How Much Money Should You Keep in a Savings Account? (2024)

A savings account is the perfect place to stash cash for future emergencies and financial goals. But how much money should you keep in your savings account? Are you saving too little or too much?

According to Wells Fargo, 56% of U.S. adults say they worry consistently about money, and 35% have withdrawn from their savings or investments to make ends meet. Not surprisingly, putting the right amount in your savings account will depend on your income, expenses and financial goals. Ideally, you’ll find a sweet spot between having enough money saved for emergencies but not so much that your extra funds are languishing when they might otherwise earn higher interest rates elsewhere.

Here are some guidelines to help you determine the best amount to keep in your savings account.

Vault’s Viewpoint on How Much Money You Should Keep in a Savings Account

• Determining how much money you should park in your savings account starts with making sure you have enough emergency funds to cover three to six months of living expenses. Only 44% of Americans have enough emergency funds to cover three months of expenses, even though most agree that having at least three months of expenses saved would make them feel comfortable
  
• Your income, expenses, debts and lifestyle goals influence how much money you should keep in your savings account.
  
• The 50/30/20 Rule is an excellent budgeting strategy for reaching your savings goals while still meeting your financial obligations. In short, this rule says you should put half of your money toward your needs, 30% towards your wants and 20% toward savings.

Factors To Influence a Savings Account

There’s a sense of security that comes with setting aside money in your savings account for a rainy day. Your desired amount for an emergency fund will be the primary factor dictating how much you put in a savings account. Here’s a look at how your emergency fund and other factors impact your overall balance:

• Emergency fund: According to a recent Federal Reserve study, roughly 37% of all Americans would struggle to cover an unexpected $400 expense. If you don’t already have an emergency fund, it’s wise to start building one as soon as possible.
  A common rule of thumb is to save enough money to cover three to six months of basic living expenses. For example, if your bills–including your mortgage or rent, utilities, groceries and minimum debt payments–total $4,000 per month, you should aim to have at least $12,000 to $18,000 in emergency funds.
  That may seem like a lofty savings goal—especially if there’s little room in your budget left over after paying your bills. But what’s important is to regularly save what you can, no matter how small the amount, to firmly establish a savings habit. You can always increase your deposit amounts later when more money is available.
• Income: Your income is another factor impacting your savings account. As your income grows, you might have more disposable income to increase your deposit amounts. And if your emergency account is sufficiently funded, you might want to direct excess funds to stocks, real estate or other investment opportunities that can provide you with a greater return.
  Additionally, if you have irregular income, increasing your emergency savings can help to tide you over during periods without income.
• Expenses: Just as more income might allow you to make larger savings deposits, higher expenses can reduce your deposit amounts. One recent study reveals that 79% of Americans with student loan debt worry about how those payments will impact their finances. Consider ways to reduce your non-essential spending by dining out less or canceling unused subscriptions to help you reach your savings goals.
• Short-term financial goals: In addition to your bills and other expenses, specific goals may influence your target savings. For example, if you want to save for a car down payment or a vacation abroad in two years, you may want to contribute more to your account to achieve that goal.

The 50/30/20 Rule

According to the Federal Reserve Bank of St. Louis, Americans save roughly 4% of their income on average, but following the 50/30/20 budgeting method could help you boost your savings significantly above this average. With this approach, you would allocate your income as follows:

• 50% of your take-home pay is used for essential expenses such as housing, utilities, groceries and transportation.
• 30% of your income goes toward non-essential spending; think restaurants, entertainment, vacations and the like.
• 20% of your money goes towards your savings.

Accordingly, if you earn $6,000 monthly, you would designate $3,000 (50%) to pay for your essential needs, $1,800 (30%) for discretionary expenses and $1,200 (20%) as your monthly savings target.

The 50/30/20 split is an excellent starting point to help you cover your essential and non-essential expenses while saving for the future. However, it’s not a hard and fast rule. You might want to personalize it to suit your unique financial situation. For example, you could allocate some of your 20% savings to achieve other financial goals, such as knocking out credit card debt. Or if your essential expenses are low, you may devote more money toward your savings.

How Much Should I Save Each Month?

There’s no universal answer to the question of how much you should save each month. As mentioned, one standard answer is to save enough for your emergency savings fund. You might prefer the simplicity of the 50/30/20 amount–especially if you have enough disposable income to contribute 20% to savings. You could also decide to combine these methods or customize them to meet your needs.

The best savings planning should take into account your financial situation and create a workable plan to achieve your short-, mid- and long-term goals. These could include funding your emergency fund (short term), saving for a down payment on a house (mid term) and putting money aside for retirement (long term). Then, break those savings goals down into monthly contribution amounts. For example, if you want to put $20,000 down on a house in three years, you’ll want to divide the goal by 36 months and save approximately $555 per month.

How To Boost Your Monthly Savings

When it comes to hitting your savings goals, the most important step is to establish the habit of saving, even if you can only save $50 per month to start. Once you’re saving regularly, you’ll begin to spot more opportunities to increase your savings.

Here are some ways you can improve your ability to grow your savings faster.

• Negotiate for lower bills. You could lower your expenses by contacting your service providers and asking about discounts, credits and other packages. any utility companies, cell phone providers and insurance companies offer discounts for new customers, military, seniors or other groups. If you don’t qualify for any discounts, consider switching to a new provider if you can take advantage of a new customer promotion, discounts or lower rates.
• Trim unnecessary spending. Review your bank statements or use a budgeting app to track your spending and determine where your money is going. Look for expenses you can cut back or eliminate altogether. This could include canceling little-used streaming services or a gym membership, eating out less or buying generic brands at the grocery store.
• Reduce your debt. If credit card or loan debt is eating away too much of your income, consider employing tactics to lower your monthly payments and ultimately pay off your debt. A debt consolidation loan or 0% introductory APR credit card could help you lower your interest rate, reduce your payment and accelerate your payoff timeline. Refinancing a high-interest auto loan or mortgage may also deliver savings. And, if you have student loans, you may be able to enroll in an income-driven repayment plan to lower your monthly payments.
• Earn more money. One of the most direct ways to boost your savings is to bring home more money. Consider volunteering for overtime at work or requesting a wage increase if you’re due for one. Alternatively, you could switch to a better-paying job or take on an extra part-time job or side hustle.