Tracking savings and savings rate?
Hello, my wife and I use YNAB to track our spending and to budget monthly expenses. We also use it to keep track of some savings goals. We're having a hard time managing our savings goals which is frustrating because making sure we are saving lots of money towards our goals is our main financial goal and driver. Here is our current situation.
We have checking accounts and savings accounts on budget (and unlinked). We also have investment accounts which are off budget (and also unlinked). Monthly expenses are fine. Every month we get money into our checking accounts and we're able to budget that for our monthly expenses. However, some of that money is slated to be saved into one of at least 5 savings categories (future baby, future house, next years travel, big vacation next year, general financial independence).
The way we handle this right now is in the budget we have a super category for savings and categories for each of the above savings goals. Every month we budget some amount of money towards each of these goals from our paychecks. Then we correspondingly transfer money from the checking accounts into the savings accounts to reflect this*.
One big goal that we have is to have a historical record of income, expenses, and savings over time. For example we would like to be able to calculate savings rate on a monthly basis. I mention this because it motivates why the software experience causes problems for us.
The big problem with this approach is that we are accumulating our savings in the "budget" column. Unfortunately there is no budget history so we're not able to look back and see *when* we contributed *how much* to the various categories. We can only see the current total.
Another problem is we have to do a bit of math regularly to ensure the amount we have budgeted into the various savings categories matches the total amount in the savings accounts. (This could somewhat be mitigated by consolidating the savings accounts where possible but even with that the problem persists).
Possible solutions we have thought of:
- Take the savings accounts off budget. We can keep the categories but now saving will look like expenses meaning it will be tracked in a historical manner and will be clearly visible in the spending reports. The problems with this are 1) if we just having 1 savings account for all of this it won't be clear how much money in the savings account is apportioned for each savings goal** 2) we can no longer track budgeting goals and 3) I'm not sure how this will look in a few years when we start actually drawing from these accounts because the money would then be re-entering the budget as income which would artificially inflate our income again making the savings rate difficult to calculate.
- Make multiple savings accounts off budget, one for each savings goal. This just seems like an anti-consolidation headache. We'd have so many superfluous accounts and it would be annoying keeping track of all of them. Same budgeting approach as above.
- Perhaps some of this could be solved by having multiple "budgets"? One for short term spending and one for longer term saving/spending? We haven't thought much about this approach yet.
Can anyone make suggestions for how to handle medium and long term savings, and particularly handle it in a way that makes it easy to calculate savings rate each month?
*We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.
**Actually this would be a nice feature request. A way to divvy up the purpose of a tracked account towards different goals. I guess this is basically what a budget does already... Thinking about this is what gave me the idea of multiple budgets.
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Beige Wildebeest said:
*We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.I think you may be misunderstanding that article a bit. That article is telling you not to match an account balance to a category balance. I have about 4 savings accounts and 3 checking accounts plus CDs all on budget. I have a category called Loss of Income which would cover me for 6-8 months and I literally cannot tell you which account it is in because it does not matter at all. I keep as little as possible in my checking account but it still doesn't match any particular category. I know that most months my outgoings total $X therefore I make sure that on the first of the month my main checking account has $X+15% in it. Everything else that comes in gets moved to a savings account to maximize interest. Location and purpose of my money are 2 completely separate things.
I also cannot tell you what my "savings rate" is. I can tell you that including employer match, 24% of my gross income goes into either 401(k) or IRA, plus I send a set amount to my taxable investments every month. I am saving up for a kitchen remodel right now, but I wouldn't count that as "savings" because as soon as I hit a certain amount (and have the strength to deal with contractors), I'm going to spend that money right down to 0. The vast majority of "savings" is just delayed spending.
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jenmas It is very important to us to be able to calculate our savings rate. We are trying to retire early and savings rate is a valuable tool for calculating time until retirement. Thus it is important for us to have a time record of how much we put into savings over time, not just a snapshot of how much we have in savings at any given time.
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Beige Wildebeest Unless you’re going to be able just to brute force enough savings, savings rate isn’t going to provide the answer. Growth of investments is going to provide the answer.
