A Savings Guide Based On The Taxes You Pay: Introducing The Total Income Tax to Total Savings Ratio (TITTS)

Big Pumelos Small TangerineThe joy of doing your own taxes is that you know where every single dollar of income goes. When our tax bill is not being optimized, we call this “leakage.” I finished up my taxes with H&R Block and realized I paid more in taxes than the total amount I spent to enjoy life. Holy Friedman Batman! Something is seriously wrong when the government is allowed to spend more of your money than you can spend on yourself. Or maybe I’m just not spending enough at all?

I’ve never thought about this ridiculous fact until I started comparing notes with a fellow tax hating friend. Everything can be explained by simple math. Given I saved around 70% of my net income after taxes last year, I have 30% in net disposable income to spend. If I pay more than a 30% effective tax rate (Federal+State+Medicaire+3.8% Medicare Investment Tax+Social Security etc), it ends up that I’ve paid more to the government than I’ve spent on myself!

This post will focus on your TITTS: Total Income Taxes paid (effective tax rate) divided by your Total Savings after paying taxes. If you can save as much as your effective tax rate, then you are on the right track because it means you are at least keeping as much of your money as the government is taking. Your TITTS ratio will determine whether you are winning or getting bent over by the government. But first, a little philosophy about taxes.


Fortunately for the government, and unfortunately for most of us, the majority of our 2012 income is straight W2 income. If all my income was in dividends or long term capital gains, my effective tax rate would only be around 15%. However, it takes a lot of time to be able to generate a portfolio where you will be able to live a comfortable, non-trailer park life in the boonies on just dividend income.

Based on various tax organization websites I’ve seen, interest income, dividend income, and pension income account for roughly 5%, 10%, and 12% of total income for those in the highest income brackets. Clearly, these percentages change with each individual, but it’s just good to understand the composition of incomes in various tax brackets. If you were to ask Warren Buffett his composition of income, 95%+ comes from lower taxed dividend income.

We should be fortunate to pay taxes. If we do, it means we have income. Furthermore, the more taxes we pay, the more income we have. A lot of people whine and complain about the 47%+ of Americans who pay no Federal income taxes, but they are missing an important fact. Sure, there are tax evaders, but the large reason why they don’t pay tax is because they have much lower incomes or are retired!

I’ve suggested each working American pay at least $1,000 in Federal Taxes a year to raise $120 billion in annual tax revenue for our budget. I think this is quite reasonable, as the total tax bill amounts to only $83/month. If you think it’s cruel to pay so much in taxes if you don’t pay in the first place, how about just $42 a month to collectively raise $60 billion to save our country’s finances? Either way, it’s important to broaden tax collection so that every American can have skin in the game to make our country great. Maybe not.

Before I retired, there was no way for me to significantly lower my tax bill. I’ve played with numbers, asked tax consultants, and did a ton of reading. As a result, I decided to break free and earn no W2 income. Paying more than a million dollars in income taxes by 35 should be more than my fair share. Now it’s time to enjoy a little more of the public parks, libraries, and everything our nation has to offer while I live off passive income and write.


The TITTS ratio’s purpose is to encapsulate how much of a slave we are to government and help us figure out whether we’ll ever have a chance of breaking free. The ideal TITTS ratio is under 50%.

Example 1: Bob pays a 20% effective tax rate and saves 25% of his net income. The ratio is therefore 20% / 25% = 80%. Bob is at the higher end of the range, but is still solidly saving for his future and living a decent life.

Example 2: Patty pays a 30% effective tax rate and saves 50% of her net income. The ratio is therefore 30% / 50% = 60%.  Pretty good, and almost at my ideal level of 50% or lower. Patty just needs to continue tightening the screws by saving 1% more a month to get there.

Example 3: Lebron pays a 15% effective tax rate and saves 10% of his net income. The ratio is therefore 15% / 10% = 150%.  Even though Lebron is only paying an envious 15% effective tax rate, he’s saving way too little to achieve financial security.

Example 4: Stephanie pays a 33% effective tax rate and saves 70% of her income. The ratio is therefore 33% / 70% = 47%. Stephanie comes in right at the recommended TITTS ratio of 50%. Stephanie is perhaps not fully utilizing her income to maximize the joys of life. Alternatively, Stephanie could be paying too much taxes and should seek to lower her tax bill by moving to a lower income tax state, developing lower taxed income streams, or moving out of the country.

Example 5: Sheila pays a 15% effective tax rate and saves 5% of her income. The ratio is therefore 15% / 5% = 300%. Sheila is up poops creek and will never be able to retire. This is the situation most of the world is in where we save too little and the government takes too much. At least Sheila is living it up and should count on the government to bail her out.


