The Shame-Breaking Magic of Knowing Your Saving Rate

One percentage point can mean the world.

The word “Grow” in green turf against a brick wall. Photo: Magda Ehlers on Pexels

Let’s understand that if you and I went toe to toe in the Shame Olympics, you’d be lucky to get the bronze. I’m a guaranteed gold medalist in any shame game you’d care to play (yes, even shame spiraling, or should I say shame curling).

Graph: Every four years, Americans get really interested in curling. Neil Paine for FiveThirtyEight.

That’s why I got so excited when I discovered that there’s a different way to calculate how well you save, aside from just looking at your checking account at the end of each month in despair. It’s called the savings rate if you’re Trent Hamm and the saving rate if you’re J.D. Roth.

It’s a method of looking at your saving as a percentage of what you earn, instead of a lump sum.

There’s been something so great for me about watching my modest saving habit go from just about 3 percent at the beginning to more than 5 percent now.

Understanding the Saving(s) Rate

Investopedia defines the savings-with-an-s rate this way:

Over at Get Rich Slowly, J.D.’s definition is implicitly kinder: While he does not come out and say it, he implies that any saving you do can count toward your saving-with-no-s rate, not just long-term saving.

Why is this an important distinction to me?

Because I am still in the shallow end of saving, easily demoralized, and I need some mental tricks to get me where I want to go.

Bet you do, too.

Here’s the thing: I’m still saving only about $217 a month for retirement (taken out before taxes, so I can’t get my sticky fingers on it). That might not sound shabby to you, if you’re not 55 yet and there aren’t two adults in your house plus a kid-adult in college at Super-Expensive Liberal Arts College.

But I can tell you — because the retirement calculators tell me — that’s SHABBY SAVING FOR AN OLD PERSON. I also just started saving for the short term, at all, so…I have a long way to go, and not much time.

Your Saving Rate: How to Figure It Out

Rather than wallow in shame, during these critical first months of debt detox, I am counting any saving I do toward my percentage, and will reassess and fly right at the end of this year.

Why? Because money isn’t just numbers, it’s mental. Some might argue that it is mostly mental.

If I walk around with a number in my head that tells me I suck worse than I already thought I sucked? Game over. Gold medal in the Shame Olympics. Let’s go home.

So, at this point in the Debt Rinse Cycle, I’m counting all savings toward my percentage, and if you are as desperate as me, I suggest you do the same.

In fact, there are several budgeting systems that count debt payments as saving, too. So if that works for you, go on with your bad self. As for me, I’m still self-flagellating over my debt. I don’t want to congratulate myself on something I should have been doing years ago, so I’m just going to stick with the outright monthly saving in my count:

  • 401K at work (taken out before taxes, or I’d never get it done): $217
  • Reserve savings to cover shortfalls each month: $60 (I usually have to use it and pay it back, but it’s building over time)
  • Medium-term growth savings: $100
  • Token re-investment in IRA: $25 (after years of nothing, gotta start somewhere)
  • Micro-investing through Acorns “round-ups” from checking account: about $20

Grand total of monthly savings: $422

Percentage of income I’m saving: about 5.25%

That’d put me more than halfway to my 2019 goal of a 10 percent saving rate. In 2020, I want to get it to 20 percent (a big ask, but I hope to have a lot more debt under control by then). At that point, I would ideally have a fine emergency fund saved, and be ready to put on my big girl pants to add that ‘s’ to savings — aiming for the long term.

Your Profit Margin: a Quick Guide

Ready for an advanced step? Find out how much you could be saving each month by calculating your profit margin:

  • Use the method recommended by J.D. Roth: count up all your expenses and subtract them from your income. (If your income is negative, it’s time for a side gig).
  • The difference is your profit.
  • Divide your profit by your income to get your profit margin. This is how much — in theory — you can save each month.

I need to use our annual income for this one, because my husband only gets his teaching stipend 9 months out of the year, and we literally have to live beyond our means 3 months a year, just covering basic bills. Yeah, that’s where we are right now. Nonetheless, I’m game to try.

And guess what?

Not inspiring.

Of course, those expenses include money we’re paying toward credit cards. So that money can become savings when we nuke our debt. I’m squinting hard at this because, in our near future, there is at least one other loan in the offing, for a roof repair. So in the short term, we are still pretty f̶u̶c̶k̶e̶d challenged.

But you know what? I’m gonna start small. I’m happy with my little 5.25 percent saving rate at the moment, looking to work some side gigs to grab up what I can, and maybe — just maybe — get to a better place.

Let’s make a deal to revisit this number in January 1, 2020.

The One Percent Rule for Amping Up Your Saving Rate

Given what I’m seeing on the bottom line, it remains a stone-cold miracle that we

  • haven’t touched a credit card since October 1
  • have saved $160 or so from our paychecks each month
  • have hope.

So that’s a win. Next step for me is to see whether we can set aside just $60 more — that’s about 1 percent of our take-home each month —and keep building. It’s kind of amazing what can happen if you increase your saving by just that much.

What about you? What’s your saving rate? Can you bump up by only 1 percent?

Want more tools? Try this saving rate calculator with lots of cool options for detail from Don’t Quit Your Day Job. And check out this stricter view of the saving rate from The Simple Dollar.

The Traumatized Budget has a newsletter! It’s a monthly round-up of tips, tricks, and encouragement to get a grip on your money. Subscribe here.

I’m a 50-something bohemian with a mountain of debt and regrets. Can I dig out before it’s all over? I brake for poets.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store