Calculating Your Personal Savings Rate

by Achieva Financial
Sep September 14

By Jessica Moorhouse

Do you know what your personal savings rate is? That’s okay if you don’t, but I promise by the end of this post you’ll know exactly what it is and how to improve it.

What Is a Personal Savings Rate Anyway?

You may have never heard the term “personal savings rate” before (unless you’re a big money nerd like me), but it’s actually quite simple. It’s just the percentage of your net income that you put towards savings. In other words, it’s the percentage of any money you earn (minus taxes, CPP and EI) that you don’t spend.

That being said, this number shouldn’t include any money that you put into a savings account for just a few weeks only to spend it on something soon after (like concert tickets or a new outfit). It’s more for longer-term savings goals like saving up for a down payment, a new car, emergency fund, or retirement.

How Do You Calculate It?

To find out what your personal savings rate is, it’s a very straightforward formula:

Amount saved ÷ net income x 100 = Personal savings rate 

To put this into context for you, let’s say your net income is $42,000/year or $3,500/month. Every month, you put money into your RRSP ($300), your TFSA ($200), and a high-interest savings account ($250). You also have a portion of your paycheque put into your employer sponsored RRSP ($150). If you add all those amounts together, you’d end up with $900/month.

Using the formula mentioned above, it would look like:

$900 ÷ $3,500 x 100 = 26% 

26% isn’t a bad personal savings rate actually, considering Canada’s Household Savings Rate is currently sitting at 4.6%. But don’t think that number should be used as your benchmark. If you want to save enough to retire on, or reach some lofty financial goals like retiring early or going on a year-long trip to Asia, you’re gonna have to make bumping up your PSR your main priority.

How Much Should You Be Saving?

There isn’t really a magic number when it comes to saving. If you’re wondering what a good number is, the answer will always be “As much as you can.” 

Personally, I’ve always tried to save 50% of my income. It wasn’t always easy to do, especially in my early 20s when I wasn’t earning that much, but I knew that I wanted to make every paycheque count. I worked hard for every dollar, and I hated the idea of not having anything to show for it.

Choosing a high percentage like that to save can serve as a great motivator to live within your means, practice mindful spending and feel like you’re making progress with your net worth every month.

But if that sounds a bit too high and you’re just starting out, then you might want to try out the 50/20/30 rule. All that means is dividing your income into three categories: 50% on living necessities (your needs), 20% on savings and financial goals, and 30% on living non-essentials (your wants).

This can be a handy guide to get you on the right path, though I’d recommend switching up your savings to 30% and your fun fund to 20% (your future self will thank you later!).

How to Increase Your Personal Savings Rate

Knowing all of this now, no matter what your current PSR, is it’s always a good goal to try to improve it. It may seem difficult to increase your savings depending on what your current financial situation is, but there are a number of techniques you can try out to help you get there.

The first technique is something you’ve probably already heard of. It’s called “paying yourself first.” It’s a strategy in which you save first, then spend whatever’s leftover. So, if you have a goal of having a PSR of 40%, when you’re making your budget you’ll realize you’ll have to cut some of your expenses down to make that work. Another way to make things easier is to set up automatic savings deposits into your savings and investment accounts. It’s a very set it and forget it way of saving, but it really does work.

Another technique is to gradually add onto your savings. For instance, while you’re setting up your automatic deposits into your savings accounts, you can set it up so every month you add an extra $10 into the pot. Month one you’d add $10, month 2 you’d add $20 and so on. At the end of 12 months, you would have saved an extra $780 without much effort.

Last but not least, the best way to save more is to earn more. If there’s no way to increase your salary, consider getting a second job on the weekends or starting a side hustle based on your current skillset. That’s what I did when I was a broke 20-something, and I owe it to that side hustle for helping me save up for some of my biggest savings goals, including going back to school twice debt-free and buying my first home.

About Jessica Moorhouse

Jessica Moorhouse is a millennial money expert, speaker, award-winning personal finance blogger and host of the Mo' Money Podcast. Jessica is also the founder of the Millennial Money Meetup, a financial literacy event for young adults, and the co-founder of Rich & Fit, an e-course that teaches students how to improve their financial and physical fitness.