Introduction to the Frugalometer
What’s a reliable measure of frugality?
It’s certainly not savings alone. If you saved $100,000 last year, at first blush that might seem thrifty. But if last year you made $3.45 million, I wouldn’t exactly call you frugal (but I would be impressed by your earnings).
As better gauge of frugality, we might figure your “savings rate,” a measure by which total savings are divided by total income.
For example, let’s say Jane Dough earned $150,000 last year with household expenses of $87,500 and taxes of $25,000. She thus had $37,500 left over for a savings rate of 25 percent ($37,500/$150,000 = 25%). Is Jane fantastically frugal? Maybe. Her 25 percent rate sounds impressive, but we need data about similar wage earners before we bestow any superlatives.
That’s where nationwide surveys come in.
The Bureau of Labor Statistics conducts an annual Consumer Expenditure Survey (CEX), which asks citizens about their income, taxes, household expenses, and savings. The CEX is a huge operation. In the latest available survey for 2015, about 7,000 households were interviewed.
Using CEX data, you can compare your own household to others that earn similar incomes. To assist you, I’ve prepared a new interactive calculator, which I’ve dubbed the “Frugalometer.” Like every other calculator on this website, the Frugalometer is completely confidential and nothing you enter is recorded or stored.
Frugalometer is designed to provide a better measure of frugality than mere saving figures or saving rates. Hopefully, it will inspire its users to spend less and save more—you, perhaps?
The calculator is easy to use. You enter three numbers only. In return, you get detailed feedback about how you stack up against other US households.
Line 1: Annual Pre-Tax Income. Estimate your gross income before taxes. If you want precision, this figure appears on Form 1040EZ (line 4) or Form 1040 (total all gains reported above line 22 and ignore any losses). Note: the Frugalometer doesn’t work for gross incomes below $15,806 or above $250,000.
Line 2: Annual Expenses (Excluding Social Security and Pension Payments). Estimate your yearly expenditures. Don’t include any amounts you’ve paid into social security or private pension funds. If you’ve never calculated your annual expenses before, here’s a quick way to reach a reliable figure.
Line 3: Annual Federal and State Taxes. Your total federal tax appears on Form 1040EZ at line 10 or Form 1040 at line 63. Retrieve your total state tax from the analogous line of your state form.
Now you’re ready for the Frugalometer. Once you make your entries, lines 4 through 13 will display a ton of helpful information. A detailed guide to each line appears below.
|1. Enter Annual Pre-Tax Income:|
|2. Enter Annual Expenses (excluding social security & pension payments):|
|3. Enter Annual State and Federal Taxes (from tax returns):|
|4. US Average Expenses for Your Pre-Tax Income (see line 1):|
|5. US Average State & Federal Taxes for Your Income (compare to line 3):|
|6. US Average Savings for Your Income (line 1 - line 4 - line 5):|
|7. US Average Savings Rate for Your Income (line 6 / line 1):|
|8. Your Personal Savings (line 1 - line 2 - line 3):|
|9. Your Personal Savings Rate (line 8 / line 1):|
|10. You Saved x Dollars +/- US Average Savings (line 8 - line 6):|
|11. You Saved x Percent +/- US Average Savings Rate (line 10 / line 6):|
|12. Your Frugalometer Score (100 is Average):|
|13. Your Frugalometer Grade (C is Average):|
Key to Frugalometer Results
Line 4: US Average Expenses for Your Income. Using 2015 CEX data, this shows US average expenses for your income level. As to incomes below $235,160, the averages were derived through linear interpolation. As to incomes above $235,160 and up to $250,000, the averages were obtained through linear extrapolation. To see the underlying CEX data, click here.
Line 5: US Average Federal and State Taxes for Your Income. This line is similar to line 4, except it reports average taxes rather than average expenses.
Line 6: US Average Savings for Your Income. In this simple calculation, the figures for lines 4 (expenses) and 5 (taxes) are subtracted from line 1 (income) to report the national average savings at your income level.
Line 7: US Average Savings Rate for Your Income. This divides line 6 (average savings) by line 1 (income) to report the average rate of savings for those at your income level.
Line 8: Your Personal Savings. This reports the difference between your pre-tax income as entered in line 1 and your expenses and taxes as entered in lines 2 and 3.
Line 9: Your Personal Savings Rate. This restates your personal savings as a percentage of your reported income in line 1. If this percentage is higher than line 7, you're outperforming the national average for your income level.
Line 10: Your Savings Compared to the US Average as Stated in Dollars. This states a dollar amount for the difference between your annual savings and the average savings for households at your income level. If line 10 is a positive amount, you've bested the national average.
Line 11: Your Savings Stated as a Percentage of the US Average Savings Amount. This restates the dollar amount on line 10 as a percentage. For example, if the reported figure reads 10.57% this means that you've saved 10.57% more than the average household at your income level. If the reported figure is a negative percentage, you're saving less than the average household at your income level.
Line 12: Your Frugalometer Score. Regardless of whether line 11 states a positive or negative value, this line rounds it off and adds 100 points. The higher your score the more frugal you are as compared to other savers. An average score is 100.
One benefit of this scoring system is that it's weighted to allow direct comparisons among those who earn different incomes, much like a handicap scoring system for golfers. For example, someone who earns $40,000 and saves $10,000 will receive a higher score than someone who earns $200,000 and saves $30,000. This approach recognizes a basic reality: those who save on lower incomes often practice greater frugality than higher wage earners—even though higher earners save more in terms of sheer dollars.
Line 13: Your Frugalometer Grade. This provides a letter grade to accompany the numerical score on line 13. Grades appear in increments of C, C+, B-, B, B+, A-, etc. Generally, you move up one grade for each five points added to your line 12 score.
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The Frugalometer is designed to nudge you just a little further into the habit of frugality. This site hosts other interactive tools tailored for the same purpose. To see the full collection in all its parsimonious glory, click here.
If you have questions or remarks about the Frugalometer, don't keep them to yourself. Please leave a comment below.
Photo by taxcredits.net