Most personal-finance experts advise that at the very least, you should keep three to six months' worth of living expenses in a savings account for emergencies.
However, a good rule of thumb for a 21-year-old is to have $6,000 in a savings account for emergencies and long-term financial goals. And that requires you to learn how to start budgeting and saving money.
The general rule of thumb is that you should save 20% of your salary for retirement, emergencies, and long-term goals. By age 21, assuming you have worked full time earning the median salary for the equivalent of a year, you should have saved a little more than $7,000.
According to the College Board, students can expect to spend around $2,932 a month (or $26,390 for a nine-month period) on living expenses for the 2024-25 school year. To break that number down, let's take a closer look at how much college students spend on food, housing, and other expenses.
The average cost of attendance for a student living on campus at an in-state public 4-year institution is $27,146 per year or $108,584 over 4 years. Out-of-state students pay $45,708 per year or $182,832 over 4 years. Private, nonprofit university students pay $58,628 per year or $234,512 over 4 years.
The more you save, the less your child will have to borrow to pay for college. Another rule of thumb for college savings is to have $2,000 saved for each year of your child's life. So, if your child is four years old, you should have at least $8,000 saved. However, a rule of thumb like this is just a rough estimate.
From age 18-24, only 1% of earners (7% altogether) earn $100k per year or more. This makes these age groups by far the lowest earners in the US. Americans make the most income gains between 25 and 35. Only 2% of 25-year-olds make over $100k per year, but this jumps to a considerable 12% by 35.
But saving might still be a challenge if you're earning an entry-level salary or you have significant student loan debt. By age 25, you should have saved about $20,000.
With $8 million in savings, even a modestly invested portfolio can generate enough money to live a very comfortable life indefinitely. Of course, that's all relative as the amount of money you need in retirement is going to vary based on an individual's life choices and desires.
Earning $40,000 a year may be considered a good entry-level salary and could be more than enough for someone with low monthly expenses. Adding another income to the mix also makes a difference. For example, if your spouse or partner also earns $40,000, your household income would be $80,000.
The median salary of 20- to 24-year-olds is $706 per week, which translates to $36,712 per year. Many Americans start out their careers in their 20s and don't earn as much as they will once they reach their 30s. For Americans ages 25 to 34, the median salary is $1,003 per week or $52,156 per year.
The $1,000 per month rule is a guideline to estimate retirement savings based on your desired monthly income. For every $240,000 you set aside, you can receive $1,000 a month if you withdraw 5% each year. This simple rule is a good starting point, but you should consider factors like inflation for long-term planning.
Aside from tuition, room and board is a significant expense in computing overall college costs. In the college setting, the room is where the student will stay during the semester or the entire school year. Private rooms, where the student occupies the room alone, would cost higher than a shared dorm room.
Based on the 2023-24 academic year, the estimated total cost of attendance for on-campus students at Harvard University is $86,705 per year. This includes tuition and fees, books and supplies, room and board, and other on-campus expenses. Over four years, this would amount to approximately $346,820.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
The average cost of food per month for a college student is $673. College students spend on average $410 a month eating off-campus. Meals cooked at home average $263 a month when the cost of eating off-campus is included.
Allowances and Parental Supervision of Spending
Some families give their students a monthly allowance, ranging from $75–$225, to supplement the student's own savings. An allowance may no longer be necessary after the first year, especially for students making good money through summer employment.
That depends if you are a college student or already working. If you are a college student, then a $1000 emergency fund might suffice presumably that you have no other expenses. If you are working, then regardless of age you'd want to aim to save a 3–6 months of expenses as your emergency fund.
Investing $500 a month can lead to significant long-term growth, thanks to the power of compounding returns. Whether you are just starting out or adding to an existing portfolio, consistently investing $500 each month can help you build substantial savings for future goals, like retirement or a down payment on a house.
Generally, you should aim to save at least 3-6 months of living expenses before moving out, which typically ranges from $3,000 to $10,000 for most situations. The recommended savings can be broken down into three main categories: upfront costs, emergency fund, and ongoing expenses buffer.