Why Personal Savings Rate is Important

I think it's safe to say most of us would love to reach financial freedom. The problem is we have no clue how to get there.

Whether financial freedom means early retirement, the ability to work a more fulfilling job or simply less time on someone else's watchit feels elusive and out of reach for many of us. 

Stagnating wages, skyrocketing costs of living and unpredictable stock market returns are a few reasons why taking the reins of our finances feels more challenging than ever. 

However, all hope isn't lost. There's one thing we do have control over, and that's personal savings rate.

We're Not Saving Enough

The Bureau of Economic Analysis found our personal savings rate dropped to 5.3% in March.

5.3% may sound encouraging compared to our 2005 low of 1.5%, but it's still nowhere near enough. While it varies depending on an individual's goals, most experts recommend a personal savings rate of at least 10-15%.

And this is the recommendation for individuals hoping to reach retirement in their mid-sixties, not someone trying to reach financial independence.

My Story

It took me several months of saving 40-50% of my income to reach a point where I felt comfortable quitting my last job.

I was incredibly burnt out and the four months between full-time jobs gave me the chance to recharge and rethink my goals.

I took long, thought-provoking walks in the middle of the day, stayed hydrated, ate more fruits and vegetables, reconnected with friends, and caught up on my self-care routine.

This break allowed me to pivot into a more sustainable long-term career, and it would never have been possible without seriously stepping up my personal savings rate.

To me, financial freedom means pursuing the amount of work you desire when you want, from where you want, without ever feeling the pressure to sacrifice quality of life for compensation.

America's Best Savers Aren't the Wealthy

It's a misconception that a high personal savings rate is only possible for the wealthy, and I'm proof!

A recent Bankrate report found 1/4 of middle-class Americans (earning $50,000-$75,000 per year) save 15% of their income for long-term goals. However, only 17% of higher earners (making $75,000 or above) tucked away this percent of their salaries.


Greg McBride, Bankrate's chief financial analyst claims the need is higher for middle-class families because they don't have higher salaries to lean on for larger unexpected expenses, costly healthcare, education, or retirement.

How To Calculate Personal Savings Rate

There a several different ways to look at it, but I personally like this formula:

Net Savings / Total Income = Personal Savings Rate

That's it!

If you've never calculated your personal savings rate, I'd recommend starting with your most recent month's income and expenses.

Then, add previous months, or if that feels too overwhelming, commit to including each month going forward.

It feels less tedious after you've done it once, and you'll feel much better knowing exactly where you stand.

Arming yourself with this knowledge puts you in the drivers seat and will help you be more prepared to make future decisions about your lifestyle.

Readers: Have you calculated your personal savings rate? What's your goal?

Enjoying my stuff? Follow Cashville Skyline on FacebookTwitterGoogle+, and Pinterest!

Related Post


Discussions — 17 Responses

  • Aldo @ Million Dollar Ninja May 20, 2015 on 11:18 am

    Like you said, knowing your personal savings rate is important in order to reach financial independence. During my “dark days”, that time where I was living paycheck to paycheck, my savings rate was 2% . This was the amount I was contributing to my 401k at work (not counting the company match). After I made some changes to my life, I am now saving 31% of my salary (not counting the company match in the 401k). My goal is to get it to 50%, but that’s going to take some extra moves and some hustling.

  • Mario May 21, 2015 on 10:02 am

    That’s interesting that you include employer contributions in the numerator but not the denominator. Does that mean it’s possible to have a savings rate above 100%? I think I’ve found my new goal 🙂

    Last year, I calculated it out to 60% — mostly going to pay off student loans 🙂

  • The DQYDJ Weekender, 5/24/2014 – The Six Years Edition! - Don't Quit Your Day Job... May 24, 2015 on 5:30 am

    […] Cashville Skyline also believes in a very high savings rate.  Increase yours! […]

  • Tonya@Budget and the Beach May 25, 2015 on 9:08 am

    It’s tough for me because mine is all over the board as a freelancer. There was a time that it was just 10%, but then sometimes I had good months and could do tons, then some months I couldn’t do any. I need to come up for a better system for myself! 🙂

  • Shannon @ Financially Blonde May 25, 2015 on 3:16 pm

    I actually force my clients to get to a high savings rate whether they like it or not, and we do this by making saving the priority over everything else. It’s amazing how much you can save when you make it a priority rather than an afterthought like most people do.

  • Kate @ Money Propeller May 25, 2015 on 11:54 pm

    Sadly, sometimes I forgot to save money every month because of some reasons. And now, I will try to save every payday and hopefully I will reach my financial independence.

  • Natalie @ Financegirl May 26, 2015 on 9:40 pm

    This is interesting. In a podcast on Knowledge for Men where Andrew Ferebee interviews Grant Cardone (episode 81), Cardone says that the biggest lie perpetuated on the middle class is that they need to save and manage their money. He says that the rich people are out there seeking opportunities to get richer. He attributes this to the mindset difference between the rich and middle class. Very interesting at the very least!

  • MyMoneyDesign May 31, 2015 on 3:44 pm

    That’s a very impressive savings rate! I’m still working on getting up to the 50% mark. Last year we finally reached our big milestone of maxing out our 401k, 403b, and 2x IRA’s.

  • How To Orchestrate a Career Change - Cashville Skyline Cashville Skyline How To Orchestrate a Career Change - Cashville Skyline | June 17, 2015 on 7:27 am

    […] make a change you need to take a magnifying glass to your finances. Are you comfortable with your personal savings rate? How about the amount of debt you’re […]

  • C@thesingledollar August 3, 2015 on 6:43 am

    This year, I’ve been working towards an overall goal of 50%. Right now I’m at 48% for the year. I’ve had months that have been really good (60%+) and months that have been really bad (less than 5%.) They’ve mostly equalized — honestly if I ended the year with a 48% savings rate, I couldn’t really complain! Considering that most years up until now my savings rate has been either 0 or negative 🙂

    • Kate Dore C@thesingledollar August 3, 2015 on 8:49 am

      An overall goal of 50% is fantastic! And 48% rocks. Keep up the great work, C!

  • Who wants to Join The 20% Savings Club August 11, 2015 on 8:48 am

    […] 20% savings club is exclusive to only a select few, because it is a feat not many can accomplish now days. If you […]

  • If We're So Fascinated by Frugality, Why Aren't We Saving? - Cashville Skyline Cashville Skyline If We're So Fascinated by Frugality, Why Aren't We Saving? - Cashville Skyline | August 12, 2015 on 8:13 am

    […] up your personal savings rate is key to having more control over your life. So, what are you waiting for? Give yourself the gift […]

  • 70 Essential Money Skills Everyone Must Know - Wallet Hacks November 16, 2015 on 6:02 am

    […] and calculating your personal saving rate – Armed with a budget, you can now calculate your personal savings rate, which is a good measure to […]

  • How Much Money Should I Have Saved By Age 30? - Cashville Skyline July 3, 2016 on 12:49 pm

    […] tracking our net worth regularly, we can look for ways to pay down debt, boost our personal savings rate, and plan for a healthier financial […]

  • Money Skills 104: Saving Skills | Homeland Estate and Financial Services January 20, 2017 on 1:48 pm

    […] and calculating your personal saving rate – Armed with a budget, you can now calculate your personal savings rate, which is a good measure to […]

  • n October 20, 2017 on 7:26 pm

    Contributing 7% on my 401K, can already see it grow.


This site uses Akismet to reduce spam. Learn how your comment data is processed.