Are you 30 years old (or thereabouts) and wondering how much money you should have saved by this point in life? Keep reading for some thoughts and frameworks that should help you determine whether you’re in a good spot.
How much money should you have saved by 30?
Framework #1: One year’s salary
A common rule of thumb is that you should have a year’s salary (pretax) saved by the age of 30. If you earn like the average American aged 25 to 34, that equals $47,736, according to SmartAsset.
It’s worth mentioning that this is less about the dollar amount and more about saving enough relative to your cost of living. Having a year’s salary saved by the time you’re 30 gives you a safety net. Just as importantly, you’ll benefit from significant compound growth. Assuming an 8% average annual return, your $47,736 would grow to $777,741 by the time you turned 65 if you never invested another penny.
Weaknesses with this framework
This rule of thumb (as with many in personal finance) has been around for more than a few years. Given the cost of… well, almost everything has risen faster than many people’s salaries, saving a year’s pay may not offer the benefits it once did.
If you plan on retiring early, saving a year’s salary by age 30 also may not be enough. On the flip side, if you’re an unusually high earner but have managed to keep your living costs low, having a year’s salary saved by age 30 may be excessive.
My opinion? This rule of thumb seems a bit too arbitrary. I certainly don’t use it for my planning.
Framework #2: Enough to be on track for your goals
Personal finance is personal. Consequently, it stands to reason, the amount of money you should have saved by age 30 also varies depending on your goals.
Generally, there are three categories of goals you should consider:
- short-term goals (i.e. establishing an emergency fund)
- medium-term goals (i.e. purchasing a home)
- long-term goals (i.e. retirement)
If you assign a dollar amount and target date to each goal, it should be easy to figure out how much money you should have saved by age 30.
For example, let’s assume I have the following goals:
- establishing a $20,000 emergency fund by age 35
- saving up a $30,000 house down payment by age 40
- retiring with $1 million by age 65
At age 30, I should have enough money saved for each goal that I can continue saving a reasonable amount of money each month to achieve it. That might look like this:
- $10,000 saved towards my emergency fund, assuming I can continue saving $166 per month until age 35
- $20,000 saved towards my house down payment, assuming I can continue saving $83 per month until age 40
- $181,290 saved towards retirement, assuming I’m targeting an 8% annual return and can continue saving $400 per month until retirement
So in total, I should have $211,290 saved by age 30 in light of all my goals.
Weaknesses with this framework
Honestly, there aren’t many weaknesses with this approach (although I may be biased since this is the calculation method I use). The only one I can think of is that it’s impossible to predict how the market will perform (and, consequently, how much money you need to really be on track for your goals). That challenge is insurmountable regardless of which framework you choose, though.
Framework #3: However much you can
With inflation at record highs and salaries generally not climbing to match, many people understandably struggle with saving money. Consequently, there’s an argument to be made for simply trying your best and not beating yourself up – even if you aren’t on track to achieve your goals.
With this framework, the amount of money you should have saved by 30 is simply whatever makes sense for you to set aside. If you’ve been able to save $100 monthly since age 20, for example, you should have $12,000 saved by 30.
Weaknesses with this framework
It’s good to challenge your understanding of what’s possible. If you simply resign yourself to your situation, you won’t feel any push to find creative solutions.
Consequently, I think this framework is only worth considering if you’re in strenuous circumstances that leave you literally unable to increase your income and monthly savings target. Otherwise, you’re settling.
“Help! I haven’t saved nearly as much as I should’ve by age 30!”
At least some of you reading this article will feel like you haven’t saved (or aren’t on pace to save) enough money by age 30. Don’t panic. Here are some tips for getting back on track.
Take your debt repayments into account, too
If you’re paying off significant debt (i.e. student loans or a mortgage), it’s entirely reasonable to expect you wouldn’t have loads of money saved. Repaying debt is still a productive activity you should give yourself credit for, though (especially in the case of a mortgage since at least some of your monthly payments go towards building equity, a form of savings).
Also, remember that once you’ve eliminated your debt, you can use income previously allocated to those monthly payments to catch up on your savings goals.
Focus on increasing your income, not your rate of return
Many people try to compensate for being behind on their savings goals by chasing huge investment returns. This is a huge mistake and usually ends badly, putting them even further behind. After all, you can’t control what the market does.
Instead, focus on something you have much more control over – your income. Ask for a raise, switch jobs, take on a side hustle – do whatever you need to do. For some ideas and action items, check out this article I wrote on the topic of what to do when you need money fast.
Take advantage of free money
Free money in the form of tax-advantaged investing and employer retirement account matching can go a long way towards helping you achieve your goals. I strongly recommend working with a financial advisor to ensure you aren’t leaving money on the table.
Check out this article I wrote for an idea of the various tax-advantaged investment accounts out there.
Choose an appropriate level of risk
Good risk management is an essential part of saving and investing. If you’re 30 years old and plan on retiring at age 65, for example, you have decades with which to recover from any temporary losses. In other words, you can afford to take on more risk (within reason, of course) than someone much closer to retirement.
For example, historic U.S. stock market data shows that while significant losses are possible within any given year, you have a very high probability of making money if you invest for 15 years or more. Therefore, you shouldn’t shy away from investing in the stock market. In fact, sensible stock market investments can greatly accelerate your progress towards achieving your financial goals.
Automate your savings
If you aren’t on track because of poor financial habits, automating your finances may prove quite helpful. The key is to pay yourself first by transferring money into your savings and investment accounts every time you get paid, thereby reducing the need for willpower.
Make a plan for getting back on track
If it were possible to stumble your way into financial success, you would’ve done it already. Most people (myself included) need a plan. Here are two articles I’ve written you’ll likely find useful for establishing and executing a plan:
There’s no one-size-fits-all approach to determining how much money you should have saved by 30. Nonetheless, I hope this article has given you some food for thought when it comes to figuring out how much money you need (and what it will take to get it).
Check out more of my articles on the topic of financial planning here.