Savings rate is the percentage of money you save (and invest) versus your total income. It can easily be computed by dividing your monthly savings amount by your monthly income. Read further down below why I compute my savings rate.

I don’t usually earn this high but here’s an actual computation of mine for the month of August 2020.

Total Income = 53,914.50
Total Saved and Invested = 16,241.50
Savings rate = 30.12%

It simply means that I have saved 30% of my income in August. I am a big believer of the phrase “It’s not how much you earn but how much you save”. Doesn’t matter if you earn six digits per month if you just use it to buy mindless purchases. In order to build wealth, you need to save/invest as much as you can.

Why Is Your Savings Rate Important?
I only discovered computing your savings rate this year and it has been a gamechanger for me. I am more in line with my goals ever since I tracked my savings rate. Here are some benefits in tracking your savings rate.

1. It provides me a quick overview of where my money is going.
2. It lets me know how much I’m contributing to my financial goals.
3. It makes me proud to see this is how much I saved versus how much I spent.

By trying to maintain a 25% savings rate per month, I was able to save and invest 76, 625.41 as of August 2020. Some people also use savings rates as a way to determine their retirement amount. I won’t go into too much detail about that because computing for my retirement amount hurts my brain. Chill With Money introduced me to this reddit thread about computing your FIRE amount which leads me to this thread discussing why savings rate is important for retirement. Go ahead and click the links if you want to know more.

What is included in my Savings Rate?
I use my net income or my take-home pay in computing my savings rate. This is already less of my SSS, Philhealth and Pag-ibig contributions. It makes it easier for me to just deduct them. I am currently paying for a St. Peter’s memorial plan and a Sunlife VUL and I include everything I contribute here to my savings rate. I include this because my future self will be using this. Whatever my future self will be benefiting, I include it in my savings rate computation. I also include whatever amount I send to my savings and investment accounts. Here’s a breakdown of my savings rate for August.

If your company has a retirement plan and you know its value, include that amount as well.

How much should I save exactly?
If you ever heard of 50-30-20 budget, it tells you to save about 20% of your total income. I personally don’t follow this because sometimes my fixed expenses go beyond 50% but I try to maintain a 25% savings rate each month. Revisit your spending and saving in the past few months and find out what your average saving is. For example, at the beginning of the year I tracked my cashflow and it helped me determine that I have an average of 25% savings rate. After that, I try to maintain that rate. Some are a hit, some are a miss but I try my best.

Do you see now why you need to compute your savings rate? I don’t see a lot of Filipinos talk about savings rate so let me know your thoughts!

## 8 thoughts on “Why Do You Need to Compute Your Savings Rate”

1. #### Che

Awesome job on your savings rate. I’m trying to be more consistent with mine. Starting this cutoff, I’ll just start setting aside a fixed amount and live off of the remaining.

I spent at least 2 hours computing for my FI number — yung hindi super lean, but not fat either. Medyo nahirapan ako dun sa spreadsheet because it forces you to think about what your retirement fund allocation would be. I’m still in the process of figuring that out so I just set the investment ROI to 5.5% and left the rest of the rates as is.

1. #### mycentsofwealth

This is why I don’t compute my FI number yet kasi there’s a lot to think about. hahahuhu. And also, at this point in my life right now I know my monthly expense is around 25k. But a few years from now I will have a mortgage instead of paying rent and I plan to have children so I have no idea yet how much to factor that in. If I base my FI amount based on my 25k monthly expense, that wouldn’t be a realistic number for me. So keep postponing calculating my FI number. But thanks for the reddit tip! tagal ko nahanap ang sheet haha. But I found it.

2. #### Nat

Congrats on the high income and the equally looking good savings rate in August! Personally, I didn’t know about savings rates before I joined the IG PF Community. I didn’t even know what it was back when I first started my blog.xD I think not a lot of Filipinos talk about it because they don’t even know what it is. Most have a vague idea of how much they want to save in a month, and that’s pretty much it.

1. #### mycentsofwealth

Thank you! I only learned about it early this year. In the US they use it to stay on track with their FI/retirement amount. I’m not calculating my FI/retirement amount so I only use it to track and make sure I don’t spend more than 90% of my income haha

3. #### Mr. Triple P

Same with Nat, I only learned about this formula from your IG. 🙂 I know I said I would try and compute it, but I still haven’t. I think I’m already comfortable knowing where my money goes, and like Che, I just set aside a fixed amount for investments monthly and track all my accounts monthly in my net worth tracker. But I definitely see the importance of computing one’s savings rate. I hope more and more Filipinos use it!

1. #### mycentsofwealth

I have been seeing it a lot in the US personal finance account that I follow. Yes, I hope so. I hope a lot of Filipinos will see the value of computing and tracking their savings rate.

4. #### Jordan @ FIRE Your Own Way

Hey there. Great breakdown. Is your income for the year to date, or only in August? Either way, you’re doing great!

1. #### mycentsofwealth

Hello. It’s only for the month of August and it’s in Philippine Pesos 🙂