What is your savings rate? It’s easy to work out; it’s the difference between your income and your expenses – how much of your income you can save per month worked out as a percentage. For example, if you earn Dh20,000 per month and after paying all your bills and spending money to maintain a lifestyle suitable for you, you are able to save Dh10,000, you have a 50% savings rate. So, what does this have to do with retirement? The more money you can invest for retirement, the faster you will be able to stop actively earning income. The lower your living expenses, the smaller your retirement pot actually needs to be. How can you increase your savings rate? You can either reduce your expenses or increase your income to booster your savings rate and free up more money to invest for the future or use for a short-term goal.
It is an effective metric to track as it’s the one you have the most control over. You can’t control housing market volatility or stock market returns, so if you focus on your savings rate, you’ll be less likely to succumb to timing the market. Keeping track of your savings rate is easy and you know if it is negative, your spending is unsustainable and you are heading towards debt. Making minor adjustments to increase your savings rate can have a major impact on your retirement planning.
