General Question

JHUstudent's avatar

How much money should I have in the bank?

Asked by JHUstudent (692points) May 27th, 2014

I am currently in my mid-twenties. About as mid-twenties as it comes. One thing I’ve always been kind of curious about is how much does the average 25–27 year old have in the bank? I’m talking just Checking and Savings combined.

Obviously, this comes with some context. I’m saying your average mid-twenties, fully-employed, living on their own guy, etc. While still going out on the weekends and all that. While doing an okay job of saving.

Is there a number I should be shooting for? A number that if I get to, I should hit the panic button?

Just looking for some advice. This question just isn’t something I feel comfortable asking my close peers.

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35 Answers

Seek's avatar

If you have a reasonably safe job and any savings at all, fall on your knees and thank the Flying Spaghetti Monster.

janbb's avatar

The standard line is that you should have at least enough in your savings account to cover three months of expenses if you lost your job. I don’t think six months expenses is a bad idea in this economy. It would be beneficial for you to start putting some away for the future (retirement) as well, i.e., long term investments. The best way to save is to have it directly deposited into a savings account from your paycheck.

dappled_leaves's avatar

I agree with @janbb; typically 3 months’ living expenses is the minimum safety cushion you should try to have. But ideally, you should always be putting away at least a little of your income, no matter how small – investing this money reduces the tax you’ll have to pay, and it will multiply over time. Again… no matter how small.

Adirondackwannabe's avatar

The standard used to be three months, then it went up to six months of living expenses. Now I’m thinking in this economy having twelve months might be the minimum. I’ve seen people unable to find work that long.

ARE_you_kidding_me's avatar

@Adirondackwannabe I don’t know a single person who has that.

Adirondackwannabe's avatar

@ARE_you_kidding_me My s/o has it, I was there for a longtime, but now I’m trying to build it back. It’s not easy, but it is more comfortable to me.

CWOTUS's avatar

For a while in my early twenties I lived on mustard sandwiches – and by that I mean the cheapest mustard around (and the not-quite-cheapest bread – I’ve never been that broke, so far).

By that I mean: I had no bank account, and no cash to put in one if I had had one. Even into my early thirties (which was half a lifetime ago for me), I never managed the “two-or-three-months’-worth” of expenses tucked away somewhere.

That’s a good target, but just because you may not be hitting that target yet doesn’t mean that you should hit the panic button. If you find yourself continually short of that expectation for yourself then hit the “calm” button: slow down some of that “going out on weekend” and other such expenses, and find cheaper recreation (including learning to cook, for example, which can be enjoyable, healthy and economical, all at the same time).

Hypocrisy_Central's avatar

You should strive to have enough to cover all the expenses for 60 months in case of serious injury, job loss, or serving time for a DUI, etc. how much that is depends on where you live and what your bills are.

chyna's avatar

@ARE_you_kidding_me I have it. You have to treat the amount of money you are putting in savings as a bill and not deviate from putting it away.

BeenThereSaidThat's avatar

Most financial planners say you should have a savings of six months salary. To be able to pay your bill and support yourself for at least six months.

ARE_you_kidding_me's avatar

I’m not there at the moment, I’m like at 2.5 months then I’ll be raiding retirement accounts or ebaying stuff. We live modestly but my wife has been out of work for a long time. It’s hurt, SCREW this economy.

livelaughlove21's avatar

If we go by @Adirondackwannabe‘s suggestion, I’d need nearly $40,000. Ha, yeah, I wish. We’re 24 and we’re happy as long as we have a full month’s worth of expenses in the bank at all times. That’s about $3200. Sometimes we have a bit less, and sometimes we have a bit more. I wouldn’t say we live modestly, nor would I say we struggle. We always have enough to cover the bills plus our little “safety net.” We do just fine.

Adirondackwannabe's avatar

@livelaughlove21 Laughs, you just got out of school and you’re both young and no dependents. It’s okay if you’re not there yet.

JLeslie's avatar

I say at least six months of expenses in your savings account. Once you get that then think about your goals financially five years down the road and for retirement. Then plan what you need to do to get to those goals. Every couple of years reevaluate your new 5 year goal, and also you can look at your retirement goal again, but you can review that less often.

It’s hard to give an exact number, because it depends on where you live, your salary, etc.

When I was in my mid twenties I was newly married and we had only about 3 months of expenses in the bank, but we did systematically save, and especially as our salaries increased we did not immediately increase our expenses, we increased our savings. That is when the savings really started to accumuate quickly. Eventually, we did buy a more expensive house, but we had a nice down payment and did not have to pay PMI. PMI is mortgage insurance if you cannot put at least 20% down. Our savings took a biggish dip, but then we eventually started working at it again.

