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When it comes to managing your personal finances, one of the most important questions is, “How much money should I keep in my Savings Account?” Maintaining the right balance is essential for financial stability and peace of mind. It helps you keep funds readily available for unforeseen expenses or emergencies. After all, your savings are your ally, not just a stagnant pool.
Rule of 50-30-20
The 50-30-20 budgeting principle is widely accepted and assists in effectively managing your income. It encourages prioritising savings and debt reduction while allowing discretionary spending on wants. Your income is divided into three categories:
1. 50% towards your needs
Allocate half of your income to fulfil essential needs such as rent, utilities, groceries, and transportation. This ensures that you maintain a stable and comfortable lifestyle.
2. 30% towards your wants
Designate 30% of your income for discretionary desires on non-essential items like dining out, entertainment, and luxury purchases. This allows you to enjoy life without affecting your financial security.
3. 20% towards your savings
Reserve 20% of your income for savings, including contributing to retirement funds and building an emergency fund. This ensures you are prepared for unexpected expenses and can work towards your long-term financial goals.
Though this guiding principle effectively manages your finances, don’t forget to adapt it to your reality. For instance, if your loan takes up a higher percentage of your income, you can adjust in the other areas.
Building an emergency fund
Financial stability is truly achieved when you have built an emergency fund. This dedicated money that you save can be your safety net during unexpected circ*mstances like medical emergencies, job loss, or even an appliance failure. Calculating 6 to 12 months’ worth of living expenses is recommended as an appropriate amount for such a fund.
You can start small, even with ₹500 per month, and gradually increase it. For instance, you can start by opening an Axis Bank AMAZE Savings Account, a zero-balance account where you can sign up for just ₹200 per month. The discipline of setting aside money to keep in a Savings Account monthly can shield you from all future financial emergencies.
How much cash should I keep on hand?
It is important to have cash readily available to balance convenience and security. You need to allocate a modest sum to cover daily expenses, emergencies, or situations where online or card transactions are not a feasible option.
Firstly, analyse your typical cash-based needs and maintain the amount on hand that aligns with your lifestyle. Carrying excessive cash can invite security risks, so it’s important to strive for balance. So, how much cash should you keep in your Savings Account or hand? It's a decision that depends on your individual situation and lifestyle.
Keep inflation in mind
Factoring in inflation is crucial when deciding how much money to keep in your Savings Account. In India, the annual inflation rate is typically higher than the interest rates offered by Savings Accounts. Thus, it also makes sense to diversify your savings into other products like fixed deposits, which relatively offer higher returns. When you consider the potential impact of inflation on your financial goals, you can begin adjusting your savings strategy to meet your current spending needs and maintain the value of your funds.
Assess your financial situation
Assessing your financial situation is a pivotal step in knowing how much can you keep in your Savings Account, for emergency funds, or spending. There’s no one-size-fits-all number, as every individual’s financial situation is unique. You need to regularly assess your income, expenses, risk tolerance, and goals to tailor your savings strategy. There are always going to be life changes, job changes, and unexpected events that impact your financial landscape. So keep evaluating and adapting to make informed decisions about optimising your savings for short-term stability and long-term financial goals.
Also Read: Guide to the cash deposit limit in a Savings Account
Conclusion
It is important to understand that saving is a continuous journey, and determining the right Savings Account balance requires a strategic approach. Start small, keep tracking your progress, and make changes as life unfolds. You can build a secure financial future by making one smart saving decision at a time!
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
FAQs
Generally, experts recommend saving three to six months' worth of living expenses in an emergency fund. Ginty, however, suggests that people with children or dependents save more than that. “If you're a single parent, I'd recommend at least six months, but somewhere between six and 12 months.
How much money should stay in your savings account? ›
Many personal finance experts recommend saving at least three to six months' worth of expenses. But this could also vary based on if you experience income fluctuations and other personal factors. If you don't have an emergency fund yet, it can help to start with small savings goals, and work your way up from there.
Is 100k too much in savings account? ›
A $100,000 savings account balance is fine if it aligns with your goals. But it could be a red flag if you don't need that much money there.
How much money should be there in your savings account? ›
For the emergency stash, most financial experts set an ambitious goal of the equivalent of six months of income. A regular savings account is "liquid." That is, your money is safe and you can access it at any time without a penalty and with no risk of a loss of your principal.
Is $20,000 a good amount of savings? ›
Depositing $20,000 in a savings account is wise when you have a plan for the money, such as a near-term expense or rainy day fund. For long-term goals, like retirement, you might be better served by opening a brokerage account or certificate of deposit (CD).
How much is too much cash in savings? ›
How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)
Is saving $1000 a month good? ›
Saving $1,000 per month can be a good sign, as it means you're setting aside money for emergencies and long-term goals. However, if you're ignoring high-interest debt to meet your savings goals, you might want to switch gears and focus on paying off debt first.
At what age should you have 100K saved? ›
“By the time you're 40, you should have three times your annual salary saved. Based on the median income for Americans in this age bracket, $100K between 25-30 years old is pretty good; but you would need to increase your savings to reach your age 40 benchmark.”
How many Americans have 200k in savings? ›
9% of Americans have between $100,000 and $200,000 saved, and 4% have between $200,000 and $350,000 saved.
How many people have $100,000 in savings? ›
14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
You should keep enough money in checking to cover your monthly bills with some wiggle room – about a month of expenses. That's much lower than the three to six months' worth of expenses you should keep in your savings account for emergencies. Read: Best Checking Accounts.
How much does the average person keep in savings? ›
The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.
Is it safe to keep a large amount in a savings account? ›
Quite the contrary, having extra money in a savings account can provide a sense of financial security and stability. Savings accounts are low-risk and easily accessible, making them an attractive option for individuals who want to keep their money safe while earning some interest.
What percent of Americans have 20k in savings? ›
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
Is 40k in savings good? ›
While $40,000 is a good start on the road to building a nest egg, you probably want to retire with a lot more money than that. But it may be more than possible if you commit to saving and investing in a brokerage account consistently for the remainder of your career.
Is $25,000 enough in savings? ›
When it's prudent to keep $25,000 in your savings account. Two words: emergency savings. If $25,000 equals three to six months of emergency expenses, a savings account is one of the best places for it. It doesn't matter if the stock market is bullish or there are opportunities in real estate to grow it 10-fold.
What is a good amount of money to have in savings? ›
Standard financial advice says you should aim for three to six months' worth of essential expenses, kept in some combination of high-yield savings accounts and other liquid accounts.
How much money does the average person keep in their savings account? ›
According to the Federal Reserve's 2022 Survey of Consumer Finances (SCF), Americans' average (mean) household savings account balance is $62,410. However, the median savings account balance of $8,000 might be a more accurate representation.
Should you keep a lot of money in your savings account? ›
Generally, experts recommend saving three to six months' worth of living expenses in an emergency fund. Ginty, however, suggests that people with children or dependents save more than that. “If you're a single parent, I'd recommend at least six months, but somewhere between six and 12 months.
Is $5,000 enough for savings? ›
The FDIC recommends keeping at least six months' expenses in an emergency fund. While $5,000 in savings is nothing to scoff at, it probably isn't enough for most people to meet that criteria.
