How much should I have in savings? Tips from financial planning experts

Whether you’re just embarking on your financial journey or are a seasoned saver, here’s how to determine if your savings are on track.

Saving is key to your long-term financial success—there’s no doubt about that. But since everyone is on their own financial journey, there’s no one-size-fits-all answer to the question: How much should I have in savings?

“You want to think about your various savings goals, how they fit together and how they enable the life you want,” says Jim Wang, founder of a personal finance blog.

By considering your lifestyle and goals, you can determine how much to keep in various savings categories, each serving an important purpose. From there, you can calculate how much you should save each month.

Ready to get into it? Let’s start by looking at the three key savings buckets.

Explore the 3 essential savings categories

When we talk about “savings,” we’re referring to three basic categories: emergency savings, targeted savings, and retirement savings. Wang suggests breaking down your savings into these three buckets because they have different purposes and timelines for use:

1. Emergency savings: A rainy day fund

An emergency fund covers unexpected expenses that you wouldn’t be able to pay for with your regular income—things like an emergency room visit, car repairs, or a replacement dishwasher. It’s also there to cover bills and regular expenses if you lose your job or experience a pay cut. How much money should you keep in savings for these unplanned scenarios?

David Weliver, founder of a financial blog, recommends starting with the equivalent of one paycheck. With this chunk of cash, you reduce the likelihood that you’ll need to rely on credit cards or other debt to cover an emergency, Weliver adds.

A man works on his car as his children look on.

Don’t be intimidated if you don’t have this rainy day bucket yet. Follow these tips to start an emergency fund from zero. Once you get going, you’ll want to set your sights higher than saving one paycheck.

“Financial experts say to save three to six months of expenses for emergencies or 10% of your income long term,” Wang says, “but you may want to save more if you work in a riskier field or are the sole earner in your household.”

Wondering where to keep your emergency fund? Consider a high-yield savings account, money market account or a certificate of deposit. The idea is that you want your money to be easily accessible when you need it. You also want it to earn interest so your savings can grow over time.

2. Targeted savings: Big-ticket expenses

The second bucket is targeted savings. These are planned expenses that exceed your regular budget. Think: buying an expensive couch, planning a vacation without going into debt, paying for a wedding or buying a home.

You’re probably wondering: How much should I have in savings for these big-ticket expenses? There’s no set amount for this kind of savings, as it’s purely discretional. However you approach it, the important thing is to diligently save for these purchases so you don’t feel tempted to use credit or blow your budget on them, Weliver says.

To determine how much you should have in savings for big purchases, start by considering the major milestones you hope to achieve. If you’re a young professional and marriage and buying a home are on your radar, for example, you’d want targeted savings for a wedding and a down payment.

Once you’ve determined what you need targeted savings for, you can get started. You may want to use multiple savings accounts—one for each goal—to easily track your savings progress.

For longer-term goals, you may consider investing the funds in the market. To determine if that’s right for you, consider when you’ll need to use the savings. “Money I need within five years won’t be in the stock market; money I won’t need for 20-plus years could be invested in the market,” Wang says.

Lastly, you may want to break your targeted savings goal down by how much you should save each month. For example, if you need $15,000 for the down payment on a home in five years, you know you need to save $3,000 each year. That breaks down to $250 a month. That smaller figure can feel more attainable—and just like that, you’re on your way!

3. Retirement: A major milestone

The third bucket is retirement. These funds are typically saved in 401(k)s, IRAs, and other tax-advantaged accounts that allow you to invest your money.

How much should I have in savings for retirement, you ask? It’s important to realize that preparing for retirement requires different strategies than your emergency and targeted savings.

You’ll want to work with a financial advisor to determine a personalized strategy and to make a retirement budget. “Everyone should think about what they’ll need in retirement and work backwards to get a sense of what they’ll need to save each month to make that happen,” Weliver says.

Retirement savings calculators can help guide you toward how much you should have in savings based on your salary, current savings, when you want to retire and your ideal retirement lifestyle.

There are also general rules of thumb for how much you should have in savings for your retirement, Wang adds. According to one benchmark, by age 30 you should have about one year of your current salary saved for retirement, Wang notes. By age 40, you should have three times your annual salary saved, and five times by the age of 50, he says.

