How much should I have in savings?

American financial experts have been preaching the importance of savings before there was an America. 

“If you would be wealthy, think of saving, as well as of getting,” wrote Benjamin Franklin in his 1758 essay “The Way to Wealth.”

If only it were that easy. 

Not only do many struggle with crafting a strong budget, and sticking to it as emergencies arise and responsibilities mount, but it can be difficult to discern how much you need to stash away in the first place. 

But the task is not insurmountable. Here’s how to get started. 

Annual percentage yields (APYs) and account details are accurate as of January 26, 2024.

Create dedicated savings accounts

Begin by separating your savings goals into different buckets. Each bucket can be held in a different savings account and earmarked for different goals such as unexpected expenses or retirement. 

“When everything is lumped into the same account, it’s harder to know if you’re spending money that is earmarked for something else,” said certified financial planner (CFP) Justin Pritchard, founder of financial planning firm Approach Financial.

Seeing slow-and-steady progress gives you the confidence that the task is not insurmountable. Plus, your stash will earn more interest than if it were sitting in a checking account. 

“You can watch the money grow as you add funds for a specific goal, which is motivating and rewarding,” said Pritchard. 

Start small

Emergencies pop up constantly and they can be expensive. Many Americans have difficulty affording them. 

For instance, nearly a third of Americans would have to go into debt to cover a $400 unexpected expense, according to the Federal Reserve’s most recent Economic Well Being of U.S. Households report. 

It’s impossible to predict when the hot water heater will break or your car will need a new battery, so it’s important to have access to cash so you aren’t forced to lean on things like credit cards.

Your first step, then, is to build an emergency fund with at least $1,000. Keep this cash readily accessible; a high-yield savings account is a great option here. 

Fully fund your emergency savings account

Once you’ve set aside this smaller emergency fund, you can work toward building up an even larger financial safety net.

“The general rule of thumb is to be able to cover about three-to-six months of expenses with your savings,” said Samantha Hawrylack, co-founder of How to FIRE, a blog detailing how to gain financial independence. “This is so if an emergency, job loss or income decrease occurs, you have funds to support you for a short time until you figure out a resolution.”

An emergency fund that large can feel daunting. 

After all, the typical household has roughly $8,000 across their bank accounts, per the Federal Reserve. With typical monthly mortgage costs at just under $2,000, that’s simply not enough cash to tide you over. 

The trick is to start small and build positive momentum. Break the goal down into smaller, more achievable goals, i.e. begin with a week and then two, and on and on. This good mojo will give you the confidence you need to keep going. 

Work toward big life goals

An emergency fund is necessary for any healthy household budget, but not particularly fun to build. Who wants to save money just for it to sit there in case something bad happens?

Once your rainy day fund is complete, though, you can work towards more aspirational fare, such as a new car, house or a big vacation.

Set aside individual accounts for these big plans; you could have one savings account for the future down payment on a home, one account for next year’s summer vacation savings, and another account for your wedding.

Since these are longer-term goals, consider tying up your savings in a high yield certificate of deposit (CD). For instance, Sallie Mae certificates of deposit offer a 4.95% APY on its one-year CD term, which is a significantly higher rate than you’ll find from most savings accounts run by national banks. 

Don’t forget about retirement

Retirement is likely your most important financial goal, requiring decades of persistent savings to reach. 

Sadly, scores of families ultimately fall short, with roughly half of all households at risk of enduring a lower standard of living once they hang up their spurs, according to the Boston College Center for Retirement Research.

To avoid that fate you need to get into the habit of saving a percentage of your pay—typically 10% to 15% including any employer match—into a retirement savings account, such as a 401(k) or IRA. 

Another rule of thumb proposed by CFP Michael Kitces is to save half of every raise for retirement, rather than a specific percentage. 

Following this strategy would allow someone who’s pay increased from $40,000 at the start of their career to $70,000 over the course of their career to save $15,000 annually. That works out to more than 20% of pay, which is more than the typical advice.

Your exact savings goal depends on a variety of factors, such as your longevity and when you plan to retire, so the important thing is to simply get started. 

Still, to get a sense of where you should be, use this benchmark from T. Rowe Price to see how much your salary you should have saved by what age. 

• By 30: Half of your salary 
• By 35: 1x to 1.5x your salary 
• By 40: 1.5x to 2.5x your salary
• By 45: 2.5x to 4x your salary
• By 50: 3x to 5.5x your salary
• By 55: 4.5x to 8x your salary
• By 60: 6x to 11x your salary
• By 65: 7x to 13.5x your salary

The average American, per the 2022 Vanguard How America Saves report, just doesn’t have that much put away for their golden years:

• 25 and under: $6,264
• 25 through 34: $37,211
• 35 to 44: $97,020
• 45 to 54: $179,200
• 55 to 64: $256,244
• 65 and up: $279,997

The opportunity fund

While you need to save for the unexpected, as well as put away money to help pay for the big things you need in life, it can also make sense to dedicate a savings account to help you take advantage of new opportunities that may arise. 

“I don’t think there’s enough conversation around what I like to call an ‘opportunity fund,’” said Jackie Lam, a financial coach. “Whereas an emergency fund is for those unexpected, not-so-pleasant hiccups that come up, an opportunity fund is intentional and helps you go after unexpected opportunities.”

What might this look like?

Perhaps you want to invest in a burgeoning business venture, or you want to dedicate more of your time and resources to your own side hustle. Having an opportunity fund allows you to take a chance without putting the foundations of your finances at risk.

Bottom line

Your ability to save hinges largely on where you are in your life.

If you are a young college graduate building your career, you might be focused on saving your first $1,000. Older savers have to confront bigger responsibilities, such as a mortgage.

Expect that you’ll need to adjust your savings effort over time, so check in with your budget every six months or so. 

See where you can decrease expenses and spending, where you stand with your various savings goals and how much you can afford to tuck away monthly. If you have “extra” money that comes in, like income from a side hustle or a tax return, consider dropping that into savings, too.

Automating your savings can also help. By paying yourself first and automatically transferring money into savings, you can avoid accidentally overspending or simply forgetting your goals that month. 

“It’s important to minimize the decisions we need to make about our money,” said Lam. 

Frequently asked questions (FAQs)