108R | How to Calculate Your Savings Rate

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Jan 4, 2019

Explore various methods for calculating your savings rate, including gross, take-home, and after-tax compensation. Hear about the importance of planning for special needs children and how 529 ABLE accounts work. Discover real-life experiences, like a listener’s journey from disability to helping family. The hosts also share holiday updates and delve into community events while emphasizing financial independence as a pathway to joy. Track your net worth and savings effectively with tools like Excel and Personal Capital!

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ADVICE

Use A Consistent Savings-Rate Formula

Calculate savings rate consistently using the same formula year-to-year to measure progress.
Prefer after-tax compensation as the denominator to balance pre-tax contributions and take-home pay.

ADVICE

Use 529 ABLE Then Transition To Trusts

Start with a 529 ABLE account for special-needs savings but watch the $100k asset limit.
When the ABLE cap approaches, plan to use a special-needs trust and time funding to avoid heavy trust taxation.

ANECDOTE

Listener Penny's Special-Needs Journey

Penny called to thank them for the special-needs trust episode and shared her lived experience with disability and recovery.
She now works full-time and plans to support aging parents while applying FI lessons to her finances.

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108R | Brad and Jonathan talk through the various methods of calculating a yearly savings rate and the numbers necessary to do so, and review Monday's episode about setting up special needs accounts.

Jonathan is back from 20 days with family in Zimbabwe, and Brad recaps his Christmas vacation.
Brad and his family added 12 board games to their collection.
William, from Monday's episode, set out a road map for people who want or need to safe guard finances for special needs children or other dependents.
Key: fund your trust as a part of executing your will to minimize tax liability.
Start with a 529 Able, but as you reach $100k, begin to look at the next steps.
Comment from Rebecca, that the 529 Able accounts in Nevada have higher fees than she preferred, so she's funding a traditional 529 Plan and will eventually rotate it into a 529 Able.
Every state currently has its own set of 529 Able options.
Voicemail from Penny, who has a special needs trust and was on disability for 16 years, but has been back to work for the past 12 years and is now working to help her parents with their healthcare and financial needs.
Financial independence is the ability to do the things that bring you joy, whether they bring in money or not.
In 2019, ChooseFI is bringing in experts to answer specific, technical questions.
William is helping to build the website, and a more user-friendly local group site.
Brad is going to Camp FI in Florida soon.
How to calculate your savings rate:
- Three different ways to calculate:
- - Gross total compensation divided by how much you saved or invested.
  - Take-home pay divided by how much you saved or invested.
  - After-tax compensation divided by how much you saved or invested.
- Brad uses an excel sheet with three tabs: Profit & Loss (P&L), Net Worth, Accounts.
- In the Accounts tab, Brad records savings in each account at the beginning and end of the year, and totals up monthly expenses (cost of electric in Jan., Feb., Mar., etc.).
- Does Brad track every one of his credit card expenses?
- Net worth = add up all your assets and all your liabilities.

For more information, including links mentioned in today's show, visit the show notes at http://ChooseFI.com/108R