Sorry for the clickbaity title. Saving is absolutely important, but the savings rate is not that important.

Sometimes I see people get hung up on the definition of savings rate. There's the 50/20/30 rule, which recommends putting 50% of your paycheck towards your "essentials", 20% towards savings, and 30% towards wants. Then there's people like Mr. Money Mustache who recommend 50%+ savings. These are all fine recommendations, but when you get down to it, there's not a single agreed upon definition of what savings rate actually is. Big ERN came up with four different savings rates. I'm sure if you poll more personal finance bloggers you'd come up with more defintions.

As weird as this is for me to say, as a person who loves getting into the math, don't get hung up on the definition of savings rate. What really matters is why you want to know your savings rate. Is it to track your savings rate over time? Then just pick a formula that seems reasonable to you, and keep using it. Is it to use someone else's calculation on how many years you have left before reaching financial independence? Well you better use their definition of savings rate. Is it to compare yourself to others? Then you had better agree on the savings rate (though I'd recommend not comparing yourself to others, and looking at whether you're meeting your own goals).

Fortunately, you don't even need to actually calculate the savings rate as a percentage to calculate how many years you have left until financial independence. All you really need is the savings you have now, the amount per year you're going to save in the future, an estimate of the growth of your savings, and your estimated annual expenses upon retirement. These are all absolute dollar figures, not percentages. This is not to say that you can't use a savings rate to figure out your time to FI—it's very useful to say in broad strokes that if you save 64% of your income, you'll probably hit FI in 10.9 years if you're starting at $0 net worth [1]. But don't get all caught up in what goes in the numerator or denominator of savings rate when you don't actually need it.

  1. Mr Money Mustache ↩︎