Savings? how much you should have saved and how to catch up

There are numerous studies and theories about how much you should have saved for retirement, emergencies, necessities and other expenditures.

For example, studies by Fidelity and T. Rowe Price do a nice job of showing some retirement savings benchmarks for where you need to be, starting at age 30. Both studies stress the need to start saving early, maintain a significant level of contributions throughout your life and also to maintain an age-appropriate allocation to equities throughout.

The level of your emergency fund is far less dependent upon your age than your circumstances. In assembling an emergency fund, the common rule of thumb is three to six months’ worth of living expenses.

When it comes to setting aside money for necessities, splurges and big expenditures, this is also dependent upon your circumstances more so than age. However, your circumstances are likely to change throughout the decades.

“To figure out how much you need, use an online budgeting resource such as Mint, break out your monthly bills and figure out an overall amount,” said David Bakke of personal finance website Money Crashers. “If you’re falling short, try using coupons for groceries, or go without cable TV, as there are plenty of alternatives.”

As for other expenditures, it’s important to budget and save for those, as well. “To me, splurges and big expenditures should be saved for on a case-by-case basis, and there’s really no one amount that can be determined according to one’s age,” said Bakke. “In order to avoid falling into credit card debt, only put a splurge on a credit card if you can pay the bill off in full by the time it comes in.”

Whether you’re focused on saving for retirement, emergencies or splurges, it’s helpful to have a framework so you can cover your financial bases. Here are some benchmarks and tips to help you achieve your savings goals — and to see if you are on the right track.

How Much You Should Have Saved in Your 20s

In your 20s, the only way you can be behind in saving for retirement is by not contributing. The Fidelity study recommended setting aside 15 percent of your salary for retirement.

Also, contribute to your company’s retirement plan if one is offered. As your salary increases, ramp up the percentage of your income that you are contributing to the plan. The benefits for savers in their 20s are huge. There is no bigger ally on the road to successfully saving for retirement than the gift of time and the benefits of compounding interest.

When saving for an emergency fund in your 20s, you might be able to get away with saving a little less, since unexpected medical expenses and job losses might not be as catastrophic as it might be for someone older, said Bakke.

“So a good guide would be to start with, say, $5,000 when you’re young. And as you age, keep setting more and more aside, as you really can never have enough saved for emergencies,” he said. “To catch up, reduce your monthly expenses as much as possible, and devote the surplus to your emergency fund.”

As you budget, continue to keep an eye on spending requirements for necessities. If you’re falling short, find ways to adjust other expenditures and cut costs so that you can meet those needs. Also, have a plan in place to set some money aside for splurges — whether it’s a general fund, or for something specific.

How Much You Should Have Saved in Your 30s