Sometimes you earn well but feel nothing is left at month-end. Sometimes, with a modest income, you still set money aside each month. The difference is often your savings rate, not just your salary.
This is one of the six pillars of financial health and the foundation for many later decisions, from an emergency fund to investing.
What is the savings rate?
The simple formula:
Savings rate = (monthly income − monthly expenses) ÷ monthly income × 100
Example: income 50 million, expenses 40 million → savings 10 million → rate 20%.
It shows what percentage of income each month is left for the future, not spent today.
Where does 20% come from?
It is not a universal law, but for many households it is a reasonable starting point:
- Below 10%: pressure to save and invest increases
- 10 to 20%: acceptable; with a plan you can improve it
- 20% and above: you usually have more financial breathing room
If income is unstable or debt is heavy, the priority may be "paying off debt" first, not hitting 20% immediately.
Common mistakes
- Counting only salary as income and forgetting bonuses or side income
- Underestimating real expenses
- Using one good month as the benchmark; a three-month average is better
A large portfolio does not replace saving; first, something must be left from income.
How to improve it
Either more income or lower expenses. The most practical steps:
- Track expenses for one month, without judgment
- Find the largest line item; often rent, installments, or scattered purchases
- Set up automatic transfer to a separate account on payday
- Small target: e.g., raise the rate by 2% over three months
Bottom line
Before "the best allocation," know this number. In the free XAIAX checkup, your savings rate is compared against the 20% target.