Back in May I posted regarding my household savings rate (HSR), which I defined as savings in the form of investments (reg. and non reg.) divided by net income or gross income. Let's concentrate on net income for now, back then I estimated my HSR to be 34%. At that time commenters, Four Pillars and Mr.Cheap noted that perhaps the principle paid on a mortgage should be considered savings as well, which I believe is a valid point but still does not tell the whole story. What I can't get past is the fact that unless you include interest paid on your mortgage, then someone who invests rather than paying down their mortgage more aggressively will look as if they are saving more money than a friend who pays down their mortgage with the same disposable cash.
On a recently run poll on this blog asking 'What % of your Net Income do you Save?' the following results were obtained:
27% of people save between 10 - 20%
23% between 40 - 50%
17% between 30 - 40%
Several financial sources, including David Bach's books like Smart Couples Finish Rich, claim that you should save at least 10% of your net income to retire well, or in Bach's words 'less than 10% and you are living above your means'. If you could save 20% of your net income you should achieve great wealth or in Bach's words be 'really rich'. From these results it looks as if several readers of my blog (40% of readers) will be really rich in the future. The factor that is difficult to judge here is what people considered 'savings'. Some people probably included mortgage payments, others included principle payments, and others did not, and only included other forms of savings.
I have recently calculated the following for my family:
HSR = 36%
HSR (including full mortgage payments = 51%
HSR for 2008 when my wife goes on maternity leave = 15%
HSR (including full mortgage payments for 2008) = 37%
If my calculations are correct, and too much unforeseen expenses don't crop up during 2008 then I will be quite pleased to still be able to save 15% of net income with our reduced employment income situation. I am still debating whether my wife will continue to contribute to an RRSP for the year at her usual rate, decrease her contributions, or hold off for 2008 all together. It is although starting to look like our income trust security blanket that we have built up may not get used, which is wonderful as I'd be quite please to roll this over into an RESP for my first child, or keep it invested and start a synthetic drip for a future child's RESP or other uses.