Take a proactive approach to saving

Remember, all three savings categories are important. To accomplish your goals, you’ll want to transfer funds directly to your online savings account, 401(k), or other savings vehicles before you can spend the money on something else.

“Give your income a purpose as soon as it hits your account, or you’ll probably find a way to spend it on something unnecessary,” says Chonce Maddox, founder of a financial blog.

Now that you’ve considered the big three savings categories, it’s time to determine how much you should save each month.

How much should I save each month?

While there are different perspectives on how much you should save each month, the experts are fairly consistent about dedicating roughly 20% of your after-tax income to savings.

“If you want to save 20% of your income but are having trouble, start by saving 4% or 5% and increase as you go.”

Chonce Maddox, founder of a blog about debt

“I think that the 50-20-30 budgeting ratio is a good rule of thumb,” Wang adds. Here’s how it works:

  • 50% of your take-home pay goes to essentials like housing, utilities, transportation, and food.
  • 20% is dedicated to your three savings buckets.
  • 30% is left for non-essentials like travel or eating out.

“If you can stick to those benchmarks, you’re in pretty good shape,” Wang says.

Weliver takes the 50-20-30 rule as a starting point, but recommends saving even more if you can: “Overall I think striving for 25% of your income is a good goal,” he says. This will help you cover more immediate savings needs, but the majority of that percentage should go to retirement, he adds. 

If 20% to 25% doesn’t feel possible right now, Maddox recommends taking a gradual approach to determine how much you should save each month. “If you want to save 20% of your income but are having trouble, start by saving 4% or 5% and increase as you go,” she says.

See a monthly budget in action

To get an idea of how much you should save each month with the 50-20-30 rule, let’s estimate that you bring home $5,000 each month. First, you’ll dedicate half of your monthly income, or $2,500, toward your essential expenses.

Next, 20%, or $1,000, goes toward your savings. Wang offers an example of how you might divide that $1,000 up among your three buckets:

  • Emergency fund: Put the largest chunk of your savings toward your emergency fund until it is fully funded.
  • Targeted savings: Next, fund your targeted savings. The amount you save monthly in this category may change depending on how much you need to push toward your emergency savings and retirement, or how close you are to your targeted savings goals.
  • Retirement: Finally, turn to your retirement goal. If you’re working toward a goal of saving one year of your annual salary by age 30, for example, determine how much you should save each month to make that happen.

Lastly, 30% of your income, or $1,500, will go to discretionary expenses.

While this is just an example, it can give you a guide for crafting your own spending and saving plan. And remember: As you grow your savings, what’s important is that you’re making progress each month.

“Don’t compare your finances with other people, because you don’t know what their situation is. Compare it with yourself from a year ago or five years ago,” Wang says. “How have you grown and progressed as a person, both financially and otherwise, and are you closer to your goals?”

A family of five, on vacation, unpacking their luggage from the car.

Should I save or pay off debt?

Prioritizing saving so you’re chipping away at your goals each month is essential. But if you’re balancing your savings objectives with other financial goals, like paying off debt, you might ask: Should I save or pay off debt?

You can do both, but one should take priority, Maddox says. Here’s how:

Knock out high-interest debt first. Aim to pay off any double-digit interest rates, like credit cards, Maddox says. Your rate of return is going to be higher than saving that money, Weliver adds.

Once you eliminate your high-interest debt, focus on building your emergency savings, Wang says. Then pay off low-interest debt like a student loan or mortgage as you allocate savings to your targeted savings and retirement, he adds.

Track your progress toward your savings goals

With everything you’ve learned in mind, you’ll want to review all three savings buckets to ensure you’re working toward all of your goals. Managing these savings priorities can be a challenge, but keeping your eye on your savings and updating priorities when necessary is half the battle.

“It’s always hard to know if you’re on the right savings track because everyone’s life situation is different,” Wang says. “What I do know is that if you are sitting down and making a plan, you’re going in the right direction, and that’s what is most important.”

Ready to jump into action? See how much you can earn with a high-yield online savings account and make progress on your savings goals today.

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