Savings Rate

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What Is Savings Rate (Sr)?

Savings Rate (Sr) is the percentage of a client’s annual gross income being saved for future use.

How Is Savings Rate (Sr) Calculated?

Why Is Savings rate (Sr) Important?

Savings Rate tells an important story about your client’s current financial wellness and preparation toward long-term financial security. It allows you to measure the overall flexibility in their plan (a higher Sr provides more cushion or unexpected liquidity needs). And it can help clients feel more prepared for financial setbacks.

Setting a reasonable savings goal and sticking with it is highly correlated to financial independence.  Set a goal, save the right amount of money each year, and don’t give yourself a pass. It might be the most important indicator of long-term success for many clients. In reality, most clients struggle to save money for the future because humans, by nature, tend to have a behavioral tendency “to give stronger weight to payoffs that are closer to the present time” (it’s called “Present Bias”).  That bias often results in clients spending before saving.

As a result, lifestyle and consumption choices are by far the biggest variable in savings rates.

There are dozens of examples where increased lifestyle costs might result in fewer dollars to save (think housing, food, family size, education, etc.).  Also in competition with our ability to save is a modern economy that continues to have more stuff to buy, more easily (think subscription services, doorstep delivery of anything, etc.).

All of these lifestyle considerations have tradeoffs.  If you’re going to have any money left to save, there are so many things to say “no” to.  You just can’t get the “best” of everything if you’re going to maintain a healthy savings rate.