10% Net Savings Rate

Tax And Savings Guide: Total Income Taxes To Total Savings (TITTS)
Effective Income Tax Rate Net Savings Rate TITTS Ratio Analysis
5% 10% 50% Excellent
10% 10% 100% Good In A Bad Way
15% 10% 150% Average
20% 10% 200% Bad Donkey
25% 10% 250% Stinky Billy Goat
30% 10% 300% Horrendous
35% 10% 350% Stop Working
40% 10% 400% Dial 911
50% 10% 500% Start A Revolution
Source: FinancialSamurai.com

20% Net Savings Rate

Tax And Savings Guide: Total Income Taxes To Total Savings (TITTS)
Effective Income Tax Rate Net Savings Rate TITTS Ratio Analysis
5% 20% 25% Hero Status
10% 20% 50% Erecting A Shrine
15% 20% 75% Good In A Decent Way
20% 20% 100% Getting Sloppy
25% 20% 125% Commoner
30% 20% 150% Skinny Rat
35% 20% 175% Poor Muskrat
40% 20% 200% Getting Robbed Blind
50% 20% 250% Why Bother Working?
Source: FinancialSamurai.com

30% Net Savings Rate

Tax And Savings Guide: Total Income Taxes To Total Savings (TITTS)
Effective Income Tax Rate Net Savings Rate TITTS Ratio Analysis
5% 30% 17% Watch Out For The IRS
10% 30% 33% Call Yourself The Boss
15% 30% 50% Early Retirement Awaits
20% 30% 67% Still Winning!
25% 30% 83% Strawberries And Cream
30% 30% 100% Lemon Merengue Pie
35% 30% 117% Average Like the Sun
40% 30% 133% Rich But Poor
50% 30% 167% Slipping Away To Oblivion
Source: FinancialSamurai.com

50% Net Savings Rate 

Tax And Savings Guide: Total Income Taxes To Total Savings (TITTS)
Effective Income Tax Rate Net Savings Rate TITTS Ratio Analysis
5% 50% 10% Watch Out For The IRS
10% 50% 20% Professional Minimalist
15% 50% 30% Early Retirement Awaits
20% 50% 40% Who Is Your Daddy?
25% 50% 50% Minimalist In Training
30% 50% 60% Winning
35% 50% 70% Pseudo Minimalist
40% 50% 80% What’s The Point Of It All?
50% 50% 100% Can’t Quit Fast Enough
Source: FinancialSamurai.com


It’s much easier to control your savings rate than your effective income tax rate when your main source of income is from employment. Your TITTS percentage should continuously decline as you save more and figure out ways to legally shelter your income.

Have no doubt the government will find a way to waste your hard earned money given it is spending your money on someone else. Why do you think the sequester went into effect? Our lawmakers don’t care because the sequester doesn’t touch their paychecks. You can be sure if our politicians were held to the same standard as the rest of us and got nothing until they did something, better policy will pass.

I’m convinced the majority of citizens will be able to achieve a comfortable retirement if they can get their TITTS ratio down to 50% or below. If you can’t, just blame someone else.

Readers, how is your TITTS ratio? Are you gradually increasing your savings to improve your ratio? If not, is it because you love to work?

Note: I’ve been doing my own taxes with H&R Block for the past nine years if you are looking for a do-it-yourself tax software. I do my own taxes because I like to understand where my money is going and how I can better optimize my tax bill through pro forma analysis. Besides, how am I going to come up with a unique concept such as the TITTS ratio without doing my own taxes? Fight on.



Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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  1. JayCeezy says

    Awesome. Really great explanation. For the past 20+ years, my wife and I combined have lived on 35%, saved 30%, and paid 30% in taxes (FS, our ratio includes Property Taxes which yours does not). A great book with an excellent worksheet to calculate one’s own rates is “The Tax Racket” by Martin L. Gross.

    It always surprises me when somebody who should know better claims to pay “half my income!” in taxes, or otherwise insists on some ridiculous number but clearly doesn’t understand marginal and effective rates. Or, claims that “the rich have writeoffs!” as if paying $1 in charity to get back 35 cents is some kind of nefarious machination.

    One thought for your online business, just in case…you can install an Amazon widget on your page, and visitors can make purchases through your website at no extra cost. You will realize between 1-3% of the purchase from Amazon; it adds up if people buy a big-screen, or even a book or two. Continued success to you, FS.

    • says

      JayCeezy, so your TITTS ratio is 100% putting you at Lemon Meringue Pie status. Not bad, as I love lemon meringue pie, but could be better! Dial that savings rate up a couple percent, even with your property taxes included to get to double digit TITTS.

      • JayCeezy says

        Actually FS to clarify, my numbers were on my Gross Savings Percentage of Total; this is a ratio I like to call “G-SPOT”.©-JayCeezy Most guys don’t care about it, and I really don’t blame them for focusing on the TITTS. My TITTS score is actually 65.2%, double-d in the hizzizouse, yo!

