What Affects Your Savings Rate? 6 Key Factors
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Your savings rate, or the percentage of disposable income you set aside, is a critical metric of long-term financial success. While investment returns usually get the headlines, actually keeping your money is the engine that drives wealth creation.
But maintaining a healthy savings rate is increasingly challenging. For example, according to data from the Bureau of Economic Analysis as reported by the Federal Reserve Bank of St. Louis, the national personal savings rate hovered around 4% to 5% in 2025. While it has increased from less than 4% in 2024, it is still lower than the historical average of around 8%, with peak rates in the 70s (11% to 17%) and during the pandemic (as high as 30% in 2020).
As such, it is important to understand the factors that potentially influence your savings rate.
1. Your Disposable Income
This is your take-home pay, meaning what is left after taxes, and it’s money you can allocate to expenses, savings, debt payments, or investments. Ideally, the higher your disposable income, the higher your savings rate. But that’s easier said than done.
Many people struggle with lifestyle inflation, where higher income leads to higher spending. When you earn more, you may feel like you deserve more – the latest gadget, a better car, a bigger house, or more frequent dining out. After all, you can now afford it. But can you really? Or, should you?
When left unchecked, lifestyle inflation can be a big reason that your savings rate plateaus, or worse, falls off a cliff. To combat this, treat savings as a non-negotiable bill. Instead of saving what’s left after expenses, always save before you spend. And to make it even easier, automate. You can arrange to have your savings set aside as soon as you receive your paycheck.
This way, you ensure you keep a percentage of income for the future, reducing the risk of impulse buys or unnecessary expenses. If you really feel you “deserve it,” pay your future self first.
2. Real Interest Rate
Usually, the advertised rate from your bank is the nominal interest rate. So while a 4% interest rate looks good, it doesn’t give you the full picture. Real interest rates are what you earn after factoring in inflation.
When interest rates are high, the cost of spending money increases because your cash could be earning significant gains in a high-yield account or a certificate of deposit. And if you account for inflation, higher real interest rates make saving incredibly attractive because you can be confident that your money gains actual purchasing power. In other words, your money’s value is not reduced by inflation.
Nonetheless, a low-interest-rate environment is not inherently bad. You should still save. Money socked away at 1% real interest rate is arguably better than not saving money at all, especially during an emergency.
3. Consumer Confidence And Economic Expectations
How you (and other people) feel about the economy can also dictate how you handle cash.
For example, if the news is filled with grim forecasts, such as fears of a recession, rising unemployment, or uncertainty about the effects of tariffs, people are likely to increase precautionary savings. Fear can be a powerful motivator to build a moat around your finances and increase your savings rate.
On the other hand, if you feel secure or that the general economic outlook is good, you may be more inclined to spend. At least, classic Keynesian economics suggests that much.
Regardless of the economic outlook or general consumer confidence, you should maintain a robust emergency fund with at least six months’ worth of living expenses. It’s also a good idea to separate your accounts based on purpose. These give you financial leeway to adjust and adapt, no matter how things shift.
4. Your Debts
How much you owe compared to your income, also known as your debt-to-income ratio, is a major anchor to your savings rate. Every dollar you spend on debt payments and their corresponding interest is money that isn’t working for you.
Now, a good question is: Should you temporarily stop saving to pay off debt? It depends. While it makes sense mathematically, meaning the sooner you eliminate debt, the more you save in the long run, there is also something to say about keeping your savings momentum to avoid a total burnout.
What’s key here is to at least prioritize high-interest debts to lower your interest payments as soon as you can. And remember, not all debts are equal. Some debts, like a mortgage on a home or a student loan, can be considered good debts because they offer some return on investment.
5. Your Social Circle And Norms
People are social creatures. If your circle prioritizes status symbols or you’re a group that always wants to go out, it might be harder for you to save. As they say: “Show me who your friends are, and I’ll tell you who you are.”
Of course, this doesn’t mean that you cannot be that one friend who influences your peers to build a savings habit. Just remember that it’s one thing to say you want to save money, it’s another thing to actually do it.
For example, a survey commissioned by Intuit says that 59% of young adults prioritize savings. That’s wanting to save money. Check. But a separate survey from Bank of America says that only 15% of young adults regularly save. It’s another thing to actually do it.
But to address social pressure and potentially help your friends save, too, you can propose budget-friendly alternatives when you get together, such as a potluck, going for a hike, or hanging out at home for a movie or game night. You can also be transparent and share your savings goals with them. You never know, they might also be relieved to find a reason to spend less.
6. Your Age
Savings rates typically peak between ages 40 and 60, what’s known as the prime earning years. According to the Bureau of Labor Statistics, median incomes in the U.S. are highest across the 35 to 64 age brackets. During this window, a sense of retirement urgency kicks in, often coupled with reduced financial demands as children finish school or mortgages mature.
Conversely, younger people tend to save less. It’s easy to assume time is on your side or to prioritize current lifestyle needs while waiting for those peak years to come.
But here’s another way to look at this: You do have time on your side. Start saving as early as possible to maximize compounding.
For example, just saving $50 a month at 7% return starting at age 25 yields you roughly $130,000 by age 65. To reach that same goal but starting at age 45, you’d have to save $250 a month, assuming 7% interest. That’s five times the monthly effort and a larger total investment ($24,000 vs. $60,000)
The key lesson: Start early. It’s easier, costs less and yields more.
Final Thoughts
Many factors can affect your savings rate. Whatever they are, the most important thing is to save something as early as you can, no matter how small. Take advantage of automated savings and build your savings habit so that you don’t have to think about it. Remember, while interest rates or economic shifts are out of your control, your mindset and habits are not.