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How Much Should I Have in an Emergency Fund?

Now more than ever, financial experts are touting the importance of an emergency fund. But what if you don't have one? How much money are you supposed to have socked away, exactly?

Creating a personal financial safety net amid a global pandemic and recession is no tall order. But if you have a bit of extra cash flow, here's what you need to know about how much money to save for your emergency fund.

 

Building an initial emergency fund

The size of your emergency fund will depend on your lifestyle and financial obligations. A single 20-something just out of college will need a much different amount than a married mother of three with a mortgage.

That said, everyone needs a starting point. Financial expert Dave Ramsey suggests aiming for a starter fund1 of $1,000. This is a good starting point if you haven't saved up much yet. The $1,000 benchmark is enough to help you stay afloat when unexpected costs like a check engine light or broken water heater pop up. It may not be enough to cover the total expense, but it can be enough to help you avoid taking on a mountain of high-interest debt.

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Most experts recommend saving up enough to cover three to six months of expenses, or enough to cover up to 12 months if you have a variable income.

 

Expanding your emergency fund

Once you have your first $1,000 saved, it's time to beef up your emergency fund to handle bigger emergencies, such as a job loss or medical situation. Of course, you hope that these issues never arise, but at least you can be prepared if they do. Most experts recommend saving up enough to cover three to six months2 of expenses to be safe. If you have a highly variable income or an unusually high level of financial responsibility, saving up to 12 months of expenses can potentially be a good idea.

The good news here is that you don't need to save for every single expense that you would have during more financially stable times. For instance, don't worry about saving enough to cover retirement or 529 contributions -- you're planning for a financial emergency, after all. And there are likely items in your budget that you could easily cut back on during tough times, such as your Hulu subscription or weekly takeout. Instead, take a look at your family budget and aim to save for your monthly fixed and variable expenses, minus savings and discretionary spending.

Keep in mind that even if you can afford it, you don't want your emergency fund to be too big.3 It should be enough to float you through tough times, but not so large that you neglect other important financial goals such as paying down debt or investing.

And remember, if you need some guidance regarding how much, exactly, you should have saved based on your expenses and lifestyle, it never hurts to get a professional opinion.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Rachel Cruze, A Quick Guide to Your Emergency Fund," Daveramsey.com, https://www.daveramsey.com/blog/quick-guide-to-your-emergency-fund, accessed October 30, 2020. Back
  2. John Egan, How Much Money Should You Have in Your Emergency Fund?," Experian, https://www.experian.com/blogs/ask-experian/how-much-emergency-fund-should-i-have/, published April 18, 2020, accessed October 30, 2020. Back
  3. Arielle O'Shea, Is Your Emergency Fund Too Big?" Nerdwallet, https://www.nerdwallet.com/article/investing/is-your-emergency-fund-too-big, published October 26, 2020, accessed October 30, 2020. Back