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What is a good amount for savings?

Published in Emergency Savings 2 mins read

A good amount to have in savings is generally three to six months' worth of essential expenses.

This amount acts as an emergency fund to cover unexpected costs like job loss or medical bills. It gives you a financial safety net, so you don't have to go into debt when the unexpected happens.

Determining Your Savings Goal

Here's a breakdown of how to determine your ideal savings amount:

  1. Calculate Your Monthly Essential Expenses: List all your must-pay expenses each month. This should include:

    • Rent/Mortgage
    • Utilities (electricity, water, gas)
    • Groceries
    • Transportation (car payments, insurance, gas, public transit)
    • Healthcare costs (insurance premiums, prescriptions)
    • Debt payments (minimum payments on loans and credit cards)

  2. Total Monthly Expenses: Add up all the expenses from step 1.

  3. Calculate Your Savings Range: Multiply your total monthly expenses by 3 to find the low end of your savings goal, and by 6 to find the high end.

    • Example: If your monthly essential expenses total \$2,500, then:
      • Low end (3 months): \$2,500 x 3 = \$7,500
      • High end (6 months): \$2,500 x 6 = \$15,000

Therefore, a good savings goal for someone with \$2,500 in monthly essential expenses would be between \$7,500 and \$15,000.

Where to Keep Your Savings

  • High-Yield Savings Accounts (HYSAs): These offer better interest rates than traditional savings accounts, allowing your money to grow faster.
  • Other Liquid Accounts: Ensure easy access to your funds when needed.

Having a solid emergency fund ensures financial security and peace of mind. According to Bankrate, standard financial advice recommends aiming for three to six months' worth of essential expenses in accessible accounts.

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