How Much Money Should Be in Your Emergency Fund?
Summary
An emergency fund is a key part of any financial plan. But how much money should be in your emergency fund?
In this article:
Many financial experts agree that you should have 3 to 6 months’ worth of expenses on hand in case of an emergency.1 Medical situations, sudden unemployment and home or car repairs are realities for most people at some point. Having a fund set aside that you’re not allowed to touch can help you avoid debt and give you day-to-day piece of mind.
However, several months of savings may seem like too little or too much for you. We’ll help you figure out your ideal emergency fund amount depending on your lifestyle and financial situation. What’s right for one household might not be right for another.
How much is the average emergency savings?
Only about 44% of Americans would be able to pay an unexpected $1,000 bill in cash according to a survey conducted by Bankrate in early 2022.2 So, if your emergency fund amount is as little as $0, you are certainly not alone. Your recommended emergency fund amount is based on your monthly expenses. Start doing the math by plugging absolutely essential expenses into our budget calculator. Once you’ve calculated the monthly amount you need to get by, multiply that by the number of months you’d like to cover with your emergency fund. Essential expenses could include things like:
- Rent or mortgage
- Food
- Utilities
- Medications
- Transportation
- Credit card or loans payments
- Car insurance
- Health insurance
Learn more about how you can use an emergency fund.
How much emergency savings should I have?
Even though 3 to 6 months of expenses is the old rule of thumb, how do you know if you should be on the high or low end of that scale? And is it even relevant anymore? Here’s some considerations to help you determine how much you should be saving:
Why you might want to save less. If you work in a steady field, have a long and consistent work history, have no dependents, share expenses with a partner or have credit card debt, you may not need to save as much as others. Or you may want to devote potential savings to paying off debt.
Why you might want to save more. If you are self-employed, retired, have dependents, have a medical condition or live alone, you may want to save a little more in case of an emergency. Of course, if you can afford to set aside several months of expenses just in case, that typically isn’t a bad financial move.
How much to put in an emergency fund if you have debt
Some financial experts suggest a smaller emergency fund amount, around $1,000, if you have consumer debt.3 Consumer debt is typically credit card or personal loan debt rather than medical, student loan or housing debt.
Since consumer debt tends to carry higher interest rates than other types of debt, it may be in your best interest to focus any potential savings toward paying down those balances while still maintaining a small cushion in case of emergency. Even $1,000 cash can make a crisis much more manageable.
A good emergency fund amount is situational
Not all experts agree on the ideal emergency fund amount. For example, an economist at the University of Colorado found that Americans may only need about $2,500 dollars available for an emergency. She studied 70,000 households and found that large expenses over $2,000 were actually quite rare. And she ultimately determined that, though 3 to 6 months of savings is great, it’s not realistic for many families.4
Different emergencies also come with different price tags. Think about what you would do if you needed to buy a new car so you could drive to work. Or if you lost your job and couldn’t find a new one right away. These would be more expensive emergencies that could require more savings. On the other hand, a washing machine that breaks down could be dealt with for under $1,000. When deciding your emergency fund amount, consider how you would pay for large, expensive emergencies if not in cash.
Getting ready for a rainy day
When you know you’ve got some money put away, a rainy day can be a little less glum. You know it’s worth it, but how do you get there? Discover some strategies for how to create an emergency fund, then brush up on some money management basics to get some momentum going. Once you have your rainy-day fund taken care of, you can move on to other, more fun financial goals.
1. "How Much Should You Have in Savings? - TIME." 31 Mar. 2021, https://time.com/nextadvisor/banking/savings/how-much-should-you-have-in-emergency-savings/. Accessed 19 Jul. 2022.
2. "56% of Americans can't cover a $1,000 emergency expense ... - CNBC." 19 Jan. 2022, https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html. Accessed 19 Jul. 2022.
3. "A Quick Guide to Your Emergency Fund | RamseySolutions.com." 14 Jul. 2022, https://www.ramseysolutions.com/saving/quick-guide-to-your-emergency-fund. Accessed 19 Jul. 2022.
4. "A college professor studied 70,000 households and found ...." 24 Oct. 2019, https://www.businessinsider.in/stock-market/news/a-college-professor-studied-70000-households-and-found-americans-only-need-emergency-savings-of-2467-heres-why-shes-suggesting-a-mere-fraction-of-what-other-experts-recommend-/articleshow/71744982.cms. Accessed 19 Jul. 2022.
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
