Emergency Funds 101: How Much Should You Save?
Written by
Quinlan Grim
Edited by
Emily Gadd
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If you’re living paycheck-to-paycheck in 2024, you’re not alone. In fact, nearly half of millennials are struggling to break the paycheck-to-paycheck cycle. You might not prioritize saving over your day-to-day spending — but an unexpected emergency can devastate your finances.
So, how much should you have set aside for an emergency? Here’s what you need to know.
Key Takeaway
As a general rule, you should have enough saved for about three to six months of expenses. The exact dollar amount you need in your emergency fund depends on your income, family size, and a few other factors.
What Is an Emergency Fund?
An emergency fund is any money you have set aside for an emergency — and only an emergency. This isn’t money you plan on spending on your first home or another big purchase.
That might seem self-explanatory, but not everyone has an emergency fund.
In fact, CNBC reported this year that nearly 50% of Americans say they can’t pay for a $1,000 emergency out-of-pocket. Keeping an emergency fund separate from your long-term savings ensures you won’t have to sacrifice your financial goals or go into debt to pay for an emergency.
Why You Absolutely Need an Emergency Fund
An emergency fund isn’t just nice to have; it’s an absolute necessity to help you avoid going into debt. While you can’t control when emergencies happen or how much they cost, you can control setting aside funds to use when emergencies arise.
If you have a financial emergency and no savings, you’ll need to find another source of funds. This might include a personal loan or credit cards–or worse–payday loans. Getting into debt because of a financial emergency can cost you even more than the emergency itself, with many loans and credit cards charging over 20% interest.
If you have an emergency fund in place, you can simply cover the cost of the emergency and then focus on rebuilding your savings, instead of battling debt and getting further and further behind.
Yes, it takes sacrifice to build up emergency savings; but, it can massively help your financial future to have these funds in place before you pursue other financial goals.
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How Much Should You Save in an Emergency Account?
So, how much should you have set aside for an emergency? The exact number won’t be the same for everyone. It’s wise to have enough money saved to support your household for three to six months. This gives you a financial safety net for things like unexpected repairs or the loss of a job.
For example, if your monthly expenses are around $3,200, then about $20,000 would be enough for a six-month emergency fund.
Here are a few other rules-of-thumb to consider:
One Month of Expenses
If you currently have very little saved, it’s a good idea to set a smaller goal. While saving $20,000 can feel overwhelming, setting aside one month of expenses is more reasonable. Calculate how much money you need to live each month, and set aside that amount. This gives you enough of a buffer to cover most immediate emergencies.
Three Months of Expenses
Once you have one month set aside, it’s a good idea to aim for a larger emergency fund for bigger expenses such as a new roof, medical bills or longer-term job loss. If you have stable income or a dual-income household, saving three months of expenses is a good idea.
Six Months of Expenses
If you work in a volatile industry, such as sales or real estate, or are unsure of the future of your job, setting aside more cash isn’t a bad idea. Some experts recommend saving up to six months of expenses to weather job loss or months where you don’t earn enough. And if you have a family or are a one-income household, six months may make more sense.
Factors Influencing Emergency Fund Size
Here are a few factors to keep in mind when planning your emergency savings:
Your Household Size
Your emergency fund should cover at least a few months of your entire household’s spending. If you live with your partner, your emergency fund should be able to support both of you — and any dependents.
Your Monthly Budget
Consider your monthly expenses. If you lost your source of income due to an emergency, which payments would you still need to make? Your monthly budget might include:
- Housing — rent or mortgage payments
- Childcare
- Grocery budget
- Utilities
- Health, auto and home insurance
- Loan payments
Some payments you don’t need to factor into an emergency budget include:
- Streaming services
- Non-essential shopping
- Vacations and meals out
- Long-term savings, including contributions to your 401(k) or other investment accounts
Potential Risks
There’s no way to plan for every emergency. But you can evaluate your potential risks to be as prepared as possible. For example, if you live in an area that’s prone to fires, keep in mind the cost of an emergency evacuation, which may not be fully covered by your insurance.
