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Understanding and Improving Your Savings Rate

If you’re saving for a financial goal like an emergency fund or a down payment on a home, it helps to monitor your progress. One of the best measures of how quickly you’re able to put money away is your savings rate: the percentage of income you set aside in savings after meeting your expenses.

What Is a Savings Rate?

Your personal savings rate is the percentage of your income you save each month in a savings or retirement account or in other investments. For example, if you earn $6,000 per month and direct $4,500 of it toward your bills, and save the remaining $1,500, your savings rate is 25%.

Why Your Savings Rate Matters

Your savings rate is a valuable component of your financial health because it directly influences how soon you’ll achieve your financial goals, such as buying a home or paying off your debts. Unlike economic conditions and job security, your savings rate is something you can control. Increasing your income or cutting your expenses can provide additional money to put toward your savings.

How to Calculate Your Savings Rate

To calculate your savings rate, divide your monthly savings by your gross monthly income. For example, if you save $500 of your $5,000 income, your savings rate is 10%.

How Much of Your Income Should You Save?

The U.S. personal saving rate is 4.6%, according to February 2023 data from the Bureau of Economic Analysis. Experts recommend saving 10% to 15% of your income for retirement and three to six months of everyday living expenses for your emergency fund. Even if you don’t reach these goals, improving your savings rate from 4% to 6% can make a significant difference.

How to Increase Your Savings Rate

The more you save each month, the sooner you’ll achieve your financial goals. Here are some actionable steps to improve your savings rate:

• Increase your income: Switching to a higher-paying job, taking on a second job, or starting a side hustle are common ways to increase your revenue.
• Don’t increase lifestyle costs when income rises: Resist the temptation to significantly boost your lifestyle when your earnings increase.
• Pay down high-interest debt: Zeroing out your debt accounts is an excellent way to increase your disposable income and save more.
• Maximize your employer 401(k) match: Aim to contribute up to the maximum of your employer match to improve your savings rate and help your savings grow faster.

Improving Your Credit Can Lead to Increased Savings

Having a high savings rate over time is an indicator of overall financial well-being. Similarly, good credit is another essential component of your financial health. A high credit score improves your odds of qualifying for favorable terms when you apply for a mortgage, car loan, or other forms of credit, saving you money over time.

Discover where your credit stands and stay on top of any changes to your credit report by signing up for free credit monitoring through Experian. You’ll receive tips for improving your credit score and real-time alerts about new inquiries or suspicious activity on your credit report.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals with confidence and ease.

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