I have had some conversations with people on whether you should see your full mortgage payment as costs, and therefore count them as part of your savings rate. In the past I did count the full mortgage payment as costs, but from now on I will not longer do so.
Savings Rate Calculations
Calculating your savings rate is easy. You take your net income and your expenses in a certain period (month, year, maybe a few months together) and calculate the difference. This difference is your saving amount.
Let’s say you had a net income of 2,000 euros in a month and spent 1,200 euros. You then saved 800 euros. By dividing this savings amount (800) by your net income (2,000) you get your savings rate (40%).
This sounds easy, and it really is. The difficulty is when you start comparing savings rates between different people because everyone uses slightly different calculations.
This article is about me changing my definition, to more accurately reflect the principal part of my mortgage.
My mortgage is a regular one, where I make equal payments every month of which part is interest and part is principal. My total monthly payment, at the time of writing this, is 673 euros. Currently, about 210 euros go towards interest, the rest goes to
Up until now, I always took the full 673 euros as part of my monthly expenses, effectively lowering my savings rate. After long consideration, I decided to no longer count the principal portion of my mortgage payment as an expense, but rather as an investment in my net worth – which is closer to the truth.
Now I’m aware that even though the principal part is an obligatory expense, I will exclude it from my savings rate calculation. This increases my savings rate, which doesn’t mean my financials are suddenly better.
Changes For 2019
I made the change by switching the principal part of my mortgage payments to another category in YNAB (affiliate link), which is input into my financial dashboards. Effectively, this different budget category makes the savings rate go up because the category for loan repayments is not part of my expenses.
I made the change going back for this year. I didn’t touch any of the 2018 data, but for 2019 I moved the expense from monthly costs to investments/loan repayments. When looking at my dashboards, I see my year-to-date savings rate jumped from 37.8% to 51.6%. I didn’t get to be 14% better overnight, it is just redefining the calculation. With that, I will change my 40% SR target to 55%.
Do you count your full mortgage payment as part of your expenses? Let me know in the comments below!