For those of you with YNAB (or could be any budgeting app), three questions: 1) is your EF (emergency fund) a separate line item or is it having a few months funded in the future? 2) how do you calculate your savings rate when you take into account the true expenses? (I.e., saving for bi-yearly or yearly costs, or putting $x aside for auto repairs etc?) 3) if you are diligent about these true expenses and other similar items, do you include that in your EF? One of the reasons why I’m asking is we recently took a trip to FL and had to spend extra money that I didn’t anticipate but because I had different categories, I was able to dip into them and use them as an ‘EF’ so to speak.

1. For someone who is more conservative it is its own budget category (savings goal). If you are riskier (like me) you can dip into all your other categories as your emergency fund. Either way works. 2. What value do you get by calculating your savings rate?

Does it make sense to have a segregated emergency fund, or just to save money in general? Is there a difference in money you save for house downpayments, weddings, and emergencies? I think there's a question of how liquid you want to be and the trade-offs between liquidity and returns, but you can handle that by keeping a small amount in CD's or bonds and not all in on equities. I think calculating a savings rate can help motivate some people and help people react if they aren't saving as much as they'd like.

@mysterious-tomato-10057 reading more about FI they reference the savings rate so I thought it wood be nice to know where I’m standing or have a higher percentage as a goal. @thankful-raincoat-91160 I guess it’s psychological. I like having goals and milestones

I calculate my savings rate by adding up money put away for an emergency or for "retirement" over my gross income less taxes and maaser. I dont include money put away for future expenses because I'm effectively just amortizing the expense (although if I transfer from savings for a car to an IRA that would count obviously). I also dont calculate it including money used to pay down debt because again those are just expenses. There no real benefit to knowing your savings rate as a percentage of net income. It's just nice to see how it compares over time. It's also a motivational thing for me.

@thousands-sunset-8939 it's talked about a lot but I've never personally found any actual use of such a calculation. Seems like a number just for the sake of being a number. My main point is that there's no real rules on how to calculate it because it's not really something that's used for anything. So calculate it however you want to calculate it to do whatever you want to do with it. If it's to inspire you, calculate it in a way that inspires you. I don't personally know my savings rate. All I know is that I'm saving enough every month to fit my statistical model for my financial independence plan. If that's 20% or 80%, it doesn't matter to me as long as I'm hitting my goals according to the formulas. Wealth is not about how much is made or saved. It's about how much is saved in relation to your expenses. Therefore, the real number that matters is what would come out of the Monte Carlo or other statistical models that include your expenses and how much you're saving every month. I see it as a number I don't really want to know because of all the random tropes out there telling me what my savings rate should be. I don't want to start obsessing over that when there's enough to obsess over.

Thanks for the detail. I haven’t touched the Monte Carlo or other models because I don’t ‘get’ them 😂

So you don't really need to understand Monte Carlo per say. You can just use this to calculate your success rate (it uses a monte Carlo under the hood) We can also discuss on a call together 🙂 https://www.portfoliovisualizer.com/financial-goals

I’ll check it out and DM you. Thanks!

Btw I think the origin of the savings rate comes from https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I wonder why he felt there is value to it. Maybe I'm missing something.

I think theres a bunch of benefits to it: 1. As mentioned before, it could be motivational. Metrics are useful as a way to measure performance. 2. It's useful to see how your spending is changing over time. If you compare your change in income to change in savings rate it can help determine if you are staying in control of your finances (ex. If your salary has double but your savings rate has gone down it may be a warning sign to take a look at how you are spending your money). 3. It's a good reality check on how much you actually spend. You might think you could live on 50k after hitting FI, but if you see that your net is 100k and you have a savings rate of 10% it could be a sign that your FI number may not be realistic. Essentially calculating your savings rate forces you to know a few very important numbers such as what your net income is, what you are actually spending each year, and how much you are actually saving each year.

@curved-toothbrush-84425 thank you! I think if been ignoring it personally bc it's too much of a headache to calculate for me compared to the benefit, but I need to make sure I don't discount it for others! Regarding point 2, the metric is use is total spend. I try to keep my spending the same and if anything fluctuates it's my savings that fluctuate. To avoid lifestyle inflation. Again, this is only an attempt 😂 Regarding point 3, I don't think that would be possible for someone who had calculated everything else like their Monte Carlo. Number 3 sounds like someone who just doesn't know his numbers well. But if you know how much you personally spend and know you are investing enough each much to hit your goals, I'm not convinced actually knowing the savings rate at least for myself would be a motivator. But I hear that it could be for others. I see it more as a distraction because for some people a 10 percent savings is perfect for them to reach FI and for others it's 80 percent so people try to compare with others on it and I find that to be distracting and unhelpful.

Such an interesting conversation. I never formalized all this. In my mind, all money earned is savings and I use some of my savings to live. If my savings gets too high, move to investments. Maybe it's too simple, but it makes me happy 😂

@nutritious-raincoat-28876 do you have monthly investing goals? I think your way works as long as you have some (calculated) amount that is by default moved to investments each month. Then your savings is really just your checkings overflow and when then gets too big move to investments. If you don’t also have an investment plan to go with that approach I think you would be in for surprises down the road.

@nutritious-raincoat-28876 that is very interesting. How do you conceptualize budgeting, categories, or if you ‘can’ afford something without taking from somewhere else?

@mysterious-tomato-10057 oh yeah, sorry, I should have specified. 5% of my paycheck matched by my employer (so 10% total) goes into my retirement account.

The key is not that you have 10 percent retirement savings, it's that you are happy with the projections! 10 percent or 50 percent is meaningless to me unless you are happy with the results that it yields. That means you are being intentional, and that is FI!

Haha all good. Even if I change my categories and move money around, I can’t imagine going back and spending without knowing I was ‘saving’ for expenses later on, I.e., yearly charges, or auto maintenance etc