How Much Should I Have in Savings?
There is so much information out there about how much money you should have saved by certain points in your life, it can be overwhelming. Like most things, it really depends on the individual, and everybody has a different financial situation.
92% of Americans currently have a savings account. But does the average person have enough money saved to cover emergency costs? Could they afford to pay their regular bills if they became unemployed? Keep reading for our advice on planning your savings for the future, how much the average person has in the U.S. and what emergency expenses typically look like.
- 8% of Americans don’t have a savings account at all
- Two out of five (41.5%) adults have $1000 or less in savings
- The majority (65.3%) of Americans have an emergency fund of some sort
- 77.9% of Americans have experienced an unexpected emergency cost in the last 12 months
- The estimated average amount people spent on emergency expenses over 12 months is $2,821.84, The most common amount people spent on emergencies over 12 months was between $1,000 and $2,500.
Why do I need to have savings?
Having savings is important when it comes to security, planning for uncertainty in life and helping to reduce stress. If you have an emergency fund of money set aside for unexpected events, you’ll have something to fall back on.
Savings can protect you in the event of a financial emergency, ensuring you can still cover your bills and essential costs. 25% of Americans have no emergency savings  Emergency Savings Survey https://www.bankrate.com/banking/savings/emergency-savings-survey-july-2021/, with low-income households understandably finding it the most challenging to save.
Checking account vs savings account
When it comes to where to keep your money, the two basic options are your checking account and a savings account. Your income will generally be paid into your checking account, and your regular bills and spending will be paid out of it.
While it might seem easier to keep all of your money in one place, having separate checking and savings accounts offers several important benefits.
- Your checking account should contain the money you need for regular outgoings and spending for the month. The rest you should put into a savings account.
- Most checking accounts don’t earn you any interest on your money, so keeping the majority in savings helps give you a boost of interest.
- You may avoid the temptation to spend more if your money is in a separate savings account.
- Saving towards a goal may be easier if you have your money in a savings pot, or multiple savings pots for different goals.
Checking Account vs Savings Account
So what exactly are the key differences between a checking account and a savings account?
|Money you’ll be spending in the short term on bills, groceries and other payments
||Money you don’t plan to spend soon, usually kept for the future or emergencies
|You’ll probably get a debit card for making purchases and withdrawing money
||Doesn’t usually come with a debit card and may have limits on access
|Lower interest rates
||Higher interest rates
|Transactions are usually not limited
||Some have monthly limits on withdrawals
How Much Cash Should I Have on Hand?
These days, most of our money is stored electronically via our bank accounts and debit cards, and cash is being used less frequently. But is it worth keeping some cash on hand?
You might want to keep some of your money in cash in case of an emergency like a power outage that prevents you from accessing your accounts. If you do decide to keep cash at home, make sure it’s stored securely, like in a safe or a locked cabinet.
An emergency fund is a stash of money you keep in case of a financial emergency. Having one of these funds can take a lot of stress off you if you come up against an unexpected loss of earnings or unforeseen costs.
Self carried out a survey which found that 65.3% of respondents do have an emergency fund set up to pay for any unexpected costs.
Why do I need an emergency savings fund?
You need an emergency savings fund to protect yourself against any unexpected costs or financial emergencies. Maybe you lost your job suddenly or your home needed major repair work that couldn’t wait. You want to know you’ve got enough money saved to cover your regular bills.
How much money should I have in my emergency fund?
The exact amount you’ll need to keep in your emergency fund will vary depending on your lifestyle, income, monthly outgoings and other factors.
We found that the estimated average amount people spent on emergency expenses in the past 12 months was $2,821.84. The most common amount people said they spent on emergency costs was between $1,000 and $2,500. 54% of the people we surveyed said they used money from their savings to pay for an emergency cost they experienced in the last 12 months.
As of 2022, the median income in the U.S. is $19,306  Median Income By Country https://worldpopulationreview.com/country-rankings/median-income-by-country, translating to roughly $1,400 per month, depending on your state. This means you’d have to save around two months' worth of income to cover the average cost of emergencies in a 12 month period.
The exact amount will vary depending on your circumstances and your age. For example, if you’re self-employed, you might want to have a little more saved up in case of a few low-income months. If you rent an apartment, your landlord may be responsible for the cost of fixing appliances, whereas if you own your home you are responsible for fixing them.
