, your point is valid and if you were most commentators I’d say nothing and even appreciate the contribution.

    But your relentless negativity turns you into a stock character I’m afraid. As I’ve said before, I think that’s a shame. 🙂

  • 12 Seeking Fire October 12, 2021, 11:05 am

    Indeed.

    Always at the end of each month try and save / invest something.

    I remember post my first pay packet thinking I can sock away a few hundred pounds here that’s awesome.

    Now I am in the enviably / very lucky position of being able to put away up to 85% of the monthly net salary.

    But to get to those % you have to be lucky enough to get to a high paying job and then be moderately intelligent or restrained enough not to waste it all.

    Just get into the habit of saving at least something when you start out and grow that as you do.

  • 13 Cleanshoes October 12, 2021, 11:21 am

    I think the savings rate shows the benefit of employer pension contributions / matches to really turbocharge the rate. Always amazes me when people don’t max them out, literally turning down free money (there will obviously be exceptional cases but as a general rule it just doesn’t make sense not to take it).

    Be interested to know where people stand on including mortgage payments in the calculation? I would be inclined to include overpayments (on the basis you could allocate elsewhere if so wished) but not the regular payment…

  • 14 LALILULELO October 12, 2021, 11:54 am

    We’ve done pretty well so far not succumbing to lifestyle creep, but its always a welcome reminder.

    For my spreadsheet I use take home pay plus company pension contributions, my share scheme contribution plus the 50% company match.
    With regards to mortgage payments as I’ve only ever taken it as an expense (including the overpayments) but I’d be interested in how others account for it.

    As an aside, I’m definitely in the ‘sleep better at night once debt free’ camp, hence the overpayments but as we get closer to the term date I’m starting to get itchy feet about leaving all this cheap money on the table…

  • 15 Peter October 12, 2021, 1:02 pm

    Could someone explain how compounding works using index fund example? I know theory a bit but then in practice all I see is: I am buying X number of index fund units, these then go up and down in price as the time flies. I struggle to see where is compounding magic in this.

  • 16 mr_jetlag October 12, 2021, 1:15 pm

    @Peter #15

    So say you’ve invested into an index fund, and for simplicity’s sake bought 100 units at £100 each (£10k invested). Let’s say they did well and the valuation after 1 year is £120. You’ve made £20k! (the fund made a little more than that, but took its expenses out to pay salaries etc.)

    Some funds offer “accumulation units” meaning your gains would compound automatically for you. No need to reinvest any income (usually paid out as dividends). Some funds are “income units” meaning gains are paid out in dividend form, and you would have to proactively buy more units at the current price to reinvest those gains into the same fund. (You could of course reinvest them elsewhere, or spend them).

    The magic of an ACC fund is in reinvestment being the default, allowing compounding to do its thing.

  • 17 The Investor October 12, 2021, 2:10 pm

    @Peter — This is one of the problems with passive writers abstracting so far away from the underlying assets (including us, at times).

    Your index fund invested in equities — that is it owns companies. Over time, a preponderance* of these companies will grow earnings and basically reinvest in their business or pay out dividends. Reinvesting produces more growth, which in time is reflected in higher share prices. Dividends are returned to shareholders, which in an index fund are either totted up and paid to you, with Inc units (which you’d have to reinvest yourself to benefit from future compounding) or else in an Acc fund that process is effectively done for you.

    The result is over long-ish periods the value of the companies in the index will rise and/or they will pay out lots of capital that is reinvested by the fund into buying more stock.

    Let’s say the net result is an average 8% return every year, after fees. (In practice it will be more or less in any one year). Over time that underlying growth is compounded, many times over, to produce your returns.

    *Yes, simplifying. Research suggests that it’s a minority of companies that deliver most of the gains. So it’s more accurate to say “the total market cap of all the companies in the market-cap weighted index will grow over time as the companies in aggregate grow profits and reinvest their earnings or pay out dividends.” But that’s pernickity for our purposes here, especially as being an index fund investor you don’t need to worry about such fine detail. 🙂

  • 18 The Investor October 12, 2021, 2:20 pm

    @Cleanshoes — If I was calculating my savings rate I’d definitely take the mortgage into consideration.

