Is $25,000 Enough to Have in Your Savings Account?
You'd think $25,000 would be enough to have in savings. Read on to see why that may not be the case.
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Did you know that a little more than one-third of Americans could not cover a $400 surprise expense by dipping into their savings? Rather, they'd have to borrow the money or sell something to come up with $400 on a whim, reports the Federal Reserve.
That's pretty scary. So if you have $25,000 in your savings account, you're clearly in a much better place.
But is $25,000 enough money to have in savings? You'd think that it would be. But depending on your situation, it may not actually be enough.
Why $25,000 won't cut it for everyone
The minimum amount of money you should have in savings is three months' worth of essential living expenses -- things like rent or mortgage payments, groceries, utilities, and medication. This way, if you were to lose your job, you'd have a way to pay your bills for 90 days while looking for work, thereby avoiding expensive debt.
For many people, a $25,000 savings balance will more than cover three months of essential bills. But if your expenses are higher, then a $25,000 balance in savings may not amount to a complete emergency fund. And if that's the case, you should push yourself to save more.
Perhaps you live in an area where housing is expensive and rent alone costs almost $4,000 for a modest home. Seeing as how the average rent in New York City is $3,862 a month, according to Apartments.com, that's not unheard of.
In that situation, your essential monthly expenses might exceed $8,333. So in that case, you'd need more than $25,000 for a three-month emergency fund.
Don't assume you need $25,000 in savings
Let's say your essential living expenses come to way less than $8,333 per month. Maybe you're able to keep those bills to $3,500.
If so, you might assume that you're in great shape with a $25,000 savings account balance. But actually, in that situation, you may be going overboard on savings. And while that's not as bad as not having enough savings, it's also not the best for your finances.
Some experts advise having a six-month emergency fund, rather than just three. So if you spend $3,500 per month on essentials, that brings you to $21,000. But in that case, you may want to take your remaining $4,000 and invest it in a brokerage account.
While plenty of savings accounts are still paying over 4% today, the stock market's average annual return over the past 50 years is 10%. So if you don't expect to need that $4,000 for several years, investing it could grow it into a much larger sum than a savings account could.
In many cases, $25,000 is more than enough to have in a savings account. But if you have large monthly bills or want a larger emergency fund, then it may not be. Run your own numbers and consider your personal needs when deciding how much money to keep in savings.
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