Your personal savings rate is an important financial metric to track. Calculating it is simple. To do so, you need to know two things:
- How much money you added to long-term savings last year
- How much money you earned after taxes last year
We use long term savings to differentiate from money you put in the bank to pay your bills, or go on vacation, or buy a car. Long term savings, like 401ks or IRAs, grows your wealth toward retirement.
Once you know how much you saved and how much you earned, simply divide on by the other and you’ve got your personal savings rate for last year. For example, if you made $40,000 after taxes last year, and saved $4000, your savings rate was 10%.
For more information on savings rates, including how you can work to improve yours, read this full article.