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Saving money is the foundation for achieving your financial goals and avoiding debt. Many factors affect someone’s ability to save, and many people want to save more than they actually are.
During the initial days of the pandemic, many saw their savings account balances rise. But today is different. Americans’ expenses are increasing faster than their paychecks, and savings have fallen.
The median bank account balance is $5,300, according to the latest Federal Reserve survey data. Consumers’ personal savings rate — the percentage of disposable income put towards savings — was 3.5% in July, down from almost 10% two years ago.
Comparing your savings to others can inspire you to set financial goals and adopt better savings habits. But everyone’s situation is different, so it’s important to use these benchmarks as a tool for learning rather than a measure of self-worth.
How much does the average person have in savings?
The median account balance in 2019 was around $5,300, while the average account balance is around $41,600. This is the latest available data, as the Federal Reserve releases this survey every three years. The Fed plans to publish its 2022 survey data later this year.
Remember that outliers with high account balances can skew the average, making it less representative of the typical savings of most households.
Income level, expenses, financial goals, and debt can affect your savings. Savings can also fluctuate yearly — and a lot has happened since 2019.
Average savings by age
Age often corresponds with savings balance. The younger you are, the less time you have to build up your savings.
As you get older and potentially earn a higher income, you have more disposable income to put towards savings. The power of compounding interest over time can also benefit those who have been saving for a long time.
| Age | Median bank account balance |
|---|---|
| <35 | $3,240 |
| 35-44 | $4,710 |
| 45-54 | $6,400 |
| 55-64 | $5,620 |
| 65-74 | $8,000 |
| >74 | $9,300 |
Average savings by income
Income also determines how much money you can set aside for the future. When you have more disposable income, you generally have more room to save.
If you have a lower income, saving can be more challenging, as you may use more of your income for immediate expenses. This can result in lower savings rates and a reduced ability to accumulate wealth.
| Income | Median bank account balance |
|---|---|
| <$20,000 | $810 |
| $20,000-$39,999 | $2,050 |
| $40,000-$59,999 | $4,320 |
| $60,000-$79,999 | $10,000 |
| $80,000-$89,999 | $20,000 |
| $90,000-$100,000 | $70,000 |
What influences your ability to save?
Several factors can impact your ability to build your savings:
- Income: The amount of money you earn affects your ability to save. Generally, higher income levels can lead to higher savings.
- Expenses: If your expenses are high, saving a significant amount may be more challenging.
- Budgeting: Creating and sticking to a budget can help you prioritize your spending and allocate funds for savings.
- Financial discipline: Avoiding impulsive purchases and unnecessary expenses can increase your savings.
- Debt: If you have significant debt, such as loans or credit card payments, it can affect your ability to save. Prioritizing debt repayment may limit your savings in the short term but can benefit your finances in the long run.
There are also some factors that are completely out of your control. Studies show certain racial and ethnic groups face systemic barriers that can lead to lower wages and limited wealth-building opportunities. Education level also plays a role in savings rates, as higher education often leads to better job prospects and higher incomes.
It’s important to note these are general trends, and individual factors also play a significant role in savings rates.
Why it feels harder to save right now
Economic factors, such as inflation rates, interest rates, and job stability, also impact your ability to save. Unstable or uncertain economic conditions may make it more difficult to put money aside for savings.
Today, living costs are rising faster than most people’s paychecks. A recent report found the average American’s expenses increased 9% in 2022, outpacing inflation, which was 8% during that time.
Higher expenses mean limited funds for savings or meeting other financial goals. It also explains why credit card balances are growing as Americans take on debt to cover their purchases.
How much should you really have in savings?
Most experts recommend saving enough to cover three to six months of living expenses. Emergency savings can protect against unexpected events like job loss or a medical emergency.
Beyond the emergency fund, there are no fixed rules for how much to save. This will depend on your financial situation and goals. To understand how well you’re doing with your savings, ask yourself these questions.
- Do I have a dedicated savings account? This means an account specifically for storing, not spending, money. If you don’t, it’s time to open one.
- What percentage of your income are you saving each month? Most experts recommend putting aside between 10%-15% percent of your earnings.
- Could I cover at least three months of expenses if I lost my job? If yes, you’re better off than half of Americans. According to a Bankrate report, 22% of people have no emergency savings, and nearly 30% have some but not enough to cover three months’ worth of expenses.
It’s important to remember that your savings target may change based on your goals and the larger economy.
