To me, to you

The term savings rate brings about agreement and argument in equal vigour. A higher savings rate is almost universally deemed to be a good thing, although there’s likely to be a sweet spot between putting aside a suitable quantity of money and sacrificing too much quality of life. What really brings about disagreement, however, is talking about how to calculate your savings rate. 

Which formula to use? The FIREstarter’s formula, which has the backing of blogging heavyweights Monevator? Or the Savings Ninja’s similar version? Why not use ChooseFI’s calculator to save battling Excel’s formulas? Big ERN can surely cut through the indecision – but he describes four different rates! Are savings rates meaningless? Should we bin them entirely and use the FI Fox’s proposed ‘investing rate’ instead ? Do we include pension savings? Or dividends? What about that fiver the neighbour palmed me for mowing their lawn? The debate about savings rates will surely go on forever – there’s unlikely to be a universally accepted measure or one that’s applicable to all. 

We’re not going to try and dazzle you with ‘MedFI’s earth-shattering new way to calculate your savings rate’ or ‘how this formula will get you to your FI Number three years quicker’. Instead, we’ll revisit our first thoughts about the savings rate and how that’s panned out since instigation.

One for me, one for you

We read many numbers in our early consumption of FI material, though the one we kept coming back to was from this post by inimitable American FI blogger Mr. Money Moustache. The idea that a fifty percent savings rate could lead to FI in seventeen years was, literally, life-changing. In addition to the allure of feasible retirement before reaching fifty years old, the ’50%’ number felt…symmetrical? As if we were dividing our money into ‘one for present-day us and one for future us’. It created this notion that a month where we spent only half of our income led to a future month that was liveable without income. We know that the maths is actually slightly different, but we couldn’t escape the attraction of this fifty-fifty harmony. It was settled; a fifty percent savings rate was our goal. 

Monthly savings rate for the period February 2019 – March 2020. Range 29% to 61%. February 2019 marked our return to work and moving house – a high expense/low income month. October 2019 was another lean month, as you can see by its 29% savings rate. This punishing pecuniary statistic arose as a result of our lowest month’s income for the year combined with some of the highest monthly expenditure. 

At this juncture we reached that tricky question: how to calculate our savings rate? Searching the plethora of financial and FI material did not yield clear cut answers. In the end we decided on a few principles for our savings rate:

1. Simple. This was at the forefront of our mind and links in with the Pareto principle (‘the 80/20 rule’). We felt most of the benefit was to be derived from having a savings goal at all, regardless of how we calculated the rate. We wanted something clean, crisply calculated and clear.
2. Relevant. However we worked the maths, it didn’t need to appease the baying masses on internet forums. It had to be relevant to us, to how we understood our own finances, cashflows and savings.
3. Sensible. It’s easy to jig the numbers to make your savings rate higher or lower with a few additions here or subtractions there. Recalling the advice of a maths teacher from the past, we wanted the number generated to be sensible. If we spent three-quarters of a month’s income there’s no way our savings rate for that month should be 80%. The numbers had to make sense. (Thanks Mr. Barker.)

Using the principles outlined above, we settled on the optimum formula for us. Retroactively applying this to two previous years’ worth of financial tracking yielded savings rates of 34% and 24% respectively. Interestingly, though we hadn’t felt it at the time, we had succumbed to lifestyle creep. A 10% year-to-year reduction in savings rate despite a 3% rise in income. This was both promising and daunting. Even in the ‘creep’ year our savings rate was ~25%. Yet we’d have to double it to reach our target.

He shoots! He…misses?

It’s now been one full tax year since implementing our savings rate goal, although we have continuous data going back fourteen months. You can see the fluctuation in savings rate over that time above, oscillating tantalisingly around that fifty percent mark. Our savings rate for the last tax year (2019/20) ended up being 48.6%. Excluding the two outlying months (i.e. the one with the highest and the lowest savings rate) it was 49.3%. In short, we failed to hit our target.

Expenditure during 2019/20 tax year by category. Our large expenditure on living expenses arises as a result of opting for higher quality – a wise decision even before we’re mostly confined to home in the lockdown! Buying a car was the bulk of the travel expense, though a daily commute also contributes.

Some might say that we basically achieved our goal. 48.6% rounds to 49% and 49% is near enough 50%. We’re going to shy away from this thinking, because we didn’t reach our savings rate target. The clear aim was fifty-percent, not ±2%, or ‘close to 50%’. Failure is acceptable and will serve as a motivator for the next tax year. This isn’t pedantry, it’s detail. The phrase that springs to mind is ’look after pennies and the pounds will look after themselves’. Though the ’80/20 rule’ is a useful broad brush, sometimes a more finessed approach is required – choosing when to apply which one is going to be key in achieving our goal next year. The first step will be to look at our expenditure (see above) and find where we can eke out 1.4% worth of marginal gains!


Mr. MedFI

7 thoughts on “To me, to you

  1. You are rather harsh on yourself I think- especially if you compare to basically anybody that isn’t on FIRE (which is nearly everybody)! Though, I guess if that missing 1.4% was actually £10k, then maybe you have a point? But I’m guessing it was only hundreds? I actually don’t measure our savings rate on a monthly basis- I can’t decide what calculation method to use- and our investments change too frequently as well. Good luck for next year!


    1. Thanks for your comment. The 1.4% does amount to a four-figure number, but not £10,000. I don’t see it as being harsh – it’s the reality. It can be a slippery slope!
      Do you use some other metric to track your progress? Net worth or % FI or similar?


  2. What are your views on paying down student loan? Given that if you are on the post 2012 SLC loans you can owe 50-80k and (most) medics will pay back more than they owe?

    1/ Make minimum payments
    2/ Make overpayments to SLC – but risking that you may (unlikely) lose your job/ work part time and not have repaid in full in 30yrs time
    3/ Take out loan with private company (some are offering <1%) and pay it off with private company

    Thanks for a great blog!


  3. Glad you’re enjoying the blog! The student loan question is more complex than I can perhaps do it justice in a small comment. Making decisions now on uncertain future events (e.g. job loss, unfit to work, government intervention) is always fraught and will likely lead to dissatisfaction either way. Similarly to the ‘overpay mortgage vs invest’ question, you’ll need to balance the financial factors against scratching the psychological itch of having debt to pay. We’d avoid option 3; simpler is better in our opinion (although in terms of strict finances may not always be the ‘best’ option).


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