Taking on the 1% Challenge: Increase your savings rate little by little


One of the most remarkable things about the personal finance blogosphere is the number of crazy inspiring people who are banking half or more of their income.

A savings rate of 50% or more sounds absolutely insane to most people. I literally – and I don’t use the word literally lightly – did not know this was even possible six months ago.

My former savings strategy? If I had leftover money at the end of the month (and I usually didn’t), I would throw said leftover money into a regular savings account. More often than not, I would withdraw it a couple weeks or months later to pay for a vacation or something else equal parts awesome and ridiculous.

If you feel like reading more about my story, you will quickly understand why I am 29 and didn’t have a dime in savings until very recently.

Why is savings rate so important and so talked about in the personal finance community?  

For Financially Independent Retire Early (FIRE) folks, this magical percentage is one of the best indicators of when you will reach financial independence. Someone who can save 50% of their income would be able to retire after about 17 years of working. Amp up that savings rate even more and you can cut years off your projected retirement date. If that sounds pretty great to you, join the club.

For those not striving for early retirement, savings rate is still instrumental for financial wellbeing.

Your savings rate is arguably the most important aspect of building wealth.

Simply put, your savings rate is the percentage of your take-home income that you save. This counts money going toward your retirement, investment accounts, or regular savings. Some folks also include debt repayment. I am totally in this camp since paying off your debt increases your net worth.

If you are anything like me (i.e. a non-financial expert or seasoned personal finance blogger), you probably have no idea what your savings rate is.

That’s totally okay. I never actually sat down to calculate my own savings rate, either. Until today.

Despite coming to appreciate the significance of this value, I never calculated it. Because one of the most intimidating & jealousy-inducing things about the personal finance blogosphere is the number of crazy inspiring people who are banking half or more of their income!  I knew I didn’t measure up, and I felt irresponsible and unworthy. Why wasn’t I too saving 50% or more of my income? I didn’t know why, I just knew I wasn’t saving “a good enough” amount.

[Sidebar: if this is you right now, do yourself a favour and check out this post on HalfBanked where Des explains the real truth of how she is able to save half her income.]

So I didn’t want to calculate the number. I fell back into an old diehard habit – ignore the numbers you don’t like, pretend they don’t exist.

Except that they do exist. Those numbers are real, whether you choose to acknowledge them or not. Those numbers are real, and they can actually help you.

Figuring out my savings rate is a real first step to know if I’m on track to hit any of my life and financial goals in the next year. The next five years. The next twenty years.

So I sat down this morning with a cup of coffee and my Excel spreadsheet where I track every dollar that I earn, spend, and save. I calculated my savings rate from the last few months.

And holy shit, I am doing better than I thought!

My monthly savings rate is 29%. I thought I was hovering closer to 20-25% but it looks like the automated “send money to different bank accounts at the beginning of the month” strategy is actually paying off. This savings rate does include debt repayment, since I am still paying down a good chunk of student loan debt. Thank you, seven years of postsecondary education, thank you.

29% is good. Actually I think it’s pretty great.  It was also a nice surprise when I realized I did not include my employer contributions in the initial calculation.   When I do include it (as part of both my savings and income), my savings rate jumps nicely into 30-something percent territory.

Even so, I know I can do a little better.  I would love to pay down my loans more aggressively and see the number in my investment account creep up a little faster.

So I am revisiting an old challenge from Paula at Afford Anything                                                   (http://affordanything.com/2014/12/17/take-the-one-percent-challenge/) for the next six months. All you have to do is save an additional 1% of your take-home income with each passing month. What does this look like for me?

March – 30%

April – 31%

May – 32%

June – 33%

July – 34%

August – 35%

The beauty of this is that it is so achievable. There is no way I can ramp up my savings to 50% overnight. But finding an extra 1% a month?  For average earners, that’s somewhere between $20-50/month.

If you haven’t calculated your savings rate, I highly encourage you to do it now. It is so motivating and I can’t wait to bump my number up a few percent. Having this knowledge can be intimidating. It can be downright scary. But it is one of the best ways of knowing where you are at and where you need to go.

Calculating your Savings Rate

  1. Tally up the money you save in a given month:

Monthly savings = Your retirement contributions + employer contributions + tax-sheltered investment account contributions + regular savings/investments contributions + any debt repayment 

  1. Find your monthly income after taxes (basically whatever shows up in your bank account every month):

Monthly income = Gross monthly income – taxes + employer contributions

(sidenote: you do not have to include employer contributions, but if you do, include it in both your savings and your income!)

