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How much money should I have in my savings account?

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Saving money is one of the foundational habits of long-term financial success. For many people, the question is: How much should I have in my savings account?

There’s no single answer that fits everyone. How much you set aside depends on your income, expenses, goals and other factors. A recent Bankrate survey shows that COVID-19 has hurt Americans’ emergency savings: About 35 percent of Americans said they have less now in emergency savings than they did before the pandemic.

As you try to figure out how much money you should have in your savings account, here are a few things to keep in mind.

Determine how much to put in savings

Figuring out how much to set aside in savings starts with your goals. What are you saving for — and how do you know what the right amount is?

Katie Brewer, CFP, owner of the Dallas-Fort Worth-based financial planning firm Your Richest Life, recommends having one savings account for an emergency fund and one for short-term goals, such as a vacation.

“Keep your long-term and short-term money separate so you have dedicated goals,” Brewer says. “This will help you focus more on what’s needed in each area.”

How much should be in your emergency savings?

Brewer says it’s important to start with an emergency fund and decide how much you’re comfortable putting in it. The well-known rule of thumb is to have three to six months’ worth of expenses set aside for emergencies.

Kevin L. Matthews II, an author and founder of the financial education website Building Bread, says that you might need to tweak the rule of thumb, depending on your situation.

“Really, now that we’ve seen how fragile the job market can be, padding out that emergency fund is even more important,” Matthews says. “I’d strongly consider building an emergency fund of nine months’ worth of expenses, or more.”

To determine your emergency savings goal, Matthews recommends looking first at your expenses for the past few months to see where your money is going and how much you need to keep the bills paid and stay afloat. Or, simply use your take-home pay as the yardstick, Matthews says. Either way, it’s important to come up with a number that is sufficient and realistic.

Be careful, though. Some experts warn against putting too much into a savings account. Once you reach your emergency savings goal, consider putting some money into a taxable investment account to earn more.

How much should you set aside for short-term goals?

Deciding how much you need to set aside for short-term goals will probably be a little easier. Brewer suggests opening a separate account for those types of goals. If you’re saving for a specific purchase, such as a car or a vacation, you can calculate how much to set aside each month based on when you want to make the purchase.

You can also set up a system whereby you put aside money for goals that are more nebulous but might require a larger cash outlay in the months to come.

“If you’re meeting your emergency fund goals and other financial goals, consider setting aside money each month toward short-term goals in a fun fund,” Brewer says. “That way, you’re always prepared for something spontaneous, and it can be a backup emergency fund, just in case.”

Is it better to be debt-free or have savings?

Should you put all your extra money toward retiring debts, or should you ease up on debt payments to sock away some money for emergencies and other things?

A September Bankrate report showed that nearly half of Americans say that paying their bills is their top financial priority. Indeed, it’s tough to think about saving when money is tight.

Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, says he has always advocated for a “balanced approach” to paying off debt versus savings.

“Savings is a top priority, especially when the economy is unpredictable and too many people have so little to fall back on,” McClary notes, “but debt can get in the way of savings goals.

“Paying yourself first should be the golden rule for savings, but if you carry high-interest debt from month to month, carve out a little extra to add to your regular payments. You’ll pay off the debt faster and save money by avoiding those additional years of interest and fees.”

Ideas to grow your savings

When building your savings, the first thing to do is find a high-yield savings account where you can keep your money.

Interest rate cuts by the Federal Reserve are hurting savers. Yields have nosedived, but you can still earn more with a high-yield account. Many virtual banks pay the highest rates because they don’t have to maintain branch offices, like traditional banks do.

Set small goals

Next, figure out how to set aside a manageable amount of money, Matthews advises. He points out that many people look at a savings goal and become overwhelmed by the number. Instead, just get into the habit of setting aside money and building toward your goal.

“It may take you some time; it could take you 12 months,” Matthews says. “The important thing is that you’re growing toward that point. Start small and as you get used to the habit, increase your regular contribution.”

Make savings automatic

Brewer says the best way to grow your savings is to make it automatic. If you have direct deposit of your paycheck, set up an automatic transfer of a certain amount into your savings account each pay period. That way, it coincides with employer withholdings from your paycheck.

“Just make sure you don’t have to think about it,” Brewer says. “The best way to grow your savings is to not have to remember to pay yourself. When it’s automatic, you don’t need to worry about whether there’s something left over.”

Plan for unexpected windfalls

Finally, use windfalls to boost your savings accounts. You can put a portion of each work bonus, tax refund or inheritance into your savings account. Brewer suggests deciding on a percentage: for example, 60 percent toward debt reduction, 25 percent toward savings and the remaining 15 percent toward something more immediate, such as new tires for your car.

There’s no hard and fast rule. The important thing is to have a plan that helps you prioritize building your savings.

How to choose the best savings account

Deciding where to put your money is the final hurdle. You know you need to save and you have a rough idea of how much you can set aside each month, but how do you choose the best savings account for yourself?

Brewer says start by opening an account that isn’t linked to your checking account. “While it might seem convenient to open an account where you have your checking, it also makes it too easy to just get at the money,” he cautions.

“Consider opening an account, especially for your emergency fund, where there’s an extra step that forces you to think about it before you access the money.”

Matthews points out that getting hung up on yields might not be the best approach. You should look for a high-yield account with a competitive rate, but frequently moving your money to chase higher APYs can be counter-productive. Other things Matthew says to consider:

  • Fees. Look for accounts that don’t charge maintenance fees. Matthews notes that some accounts don’t charge ATM fees, and those can save you money.
  • Customer service. Open an account with an institution that has good customer service. If there’s a problem, being able to talk to someone or  get assistance via online chat is important.
  • A good mobile app. Find a bank or credit union with a highly rated mobile app that is easy to use and has the features you want to manage your account.

“Customer service and a good app become really important right now,” Matthews says, pointing out that, with the pandemic, you might not be able to  walk into a bank and take care of business.

In the end, putting money in your savings account is about making the most of your finances and using your resources to reach your goals. Figure out what makes sense for you and work out a plan to make it happen.

Libby Wells contributed to an update of this article.

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Written by
Miranda Marquit
Contributing writer
Miranda Marquit is a contributing writer for Bankrate. Miranda writes about topics related to investing, saving and homebuying.