How to Calculate Your Savings Rate & Start Saving - No BS Investing
Posted 347 views April 1, 2022, 14:00 - Dylan in Financial Planning

How to Calculate Your Savings Rate & Start Saving

How much your paycheck should be saving per month? 

First, the bad news. We can’t tell you how much to save. Everybody’s situation and goals are different. The amount you need to be financially secure will differ from your friends and vice versa. Savings isn’t a “one-size-fits-all.”

But the good news is that you can use the savings rate formula to calculate what percentage of your income you should save. Here’s how to calculate your own savings rate and build up those savings. 

Key Takeaways:

  • Your savings rate is the amount of money that comes out of your monthly paycheck. The higher your savings rate, the faster you’ll build wealth and achieve financial security. 
  • Calculate your monthly income by looking at your gross or net income.
  • Determine your current monthly savings by adding up how much you save per month. Look at your savings accounts, retirement contributions, etc.
  • Get your savings rate by dividing your savings by your income. 
  • Increase your savings rate to help you reach various savings and financial goals. 

Definition: What is a Saving Rate?

The amount of money that comes out of your monthly paycheck is called your savings rate.

Here’s an example. Say that you make $3,000 a month. If you save $500 per month after expenses, you have a 17% savings rate.

The simplified savings rate formula is Monthly Savings (Income – Expenses) divided by Monthly Income and multiplied by 100. Of course, this formula can be a bit more complex when you account for things like earning your employer’s match. But we’ll get into that. 

Your savings rate shows you how much you’re currently saving. You can then determine if you need to increase your rate to reach your short-term and long-term financial goals such as saving for a car or for retirement. Rather than picking a random amount of money to save, you have a specific target and know how much you have to spend per month.  

Related: How to Automate Your Finances in 3 Steps

How to Calculate Your Savings Rate

Step 1: Calculate Your Monthly Income

Before you can determine how much to save, you have to know how much you make per month. You can look at either your gross income or net income:


Gross income is simply looking at your salary before taxes. For example, if you make $60K per year at your full-time job, that’s your gross income. This method is straightforward and much easier than calculating net income. 


Unlike gross income, net income shows what you make after taxes have been taken out. It’s a bit more complicated than calculating gross income. 

To determine this number, look at your monthly paycheck (after taxes) first. Or if you get paid bi-weekly, add up the two paychecks. Write down the amount. Next, write down amounts for any side hustle money you make after taxes. 

Add up the amounts to get your net income. Your final savings rate will be higher than the gross income calculation because taxes are subtracted. However, not everyone knows their true after-tax income until after tax season is over, making it harder to know if your net income is accurate. 

Step 2: Determine Your Current Monthly Savings

Determine your monthly savings by finding all your saving amounts and adding up the total. We recommend using a Google spreadsheet to organize the information. 

A simple way to calculate savings is to subtract your expenses from your income. The leftover money is how much you’re saving per month. 

But this calculation method doesn’t count for everything. The more complicated method (and the more accurate one) to determine monthly savings is to also include savings that are already coming out of your paycheck for retirement.

Include things like:

  • Retirement contributions (e.g., 401K or Roth IRA).
  • Employer matching contributions (e.g., your employer offers a 50% match).
  • HSA accounts (subtracting out how much would be used for retirement versus healthcare expenses).

Again, start by subtracting your income from your expenses. But then add in retirement contributions and any other benefits that save you money. Add up the total to calculate how much you’re actually saving per month.

Hint: Sign up for the Personal Finance Masterclass – Easy Guide to Better Finances course on Udemy for a complete dive into budgeting. 

Step 3: Divide Savings by Income 

Armed with the above information, time to calculate your current savings rate. 

Let’s say that you have a net monthly income of $4,000. You save $1,000 per month and spend $3,000 on expenses. 

Get your savings rate by dividing your savings by your income:

$1,000 / $4,000 = .25

Multiply this number by 100 to get a percentage: .25 x 100 = 25%

Your savings rate is 25%. The recommended savings rate is 20%. In this example, your savings rate is higher than the recommended amount. But what if you have the ability to save more? Learn how to adjust your savings rate below. 

You can also use a savings rate calculator to get an accurate savings rate. 

Related: How to Calculate Your Liquid Net Worth

Step 4: Adjust Your Savings Rate

If you can, increase your savings rate to help you reach various savings and financial goals. 

For example, say that you are 25-years-old and want to retire when you’re 45-years-old. You make $4,000 per month. You’re budgeting about $3,000 in monthly expenses when you retire. You currently save $1,000 per month (a 25% savings rate). Each month, your savings go toward the following:

  • $500 in post-tax savings
  • $250 in pre-tax retirement savings
  • $250 post-tax retirement savings

At your current savings rate, you can retire in 34 years with $964,000. 


You’ll need to increase your savings rate if you want to retire at 45 instead of 59. Play with the numbers such as with a retirement calculator to achieve the results you want. 

Take these same steps to achieve any saving goal. Work backwards from your financial goals to determine the right savings rate for you. 

Hint: If you can’t save 20-50% of your income, don’t worry. Instead, start by saving at least 1% or 2% of your monthly paycheck. Slowly start increasing this amount by the month until you reach your target amount. 


Automate your savings to make consistent progress (it’s tough to remember to save!). Ensure that money from your monthly paycheck goes directly into your savings or investment account. 

Maybe you want to save $20K for a house down payment in five years. Based on this amount, you determine you need to save $333 per month ($20K / 60 months). Automation can get you to your target amount. Automate $333 to come out of your paycheck each month and go into a savings account. 

Same goes for investments. You want your savings to grow! So make sure to invest in your portfolio every month automatically. 

Related: How to Automate Your Finances in 3 Steps

Increase Your Monthly Savings 

As you budget and work on building your savings, don’t focus on merely covering expenses and saving the leftovers. 

Instead, set a savings rate to help you achieve your financial goals such as covering a 20% down payment on a house in five years or retiring by age 40. 

The higher your savings rate, the faster you’ll build wealth and achieve financial security. Here are a few ways to optimize your monthly savings rate:

  • Set up automatic contributions to go directly from your monthly paycheck to your savings or investment account. Also use an app like Acorns to save and invest spare change.
  • Cut back on major expenses like housing and transportation so you have more money to save each month. 
  • Cancel all subscriptions that are non-essential. For example, if you have Netflix, do you also need Hulu, HBO Max, and Disney Plus? 
  • Increase your monthly income such as through a side hustle or part-time job. 

Want to learn more about budgeting? Take the Personal Finance Masterclass – Easy Guide to Better Finances course on Udemy. In addition to other best personal finance practices, this course teaches you how to create a complete budget and stick to it. Check out the course here.

No Comments yet!

You’re in good hands

Elisabeth O. is an MBA graduate with a specialization in International Finance & Investments and over six years of financial writing experience. She is passionate about long-term investing to build wealth, avoids day trading and speculations, and loves a good Warren Buffet quote.