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Emergency fund amount: How much is the emergency fund?

Emergency fund amount: How much is the emergency fund?
Emergency fund amount: How much is the emergency fund?

Illustration: A pile of cash in a life raft

Images by GettyImages; Illustration by Hunter Newton/Bankrate

When unexpected expenses arise, an emergency fund can provide peace of mind and financial stability. However, Bankrate’s 2024 annual Emergency Savings Report found that the majority of U.S. adults (56 percent) do not have enough emergency savings to cover even three months of expenses.

So how much should you have for emergencies? For some, following the standard advice of three to six months’ worth of living expenses may be enough. However, others may prefer to save more or less than this amount, depending on factors such as income, cost of living and household size. These savings can be put into a money market or high-yield savings account, where they can grow with interest and have some liquidity.

So the answer may vary depending on individual circumstances, but one thing is clear: emergency funds are essential. Knowing you have a safety net can ease some worries, as Bankrates’ Money and Mental Health Survey found that 47 percent of Americans say money has at least some negative effects on their mental health.

If you’re not sure how much to save for the unexpected, consider the following scenarios.

Emergency Fund Statistics

Bankrate’s 2024 Emergency Savings Report found:

  • A majority of adults in the United States (59%) are dissatisfied with the level of their emergency savings.
  • Only 16% of adults in the United States have saved enough to cover three to five months of expenses.
  • About six in ten respondents (63%) say they need to have saved at least six months’ worth of expenses to feel comfortable.
  • Over a third (36%) of people have more credit card debt than emergency funds.
  • Nearly a third (29%) of Generation Z (ages 18-26) lacks emergency funds—nearly twice as many as the 16% of Baby Boomers (ages 59-77) who do not. Baby Boomers are also more than three times as likely as Generation Z to have enough savings to cover six months or more of expenses (46% vs. 11%, respectively).
  • Annual income also has a big impact on how much emergency fund someone has – more than half of households (56%) with an annual income of over $100,000 are satisfied with their emergency funds.

How much should my emergency fund be?

Personal finance is a personal matter. What’s right for one person may not be the best option for another. It’s good to listen to financial experts and understand why they advise saving a certain amount, but ultimately it comes down to whether you’re happy with your emergency fund. That could be two years’ worth of emergency funds or two months’ worth of emergency funds, depending on your goals. As long as your savings don’t sabotage other financial goals, set aside whatever you need so you don’t have to worry about paying for unexpected expenses.

“The more unstable your income, the more you should probably have set aside in an emergency fund. And the higher your insurance premiums, the more you should have set aside in an emergency fund,” says Erik M. Baskin, founder of Baskin Financial Planning based in Sugarcreek Township, Ohio. “A family with two stable incomes and no children needs much less emergency savings than a one-income household with four children.”

If you’re not as secure as you’d like, create a savings plan to get there, even if that means starting slowly with $10 to $100 a month. Small savings can really add up. Look at your budget and monthly income to determine how much you need for living expenses and how much you can save and invest in other areas of your life, like emergency funds.

To learn more about how much and what strategies you should use to save for emergencies, consider working with a financial advisor who can provide you with personalized help.

When you may need a larger emergency fund

Saving several months’ salary may seem like a daunting task, but one should keep in mind that one needs to save for the emergency fund to cover basic living expenses, not to replace one’s entire income. So, if your monthly expenses are $2,500, you need to save $7,500 to have three months of emergency savings.

However, there are times when you may want to save further than what experts recommend.