Some tips: living tight on money costs money, because if you can’t pay something when the bill is due, the late fees are ridiculous. Low balance bank accounts tend to charge fees. Don’t ever get a bank account that charges a regular monthly fee. If you pay late because you are out of money your credit goes down and bad credit means when you want to borrow to buy a car or a house your interest rate will be higher.

Sacrifice now and your financial life later will be so much easier. I use my credit cards for everything I buy, but I always pay in full so I never pay a fee or interest. If you use credit cards make sure you pay in full, never pay that crazy interest. Unless of course you have some very unfortunate emergency, shit does happen in life, but never for a new shirt or a drink at a bar.

Oh, drinking is ridiculously expensive. I have no idea if you drink, but I bet I have saved over the last 20 years $20,000 compared to many of my friends because I don’t drink. More compared to some of them. If I include my husband that is easily $40,000. Anyway, the moral to this story is think about where your money is going.

Money doubles at 5% interest in 15 years. If you have $500,000 at age 50, you can reasonably have $1million when you are 65 without saving another penny. Money gets money. If you are 25, that is save less than $20k a year until you are 50 to hit $500k. That does not have to be your number, I am only suggesting you break down your goals like that. If your number is $150k by 50 then that is less than $6k a year. It is less than because each year your money is earning compounded interest, although right now for savings accounts it is very low. If you get married that number might be easier to acheive. Also, it doesn’t have to be divided equally every year. Right now you might save just $5k and then in a couple years you might be able to save $10k, the year after it might be nothing. Circumstances change constantly. Goals change also.

I think it’s great you are thinking about this now, it will pay off in the long run.

LuckyGuy's avatar

@ARE_you_kidding_me I have it too. Sometimes I have to carry a few people until my customer pays the bills. If I did not have enough my employee would be hurting. I keep enough to cover everyone for 3 months. (That is over a year for me.)

When I was your age and in your position I figure I had at least 6 months.

ARE_you_kidding_me's avatar

@LuckyGuy I had it a few years ago, life happens and you have to dig into it. That’s why it is there.

Pachy's avatar

You should have enough money in the bank so that you can stop thinking about how much money you should have in the bank. That’s a different amount for everyone, but for me, it means—and I wish I had know this when I was your age—continually saving as much as I can and as often as I can.

JHUstudent's avatar

@Pachy here’s your GA.

JLeslie's avatar

@Pachy Interesting way to put it. It’s true in a way. I won’t reach my original lofty retirement goals I had for age 65, but I do have enough in the bank that I don’t worry about saving at all anymore. I basically did save as much as I could for a good 15 years of my adulthood. Now I spend a little more freely, but I still am pretty frugal. We do still save every year, but I don’t do it in any painstaking way anymore. Our expenses are low so it just happens. If we wound up having an expensive year with no savings, we still earn some money even just on our regular savings account/money market, even though the interest is very low. Still, the interest easily covers a mini vacation.

Adagio's avatar

@Hypocrisy_Central 60 months? Dream on…

Crazydawg's avatar

Zero and get used to it. People your age are still paying off college loans, credit cards and down payments on homes. Ya want kids and a spouse, kiss a zero sum credit card balance goodbye for a long long time. The American Dream ain’t cheap and either is the credit card balance it takes to achieve it.

JLeslie's avatar

@Crazydawg Not all of them have those debts. I hope none of them have credit card debt, it’s such a waste of money. Thnking that is normal gets people into trouble.

livelaughlove21's avatar

The issue here is that you asked this question on a site where the average member probably lives a pretty comfortable life. Educated, older…you get my drift. Ask a whole new group of people, average Americans perhaps, and you’ll probably get a very different answer.

JLeslie's avatar

@livelaughlove21 I always have the impression the majority on this site don’t have a lot of money actually. I have no idea what the actual stats are regarding what percentage of jellies make what incomes and how much wealth they have. I do think the jellies who answer these particular questions tend to have some financial stability though. Usually people with money have done some financial planning and have rules for how much money they “should” have in savings or want to have in savings. I think that is why they feel they have advice to give.

People who live in a constant state of debt and can never catch up, they don’t have savings, so what is there advice? Certainly, they still can have a desire or plan or knowledge of what they think is an ideal amount of savings even if they have not met the goal yet. I don’t mean they are necessarily ignorant about money, but even if they have not met their goals, their goals might sound very similar to the people who already have the savings or the higher incomes. The goal is very important. A general plan is important. It helps keep someone on track or on budget for their goals.

