How to Save Half your Income

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Anything you do with your money that increases your net worth can be considered saving.

Why your savings rate is important

A 50% savings rate seems to be the gold standard in the Financial Independence, Retire Early (FIRE) community. If you can save 50% of your take-home pay, . When it comes to building wealth, your savings rate is the most important factor.

A person making $50,000 per year and a 50% savings rate will build wealth faster than a person making $100,000 per year and a 10% savings rate. The more of your income you save, the faster you will build wealth.

How to calculate your savings rate

Step 1: Calculate your monthly take-home pay.

If you are a salaried employee who gets paid every two weeks your take-home pay is very easy to figure out.

  • Go grab your paystub and find your net pay (after taxes and deductions)
  • Multiply that number by 26
  • Divide that number by 12

If you clear $1,000 every two weeks, your monthly take-home pay would be $2,166 ($26,000 divided by 12 months).

Step 2: Add up how much money you save each month.

Step 3: Divide your monthly take-home pay by your monthly savings.

If you are saving $216 per month and your take-home pay is $2,166, you have a 10% savings rate ($216÷$2,166).

This brings us to the next important question.

What is considered savings?

Anything you do with your money that increases your net worth can be considered savings.

  • Contributing to a 401k, IRA, Roth IRA or other retirement accounts.
  • Contributing to a 529 plan or otherwise saving for your child’s education.
  • The principal paid on debt such as your mortgage, credit cards or student loans.
  • The money you set aside as an emergency fund.

What is not considered savings?

  • Any money you spend (obviously).
  • Any short-term savings that are earmarked for future spending’s. For example, if you are saving money to spend on vacation this summer, that should not be a part of your savings rate because that money will be gone soon and will not impact your net worth.
  • Interest paid on debt. Since the interest portion of your loan payments does not impact your net worth, we won’t consider it as savings.

How to save half your income

To achieve a 50% savings rate, you’ll need to complete the following steps.

  • Calculate your take-home pay (as discussed above).
  • Track your spending and determine how much you spend in an average month.
  • Adjust your spending so that you can budget for a 50% savings rate.

Meet the Millers

Let’s use a made-up married couple Jack and Jane Miller, to demonstrate how to achieve a 50% savings rate.

The first step would be to calculate their take-home pay. The Millers live in Ohio and have a household income of $75,000. This leaves them with approximately $57,000 in after-tax income which translates into $4,750 in monthly take-home pay.

To reach a 50% savings rate, the Millers will need to save $2,375 per month.

After tracking every penny, they spent over the past 6 months, the Millers determined that their average monthly spendings were as follows.


  • Mortgage: $1,300 per month ($600 going to principal, $700 going to interest)
  • Property tax: $100 per month
  • Utilities: $150 per month
  • Maintenance & repairs: $150 per month

Total Housing costs: $1,100 (not including the $600 going to principal payments)


  • Car payment: $400
  • Insurance: $100
  • Gas: $200
  • Repairs & maintenance: $100

Total transportation costs: $800


  • Groceries: $400
  • Restaurants: $250

Total food: $650


  • Fancy coffees: $75
  • Drinks with friends: $80
  • Movies: $20
  • Netflix subscription: $15
  • Gym membership: $50
  • Cell phones: $150

Total: $390

Total Spending’s: $2,940

Total leftover for savings: $1,810 ($4,750-$2,940).

After calculating their take-home pay and adding up their monthly expenses, the Millers realize that they have a savings rate of 38% ($1,810 ÷ $4,750). A very solid savings rate, but shy of their goal of saving half of their take-home pay.

They decide the easiest way to increase their savings rate is to cut back on the expenditures that provide little or no value to their lives. After a long discussion, they decide to make the following changes to their spending.

  • They decide to cut their spending on restaurants in half from $250 to $125.
  • They reduce their trips to the local coffee shop and cut that spending down from $75 to $40.
  • Instead of going out to bar to hang out with their friends, they decide to host drinks and social meetings at their home, cutting their spending in that area from $80 to $40.

These adjustments reduce their monthly spendings by $200.

New Total Spending: $2,740

Total leftover for savings: $2,010 ($4,750-$2,740)

New savings rate: 42%

That is a definite improvement, but they are still below their goal of a 50% savings rate. They have also decided that they are not willing to reduce their spending any further.

The Millers decide that rather than reducing their standard of living below their comfort level, they would . John started driving for Uber part-time and earns an additional $750 per month, all of which they dedicate to tax-deductible retirement accounts.

Net total take-home pay: $5,550

Total spending: $2,740

Total leftover for savings: $2,760

New savings rate: 50%

The takeaway


1. Reduce our spending

2. Making more money

A 50% savings rate is very ambitious. To reach that goal, you’ll likely need to pull both levers. If you are still struggling to get there, don’t worry too much about it. A 50% savings rate sounds great but is an arbitrary number. There is no “magic” savings rate that you “need” to reach.

If you are focusing on pulling the two levers by reducing your spending and increasing your income when possible, you’ll build wealth over the long run.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

Making of a Millionaire

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Ben Le Fort

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Sharing my journey to financial independence. For freelance inquiries reach me at

Making of a Millionaire

Publishing Stories on all things related to personal finance