Your Emergency Fund: How Much Is Enough?

Julia Carlson |

Have you ever had one of those months? The water heater stops heating, and a member of your family ends up needing urgent care. Or the dishwasher stops washing, and as you're driving to work, you see smoke coming from under your hood. Bad things happen to all of us, and sometimes it seems like they come in waves.

One survey found that nearly 25% of Americans have no emergency savings. Another survey found that 40% of Americans said they wouldn't be able to comfortably handle an unexpected $1,000 expense.1,2

That’s where an emergency fund would be helpful. How large should it be? The ideal amount will depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to have more instances of unexpected expenses. And if a job loss affects your income, you may need emergency funds for months. That’s where a fund of about 6 months’ worth of expenses can provide a better cushion.

If saving several months’ worth of expenses seems unreasonable, don't despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into a savings account. Once your savings begin to build, you may be tempted to use the money in the account for something other than an emergency. Try to avoid that. Instead, budget and prepare separately for bigger expenses you know are coming.

The only thing you can know about unexpected expenses is that they're coming. Having an emergency fund may help to alleviate stress and worry that can come along with emergencies. If you lack emergency savings now, start with what you can afford now and then build over time in order to create an appropriate cushion for the future.

  1., 2020
  2., 2021

Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision. 

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