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Every category is savings in YNAB; it's only the timeframe that varies. I mean, "savings" is merely "delayed spending" when you get right down to it.
When financial experts talk about "saving" a certain percentage, they usually mean for retirement.
I think you're complicating things unnecessarily. Why do you care what percentage of income goes to those 5 "special" categories? YNAB would have you operate everything on a priority basis. The important things should get money (within the constraints of income) and if something has to go unfunded, it should be something not as important.
Basically, if you don't have any lower priorities that are going unfunded and you still have unallocated income, you should accelerate a high priority -- possibly one of the Big Five -- regardless of whether that causes them to exceed some arbitrarily set percentage or not.
Think about the future house, just as an example. If you want a house in X years, you're going to have to save a significantly higher percentage if you're going to buy, say, in California compared to Kentucky.
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dakinemaui In our most recent discussion with a finance professional, he asked how much we were saving each month. This was difficult to answer, even though he said he was familiar with YNAB. My favorite part was when he asked how much uncategorized money we had each month. I asked which categories he considered uncategorized... And he actually answered. With a straight face.
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dakinemaui Yes, it is best to put each dollar towards the highest priority thing at that moment. That is what we are doing. However, it is nice to be able to talk about a savings rate as this allows you estimate time until retirement. In principle knowing this number shouldn't adjust how we allocate each dollar the comes in in the future, however in practice, knowing our savings rate will allow us psychologically to make budgeting decisions even more in line with increased savings.
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Beige Wildebeest In that case, the retirement savings rate is dependent upon what you budget to the retirement category (ies) plus any pre-tax things that are not typically in YNAB (e.g., 401k). That's pretty straightforward, though.
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Beige Wildebeest said:
We're aware of this post https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/ but we need separate accounts because these are medium to long term savings goals and they should be collecting interest far above what is collected in a checking account.You should read that post again, then. It actually outlines why you can put money in a higher rate account without impacting the budget. Purpose (category) is independent of location (account). It describes why you do not need to make categories match an account (and doing so is more work).
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dakinemaui I understand that purpose is independent of location. The underlying problem is that when there is no way to track when certain amount of money were put into each budget category. I want to know something like how much money did I budget into a particular category a certain month divided by how much income I had that same month.
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Beige Wildebeest if it's budgeted in Dec's area, it seems reasonable to attribute it to Dec.
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You are way overcomplicating this. And you may be aware of that article but it doesn’t appear that you understand it. There should be no direct correlation between categories and accounts. The accounts are just containers. Some make more interest than others and that’s their only purpose while your checking account, most likely, makes little interest but is how you pay for things and receive your income. I have more in high yield savings accounts than I do in my medium to long term savings categories combined.
As far as savings rate is concerned, you could probably calculate it using YNAB reports. Just turn on your medium and long term categories.
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Superbone No we can't calculate savings rate using YNAB reports. That is the problem. The reports only report on "activity" not budgeting. So if we budget $1000 towards a particular goal that is not reflected in the reports. The budget increase so we can see that we have saved more but it does not appear in the reports.
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Beige Wildebeest the budget is the report. If you have more than one retirement category, either combine them or group them.
Additionally, though, if you transfer that money out of the budget (which is typical), it shows up in the expense report at that point.
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dakinemaui Yes, I think this is actually the answer to my question. The "Budget" column for each month is a record of how much was budgeted towards that category. In this case "budgeting" towards savings (even with no spending) is what can be translated to savings. So I guess at this point what would be nice would be if the budgeted amounts for each month showed up in the reports. For typical spending categories the budgeted amount is typically close to the spending amount on that category, but for savings categories this is not the case. Even if there is budgeting every month there may not be spending for years.
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Beige Wildebeest I was thinking more of the Income v Expense report. Income - Expenses being your savings and then savings / income being your savings rate. The problem with that though is it includes your shorter term Rule 2 fund savings as well. Of course, this is all budgeted savings. If you're like me, the majority of your savings is done pre-tax by your employer and taken out of your check before you even see it.
