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Savings Rate
June 07 , 2012

Savings Rate is an important variable that determines whether your lifestyle is in keeping with what your income permits. It is the ratio of your annual savings, to your annual income after tax.

Savings Rate =  Annual Savings / Annual Income After Tax

This looks like a number that could vary significantly for different households in different years. True, but a useful thumb-rule to remember is that a long term savings rate of 25%-40% is generally good. Anything less than that over an extended period of time is likely to cause significant cash-flow problems in the household later, especially after retirement of earning members. If you are paying off a home loan EMI, this rate may drop to 5%-10%, but keeping it positive is important nonetheless!

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