  2. says

    My TITTS are right in between Professional Minimalist and Early Retirement Awaits. A guy like me would like to have no TITTS. Is that even possible? Anyways, I need to look at my girlfriend’s TITTS to make sure we are both on our way to financial independence.

  3. Mel says

    We’re just finishing up the Mortgage within a few months here. It’s the only thing keeping from firming up the TITTS ratio. Although we are already at 25%, just not a high enough savings %. We may make it to “watch out for the IRS” status though. We give lots of money. Hopefully, my super TITTS score won’t hurt our chances with them.

  4. ktaylor says

    Very interesting concept! I like it. My wife and I had a TITTS ratio of 46% for 2012 and are looking to improve that further in 2013. Our TITTS has definitely bounced around quite a bit over the years but we’ve gotten a grasp of our TITTS and are on the right path now.

  5. says

    Destined to become a classic article… And probably get a lot of accidental traffic from other searches and set off more than a few parental filters.

  6. says

    We’re at a tax rate of about 22%, after tax savings rate of 62%, which would make the ratio about 35%. I know we pay a relative boat load of federal taxes at the moment (state taxes are certainly not what’s bringing it that high!), but we expect that to go down as we live off of non-W2 money in the future, so feel like it’ll balance out over time.

  7. says

    Our ratio is pretty good, but I don’t know the real value yet. I’m still not done with tax. :(
    At least we don’t owe a lot this year. Our ratio is probably around 50% in the past, but not sure what it will look like from 2013 forward. Our income is much less now and we should be paying much less tax.

    • says

      Once you’re done with your taxes let me know! It’ll be interesting to find out. I’ll have a new ratio next year for sure since 2013 will be the first full year of no W2 income and no severance pay. Will be exciting!

  8. Shaun says

    Net savings? So are you counting 401k investments + interest in this equation? Between me, my employer, and my se401 from my freelance work thats approaching 30+ grand a year in pre tax contributions not including interest. (My company has a crazy match usually 40-90% of whatever I put in depending on how good a year we have).

    • says

      Net savings includes all savings after you’ve paid your taxes. You can include 401k contribution if you want, even though it is pre-tax savings. Just knock the percentage down a bit since you have to pay taxes in the future.

      30 grand a year is nice, but what percentage is that of total income and how does that compare to your effective tax rate? Everything is relative!

  9. says

    You’ve struck my curiosity with this one. I’m a big saver myself so I’m not sure I will like my numbers. It’s a good thing to calculate and keep an eye on though. I’m going to crunch my numbers as soon as I get home. Haha this is an easy acronym to remember.

  10. says

    Wouldn’t this possibly a reason to have filled a Roth to the max as opposed to a Traditional IRA. Although I must say I know that you advocate for Traditional vice Roth, I just didn’t know if you did either type of IRA.
    After all, you could be drawing on 10+ years worth of contributions currently since you’re under 59 1/2, or for that matter even using any extra cash to continue to fund a Roth even though you’re semi-retired.

    Although that means you’d be getting taxed on it while pulling funds out of your retirement accounts either way. I just see it as you being able to save on taxes in your latter years personally.


    • says

      Couple more things.
      In example 4, how does someone pay an effective tax rate of 33% but still save 70% of their income? I would venture to say this is impossible, since 70% + 33% = 103%.
      After all, how can somebody save more than their paycheck has paid them after subtracting the taxes.
      And while our effective tax rate was a mere 8.92%, and we only saved 8.54% of our income, that means we’re far away from the 50% suggestion you propose.
      Now for this year, we’re right on target for saving an effective 19%-20% of our income in a combination of retirement, savings, and HSA accounts, so I guess I can be happy that if we maintain a below 10% effective tax rate than we will be erecting a shrine. :-)

      • says

        Ah, I see the error of my ways Sam. It was 70% of after tax income, therefore she would be living off of 20.1% of her salary. Wow, that’s even crazier than you! That’s borderline Jacob Lund style.
        After rerunning our figures, we did ok, since our after tax savings was 9.72%. So we hit 88% (well 87.86%) ratio, but that’s just into your good category for the this past year.

      • says

        Good question, which can easily be explained by a simple example.

        Salary: $100,000
        Effective Tax Rate: 33%
        Taxes Paid: $33,000
        Income After Taxes: $67,000
        70% after tax savings: $46,900

        $33,000 / $46,900 = 70% TITTS

        With only a 8.92% effective tax rate, you have a chance of being a hero by saving 20% or more. Do it, and forever be happy later on!

  11. says

    As far as saving at least our effective tax rate, last year we were just $330 short of that, only because I didn’t start bumping my retirement contributions higher sooner in the year.
    Now that I’ve increased my retirement contributions another 2%, we will definitely put more away than our effective tax rate for this coming year.