Where You Should Keep Your Emergency Fund
To avoid spending your emergency fund before you need it, you’ll want to keep it in a separate account from your checking or long-term savings.
A high-yield savings account is one of the best places to keep your emergency fund. A high-yield account accrues more interest than a standard savings account, so your savings will grow faster.
A money market account offers similar high interest rates and makes your cash accessible enough to help cover emergency expenses. One perk of money market accounts is that many offer the ability to write checks directly from the account. This makes it easy to pay for an emergency without needing to wait to withdraw funds.
Online savings accounts are another easy place to store your emergency fund. Most online savings accounts offer better interest rates than regular banks–and most are compatible with payment apps and services like Apple Pay, Google Pay or Zelle.
You can also keep a portion of your emergency fund in a certificate of deposit, but only in one that offers no penalties. Most CDs pay high rates to lock up your funds for a set period of time and penalize you for early withdrawal. But a “no-penalty” CD lets you access your funds without any extra fees.
Emergency Fund Mistakes to Avoid
Here are a few mistakes to avoid making when saving for–and using–your emergency fund:
Not Saving Enough
Having $1,000 saved in an emergency fund is great–but with inflation and higher costs these days–many emergencies cost a lot more. If you don’t have enough saved, you may need to resort to credit cards or other debt to help out with a financial emergency. Make sure to save at least one month of expenses in your emergency fund–preferably three months or more.
Investing Your Emergency Funds
Emergency funds are supposed to be available and risk-free. If you invest your emergency fund, you risk losing that money, and not having access to all the funds when you need them the most. Choose a risk-free place for your money, such as a high-yield savings account or money market account.
Using Funds for Non-Emergencies
While Taylor Swift tickets are exciting, they’re not an excuse to rob your emergency fund. Using your money for non-emergencies can hurt you later when the funds aren’t available for a real emergency.
Forgetting To Adjust the Amount
As your career and family grows, so do your financial obligations. Revisit your emergency fund amount annually to make sure you have enough. If you have three months of expenses saved–but then add a few kids and a mortgage–you probably need more saved. Adjust the amount needed on a regular basis to stay ahead of any potential financial disasters.
Building up an Emergency Fund
You might not be able to come up with your emergency fund all at once — and that’s OK. You can build it up over time through small transfers, automated savings and side gigs. Transferring a tiny percentage of each paycheck into your emergency account means you’ll be better prepared with each passing month.
The nice thing about your emergency fund is that it doesn’t need to keep growing. Once you have a comfortable six-month emergency fund built up, you can set it aside to focus on your long-term savings and investments.
Tips for Maintaining Emergency Savings
You should always have some money set aside for emergencies. Here are a few tips to follow that can help you maintain your emergency fund over time.
Set a Goal
When saving money for your emergency fund, know what you’re aiming for. Set a goal for the total you want saved, and set savings milestones along the way to celebrate. This can help you stay motivated to save even more and stay the course toward your goal.
Automate Contributions
If possible, automate your emergency fund savings contributions so that you’re adding more to the account each paycheck or each month without even thinking about it. This can help you build your account in the background.
Replenish Used Funds
As you will inevitably use your emergency fund at some point, you should also prioritize replenishing your emergency funds after you deplete some. This helps you maintain the right amount in savings so that you’re always prepared for future emergencies.
When Should You Spend Your Emergency Fund?
Remember, an emergency fund is not the same as a nest egg or retirement fund. You shouldn’t plan on spending your emergency fund unless absolutely necessary. However, your emergency fund can help you avoid digging into your nest egg when something unexpected happens.
You should only spend your emergency fund if:
- The cost is totally unplanned.
- It’s the only way to avoid spending your long-term savings.
- It’s the only way to avoid an expensive loan.
Real Life Examples of Using an Emergency Fund
Here are a few examples of when you might need to tap into an emergency funds, based on recent, real-world examples.
