With Personal Savings Rates at a Low, Here's How Much You Should Be Saving

It's okay to start small.

Recently, there's been a steady drumbeat of stories about personal savings rates hitting near record lows. It got me curious. Have things really changed that much over the past 50 or 60 years? For example, how much were Americans saving during the Kennedy Administration? What about when Jimmy Carter was president?

Highs and lows

By the way, the average savings rate in November 1961, when John F. Kennedy was still in office, hit 11.6%. And despite inflation, stagnant wages, the loss of good-paying jobs, and skyrocketing gasoline prices, the rate was 11.9% smack-dab in the middle of President Carter's term in office. Heck, during the Ford Administration, savings rates hit 17.3%.

So what gives? Other than a huge spike in savings shortly after the first stimulus checks were released in 2020, we've been steadily falling off the wagon, dropping as low as 3.4% in October 2022.

According to the Bureau of Economic Analysis, the average savings rate as of today remains below 5%. That means for every dollar we earn, we're putting less than a nickel into savings.

It may all strike you as obvious. One reason personal savings are down is because it's expensive out there. Once monthly bills are paid, there is very little left over to save. A LendingClub study found that 64% of Americans live paycheck to paycheck. That amounts to 66 million of us who can't imagine finding extra funds to save. What's more, 8 million of those people earn more than $100,000 annually.

All that to say, whether you live paycheck to paycheck or have simply never cared to deposit money into a savings account, it's not too late to get on track.

Setting a savings goal

There's no single savings formula that works for everyone. For example, if your goal is to start a small business, you're going to need a different amount of money put away than the next person. If your goal is to rid yourself of debt, your plan will look different from someone who's already debt-free.

However, you won't know how much you need until you inventory your goals. An inventory can be as simple as this:

• I want an emergency fund in place by next year.
• I want to move to a new state in five years.
• I want to start my own business in 10 years.
• I want to retire at age 55.

If you don't already have one, now is the time to create a monthly budget. Hoping to hit your goals without a budget is like hoping to find a hidden city without a map. It's unlikely to happen by accident.

50-30-20 rule

One budgeting method designed to help people cover all their financial bases is called the 50-30-20 rule. The beauty of the 50-30-20 rule is how simple it is. There's no fancy footwork involved. Here's how it works:

• 50% of your paycheck goes toward things you need, like housing and utilities.
• 30% goes toward things you want, like dining out, new clothes, and soccer for the kids.
• 20% is dedicated to savings and investments.

Let's say you're contributing 8% of your paycheck each month to your company-sponsored 401(k). That means you're already investing 8% and can focus on the other 12%. Split it up in any way that works for you.

Give yourself permission to start small

Do not be discouraged if you're nowhere close to saving and investing 20% of your paycheck. Start small and allow your efforts to snowball. For example, If you're currently saving 1% of your income, aim to hit 2% in three months. Once you've juggled bills so that 2% is workable, aim for 3%. Saving money -- whether it goes into an emergency fund or a retirement plan -- can be accomplished a little at a time, particularly if you start young.

Ultimately, saving is all about self-care. It's about protecting yourself from unforeseen circumstances, preparing for the day when you retire, and paying for special events. If it feels overwhelming, that's natural. As long as you're saving something, you're moving in the right direction.