How much should I have in savings? (2024)

Your savings account is your safety net for life’s unexpected curveballs, such as a job loss, unexpected home or car repairs, or medical emergencies.

It also allows you to plan for your future with some comfort, knowing you can weather a financial storm while still pursuing other goals.

The problem is that it can be difficult to know exactly how much you’ll need.

How much should you have in savings?

Some financial experts advise holding three months’ worth of expenses. Others say your savings account should hold six to nine months’ worth of expenses, or even more.

You’ll also need savings for the long term, which typically means retirement.

While your own savings goals depend on your lifestyle and income needs, the average retirement savings goal is to have about eight times your annual salary saved by the age of 60.

If you’re going to reach that goal, you’ll need to get started as soon as possible.

The importance of consistent saving

Getting into the habit of saving money consistently can help lay the foundation for a secure financial future.

First and foremost, your savings account serves as a buffer against emergencies. Contributing to your savings a little bit at a time, regularly, allows you to deal with life’s unexpected events without resorting to debt.

Saving cash consistently also allows you to pay for near-term expenses for which you don’t want to put your money at risk in the market.

For longer-term savings goals, like retirement or buying a house or a car, investing your savings in the market, not in a bank account, is generally a better way to grow wealth over time. However, a vehicle like a high-yield savings account is a great place to stash your emergency fund savings.

In a nutshell, getting into the habit of consistent savings is a starting point for finding peace of mind in the present and creating the future you want.

Maximizing your savings potential

You may be wondering, “How much should I have in savings?”

To answer that, consider your goals, and start focusing on concrete steps to achieve them.

One of the best ways to get started is to set up an automatic bank transfer that recurs every paycheck, or every month. This can make the process of savings go more smoothly. If you salt away a specific amount regularly, you’ll gradually see that account balance grow.

Gaining traction with a savings plan is one of the reasons many companies automatically enroll employees in 401(k) retirement plan programs; the habit of automatic savings gets people started on the path toward achieving their financial goals.

There are several reasons why maximizing your savings potential is so important:

• Financial freedom: Saving more means you’re less dependent upon credit cards or other loans. A burden of debt slows down your ability to save for your goals, and you also don’t want to retire if you still have debt, as your income is limited. Having more in savings allows you the financial freedom to make choices based on your desires rather than your financial constraints.
• Emergency preparedness: A healthy savings cushion provides better protection against emergencies, giving you peace of mind and reducing stress during tough times. Here, too, you’re less likely to rely on debt if something unexpected pops up.
• Long-term goals: If you’re saving for a goal that’s a few years down the road, like retirement or your kids’ education, maximizing savings allows you to realize your dreams faster than if you’d just meandered along an inconsistent savings plan.
• Investment opportunities: The more you save, the more you can invest. Investing early gives you more time to weather market cycles and grow your wealth over time.
• Generational wealth: By maximizing your savings, you can potentially accumulate wealth beyond your needs, which means you can leave a financial legacy for your family, or donate more money to charities to support causes that are important to you.

Saving for non-emergency goals

Saving money doesn’t have to be all about anticipating an emergency. There are plenty of things that make life fun and meaningful that also cost money.

For example, it’s a good practice to cash-flow that vacation rather than whip out a credit card. Or maybe you want to stack up some cash so you can leave your job and start your own business.

These goals are sometimes more difficult to save for, as there’s no pressing crisis that requires immediate attention. That’s why saving for some of these goals requires a little more discipline.

If you’re asking yourself, “How much should I save each month,” then break out that budgeting software, or just a simple spreadsheet. List your income and expenses, see if there are cuts you can make and determine how much you can save.

When saving for non-emergency goals, automatic savings accounts at online banks can help you put away some money for that dream vacation. Wouldn’t it be more relaxing and enjoyable to take that trip knowing you’re not adding to your credit card balance?

Types of savings accounts

There are several different types of savings accounts you might choose to open, depending on your needs:

• Regular savings account: This is the standard option for savings, offering easy access to your money. The average interest rate for a regular savings account is now around 0.47%, lower than you’ll find with a high-yield account.
• High-yield savings account: High-yield accounts usually offer higher interest rates than regular savings accounts, meaning they’re ideal for growing your emergency funds or even saving for short-term goals.
• Money market account: These accounts combine features of both checking and savings accounts. They frequently offer interest rates higher than regular savings accounts, as well as check-writing privileges and easy access to your funds.
• Certificate of deposit (CD) account: This is a savings option that typically offers higher interest rates in exchange for limited access to your money. CD terms vary but typically range from three months to five years. You typically can’t withdraw your money before the term ends without paying a penalty. Longer terms generally offer higher rates.
• Individual retirement account (IRA): These are tax-advantaged vehicles designed specifically to hold retirement savings. They are available in both traditional and Roth forms, and each has unique tax implications.

Investing as a saving strategy

Investing is a distinct strategy that involves putting your money into assets such as stocks, bonds or real estate rather than a savings account. This allows your money to grow over time, potentially with higher returns than you’d get with a savings account.

It also gives your money a better chance to outpace inflation and often has tax advantages that a regular savings account does not. However, in exchange for that higher return, investing carries more risk.

Diversifying your investments can help manage some of that risk. Remember, time in the market matters: The longer you invest, the more time you have to take advantage of the magic of compounding interest and returns.

Retirement savings

If you hope to enjoy a comfortable lifestyle in your later years, without facing money stress, it’s crucial to save for retirement.

Increasing life expectancies make the need for retirement savings more important than ever. After all, you’ll need a significant amount of money to maintain your lifestyle, cover medical expenses and pursue interests and hobbies. You don’t want to be forced to slash your lifestyle because you don’t have enough money to live comfortably and cover your expenses.

Starting early and consistently contributing to retirement accounts harnesses the power of compounding, which maximizes your savings potential.

Typical retirement savings vehicles include:

• 401(k) plan: An employer-sponsored retirement plan with tax advantages, often including employer contributions.
• Individual retirement account (IRA): A personal retirement account with tax benefits. You can contribute to a traditional IRA with pre-tax dollars, or to a Roth IRA with after-tax dollars.
• Annuities: These are insurance contracts that offer regular income payments in retirement. Annuities offer regular income, tax deferral and protection against market volatility. However, the contracts can be complex, and the products themselves may have high fees and limit access to your money.

Considerations for savings at different ages

“How much should I have in my retirement savings?” The answer to this question depends on your stage of life. Your savings strategies should evolve with age. Here are some general guidelines, but remember that any advice depends on your specific circ*mstances.

In your 20s, focus on building an emergency fund and starting to save for retirement, even if you’re only able to contribute a small amount. Remember the magic of compounding: The earlier you start, the more time your money has to grow.

In your 30s, increase retirement contributions, and consider other investments, such as real estate, if you haven’t bought a house already.

In your 40s, prioritize retirement and education savings for children.

By your 50s, assess your retirement goals, and adjust your investments. Take advantage of catch-up contributions to your qualified retirement accounts, such as your IRA or 401(k).

In your 60s, transition to a more conservative portfolio. If you’re planning on retiring in your 60s, be sure you have enough money to do so comfortably without earning an income. Consider working with a financial advisor to develop a plan to maximize income from retirement accounts and Social Security so you don’t outlive your money.