How To Set Your Target Savings Amount

Most of us have been told from very early in life that saving is important—some readers may even remember the actual, physical piggy banks kids once had.

Now that you’re an adult, it’s important to define the specific goals of that saving habit. How much do you really need to ensure security in the present day, for example, or down the line in your retirement years?

As is true with many things in personal finance, the specifics will vary depending on your circumstances and needs. But there are some helpful guidelines to help ensure you’re tracking toward financial stability, both now and in the future.

How much money should you have in savings?

The first step in figuring out your overall target savings amount is to take a look at your day-to-day finances.

After all, for both emergency funds and retirement savings the idea is to be able to cover everyday expenses if or when your source of income dries up. Only when you know how much you spend can you know how much you need to save.

If you haven’t yet set up a budget or started tracking your expenditures, doing so now can help you get the basic information you need to determine your savings goals. The process can be as simple as writing down everything you spend, including both fixed expenses, like housing, insurance, and utilities, as well as variable expenses, such as groceries, fuel, and discretionary spending (restaurant meals, travel, and so on).

Those numbers can help you determine how much money you absolutely need to maintain your current lifestyle—and how much you’d need to get by, perhaps with some sacrifices.

This can also be an opportunity to see if you regularly make any nonessential expenditures that can easily be eliminated, like paying for multiple streaming services, unused gym memberships, or excessive clothing purchases.

How much should I have in savings for emergencies?

Now you know how much you spend each month—an excellent first step. Next, you can use those figures to make a plan to start an emergency fund.

Many financial experts suggest keeping between three and six months’ worth of savings in an emergency fund. If, after doing your math, you find you regularly spend about $3,500 per month, a robust emergency fund would be between $10,500 and $21,000—enough of a cushion to fund unexpected medical expenses or vehicle repairs, or to float you for a while if you lose your job.

Those numbers might sound astronomical, given that about 22% of American adults have no emergency savings at all, according to a 2023 Bankrate survey. The truth is, a $1,000 emergency fund is much better than no emergency fund. Anything helps when life’s inevitable setbacks show up.

On the other end of the spectrum, some people might want to work on saving up even more for emergencies. Freelancers or gig economy workers whose income tends to fluctuate might want to have a cushion closer to nine months’ or even a year’s worth of living expenses to tide them over during times when work is slow.

How much should I have in savings for retirement?

An emergency cushion takes care of unexpected expenses and income lapses in the short term, but most of us expect a period with greatly reduced income: retirement.

Just like emergency savings goals, specific retirement savings goals vary widely depending on a variety of factors, including your life expectancy, retirement age, and how much money you spend each year.

According to a 2022 Bureau of Labor Statistics Report, the average couple between ages 45 and 54 spends about $84,000 per year, while couples between 55 and 64 years of age spend about $70,500. The spending figure drops further for those ages 65 and over to about $52,000, thanks in part to life changes like paying off a mortgage, or kids moving out and supporting themselves.

Still, with an average U.S. life expectancy of about 76, according to the Centers for Disease Control and Prevention, and a minimum IRS retirement age of 59½ to withdraw from retirement-specific investment accounts, Americans may need anywhere from $500,000 to well over a million dollars to live out their golden years comfortably. In fact, according to a recent Charles Schwab survey, workers believe they’ll need to save up about $1.8 million for retirement.

Saving up such a thick stash of cash and allowing it to grow on the stock market is best done over the course of a working lifetime. Many financial experts recommend the following savings schedule to be on track for a healthy, happy retirement.

These guidelines are just that: guidelines. Each person’s individual retirement needs and realistic savings achievements are different. Online retirement calculators can help you get a better sense of your specific needs, as can a qualified professional financial advisor.

And don’t forget Social Security. The official U.S. full retirement age is 67 for those born in 1960 or thereafter, though you can begin taking Social Security benefits at age 62—in exchange for having the amount permanently reduced. However, those who can put off taking Social Security until after age 67 and up to age 70 will see an increase in their monthly check.

How much should I have in savings for college?

If you’re an American parent hoping to help support your kids through college, you have another savings challenge in front of you.

According to the National Center for Education Statistics, the average annual cost of tuition, fees, room, and board at a four-year institution hovers at about $30,000. That puts the total cost of a four-year college experience at a whopping $120,000 before additional expenses like books.

The total can be even higher for private institutions or for students who go on to graduate school—and given how steeply college-related costs have risen, even the basics may be far more expensive once your kids come of age.

The reality is, most parents simply can’t afford to pay for their children’s entire college education—though planning early can help dial down how much student loan debt your kids may end up with down the line.

You might start by making a reasonable goal of how much you can afford to save for each child’s college education—maybe $10,000, or 25,000, or perhaps $50,000. Everything helps, and investing the money in a tax-advantaged account like a 529 plan can stretch the value of each dollar.

How much does the average American have in savings?

According to the Federal Reserve, the average American family held a little over $62,000 in transaction accounts, such as checking and savings accounts, in 2022, and about $334,000 in retirement accounts.

Of course, very wealthy households have a profound influence on these figures. While the “average” amount of savings may look abundant, in some studies, as mentioned earlier, almost a quarter of U.S. adults have no emergency savings to speak of. And according to a 2022 Federal Reserve report, 37% of Americans said that they would have to borrow or sell something or would be unable to cover a $400 unexpected expense.

In any case, comparing your savings total to that of the “average” American is less useful than comparing it to your individual savings goals, which, as we’ve just seen, can vary tremendously from others’ goals.

Ways to save money faster

Looking for ways to boost your savings? Here are some tips.

• Set it and forget it. Too often, savings is the last line item on our budgets—and by the time we’re done spending, we may have little left over to save. By automating your savings, you’ll ensure that a portion of each paycheck is stashed away without your having to think about it. This works for both regular savings accounts and retirement savings.
• Look in your budget for easy ways to save. That might mean something as simple as eating out less often or taking a no-frills vacation. But it might also mean a more holistic way of saving, like moving into a less expensive home. While such a lifestyle change may not be easy in the short term, it can passively save you thousands of dollars over the course of time once you make the adjustment.
• Meet your match. If you’re lucky enough to work for an employer who offers a match for the money you put into your retirement account, contributing at least up to that match can help you automatically increase your retirement savings with no extra effort at all.
• If you’re 50 or older, consider catch-up contributions. The IRS allows savers aged 50 and up to put more money per year into their retirement accounts in order to help them make up for the “lost time” that may, with the power of compound interest, have yielded them a higher retirement total.

TIME Stamp: The amount you need in savings is up to you

Everyone’s financial circumstances are unique and colored by a wide array of needs, preferences, decisions, and opportunities. But a focus on saving within your means can make life’s inevitable rainy days a lot less stressful.