Sunday, January 14, 2007

Savings Rate For 2006

I finished going through my financials for 2006 and was surprised that my estimated savings for 2006 amounted to close to 40% of my employment income. This was just above the high end of my projections after the first six months where I estimated an annual savings rate between 35% and 39%.

Alas, the higher savings rate was not due to any particular virtue on the budgeting front (if anything I spent more than I should have last year). It was almost all attributable to my income in the second half of the year being higher than it was in the first half.

I describe my savings rate as an estimate because I adopt a lazy man's approach to budgeting and do not keep detailed records of expenses. Instead I simply go through my bank statements and add up (i) my income and (ii) transfers out of my bank account which are of an investment nature and work out (iii) the difference between my bank balance at the start of the year and at the end of the year. I then deduct (iv) any expenses which have been incurred but not actually spent (e.g. an accrual for holidays, credit card balance) and (v) an estimate for my tax bill. This exercise took less than an hour for the whole year.

The result is still an estimate in that my tax liability is not known but given how simple Hong Kong's tax system is the number I have used should be quite close to the actual bill (which is late in arriving).

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