Dec 29 2023

How much should you have in your emergency fund?

emergency fund
emergency fund

What’s in your emergency fund? Here’s how much financial experts say you need to stay afloat.

Life is known for its curveballs—whether it be a car breaking down or a sudden medical expense. Having money set aside in an emergency fund is a sound financial practice to help cushion these blows. But how much should you save?

It's a common question that doesn't have a one-size-fits-all answer. Still, most financial experts can agree that it’s important to have enough saved to cover several months’ expenses in the event of a job loss or change.

Currently, Americans’ emergency savings are dwindling.* Almost half of U.S. adults have less or no backup savings compared to a year ago. Inflation and economic changes are contributing factors. It’s a good idea to prioritize paying down debt and building back an emergency fund to regain financial footing.

Emergency fund savings: How much do you need?

emergency fund

How much should you save to feel comfortable when an emergency strikes?

Here are several expert recommendations:

  • Saving three to six months’ living expenses appears to be the general rule, according to investment brokerages like Fidelity and other financial advisors.
  • Dave Ramsey suggests starting with a $1,000 emergency fund, which can be used to pay off debt and help grow your savings.**
  • Ramit Sethi, author of I Will Teach You To Be Rich, advises to “always have one year of emergency fund cash.”

Need help managing your mortgage?

Your local Academy Loan Officer can help you identify opportunities to save.

For many people, saving 12 months of expenses right now may not be possible.

But there are still ways to start building your emergency reserves:

  • Add up your monthly expenses. Then decide on a savings goal for your emergency fund. See where you can trim monthly costs—i.e., quitting a gym membership or eliminating a streaming service.
  • Automate a set amount from your paycheck into an interest-bearing savings account. Some financial experts, like Sethi, suggest transferring 5 percent of each paycheck until you meet your goal.
  • Keep an eye on spending. If you stick to your budget and regular spending habits—without overdoing it—you may have extra cash left over at the end of the month that you can deposit.
  • Sell something you don’t need. Maybe you have furniture in storage or a car you’re not using. Sell it and put the proceeds into your emergency savings.
  • Utilize credit card rewards. If your credit card has cash back rewards, typically paid out at the end of a billing cycle, aim to deposit your reward cash in your emergency account each month.
  • Use your tax refund. The average tax return is around $3,000. Saving a sizeable refund can significantly increase your emergency cash.
  • Take a look at your debt. Ramsey recommends using your $1,000 “starter” emergency fund to begin paying off debt, freeing up more cash for your emergency savings.**
  • Only use funds for actual emergencies. These may include job loss, unforeseen home repairs, vet bills, or a fender bender. Once funds are used, start saving again to replenish.
  • Consider investing some of your emergency funds. If you have thousands saved to protect against job loss, ask your financial advisor about investing some, but not all, of your cash.

Ultimately, the amount you save should be an amount that makes you feel comfortable. If you work in a seasonal industry or at a job that’s commission-based, you may feel better having at least 12 months of living expenses saved. If you have multiple people to support, the amount you save may be larger.

As always, there are exceptions. Ramsey points out that certain life circumstances—like having a baby or anticipating a layoff—may require you to save more.** In scenarios like these, where out-of-pocket needs are greater, you’ll want to increase your emergency savings goal and do what you can to stockpile cash.

Your savings needs may also depend on your age and stage in life. Bankrate’s 2023 emergency savings report shows that “85 percent of Gen Zers would be worried about their ability to pay for a month’s living expenses if they lost a primary source of income, the most of any age group. 79 percent of millennials would be worried, compared to 69 percent of Gen Xers and 53 percent of baby boomers.”*

The purpose of an emergency fund is to help you avoid taking on debt when a big expense arises. Bankrate’s report also notes that credit card dependency has hit a record high.* Right now, a quarter of people would have to accrue credit card debt to cover a $1,000 emergency.

Looking for ways to save on your mortgage?

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