Average emergency costs vs months of income
The table below shows how many months of income a person would have to save to cover the estimated average cost of emergency expenses ($2,821.84) for 12 months, based on their annual salary.
||Months worth of income
For the majority of people earning just shy of $20k per year, this means the average number of months of take-home pay you’ll want to have saved up is between 2 months to 3 and a half months.
However, please also bear in mind that as income increases, often, so does spending on a home, car, etc. Our figures are based on the average cost of an emergency and are to be used as a guideline for what people could expect to pay out across a year for emergency costs only.
How should emergency funds be spent?
Emergency funds should be spent on just that, emergencies. It’s important to keep this money aside specifically for situations that cause financial distress. It might be tempting to dip into it when you’re a little short of cash for lunch with a friend or your favorite store has a sale on, but this could get you into difficulty if a true emergency arises later.
For predictable expenses like birthday gifts, taxes or annual car payments, you should budget for these things out of your regular earnings, or set up a separate sinking fund if you need to spread out the cost over the year. None of these are typically considered emergencies.
Discretionary money is defined as the amount of income you have left for spending or investing after paying essential bills, taxes and necessities.
Some examples of discretionary spending items include:
- Entertainment, movies and music
- Eating out
- New clothes
- Taking a vacation
- Alcohol and tobacco
It’s important to have discretionary money so you can enjoy new things and experiences in life. But it also gives you something to draw on if you need to save money quickly in unexpected circumstances.
Maybe your car breaks down and needs repairs, or your roof starts leaking, you could cut out a few restaurant dinners or those new shoes you would have bought, and cover these essential costs instead.
But one survey found that 40% of Americans don’t have money left over for other things after paying their bills  Ipsos https://www.ipsos.com/en-us/news-polls/safety-net-shrinks-vulnerable-americans-are-changing-way-plan. For these people, living paycheck to paycheck makes it difficult to save money for emergencies.
A sinking fund is an amount of money set aside for a one-time predetermined expense. This could be Christmas gifts, a vacation, some new furniture, self-employment tax etc. You’ll be saving this money over a few months or even the whole year so it doesn’t come as a shock when you have to pay for it.
The benefit of having sinking funds set up for these purchases is that if something unexpected comes up, you won’t miss out as you’ll have the money saved already.
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Dealing with unexpected costs
We all come up against unexpected costs from time to time. Life doesn’t always run smoothly and sometimes we need more money than planned to get through the month.
Unexpected expenses include things such as:
- House appliance like a washing machine breaking down
- Your pet needing medical treatment
- A burst pipe which needs urgent repairs
- Travel for a short notice event like a funeral
The best way to deal with these unexpected costs is to have an emergency fund set up ahead of time. Another option would be to re-budget and cut some of your discretionary spending to save the money you need.
How many people experience unexpected costs?
Self surveyed 1,458 Americans about unexpected costs and found that 77.9% of respondents had experienced an unexpected or emergency cost in the last 12 months.
The types of emergencies people experienced
Our survey respondents were able to choose more than one emergency that they experienced in the last 12 months. The most common unexpected cost was a medical emergency, with 33.7% of respondents saying they experienced this.
The next most common unexpected cost was a car accident or car repairs with 26.8%, closely followed by job loss at 22.4%.
How much did emergency events cost people?
We found that for 22.7% of people, their emergency event cost them between $1,001 and $2,000. This was the most common amount people had to spend, and on either side of this figure, the numbers reduced. Only 3% of those asked said they spent more than $20,000 on their emergency, and 3.6% said they spent less than $100.
Paying for emergency costs
When it came to how to pay for unexpected costs, most of our respondents (54%) said they used money from savings. The next most popular answer was that they used money from their regular income to pay.
3.1% of those asked said that they sold some of their belongings to pay for the emergency expense.
How much do emergencies cost on average?
