Budgeting can be difficult and confusing for many. Most people have a finite amount of money that they receive with each paycheck, and they are not entirely sure of the best way to prioritize it while still meeting all their needs and desires. It isn’t always easy to know how to delegate your money to so many different aspects of your life. This depends a lot on your age, too, as well as your financial aims and objectives. This article goes over our recommendations for a healthy amount of savings to have at different stages of life.
Why Should I Save?
You may be wondering what the purpose of saving substantial amounts of your money is in the first place. It can seem frustrating to put so much of your money away with the intent of not using it for possibly decades to come. However, it is really important that you use the money you receive while you are young and healthy to set yourself up for a future where you no longer need to work, especially once you get too old to do so comfortably.
Life is also full of unpredictability and instability. While you may be healthy now, it is not guaranteed that this is always the case, and you could suddenly become ill, or some emergency might come up which means you need a substantial amount of money to cover yourself. This is especially true in a country like the US, where many people do not have health insurance or have limited insurance, for example. If you can prevent needing to borrow money from lending institutions or others whenever possible, then you are best off doing so.
Many people in the US save far too little money too. There has recently been research conducted by the Center for Retirement Research at Boston College into the matter. They found that almost half of Americans at working age save less than they should, and they are thereby risking that when they retire their standard of living is going to be lower than it otherwise could be. Furthermore, only 40% of Americans surveyed would be in a position to unexpectedly pay $1,000 out of their savings if they needed to in an emergency.
How Much Should I Save for Emergencies?
The amount of money you should have in savings varies dramatically from person to person. For example, if you have a family and are the primary breadwinner, it makes far more sense for you to have a much greater amount saved up than a student who works part time, for example. However, the amount that people need saved up to cover emergencies is also relative, as a student living alone or a single person generally has a lower cost of living and spends less on necessities and groceries than somebody with a family.
As such, recommendations like these are relative. It is generally advised that if you have a minimum of three months’ expenses saved up before you start saving up for anything else or investing your money. However, six months’ of expenses is certainly a safer option. The idea is that you have enough money saved up that in case of emergency or if you lose your job.
This does not necessarily mean that your savings should simply equate to six months’ worth of income. Your expenses are going to vary a lot depending on your lifestyle and living situation, and your assessment should broadly be based on several different factors. If you are a single working individual, then the most important things to think about when figuring out how much money you should have for your emergency fund is your needs with regards to food, utilities, transportation, housing, debt, and various types of insurance.
If you are in a household where you are not the only one providing income, then you don’t need to save as much as you would need to otherwise. Also, if your income is not consistent from month-to-month, then it is better if possible that you save up more than six months’ worth of income, as you may find that it takes longer for you to get back into a position to be able to be consistently earning income if you are unable to work for a lengthy period of time.
How Much Should I Have Saved Up by a Certain Age?
There are recommendations regarding how much money you should have saved up by a certain age, and these also vary depending on your lifestyle and your living situation. The following provides a breakdown of different age brackets, and a general recommendation for how much you may like to aim to have saved up by each stage of life:
In Your 20s
On average, someone in this age group who is working full-time and leading a household is going to earn $66,470 per annum. The average estimated expenditure on essentials per month for such a household is $3,458, so if you multiply this by a number between three to six months depending on what type of work you have, then you have a very general figure of $20,748. This is unlikely to be identical to the amount that you are going to save up, of course, as your income and expenditures are not exactly the same.
This figure can seem really daunting to recent graduates, especially if they have student debts and loans as well to worry about. However, if you do not have a loan which is rapidly accruing interest, then it is probably best to establish yourself with some level of financial security and instead pay your student loans back gradually over time.
If you are not sure how you can reach this target or it seems too difficult, you might want to temporarily take on a second job until you have emergency savings put aside. This is not something you are going to regret if you ever need it, so it’s a great idea if you can to sacrifice a little extra of your time in order to set yourself up well against any emergencies that you might end up experiencing.
As far as your retirement fund is concerned, you should aim to have around $66,470 saved up by the time you reach your 30s. This is a great foundation to build upon as you move up the career ladder and begin earning more.
In Your 30s
By this age, the average American is earning $92,576. However, average expenditure at this age is also a little higher, so your emergency savings should probably be somewhere between $12,900 to $25,800, depending on your lifestyle and how stable your income is.
As far as your retirement savings are concerned, it can be a little harder to put money aside in this decade of your life, as this is a time when many people have young children and are perhaps not advanced enough in their careers to be saving substantial amounts of money. However, it is always important to put some money aside when you can, and it is recommended that you have around $277,728 saved for your retirement by the time you reach your 40s.
In Your 40s
When you are in your 40s, you are most likely going to be at the earning peak of your lifetime. However, you are also probably going to spend the most money in your life at this stage. It can be a stressful time, especially as this is when you should be focusing on building up your retirement fund as much as possible while you are earning as much as you are. By the end of this decade, you should look to have at least $596,538 saved, based on the average income of an American in this particular age group.
In Your 50s
At this point, if you so choose, you may want to begin working less hard than you have previously and also make things a little easier on yourself. This is especially true if you have enough money saved up from the previous decades that you no longer need to work as hard as before. As such, you only need to save around $100,000 this decade on average, if you have met your earlier targets. By the end of this decade, you should aim to have around $643,792 saved up.
In Your 60s
By the time you come into your 60s, you should ideally have enough money saved up in combination with your assets and investments to be looking at retirement, so there are no concrete recommendations regarding saving beyond this point. Hopefully you find yourself in a position where you can enjoy your retirement and the fruits of your labor.
Other Goals for Savings
Of course, retirement and emergencies are not the only things you are necessarily going to save up for during your lifetime. You are probably going to have other things that you need a little extra money for, and it is best if possible to save up for these over time, instead of impulsively spending the money when you might not have it at the time and then having to borrow it and make it up later.
Vacations are a fairly common thing to save up for, and this is a great way to make sure you and anyone else you might be vacationing with can have a holiday that is extra special and memorable for all of you. Studies have found that Americans often pay for their vacations with credit cards, which is not the best way to fund your holiday if you can avoid it. It is always best to do whatever you can to avoid being in debt or owing anybody money, so do your best to save up for events like these instead. Weddings are another common expense, and something that people want to spend lavish amounts of money on to make sure they are great and memorable events. While weddings are indeed special, it is again advised that you try not to borrow money for your wedding and instead save up for it.