save moneyWith the new year, many Americans are resolving to cut down their spending and save more money. Saving more money is a great aspiration, and a critical part of building wealth. To give you an idea of where to set your goals, and maybe offer you a little motivation, we’re taking a look at the saving habits of Americans in two essential areas: emergency savings and retirement savings. By looking at the data, you’ll see that even a small amount of saving will improve your life and put you financially ahead of a lot of other people.

Emergency savings

An emergency fund is key to protect both your wallet and your sense of security, letting you handle sudden expenses without having to take on debt to cover them. A common goal to shoot for with an emergency fund is to save money equal to three to six months’ worth of living expenses, though the vast majority of Americans are falling short of that. A survey from Bankrate found that 49% of Americans can’t afford to pay a $1,000 unexpected expense with their savings. Also, this lack of emergency stashing isn’t just limited to people with low incomes, as some would assume. According to data from research firm SSRS, lower-income households are more likely to have no emergency savings, but one in four of the highest-income households have either no emergency savings or not enough to cover three months’ worth of living expenses.

Currently, the Bureau of Economic Analysis estimates that the average personal savings rate for Americans is around 6% of post-tax disposable income. This is far below the level of saving that experts commonly advise, which is around 15% of your pre-tax income, but it’s not a bad place to start if you’re used to saving no money at all. After making a budget and figuring out your necessary expenses, like housing, food and transportation, take 5% or 6% of whatever money you have left and commit to saving that. If you think you’re able to save more, you can increase your savings rate at regular intervals (such as saving an additional 1% each month) in order to ease yourself into it. In order to reduce your temptation to raid your savings for inessential expenses, be sure to keep your emergency savings in a different account separate from your primary checking. Online savings accounts are a good option, as they’re easy to open and often provide much more interest than traditional savings accounts, though there are a variety of different accounts that are well-suited for savings.

Retirement savings

Emergency savings for Americans are fairly low overall, and retirement savings aren’t doing much better. Research from Northwestern Mutual, a financial services company, shows that 21% of Americans have no retirement savings at all, and 32% have less than $5,000 in retirement savings. Even for Baby Boomers, which is the generation closest to retirement age, one in three have less than $25,000 saved up for their golden years. Additionally, 75% of Americans aren’t confident that Social Security benefits will be available when they retire, with 24% of respondents believing that Social Security availability during their retirement is “not at all likely.”

There is a bit of good news, though. In a survey from Bankrate, 28% of respondents reported they were saving more money for retirement in 2018 when compared to 2017, and only 13% said they were saving less money. For the people who weren’t increasing their retirement savings, the most common reason given was that their income hasn’t changed or has gone down. Data from Pew Research backs up this sentiment, as it shows that wages, when adjusted for inflation, have barely increased in the last 40 years for most workers in the U.S.

Building a nest egg is much trickier than building an emergency fund, as it requires you to save money for years to provide much of an impact on your quality of life during retirement. Retirement saving benefits a lot from starting young and letting compound interest grow your money for you, which can discourage older retirement savers who are just starting to stock away cash. However, if you’re only five or 10 years away from retirement, don’t give up saving entirely, as relying completely on Social Security benefits to get you through your twilight years will require you to live extremely frugally and possibly rely on family for help. There are ways you can catch up your retirement savings.

Although there are many reasons why Americans don’t save money, if you’re able to put away more than average (or even a little each paycheck), you definitely should. To learn more about building wealth and financial health, visit our personal finance blog.