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How much should I have in savings? – Forbes Advisor

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Having money set aside for emergencies can give you peace of mind if an unexpected expense arises. Financial experts often recommend maintaining savings equal to three to six months of expenses, but is that enough? Is it too much?

The ultimate answer largely depends on your financial situation and how much you need to save to feel secure. Once you’ve decided on a savings goal, you can work on building your cash cushion.

How much should I have in savings?

Finding the right amount of money to save starts with understanding your expenses. There are two main types of expenses you should budget for: fixed expenses and variable expenses.

Fixed expenses remain roughly the same from month to month. They can also be your biggest bills. Here are some examples of fixed expenses:

  • Rent/mortgage payments
  • Utility bills
  • Internet and cell service
  • Assurance

You can also include debt repayments in this category if you pay the same amount each month. Any alimony and child support payments you make would also go here.

Variable expenses are costs that fluctuate from month to month. These can be essential or non-essential expenses. Here are some examples of variable expenses:

  • Races
  • Gas and transport costs
  • Entertainment
  • Hobby
  • Clothes
  • Travel
  • Dine out

Once you’ve estimated your typical monthly expenses, there are two ways to apply the three- to six-month rule of thumb for saving. You can base your emergency savings goal on your total expenses or what your budget would be if you chose to reduce some of your variable expenses.

The more you can reduce or eliminate non-essential costs, the further your savings can go.

Refine your savings goal

The amount of money you need in savings may depend on the circumstances. Typically, you want enough to deal with a financial emergency, which is any big, unexpected expense that comes your way.

There are one-off emergencies, like an unexpected vet bill or a car repair. These types of expenses can range from a few hundred to a few thousand dollars. Other financial emergencies may be in progress that require more savings. Protracted emergencies can include the loss of a job or the inability to work due to illness or injury.

Say you’re fired from work. It may take three months to find another job at your same salary or more. The amount of savings you’ll need may depend on what you plan to spend while you’re away from work.

Your fixed expenses may stay the same, but your variable expenses may drop if you cut unnecessary costs. So, suppose you normally spend $5,000 a month on all your expenses, including $1,000 for non-essential expenses. And, you decide to cut all discretionary spending, bringing your overall expenses down to $4,000 per month.

This means you would need to have $12,000 saved up to cover your three month job gap. If you plan to be out of work for up to six months, you’ll need $24,000 in savings.

You could be proactive and save nine to twelve months of emergency expenses. In this case, your savings goal would be $36,000 to $48,000. Whether it makes sense to put that much money aside may depend on how long it will take to land a new job after a layoff and how much money you’ll need to feel good about yourself. comfortable in the meantime.

Ways to save money faster

If building up savings is a priority, there are several methods you can try to increase your balance faster.

Start by reviewing your budget to look for places where you could painlessly cut spending. Here are some of the ways you could withdraw extra money to save:

  • Combining auto insurance with home or tenant insurance
  • Increased insurance deductibles, which can lower your premiums
  • Ask your car insurer for discounts for safe driving
  • Raise your thermostat in summer and lower it in winter to save on energy bills
  • Downgrade to a lower tier mobile plan or downgrade to a cheaper prepaid plan
  • Cancellation of subscription services that you do not use
  • Meal planning and cooking at home
  • Consolidate errands to spend less time driving (and save gas)
  • Learn basic home maintenance skills so you can handle minor repairs yourself

If you haven’t already, you can open a separate savings account for your emergency fund and link it to your checking account. You can then schedule recurring automatic transfers from check to savings.

Taking advantage of “free” or unexpected money is another way to build up savings faster. You could add these deals to your savings:

  • Tax refund
  • Stimulus payments
  • Discount
  • Refund of purchases
  • Cash gifts received for birthdays or holidays
  • Bonuses

You can also use cash back earned on credit card purchases to grow your savings. But using a credit card to earn cash rewards only makes sense if you’re able to pay off the balance in full each month. Otherwise, the interest you pay could outweigh the rewards earned.

Finally, consider ways to earn more money to add to your savings. Taking more hours from work, getting a part-time job, selling items you no longer need, or starting a side business are all ways to earn extra money that you can save.

How much does the average American have in savings?

Wondering how your savings balance compares to that of a typical American? According to the Federal Reserve, the personal savings rate in the United States was 6.2% in March 2022.

What could that mean in dollars and cents? The most recent Fed survey of consumer finances shows that the average balance of checking, savings and other “transaction accounts” in the United States was $41,600 in 2019. The median balance is i.e. the midpoint for all consumers surveyed, was $5,300.

Meanwhile, the real median household income in the United States was $67,521 in 2020, according to Fed data. This equates to a median of $5,627 families earned per month. If you compare this figure to the median transaction account balance of $5,300, it suggests that the typical household has an emergency fund equal to just one month’s worth of expenses.

Here is another piece of data illustrating how prepared or unprepared Americans are for financial emergencies. The Fed indicates in its latest report on the economic well-being of American households, from May 2020, that 64% of Americans say they could manage a $400 emergency with cash or cash equivalents. In other words, they would use savings or a credit card that would be refunded with the next statement.

That’s encouraging, but it still means that about a third of Americans might need to borrow to cover a surprise $400 bill.

Find the best online savings accounts of 2022


If you haven’t started saving yet, it’s time to get moving. Plus, choosing the right place to keep your savings will earn you the most interest and pay the least fees.

A high-yield savings account at an online bank is a safe place to keep your savings while potentially earning a competitive rate on your money. Certificates of deposit (CDs) and money market accounts can also offer high returns, with low fees.

As you work on saving, remember to periodically review your goals and needs. If your expenses go up or down, those changes can affect your savings goals. The more attention you pay to your finances, the easier it will be for you to adjust your savings strategy so you don’t run out in an emergency.

Frequently Asked Questions (FAQ)

How much should I have in savings for emergencies?

A common guideline for emergency savings is to set aside enough for three to six months of expenses. But you can choose to save nine to twelve months of expenses if you’re worried that a prolonged emergency will deplete your savings.

Can I have too much money in a savings account?

When deciding how much to keep in savings, it’s important to keep the FDIC’s coverage limits in mind. The FDIC insures savers up to $250,000 per depositor, per financial institution, for each type of account ownership. If the balances of all your accounts at the same bank exceed your available coverage limit, some of your money may not be insured if the bank fails.

Should I have more than one savings account?

It may be a good idea to open several savings accounts if you have several purposes for which you are saving. You can create an account for emergencies and then open separate accounts for a car fund, vacation fund, or other savings goals.

How much should I keep in a current account?

Checking accounts are designed to hold the money you plan to spend in the short term. Keeping a month’s worth of expenses under control can help you stay ahead of budgeting and paying bills. Maintaining a cushion can also help you avoid triggering costly overdraft charges.

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