In my mid twenties I did not have the six months of expenses socked away, as I mentioned above, but I knew that was something I was supposed to work towards. Or, wanted to work towards anyway. I think a lot of Americans have bad money habits because they don’t know what the financial habits of people who have some money are. The jellies on here with higher savings are probably much more frugal than many would think, even if they have highish incomes. That’s true in real life too. It doesn’t mean they are cheap or try to take advantage of others financially, I just mean they might be less into fashion, not spend money on alcohol and Starbucks or less into needing the newest iPhone and computer than people might guess. What a lot of people think is normal spending and normal debt, a lot of other people think is unnecessary spending.

If the OP is asking about how much savings he should have, I assume he has enough discretionary income to save some.

janbb's avatar

I agree with @JLeslie . If the OP is asking, presumably he is seeing that he has some to save so telling him that he can’t save isn’t very helpful.

livelaughlove21's avatar

@JLeslie I’m simply pointing out that the answers given on this thread are quite…optimistic. “Oh, when I was your age, I had 6 months of expenses in my savings” and “I hope none of them have credit card debt” – these are not bad pieces of advice. However, I don’t know a single person my age (and very few older folks) with as much money saved up as my husband and me, and we only have $3–4K in the bank at any given time. If I were to ask any of my friends, family members, in-laws, etc., they’d probably think that was a lot of money. We know it’s not, but I don’t think it should be suggested that having enough money to support yourself without a job for 6 months in your mid-20s is the norm. It’s a good goal, and it’s great that so many jellies seem to be financially secure, but I’m just saying that the OP would get a very different answer if he were to ask some regular American Joe. I think that Fluther members, on average, are more educated than the average American. And, in many cases, more education means more money.

I’ve got $25K in student loan debt and about $1500 in credit card debt that was accumulated while I was in college and my husband was the only one working. Surprise vet bills are a bitch. Like I said, we don’t live modestly in that we do go out to eat on weekends and buy things that aren’t an absolute necessity (mostly fitness equipment and protein powder these days), but we don’t drink or party, we don’t go to fancy dinners three nights per week, we don’t have children, I’ve still got my iPhone 4 I got for free with my contract two years ago, no laptop or tablet aside from a Kindle Fire that was a gift, I don’t go to Starbucks, I never eat out during the week. And yet, the money in the bank doesn’t seem to be going up at any noticeable rate. I still don’t think we’re struggling and, in this economy, I think we’re doing pretty good. Much better than any of our friends, that’s for sure. My best friend has $50K in student loans and is making $25K teaching at a private school and living with her mother. And she did just as well as I did in school – honors and AP courses, college, etc.

I’d say the average 25-year-old does not have anywhere near 6 months of expenses saved up these days, so I don’t think it should be suggested that this is pretty standard. Goals are great, but being realistic is also a good thing. Especially when one of the OP’s questions was, “how much does the average 25–27 year old have in the bank?”

@janbb I don’t believe I suggested that he can’t save, or that people should tell him he can’t save. Not sure where that came from.

janbb's avatar

@livelaughlove21 That wasn’t directed specifically at you

JLeslie's avatar

@livelaughlove21 The question was not, “how much money did you have in savings in your mid twenties?” That is a different question.

People who come from families with very low incomes and very little savings often do not know much about financial goals, thinking about retirement funds, and how much savings people who do have discretionary money recommend. That is not a negative criticism of people who have very low incomes, it is a comment on their experience with money. I do not mean people with lower incomes are spending every penny willy nilly either, many of them pinch pennies to make it through, I know that. They do everything right, as right as they can. If people want to learn the habits of people with higher income, higher savings, and long term financial goals, they are wise to ask people who have those things. Not that you have to have those things to understand the concepts. I can’t tell you how many people I know who think have a drink or two with dinner is normal, and people who don’t drink alcohol are odd or recovered alcoholics. They don’t even think about the money, because it is such a nornal thing to them to order a drink when eating out. There is a whole slew of us who don’t feel the need to drink every time. I am not saying those people are lushes, they might be fine having a Coke, but they do what they feel is expected or normal in that social setting.

But, back to the point that if the OP is making a good income, he needs to know strategies for savings, and that is what we offered here. A lot of people don’t know that 6 month rule, I would think especially if their parents their whole lives could not dream of saving so much. Also, many people in America, even those who make really good incomes, live. Heck to check. They think it is normal. There are people who make $100k a year and think having $3k in the bank is fine, and they think that for their whole life, not just in their twenties.

