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How Much Should I Have in Savings?

The greatest minds of the world have discovered how to get a man on the moon, how electricity works and, more recently, how to get cars to drive themselves. But those of us who are still trying to figure out how to get two kids to nap at the same time are pondering the simpler things in life: How much should I have in savings?

While we aren’t experts in rocket science (and the world of nap schedules still makes us scratch our heads), we are experts in money. But before we dive in, let’s talk about the key to success when it comes to saving: budgeting. In order to know how much you should have in savings, you’ve got to start with a budget—a zero-based budget that is. That just means you get to have some fun telling your wallet full of George Washingtons where to go—especially a savings account.

How Much Should I Have in Savings?

The only person who can truly know how much you should have in savings is . . . you. You know your family (maybe a little too much sometimes) and your financial situation better than anyone. But before you can know how much you should have in savings, you have to figure out what you’re saving for first. To do that, you need to be intentional and have a plan with a goal—a savings goal.

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Calculate the growth of your savings account with this free tool.

So, the next question is, what should your savings goal be? Well, it depends on your lifestyle and what you want to achieve in life. But no matter what your savings goal is, it should always start with that zero-based budget.

When you’re rocking a budget, you can use it to plan for the stuff of life. What happens if an emergency comes up? Do you have enough money to cover a blown tire or (heaven forbid) a trip to the ER? That, friends, is what you call an emergency fund (more on that later).

Next question: what expenses do you have coming up in the next few months? Are you planning a big trip soon? You can start budgeting and saving for those things in something we like to call a sinking fund (more on that later too).

How Much Money Should I Keep in Emergency Savings?

According to our research, 45% of Americans have less than $1,000 saved for an emergency. Less than $1,000! This is no time to be “average” or “normal.” Normal is broke. With a little discipline and some intentionality, you can be weird and abnormal with plenty of savings!

So, if you’re a newbie in the savings game, the best place to start is with your emergency fund. If you’re familiar with the 7 Baby Steps, this is Baby Step 1. And if you’re not, here’s a quick overview:

Baby Step 1: Save $1,000 for a starter emergency fund.
Baby Step 2: Pay off all debt (except the house) using the debt snowball.
Baby Step 3: Save three to six months of expenses in a fully funded emergency fund.
Baby Step 4: Invest 15% of your household income in retirement.
Baby Step 5: Save for your children’s college fund.
Baby Step 6: Pay off your home early.
Baby Step 7: Build wealth and give.

If you’re just getting started, you only need $1,000 in your starter emergency fund before you move on to Baby Step 2 (paying off all debt except the house). The only exception here is if your income is under $20,000 a year. If that’s the case, all you need is $500 in your emergency fund.

Once you’re debt-free and ready to start Baby Step 3, you’ll focus on saving your fully funded emergency fund. This is where you bring out the big guns. Your goal here is to save up enough money to cover three to six months’ worth of expenses.

Now remember: this number is going to look different for everyone. The easiest way to figure it out is to ask yourself this: If I was out of work, how much money would it take to get me through three to six months? Think of things like the necessary, regular expenses you have (food, housing, utilities, transportation, etc.) and not the $400 you’d like to spend on a free-for-all shopping spree—that doesn’t count.

Where Do I Store My Emergency Fund?

Listen closely: you don’t want to keep your emergency fund in your savings account. However, you want to be able to access your money quickly and easily—but not too easily.

The best thing to do is put that emergency fund in a money market account. Most money market accounts will give you a debit card and checks to use—that way, you can get to your money when you really need to (keeping it “liquid”).

And don’t worry about how much interest the account earns—your emergency fund isn’t an investment. That money isn’t there to make you money. It’s there to act as a safety net when an emergency actually hits.

How Much Money Should I Keep in Sinking Funds?

A sinking fund is where you save a little bit of money every single month for something specific. So, anytime you have a known expense coming up, you can use a sinking fund to save up for it over time.

Here’s an example: Your couch is far past its prime, and it’s time to replace it. (As Indiana Jones said, “It’s not the years, honey. It’s the mileage.”) The new couch you’ve been eyeing is $600, so if you start setting aside $200 for the next three months, you’ll have enough to replace your old one. Easy enough, right? Planning for known expenses in advance makes big purchases (like a couch) easier to swing.

And remember—a sinking fund isn’t the same thing as your emergency fund. The emergency fund is there as a buffer between you and the unexpected, and a sinking fund is how you save up for the expected.

Where Should I Store My Sinking Funds?

Unlike an emergency fund, you should be able to access your money in the sinking fund pretty easily. Let’s say you’re saving up for a new-to-you car. You don’t want to put that money in a place where it’ll be hard to get to when you need it.

So, where the heck are you supposed to save for short-term goals?

We suggest storing your sinking funds in a regular ole savings account. As long as there’s no penalty for taking the money out (or a minimum balance you have to keep), you’re good to go.

Another option is to keep that money in your checking account and track it in your budget with EveryDollar. If you keep an eye on it (and don’t go on a crazy spending spree), your budget will tell you exactly how much you have set aside in your checking account.

How Much Money Should I Have in Retirement Savings?

Let’s talk about what you’re really asking here: how much should I be saving for retirement? Good question! We recommend investing 15% of your household income (after you complete Baby Steps 1–3, that is). What does that look like in real life? If your household income is $80,000, then you need to be putting $12,000 toward your retirement savings every year in good growth stock mutual funds.

So, how do you do that? First things first—start with your company 401(k), and make sure you’re taking advantage of the full company match! That’s free money right there. Don’t leave even a penny of it on the table. And you can invest whatever’s left into Roth IRAs.

How much should you keep in your retirement savings, you ask? The sky’s the limit on this one. Fill ’er up! The more you save now, the more money you’re going to have when you hit retirement because of a lovely little thing called compound interest.

Compound interest is your best friend. That means the longer you have money in your retirement accounts, the more money you’ll actually have. In the case of retirement savings, time is truly on your side.

Not sure how much money you need to fund your dream retirement? Check out our handy investment calculator to see how much you can expect to have in retirement based on how much you invest and how much time you have to invest.

Budget, Save, and Win With Money

As you can see, saving is a big deal. It lets you take control of your money, and it gives you and your family the peace of mind and the resources you need to deal with the unexpected parts of life.

Listen: we know we’ve already said this, but the key to winning with money starts with making a budget. EveryDollar is our favorite budgeting tool—and you can find the premium version inside a Ramsey+ membership. You can track your emergency fund savings and even create sinking funds. Plus, you'll get access to our best online money courses so you can learn how to take control of every single dollar and make your money work for you. For real. Try it today in a Ramsey+ free trial.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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