Once you’re done paying each month for life’s essentials – things like rent and food – you have choices to make about the money that’s left over.

Saving some of your income each month should be a top priority. But how much of that money should you be saving?

The answer depends on a lot of things: How much extra money do you have after expenses? How much money would you need to pay the bills if you lost your job or got sick? How much do you already have saved? Do you have significant debts? Are you investing for retirement?

Savings are a cornerstone of financial stability. Whether you have enough money saved could mean the difference between riding out an emergency and being ruined by it. Even so, a survey shows that one in five Americans have no emergency savings, and a third had their savings decline during the COVID-19 pandemic.

When we talk here about “savings,” we mean money in a federally insured bank savings account that you can withdraw easily without paying a penalty – a “rainy day” fund. Stocks, mutual funds, and retirement plans are long-term investments that often pay higher returns, but can be riskier and may have restrictions.

There’s no one answer to the question of how much you should be saving that applies to everyone. But here are some factors to think about.


Figure out how much money you have available to save.

Start with your monthly household income, then subtract your total average monthly essential expenses and bills. The result is how much money you could save each month. Let’s call that “available income.” You should definitely save at least some of your available income, but you may also want to pay off excessive debt or contribute to a retirement fund.

Shoot for three to six months of emergency savings.

Those are benchmarks that many financial experts advise for a rainy-day fund to sustain you through a layoff. Add up any expense you’d have each month if you were out of work – rent, food, utilities, minimum credit card payments, insurance, etc. Multiply by either three or six – or whatever number of months you want your fund to cover – and make that figure your target for emergency savings. Then save a portion of your available income each month to reach that target. Give yourself a deadline to reach that goal based on how much available income you have.

Avoid using your rainy-day fund like a piggy bank.

You should not raid your emergency savings account for things like vacations, a new washing machine and luxuries. If you want to save for such things, consider establishing a separate savings account.

Make saving automatic.

Set up an automatic transfer from your checking account to your savings account every time you’re paid, or ask your employer if you can direct-deposit some of your paycheck into savings. That way you won’t forget, and over time, you may not miss the money.

Save money to save money.

Try to spend less and seek out discounts as a way to free up money for saving. Possible money-saving steps: Use coupons, hunt for sales, eat at cheaper restaurants, or cut your cable cord.

Consider saving for health emergencies.

Having a health insurance plan is essential to ward off a financial disaster in a health emergency. But even if you’re covered, you may incur major expenses if you’re faced with a long hospital stay or an extended period of recovery, particularly if your health plan has high deductibles. Consider setting up a special savings account for health care, either at work or on your own, especially if you’re older or not in the best of health. Some accounts, like Health Savings Accounts and Medical Savings Accounts, may give you a tax break. Start by checking with your employer and also verify that an account lets you roll over any money you deposit into future years.

Balance savings and investing.

Savings are crucial to your financial health. But once you have your rainy-day fund at a level you’re comfortable with, start shifting some of the available income you’re saving into long-term investments that bring higher returns. Bank savings accounts are federally insured, so you won’t lose money, but interest rates are very low, even on so-called high-yield savings accounts, so your money won’t grow much. And retirement accounts — 401(k)s and IRAs — can bring you tax breaks. If your boss offers to match your 401(k) contributions, don’t miss out on that “free money.”

Don’t stop saving entirely.

Even if you have reached your savings target, you want your account balance to keep up with inflation, so top it off from time to time at the current inflation rate.

Finances FYI is presented by 1st Security Bank of Washington.

At 1st Security Bank of Washington, we take a customized and personal approach to your financial well-being. We live in the communities we serve, so our branches offer tailored solutions to their communities. We believe relationships make the difference, and that sets 1st Security Bank apart.