How Much Money Should I Be Saving?

A woman sitting at a table with papers, using her laptop t o work on finances at home.

By now, you've probably ditched the piggy bank you cherished as a child. But being an adult doesn't do away with the need to save your nickels, dimes and dollars. No matter where you stash it, money set aside can help you prepare for retirement, take a vacation or cover an emergency expense.

In recent years, Americans have saved roughly 7% to 8% of their income. However, that percentage might be either too much or too little depending on your circumstances—what's right for you depends on your age, financial goals and other factors. Some experts recommend carving out at least 20% of your income for savings. Simply put, there's no strict rule regarding how much money you should be saving.

Follow along as we explore how to save money and what your savings target should be.

Americans Are Saving More During the COVID-19 Pandemic

In the months since the coronavirus pandemic began, Americans have stepped up their savings. The U.S. personal saving rate, which measures the share of disposable income that people save after covering necessities, stood at 12.8% in March 2020, then soared to a record-high 33.5% in April before dipping to 19% in June. By comparison, the saving rate never exceeded 8.6% in 2019. Before this year, the highest U.S. saving rate was 17.3% in May 1975, when the U.S. was emerging from a yearslong recession.

What has driven up the saving rate this year? Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis, attributes this spike to stay-at-home orders and business closures curbing spending among those who are still employed.

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Tips for Spending Less and Saving More Money

No matter whether there's a recession or a pandemic, it's important to adopt positive spending habits that can help you save money. Here's a look at five of those habits.

  1. Slim down your credit card spending. Paying off your credit card bills in full each month will not only steer you clear of interest charges, it'll help you avoid building up a debt you'll have a hard time repaying. It's often smart to make day-to-day purchases with a credit card if your rewards earnings help you save money, but carrying a balance month to month will work against your savings goals.
  2. Consolidate your credit card debt. If you do end up carrying a balance, consolidating your credit card debt can help you avoid racking up high interest charges. Those charges can be especially painful if the average APR (annual percentage rate) on your credit cards is 19.99%, for example. Over time, you'd pay less to borrow that money by shifting it to a lower-interest personal loan or a credit card with a promotional 0% APR.
  3. Fix food at home. Spending more time cooking at home and less time eating at restaurants or ordering delivered meals can reduce your food expenses. A TD Ameritrade survey conducted in April and May 2020 showed the typical American had pocketed an extra $245 by eating at home amid the pandemic instead of eating out.
  4. Think twice about big purchases. Before you pull out your wallet to buy a new motorcycle or patio furniture, hit pause and wait a day or two. Can you do without this purchase altogether? Would it make more financial sense to buy a used motorcycle rather than a new one? Can you wait to buy that furniture until the price goes down? Weigh these questions before you commit cash or credit to a major purchase.
  5. Make it harder to shop online. These days, retailers allow us to buy things with just one click. In the first quarter of 2020, Americans spent $160.3 billion with e-commerce retailers—roughly $485 for every man, woman and child in the U.S. To pare down your online impulse purchases, try this one simple step: Erase your automatically stored credit card data. Doing so will force you to type in your credit card number and shipping information each time you place an online order, which may cause you to rethink your purchase.

Consider the 50/30/20 Plan

When you're looking at how much money you should be saving, you might want to look at the 50/30/20 budget plan. What does this plan involve? Under this type of budget, you allocate:

  • 50% of your income toward necessities such as rent or mortgage payments, food, utility bills and minimum debt payments.
  • Up to 30% of your income toward discretionary spending. This category might include entertainment, shopping splurges and other purchases. Bottom line: Discretionary dollars aren't earmarked for everyday expenses.
  • At least 20% of your income toward savings and debt payments. This includes savings for retirement, emergencies and various financial goals, such as buying a home. In addition, this category applies to debt payments that exceed the minimum amount due each month.

The 50/30/20 rule isn't a strict rule; it's merely a suggestion. If you want to put more toward savings and less toward discretionary spending, it could benefit you in the long run. It's up to you to decide what works best for your financial situation.

How Much You Should Have Saved by Now

Another way to approach how much money you should save is to consider your age bracket. If you're eyeing retirement savings, here are rough estimates of how much you should be putting into retirement savings by decade, based on the average annual U.S. wage of $53,490 in May 2019:

  • 1x your salary by age 30, or $53,490
  • 3x your salary by age 40, or $160,470
  • 6x your salary by age 50, or $320,940
  • 8x your salary by age 60, or $427,920

In addition to your retirement savings, it's important to sock away some money you can easily pull out to cover expenses. To give you a sense of how much Americans in your age group have put aside in savings, here are the results of a 2020 study by wealth management company Personal Capital offering a breakdown of median non-retirement savings balances:

  • 20s: $3,740
  • 30s: $8,524
  • 40s: $10,611
  • 50s: $11,228
  • 60s: $15,193

These numbers can serve as a guide for your savings objectives, but they shouldn't dictate how much money you put away to meet those objectives. Your savings targets should match your financial position.

How Much Should You Have in Your Emergency Fund?

Regardless of your age, your emergency fund should be an important part of your savings plan. This pool of money—deposited in a high-interest savings account or money market account, for instance—is strictly for emergencies like a job loss, unexpected car repairs or surprise medical bills. This fund can help you avoid running up your credit card balances, dipping into retirement savings, taking out a loan or borrowing money from friends and relatives.

What's the proper amount of money to keep in an emergency fund? Experts usually recommend your emergency fund hold enough money to cover at least three to six months' worth of everyday living expenses. However, the amount in your emergency fund ultimately depends on your own financial picture.

Monitor Your Credit to Stay on Top of Your Debt

Monitoring your credit and staying aware of your debt levels can help you improve your overall financial health and, in turn, better meet your savings goals. What else can credit monitoring do for you? It can alert you to identity fraud before it gets out of hand and can spot changes to your credit reports that could be pulling down your credit scores.

With a higher credit score, you might qualify for lower interest rates on credit cards and loans, as well as lower insurance premiums, which could save you hundreds or thousands of dollars.

The Bottom Line

If you're working, it's essential to save a portion of your income—whether it's 5% or 30%—to help guarantee a secure, bright financial future. When it comes to your money, setting some aside today can save you from headache and heartache if times get tough.