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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 or naps, 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?

Great question. The only person who can truly know how much you should have in savings is . . . you. But 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.)

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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.

So, if you’re a newbie in the savings game, the best place to start is with your emergency fund. And if you’re familiar with the 7 Baby Steps, this is Baby Step 1. And if you’re not, here’s a brief 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 3–6 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.

As you can see, saving is a big deal. And depending on your life goals (or which Baby Step you’re on), how much you should have in savings is going to be different. If you’re just starting out with an emergency fund, you need $1,000. But if you’re out of debt and working on a fully funded emergency fund, you’ll need to save 3–6 months of expenses. And that’s going to look different for everyone depending on your lifestyle. So, let’s talk about emergency fund savings . . .

How Much Money Should I Keep in Emergency Savings?

If you’re just getting started, the answer is simple: 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 of them will give you a debit card and checks to use—that way you can get to it when you really need to (keeping it “liquid”).

And don’t worry about how much interest the account earns—your emergency fund is not 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. You know the new couch you’ve been eyeing is $600. If you start setting aside $200 for the next three months, you’ll have enough to replace it. Easy enough, right? Planning for known expenses in advance makes big purchases (like a couch) easier to swing.

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 (or 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 shorter term goals?

We suggest storing your sinking funds in a regular ol’ savings account. As long as there’s no penalty for taking it 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. 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—max out 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.

Budget, Save, and Win With Money

Not to beat a dead horse, but the key to winning with money starts with making a budget. EveryDollar is our favorite budgeting tool and allows you to make your savings a priority. You can track your emergency fund savings and even create sinking funds. We might be biased, but it’s pretty great. Check it out here.

Remember: You’re in control of your budget and making your money behave. Yes, you. If you’re ready to get in the driver’s seat, start by signing up for your free trial of Ramsey+. You’ll get everything you need to take control of your money and master your budget—including the premium version of EveryDollar. Not only that but you’ll be able to track your progress with the BabySteps app to make sure you’re staying on track with your goals—Christmas fund and all. Check it out!

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.