    What matters is not overpayments per se (they are important but not any different to any other payment) but the nature of a repayment mortgage.

    As you know, every month some of your money goes to repaying the mortgage, and some goes towards paying off interest.

    The former is savings — you are ‘growing’ your savings by reducing a negative balance.

    The latter, the interest payment, is a cost/expense. It doesn’t count towards savings.

    To make this very clear, I have an interest-only mortgage. This means I have a big debt and interest payments each month, but I pay no capital off unless I choose to make a one-off payment.

    Let’s say it’s a £500,000 mortgage (because it is). Let’s say I get £1,000 as a pay rise, and I am trying to decide whether to save it or to start paying off the mortgage (which is effectively a ‘negative £500K savings account’).

    If I choose to put it into a cash savings account, everyone would agree it’s savings and they’d count it in my savings rate.

    However, if I use it each month to pay off my mortgage, it’s effectively the same.

    Ignoring interest expense changes (which would come down as the mortgage balance falls over time):

    — Save £1K a month for a year. After 12 months I have £12,000 in cash and £500,000 still on my mortgage. Net I’m £488K in debt.

    — Pay off the mortgage with £1K a month. After 12 months I have £0 in cash and £488,000 on the mortgage. Net I’m again £488K in debt.

    People get confused about this sort of thing because they think silly things like ‘my own home is NOT an asset or an investment’ (it is both) and ‘capital repayments in my mortgage are an expense’ (they are not, they are saving 🙂 ).

    Note that when I say ‘people’ this includes many PF bloggers and readers of this website, so this is just my view on things. 🙂

    Some more articles on this subject:

    https://monevator.com/why-house-is-an-investment-and-an-asset/

    https://monevator.com/debating-own-home-net-worth/

    https://monevator.com/why-im-not-scared-of-my-interest-only-mortgage/

  • 19 SirRik October 12, 2021, 2:38 pm

    Interesting article, thanks from Italy I’ve been always good at saving, both when I started my working experience and now. Obviously, the more you earn the higher can be the saving rate and now 60% is a standard. But I know people earning the same and complaining continuously: some questions and you see they don’t manage their savings, they don’t invest, they spend a huge amount of money on silly things, or, often, they don’t know exactly how they spend money! No tracking, no financial culture, nothing…and sometimes they are managers in big companies. When I try to teach young colleagues what I mean with “creating a culture about saving” I use to say: “save aggressively, but live without renouncing too much”…it seems a paradox, but it’s not: you need the right mindset, no matter if you earn 20kEuros per year, 60k or 100k. Some strategies can be really useful: set aside money when you get your salary, not one month later; move your funds in a different account, so as to not consider spending them unwittingly; etc. Then, for sure, one should be good in mixing the concept of earning (possibly try always to increase your income!) with a good attitude to saving and, as a booster in this scheme/strategy, investing: in different moments of life one of these three words can take the lead on the other two, but I think that saving is the right word for starting. Investing becomes more and more important when the ball has been rolling for some years.

  • 20 weenie October 12, 2021, 5:38 pm

    “Let’s say it’s a £500,000 mortgage (because it is)”

    I might have a sleepless night thinking about this and it’s not even my mortgage!

  • 21 Peter October 12, 2021, 5:50 pm

    @The Investor and @mr_jetlag thank you for explaining. I guess compounding can have two visible forms, depending what fund does with it’s dividends:
    1) If fund is reinvesting it’s dividends then investor is left with the same amount of index fund units he bought but these units will become worth more over time by the amount of dividends reinvested.
    2) If fund is paying out dividends to investor, then investor has to reinvest these dividends himself by buying more index units. That means investor will have more units but they will be worth less (if compared to the units of the fund which reinvests its dividends).
    I hope I understand this correctly.