Everyone here was giving goals to shoot for, no one was saying if you don’t have that money in the bank there is something wrong with you.

I do think having credit card debt is a horrible thing. Sometimes it is necessary, shit happens. My only point about the credit card is it should not be perceived as “normal” to have a balance not paid at the end of the month. Some people think it is normal to pay minimum payments on their credit card bill and if they can afford that and all their other expenses then they are doing great. They aren’t. They are overpaying for everything they buy on that credit card and throwing money out on the street. Some people don’t understand that, they were never told, and don’t understand the math, or just don’t think about, because everyone around them does it. Someone giving financial advice is never going to say credit card debt is ok. Except in emergencies or unfortunate circumstances of course. That can happen to anyone.

If a 22 year old has credit card debt because they ate out too much when the dorm food was paid for, and drank too much, I think they made a big mistake.

JLeslie's avatar

I’m just going to add Knowitall asked a question a while back and she felt once she had $3,000 in savings more or less she should start giving it away or using it. That to me is something she believes because of her upbringing and lack of access to people who have more money. Or, access might be wrong, but she is not having financial conversations with them.

I actually use the word “savings” to mean all savings. She, and the OP here is talking about liquid savings, so my answers are a little off. Also, I personally tend to have more liquid savings than my peers, just my own gig, I am not saying it is the right thing to do. The 6 month rule is a good goal at minimum though for liquid money.

ARE_you_kidding_me's avatar

Is everyone including retirement accounts like 401k or Roth ira’s?Perhaps other things like health savings accounts or cds?
Having an emergency slush fund is one thing but not having any long-term savings is something else.

janbb's avatar

@ARE_you_kidding_me I did in my answer.

Crazydawg's avatar

@JLeslie I guess I just answered based solely on my experience at that age. Ideally I would say you should have 2 months rent and expenses in a emergency slush fund savings account. And I was told that one should save 10% of each paycheck for long term investing. I agree total savings should be factored together including IRA’s. My final suggestion would be to sock away all you can afford in a Roth IRA and if and when you income exceeds the Roth threshold, open a regular IRA and put away as much as you can afford.

gailcalled's avatar

The OP asks “How much should I save” and not “How much can I save.” Knowing the general outline of long-range financial planning is a good idea, no matter what’s in your walllet or piggy bank today.

ARE_you_kidding_me's avatar

I sure did not consider long-term savings in my answer. I would hope that no one else did either. It’s a nasty hit when you have to do that.

JLeslie's avatar

@Crazydawg I personally don’t like the 10% rule, but I would not say it is a bad rule. I’m sure it works for some people. I think making a plan for how much you want to have at different stages in your life is more effective, but I would also say that it changes over time. Hopefully, salaries increase as people get older and 10% might be low. Babies might be born and nothing is saved for a couple of years. Maybe the average person in their twenties 10% is a good plan? I think @gailcalled put it very succinctly that we are providing outlines for long range financial plans. Maybe that is overstepping the immediate question.

I’ll give you an example of howsay husband and I saved at various times. We did not conform to the 10% rule, or any percentage rule. In the beginning we were as frugile as possible and saved anything we could. About 5 years into our marriage we got to the point where we could afford all our basic expenses on my husband’s salary. At that point my salary went to extras like vacations (which were not extravagant) and the rest went to savings. All of it. This was much more than 10% and it was when we significantly made a huge leap in our savings. Probably we saved 25% of our total income at that time more or less. Then we moved to a more expensive market and had to pull a chunk out of savings when we bought our new house, but we had the money, and our mortgage was very low and a 15 year mortgage (which saves a tremendous amount of money over time) and we could still live on his salary the savings quickly came back. So some years we save nothing, because we actually pulled a chunk out and had to save to regain the loss, some years we have saved 50% of our net income.

The long term goal helps to make the decision over the 40+ years of an adult’s working life.

Some people plan their retirement by trying to figure how much money do they need to be able to live off of the dividends and interest. Some people think of it as how much do they need that will last them enough years if they are spending it. The numbers are very different. The former the person needs to be much more aggressive in their savings. In the Q I linked here one of the jellies was talking about long term financial planning and what he knows is many people really don’t know how to evaluate what they will need and how to get there. I’m not always a huge fan of financial planners, because in the end they are sales people, and there are good ones and not great ones, but that sort of analysis is worthwhile. Actually doing the math can be very different than how we guess about it in our heads.

The major financial things like mortgages, cars, and credit cards, all too often people really do not understand how much the interest costs them and that is a huge problem. It easily costs people hundreds of thousands of dollars over 20–30 years.

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