How Much Should I Have in Personal Savings?
Saving money is one of the most important habits you can build for long-term financial stability. But one question that often comes up is: how much should you actually have in personal savings? The answer depends on a few factors—your income, expenses, goals, and where you are in life. Still, there are general guidelines you can follow to assess your financial health and develop a savings strategy that works for you.
This blog breaks down those guidelines, explores why personal savings matter, and helps you determine realistic savings targets for different situations.
Why Personal Savings Matter
Personal savings aren’t just about setting aside extra cash. They serve as a financial cushion in emergencies, a tool for reaching personal goals, and a safety net for times of transition or uncertainty.
Savings reduce reliance on credit cards or loans, helping you avoid interest payments and debt. They also provide peace of mind, making it easier to make big decisions like changing jobs, moving, or making a major purchase.
Whether you’re saving for a rainy day or planning something specific like a home down payment or a family vacation, your personal savings can offer the freedom to move forward without financial stress.
The 3-Month to 6-Month Rule
Most financial experts recommend having between three and six months’ worth of essential living expenses saved. This includes rent or mortgage, utilities, groceries, insurance, transportation, and other non-negotiable costs.
For example, if your monthly expenses are $3,000, you should aim to have between $9,000 and $18,000 in an emergency fund. This range is designed to cover you in case of job loss, medical emergencies, or sudden expenses that your monthly budget can’t absorb.
This target is just a baseline. If your income is variable or your job isn’t very secure, leaning toward the higher end of the range (or even saving more than six months’ worth) may be a safer move.
How to Calculate Your Personal Savings Goal
Start by breaking down your monthly essentials:
- Housing (rent/mortgage, utilities)
- Transportation (car payment, gas, insurance)
- Food and groceries
- Health insurance or out-of-pocket medical costs
- Loan payments
- Childcare or school costs
Once you’ve totaled your necessary monthly expenses, multiply that number by the number of months you want to cover. That’s your minimum target for an emergency savings fund.
If you don’t have much saved yet, don’t feel discouraged. Many people start small and build their savings over time. Even setting aside $50 or $100 per paycheck makes a difference.
Short-Term vs. Long-Term Savings
It’s helpful to break your savings into different categories depending on their purpose and how quickly you might need access to them.
Short-Term Savings
This includes your emergency fund and any savings for expenses in the next 12 months. Examples include:
- Holiday gifts
- Car repairs
- Insurance premiums
- Short vacations
- Home maintenance
These funds should be liquid, meaning easy to access without penalties or delays. A traditional savings account or high-yield account is typically best for this purpose.
Long-Term Savings
This refers to savings for bigger, future goals. It could include:
- Buying a home
- Starting a business
- Retirement (beyond what’s in a 401(k) or IRA)
- Education costs
- Major renovations
These funds can often be held in accounts that offer better interest or returns over time. Depending on your comfort level and timeline, you might consider certificates of deposit (CDs), money market accounts, or other lower-risk investments.
Milestone-Based Savings Targets
Beyond the general emergency savings rule, there are other benchmarks financial planners sometimes recommend:
- By age 30: Aim to have the equivalent of your annual salary saved.
- By age 40: Target 2x your annual salary.
- By age 50: Try to reach 4x your annual salary.
- By retirement age: The goal is often 8–10x your annual income.
These guidelines are flexible. Everyone’s journey looks different depending on when they started saving, their cost of living, and their income level. Use these benchmarks as a general guide rather than a hard rule.
When to Reevaluate Your Savings Strategy
As your life circumstances change, your savings goals should evolve, too. Some situations that may require a shift in your strategy include:
- A new job or change in income
- Moving to a more expensive area
- Getting married or having children
- Taking on new financial responsibilities (such as caring for a parent)
- Paying off major debts
You should also revisit your savings plan if you’ve reached your emergency savings goal and want to begin saving for other long-term needs. If your money is sitting in a low-interest account and not earmarked for short-term use, it might be time to explore other options.
This is where it helps to open a savings account specifically for longer-term goals or higher-yield opportunities.
Where to Keep Your Personal Savings
Not all savings accounts are created equal. While many people keep their emergency fund in a standard savings account connected to their checking, it might not be the most efficient option long term.
Here are some common options to consider:
- High-Yield Savings Accounts: These offer better interest rates than traditional accounts, which can help your money grow faster while remaining accessible.
- Certificates of Deposit (CDs): CDs often provide higher returns but require you to leave your money untouched for a set period.
- Money Market Accounts: These may offer better interest rates than savings accounts and come with limited check-writing capabilities.
For everyday emergency funds and short-term goals, traditional savings accounts work fine. But if you’re trying to stretch your dollars further, consider where you’re keeping that money—and what kind of return it’s earning.
If you’re starting from scratch, your first step should be to open a savings account that aligns with your goals, especially one that offers a good rate and low fees.
How to Get Started with Saving
Building a savings habit starts with small, consistent steps. Here are a few ways to get started:
- Automate Your Savings: Set up automatic transfers from your checking to your savings account on payday.
- Track Your Spending: Identify areas where you can cut back and redirect that money into savings.
- Set Clear Goals: Give your savings purpose by naming accounts or setting specific targets.
- Use Windfalls Wisely: Tax refunds, bonuses, or gift money can go directly into savings instead of being spent.
- Reassess Regularly: Check in on your progress and adjust your plan as your financial situation changes.
If you don’t already have one, now is a great time to open a savings account that suits your short- and long-term needs.
Final Thoughts
There’s no perfect number when it comes to personal savings—but having a plan and building toward specific milestones can give you peace of mind and financial confidence.
The key is to start where you are. Small steps add up. Whether you’re working toward three months of emergency coverage or trying to save for a home or a large purchase, what matters most is consistency. The sooner you begin, the more flexibility and security you’ll have when it matters most.