  • 22 ermine October 12, 2021, 6:09 pm

    @Peter
    > I hope I understand this correctly.

    You do. There are second order effects than mean if you reinvest income units (that pay dividends) rather than accumulation units (that reinvest divis) you can end up eating more charges because, well, you are a little guy.

    And if you hold your units outside a SIPP or ISA then hold income units, because computing the notional income on accumulation units will do your head in. People starting out should always use tax-sheltered ISA or SIPP

  • 23 Peter October 12, 2021, 8:06 pm

    @ermine indeed. Sticking to tax wrappers is a no brainer when it comes to investing. Especially when one has no privilage to exceed max allowance.

  • 24 David C October 12, 2021, 10:53 pm

    @Cleanshoes “Always amazes me when people don’t max them [employer pension matches] out, literally turning down free money”
    For me too, it’s a no-brainer – nothing else will get me a 150% return (my employer does a 1.5x match) on my investment on a short timescale. But I still don’t know what to say to my colleague who’s less than five years from retirement and doesn’t feel like he can “take a risk with the stock market”. Even the default lifestyle choices carry risk. I can’t even suggest bond funds with a clear conscience under present circumstances. There’s a money-market option, but that will lose him money after charges (now that I think about it, it won’t lose him the 150%, so that’s a thought). I assume that there’s some legal/tax reason that you can’t have the equivalent of a building society savings account inside a SIPP or DC pension, but if governments really want the masses to auto-enroll and stay enrolled, maybe they should allow some non-scary options. It was different when only high-earners and financial sophisticates had to make their own investment decisions and carry their own risk – normal people were in company defined-benefit schemes or just relying on the state pension (plus maybe SERPS etc.).

  • 25 AVB October 12, 2021, 11:03 pm

    One thing to consider if taking credit for mortgage repayments within the savings rate is that by doing so the calculations then change for years to retirement. I.e you can’t retire in 17 years by saving 50% (if including mortgage in savings line) if your mortgage term is greater than 17 years, as it’s not optional saving you can necessarily turn off at retirement. Exception to this rule being after 17 years you release equity to repay the outstanding mortgage. On the flip side counting it as an expense could be too pessimistic if it’s not an expense you will have in retirement.

  • 26 BillD October 13, 2021, 1:01 am

    An interesting article and comments. @Al Cam at #5 – thanks for the link, hadn’t seen that, quite interesting. Why didn’t I find his site 20 years ago..

    Thinking back on my early employed years, I think I got to a good initial savings rate through pension benefits (always taking the employer match) and stock benefits – buying company shares at a discount, quite common with US software companies. This all came straight off my pay check so maybe a base savings rate of ~25% I think. You don’t want the risk of sitting on company stock too long (of your employer, double whammy in case things take a bad turn) so I sold those off along with vested stock options to help pay down the mortgage. With mortgage gone, that then freed up take home pay to put more into ISAs etc. Later on due to pension reforms allowing DC pensions to be taken at 55 more flexibly I was comfortable increasing pension salary sacrifice to 30% in my late 40s with employer adding 8%. I think having a good level of pay and not having kids helped a lot with this. I kicked my job to part time at 55 and now retired at 57. Hats off to anyone achieving FI in their 30s and 40s, that is more of a challenge I think. I didn’t actually realise I had a FI situation going on until I was stuck in a tedious work meeting – I opened a spreadsheet on my laptop, created a row for each remaining year of my life up to 85 and wrote what asset was going to pay for each year. All years were accounted for with some to spare and so I had a realisation that I was done there. So keeping on top of your numbers is quite important for this stuff. Good luck to anyone on the path, the destination is worth it however early or late you get there and even if you’ve already passed it!