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Superbone Ah, that makes sense. Savings may not be directly reported in that report but one can calculate savings = income - expenses.
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dakinemaui
dakinemaui said:
Beige Wildebeest the budget is the report. If you have more than one retirement category, either combine them or group them.This is what I do to track my Savings. Then I only need to look at the Master Category Account 'Budgeted' number in any month to know my savings total which I can track against the Funds for "Month" to get my savings rate.
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Ok, I'll take a stab at this one. Why don't you reverse the idea, and be proactive, and tell YNAB how much you want to save? So like, let's say I'm gonna be one of those FIRE people and save 40% of our income. I have December already budgeted. I take all of this month's income and put it in a holding category for next month. I put a note under the January header "Save 40%" and when I budget Jan. I calculate 40% of the amount in my holding category and distribute that amount amongst my 5 biggies and budget the remainder as normal. Boom.
If I make it through the month without starving to death, and I wanna push myself a little further, now let's try 41% or 42%. Write a note as your goal for Feb. And repeat.
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I'm curious what formula one uses to calculate savings rate? There are so many ways it can be done that it's just about pointless to throw out a number. As Superbone mentioned, there's money taken out directly as payroll deductions. There's employer matches. There's post-tax savings. What number do you use for the denominator? Gross wages? Bonuses? earned income? AGI? Take home pay? Do you reduce by the cost of employer benefits? Do you add back in employer match?
Savings rate is a figment of the imagination. Rather than figuring out a percentage that you are saving, figure out the target number needed for retirement, and reverse engineer that back to an annual dollar amount needed to be saved.
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nolesrule It’s even worse than that. If you save $1000 into a total market index fund and the value declines to $800, how much did you save?
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Habanero Salsa Agree, although in the long term the assumption is it will have growth. Thus one would only calculate on contributions and not on growth/losses. And then technically unearned income, which contributes to AGI is generally growth. Like tax inefficient bank interest.
But yeah, it's confusing.
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nolesrule But you can't retire early on assumptions. I agree that people should determine how much to put aside. If you meet those targets, your savings goals are on track, but that doesn't mean your early retirement is, and that is the objective underlying the OP's questions.
In order to assess whether early retirement is on track, you have to evaluate performance, not just savings rate. So, savings rate is complicated to determine and isn't sufficient, and maybe not even necessary, to answer OP's question.
(And, according to my "financial advisor," the denominator is total realized income from all sources, including: gross income, employer match on retirement accounts, bank interest.)
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Habanero Salsa I like how something is both growth and savable income. Way to fudge the numbers.
Most people can't retire early on savings alone and need to invest in order to reach a safe number. Therefore one must make a reasonable projection on growth from investments, knowing that the growth is not a constant. Therefore you need to run monte carlo simulations or repeat of past historical period's performances to get you a probability of whether or not the plan will work. See cfiresim or firecalc.
Even after retirement, the number you have still relies on probabilities to project success.
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nolesrule Right. Which was my answer above. Unless OP can brute force retirement savings with cash, the answer lies in investment returns, not savings rate.
I don't know that it is "fudging" numbers, which has a negative connotation. It's creating a larger denominator so that hitting a higher savings rate requires more effort.
Believe me, I got way more information on savings rates, Monte Carlo simulations, firecalc, sustainable withdrawal rates, and the rest than your average teenager.
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Habanero Salsa nolesrule pre-tax contributions, employer matches, and take home pay should be included in income. These are dollars that come into your accounts. Of course you have to take advantage of investments to retire earlier. And yes, of course to make a projection about retirement you must make assumptions about growth. You can assume a constant rate of growth (clearly has countless problems but gives a starting point) and then supplement with a fuller plan and monte-carlo methods.
Yes you can come up with a target number for retirement but it is sort of a moving target. How much you need for retirement changes with your projected expenses (so if you start spending more you will start to need more for retirement). It also changes with inflation as years go on. However, your income changes with inflation as well so you can in principle contribute towards the number more quickly.It turns out all these effects are balanced in savings rate. If inflation goes up or down but your savings rate stays the same it will take you the same time to reach the amount required for retirement. If expenses go up it means you need more for retirement which means it will take longer. Of course this means savings rate goes down.
