Do you know your personal saving rate?

[vand]

As per the title.

How much of your post-tax income do you manage to save or invest in assets, ie left over after living expenses?

If you have a mortgage you should include the portion that goes towards the the principle but not the portion that goes on the interest.

I've worked out that last year I put:

43% towards mortgage principle
11% in PMs
7% into the pension
7% into cash

Total savings/investment rate of 68% (of income net of taxes).

Think I can get that up above 70% this year. At least that has to be the goal.

Your savings rates is a big deal in the Financial Independence (FI) circles.. in fact, it's the key metric. Reason being that the number of years of living you can sustain with one year's work is the reciprocal of your consumption ratio, ie your manage to live on 10% on your wages and therefore have a 90% savings rate, you can theoretically sustain (1/0.1 = 10) 10 years of living with just 1 year of income, and so could easily achieve full FI with as little as 3-4 years of work (I know this is massively simplifying things, but the principle is sound).

 

(edited 08/01 to rephrase some of it)

[KevinFlynn]

I set an investment budget of 25% of my regular income and 50% of any bonus income I get (mainly emergency calls and overtime).

Of that, I put about 25% in stocks and bonds (funds), about 50% into precious metals (at the moment, would be at least 25%) and about 25% into a savings account. No debt payments.

I have another rolling savings account to pay the larger yearly bills, but that is just to smooth out my monthly payments equally over twelve months.

That comes down to roughly 33%

[KDave]

Yes I know mine.. Yours puts it to shame 

I have kept half decent records since 2013 so I know that last years savings rate was the worst of the lot at 13%, this year will be better but not great. Project renovate house started in 2017 now finished, with the resulting 0% interest debt still being paid off slowly within the term to let inflation do its job. I could sell assets to pay it off, or use more income monthly to pay down the amount quicker but there is no need with zero interest. I will instead be building a cash pile, buying cheap metals and soon stocks. 

Back in the good old days of 2013 - 2016 I was averaging between 35% and 40%, a lot of that was saving towards a deposit. The kids were cheaper in the early days, but the missus is working now and she wasn't then, so I should  be able get back up to those levels and perhaps exceed them. I will achieve at least a minimum of 25% in 2019 including mortgage principle, monthly cash savings, buying the 1 oz gold queens beasts on release. Debt repayment is 7% so when that is gone that will go back into savings, but not planned to get rid of it until 2020. I reckon it is realistic to aim for 30% in 2019 and still achieve what we want to do this year.

[vand]

 Don't worry @KDave, I had a big bump in income last year so it was a lot easier for me to save more. I'm quite doubtful I can sustain the same income level this year, but you never know, and my plan is not dependent on sustaining it, though of course it would be nice. Prior to last year my savings rate would have been roughly about 32-38%.

Now the house is just about paid off that is will be few extra hundred in mortgage interest that isn't going in the "living costs" column and can be reassigned to the "assets" column instead.

I did buy a used car last year which should hopefully be a once-a-decade cost, but OTOH nursery fees will start kicking in later this year, so replacing once expense with another

[KDave]

I think even a 13% savings rate is still way above average isn't it? Saving like its the 1970's. 

 

If your house is paid off or near enough then thats the main cost of living taken care of early which will make a huge difference over time. My parents have just paid off their mortgage after 34 years thanks to a mortgage product that failed to deliver (wish I knew the details, I think it took some of the principle and invested it) and they had taken out more debt to extend the house. I dread to think how much wealth they have given over to the banking system over their lifetime in interest but its done now, they are both mid 50's. 

[vand]

On 03/01/2019 at 14:27, KDave said:

I think even a 13% savings rate is still way above average isn't it? Saving like its the 1970's. 

 

If your house is paid off or near enough then thats the main cost of living taken care of early which will make a huge difference over time. My parents have just paid off their mortgage after 34 years thanks to a mortgage product that failed to deliver (wish I knew the details, I think it took some of the principle and invested it) and they had taken out more debt to extend the house. I dread to think how much wealth they have given over to the banking system over their lifetime in interest but its done now, they are both mid 50's. 

 

This quoted savings rate doesn't actually mean what it says. As with all of these statistics it's a number that is calculated using a methodology. Just like the average house price is not £220k just because Halifax's index says it is. What's important is the trend, not the actual number..

[Michal]

I am aiming 30% of net income divided between PM/stocks/cash. I was trying to get 50% and it worked for a while but we had massive price rise in 2018 and this percentage was pushing me out of comfort zone. 

[vand]

Make sure you are doing what is most tax efficient. What most people pursuing this path quickly realised is that you can massively increase your savings rate by deferring your income to a pension/SIPP and reclaiming a massive chunk of income tax... this lead me to whacking in £40k in the tax year just gone, and aiming to do the same over the course of 2019/20.

Once you get your savings rate above above 50%, 60%, 70% the numbers start to get very interesting very fast. You are stepping far outside of the traditional work/retirement paradigm and look at it as "2-3 years of retirement bought for every year worked".  Not saying this is easy, but it's certainly achievable for many middle-income earners just by being super smart with their money.

 

[Michal]

Any SIPP recommendations?

[vand]

I use Fidelity; some of the other popular platforms are Hargreaves Landsdown, AJ Bell, Interactive Investor