Turning 30 is a milestone that marks a definitive step toward adulthood. Leaving the chaos of your 20s behind, your 30s are a decade where many of your fellow millennials decide to settle down, buy a house, and raise a family.
But to confidently embark on such life goals, you’ll need a sturdy financial foundation. The question arises: How much money should you have saved by 30?
The simple answer: it depends.
While the exact number you need saved by your 30th birthday will vary based on your situation, there are several common benchmarks you can use to measure your progress. If you find that you’re behind when it comes to saving, don’t worry. You’re not alone. The median savings for American households is $11,700, while the average household spends over $5,000 a month. That means the average person couldn’t stay afloat for more than two months, much less for a 30-year retirement.
Although the statistics don’t look great for most Americans, there are concrete steps you can take now to ensure your financial future is bright. You’ll need to know how much you require to live comfortably in the present and in retirement. Once you know your numbers, we can help you decide how much to save, and where to save it.
Have 3 to 6 Months Emergency Savings
The first adult financial goal you should have completed by 30 is to have an emergency fund. According to some experts, 3 to 6 months of living expenses is a good start, although we highly recommend having at least 6 months squirreled away in a savings account. This means that if you spend about $3,000 on essential expenses every month, you should have $9,000 to $18,000 stashed away.
Why? For emergencies, of course.
Most Americans don’t have enough saved to cover a $400 emergency. That means that if their car breaks down, they have a medical emergency, or are faced with unexpected job loss they’ll either have to borrow money or depend on credit cards. Both of these options are less than ideal. Bank loans and credit card balances come with hefty interest rates, which means that by borrowing $5,000 in an emergency, you might end up paying twice that amount once you’ve factored in the interest.
It’s much better to have an emergency savings ready to go for when the unexpected happens. It will provide you with a sense of security, and set a firm foundation for you to embark on even more adult goals, like saving for a house, your child’s college fund, or retirement.
Aim for 1x Your Annual Salary in Retirement Savings
Speaking of retirement, according to the investment advising firm Fidelity, you should have 1x your salary in retirement accounts by the time you hit the big three-oh. For instance, if your annual salary (before taxes) is $50,000, you should have $50,000 in retirement savings.
If 1x your salary seems too much, another investment firm, T. Rowe Price, has a bit more of a forgiving goal that you can shoot for: 0.5x your salary. In that case, with a $50,000 take-home pay, you would only need $25,000 by 30 — although the company advises you would need to increase your savings rate as you age.
No matter how much you have saved by the time you turn 30, it’s a good idea to focus on contributing as much as possible to your retirement accounts while you’re still relatively young if you want to experience the full benefits of compound interest.
For instance, if you hit the 30-year mark without a penny in retirement savings, there’s still hope. Even if you were to put aside only $5,000 each year beginning when you were 30 until you retired at 65 (and assuming a reasonable 7% return on your investment) you would have almost $800K in savings. On the other hand, if you wait until you’re 35 to begin putting away $5,000 a year, you’d only have $550K when you reached retirement age. Those five years could mean an extra $250K in retirement.
In other words, it’s not too late. Just start saving — now.
How Much Do You Need? Set a Goal
Keep in mind, the benchmarks mentioned above are just that: benchmarks. How much you need will depend on various factors specific to your situation, like your current annual income, where you live, and how much of your pre-retirement income you’d like to replace once you decide to stop working.
If you’d like to use a good rule of thumb, some experts recommend having 10x your annual salary in retirement accounts by the time you reach 65. That means if you make $50,000 a year, you should have $500K set aside by the time you reach your golden years.
Another tactic is to determine your current annual spending, then multiply that number by 25 to get the magical retirement number. For instance, if you spend $40K each year, multiply by 25 and you arrive at a cool $1 million you’ll need in retirement.
There are a number of useful retirement calculators that can help you determine your specific savings goal, as well as how much you’ll need to save each month to reach it. Once you know your monthly savings goal, you can break it down to a weekly or even daily total to make it more manageable.
For instance, if you know you need to save $400 a month to reach your $1 million retirement goal, that’s $100 a week. For some, that may still seem out of reach, but there are plenty of creative ways to save money that can help you get where you need to be. By cutting out unnecessary expenses, you might be surprised with how much you can achieve.
Where to Keep Your Savings
So now you know how much you should have saved — but where should you put it?
When it comes to your emergency fund, we recommend putting the money in a high-interest savings account or other low-risk investment that provides easy access to your cash when you need it quick. There are a variety of online savings accounts that provide a healthy rate of return — some upwards of 2%. If you’ve managed to put away $18K in emergency savings and leave it in your account, that 2% could translate to over $300 in interest earnings in one year, which is much better than the $0 return you might with a typical bank account.
Next up is retirement savings. You know you need to put away a certain monthly amount, but where?
While there are a variety of retirement plans available, the first place you should put your retirement savings is in an employer-sponsored retirement account (if you have one available to you). Usually these will take the form of a 401(k) if you’re in the private sector, or a 403(b) or 457(b) if you’re in the public sector.
The reason you should prioritize this account is simple: Most employers will match any contribution you make up to a certain percent of your income. That means, if you make $50K a year and your employer matches up to 3% of your income, your employer will match up to $1,500 in contributions each year. It’s basically free money.
After you’ve captured your employer match in your 401(k) or equivalent account, we recommend putting any additional retirement savings in an Individual Retirement Account, or IRA. Your personal goals will determine if a pre-tax traditional IRA or a post-tax Roth IRA is the best retirement account for you. In either case, an IRA usually has lower fees than an employer-sponsored account, and you also have more freedom to choose the type of investment you prefer (we recommend ETFs and low-cost index funds).
If you can max out your IRA — the contribution limit in 2019 is $6,000 — it would then be wise to put any additional retirement savings funds into your 401(k) up to the limit of $19,000.
Just Start Saving
If you, like many 30-year-olds, find yourself behind in the savings game — whether due to onerous student loan debt or irresponsible youthful decisions made in your 20s — all is not lost.
If you start to save toward your financial goals now, even if it’s just a few dollars a week, compound interest is on your side. You still have a good 30 years to make that money grow. Put those dollars where they can work for you now, so you can relax later.