Asking how much you should have in your savings account is a very common consideration that people from all walks of life ponder about. In all honesty, there’s no real answer aside from as much as is realistically possible, enough to prepare for a bad situation, and enough to live in relative comfort for the foreseeable future.
Of course, it’s never as simple as black and white when it comes to financial topics, and there’s a range of different factors at play that influence how much money you should or shouldn’t have in your savings account. There are also some key benchmarks to learn about along the way as well.
Bench Marks
The best place to start is with the savings benchmarks that are set out by financial advisors across the globe. They’re there to keep you safe and make sure that you always have enough money to have a comfortable life.
Emergency Fund
The first place financial authorities advise to set as a benchmark is with an emergency fund, as this is a financial safety net that you can set yourself to protect you for both the long and short term.
Generally, an emergency fund is advised to be between three and six times more than your monthly living costs. Once you have this saved away, should anything happen in your life like unemployment, unexpected expenses, or anything else that needs money in an emergency, you have it ready without having to find it elsewhere.
Retirement Fund
The much more long term savings goal tends to be the plan for after employment comes to an end, whenever you ideally want that to be. Most Americans aim to retire at the average age of 67 in the U.S., if not earlier — and doing that is no easy feat.
As well as pensions and 401Ks, which are a massive step in the right direction towards retiring, savings accounts can also provide a massive difference as well. Instead of aiming to have 3 to 6 times your monthly expenses put away like an emergency fund, for this one, the ideal overall target is to go for 6 times your gross annual income.
This one sounds ridiculously difficult, and for many it may be, but try to remember that this figure is completely different for everyone. This figure generally accounts for the living costs of people earning that wage and balances out. Downsizing is also very possible, as well as cutting expenses. This figure should also be the product of all forms of savings and not just coming from one account.
Factors Affecting Your Saving
As good as having goals for your financial future is, it’s pivotal to remember that saving is only possible if you’re in a position that allows you to do so. That for a lot of people is the hardest part, and any savings can be a huge win in these instances.
Age/Time Spent Saving
The biggest example of these factors that influence how much you feel like you should have in your savings account is your age, and more specifically how long you have had to actually be able to save money.
It makes complete sense that people in their 50s, for example, have saved more money than people say in their mid 20s, since they have likely been working for a much longer duration and typically have a much higher level of disposable income. That’s an example that is of course situationally dependent, but it’s a theory nonetheless.
Savable Income
As well as having more time to save the older you get, it’s also important to remember that saving is only possible when you begin to have disposable income that you choose to hold onto rather than spend. It isn’t feasible to expect to save money if it’s essential for your living costs, no matter what your age, job, or income.
This is a prime example of something that can contradict the point above, being that it’s easier to save more in later life. There is also more than a reasonable chance that your living expenses may increase with age. Whether it be for more expensive luxuries, family requirements, or even caring for others, there are more and more opportunities that may counteract your spending and place more of a drain on your finances.
Putting Your Money to Work
Finally, before you can begin to get a genuinely well-rounded idea of how much money you should have in your savings account, it’s also a good idea to consider that savings accounts aren’t the only option for your money.
Although high-yield savings accounts can be an amazing decision to make with your money and get you a good return on your savings over the long run, there are other alternatives and different ways to use your money for the greater good of your finances.
To put this into context, one common way this is put into practice is through overpaying mortgages or loan payments. This helps to free up more income, prevent more interest from adding onto your loan, and can actually save you more money than saving — but it can leave you saving-less later down the line.
Investing is another alternative to consider, but is better once you’ve managed to get a decent sized emergency fund put away. You can use your money to invest at your own risk for the chance of a much greater return on your savings. There is the possibility that you’ll lose money with this, so think approach this strategy carefully. This is only advisable when you have enough money to risk without serious financial repercussions.
Content Disclaimer:
As of the date of publication, the information contained on this page is deemed to be factually accurate for all terms of conditions, features, and fees. Changes made to Cashero’s terms of conditions, features, or fees after the publication of this content may not be accounted for.
App Disclaimer:
The Cashero App is now available for download in both the Apple App Store and Google Play Store, though not all features are currently functional. Cashero has not yet officially launched.
