How Much Emergency Fund Money You Need for Peace of Mind

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Saving enough money for an emergency fund seems daunting for many people. But it doesn’t have to be challenging for you. Developing a savings plan to reach your emergency fund goal is the best way to get started with filling up your bank account.  

So how much emergency fund money should you have? Unfortunately, this question doesn’t have a one size fits all answer. Keep reading to determine how much money you should have in your savings account.  

How Much Emergency Fund Money You Should Have

The money you need in your emergency fund depends on several factors. But most financial experts recommend you stash away three to six months of living expenses for emergencies. However, certain circumstances may warrant saving more than the typical recommendation. Here are a few situations where you may consider bulking up your emergency fund to six months or more of living expenses.

You Live in a One Income Household

If either you or your partner doesn’t work, consider beefing up your emergency fund in case the working partner loses their job or isn’t able to work. Saving six months’ worth of living expenses or more can help you sleep better at night.

You Support Several Dependents

With the cost of groceries rising, having multiple mouths to feed is becoming increasingly expensive. Not to mention the cost of clothing and shoes, childcare, tuition, extracurricular activity fees, and healthcare for dependents aren’t getting any cheaper. Consider your monthly expenses for dependents when determining how much emergency fund money you need.

Your Job is Highly Specialized

If you have a distinct skill set or the field you work in is highly competitive with a saturated job market, it may be difficult to find another job if you should become unemployed. Boosting your emergency fund to cover more than the recommended three to six months of expenses may be in order.

You Live in a High Cost of Living Area

Your money won’t go as far if you live in an area with a high cost of living. Everything from car repairs to home repairs will cost you more money. Saving more than the recommended three to six months’ expenses in your emergency fund can help you handle higher costs if needed.

Your Job Isn’t Stable

If you work a per diem, seasonal, or temporary job, you may want to have more than the minimum recommendation saved in your emergency fund. Going for an extended time without work can wreak havoc on your finances and cause you to take on debt. But having extra money earmarked for when you don’t have an income can help you avoid financial-related stress.

You Have a Medical Condition That Makes Working Difficult

Chronic and persistent health issues make working a job difficult for many people. A well-stocked emergency fund can ease your mind so you can focus on your health. In addition, having a large bank of money to fall back on when you cannot support yourself is necessary for your financial well-being.

You Have a Large Amount of Debt

Suppose you have a mountain of debt, whether secured, unsecured, or a combination of the two. In that case, consider having a heftier emergency fund as a backup if you would lose your income due to job loss or inability to work.  

If you cannot meet your monthly unsecured debt (i.e., credit card debt) obligations, you could acquire late payment fees, your interest rates may rise, and your debt could go to collections. If you miss payments on secured debt, such as your mortgage or car loan, you could eventually go into foreclosure, or the bank could repossess your car. Having a cushion of money is imperative to avoid these situations.

how much emergency fund

How to Save for Your Emergency Fund

If you’ve concluded that you don’t have enough emergency funds, you may wonder how you will save enough to feel secure. A savings plan will help you decide how to boost or start your emergency fund. Keep reading for help with developing your savings plan.

Decide on Your Goal

You will first want to decide how much emergency fund money will help you sleep better at night. As stated earlier, the typical recommendation for liquid assets is three to six months’ worth of living expenses. However, if you have extenuating circumstances, you may consider saving between six months and a full year of living expenses.

Add Up Your Monthly Expenses

You’ll want to include your financial obligations when adding up your monthly expenses. But don’t include monthly costs that aren’t completely necessary for survival. For example, contributing to your child’s 529 plan can temporarily be stopped if you should need to turn on survival mode.  

You also can exclude discretionary costs, like money you use for entertainment or eating at restaurants when adding up your monthly expenses. Why? Because if you lose your job, you would want to reduce your spending as much as possible to help your emergency fund last.  

Calculate Your Emergency Fund Number

Once you determine the number of months you want to save up for and add up your non-discretionary monthly costs, you can calculate your emergency fund number—multiply your number of months by your monthly expenses. For example, if you want to save six months of expenses in your emergency fund and have $3,200 in monthly obligations you want to cover, you would need $19,200 in your emergency fund.  

Develop a Savings Plan

Saving money is challenging for most people. And just thinking about saving such a large sum of money can make you feel hopeless and cause you to throw in the towel before you even start. Creating a plan to stash cash in an account for your emergency fund is essential for meeting your goal.  

Saving that much money for an emergency fund is not an easy task and could take many months to years to accomplish. To develop a realistic plan, you will want to determine the amount of money you can save from your monthly salary. Then, divide your emergency fund goal by the amount you can save. For example, say you have an extra $300 monthly for your emergency fund. It would take around five years to meet your $19,200 emergency fund goal.  

Save Money

Five years may seem like a long time to meet your savings goal. However, there are ways you can increase the amount of money you save each month so you can meet your goal more quickly. Here are a few ways you can increase your emergency cash.

  • Find extra money in your budget: Can you save on your monthly expenses and put that money toward your savings goal (I.e., reduce your grocery bill, get rid of cable TV, reduce your cell phone bill)?
  • Temporarily reduce your “fun” money (money spent on entertainment, eating out, clothing) and live frugally.
  • Deposit your tax refund directly into your emergency fund account
  • Pick up overtime at work, if possible
  • Find a part-time job
  • Start a side hustle
  • Pay yourself first: have money automatically deposited from your paycheck into your savings account, just like you do with your 401K contributions.  

Emergency Fund FAQ

If you still have questions about the ins and out of emergency funds, here are a few frequently asked questions about the topic.  

What is an Emergency Fund?

An emergency fund consists of money you put aside for an unexpected expense or a financial emergency.   

How Much Emergency Fund Money is Enough?

The phrase “personal finance is personal” is famous for a reason. Everyone’s financial situation is different. What may be enough emergency fund money for one person or family may not be enough for another. That’s why you should consider your situation to determine how much emergency fund money you need for your peace of mind.

Where is the Best Place for Emergency Fund Money?

You should keep your emergency fund money separate from your checking account. In addition, you’ll want to keep your money safe by depositing it in the appropriate type of account. For example, don’t invest your emergency funds in the stock market or mutual funds. Instead, you’ll want your safety net money in an account insured by the FDIC, such as a savings account.  

Since you (hopefully) won’t need to withdraw money frequently from your emergency fund account, take advantage of high-yield savings accounts or money market savings accounts to accrue interest on your money.   

What is a Good Emergency Fund?

Most people will want to accumulate a three to a six-month emergency fund. Most financial advisors consider this amount of money in savings a fully funded emergency fund as a rule of thumb. However, there are always exceptions to rules. Consider your circumstances to determine if the money you plan to put aside is right for you.

What is the Difference Between Your Emergency Fund and Savings?

You should keep your emergency fund money separate from other savings accounts. You will use your emergency fund to pay unexpected expenses that arise that are out of your budget. Therefore, you’ll want to keep that money untouched and separate from other cash. It’s best practice to keep your emergency fund money in a different account from where you stockpile cash for your savings goals.

Final Thoughts on How Much Emergency Fund Money You Need

Saving enough money in an emergency fund is a stepping stone to financial security. But knowing how much emergency fund money you need for peace of mind can be a challenge for many people. Use this guide to help you determine if you need to save more than the recommended three to six months of expenses.     

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