Should You Pay Attention To Savings Benchmarks? Let's Get Honest About It

Money is tight for many these days, and it's tricky to save up. Though the government may report falling inflation and low unemployment numbers, it doesn't feel that way at the store or in our bank accounts. Yet many articles encourage people to save money, with helpful benchmarks for amounts you should have by age 25, 30, or 35.

Confronting your financial issues can be awkward, but it's important to consider your investment goals. Lots of people feel they never learned this in school. People of a certain age remember learning to write a check in school, but that was all, and it no longer applies in this electronic age. But it is good to plan ahead, so we often turn to articles online for advice about how to save money.

But how realistic are these guidelines, and are the recommended benchmarks achievable? Do they apply to real people in today's changing job landscape, or do they seem to make assumptions about who is reading? These guides to healthy financial living and retirement savings can seem aimed only at trust-fund babies who already have a back-up plan (aka privilege), or like they were written in the 1950s. The result is depression and stress for people who can't afford it, but it doesn't have to be that way. Let's investigate.

What exactly are these articles talking about?

Financial health articles seem to require a certain amount of knowledge just to read them. They often contain jargon, requiring you to know, for example, the difference between liquid and invested savings — terms that some folks find confusing and arcane. Even "cash" in these articles doesn't mean that green paper you might have in your wallet. So let's first define what we mean by savings.

"Savings" generally means money that is put away for a special purpose, probably retirement. You hopefully won't use your savings for many years, and yet it's accessible enough to use without incurring a penalty. In fact, many experts recommend having several accounts: one for necessities and expenses, one for savings, one for investing (e.g., the stock market), one for emergencies, perhaps even a "f***-off fund," especially for women, to escape that abusive partner or soul-sucking job. You can also create funds for specialty purchases, like a car, house, vacation, or honeymoon.

Since that may already seem overwhelming, most articles discuss only emergency funds and savings, which could be comprised of several factors, including investments and retirement accounts like 401ks or 403bs. But only 56% of employers offer a 401k, and of those, 49% won't match your contribution, putting the onus on you to save. Benchmark articles from several publications, including GoBankingRates, Fidelity, CNBC, and Forbes, were all generally on the same page about how much money to save, regardless of how you save it.

What do these benchmark articles recommend?

Now that we understand, at least a little, what is meant by savings, what do the articles recommend?

A general goal is to save 15 to 20 percent of your annual income per year. Articles often use a $60,000 salary as an example, which by itself makes an assumption about the work you do. But if we stick with that number, you would put $12,000 of it (20 percent) away into savings each year. Fidelity recommends you have a full year's salary in savings by the time you're 30, assuming you start saving at age 25. So, if you make $60k annually, you would have $60k in savings by age 30 ($12,000, or 20%, annually for 5 years). GoBankingRates says you should have $12k in your savings by the time you're 25 years old.

Readers may feel that these benchmarks are nearly impossible. The articles seem to make huge assumptions about the people reading them: what they know, what type of work they do, what positions they hold, how often they work, how much money they earn, their expenses, and how easy it is to avoid lifestyle creep, or "unnecessary" spending. Perhaps they're making assumptions about who's reading the piece in the first place. The articles sound like they're aimed at people who work in corporate jobs, but with a photo of a person in a hoodie with green hair — not necessarily something that corporate jobs are okay with. Considering the assumptions made, are these goals actually achievable?

What can you earn in your first years?

Let's consider, for a start, GoBankingRates' suggestion to save at least $10,000 by age 25. Considering the average age of college graduates is 23, that only gives you two years. You'd need to get a good-paying job immediately out of college, hopefully in a field that offers entry-level jobs at $60k or more, such as public relations, human resources, high school education, market research, zoology, food science, electrical engineering, or registered nursing. If you didn't study one of these specialized fields, or you don't know what you want to do, then it'll likely be harder. You also need to know to start putting money away, and this doesn't consider how much you're paying off in student loans. In addition, it often takes longer for people of color to graduate. If you have other claims on your time, like children or parents to care for, then you'll probably need more time to graduate.

And that's just the people who earned a college degree or other credential. While that number has risen in the past two years, it only applies to 53.7% of adults.  Gen Z is highly concerned about student loan debt, so they're forgoing college altogether. But some training is still required for certain positions, especially if you hope to make $60k or more a year. Jobs such as police officers, insurance appraisers, administrative assistants, subway operators, real estate, or sales require training (on the job or in classes), but not necessarily a college degree.

Benchmark articles don't seem to consider basic facts

If we look at the realities of today's market — made worse by the pandemic — these benchmarks don't seem realistic. Costs of living soar while wages seem to stagnate. While salary increases are consistent with a 4.5% inflation rate, the inflation rate in June 2022 went up a staggering 9.1%, the largest increase since 1981. 

The federal minimum wage is only $7.25 and hasn't increased in 14 years. More than one-third of America's workforce makes less than $15 an hour, or $15,000 to $30,000 annually — assuming they're able to work full time. Even the state with the lowest cost of living index, Mississippi, requires a suggested livable wage of $15.66, but only pays the federal minimum. With inflation, the purchasing power of minimum wage has dropped 37.4%. It's nearly impossible to make a living on that. 

Plus 49% of Americans use their credit cards to cover expenses, incurring more debt. As a result, 63% of Americans are living paycheck to paycheck, as of November 2022. So it's not surprising that people are not saving enough. The median amount of savings for 35-year-olds is $13,000, which is near what GoBankingRates suggests they should have by age 25. That's only among people who have a retirement account in the first place, which is only 45 percent of families. Only one in three workers have an emergency fund, and nearly half of young adults said they wouldn't be able to pay an emergency expense of $1,000. Yet as bleak as this sounds, we mustn't get discouraged.

Small changes make a big difference in savings

It's true that many people feel so stressed about money that they avoid thinking about it altogether. But that only worsens the problem. Money issues can be emotional, requiring a change in attitude. Try to make saving fun for yourself. In fact, "fun" is one reason young people don't save, as they equate saving with refusing things they enjoy. But it's not impossible to save, and it's important to establish good financial habits as early as possible.

Start by getting your budget in check. Knowing how much you spend, and on what, allows you to spend better and make realistic savings goals. You can use a budgeting app to categorize your expenses and help you keep track. Get into the habit of reviewing your bank statement(s) every month, which also makes it easier come tax time.

Once you know your spending habits, figure out a plan. Use a retirement calculator to set your individual goal, rather than striving to meet a benchmark that may not apply to you. Start saving early and let it build over years. Begin with small, realistic numbers, even if it's only $50 or $20 a month. Have it transfer automatically so you don't have to think about it, which will reduce the temptation to spend it. Reconsider those goals over time, and adjust them in small shifts, perhaps increasing your savings from 1 to 2 percent. Doing these minimal tasks will get you in the habit of saving and thinking about money matters. Whatever you do, be kind to yourself and keep moving forward.