Monitoring Financial Health: Savings Rate

by | | Debt, Investing, Other Cool Stuff, Retirement

Savings Rate

What is Savings Rate?

Savings Rate is a key indicator of your financial health. It’s the percentage of your annual gross income you’re saving.

Total Annual Savings / Total Personal Income = Savings Rate

Example: Assume your annual gross income is $300K. If you save $20,500/year into a 401(k), $6K/year into a Roth IRA, and $24K/year into a taxable account, your Savings Rate is 16.8%. $50,500 savings / $300K income = 16.8%.

Why is Savings Rate Important?

A higher Savings Rate improves current financial wellness because you’re more prepared for unexpected expenses and setbacks.

Savings Rate is also the strongest predictor of long-term financial success. How much you save is much more important than what you invest in.

Savings Rate Ranges

Average savings rates fall between 10% and 30%.

When a lower Savings Rate is OK

Sometimes it’s OK to have a lower Savings Rate. Two examples:

  • You have high future retirement income (think a university pension).
  • You plan to work longer.

When a higher Savings Rate is needed

Your Savings Rate should increase as your income goes up. (As you earn more, save some instead of spending it all.)

A higher Savings Rate is also critical if you want to cut back on shifts earlier and retire sooner.

Improving Your Savings Rate

To improve your Savings Rate, identify what’s holding you back.

Cash Flow Constraints

Most people’s main hurdle is not having enough cash to save. High debt payments can play a role, but overspending is often key.

Humans have a behavioral tendency, called present bias, toward current payoffs over future ones. We’re biased to spend, not save, and consumption choices have a huge influence on Savings Rate.

Just a few examples where higher lifestyle costs mean lower savings:

  • Housing
  • Cars
  • Vacations
  • Food
  • Kids’ education
  • “Get it now” overnight delivery of anything

Most ER docs can afford to enjoy life today, and save for the future. There are tradeoffs, though. If you want a healthy Savings Rate, you have to say “no” sometimes.

Lack of Knowledge

Your training taught you to handle anything that walks in the door. It probably didn’t teach you how to handle the money you make. This is understandable!

Many people just don’t understand how much they should save. This can be due to lack of desire, too much information, or insufficient time and energy.


Saving and investing can be daunting. Whether due to past experience, or fear of the unknown, many lack the confidence to take charge and save more.

Will your Savings Rate get you to your goals? Are you tracking your Savings Rate over time? That’s where we come in. Schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.

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