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Key findings from the GOBankingRates survey of 1,063 Americans revealed that 73% of all Americans currently have an open savings account. A separate question asked how much money they had in their savings account, however, overall 36% of Americans said they kept $100 or less in this account.
Is this amount correct? On average, how much money should you have in your savings? Money expert Dave Ramsey shares his recommendations in a post ramsey solutionProvides insight into how much money you should have in your various savings vehicles. Here’s how much money you should have in your savings account.
How much money should you have in savings?
Ramsey doesn’t have a set dollar amount that everyone should have in their savings account. Rather, the answer to determining this amount depends on your savings goals.
Those who have savings goals know what they are saving for and which goals are their top financial priorities. This answer will vary depending on each person, their lifestyle and what they want to achieve in their life. Some may have a savings goal dedicated to home ownership, while others may aim to save to buy a car.
The post on Ramsey Solutions suggests that a savings goal is not the same as saving for an emergency fund or saving for a sinking fund. An emergency fund is savings dedicated to covering unexpected expenses caused by true emergencies, such as your roof collapsing or losing your job. Meanwhile, savings set aside in a sinking fund are budgeted to cover expenses that may arise in the near future, such as buying a new mattress.
How much money should you have in your emergency fund?
Ramsey’s general recommendation in her Baby Steps has long been to start with $1,000 saved in a starter emergency fund. If you make less than $20,000 per year, Ramsey Solutions recommends adjusting this amount to $500.
Once you have your starter emergency fund fully funded, he recommends paying off all debts other than your mortgage in full. Then, you can move on to Baby Step 3, which aims to save three to six months of expenses in an emergency fund. To calculate this amount, Ramsey recommends adding up your essential, regular expenses each month, such as housing expenses, groceries, utilities, and transportation.
When you have your final figure for one month, multiply it by three (or six) to determine how much you’ll need for your emergency fund.
How much money should you have in your sinking fund?
According to the post on Ramsey Solutions, the amount of money held in your sinking fund is ultimately the amount saved and budgeted to pay for upcoming known expenses.
Let’s use the example that you know you will be purchasing a new mattress relatively soon. You plan to spend $900 on a mattress, so over the next three months you’ll set aside $300 per month in your sinking fund to reach this goal.
How much money should you have in retirement savings?
The answer to this question is less about the exact dollar amount of money that should be in one’s retirement accounts, but rather how much a person should save for retirement.
According to a Ramsey Solutions post, it’s recommended to invest 15% of your household income for retirement. The article gives an example household income of $80,000 annually. Based on this earnings, each year you would need to invest $12,000 towards your retirement savings.
The good news is that there’s no limit to how much money you can (and should!) keep in your retirement savings account. If you have a retirement account like a company 401(k) with a company matching program, Ramsey recommends taking advantage of it and investing anything left over into a Roth IRA.