Below is a summary of some of the emergencies Americans might have to deal with in their lifetimes and the costs associated with each event.
|Type of Emergency
|Job loss, government shutdown, furlough
||$28,824 (based on 6 months of median income)
|Hurricane or tornado
||$7,232 (based on national average homeowners pay for repairs, full costs vary depending on home insurance providers)
||$26,807 (based on national average homeowners pay for repairs and personal property, most home insurance providers don’t pay out for flood)
||$4,529 (based on national average homeowners pay for repairs, full costs vary depending on home insurance providers)
||$1,322 (based on average out-of-pocket costs)
||$775 (based on average out-of-pocket costs)
|Sudden death of a loved one
||$10,833 (based on funeral-related costs)
||$12,635 (based on national average homeowners pay for repairs, full costs vary depending on home insurance providers)
Source  How Much Different Emergencies May Cost https://www.marketwatch.com/story/this-is-how-much-8-different-emergencies-may-cost-you-and-you-probably-cant-afford-them-2019-02-20
Savings by age
Let’s take a look at some of the differences in age groups when it comes to savings goals, and the average amount each group has saved.
Savings goals by age group
Financial goals tend to differ by age group as those in different stages of life will be saving up for different things. Someone in their 20s or 30s might be saving for their first downpayment on a house, whereas those in their 50s or 60s would likely be saving for retirement.
Here’s a guide to approximately how much you should aim to save by age:
||Amount You Should Aim to Have Saved
|By age 30
||1x your annual income
|By age 40
||3x your annual income
|By age 50
||5x your annual income
|By age 60
||7x your annual income
|By age 70
||9x your annual income
|By age 80
||11x your annual income
Source  How Much to Save https://www.ally.com/do-it-right/money/savings-by-age-how-much-to-save-in-your-20s-30s-40s-and-beyond/
Remember that these goals will vary depending on a number of things including your income, your planned retirement age and the kind of lifestyle you want to have when you retire.
Average savings by age
A lot of factors affect the savings of different age groups in the U.S. Those who have been in their career longer will have had more time to build up their savings pots. Other things like the economic climate, cost of living and job market all have an effect on savings across different generations.
We’ve talked about how much money you should aim to have saved by certain ages. So, what is the average savings total per age group in the U.S?
|75 and Over
Source  Average Savings by Age https://www.sofi.com/learn/content/average-savings-by-age/
Advice shows that based on a median salary of $59,488, Americans aged 45-54 should aim to have $297,440 saved.  How Much to Save https://www.ally.com/do-it-right/money/savings-by-age-how-much-to-save-in-your-20s-30s-40s-and-beyond/ But stats show that the average amount of savings for this age group is only $48,200.
How much do people have in savings?
Statistics show that 41.5% of Americans currently have $1000 or less in savings, and only 7% have over $50,000. Take a look at the full breakdown in the chart below.
Saving for life events
There are plenty of costly life events that you might need to save for throughout your lifetime. Let’s take a look at some of the most common life events and large purchases people have to consider.
Savings needed for a wedding
In the U.S., the average cost of a wedding in 2019 was $28,000  How Much Does a Wedding Cost? https://www.businessinsider.com/personal-finance/how-much-does-a-wedding-cost?r=US&IR=T. Typically the venue is the most expensive part of a wedding, averaging at $10,000 for the day. Depending on the kind of wedding you want to have and the location, the total amount can vary a lot.
The best way to save for a wedding is to set up a separate fund and create a budget for each part of the wedding you need to pay for. This way you can keep track of your spending and set priorities for the things you really need to include.
Savings needed for buying a house
When saving for a house, general advice has been to save 20% of the house’s sale value as a downpayment. So if the house you want to buy is $200,000, you’d try and save $40,000 as your initial payment. The rest you’ll pay off over time with a mortgage. But how much you save for a downpayment really depends on your circumstances and what you can afford.
Remember that when it comes to buying a house, there are lots of other things to pay for outside of the downpayment. These include inspections, closing costs and attorney fees. It’s important to take these things into consideration when saving to buy a house.
Savings needed for having a baby
Having a baby comes with a lot of costs, from the pregnancy, to giving birth, to caring for the baby when they’re born. A normal pregnancy averages at $4,500  How Much Does a Baby Cost? https://www.northwesternmutual.com/life-and-money/how-much-money-does-a-baby-cost-are-you-ready-for-a-baby/ with medical coverage. Costs for additional tests and other treatment you might need are often not covered by insurance. It’s a good idea to save around $20,000 to cover all bases.
