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How Much Money Should You Have in Savings?

Personal Finance
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Happy couple asking themselves: "How much money should you have in savings?"

Some of your biggest expenses each month, such as a mortgage or student loan payments, are likely predictable. Others, like major car repairs or a leaky roof, can creep up when you least expect them. Having funds set aside to help cover those unplanned costs — not to mention future expenses such as retirement — is critical to maintaining your financial health.

So, exactly how much money should you have in savings? And how much money should you save each month? The exact figures will vary based on your lifestyle and income, but you'll want enough set aside to help cover emergency needs as well as longer-term goals. Here's what to know.

The 3 Savings Buckets

When thinking about savings, one of the most important strategies is to break down your reserves into short-, medium- and long-term needs. Depending on your individual situation, these three "buckets" may be different sizes and consist of different assets:

  1. Short-term (emergency) savings. An emergency fund can help you cover unexpected costs, such as a medical bill or the sudden loss of your paycheck. A good rule of thumb is to have enough money to cover between three and six months' worth of basic expenses in a secure, interest-bearing bank account. Western & Southern Life's Emergency Fund Calculator can help you estimate the amount you may need.
  2. Medium-term savings. The second bucket is for your large, pre-planned purchases that may be a few years away. These can include things such as your wedding expenses or the down payment on your first home. In order to track your progress, it may be helpful to keep these funds in an account that's separate from your emergency savings. Alternatively, some banks allow you to create different savings categories in a single account, each with its own label, to more easily track your progress.
  3. Long-term (retirement) savings. While short- and medium-term needs might be your first priorities, your long-term savings — that is, the money you'll need for retirement — will likely represent your largest bucket. Western & Southern Life's Retirement Calculator is an easy way to estimate how much you may need based on a given savings rate. Experts typically suggest allocating around 15% of each paycheck to a tax-advantaged retirement account in order to meet your needs. Additionally, it's generally a good idea to create a mix of investments that align with your age and risk tolerance. Keep in mind, though, that investments cannot guarantee growth or sustainment of principal value; they may lose value over time. Past performance is not an indication of future results.

MORE: When to Start Saving for Retirement

The 50/30/20 Rule

So, how much money should you save each month in order to adequately fund those three buckets? One of the ways to figure that out is by implementing a budgeting concept known as the "50/30/20" rule.

Under this approach, you would allocate 50% of your after-tax pay to "needs" (e.g. housing, food, insurance) and 30% to "wants" (like special experiences or your cable bill). The remaining 20% is earmarked for your various savings needs, whether it's building an emergency fund or investing for your retirement. For some, creating these guide rails can be an effective way to stay on track with their long-term goals.

However, the exact breakdown of those expense groupings may need some tweaking based on your situation. For instance, someone who hasn't built an emergency fund or started saving for retirement until age 35 may want to increase the 20% savings goal in order to make up for lost time. Conversely, someone who started saving early and already has enough set aside for contingencies might be able to dial that number back.

MORE: How to Create a Budget Plan

Boosting Your Savings Rate

Deciding to save more, whether by following the 50/30/20 rule or another strategy, is only one step in the journey. Often, the toughest part is actually following through. But with some determination and discipline, it's entirely possible.

Here are three actions that could help you reach your goals:

  1. Use technology to your advantage. For many of us, having enough money left over for savings each month means going on a budget. Fortunately, that doesn't require painstakingly plugging your transactions into a spreadsheet anymore. Today, there are several great mobile apps that easily sync with your bank and credit accounts to track spending habits for you.
  2. Look for easy expenses to cut. Try reviewing your last few bank statements — you may be surprised to find that you're paying for things that you don't need, like an underused gym membership or unnecessary subscriptions. Once you cut that low-hanging fruit from your budget, you'll free up more cash to put toward your savings target.
  3. Automate your savings. If you're used to spending first and seeing if there's anything left to save afterward, it may be time to reverse your approach. Consider setting up an automated draft that funnels part of your paycheck into a separate savings account (or set up direct deposit to achieve the same outcome). That way, you won't face the temptation to shell out more than you need to for non-essentials. And even if you don't have a 401(k)-style retirement account at work, creating monthly transfers from your bank account into an IRA can be a great way to boost your retirement savings.

When reviewing your short- medium- and long-term savings needs, it can help to have expert guidance. Consider contacting a financial representative who can answer your questions and help to identify an approach best suited to your unique situation.


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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.