How Much Money Should I Have At 23

Updated: Nov 11, 2021 at 10:23AM

By the time you're 25, you probably have accrued at least a few years in the workforce, so you may be starting to think seriously about saving money. 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. Looking at data from the Bureau of Labor Statistics (BLS) for the first quarter of 2021, the median salaries for full-time workers were as follows:

$628 per week, or $32,656 each year for workers ages 20 to 24
$901 per week, or $46,852 per year for workers ages 25 to 34

Financial advisors often recommend saving 20% of your income for retirement, emergencies, and major purchases. If you just celebrated your 25th birthday, have earned the median salary of $32,656 for your age group for each of the past three years, and are saving the recommended 20%, then you should have about $20,000 in the bank.

Your actual earnings and work history may vary significantly, of course. If you're nowhere near that number, don't panic. Saving 20% of your money is not realistic for many 25-year-olds. Even if you're behind on saving, you still have plenty of time to catch up.

A woman holds her retirement savings in a jar.

Image source: Getty Images.

What's a realistic savings rate at age 25?

The truth is that saving money at age 25 might not be that much easier than saving money at age 21. If you spent the past three years earning the median salary of $32,656, your budget is probably pretty tight. More than likely, saving 20% of your salary is impossible — unless someone else helps with your expenses.

If you actually have $20,000 saved at age 25, you're way ahead of the national average. The Federal Reserve's 2019 Survey of Consumer Finances found that the median savings account balance was $5,300 across households of all ages, not just 20-somethings.

If you don't have much extra money after paying your bills, don't focus too much yet on saving 20% of your income. Your real goal is to learn to live on less than you earn and save the rest.

How to save money at age 25

Even if you can only save 5% or 10% of your income, that's still a good start if you can commit to increasing that percentage as your income goes up. Follow these tips to boost your long-term savings rate:

Build your emergency fund first

Your first priority is to save three months' worth of living expenses in an emergency fund. That's money that you keep in a savings account, not the stock market, so that you can quickly access it if you need it.

Eventually, you should have six months' worth of emergency savings. But once you're at three months, you can focus on another financial goal, too. For instance, you could put half of your extra money toward emergency savings and the other half toward investing or paying off debt.

Pay off credit cards before student loans

Unless you have private student loans with unusually high interest rates, you're probably paying the most interest on any credit card debt you're carrying. Focus on paying off credit cards first and then tackle those student loans.

If you have federal loans, take advantage of the automatic forbearance that's in effect through Jan. 31, 2022, due to COVID-19. Put your loan payments toward credit cards and private student loans that are still accruing interest.

Even if you don't have other debt, consider putting the amount you'd currently be spending on federal student loans into a savings account. Since your loans aren't accruing interest during this automatic forbearance period, it makes sense to hold off on paying them. It's also possible that cancellation of some federal student debt will eventually occur.

Budget for health insurance

If you're still on a parent's health plan under the Affordable Care Act, consider yourself warned. You need to budget for and obtain your own coverage by age 26. Start planning for the extra expense now by shopping for an affordable healthcare plan or applying for jobs with companies that offer health insurance.

When you don't have health insurance, one unexpected trip to the ER can drain your savings and leave you with significant debt. If only for financial reasons, don't even consider going without health insurance coverage.

Collect your employer's 401(k) match

One of the fastest ways to build retirement savings is to take advantage of a company 401(k) match if your employer offers one. Even if your employer only matches 25% or 50% of your contribution, that's still essentially a 25% or 50% return on your investment for the year.

Even if your employer doesn't match your contributions, or you're self-employed, make every effort to invest for your retirement. An individual retirement account such as a Roth IRA is a good choice since withdrawals in retirement, when your tax bracket is likely higher, are not considered income. The money also grows tax-free in your IRA until it is withdrawn.

Take on a side hustle

If you're serious about upping your savings game, or have a big goal like achieving financial independence and retiring early, then you might not want to wait around for pay raises from your employer. A side hustle, which can be anything that generates extra cash, is a great way to increase your savings.

A side hustle may not be doable for everyone, but if you can spare the extra time, it's definitely financially worth it, especially when you are young. The younger you are, the more powerful the effects of compound interest are on the value of your portfolio.

Save more as you earn more

Even if you're not making the big bucks now, the best thing you can do to make sure your savings rate increases with time is to start planning today for when you make more money. Keep your expenses low and determine what's most important to you.

As your income increases, it's OK if your expenses rise, too. Your costs just need to increase at a slower pace than your income. Set a goal of saving a certain and increasing percentage of your pay with every raise you get. If you can live below your means and avoid lifestyle inflation, then you are well-positioned to make your savings balance soar.

Expert Q&A

The Motley Fool caught up with retirement expert David John, a senior strategic policy advisor at the AARP Public Policy Institute.

David C. John, MA, MBA, AARP Senior Policy Advisor

David C. John, MA, MBA, AARP Senior Policy Advisor. David's areas of focus are retirement savings, pensions, annuities, international pension and retirement savings systems, and PBGC.

The Motley Fool: In 2019, the average retirement account savings for American households was $65,000 with the average American under 35 having $13,000 saved for retirement. Why do you think this average is so much lower than what experts typically expect Americans to have?

David John: The short answer is access, participation and portability. Far too many Americans are not offered a payroll deduction retirement savings account at work. That is the most successful way to save for retirement. And far too many retirement plans don't use automatic enrollment and escalation, the most successful way to boost participation and ensure that people are saving enough. Finally, it is too hard to move retirement savings from job to job, so many people simply cash out their accounts when they leave an employer.