The average cost of having a baby is $7,918 per year  Cost of a Baby https://www.westpac.com.au/help/lifemoments/setting-up-life/having-a-baby/cost-of-a-baby/ for the child’s first four years of life. If you’re part of a couple, you’ll also need to consider whether you or your partner will leave work to care for your child full time. If this is the case you would lose one source of income, but alternatively there would be childcare costs to pay if you both continued working.
Saving for your children’s college education
Sending your child to college can be extremely costly, so setting up a savings fund for this when your child is born will give you the best chance of saving enough money. If you start investing at your child’s birth, the growth and interest earned over 18 years could go a long way towards supporting their college fund.
Depending on the type of college your child goes to, the costs can vary. The average cost of one year at a four-year public college is $10,560, whereas for a four-year private college costs roughly $37,650 per year  Saving for a College Education https://www.cnbc.com/select/how-much-should-you-be-saving-for-your-childs-college-education/.
|Buying a House
||$46,680 (Based on a 20% downpayment on a median home price of $233,400, not including additional fees.)
|Having a Baby
||$12,418 (Based on a normal pregnancy and the child’s first year of life.)
|Children’s College Education
||$37,650 (Per year for a four-year private college.)
How much should I save each month?
Most financial experts recommend saving around 20% of your income every month. Using the 50/30/20 rule, 50% of your income should be spent on essential bills and food, 30% for discretionary spending, and 20% for your savings pot.
Of course, this may be different depending on individual circumstances and incomes. Someone who is younger with fewer responsibilities might be able to save more than someone who has a larger family to feed. Or alternatively, someone who is older and has a stable career with investments in place might be able to save more.
Where should I save my money?
There are so many options when it comes to deciding where to save your money. It can be difficult to find the best account which will suit you and your circumstances.
Here are some of the savings accounts available and the key benefits:
- Regular Savings Account - With interest rates of around 0.01%, standard savings accounts don’t give you much return in APY, but they’re easily accessible if you need to withdraw money.
- High Yield Savings Account - These have interest rates of around 0.50%. You can generally access your money just as easily and they often don’t require a minimum balance.
- Money Market Account - You can get interest of around 0.07% with a money market account and the access is easy, but these typically require a minimum balance of $1000.
- Certificates of Deposit - A CD usually provides the highest rate of interest for these types of accounts, but they typically require a minimum of $1000 to open. You can’t withdraw your money from a CD for a specified period of time, usually this ranges from six months to five years. The longer the term, the better the interest rate.
How can I grow my savings?
There are several ways to save and invest in order to make your money go further, and to give your savings a boost. Take a look at some of the options available.
Five ways to grow your savings
- High Yield Savings Accounts - These are similar to standard savings accounts, but they offer higher interest rates. You might need a larger initial deposit for a high yield account.
- Certificates of Deposit - You’ll need to keep your money in a CD for a specified amount of time (between 6 months and 5 years) but the interest rates are higher than savings accounts.
- Bonds - These are typically lower-risk debt investments issued by companies, municipalities, states, and governments for certain projects. Bonds are issued at a fixed interest rate for a specific amount of time. The issuer pays interest during this period and returns the bond’s face value to you when it matures.
- Treasury Bills - Also known as T-Bills, Treasury Bills are short term securities which take one year or less to mature. You purchase T-Bills at less than their full value, when a Bill matures, the Treasury pays you its full value.
- Money Market Funds - A money market mutual fund only invests in low risk securities. They usually provide similar returns to short-term interest rates. You’ll need to do some research to find a money market fund which has been performing well.
We surveyed 1,458 American adults between February 15 and February 25, 2022, asking questions related to emergency costs and savings.
The respondents’ age ranges were:
- 9.2% - 18 to 24 years old
- 39.2% - 25 to 34 years old
- 28.3% - 35 to 44 years old
- 12.6% - 45 to 54 years old
- 7.4% - 55 to 64 years old
- 3.3% - 65+ years old
The respondents’ genders were:
- 55.2% - Female
- 43.4% - Male
- 1.2% - Non-binary
To calculate the number of months needed to cover the average cost of emergency costs in a year, we used https://salaryaftertax.com/us/salary-calculator based on earnings after tax in California.