To build an emergency fund or supplement your existing money, you can set up a direct deposit from your paycheck or an automatic transfer from your checking account to a special savings account. Automating savings is key to success, especially with household budgets as tight as these.
— Greg McBride, CFA, chief financial analyst at Bankrate

In the following cases, it makes sense to create a larger emergency fund:

  • Your income is unstable: If you don’t have job security or work in a high-risk industry, you may want to save more to offset the potential loss of income.
  • You are self-employed: If you are self-employed, a large emergency fund can help you get through periods of fluctuating income throughout the year.
  • You are retired: Adequate savings are key to success when you are retired and a large portion of your income comes from your investment accounts.
  • You have Medical bills: If you’re dealing with medical issues that may require surgery or ongoing medical care, saving beyond the usual can help bridge the gap if insurance doesn’t cover all of your medical bills.
  • Uncertainty in your life: Unexpected emergencies are a part of life, but there are times when you’re more vulnerable to additional expenses. If you drive an older, unreliable car or know your home will need major repairs in the future, extra savings can protect you in the long run. For single parents with children at home and no second source of income, saving money can give them a little peace of mind knowing they’ll be taken care of no matter what.
  • Care of relatives: If you have children or other dependents who depend on your care, it is important to include the cost of their care in your emergency fund.
  • There is an economic crisis: Global and national events like a recession or a pandemic are beyond your control. In times like these, it’s always good to know you have money saved to cover the unexpected.

When you may need less emergency funds

Here are some reasons why you should go against conventional advice and save less.

  • You have few expenses in relation to your income: Depending on your situation, you may not have a lot of living expenses. Maybe you don’t own a home or car, or maybe they’re already paid off. If your living expenses are a small portion of your income, you may be fine with a smaller emergency fund.
  • You have no relatives: Having children and other dependents often means higher expenses and more responsibilities. You need to make sure you’re covered if something happens and you can no longer work or provide for your family. But not having dependents means you don’t have to save more money for others’ living expenses.
  • You have credit card debt: If you have high-interest credit card debt, it may be better to build a smaller emergency fund and put the rest of your money toward paying off debt. Focusing on paying off debt will help you save more in the long run because you’ll avoid expensive interest fees. Still, it’s important to keep saving and contribute to a high-yield savings account so your money can grow.

How to build an emergency fund

To ensure that every dollar saved is given maximum value, people looking to build an emergency fund should consider opening a high-interest savings account.

Many large institutions like Bank of America and Chase Bank still offer mediocre returns on their savings accounts—and that can really dampen your dollar’s saving potential. In fact, two-thirds of savers still earn less than 4 percent APR on their savings account, according to a Bankrate saver survey. This is the case even though many online-only banks offer savings accounts with returns of 5 percent APR or more.

Therefore, finding a top-rated savings account can help you build your nest egg significantly over time, especially when combined with a consistent savings strategy, no matter how small the contribution.

Here are some tips for saving:

  1. Reduce your expenses by reviewing your spending habits, automating savings, and comparing options for services like cell phone and cable.
  2. Reduce costs through energy efficient measures and lower your electricity bill.
  3. Look for ways to save money on groceries and household items, such as switching to no-name brands.
  4. Regularly compare your car insurance prices and use coupons and promotional codes.
  5. Set a budget and try your best to stick to it.

FAQ

  • When looking for an account to hold your emergency fund, there are three important features to look for: low risk, high returns, and liquidity. You shouldn’t invest your emergency fund in stocks and bonds because there’s a risk you could lose the money. It’s also a good idea not to invest it in certificates of deposit (CDs), because you may incur a large penalty fee if you withdraw the money. Money market accounts and high-yield savings accounts are generally the best places to invest emergency funds.
  • Emergency funds are designed to cover unexpected expenses and sudden loss of income. These include things like a broken car, job loss, injuries sustained, or home repairs.

  • There are many ways to start saving each month and build an emergency fund. The first step is to create a monthly budget. This can not only help you determine your living expenses, but also where you can cut back and save more in certain areas. You should contribute to your emergency fund little by little and try to save a certain percentage of your salary each month, as well as any unexpected income.
  • To increase your emergency savings, find new ways to save. Some ways to start saving right away include canceling unnecessary subscriptions, switching to a higher-yielding bank account, selling used items, and automating savings.

—René Bennett contributed to an earlier version of this article.

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