How to Achieve a 50% Savings Rate (or Better!)

How to Achieve a 50% Savings Rate Header
Cody Berman
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The legendary 50% savings rate – for some it seems unattainable. But, the truth of the matter is that it’s just simple math. The math is the easy part, though. In order for this to actually work you will have to (1) track your spending, (2) control each expense category, and (3) save the difference.

This post will show you exactly how much you can spend at various income levels in each of your expense categories in order to achieve a 50% savings rate (or better).

Are you up for the challenge?

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How to Calculate a 50% Savings Rate?

For the purposes of this exercise, we will break down the differences between ‘savings’ and ‘expenses’ (it’s more complicated than you might think). To keep things simple, anything that increases your net worth counts towards savings. Anything that does not, is an expense.

What Counts as ‘Savings’

  • All after-tax, take-home pay that is not spent
  • Any contributions to an IRA, 401K, HSA, 529, or other tax-advantaged investment accounts
  • Any type of debt pay-down (mortgage, student loan, credit card, etc.)

Fun Fact: Increasing assets and reducing debt both increase net worth.

What Counts as ‘Expenses’

  • Food
  • Entertainment
  • Rent
  • Any purchased good/service

Expenses are basically anything that doesn’t increase your net worth.

Note: Taxes are already accounted for in this analysis.

Average American Expenditure Broken Down


Average American Household Spending 2018

Source: CNBC

Let’s Get Number Crunching!

Now that we’ve laid out all of the statistics, let’s get to number crunching!

First, let’s analyze the annual spend for different individuals across the entire income spectrum — from after-tax income of $20,000 all the way up to $300,000. In this post, we will focus on the numbers highlighted in yellow / outlined in red to determine how much an average family can spend in order to achieve a 50% savings rate.

50% Savings Rate Chart 1


Next, let’s break down the spending into the categories we defined in the ‘How Americans Spend Their Money’ chart above: Housing (32.9%), Transportation (15.8%), Food (12.6%), Personal Insurance / Pensions (11.9%), Healthcare (8.1%), All Other (6.9%), Entertainment (5.1%), Cash Contributions (3.6%), and Apparel and Services (3.1%).

Now, we can apply these percentages to each of the annual spending brackets to see how much a family can spend per year in each category to achieve a 50% savings rate at a certain income level. See the charts below to determine how your family can save 50% of your income!

50% Savings Rate – Annual Expense Breakdown

50% Savings Rate Chart 2

50% Savings Rate Chart 4

For example, a family earning $60,000 per year (after taxes), can spend $30,000 per year to achieve a 50% savings rate. Let’s break this down into categories to illustrate how much this family can spend annually in each expense category.

Housing (32.9%): $9,870

Transportation (15.8%): $4,740

Food (12.6%): $3,780

Personal Insurance / Pensions (11.9%): $3,570

Healthcare (8.1%): $2,430

All Other (6.9%): $2,070

Entertainment (5.1%): $1,530

Cash Contributions (3.6%): $1,080

Apparel and Services (3.1%): $930

50% Savings Rate – Monthly Expense Breakdown

Now let’s look at these same numbers on a monthly basis and analyze the results.

50% Savings Rate Chart 3

50% Savings Rate Chart 5

Using the same family from the example above, at $60,000 in after-tax income, this family can spend $30,000 per year, or $2,500 per month to achieve a 50% savings rate. Using the same percentages as before, let’s examine each monthly expense category.

Housing (32.9%): $823

Transportation (15.8%): $395

Food (12.6%): $315

Personal Insurance / Pensions (11.9%): $298

Healthcare (8.1%): $203

All Other (6.9%): $173

Entertainment (5.1%): $128

Cash Contributions (3.6%): $90

Apparel and Services (3.1%): $78

Can You Hit The Magical 50% Savings Rate?

Now you know the math, but that’s the easy part. The hard part is to actually execute on your game plan to (1) track your spending, (2) control each expense category, and (3) save the difference.

According to Mr. Money Mustache’s Retirement Chart, a family who maintains level spending (adjusted for inflation) and a 50% savings rate can retire in just 17 years! Living below your means doesn’t translate into deprivation, it translates into buying the world’s greatest asset: time!

Shockingly Simple Math

Achieving a 50% savings rate is great, but financial independence doesn’t just happen through diligent saving. In order to really supercharge your path, you will want to earn more, save as much as you can, and invest the rest. Once you understand how to control your money, the journey becomes a whole lot easier.


The “track everything” advice is so overpreached in the personal finance community, but only because it’s so true. In order to really take hold of your finances, you need to know where all your money is going! On a micro level, this could include tracking expenses in a notebook, on Excel, or in a program like Mint or YNAB. Pick which option works best for you. I personally use a custom budgeting spreadsheet that I created in Excel (yeah, I’m a nerd).

On a macro level, you always want to be tracking your net worth. Remember, Net Worth = Assets – Liabilities. Knowing where you stand in the big picture is just as important as tracking your daily spending. My favorite app for this is Personal Capital. It’s a comprehensive, super-easy-to-use platform that allows you to check your net worth in real time whenever you feel like! I highly recommend checking them out if you’re not signed up already.

And that’s it! Now that you have the tools and knowledge, it’s up to you to execute.

Do you think you have what it takes to achieve the legendary 50% savings rate (or better!)? Let us know how you’re doing in the comments below!

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Note: I am not a financial advisor or fiduciary. All the information presented in this article reflects my opinion. I am not liable for any financial losses incurred related to this content. My content is always written with the readers’ best interests in mind. I believe that my content is helpful and well-researched, but it is not professional financial advice. For more information, read our Privacy Policy.

6 thoughts on “How to Achieve a 50% Savings Rate (or Better!)

  1. Awesome post! I use the free version of EveryDollar for our budget. It’s basically like a spreadsheet but makes the budgeting process super simple. It also shows you what percentage you’re spending or saving in each category so you don’t have to do any calculations yourself.

    1. Thanks man! I’ve actually never heard of EveryDollar before. I’ll definitely have to check it out. Since I’m a spreadsheet nerd I don’t mind using my own creation. That way, I always have 100% control!

  2. Most often I see a pretax goal of 50%. Calculating based on aftertax you assume you won’t have any taxes in the future. Lord knows that’s not true.

    1. Hey Greg, you are so right. Taxes will always be around. The reason why I chose to examine the savings post-tax was that the CNBC study detailing average American expenditure was after-tax spending. For that reason, I thought it was more accurate to look at the figures in post-tax dollars.

  3. Thanks for the post. I was hoping the “how to” part would address implementation. I can do the math (and have my own fancy Excel spreadsheet – I’m a nerd, too) – I just don’t understand how one implements.

    $80k minus taxes, insurance, retirement (pension and 401k), and flexible spending accounts (health care and child care) = $42k take-home. Is the savings goal $40k or $21k? If I base off after-tax, it looks like I only need $43k earnings in early retirement, not the $80k, even tho the pre-tax expenses will remain. Huge discrepancy there for some who manages money down to the penny. Also, how does one get housing for a family of six down to $800/month? Even taxes are higher than that. I’m trying to find the reality to FI, and the devil us in the details.

    1. Susan – After tax income is only $80k less taxes. Insurance is an expense, but Retirement is savings, and I would argue an FSA is an expense, while a HSA may qualify as savings (but anything spent from the HSA would be an expense). This should change your math a bit.

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