    Thanks to people like you, KrantCents, Untemplater, JayCeezy, RB40, FirstMillion, and so many others on your site and others!
    Who says you can’t teach an old dog new tricks? LOL

  12. says

    I found that focusing on finding ways to claim deductions and minimal living (maybe Leo Babuta is onto something?) might be an attractive option for some. Maybe even more so for those individuals that are stuck in lower wage positions at the moment due to a still weak economy.

  13. says

    I like your approach quite a bit, though, I’ve never looked at doing taxes as a joyful event… that’s why I pay someone else to do them. :)

  14. says

    What about your sales tax of 10% on consumption, (4.7% here for me), property tax rates on primary home, gasoline and vehicle tax, cell phone tax to pay for Obama phones, airfare, hotel and car tax when you travel. What rate do you assign that?
    We got hit with the AMT tax this year so that threw off my tax calculations, it caused certain write offs being disallowed. The marriage penalty is much more painful with the AMT hit.
    Sam next time I’m in SF for business we should grab some beers and discuss more about TITTS.

      • says

        It’s ironic most finance bloggers concentrate on being frugal, lowering expenses and getting rid of debt. If you earn enough taxes becomes your largest expense, yet many advocate paying off the house, and contributing only to the company match. A much more effective way to manage your finances is to maximize your deductions in order to reduce your taxes.

        We earmark our interest deduction tax break as Roth IRA contributions. We contribute extra to the mortgage but only after maxing out both 401ks, and Roth IRAs. If we couldn’t max out the retirement accounts I would only pay the minimum on the mortgage.

        • says

          Charles, a fundamental level trying to maximize deductions to reduce taxes is effectively lowering one’s tax expenses, with a side effect of being tax frugal (instead of food/utilities) and helping to get rid of debt (or in your case help to fund the Roths).

          I hope you are doing well sir!

  15. Mysterious Guy says

    Interesting concept. I had to go home and calculate how much I saved.

    Last year was an overinflated income year for me, so my numbers are a bit skewed on the saving side. After calculating my tax bracket @ 28% and 70% savings, my score is close to 40%.

    I consider this a one-off year though, because some of the money I got last year was unexpected and went straight into savings.

  16. Paul says

    Interesting and well explained. Knowing how to properly manage your income should be a life lesson everyone should learn or seek financial help to actively invest in their future. After all we are living in a society that everything is now disposable.

  17. Mike Hunt says


    I like the acronym. Gives yet another meaning to the phrase: “Gonna go TITTS up!”

    So for my situation, effective tax rate is 25% (used to be 30%+ but mastering the local deductions have brought this down) and after tax savings rate is 80%. So just under 32% TITTS.


  18. Winston says

    I just wanted to chime in here and thank you (belatedly) for this post, Sam. Along with your constant prodding for us to max out our 401(k) contributions, it has helped shape my current savings plan. As of this month, I’m finally maxing out my 401(k) and feel proud that I’m saving more of my income (~25%) than I’m paying in taxes (~18%)! While a 74% TITTS isn’t the best, I feel that I’m on the right track. Now I’m looking at real estate investment to start building passive income streams.

      • Winston says

        I just got a small raise, ratcheted up my savings, and am now at 50% TITTS (37% savings, 18% taxes)! Now I just need to keep myself disciplined with spending so that I don’t backslide.

        What do you think about using savings for investment purposes (e.g. purchasing rental property)? Is it still savings if you’re spending it on an investment? As I mentioned in another post, I’ve maxed out my 401(k). My wife and I make too much to get anything out of a traditional IRA, so real estate looks like a good “home” for this money. Is sure doesn’t earn anything in the bank, and Texas doesn’t allow participation in P2P lending programs.

  19. Matt says

    “Alternatively, Stephanie could be paying too much taxes and should seek to lower her tax bill by moving to a lower income tax state… or moving out of the country.”

    This was a joke, right? Even European tennis stars who genuinely like living in Monaco 186 days a year don’t do this anymore. Anyone with an income large enough to realize enough state income tax savings to make up for the costs associated with a move across state lines has enough money to live wherever they please, and would be fools not to take advantage of that benefit of wealth.

    I mean, the TITTS thing sounds like a perfectly reasonable benchmark, but that degree of taxphobia isn’t generally associated with sound financial advice.

    • says

      Check out Singapore and Hong Kong. Fantastic 15-20% flat tax rates. For many Americans living abroad, the first $97,000 is tax free.

      There’s nothing wrong with moving to Florida, Washington, Texas, Nevada etc to save on state taxes.

      You won’t have taxphobia if you don’t pay too much taxes, so feel thankful.

      • Matt says

        There’s nothing wrong with moving to any of those places, period. But there aren’t many people for whom “oh, just move” is sound tax advice. If you’re only saving a few hundred dollars a year, it’s self-defeating. If you’d be saving millions, it’s WORSE, because the only point of having that much money is to try to live where and how it pleases you to.

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