It’s never fun to sit down and figure out how much should be in savings plans, especially since there is no easy answer to the question.
However, with a realistic plan, you can begin saving for your future without compromising your current standard of living. How much should you have in savings? We’ve compiled a handy guide to outline different savings ideas for different areas of life, and a few tips to help you get there.
How Much Money Should you Have in Savings—by Age
Determining how much should you keep in savings can be a little tricky, because the ideal situation is to have savings in three different categories:
- Saving for retirement
- Saving for emergencies
- Saving for future goals
There are different theories about what percentage of your annual income dictates how much to have in savings. However, there are several factors to keep in mind when it comes to savings:
- How much debt do you hold?
- How many children do you have or plan on having?
- Do you make passive income?
While only you can answer these questions for yourself, here are a few guidelines to help you get started.
How much should I have in my savings account in my 30s?
If you got a head start in your 20s by investing in a Roth IRA or your company’s 401(k), you’re off to a great start. This is also the prime time to start saving as many employers will offer a match option through a company-sponsored retirement scheme.
Ideally, as you enter your 30s, you’ll have at least 50 percent of your annual income in a savings account. As you exit your 30s, you’ll hopefully have built a nest egg equivalent to your total yearly salary.
Regardless of how old you feel in your 30s, you have time to increase your savings, even if you are currently behind. However, if you haven’t started any form of savings, then you need to get started as soon as possible.
The conundrum of your 30s is that you’re probably still paying down some sizable debt. Before you can begin investing heavily in a retirement plan, you’ll want to pay down as much of your debt as you can first.
You may also have some major expenses in front of you at this point in your life. Many people purchase their first home, get additional degrees, or look to invest in higher-risk securities.
Regardless of your future goals, you should start a savings account of some sort, and begin stashing away for the future.
How much money should I have in savings during my 40s?
Your 40s are your prime saving years. If you’ve managed to make your major life purchases and finished any higher learning, then this is the time to live life while paying down debt and saving for your retirement.
During your 40s, you’ll want to have somewhere between two to three times your salary generating returns in a savings account. However, like your 30s, there are probably a few factors that might make that goal a little hard to reach.
If you have kids, then you’ll have to be thinking of their future as well as your own. Tuition prices aren’t getting cheaper, and the job market is becoming more difficult to enter.
This is also the age where you’ll want to be rid of any lingering debt.
How much to keep in savings in your 50s
By the time you hit 50, you should have a plan on exactly when you want to retire. Most aim for 65, and when you turn 50, it’s no longer an abstract concept that your future self has to deal with—retirement age is on the horizon.
Also, by now, you have a pretty clear idea of the living standards you want to continue to have throughout your retirement. So to make sure that you can live out your golden years in peace, you’ll want to begin your 50s with around four times your current salary and exit with nearly seven times.
How much should I have in savings in my 60s?
Your 60s should be your highest-earning years, and also the age at which you save most aggressively. In the next few years, you’ll no longer take part in the workforce, meaning whatever you have is what you have. It’s possible to pull from Social Security, however, it will never be enough to maintain a healthy lifestyle.
So, by the time you’re 60, you should have around eight times your annual salary, and when you finally hit retirement age, you’ll have around ten times.
How Much Emergency Savings Should I Have?
As we stated before, you’ll want to have savings for different needs. The majority of your savings should go towards retirement, but life is unpredictable. Because of the potential for uncertainties, you’ll also want to have an emergency savings stash.
A common rule of thumb is to have half a year’s worth of bills saved away in the unfortunate event of losing a job, or suffering an injury and taking on medical expenses.
To calculate this amount, just gather up all of your monthly bills, and don’t forget to include those random annual bills, like property tax. Then you’ll want to organize them by priority.
When building your emergency fund, you’ll want to start out with long-lasting bills, mortgages, utilities, insurance premiums, and debt installments. Then you will want to figure out how much you spend on groceries and transportation: expenses that can be adjusted but can’t be eliminated. Once you have all of these items organized, you have your monthly baseline in expenditures.
You should first try to get to three times your expenses, and if you can afford to save more, eventually get to half a year’s worth.
This is just the standard rule, though if you’re a freelancer or work in a seasonal job, your emergency may need to be higher in order to protect you from any drastic changes to your livelihood.
How Much Retirement Savings Should I Have?
To reach the ultimate goal of having around ten times your salary saved for retirement, you need to save a percentage of your monthly income in an account that generates healthy returns.
You should start by putting 10 percent of your income into a retirement account beginning with your company-sponsored 401(k). You should try and monopolize on utilizing the full capacity of the company match. So, if you make $75,000 a year, then you’ll want to store $7,500 specifically for retirement. Keep in mind you’ll need to budget separately for your emergency fund or your kids’ college funds.
You’ll want to consider various retirement accounts to see which one you’ll be most comfortable with in terms of returns and taxes. You might want to consider opening multiple accounts, holding the 401(k) to get the extra money from your employers, and whatever they can’t match, putting into a Roth IRA to avoid higher taxes in the future.
Savings for Your Future
So, you know that you should save for emergencies and retirement, however, you may have forgotten to set aside a nest egg for future major purchases.
You might be living in an apartment in the city and dream of a house in the suburbs. You might be engaged and want to have a big wedding, or want to get started on building a family. Or you might just really want that classic car that you’ve loved forever. You may need a getaway vacation from all of the savings that you’re doing. Whatever the reasoning, there are expenses outside of your everyday ones that you’ll need to take into account.
Luckily, it’s easy to incorporate these goals into your savings plan. It just takes a little bit of research, but you can find the average price for each of these items and just account for them accordingly.
Since these goals tend to be shorter-term in comparison to saving for retirement, you can adjust how much of your monthly income needs to be allocated towards these goals easily.
Tips to Grow Your Savings Account
Already in your 30s or 40s and haven’t started a savings account yet? All is not lost, as we have some tips to get you back on track.
One tip is to reduce some of your expenses. The simplest expense to cut back on is takeout meals. If you visit a restaurant for lunch everyday or order delivery a few times a week, then you can save a ton of money by cooking at home.
If you go out over the weekends, look for cheaper alternatives. Enjoy the movies? Avoid spending $100 on tickets, drinks, and popcorn and opt for a day at the park. By checking the local listings, you’ll see that there are several free or cheap activities throughout your area.
If you have a specific goal you want to hit, another tip you might want to try is taking on a side hustle. There are quite a few jobs that you can do in your free time; you can walk dogs, take surveys, or even freelance some of your skills.
Finally, to make sure you stay on your savings track, you will want to set your savings account to automatic deposit. This way, you can’t be tempted to dip into the cash before saving it.
Start Saving Now
Now that we’ve answered the question of how much you should have in savings, you might be thinking to yourself, “when should I start saving?”
It’s never too early and never too late to begin saving.
As kids, most of us had a piggy bank of some sort to hide out quarters. Hopefully, in your 20s, you pick the habit back up. This way, by the time you hit 30, you’ve already established a healthy habit and savings account.
However, it can be difficult to get started.
If you have student loans, alimony payments, or credit card debt, then you may already be over your head, and completely unable to put any money away.
Before you can save, you need to pay down your debt. This requires a plan all on its own. Thankfully, you can speak with debt relief experts to help steer you on the right path.
If you need help getting out from underneath the burden of debt, then contact CreditAssociates to learn more about our debt settlement program. Call 844-378-2633 today or schedule your free consultation online.