Breaking Down Your Savings Strategy: Determining How Much Should I Put in Savings

A recent GOBankingRates survey of 1,063 Americans revealed that while 73% maintain active savings accounts, 36% keep $100 or less in them. This raises an important question: how much should i put in savings to actually build financial security?

The answer isn’t one-size-fits-all. Your ideal savings amount depends on your specific financial objectives and life circumstances. Financial guidance from Ramsey Solutions breaks down savings into three distinct categories, each serving different purposes in your overall financial plan.

Clarifying Your Savings Goals

Before determining how much you need to save, it’s crucial to distinguish between different types of savings vehicles. A general savings goal might be earmarked for major purchases like a home or vehicle. This differs fundamentally from an emergency fund, which covers unexpected events such as job loss or home repairs, and sinking funds, which are designated for predictable upcoming expenses.

Understanding this distinction helps you answer how much should i put in savings more accurately.

The Emergency Fund Blueprint

Your starter emergency fund should contain $1,000 according to Ramsey Solutions guidance. If your annual income falls below $20,000, consider reducing this to $500.

Once this baseline is established, the next phase involves building a comprehensive emergency fund covering three to six months of essential expenses. Calculate this by totaling your monthly necessities—rent or mortgage, food, utilities, and transportation—then multiply by three or six depending on your risk tolerance and job stability. For someone with $2,000 in monthly expenses, this means accumulating between $6,000 and $12,000.

Sinking Funds: Planning for Known Expenses

Sinking funds represent money systematically set aside for anticipated costs. If you’re planning to purchase a $900 mattress within three months, you’d allocate $300 monthly to this dedicated fund. This approach prevents financial strain when larger expenses arrive.

Retirement Savings: The Long-Term Picture

Retirement savings operate under different principles. Rather than targeting a specific dollar amount, financial experts recommend investing 15% of your household income annually. A household earning $80,000 yearly should direct $12,000 toward retirement accounts.

The advantage of retirement savings is that no upper limit applies. If your employer offers a 401(k) with matching contributions, maximize that benefit first. Then channel additional funds into Roth IRAs or other tax-advantaged accounts to optimize your long-term wealth building.

Finding Your Personal Savings Target

Your answer to how much should i put in savings ultimately reflects your unique circumstances, lifestyle preferences, and financial priorities. Begin with a starter emergency fund, establish clear sinking fund targets for upcoming expenses, and commit 15% of income to retirement. This tiered approach creates a comprehensive financial safety net while maintaining progress toward long-term goals.