How much money should I have saved by 30? This is a question that plagues many people in their 20s and 30s. The answer, unfortunately, is not as straightforward as we would like it to be. There are a number of factors to consider when trying to determine how much money you should have saved by the time you reach 30.
One of the most important factors is your income. If you are earning a low income, it will be more difficult to save as much money as someone who is earning a high income. That being said, it is still important to try to save as much money as you can, even if your income is low.
Another factor to consider is your lifestyle. If you have a lifestyle that is expensive, you will need to save more money than someone with a less expensive lifestyle. For example, if you have expensive tastes in clothing and travel, you will need to save more money than someone who is content with wearing jeans and staying home for their vacations.
The last factor to consider is your debt. If you have a lot of debt, you will need to focus on paying that off before you can start saving. This is because the interest on your debt will eat into your savings.
Let’s dive a little deeper into the world of savings and take a look at the importance of saving, how much you should save, and other important financial factors to consider.
The Importance of Having Savings
One of the most important things you can do for your future is to start saving money as soon as possible. The earlier you start saving, the more time your money has to grow. This is because of the power of compound interest. Compound interest is when you earn interest on your savings and then that interest is added to your principal, so that you earn interest on your interest. This can have a significant impact on the growth of your savings over time.
For example, let’s say you start saving $100 per month when you are 25 years old. If you earn an annual return of 8%, by the time you are 65 years old, you will have $913,000. If you start saving $100 per month when you are 35 years old, you will only have $335,000 by the time you are 65. This is because you lost 10 years of compounding interest.
The power of compounding interest is one of the most important reasons to start saving early. It is also one of the most often overlooked aspects of personal finance.
Another reason to start saving early is that it gives you a cushion in case of emergencies. If you have no savings, and you experience an unexpected financial setback, you will be in trouble. However, if you have savings, you will be able to weather the storm and not have to rely on credit cards or loans to get by.
How Much Money Should I have Saved: Age Breakdown
It’s hard to say exactly how much you should have saved by certain ages–everyone lives a different lifestyle, has different income levels, and has different debts. However, we can look at some general guidelines to give you an idea of how much you should have saved by certain ages.
Keep in mind, these are just general estimates. You’re free to put aside as little or as much as you’d like and are able to! Saving is an important financial aspect no matter how much you’re able to set aside and when it comes to your future, every little bit counts!
Saving in Your 20s
In your 20s, you should focus on building an emergency fund. An emergency fund is a savings account that you only use in case of an unexpected financial setback, such as a job loss or a medical emergency. Ideally, your emergency fund should have enough money to cover 3-6 months of expenses.
For example, let’s say you have monthly expenses of $2,000. This means you would need an emergency fund of $6,000-$12,000.
If you don’t have any debt, you can start saving for other goals in addition to your emergency fund. For example, you can start saving for a down payment on a house or for retirement.
Saving in Your 30s
In your 30s, you should continue to focus on building your emergency fund. If you haven’t already, this is the decade when you should try to reach your goal of having 3-6 months of expenses saved.
You should also start thinking about saving for retirement. If you haven’t already started saving for retirement, now is the time to start. The sooner you start saving, the more time your money has to grow.
Saving in Your 40s
By age 40, many people have been quite comfortable in their career for quite some time, have a family started, have purchased a house, and are in a good position to save money. At this point, you should have your emergency fund fully funded with 3-6 months of expenses.
If you haven’t started saving for retirement yet, now is definitely the time to start. If you have been saving for retirement, you should start thinking about increasing your contributions. The closer you get to retirement, the more you should be saving.
You may also want to start thinking about saving for other goals, such as a child’s education or helping them achieve a down payment on a house.
Saving in Your 50s
In your 50s, you should continue to focus on saving for retirement. This is the decade when you should try to max out your retirement accounts.
If you have other savings goals, such as a child’s education or a down payment on a house, you may want to start thinking about how to best use the money you have saved. For example, you may want to start withdrawing money from your retirement accounts to help fund these other goals.
Saving in Retirement
Once you reach retirement, you will no longer need to save for retirement. However, you may still want to save for other goals, such as travel or a grandchild’s education.
This is also the time you’ll start dipping into those hard-earned savings. How much you spend will depend on how early you plan to retire, where you plan to spend your golden years, and what sort of lifestyle you want to maintain.