  1. Take #1, divide it by #2, and multiply by 100. Bingo – that’s your savings rate.

(Monthly savings / Monthly income ) x 100 = Savings Rate %

If you do the math and your number is where you want it to be, awesome (and for real, tell me your secrets in the comments).

If it’s not, how do you feel about taking on the 1% challenge? Is that something you would be willing to try?  How are you doing with your savings rate in general, and what have been your best strategies for increasing your savings rate?  Let me know in the comments!

10 thoughts on “Taking on the 1% Challenge: Increase your savings rate little by little

  1. I’m glad you wrote this because I was just trying to figure out a standard formula for calculating savings rate. To keep it super simple, I’m going with take-home pay savings, because when I add in the pre-tax savings, it gets crazy.

    Anyway, yay for 29% savings rate! I didn’t start saving until I was 26 but I don’t get down about it, because every day I get a chance to improve and I’m doing OK now. I also used to save about 20-40%, and have been able to save half now because my income reached a certain level, among other choices I’ve made.

    And I agree with the upping your savings rate until it hurts a little. I played with my retirement contributions percentages and kept increasing it until I got to a point where I had to move money from my savings account to cover expenses. That’s when I knew when to stop.

    I like how relatable this blog is, so keep it up, please 🙂


    1. Thank you so much for your comment, it means the world to know that anyone is reading this little blog! Also, congrats on being able to bank half your income – that’s a huge accomplishment! Your description “upping it until it hurts” is perfect, and I’m sure I’ll start to feel the burn in a few months 😉


  2. Awesome savings rate! I can tell that you were pleasantly surprised. I’m a big fan of paying yourself first, and it sounds like you’re doing great at that.

    I personally don’t count debt payments as part of my savings rate, but that’s just me. It is “personal” finance after all.

    Is your target 50%? If so, you’ll be able to hit that within a year! Best of luck!


    1. Thanks for the comment, SRGO! Pay yourself first was one of the best pieces of advice I have ever received – the best part being that it works even when you don’t know it’s working!

      I can totally see not including debt repayment as part of savings, and I definitely played around with those numbers as well. My hope is that when this debt is gone, I’ll be so used to living without that money and can funnel it straight to savings. I don’t know if I can hit 50% on my current income, but I am fortunate that I have gotten some great side hustle opportunities recently, so who knows! Thank you for the words of encouragement.

      Liked by 1 person

  3. I’m at a savings rate of 45%. I don’t include employer contributions, but that’s a good thought! if that’s the case I’m at 50% 🙂

    One way to increase your savings rate is to save any raises or windfalls! Hopefully I can get to 50% (without employer contributions) by the end of the year with some new income opportunities on the horizon!


    1. 45% is incredible! Using windfalls to bump up savings is an awesome strategy. March is a 3 paycheque month for me, so you know a lot of that cash is gonna go straight to savings! Are you getting some side hustle action going? I would love to read more about these new income opportunities on your blog.


  4. Congratulations! I recently upped my savings rate and am approaching the 50% mark after-taxes and medical expenses. I used to think how can people do that, but eventually realized that if you just stop thinking about it and do it, you will automatically adjust your spending behavior to accommodate your smaller pay check. There’s no real magic trick, you just have to be willing to jump off the cliff and pay yourself first. Automated banking and retirement contributions taken from your paycheck help make it very easy to do.


    1. Congratulations to you! 50% is so awesome and you totally inspire me to up my game 😉 Paying yourself first is key and that is definitely how I am going to up it by 1% each month. Automate the savings and then just figure out to stretch what’s left for the rest of the month. Thanks for stopping by!


  5. I love this post! Immediately sat down and calculated my own savings rate.
    46%! Because my retirement contributions are pre-tax only (crappy work plan), I ended up tweaking the formula to include gross income instead of take-home income. Otherwise, my savings rate is at 60% which just isn’t right, haha. I think I have a target goal of 56% by the end of the year, which should be doable between expense cutting and salary growth. That’s only a little more than 1% a month, which is totally feasible.
    Great Post!


    1. Thanks, Jane! 46% is damn impressive for anyone, but for a New Yorker to boot! The 1% increase per month is such an approachable way to go about bumping up your savings rate. I’ll be posting over the next few months about my progress with upping my rate, and would love if it you keep me posted on how it’s going for you as well!

      Liked by 1 person

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