Simply put, your personal savings rate is the percentage of your income that gets put towards your savings/investments and not spent. Calculating your savings rate can quickly tell you what you need to prioritize. If you're saving 2% of your income and can't afford anymore, you may need to either reduce expenses or find a better-paying job. If you're saving 4%, but blowing 12% on entertainment activities, it might be time to re-balance. As personal finance blog DQYDJ (Don't Quit Your Day Job) explains:

More appropriately, I like to direct people to savings rates by age group and savings rates by income. Those calculators give a (still rough, but more refined) estimate of how others in your demographic are saving. If you're 30 years old it's better, for example, to compare yourself to 30 years olds than 65 year olds - you have completely different goals. Ditto for folks with wildly different incomes.

Your personal savings rate is obviously not the only piece of information you should be paying attention to. But it can be more important than other numbers that get more attention. How much you save is the foundation that all your other long-term financial health is built on.

Why Should You Track Your Savings Rate? | DQYDJ via Rockstar Finance

Photo by epSos .de.



This article appears in the Spring 2015 issue of The American Prospect magazine. Subscribe here.

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The postwar boom was a time of broadly shared prosperity, when working- and middle-class people not only enjoyed steadily increasing incomes but were also able to accumulate lifetime wealth. The measures that made possible this wealth-broadening included expansion of homeownership under a reliable, well-governed system of mortgage finance; the development of a retirement system, with Social Security complemented by private pensions; debt-free higher education; and rising real wages. Each of these instruments interacted with the others.

Today, these mechanisms have all gone into reverse. Meanwhile, the capacity of the already-rich, the parentally endowed, and the well-situated to accumulate financial wealth has only intensified. Wealth inequality gets less attention than income inequality, but it is every bit as important. And the two are related. Wealth helps generate income and the capacity to earn income. Decent income increases the capacity to save and to amass wealth. As public systems for wealth-broadening collapse, private wealth within families provides asset endowments to the young and positions the next generation to become upper-income earners like their parents.

Economist Thomas Piketty called overdue attention to wealth extremes in his celebrated book, Capital in the Twenty-First Century. Assembling more than two centuries of data from several countries, Piketty demonstrated something close to an iron law of capitalism: The return on capital tends to exceed the rate of GDP growth. Thus, as a matter of simple arithmetic, wealth becomes ever more concentrated. But the most interesting and least developed part of Piketty's book was his discussion of the mid-20th century--an anomalous period when wealth and income became more equal.

Piketty--more of a virtuoso historical statistician than a political economist--attributed this temporary reversal primarily to accidental and mechanical factors, most importantly the fact that a lot of wealth (largely owned by the wealthy) got wiped out in two world wars and the Great Depression. Thus, wealth distribution became more equal. But that weakening of concentrated capital had political implications. It opened the door to a different constellation of power and to more egalitarian social contracts in the major democracies.

In the United States, policies were put in place that promoted wealth building for the middle and working classes. Now, 70 years later, those policies are eroded and the capital-owning class once again enjoys concentrated wealth and the power that goes with it. What policies might restore balance?

Interestingly, in the early postwar era there was no explicit policy goal or field of inquiry called wealth-building. Rather, egalitarian policies in different realms broadened wealth in several mutually reinforcing respects.

A pension provided secure retirement in old age. Financial assets in pension funds were not under the direct control of the pensioner but were held on his (and occasionally her) behalf, and spun off income that was contractually guaranteed. Many pensions also extended to widows. Some critics contended that pensions made it too easy for people to neglect individual savings, but research suggests that the institutionalization of retirement via public and private pension systems has the opposite effect. If you expect to retire, you are more likely to plan for retirement. You become aware that a pension may not be sufficient to maintain your standard of living. By focusing attention on retirement as a social institution, the pension system actually encourages complementary personal savings. In line with that evidence, personal savings rates rose during the postwar boom; they declined only when incomes, job security, and free higher education began collapsing.

Rising real wages made supplemental savings possible. Working- and middle-class families were not spending every nickel of income making ends meet. They had discretionary income to save. (The memory of the Great Depression probably helped promote the savings habit, too.)



Facing criticism that the new TFSA contribution limits would deplete government coffers by billions, as Canadians shelter more of their investments from taxation, Finance Minister Joe Oliver defended the move, and suggested if there was a problem by 2080, we should leave that to Prime Minister Stephen Harpers granddaughter to solve.

But Askari said it might not be a heavy cross to bear. The cost in the long run as a share of the size of the economy is only 0.65 per cent of GDP, which is similar to the cost of the RRSP now.

The PBO also pointed out the maximum contribution will now be a fixed $10,000 and will not be indexed for inflation, reducing the long-term financial impact.

Askari estimates that the newly boosted TFSA contributions limits will reduce federal revenues by $9 billion by 2030, $29 billion by 2050 and $87.2 billion by 2080.

The big increase in the TFSA contribution limit was a key policy plank in Joe Olivers budget released last week. While opposition parties have called it a sop for the rich, the government has defended TFSAs as valuable savings tools for Canadian seniors of all income brackets.

But the PBO, while minimizing the revenue implications for future governments, doubled-down on its assertion that the move will disproportionately favour wealthy Canadians -- calling the move regressive.

Irrespective of new changes, high wealth and older households are projected to receive relatively larger benefits than lower net worth, younger counterparts.

Few benefit from limit increase

In fact, the PBO report goes so far as to say that low- and middle-income households will see practically no benefit from higher contribution limits. More than half -- 55 per cent of the benefits -- will be concentrated in the hands of the wealthiest Canadians, it said.

At the end of 2014, nearly 12 million individuals had opened a TFSA. Of that amount 1.9 million had contributed the maximum amount -- the vast majority (over 70 per cent) were aged 55 or older. Some 30 per cent of TFSA account holders had not made any contributions.

As it stands, most lower- and middle-income Canadians already have a lot of unused RRSP or TFSA contribution room.

The tax-free savings account was introduced by then-finance minister Jim Flaherty in the 2008 federal budget. At the time, Flaherty called the TFSA the single most important personal savings vehicle since the introduction of the RRSP.



TORONTO, ON--(Marketwired - April 20, 2015) - Luminus Financial (Luminus) announced a new personal Investment Savings Account (ISA) rate at 1.75 per cent with no minimum balances. The rate, which is the highest at any credit union or bank in Ontario, takes effect immediately for existing accounts and new deposits.

We hope this new across-the-board ISA rate will continue to demonstrate our commitment to our members and the growth Luminus has in the sector, said George De La Rosa, CEO of Luminus Financial. The new rate bucks the trend of offering lower personal savings interest rates while increasing banking fees.

For some Luminus members, this new rate represents an increase of 145 basis points, a significant rise that will help build their savings faster. Prior to this announcement, Luminus had the following ISA rates in place since October 2014: