How much of the money you earn do you save and invest? Are you actually building wealth with your savings or just saving to spend? Your Freedom Rate is one of the key indicators of when you can retire and how good your finances are! With this number you can predict how long you have to work in paid employment.

First let’s see if you have a gap! Your gap is the difference between what you earn and what you spend. When you have a gap you can use that extra money to save and invest. If you don’t have a gap between how much you earn and how much you spend you won’t be able to build wealth.

If you haven’t already, read How big is your gap and how to track your spending before reading further.

There’s a few things you need to do with your gap before you’re ready to invest and build your Freedom Fund. Discover what they are here.

Rebel Finance School students are often confused over savings rate. What are you doing with the money that you’re not spending each month? If you are saving £100 a month towards a holiday or Christmas presents then surely that is savings?

Yes, technically it is saving but you are just saving for future spending, you’re not investing or building wealth by buying assets in your Freedom Fund.

Saving for a holiday is not going to sort you out financially, it is just going to pay for a holiday.

We have redesigned our tracker, our language and the course to make this distinction. The thing you should be interested in is how much of your money are you investing rather than saving.

Are you actually building wealth with your savings or just saving to spend?

It’s all about your Freedom rate, not your savings rate.

If you know your Freedom Rate (as a percentage of how much you earn) you can predict how many years you have to work. Crazy right?! For example, if you save and invest 50% of your income each month then your working career will be 15 years!

Your Freedom Rate is actually far more important than the total amount of money you earn.

Lets compare two different individuals

1. Ellie owns her own business and is crushing it! She earns 500,000 a year. She has a lavish lifestyle with lots of holidays and nice cars. She invests 50,000 a year.
2. Larry’s a waiter. He earns 25,000 a year working in a restaurant. He has a modest lifestyle and lives within his means, investing 2,500 a year.

Who can retire earliest? How long are their working careers?

The instinctive answer would be Ellie because she is saving more each year. She is saving ten times as much as Larry. However, she has a very expensive lifestyle and needs far more money to retire than the waiter ever would.

The actual answer is that they would both have the same predicted retirement date. This is because they are both investing 10% of their income. If we assume that they will spend the same amount in retirement as they do whilst working we can accurately predict when they are able to retire!!

Each month you earn a certain amount of money after tax. Most people spend everything they earn! If you keep some of that money and put it into investments then you have a Freedom Rate.

As an example let’s say you earn 3,000 a month.

• If you take 300 of that money and put it into investments you have a 10% Freedom rate.
• If you take 1,000 of that money and put it into investments you have a 33% Freedom rate.
• If you take 1,500 of that savings rate and put it into investments you have a 50% Freedom rate!

Working out your Freedom rate

Work out your Freedom rate for a each month. Let’s pick May. You need two numbers to be able to do this.

A) How much you earned in May.

B) How much you put in your Freedom Fund in May.

Some guidance on this…

A) should be straight forward – check your payslip or if you’re self-employed add up everything you earned in the month (AFTER you’ve put money aside for income tax).

But for B) you might be thinking what the heck counts as your Freedom Fund.

Help is at hand (and we have a handy template for you to figure this all out later on in this page)! The following things count as money you’re putting in your Freedom Fund…

• Your contributions to your work pension
• Your employer’s contributions to your work pension
• SIPP contributions
• Stocks and Shares ISA contributions
• Other contributions/asset purchases

Now you have numbers for A) and B)

Then you compare A) how much you earned (remember this is after tax) and B) how much you put towards your Freedom Fund to give a percentage of how much you are putting towards looking after future you.

For example, if you earned 1000 and put 200 in investments then your Freedom Rate is 20% (200/1000). In this example you are using 20% of what you earned to buy freedom.

​IMPORTANT! One Rebel Finance School participant last year was very despondent because he thought his Freedom Rate was zero. He was putting 200 a month to buy investments and counting this as spending. Any money you use to buy assets is NOT spending. Do not include this in your spending figure.

Any money you use to save for future spending (e.g. holidays, car etc.) is spending for this month. You can either include it as spending in the month you put it aside or wait until you spend it on the holiday and put it in your figures in one go.