How Much Money Should I Have in an Emergency Fund?

Couple teaches young daughter to save money for emergency fund

Emergencies happen to everyone, regardless of whether you have a steady income or are struggling to manage your finances. 

Unexpected expenses are just that – unplanned. Imagine if your car blew two tires tomorrow, or if you broke your ankle and had to go to the hospital. Would you be able to pay for these expenses? 

If so, you’re probably well on your way to a well-planned emergency fund. And if not, here are tips for getting started. 

What Is An Emergency Fund? 

According to the financial experts at Vanguard, an emergency fund is money that you set aside to cover any financial surprises that come your way. 

If something unexpected happens that severely impacts your income or expenses, you can fall back on your emergency fund to cover the costs without going into debt or disrupting your financial goals. It’s basically having money that you intend to spend unexpectedly. 

When would you use an emergency fund? Examples can range from a job loss to medical needs to car or house problems. If you get laid off from your job, an emergency fund would provide enough money to get by while you search for your next employment opportunity. If your car breaks down, you can afford to pay for repairs or buy a new one. And if a major appliance breaks and isn’t covered under your home warranty, you can replace it.

How Much Do I Really Need in An Emergency Fund?

How much money should be in your emergency reserve varies based on your family’s living expenses? You need to do the math to calculate your recurring expenses and determine how much your target amount should be.

Dana Anspach of The Balance says, “At a minimum, you should have three months of living expenses in your emergency fund.” Couple teaches young daughter to save money for emergency fund

However, if you have dependents who don’t have their own sources of income — like children or a stay-at-home spouse — that fund should cover six months of living expenses. So, what you should have saved away could range from $3,000-$30,000. It’s all based on what you’d need.

Track all your expenditures for a month, determine which are essential and calculate how much you spend on them. Typical living expenses might include:

• Mortgage payments
• Utilities
• Car Payments
• Gas
• Insurance costs
• Cell phone bills
• Groceries
• Prescription drugs for you and your pets
• Major memberships you wouldn’t want to cancel

You should take age, career field and available government assistance into consideration when you determine how much money should be in your extra savings.

Why Do I Need An Emergency Fund?

It should be clear by now that setting aside money specifically for emergency situations gives you the peace of mind that you can handle unexpected setbacks. 

Another reason, Anspach explains, is that having an emergency stash protects your other long-term investments. You can reduce the long-term financial impact of an emergency this way so you’re not withdrawing from your retirement fund, selling stocks or taking out loans.

How Can I Save For An Emergency Fund?

An emergency fund isn’t something you can build in a single paycheck. It takes time to grow your emergency fund so you can still manage your everyday bills. In an interview with CNBC, Jeremy Straub, CEO of Coastal Wealth, advised setting aside 5-10 percent of every paycheck until you reach at least three months’ amount.

Even if you don’t think you can spare the money every month, it’s in your best interest to funnel some of your paycheck into emergency savings. Find ways to trim your monthly expenses so you can put money aside every time you’re paid.

Where Should I Keep My Emergency Fund?

An emergency fund won’t do you any good if it’s somewhere you can’t easily access it, like in your retirement fund. That’s why best-selling author and Dave Man withdraws cash from ATM Ramsey contributor Rachel Cruze stresses the importance of having a liquid emergency fund. 

That means keeping it in a checking or money market account that has debit or check-writing privileges. Just make sure you keep it separate from your other everyday money accounts so you’re not tempted to dip into your emergency fund for unnecessary reasons.


Whatever your financial situation, having money set aside for the unexpected will give you peace of mind that you can handle whatever happens. 

How to Create a Financial Plan for the Future

Creating an emergency fund is a great start toward building a secure financial future. See how talking to one of our financial advisors can help, too – no matter where you are in your savings journey. It’s never too early to get started! 

Learn More About Financial Planning >> 

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