Chasing the Fionist Dream

We talk a lot in this blog about our savings rate and how we aim to get it over 50%, thereby saving and investing more money than we spend each month. But what exactly does that mean? Since our net salary from our day jobs isn’t the only money we have coming in – and likely isn’t the only money you have coming in either, looking at our savings from our net salaries isn’t entirely accurate. In this post, we will show you how to calculate your total savings rate. And the best part is, if you are an employee in Israel – or depositing into a pension account anywhere in the world, it’s probably higher than you think it is. 😉

If you’ve ever taken third (or fourth?) grade math, you know that a savings rate is a fraction. Savings/Income. Easy. Or is it? Let’s delve into what is included in your savings numerator and income denominator.

Income

Let’s start with this one, since it is probably bigger than you realize. Your income is any money deposited into an account in your name each month. This includes your net income from your employer and any stipend, disability, old age, or other allowance you receive from the government, family members, or anyone else. Bituach Leumi (Social Security) and taxes are paid into a general pot and not paid to you, so they don’t count, but your pension and keren hishtalmut deposits (if you have one) do. It doesn’t matter if you can’t access the money at the moment. It belongs to you and no one else.

In our case:

Savings

Now that you know how to calculate your income, let’s work out your savings. Your pension and keren hishtalmut go straight into investment accounts, so those values should appear in this section as well. We also reinvest our dividends, so those also appear in both sections. Any contributions toward slush funds and/or personal investments should appear here too. Some people choose to include the principal portion of their mortgage payments in this section, since those payments pay off debt and are returned to you as home equity. We don’t include this as part of our calculation since we don’t consider our home part of our investments.

In our case:

Now comes the easy part.

Divide your total savings by your total income.

For example, the Hypothetical family is a dual income household with two children whose net salaries total 18,000 shekels. Between the two of them, they and their employers deposit 4,374 shekels into their pension plans each month. They have no keren hishtalmut, no dividends, and receive 250 shekels for kitzbat yeladim. This family’s total income stands at 22,624.

Each month, the Hypotheticals save 500 shekels from their net salaries. With their personal savings and pension combined, they save 4,874 shekels per month.

4,874/22,624

The Hypothetical family’s total savings rate is a whopping 21.5%!

What did you get?

Provided that you are not living outside of your means and are contributing to a pension plan, the answer should be higher than zero. Like the Hypotheticals, you should be pleasantly surprised. Look how much you’re saving already! We hope this gives you the confidence to save and invest even more. 🙂

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