For the net savings rate income is the salary I receive in my bank account, i.e. what’s left after paying social security, 2nd pillar contributions and withholding taxes (I’m an expat with a B permit), plus any side incomes. Expenses then are everything that leaves my bank account apart from 3rd pillar contributions and other investments.
For the gross savings rate, I consider my income before social security, 2nd pillar contribution and taxes plus my employer’s 2nd pillar contributions and any other side income. Expenses include social security and taxes but not 2nd pillar contributions (these are savings).
As for net worth, for me (owing no “physical” assets) it’s: 2nd pillar + 3rd pillar + Broker account + all checking accounts + rent deposit + Cash - credit card spending.
bingo. I basically only keep track of day2day / month2month expenses that may recur once retired and every 6-12 months I review them and see if there are better alternative around, trying to minimize this. So I’m looking at total monthly expenses and every now and then see if there is a better insurance, or to cancel it, or change netflix subscription whatever to further grind it down. I have stopped using savings rate years ago. I know more or less how much I will need to keep my lifestyle now and what total that is.
Saving rates may help you figure out how much time until FIRE, but the truth is that number is going to be wrong. My salary doubled from 2014 until now, and all my fancy savings rate calculation of 2014 where all wrong of course.
Just keep expense down as low as you wish to accept, and invest the rest minus taxes.
If you keep a saving rate goal such as “65% is my goal”, what happen if your salary increase, are you going to spend more “because I earned it”? To keep the 65%? Or are you goign to go to 70% savings rate? Regulate around a saving rate will lead to inflationary lifestyle if your salary increase.
Thanks for the article. I thought she did a good job at introducing the subject. I was through the thread about how to consider employer contributions to 2ieme pillier since I was using net salary only. I’ll try the savings sum regardless if it’s on my salary or from my employers (total benefits).
this is actually a huge difference for me since i get a matching that doubles the contribution i make from my salary which I’ve ensured is the maximum of 3 levels offered (5% difference from basic to top level)
Not trying to revive the thread too much but as I reread it trying to figure out my own situation, this point resonates with me: I am indeed using my 2ieme in net worth so it makes sense to me to add it in my savings rate. I don’t really care what the savings rate is (not a contest like many said) but I find that not including the extra gains from my employer as not giving an accurate picture of my savings rate nonetheless since i could consider it either as « extra salary that I don’t save a choice but to save ». ….or as the annual return on my own 2ieme contributions. Who cares? Both are positive for my retirement. I can either afford more retirement expenses or retire earlier as I see it. Isn’t the that whole point for the savings rate: to push to reduce expense:income and try to know when you could start to consider retirement more seriously?
Overall: as I don’t touch the extra contribution in cash flow, it doesn’t influence my expenses today but it will influence my expenses « tomorrow » so i think i will start to use « Total Annual Benefits » - « Total Annual Expenses including Tax » / « Total Annual Benefits » approach too…no exceptions so will be faster to calculate
I’m counting mine because I tend to read mostly financial articles focused on the US and they tend to count their 401k (or equivalent) as retirement savings (so counted in their savings rate), since it’s discretionary. Counting it makes the situations easier to transpose.
As long as you don’t compare your savings rate with other people’s, you can use any formula you want
Personally, I do not include any contributions to the second pillar in the savings rate, for the simple reason that I am “forced” to save it. I want my savings rate to represent my capacity to save on things I can save. Since I can’t spend the second pillar contributions, I don’t want it to inflate my savings rate artificially.
It then becomes a measure more of your financial discipline and willpower rather than your ability to retire early, doesn’t it?
If you don’t “forced” savings in your savings rate, do you then conversely regard “forced spending” as savings or deduct them from your income?
E.g., if you have a monthly net income of 5000 CHF. If the minimum (reasonable) rent for a place to live near your place of work is 1000 CHF a months, do you count it as a 1000 CHF savings out of a 5000 CHF income? Or do you deduct it from your 5000 CHF, for an effective monthly income of 4000 CHF?
After all, if living somewhere for at least 1000 CHF/month is a necessity in order to generate your income, it shouldn’t figure in the calculation of your capacity to save on things you can save, should it? It would artificially lower your savings rate.
That’s correct
I don’t use my savings rate to estimate when I will be able to retire.
For me, forced spending is still spending. It’s true that there is sometimes a barrier under which we can’t go. I would not go consider a place to live in that category since you could get it down to zero with a house fully owned (it would not be efficient of course, but zero nonetheless). However, taxes are forced spending. But I still considered them in my expenses and they are part of my savings rate.
In your example, why would 1000 CHF be considered savings? It’s an expense. That would lower the savings rate by 20%. And is it really a necessity? You could move farther, save money and spend more time commuting. Then, it becomes a choice. And for me, savings rate is all about choice.
But again, that’s my definition of the savings rate. There are plenty and we should almost always avoid comparing them with each others.
The only thing I hate about the savings rate is that people will choose the definition that gives them the highest result to feel good about themselves (or to show off online).
This I also agree with. I’d rather pay more in taxes and live where I want then move and pay less
Kinda missing the point of discussing here to debate opinions if they do…and if others are like me, when I wasn’t comfortable with my understanding, I thought more people were showing off S.R. when in reality I was jealous that I wasn’t as high as I wanted to be when in fact I understand now that comparing is the problem like @thepoorswiss mentions. Personally, I love getting (constructive) counter arguments to really see if I’m at ease with what I’m doing for me - but fully aligned that no one definition will fit everyone. And genuinely happy to see high rates for others independent of their equation.
Getting back to my point: there is a minimal legal amount. I can understand the argument to not count this in S.R. but I choose to contribute to the maximum plan of my 2ieme (three levels are offered to me). I could just contribute the minimal plan (5% difference/month). Also, by choosing to work for that employer, I get an additional 18.5% contribution above my own contributions. More than 20% additional savings (even if at a low rate) is non-negliable for my retirement plans. I can either dedicate my FIRE fund to expenses above what my pension won’t cover or calculate when I can compensate a lower pension by leaving earlier or reducing my work %.
Excellent point @San_Francisco! This comment hit home for me, I think I’ve actually been trying to use it to measure both. I personally need a constant metric to gauge my progress that is only dependant on my choices but as a means to an end that is minimum FI and maximum RE. So thanks to both: this angle on will power seems super obvious to me now but I wasn’t thinking about it like that…
Side note: i’ve learned a tonne from this forum this year, sincere thanks to all for the open, honest and constructive exchanges! Been a refreshing “place” to come and not talk about the same “headlines” as I’m usually subjected to
I was probably not clear, but my point was not about examples in this thread. I don’t include the second pillar, but at least I see the sense in including it. On the other hand, I have seen some stupid examples on the internet, including a savings rate of 412%…
Interesting topic, to which I would just like to add one small point:
In my German finance bubble, there is a mutual concent, that savings / net income leads to the savings rate.
Important to note, that in Germany both taxes and health insurance/health costs are deducted from the gross salary, meaning that they are already paid with the net income.
For comparison purposes, I follow both the “Swiss way” and the “German way” (savings / net income) of calculating my savings rate.
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