The key is that under a (very) simplified model you can calculate how long it will take you to retire using just your savings rate. As I mentioned above there are many shortcoming of the model but it is a good place and simple place to start off the thinking.
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Beige Wildebeest Seems to assume income doesn't decrease. That is an unwarranted assumption. And it's also why raw numbers work better than percentages.
Also, are you tax-adjusting based on the type of account the savings goes into? Makes a pretty big difference.
The real problem with trying to simplify these things is that they can't be simplified. Too many variables that don't get accounted for that can have a major impact.
And finally, since your savings needs to be a multiple of expenses, not income, you should be comparing the amount you save to your annual expenses, not to income. Income is meaningless because at best it's very loosely tied to expenses.
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Beige Wildebeest But anyway, good luck.
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Beige Wildebeest I wouldn’t conflate current expenses with expected expenses in retirement, though. For example, someone might buy a pricy house which increases current expenses but could still be mortgage-free in retirement.
Current expenses probably make a good starting point, though. Even then, projected expenses are kind of a moving target... maybe travel expenses go way up at first but drop as you get older. And so on.
The good thing is, a lot of the math has already been done. Fairly conservative starting points are shooting for 25x expenses as a starting retirement pool and/or about a 4% inflation-adjusted draw down rate. Then you “just” have to figure out how to accumulate 25 times of some amount of annual expenses.
More on the original topic, though, I’d do the math in Excel and set up the goals in YNAB. If you’re meeting the goals, you know you’re on track.
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Wow. That networtify calculator sucks. It makes a lot of dumb assumptions, like Income - savings = Expenses, and that what counts expenses will be constant between now and retirement and into retirement. Pretty sure I won't be paying FICA taxes, for a start. Income taxes will probably drop too. Which means I won't need to save nearly as much.
Edit... O h it makes some assumptions, so then you have to crunch numbers to adjust the numbers you put into the calculator to come up with after-tax income. But comparing a mix of pre-tax, tax-free and taxable savings to after-tax income can come up with some bad end-results. Garbage in garbage out.
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Beige Wildebeest How can you expect YNAB to do any of this? It's for budgeting for groceries, saving up for a vacation, and building or maintaining emergency funds.
Do the FIRE people (bonkers, imho) use and recommend YNAB to actively plan for dropping out of the workforce? My personal policy when I purchase something, virtual or tangible, is for it to do one thing and do it well. I use Banktivity for Mac to track all my personal finances, and it actually calculates a 1 yr and 30 day savings rate right on the home screen, which can be customized. I look at it, but I don't "use" it because it has no bearing on my day-to-day decision making.
But on a side note, you could check out https://maxifiplanner.com/. I subscribed for a year, but didn't renew. It just required way too much data for me to keep on top of, but I haven't seen anything else approaching financial advisor software online for the consumer market.
Oh, and one more thing. This is more about spending and not budgeting, but the Toolkit reports has that funky Income Breakdown. If you have a net gain you can hover over it and see the percentage you're ahead for that time period.
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Annieland My dad was a “bonkers” FIRE person. He recommended YNAB, taught me how to use it, and wouldn’t use anything else for budgeting. He used Excel for the planning and YNAB for the implementation. That’s what I’m doing, too.
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Habanero Salsa I'd love to teach my kids YNAB as your dad did for you. That was quite a gift you received from him. I think I inherited my financial acumen from my dad too. I recently found his financial spreadsheets printed out from the early 90's and they look stunningly similar to mine, even though it was ALL IN CAPS and he barely knew how to use any other software. His whole goal was to retire at the exact age his pension would kick in, and I think that was 59 1/2. Unfortunately he passed away suddenly at 55. So I do get it. I'm just snarky, and I want my husband to work forever because I want mo' money, mo' money, mo' money!! 🤑🤑🤑
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Sorry, one more thing. On the budget screen you can click on one, some, or all categories and see "Average Budgeted" and "Budgeted Last Month" in the inspector. Maybe compare that number to the income numbers in the reports to get the savings rate you're looking for?
