How Much Savings Should I Have?

From this article you will begin to focus on building up a fully funded emergency fund. If you are debt-free and working toward a fully funded emergency fund. But there comes the question: How Much Savings Should I Have? A quick answer is you will want to be saving for 3 – 6 months worth of expenses. Your monthly income should never be completely spent.

A good rule for those asking “how much savings should I have” is to aim for building an emergency fund up to three months worth of expenses, and then spread out savings into savings accounts and investments until you have accumulated 6-8 months of savings. While the size of your emergency fund will vary depending on your lifestyle, monthly expenses, income, and dependents, the general rule is to put aside at least three to six months of expenses. An emergency savings fund equal to 3-6 months worth of expenses is essential to your financial security, no matter your age. Having savings is a good habit teach yourself because one day you will need to have retirement savings in your retirement account.

An emergency fund is a separate savings or bank account used to cover or offset expenses in unforeseen situations. Emergency savings are best placed in a bank account with a high rate of interest, such as a money market or savings account with a high rate of interest, which is easy to access without fees or penalties. Keeping these savings in a bank account (as opposed to an investment account) means that you have them available to access them if needed, but also means that you have lots of money sitting in one place, eroded by interest. So yes, having enough cash at hand to cover an unplanned expense is wise, but directing some of that money towards investments is one of the best savings recommendation we can give you.

Putting money into the bank is a smart move, but having too much money sitting around is actually a bad use of that money. Stashing away cash for an emergency fund, let alone for a home down payment, retirement, or your kids college costs, can require years of consistent savings and an enormous dose of discipline.

If you do not have an emergency fund, you probably need to build one before putting money towards financial goals/savings toward retirement or any other goals. Then, most of your surplus money could be devoted to savings goals, be they investing for retirement or building up an emergency fund. In addition to savings, you should consider other savings goals, like saving up to pay off the down payment on your home, or saving up for a special vacation.

You might want to set up separate savings accounts for these extra expenses so that you do not erode your emergency fund. It is good practice to set aside a little bit of money aside for these occasional expenses, that way you are not tempted to dip into your emergency fund, or be tempted to cover one of those things by adding on an existing credit card balance.

While an emergency fund is meant for bigger events, such as a loss of employment, we recommend saving a percentage of your paycheck for smaller, unexpected expenses as well. The goal is to draw on your emergency savings for expenses that are directly related to a sudden emergency.

You can base your emergency savings goals either on your total expenses – or on what your budget would look like if you decided to eliminate some of your variable expenses. An easy formula to find what your suggested range for emergency savings might look like is by multiplying your monthly expenses by three and six. Once you estimate your typical monthly expenses, there are two ways you can apply the three-to-six-month savings rule of thumb.

Those retiring at age 70 may not need a rule of thumb of their own, since they would be working three more years, and would likely have less years left to use up savings. Those retiring at 62 — the oldest age you can collect Social Security — will have to save even more, to make up for an extra five years of no income.

Anytime there is an known expense, you can use the emergency fund to build it up over time. Generally, you want to be enough to cover a financial emergency, which is any large, unexpected expense that comes up.

Standard financial advice says you should shoot for three to six months of basic expenses, stored in some combination of high-yield savings accounts and short-term CDs. Yang says most financial experts agree your emergency savings should consist of six months worth of living expenses, but the exact amount depends on your financial stability. While there is no magic number for how much someone should save, experts agree that having at least some emergency funds in savings–anywhere from three to nine months of expenses–is a must.

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