How Much Should I Have in Savings?

Like most Americans, you likely wonder if the amount of money you have in savings is “enough.” After all, life has a way of throwing expensive curveballs at us in the form of surprise car repairs, necessary home improvements, and unexpected medical bills (just to name a few). On top of that, you likely have a number of both short- and long-term goals you’d like to save for, such as vacations, college for your children, and your own eventual retirement.

With all that in mind, it’s normal to be anxious about how much you have in savings. Of course, everyone’s lifestyle, financial situation, and goals are different, and this means that there’s no one simple answer that works for everyone.

However, you can use savings guidelines to set clear benchmarks for your financial goals. Meeting these targets can give you confidence that your savings are on track for the future and that you're ready for life's unexpected financial surprises.

Three Types of Savings Goals

A good rule of thumb is to break up your savings goals into the following three categories:

• Emergency fund
• Retirement savings
• Other short- and long-term savings

It’s also a good idea to use separate accounts for each of these three savings objectives. This is partially to keep them distinct from one another in your financial portfolio, but also because different types of accounts can be better suited to meeting these different savings goals.

Additionally, as each savings goal has its own distinct benchmarks, you’ll want to keep them separate so that you can accurately measure your progress toward hitting these important financial milestones.

1. Emergency Fund: How Much to Save?

Building an emergency fund is likely the first savings goal you should work toward. An emergency fund is critical as it allows you to cover unexpected expenses without causing a shortfall in your monthly budget.

For example, if you have a medical emergency or need to make a minor home repair, you can pay for it out of your emergency fund without having to short your bill payments or use a high-interest credit card. Similarly, if you were to lose your job, an emergency fund allows you to cover your expenses without going into debt while you seek new employment.

But how much should you save in order to build an adequate emergency fund? For most families, the ideal emergency fund is large enough to cover at least three to six months' worth of necessary expenses¹. To calculate this amount, simply review your spending for the last few months and total up your obligatory payments for things like groceries, utilities, housing, and minimum debt repayments—things you must spend money on. Don’t include discretionary spending for things such as hobbies, dining out, sporting events, movies, and the like.

Once you know how much you spend on necessary expenses every month, you can determine a set amount to save for your emergency fund every month and make it part of your budget. After you have at least three to six months’ worth of expenses saved, you can then take the amount you were putting toward your emergency fund every month and apply it toward one of your other savings goals.

2. Retirement Savings: Benchmarks by Age Group

Retirement savings are a common source of anxiety for many people, as it can be very difficult to know how much money you’ll need for your golden years. Most people want at least enough money to maintain their current standard of living, possibly with some extra room in the budget for more frequent vacations or recreational activities. It’s also important to remember that as you age, your healthcare expenses are likely to increase, as well.

Even with income from Social Security, most retirees find that maintaining their lifestyle requires having a decent amount put away in savings. But how can you know how much is enough?

Establishing benchmarks for retirement savings begins with examining your current annual income. As a rule of thumb, you should aim to have at least 1x your annual income saved by the time you reach age 30. From there, the savings benchmark compounds according to the table below:

Don’t beat yourself up if you’ve already passed some of the ages in the table above without hitting the savings benchmarks. Taking action now and starting to save is better than not saving, and that’s what’s important. It may mean that you need to start saving more aggressively than you otherwise would have, but you now have the information you need to develop a retirement savings plan. It can also be a good idea to work with one of Hancock Whitney’s trusted advisors to determine the best way to make up for lost time and get your retirement savings on track.

3. Other Short- and Long-Term Savings Goals

The final savings category is the most optional and should be addressed once you’ve determined how best to meet your emergency fund and retirement savings goals. This final category is for your other goals that will require saving money to achieve. This could be anything, and you might have multiple goals you hope to save for.

Perhaps you want to take a European dream vacation, or maybe you just need to upgrade from your current aging computer. You might even have the long-term savings goal of building up a college education fund for your children. In the end, it boils down to the same thing: You have goals that you need to save money for.

Obviously, this is a topic that varies wildly from person to person, making it impossible to assign a one-size-fits-all number or formula to it. Instead, you’ll need to look at each goal individually and determine the best way to save.

Determining how much to save each month is similar to the process used for developing an emergency fund. Simply determine how much your goal will cost, then decide how many months you’re willing to spend saving. Divide the cost by the number of months, and you have the amount you need to save each month.

Your Account Can Grow Your Savings

Of course, there are different types of accounts you can use to achieve your savings goals. They all have their different pros and cons, and when used wisely, can accelerate how quickly you achieve your savings goals.

• Traditional savings accounts are what many people think of when it comes to saving with a bank account. You deposit money into the account, then it periodically earns interest that is added to the balance. These accounts usually have a modest interest rate that averages around 0.4 percent.
• High-yield savings accounts work similarly to traditional savings accounts but have a higher interest rate. These accounts usually have an average interest rate of around four percent².
• Money market accounts work as a sort of combination checking and savings account. While you can write checks for a money market account, they often have a tiered interest-earning system, where the more money that is in the account, the higher the interest rate earned.
• Certificates of deposit let you make a deposit which then earns interest at a specified rate. However, the interest doesn’t become available until the account reaches its “maturity date.” The maturity date depends on the account and ranges from just a few months to five or more years from the account’s opening date. Withdrawing funds before the maturity date can also result in penalties.
• Investment accounts allow you to invest your money in the stock market and earn returns in the form of dividends. These accounts typically offer faster potential growth than savings accounts, but they are higher risk as they are subject to market volatility and are not FDIC-insured.
• 401(k), 403(b), and Roth IRA accounts allow you to save for retirement using tax-advantaged investment strategies. These accounts are specific to retirement, so withdrawing funds early can result in penalties, but the potential rate of growth and money saved in taxes can easily make up for this.
• 529 and education savings accounts allow you to save for your children’s higher education with tax-advantaged investment strategies. As these accounts are specific to education, non-qualified withdrawals are subject to penalties.

Build Your Savings with a Trusted Bank

At Hancock Whitney, we know how important it is to achieve your savings goals. Whether you’re saving for retirement, building an emergency fund, or saving for another goal, you need the right financial tools to succeed.

Our bankers can help you determine what type of account best meets your savings goals. To open an account, simply reach out to our bankers today or apply online. Get started saving money for your goals today.