How Much Savings Should You Have?

“How much savings should I have?” sounds like a question that would be easy enough to answer, but – like all things personal finance – it depends. There are many factors that contribute to what experts suggest your savings goals should be, like your age, lifestyle, income, and overall financial goals. But how much you should have in savings also usually depends on what you’re saving for – a house, a car, a lavish vacation, or the most common savings goals: an emergency fund and retirement fund.

 
Wrapping your head around how much you should have in savings may not be as hard as you think, as long as you carefully consider your personal financial situation. This article explores the “how much savings” question by focusing on emergency and retirement funds, since those are the two common savings goals experts suggest we all should have.

Life is full of surprises. While it’s exciting to think about a last-minute trip to London, it’s not so fun to ruminate on situations like medical troubles, natural disasters, or layoffs. Good or bad, it’s important to recognize life’s possibilities and plan your savings accordingly. Enter the emergency fund.

 
What is an emergency fund? An emergency fund is money set aside in an easily accessible savings account so you can comfortably manage a major unexpected expense. Emergency funds don’t have to be reserved strictly for worst-case scenarios. Unexpected expenses can be fun too, as long as you make sure you always have the essentials covered.

How much savings should you have for emergencies? How much you should save for emergencies depends on your personal circumstances and risk tolerance. To establish an initial emergency fund goal, the Consumer Financial Protection Bureau (CFPB) recommends thinking about any common unexpected expenses you’ve had in the past and adding up how much they cost.¹

 
At the same time, some sources suggest setting aside at least three to six months’ worth of essential expenses. Essentials include rent or mortgage payments, food, utilities, insurance, transportation, and any loans or credit card payments. If three to six months seems like a large spread, it is. Consider it a rough guideline. Exactly how much savings you should have will depend on your particular financial situation. For example:

• In your 20s: Let’s say you’re a 20-something who has $3,000 worth of essential expenses each month. By some standards, it’s suggested you have between $9,000 and $18,000 in your emergency fund. But it can be hard to save at this age – especially while repaying student loans. Don’t worry, it’s okay to start small. The CFPB suggests it may be a good idea to have at least $400 tucked away for emergencies, perhaps to cover a small, unexpected expense.² Meanwhile, try to get into the habit of consistently contributing to your emergency fund, even if it’s just $5 to $10 every week.

• In your 30s, 40s, and 50s: According to conventional emergency savings wisdom, a 30-something with $5,000 a month of essential expenses should have between $15,000 and $30,000 saved. To zero in on a more concrete number, consider this: the longer you think it would take you to get a new job if need be, the more savings you should have to cover essential expenses like housing payments, food, and utilities.

• In your 60s: By the time you reach retirement, the amount you need in your emergency fund will likely decrease. Why? Chances are, your mortgage is paid off, your car insurance is cheaper, and if you’re retired you don’t have to worry about money to hold you over between jobs. Still, it’s a good idea to tuck away some savings for any sudden home repairs or medical costs.

Of course, no matter your age, using any of your emergency fund means you should start saving again to replenish it. You never know what life has in store next!