  • 27 Al Cam October 13, 2021, 1:50 am

    @BillD (#26)
    I found out about JPG a few years back, but IIRC not before 2017.
    Its worth noting that he wrote that paper six years after he pulled the plug in 1994 – and had apparently “recognized early on that savings rate was the most important parameter for early retirement” i.e. somewhat before 1994.
    Hence my comment about the 2015 MMM post!

    BTW, I recognise all the events in your journey and strongly agree with your points about employer stocks, noting that, worst case, it is arguably a triple whammy of: salary (plus any taxable benefits), pension, and savings. I suspect few people have twigged the potential significance of this.

  • 28 Al Cam October 13, 2021, 2:13 am

    @DavidC (#24)
    Is there no option to stay in cash in the company scheme?
    If not, suggest initially use money market and then, perhaps once a year, transfer the holding to a SIPP, which will almost certainly transfer as cash.
    IIRC others have discussed this approach at Monevator. I seem to recall being told that HL does not charge fees on cash. Just some thoughts.

  • 29 Jonathan B October 13, 2021, 10:09 am

    @DavidC, many company schemes certainly do allow you to keep the money as cash. However I agree it would be good to have a building society type option giving interest on cash, it isn’t clear to me why there isn’t.

    With both myself and my wife, once we had decided on our retirement plans we manually did an accelerated glidepath out of stocks into bonds and then cash over the remaining years for our company schemes. We wanted the certainty over just how much money there would be.

    My wife’s company pension only permitted payment via an annuity, so we transferred her money out to a SIPP to allow drawdown. We chose Hargreaves Lansdown for this, and as @AlCam says they don’t charge their fees on cash so it worked out cost-effective. Once again our caution means she always has the next two years or so withdrawal left in cash.

    (Incidentally one of the reasons we chose HL is at the time they had introduced their “Active Savings” cash interest accounts and stated they were applying for regulator permission to include them in SIPPs. That still hasn’t happened so I assume @DavidC is right that there is some tax or legal obstacle).

  • 30 Budgets and Beverages October 13, 2021, 1:53 pm

    @Clara – Congratulations Clara, 50% is a great target to be hitting – keep going! As The Investor mentioned below, the word ‘relative’ should definitely have been used to avoid confusion – my error!

    @A Fan – I actually overpay on my mortgage month to month, but as I’m self-employed, my monthly take home fluctuates so therefore, so does my mortgage repayments. I tend to overpay anything between 25-50% of my monthly repayment, but have never included it, as a I see it as a liability. However, I’ve just read @The Investor’s comment further down (#18) and I’m now totally convinced to change my perspective. Always learning!

    @trufflehunt – I like that and definitely agree. Something I’ll be taking with me moving forwards. My net take home is quite literally what arrives in my bank account after tax/NI/student loan deductions.

    @Al Cam – Thanks Al, I’ll definitely check it out.

    @Neverland – I take your point in that if you earn more, it can be argued it would be easier for the individual, especially if they didn’t have lifestyle inflation. Of course. But in regards to relative lifestyle, as mentioned above with Clara, I believe the Savings Rate isn’t discriminatory. The article isn’t about hitting 50% or you’ve failed. Not at all. It’s about the power of saving and then, doing it in the right places. And it’s that that isn’t discriminatory.

    As for the example of Gary, I was just using the figures that I found relatable. I saved just below £30,000 in the last 12 months, yet I’m definitely not in the top decile of high earners in the UK. Far from it. Sure, everybody has their own lives, their own dependents, their own things they value and spend money on. I have those things too. But I value my financial independence, so I make sure I save as much as I can alongside my lifestyle. Whatever your wage, anybody can do it. I really believe that. I’ve had no luck, no inheritance, no big fancy wage. I work, get paid, transfer the funds accordingly and dig in for the long game.

    @never give up – 100% NGU. Putting your money across to something like investing is terrifying initially. I got analysis paralysis for a solid 6 months. ‘I must learn more!’ I would say. Tracking it has also been huge for me. When you can see it, face it and understand it, you can begin to make the right, educated decisions. Otherwise, you’re simply guessing and that rarely ends well.

