If you’re looking at your savings account right now and wincing, you’re not alone. Savings have dropped by 15% since the pandemic, and people are still recovering from this hit.
Wanna build your savings back up? We got you. This article is for you.
So. How much does the average American have in savings?
The average American has $5,300 savings in checking and savings accounts, according to the federal reserve’s most recent Survey of Consumer Finances.
This amount varies a lot from person to person depending on factors like your age group and whether you have children or not.
💵 For those under 34, average savings are $1,350 for singles with children and $4,727 for couples without children
💵 For those aged 45 to 54, couples with children have the most savings at $15,589
💵 For ages 65+, couples without children have the most savings at $15,297
How much should you have in savings?
There are some basic formulas for working out how much you want to be saving that you can mold to your own unique lifestyle. Like a good bra.
Also like a good bra, there isn’t a one size fits all rule for saving. As in, we’re not going to tell you that everyone needs to be saving $700 a month.
Say hello to the 20/30/50 ratio. What’s great about the 20/30/50 rule is that it works on the proportions of your income, however much that is for you. (If this already sounds unrealistic for you, dw - we talk about the alternatives to saving 20% a bit further down)
This is how it works:
📊 50% of your monthly income should go to your essentials, like rent and groceries. This is really basic ‘I need this to live’ stuff, like shelter, food, and health insurance (so Netflix doesn’t come into this category, sorry bruh)
📊30% of your income is for things you want, like Netflix, gym memberships, clothes, and beauty products.
📊 and that leaves 20% of your income to be put aside for savings.
Let’s say you earn $2,668 a month.
That’s $1,334 for essentials.
$806 for wants.
$537 for savings.
Obviously, this model isn’t for everyone. If you live somewhere with extremely high rent rates, or if your source of income is irregular, then maybe just see it as 20/80. This leaves room for if ‘essentials’ are a bit higher each month.
Whatever the case, you should be aiming to save around 20% of your income each month.
Money hacks for reaching that 20% goal
Saving money into a Traditional IRA is a great way to hit the 20% goal because it’s tax-advantaged. As in, the money goes in before it’s been taxed. So your take-home pay will be a little lower, but not as low as it would have been if you set the money aside after paying tax.
Some companies will even match what you save up to a certain amount in a 401k. So if you save 5% of your income and your company matches that ~boom~ you’re halfway there already.
We talk more about this in our Millionaire Retirement Plan, where we also look at the alternatives for meeting this 20% goal without an IRA or 401k, through personal savings alone. Check it out 🤘
✨ Need of a quick spot? Cleo can offer up to $100 with no interest, no credit check or employment verification required. Download the app to find out how much you’re eligible for, or check out how to get a Cleo cash advance✨**
What to do if 20% is too much
If 20% sounds too much, and you’re literally living paycheck to paycheck - dw, you’re in the same boat as 64% of Americans.
Sit down and look at what you spent last month. If you haven’t already, calculate your regular monthly ins and outs. Work out what’s reasonable to you.
Any amount, however small, is going to be helpful. Literally, $50 dollars a month is better than nothing.
💵 Then, when you feel more in control, you can slowly increase this over time. We recently spoke to a 25-year-old on $34.5k who’s able to save $200 a month and gave him some advice on how to increase this.
You’ll also defo want to avoid overdraft fees. Consider opting out of your overdraft protection (which is str8 up bullshit anyways), and having your bank decline transactions when you run out of money. This might make you wince, but it’s better than entering a spiral of overdraft expenses 😥
Finally, just know that if you’re sick of scraping by to survive, it’s not a personal failure of yours but a reflection of our BS financial system. You’re doing the best you can. And we should eat the rich. JK. Or maybe not.
Why is saving money important?
It’s a lot easier to save towards something specific than just saving for the sake of it. You need a purpose for your money that will actually motivate you to put it aside, rather than spend it.
The first thing you should be aiming for is an emergency fund. Look, we don’t want to remind you of it, but that whole global event that rhymes with shmandemic really showed us how important savings are to our sense of security.
🚨 You should aim for at least three to six months' worth of savings for an emergency fund 🚨
Other than that, savings goals differ depending on your age and circumstances.
Debts obvi come into this, which differ depending on whatever beautiful season of life you’re in. It’s up to you whether you factor debt payments into your ‘essential’ spending, or as part of the 20%, you set aside for savings.
If you’re really trying to kick your debt, some people prefer a 70/20/10 budgeting ratio. Here, 20% goes to savings and 10% goes towards paying off debts.
If you are young and relatively debt-free, you ain’t off the hook, sorry. Now is the time to get into a rock-solid saving habit. Future you will thank you for it.
To actually start saving, you need a few little tools: a budget, and a direct transfer
Okay, so now you have all the savings knowledge. It’s time to actually put it into practice.
Luckily, we have a free money app that’s pretty helpful for this kind of thing:
💙 Cleo can help you by automatically sorting your spending into categories. This includes essential and non-essential spending. You can also use this feature to audit any unnecessary subscriptions that are draining your outgoings.
💙 You can set saving goals and spending limits, and Cleo will show you when you’re approaching this limit.
💙 With Cleo, you can set up a direct deposit to transfer money into your savings account.
💙 Finally, because Cleo’s not a regular money app, she’s a fun money app, she can roast you for your uncontrolled Amazon spending habits (if you want her to), and hype you for all the good you’re doing. You deserve it <3
Want more savings hacks? Check out how to save money fast on a low income.
Now go forth and get saving. You’ve got this 🤘
Enjoy this post? Def give it a share or send it along to a friend. You never know, it could make a big difference. And of course, if you want to try the best money app in the world for free, just hit this link right here.
Big love. Cleo 💙
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