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You have some money put aside in savings, but you’re not sure if it’s enough. As a financially responsible person, you want to make sure you have enough cash to fund both unplanned expenses and future financial goals. A good rule of thumb for a savings target is to store enough to where three to six months’ worth of expenses are covered. Whether it’s your regular savings account, a CD account or an emergency savings account, it’s important to set achievable financial goals.
How Much Money Should Be in Your Savings Account?
A common question people might find themselves wondering is: How much should I have in savings? Generally speaking, experts recommend saving 20% of your income. Known as the 50/30/20 rule, this can serve as a guide to help streamline your budget. This works by putting 50% toward necessities and the remaining 30% toward discretionary items. For example, if you earn $1,000 per month, you would allocate $500 for necessities, $300 for discretionary items and $200 for savings.
However, certified financial planner Shon Anderson of Anderson Financial Strategies told CNBC Select that this “gold standard” won’t apply to every unique situation. Instead, he advises trying an 80/20 ratio that involves saving 20% of your income and allocating 80% for needs and discretionary spending. “The point with both these methods is that saving 20% is still a priority,” Anderson said.
Creating Your Personal Savings Plan
As you move through life, it’s natural for your financial goals to change. Initially, your focus might be on safeguarding against unexpected emergencies, but as time goes on, saving for retirement, education or even leisure becomes equally important. Opening dedicated bank accounts for these distinct goals can streamline your savings efforts, ensuring you’re well-prepared for both the predictable and the unexpected aspects of life. Here’s a closer look at some key savings objectives and strategies for achieving them.
Emergency and Rainy Day Savings
Financial experts stress the importance of an emergency fund to safeguard against unforeseen expenses, advocating for a reserve of three to six months’ living costs. This fund, distinct from regular savings and checking accounts, ensures you’re prepared for unpredictable life events.
To calculate your emergency fund target, simply multiply your monthly expenses by the number of months you aim to cover. For example, if you spend $1,000 per month, then your emergency fund goal might fall between $3,000 and $6,000.
Retirement Savings
Investment accounts and retirement plans are as unique as your individual finances. The amount you should have saved depends on the age you plan to retire, your savings rate and your desired lifestyle.
Saving for retirement typically takes decades. But getting an early start on saving for this big goal in a 401(k) or an individual retirement account can make the process easier.
Educational Savings
Investing in education, whether for yourself or loved ones, requires foresight. Savings plans like 529 plans offer a tax-advantaged way to accumulate funds for future educational expenses, aligning your savings with academic aspirations.
Vacation and Leisure Savings
Creating memorable experiences also deserves a spot in your savings strategy. Setting aside a dedicated fund for vacations and leisure activities ensures you can enjoy well-deserved breaks without impacting your primary financial goals.
5 Tips To Grow Your Savings
You’ve found the answer to the question “How much should I have in savings?” If your ideal amount doesn’t match the balance currently in your bank account, it’s time to make some changes to your spending habits. Here are a few tips to help boost your savings in no time.
1. Set Up Automatic Savings
Saying you’re going to put a certain amount of money into your savings account is easy, but actually doing it can be hard. Automate your savings to ensure a portion of every paycheck goes directly into your savings account, bypassing the temptation to spend.
2. Create a Budget
Finding extra room in your paycheck to commit to savings can be hard, especially if you don’t know where your money is going. Take a close look at your spending habits, then make a budget to help reduce expenses.
3. Make a Debt Repayment Strategy
If you’re in debt — such as carrying balances on several credit cards — this is impeding your ability to save. There’s never been a better time to make a plan to pay off your debt once and for all.
This might involve consolidating your monthly payments into one to lower your interest rate or simply putting extra money toward the balance with the highest interest rate. Find the strategy that best meets your needs and stick to it.
4. Take On a Side Gig for Extra Savings
Earn extra money to bulk up your savings by picking up another job. This could be anything from serving as a rideshare driver on the weekends to picking up a part-time virtual assistant job. Put your earnings from this gig directly into savings.
5. Cut Subscriptions To Grow Savings
Chances are, you’re paying for at least a few streaming platforms, apps and services you don’t use. Be honest with yourself about the level of both use and enjoyment you’re getting from them, and cancel those you don’t need. Send the money you were paying for these subscriptions directly to your savings account.
Final Take To GO
Most financial experts recommend building up enough savings to cover three to six months’ worth of expenses. However, there’s no need to panic if you don’t have anywhere near this amount. Just remember, working to increase your savings account takes time. Instead of feeling discouraged about how long it will take to reach your goal, be proud of yourself for all your hard work and celebrate your increased account balance every time you make a deposit.
FAQ
Here are the answers to some of the most frequently asked questions regarding how much to have in savings.
- Is $20,000 a good amount of savings?
- $20,000 can be a healthy amount of savings, but this largely depends on several factors, including your financial goals, age, income, lifestyle or choice of retirement account.
- What is the ideal amount to have in savings?
- In general, experts agree that you should have between three to six months' worth of expenses saved. For example, if you spend $2,000 per month, then a good amount of emergency savings might range from $6,000 to $12,000. But you might decide to save more or less based on your financial situation.
- Can I have too much money in a savings account?
- Tucking money into a savings account is an important part of building a bright financial future. But in general, it's a good idea to invest some of your funds to build wealth for the future. If you keep too much of your net worth in a savings account, you could miss out on growth opportunities.
- How much should a 30-year-old have in savings?
- Ideally, a 30-year-old should aim to have the equivalent of their annual salary saved. If you're earning $50,000 a year, strive for a savings balance of $50,000.
- How much does an average person have in savings?
- The average savings balance varies widely based on age, income and expenses.According to Northwestern Mutual's 2023 Planning & Progress Study, the average American has $65,100 in savings, marking a 5% increase from the $62,000 reported in 2022, as cited by CNN.
Explore More on Savings Accounts
- What Is a Savings Account? Learn Savings Account Basics
- Types of Savings Accounts: Where Is the Best Place To Put Your Savings?
- How To Open a Savings Account in 4 Steps
- Checking vs. Savings Accounts: What’s the Difference?
- 7 Strategies To Grow Your Savings Account to $1 Million
- Best Savings Accounts
Sarah Sharkey and Jennifer Taylor contributed to the reporting for this article.
The article above was refined via automated technology and then fine-tuned and verified for accuracy by a member of our editorial team.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- TIAA. "How much should I save each month?"
- Wells Fargo. "Saving for an emergency."
- CNBC Select. 2023. "Here’s how much money you should be saving from every paycheck."
- CNN. 2024. "The average American savings: How does your savings account compare?"
