The answer to how much cash you should have set aside by a certain age is always “as much as you can!” The more you can save, the better your future will be. Unfortunately, that’s not always possible. Remember, you are always trying to balance spending, saving, paying down debt, and having capital for an emergency— with the bit of cash available.
Age has a significant impact on how much cash you should be setting aside at any time. As you age, your commitments accumulate, and you carry more financial obligations. So how much should you be saving? Here are some guidelines for your savings goals at different ages:
Your Age: 20-30
If you’re in your 20s and still working on building your career and saving for things like a wedding and first home, you should have an equal amount of your annual wages saved in an emergency account. Your emergency funds should be able to cover at least three months of expenses (or expenses while you’re unemployed).
Your Age: 30-40
Your income gets higher than it was in your 20s, so you can afford to save more money each month. The emergency fund should cover you for at least six months of expenses (or expenses while unemployed). By 40, you should have at least three times your salary saved.
Your Age: 40-50
At this point, the emergency fund should cover at least six months of expenses (or expenses while you’re unemployed). Your plan should be to have five times your gross income saved. You should aim at putting 10% of your gross income toward retirement savings. This can include 401(k) contributions and any other retirement plans you may have access to through your employer.
Your Age: 50-60
At this point, the emergency account should cover at least 12 months’ worth of expenses (or expenses while unemployed). You should strive to have 7 times your earnings in savings —and if you don’t, it’s time to start saving! The savings will go a long way in putting your kids through college or setting up a massive business project.
Your Age: Above 60
Once you reach 60, you should be capable of living comfortably on 80% of your pre-retirement earnings for the remainder of your life— not including any Social Security benefits.
If this sounds discouraging, don’t worry too much about it! One thing that’s critical to remember is that saving is a habit like any other. The earlier and more consistently you start, the better!