    As for the cape, experiment! You’ll find one works for you!

    @Gary Cooper – I can promise all Gary’s used in this article were purely fictitious! Strong use of your savings rate though!

    @Seeking Fire – Wow 85%?! I can do nothing but stand and applaud! That’s brilliant.

    @CleanShoes – A completely valid point. As I’m self employed, I’m not given such luxuries but do max out my LISA, for the free government bonus. My partner however, gets 10% matched from her employer – unbelievable! We have no issues with that. As for mortgage payments and over payments, @The Investor’s response has completely changed my thinking on it. I saw it as a liability and therefore debt and therefore wanted to pay it off, but the comment from TI is very convincing – perhaps I’m saving even more after all!

    @Lalilulelo – Lifestyle creep is out to get all of us. It’s only natural, we work hard and everywhere we look, we’re being told to buy! buy! buy! 50% contribution match is great though, congratulations with that! And congratulations too on closing in on reaching your term date for the mortgage. I feel the same as you, I’ve done the maths, I know that money can do more for me elsewhere, but removing that monthly payment and owning the house completely, fits better with my personality and the idea I have of my perfect FI world.

    @peter I had my reply ready, but @Mr_Jetlag and @The Investor has done a sterling job of explaining. I will bow to their knowledge.

    @SirRik – Spot on Sir Rik! I wouldn’t change a word of that. I used to, (okay, I still do), get frustrated with friends and family when they claim they can’t save like me. Then I find out where they’ve spent their money and can understand why they feel they have none. It’s not about punishing yourself or feeling like you can’t spend anything, but it is about having a strategy, which you’ve summed up beautifully.

    @AVB – a cracking point. Very easy to look at the figures if you do include it, and be understandably happy with the progress you’re making, but it will impact the timeline.

    @BillD – thanks for the insight Bill. As always, you can only control your situation and it sounds like you’ve done your finances with logic and with a sense of your surroundings and lifestyle for all of your decisions. The key part is, you did it. And that’s what matters!

  • 31 The Rhino October 13, 2021, 2:59 pm

    I use a slightly different approach to savings rate calculation. My income is gross and expenses also include IT and NICs. Doing it this way you can capture benefits of getting more tax efficient with how you get paid. It made sense for me when I was salary saccing into a SIPP. Using net salary loses sight of any tax efficient wheezes you may be using.

  • 32 Budgets and Beverages October 13, 2021, 3:03 pm

    @The Rhino – Hadn’t thought of this way before, but makes a lot of sense. Cheers!

  • 33 The Rhino October 13, 2021, 3:14 pm

    Probably particularly pertinent to you B&B. If you’re self employed I think you’d have to be salary sacrificing into a SIPP, it’s an unbelievably good deal. For many years my marginal tax rate was < 4%.

  • 34 Budgets and Beverages October 13, 2021, 3:21 pm

    Absolutely @The Rhino. Unfortunately, I had opened a LISA while still in a staff role, but do now have a SIPP. Appreciate that is counter-productive, but I aim to hit my £4000 limit with the LISA and everything else goes to the SIPP.

  • 35 The Rhino October 13, 2021, 3:32 pm

    Just to avoid any confusion, rather than just paying into a SIPP, I’m talking about salary sacrifice into a SIPP. So you get the NIC as well as IT benefit, rather than just IT benefit. Icing on the cake was getting the full employer NIC saving thrown my way too.

    Could you set that up being self employed? If so then do it yesterday. Take yourself right down meet pay rise to your monthly expenses, ideally to min wage and pay almost no tax going forward. If that takes you over SIPP annual allowance remember you have 3 years claw back to play with.

  • 36 Budgets and Beverages October 13, 2021, 4:09 pm

    @TheRhino – Ah, I hadn’t even thought of that. One of my clients does pay me PAYE, ie – pays into a pension provider, so it’s definitely worth me asking the question. Cheers!

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