According to the Federal Reserve’s study on economic well-being in U.S. households, published in 2016, Americans are satisfied with how they are doing financially. The number of adults reporting they are “living comfortably” or “doing okay” rose to 69%, up from 65% in 2014 and 62% in 2013. However, surveyors then asked a series of follow-up questions that called into serious question what most Americans perceive as comfortable.
Minimum Savings for Comfortable Living
Financial guru Dave Ramsey, who advocates debt-free living and financial security, advises $1,000 in the bank as a starting point for clients who are destitute or currently have no savings. This sum, though insufficient to live on for long if an income loss occurs, at the very least prevents a car breakdown or minor medical mishap from causing a financial disaster. Despite the high level of financial security self-reported by the majority of Americans, nearly half lack this basic first step for an emergency fund.
Three-to-six months of living expenses represents a more comfortable nest egg. Three months of expenses is a sufficient emergency fund in periods of low employment, assuming the person possesses high-demand skills.
The exact amount that constitutes comfortable savings varies based on a person’s unique circumstances. A person with children requires a bigger cushion, since that person is responsible for providing for others. A single person with no children needs less in savings, particularly if he or she is willing to live a bare-bones existence or take any job that is available in a pinch.
A person who still lives at home with parents and has no expenses, or who shares a dwelling with several roommates and has minimal expenses, can more comfortably cut savings than someone who has a stack of bills to pay every month. Of course, many people in these situations find it an ideal time to put money away, perhaps saving up for a house down payment at a later date.
Similarly, a person’s debt load influences how many months of income represent sufficient savings. For example, if 30% of a person’s take-home pay goes toward debt payments each month, that person clearly needs more savings than a debt-free person.
Every person is unique when it comes to his financial needs. No matter the dollar amount of a person’s savings, what matters is the ability to stave off financial calamity for as long as needed in the case of a job loss or income reduction.