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Annieland and others Thank you for all of your thoughtful responses. Here are my takeways from this thread.
1) I think are correct that it isn't necessarily reasonable to expect YNAB to do all of this. This is one of the conclusions I am coming to. YNAB is optimized for tracking and budgeting month to month expenses. It isn't really optimized (though it can sort of work) for tracking an overall financial picture including total income, total expenses and long term savings. Based on this I am thinking about non-YNAB supplements to YNAB to help with the overall picture.
2) The app does keep track of how much was budgeted into a given category each month. Looking at this number for the savings categories DOES serve as a historical record of how much was saved each month. This is definitely the start of a solution to my problem. The two issues with this are 1) that this information doesn't show up in the reports and 2) that there isn't a "transaction by transaction record" of how much was budgeted within a month. For example, if I budget a certain amount towards my big vacation at the start of the month and then budget more in the middle of the month there is no record.
3) Savings can be calculated from the difference between income and expenses*. YNAB is a good record of expenses for us so if we can use YNAB or other means to determine our total income then we can calculate total savings rate using this.
*Some people seem to be taking issue with this but I don't see the problem.. yes there might be subtleties in how each of these are defined but if you're careful about it you can work it all out.
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Beige Wildebeest I really don't see why a historic tally is important. All that really matters is where you are today and where you want to be... later. The fact you might have saved $10k (or even x%) last year doesn't mean anything.
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dakinemaui
Historical data can be a helpful planning tool! It's just like with spending reports. Can I change the past? No, but the past can be a good predictor of the future. If I only saved $10k last year, I shouldn't expect to dramatically improve on that without making major lifestyle changes.Additionally, historical data can be a nice motivator. When I do make improvements, it's nice to see that reflected in charts (and motivates me to keep it up!)
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Beige Wildebeest I hear you, I like the reporting as well. We solved by having a master category of "Savings & Investments", for long-term savings. The sub-categories are Roth IRA, Solo 401k, 529s, & Emergency Fund. We have an on-budget checking account & on-budget savings account - these are for our monthly expenses, and true expenses/sinking funds. When we transfer the money from the on-budget checking or HYS account to an investment fund, like a contribution to a backdoor Roth IRA, then that shows as spending in our reporting. We can get reporting on our overall "Savings & Investments" contributions, by particular investment account (bcs each is a separate category). For a savings rate, we compare the "spend" to those investment accounts against total income. If I want to see actual expenses (not "savings" expenses), I simply deselect the savings master category from the report. It works really well for us, seems like it would for what you're trying to do.
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I recall thinking my savings rate was the end-all, be-all in budgeting. That was before YNAB, and maybe for the first year-ish of using YNAB, too. I had a budget template, and I would compare it against my take-home pay to figure out the percentages. At the time it was essential to me that my spending rate be less than 60% of my take-home. That 60% number was chosen simply because my unemployment insurance gave me 60% of my previous income in the event of loss of income, and I had been through a prolonged unemployment in my recent past.
When I measured my budget template against that measuring stick of a 40% savings rate, I know that I saw that as a health-metre for my finances and lifestyle. It didn't matter if the savings was for wants or needs, for medium- or long-term future spending; I just needed to see that my current plan was a 60-40 split, and that I didn't need more than 60% of my income to meet essential needs.
And....once a year, when I'm doing my planning for the upcoming year, I still calculate my percentages for that magic 60% mark. I kind of equate this with wearing a string of garlic to ward off vampires. 😉 You don't know why it's important or if it really works, but it gives you comfort.
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HappyDance Heh that's funny. 40% was my hypothetical pie-in-the-sky savings amount in my earlier post. And I went on to pretty much insinuate I would starve to death saving that much. And here you are doing it! That's awesome, girl. Way to go :)
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Annieland
About a quarter of that 40% is true expenses. I tend to view those expenses as ones I could remove from my life with enough runway time, like not needing to renew car insurance if I sold my car.
So, in all honesty, my actual "savings" rate if you're calculating funds I can set aside and not spend within the same calendar year is closer to 30.
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