Many people live paycheck to paycheck and have no money in a savings account to fall back on. And that, frankly, is far from an optimal way to live.
If you don't have some cash reserves in the form of an emergency fund, you might instantly land in debt when an unexpected bill arrives. Similarly, if you were to lose your job, you'd likely end up with costly debt in the absence of savings.
That's why it's important to have an emergency fund with enough cash to cover anywhere from three months to a year's worth of essential expenses. That's a pretty big range, and you'll need to assess your personal circ*mstances to decide which end to aim for.
If you're single with minimal expenses, you may be okay with a three-month emergency fund. If you're a single parent with a mortgage and three kids, you may want to aim for a 12-month emergency fund, as that could give you the protection and peace of mind you need.
Meanwhile, a recent CNBC survey asked respondents how much liquid savings they feel they need to be financially comfortable. And for 27%, the answer was $100,000 to $249,000. But for many people, that's going overboard.
You don't want to keep too much money in cash
You might think it's a good thing to load your savings account with extra money. But let's say you're aiming for a six-month emergency fund and you spend $5,000 a month on essentials. That means you need $30,000 in the bank.
Now granted, you might spend more than $5,000 a month if you live in a high-cost area. The point, however, is that the typical consumer generally does not need a $100,000 to $249,000 emergency fund. And if you keep that much money in the bank, you might lose out financially.
Right now, it happens to be that savings accounts are paying generously -- upward of 4% in many cases. But there was a time not so long ago when you'd be lucky if you even got 1% back on your money.
By contrast, over the past 50 years, the stock market has delivered an average annual 10% return, as measured by the S&P 500. So even with savings accounts paying so generously, you might still lose out financially by keeping too much money in cash.
Let's say you really only need a $30,000 emergency fund, but you maintain a $100,000 balance instead. That's an extra $70,000 in cash.
Let's also go with today's savings account rates and assume you'll earn 4% on that $70,000 over the next 10 years. If so, you'll be looking at around $104,000. But if you put that money into the stock market and score a 10% annual return instead, in a decade's time, you could be looking at almost $182,000. That's a $78,000 difference!
Don't overfund your emergency savings
You may be inclined to take the attitude that it's better to have more savings than less. And that's spot-on. It's far better to err on the side of overfunding your emergency savings than to not have enough cash to bail you out of a jam.
But unless you're an ultra-high earner with large monthly expenses, you probably don't need $100,000 to $249,000 in savings. A smaller balance could still provide the comfort and protection you need without forcing you to forgo more lucrative returns.
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FAQs
As of December 2023, more than half of Americans wouldn't pay for a sudden $1,000 bill from their emergency savings. The majority (56 percent) of U.S. adults wouldn't pay for an emergency expense of $1,000 or more, such as an emergency room visit or unexpected car repair, from their savings account.
What percentage of Americans have $5000 in savings? ›
About 29% of respondents have between $501 and $5,000 in their savings accounts, while the remaining 21% of Americans have $5,001 or more. Few hold much cash in their checking accounts as well. Of those surveyed, 60% report having $500 or less in their checking accounts, while only about 12% have $2,001 or more.
How many Americans have 100k in savings? ›
Most American households have at least $1,000 in checking or savings accounts. But only about 12% have more than $100,000 in checking and savings.
How much money does the average American have in their bank account? ›
According to the Federal Reserve's most recent Survey of Consumer Finances, the median savings account balance for all families was $8,000 in 2022. Savings account balances can vary greatly depending on income, age, education and race.
How many Americans have $300,000 in savings? ›
More Than Half of Americans Have Less Than $10,000 Saved
Going up a little more, just 6% have between $100,001 and $200,000 saved. Few Americans have saved more than $300,000: 4% have between $350,001 and $500,000.
How many Americans have at least $10000 in savings? ›
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
How many people have $3000000 in savings in the USA? ›
This effectively means the top 1% are those with more than $10 million (~25m) and the top 0.1% are those with roughly $1 billion. There are estimated to be a little over 8 million households in the US with a net worth of $3 million or more. I very much doubt that any of them have that amount in savings.
How many Americans have 50k in savings? ›
Personal Savings in the U.S.
18 percent said their saving were at least $1000 but under $10,000, while 11 percent each had $10,000 to $49,999 and $50,000 or more saved up.
How to retire at 60 with no money? ›
Get a Part-Time Job or Side Hustle. If you're contemplating retirement with no savings, then you may need to find ways to make more money. Getting a part-time job or starting a side hustle are two ways to earn money in your spare time without being locked into a full-time position.
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
Can I retire at 65 with no savings? ›
You can still live a fulfilling life as a retiree with little to no savings. It just may look different than you originally planned. With a little pre-planning, relying on Social Security income and making lifestyle modifications—you may be able to meet your retirement needs.
What is considered wealthy in the US? ›
In 2017, a salary of about $378,000 would land you in the 5% club. By 2022, the salary it takes to stay at that level is more than $544,000.
Can I retire at 55 with 300k? ›
On average for a comfortable retirement, an individual will spend £43,100 a year, whilst the average couple in retirement spends £59,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 7 years, and a couple in 5 years. So, on paper, it doesn't look like enough.
What is upper class salary? ›
Upper-middle class: $94,001 – $153,000. Upper class: greater than $153,000.
Does the average American have $1000 in savings? ›
Key Takeaways. More than one in four Americans (28%) have savings below $1,000. This is the case for 32% of Gen Zers, followed by Millennials at 31%, Gen X at 27% and Baby Boomers at 20%.
Do 45% of Americans have less that $1000 saved for a? ›
Having enough set aside for an unexpected car repair is a good place to start your emergency fund, but just 45% of Americans would be able to cover a $1,000 emergency expense without turning to a credit card or loan, according to the survey.
What percentage of people have more than 1000 in savings? ›
Personal Savings in the U.S.
This is about as many people as those who volunteered to give answers about the status of their savings and had more than $1,000 in the bank. 18 percent said their saving were at least $1000 but under $10,000, while 11 percent each had $10,000 to $49,999 and $50,000 or more saved up.
What percentage of Americans have $2000 in savings? ›
Most Americans have less than $2,000 in emergency savings, representing less than the average cost of living in any U.S. state for a single month. Of those living paycheck to paycheck, only 15% of respondents have savings surpassing $2,000.
