savings rate
The percentage of income saved rather than spent — a key indicator of financial health.
Example
“Increasing her savings rate from 10% to 20% cut her path to retirement in half.”
Memory Tip
RATE — how fast you're building security. Higher rate, faster freedom.
Why It Matters
Your savings rate directly determines how quickly you can build wealth, handle emergencies, and achieve financial goals like retirement or homeownership. A higher savings rate gives you more financial security and flexibility, allowing you to weather unexpected expenses without going into debt.
Common Misconception
Many people believe that a high savings rate requires earning a large income, but the truth is that someone earning 40,000 dollars per year can have a better savings rate than someone earning 100,000 dollars by controlling spending habits. What matters most is the gap between what you earn and what you spend, not the absolute income level.
In Practice
If you earn 5,000 dollars per month and spend 4,000 dollars on living expenses, you save 1,000 dollars monthly, which equals a 20 percent savings rate. If you increase your income to 6,000 dollars but keep spending at 4,000 dollars, your savings rate jumps to 33 percent, demonstrating how either earning more or spending less improves this critical financial metric.
Etymology
From Old Norse 'spara' meaning to save, plus Late Latin 'rata' meaning calculated.
Common Misspellings
Build a budget and track your spending
Related Terms
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See Also
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