At the most recent ChooseFI San Diego meet up, I shared my double-savings rate. I was quite proud of it. We were saving – what I thought – was a good chunk of change. (And we were – just not by the FI metric.)
My declaration was met with crickets – because our lowly savings rate pointed to the fact that we were such freakin’ newbs.
Saving Money in 2017
Before my recent obsession with FI came along, I had a rather unusual strategy for saving money. The main idea was focusing on saving easily-accessible cash for a future down payment on our next property. This meant:
- Putting – and holding – cash into a Roth IRA account
- Putting in a token amount into the wife’s 401(k)
- Maxing out the HSA
- Maxing out the SEPR IA
By reviewing the above, it’s obviously not the best strategy. And as such, I’ve updated our approach for 2018. As a result of this rather inane strategy, our savings rate for 2017 is pretty good by average Joe standards by unsatisfactory for FIRE folks. So, without further ado, here it is:
|Lien’s old Roth 401(k), Employee Contributions||$ 8,154.29|
|Lien’s old Roth 401(k), Employer Contributions||$ 1,181.08|
|Lien’s new Roth 401(k)||$ 1,584.00|
|Lien’s Roth IRA||$ 5,500.00|
|Jon’s Roth IRA||$ 5,500.00|
|Jon’s SEP IRA||$ 1,196.00|
|Mortgage Principal Paid||$ 5,254.57|
|Total Savings, $||$ 36,319.94|
|Pre-Tax Savings Rate %||27.5%|
The ultimate savings rate percentage may be a little (unfairly?) low because I’m considering gross income.
I’m including mortgage principal paid (but not mortgage interest) into my 2017 savings total, alongside IRA contributions, etc. I figure that similar to equity and bond investments – equity in a home is an investment. So, if I pay money into mortgage and earn equity, I am investing money. Of course, mortgage interest is an expense.
I think that it’s important to calculate a pre-tax savings rate. Why? Because taxes are an expense. And like most expenses, some smart planning can reduce that expense. Given an updated savings strategy for 2018 (read max out every tax-deductible account possible), I will be reducing this very expense, allowing me to save more money and pay less in taxes. Hooray!
2017 Savings Rate
Calculating my 2017 savings rate shows me that I need to step up my game. I know that meow. And with that, I plan for 2018 to be awesome.