How much money do you need to save at age 40?

The typical 40-year-old is 15 or more years into their working life, and many people who reach an important milestone age like 40 are wondering how they’re doing financially. Specifically, many people ask themselves whether they have enough money in savings – but how much is enough?

Note: It is important to point out that this is different than retirement Savings that should be held in a tax-deferred account such as a 401(k) or individual retirement account (IRA).

Let’s take a closer look at how much cash a 40-year-old should have in the bank.

What are you saving for?

A good goal is to have six months of living expenses covered in an easily accessible savings account by age 40. Many experts refer to this as your emergency fund. The idea is to have enough money to weather a job loss, unforeseen health care costs, or pretty much anything else that life throws at you.

In addition to spending six months in an emergency savings account, it is advisable to keep some extra money in a non-emergency savings account. This is intended to cover costs such as higher-than-average electricity bills or low maintenance costs for the house.

The point is that these are examples of unexpected costs, but they aren’t exactly financial emergencies. It’s important to keep your essential emergency savings separate from the money you could use for everyday expenses.

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How much do You Need to save?

To be clear, there is nothing wrong with the six-month policy. Regardless of your specific circumstances, having six months’ worth of expenses in a savings account that is separate from your retirement savings will prepare you for the vast majority of unforeseen situations.

However, remember that general rules of thumb do not take your circumstances into account. Specifically, here are some factors you should consider when setting your own savings goals.

Family and marriage situations

Are you married? That is less likely both Spouses would be unemployed at the same time. And if you have children, you should definitely allow for six months her Spending towards your goal.

Employment-specific features

Do you have excellent job security or are you new to your role? Do you own your own business? Is your income constant or does it change from month to month?

For example, if you have been a public school teacher in the same district for 20 years, you are far less likely to experience prolonged unemployment than someone who has just started freelance consulting work.

Other assets

The main goal of savings is to avoid borrowing money or dipping into your retirement account when something unexpected happens. However, if you have other assets such as: For example, if you have non-retirement investment accounts, a second home, investment property, or other assets that would be relatively easy to sell, you may not need quite as much emergency savings as someone who doesn’t.

This is not an exhaustive list of considerations, but the point is that general guidelines are just that – general. It’s important to use them as a starting point, but also adapt them to your own life.

The end result

The most important takeaway is that the answer here is not simple. There is no specific amount every 40-year-old should have in savings.

However, I’m a fan of the guidelines outlined here, which I would call the “tailored six-month rule.” However, if you are concerned about not having enough savings, it is best to contact a financial planner who can help you assess your situation and give you an individual recommendation.