Unit 1 · Level 1 · Where your money goes
Your savings rate
Your savings rate is your gap divided by your take-home pay. Save €300 out of €2,000 and your rate is 15%. It is deliberately a percentage, because a percentage travels with you. It survives a pay rise, a new job, a move abroad and a change of currency. A balance tells you where you have been. A rate tells you how fast you are going.
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What you get asked
You take home €2,400 a month and save €360 of it. What is your savings rate, as a percentage?
360 divided by 2,400 is 0.15, so 15%. Notice you did not need your balance, your age or your bank to work that out. Two numbers from one month were enough.
Two people both have €20,000 saved and both take home €2,500 a month. One saves 5% of pay, the other saves 25%. What does the rate tell you that the balance cannot?
Same balance, different speed. The 25% saver adds five times as much each month and needs a smaller pot to live on, because they already live on less. A balance is a photo. A rate is the direction of travel.
A savings rate divides what you save by your ___ pay, the money that actually arrives.
Rates built on gross pay flatter you, because tax and contributions never reach your account in the first place. Divide by what lands. Lesson 4 takes the payslip apart.
Match each savings rate to roughly how much living it funds per year worked
The rate does double duty. A higher rate adds more money and lowers the cost of the life you have to fund. That is why it moves the finish line far faster than any balance can.
Your pay rises from €2,000 to €2,500 and your saving rises from €200 to €250. What happened to your savings rate?
You save €50 more a month, which is real money. But the rate is unchanged, so the finish line has not moved. To actually speed up, the saving has to grow faster than the pay does. 🐜
The rest of this unit
The gap between what comes in and what goes out is the only number a market can ever act on.