Water Heater Replacement
When I first bought a home in 2012, the water heater started leaking within a year. While money was tight, we had an emergency fund in place to take care of the repair cost. I was able to replace the water with the help from my brother-in-law, and had the $550 cash available directly from my emergency fund savings.
Bees
A few years into homeownership we noticed a buzzing sound in the attic. I confirmed it was bees by watching them fly under some damaged roof flashing from the outside. We immediately called a friendly bee removal service who put the bees to sleep and vacuumed them out safely. The hive was massive and nearly 3 feet across. I gladly shelled out over $500 for the service and slept soundly due to my emergency fund savings.
Car Troubles
Just this month I had two separate car issues. My truck started running very roughly and I could barely drive it. I had to drop it off at a shop and replace part of the fuel system. This cost over $600 for a simple repair (ouch!). I promptly transferred the money from my high-yield savings account into my checking account to pay for the repair.
Something Is Better than Nothing
Whether it’s $2,000 or $100,000, you should have money set aside in case of an emergency. Consider your household size, monthly budget and potential risk factors. Your goal should be to save enough to support yourself for a few months.
If a three to six-month budget feels unattainable, just start wherever you can. Something is always better than nothing. If you start saving today — even if it’s just your spare change — you’ll be better prepared for an emergency in the future.
FAQ
Here are some quick answers to common questions about emergency savings.- Is $20,000 enough for an emergency fund?
- If your monthly spending lands around $3,333, then $20,000 would be enough to cover your expenses for six months, which makes it a good amount for your emergency fund. However, if your monthly necessities cost more – or less – you'll want to save the amount you need for your budget.
- Is a $100,000 emergency fund too much?
- There's no need to save $100,000 for an emergency fund unless your monthly expenses total upwards of $16,000 – which is not the case for most people.
- Is $10,000 a good emergency fund?
- If you live in an area with a lower cost of living, $10,000 might be enough for an emergency fund. For $10,000 to cover you for six months, your household's monthly expenses would need to fall around $1,667.
- Where is the best place to keep an emergency fund?
- The best place to keep an emergency fund is a savings account that pays a high interest rate and makes your fund readily accessible. High-yield savings accounts and money market accounts are two popular types of accounts that are liquid and offer some of the best savings rates around. Plus, your money is FDIC insured and protected by the government.
- What account should you put your emergency fund in?
- You should put your emergency fund in a savings account that is separate from your regular bank account--but also easily accessible. You don't want to mix your emergency savings money with your regular spending money--or risk robbing your emergency fund for a non-emergency. Rather, choosing an online bank high-yield savings or money market account offers a way to earn high interest without the temptation to spend the money.
Jacob Wade contributed to the reporting for this article.
GOBankingRates defined the minimum emergency savings needed in the biggest city in every state as the amount needed to afford three to six months of living expenses. GOBankingRates created estimates of living expenses in these cities by looking at these two factors:
1. Multiplying the national estimate of Average Annual Expenditures from the Bureau of Labor Statistics’ 2022 Consumer Expenditure Survey by the corresponding overall cost of living index from Sperling’s Best Places. This estimate captures the minimum emergency savings needed in every city to continue living the “average” lifestyle for three to six months without cutting any expenses.
2. Selecting only the “necessity” expenses from the 2022 CES’s breakdown of annual expenditures and multiplying them by the corresponding category index value from Sperling’s. Necessities included groceries defined as “food at home” from the CES, housing defined as “shelter,” utilities defined as “utilities, fuels, and public services,” transportation defined as “gasoline, other fuels, and motor oil” plus “other vehicle expenses,” and healthcare. This estimate captures the minimum emergency savings needed in every city to cover basic expenses for three to six months.
Cities were then ranked by their necessary emergency savings. The city that required the least amount of money in emergency savings was listed as No. 1, and the city requiring the most in emergency savings listed as No. 50.
All data was compiled on and is up-to-date as of Sept. 11, 2024.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