No matter how much money you have saved, it’s important to make sure you’re spending it wisely. This means creating a budget and sticking to it. It also means being mindful of your taxes. Withdrawing money from certain accounts, such as a 401K, can trigger a hefty tax bill.
The bottom line is that there’s no magic number for how much money you should have saved by age 30, 40, 50, or even retirement. The important thing is to start saving as early as possible and to make sure you’re doing it in a way that makes sense for you.
Understand How the Importance of Benchmarks
When it comes to saving money, there are a few benchmarks you should be aware of.
The first is your emergency fund. As we mentioned earlier, your emergency fund should have enough money to cover 3-6 months of expenses.
The second benchmark is retirement. Ideally, you should aim to have saved at least 10 times your annual salary by the time you retire. So, if you make $50,000 a year, you should aim to have at least $500,000 saved by retirement.
The third benchmark is your debt-to-income ratio. Your debt-to-income ratio is the percentage of your income that goes towards debt payments. For example, if you make $3,000 a month and your monthly debt payments are $600, your debt-to-income ratio would be 20%. Ideally, you should aim to keep your debt-to-income ratio below 36%.
How to Begin Savings
Now that we’ve covered the importance of saving money and some benchmarks you should be aware of, let’s take a look at how to get started saving.
Creating a practical budget
This is a great place to start. When creating your budget, be sure to factor in all of your income and expenses. This includes things like your mortgage or rent payment, car payment, student loan payments, credit card payments, groceries, utilities, and insurance.
Once you have a good understanding of your income and expenses, you can start looking for ways to cut costs and save money. You may want to consider downsizing your home, getting rid of your car, or cutting back on your monthly expenses.
Saving for emergencies
Once you have a budget in place, you can start setting aside money for your emergency fund. As we mentioned earlier, your emergency fund should have enough money to cover 3-6 months of expenses.
You may want to consider setting up a separate savings account for your emergency fund so you’re not tempted to spend the money on other things.
You may also want to consider automating your savings so you don’t have to think about it. Many banks offer automatic transfers from your checking account to your savings account. You can typically set up these transfers to happen on a weekly or monthly basis.
Saving for retirement
If you’re not already doing so, start contributing to a retirement account, such as a 401K or IRA. If your employer offers a 401K match, be sure to take advantage of it.
You may also want to consider increasing your contributions as you get older and closer to retirement. For example, you may want to contribute 10% of your salary to your retirement account in your 30s and 15% in your 40s.
One of the best ways to stay motivated when it comes to saving money is to set goals. When setting goals, be sure to make them specific, realistic, and achievable.
For example, a goal such as “I want to save $800,000 by retirement” is specific, realistic, and achievable.
A goal such as “I want to save $800,000 by next week” is not realistic and probably not achievable.
If you have special circumstances, such as a large amount of debt, you may want to consider seeking professional help. A financial advisor can help you create a plan to pay off your debt and reach your saving goals.
Ways to Increase Your Savings
Now that we’ve covered the basics of saving money, let’s take a look at some ways you can increase your savings.
Earn some extra cash
These days, many young adults have a side hustle or two to help make ends meet. If you have some extra time, consider using it to earn some extra cash. There are a number of ways you can do this, such as freelancing, taking on a part-time job, or starting a small business.
Not only will earning some extra cash help you reach your saving goals faster, but it will also give you some extra cushion in your budget.
Cut your costs
One of the easiest ways to save money is to create a budget, examine your monthly spending, and determine where you could cut back a little.
For example, you may want to consider eating out less often, cutting back on your cable bill, or taking advantage of discounts and coupons. It’s surprising how much of a difference making your coffee at home as opposed to hitting up the trendy cafe every day will make to your wallet.
Make it automatic
As we mentioned earlier, one of the best ways to save money is to make it automatic. You can do this by setting up automatic transfers from your checking account to your savings account or investing in a target-date retirement fund.
Target-date retirement funds are especially helpful because they automatically increase your contribution rate as you get older. This means you don’t have to worry about making adjustments to your savings plan as you age.
The Bottom Line
Saving money is important, but it can be difficult to get started, especially if you’re coming out of school with a hefty debt or you’ve bought your first home during a seller’s market. However, by following the tips and advice above, you can develop a saving strategy that works for you. And once you start seeing your savings account grow, it will all be worth it! The key is to start small and make it automatic. By doing this, you’ll be on your way to reaching your saving goals in no time!