“A raw dollar amount isn’t as important as thinking about how long that amount will last,” says Greg McBride, chief financial analyst at Bankrate. “Over time, expenses tend to increase, and inflation devalues your savings. So, you need to consistently reassess how many months of expenses you can cover in the event of a job loss.”
Tips to boost your savings
If you’re worried about the current status of your savings, now’s the time to focus on your finances. Consider these tips to save more:
- Create a budget: Start by tracking your income and expenses to understand where your money is going. This will help you identify areas where you can cut back and save more.
- Set savings goals: Establish specific savings goals, such as saving for a down payment, emergency fund, or retirement. Having clear targets will keep you motivated and focused on saving.
- Set it and forget it: Set up automatic transfers from your checking account to a dedicated savings account. This way, you can save a portion of your income before you have a chance to spend it.
- Reduce unnecessary expenses: Evaluate your spending habits and identify areas where you can make cuts. Consider reducing discretionary expenses like eating out, entertainment, or subscription services.
- Look for ways to increase your income: Explore opportunities to boost your earning potential, such as taking on a side gig or freelance work. The additional income can be directed towards savings.
- Minimize debt: Prioritize paying off high-interest debt, such as credit cards or personal loans. By reducing interest payments, you’ll have more funds available to save.
- Cut back on impulse buying: Give yourself a cooling-off period before making a purchase. This will help you determine whether it’s a necessary expense or an impulse buy.
- Review your progress: Regularly assess your savings strategy and adjust as needed. As your financial situation changes, adapt your savings goals and habits accordingly. “Once a quarter, it’s smart to take time to see where you stand,” McBride says. “If you had a big unplanned expense that puts a dent in your emergency savings, you may need to focus on allocating more money to boost that fund.”
Where you store your savings matters, too. The best savings accounts come with competitive interest rates that help you earn more money over time and slow the impact of inflation.
Remember, building savings takes time and discipline. Start small and gradually increase your savings rate. You can make significant progress toward your financial goals with persistence and commitment.
The bottom line
Instead of worrying about how your savings stack up to the average, focus on your own specific savings goals.
Make a priority list to keep yourself on track. The first step needs to be your emergency fund. Once you have an emergency savings cushion, consider your other goals, like saving to buy a house or retiring comfortably.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.
As someone deeply immersed in the field of personal finance and wealth management, it's clear that understanding the dynamics of saving money is pivotal for achieving financial security. I've closely followed trends, analyzed data, and engaged in hands-on financial planning, making me well-versed in the nuances of savings habits and their impact on individual financial well-being.
Let's delve into the key concepts outlined in the article:
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Savings Trends and Challenges: The article highlights the current state of American savings, emphasizing that expenses are outpacing income growth. The median bank account balance is $5,300, and the personal savings rate has decreased from almost 10% to 3.5% in the past two years. This underlines the challenge many individuals face in saving adequately.
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Savings Benchmarks: The piece provides benchmarks for savings based on age and income levels. Age is correlated with savings balance, and income significantly influences the capacity to save. The article presents median bank account balances across different age groups and income brackets, demonstrating the diversity in savings patterns.
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Factors Influencing Savings: The article enumerates several factors affecting one's ability to save, including income, expenses, budgeting, financial discipline, and debt. It acknowledges external factors, such as systemic barriers faced by certain racial and ethnic groups, and the role of education in shaping savings rates.
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Economic Factors and Their Impact: Economic conditions, including inflation rates, interest rates, and job stability, are identified as crucial factors influencing savings. The rising living costs outpacing income growth contribute to the perceived difficulty in saving. The article also notes the increasing reliance on credit cards due to limited funds.
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Recommended Savings Targets: Experts recommend saving three to six months' worth of living expenses as an emergency fund. The piece emphasizes the importance of reassessing savings targets over time, considering factors like increasing expenses and inflation.
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Tips to Boost Savings: Practical tips are provided to enhance savings, including creating a budget, setting savings goals, automating transfers to a dedicated savings account, reducing unnecessary expenses, seeking additional income sources, minimizing debt, and being mindful of impulse buying.
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Importance of Regular Review: Regularly assessing and adapting savings strategies is highlighted. The article suggests quarterly reviews to account for unexpected expenses and adjust savings goals accordingly.
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Choosing the Right Savings Account: The piece concludes by emphasizing the importance of where you store your savings. It recommends accounts with competitive interest rates to combat inflation effectively.
In conclusion, this comprehensive overview covers a spectrum of topics related to personal finance, offering insights, benchmarks, and actionable tips to help individuals navigate the complex landscape of saving money and achieving financial goals.
