An emergency fund can serve as a safety net for life’s unexpected financial setbacks. Yet, Empower research reveals more than 1 in 5 (21%) Americans have no emergency savings set aside for unexpected financial events such as job loss, home and car repairs, and medical bills. Nearly 2 in 5 (37%) couldn’t afford an emergency expense over $400.
Preparing for a potential financial emergency can give you peace of mind that your essential expenses will be covered in turbulent times. So, how much should you have in an emergency fund?
When it comes to emergency savings, there are varying opinions about how much cash you should have or where it should be kept. How much is too much cash? What is too little?
There is a “just right” number — but it is highly individualized and subject to change, which explains a lot of the confusion. Where you keep your cash, however, is more clear-cut.
How much should you save in your emergency fund?
Saving enough cash to cover three to six months of expenses based on your average monthly spending isa good goal.1 Yet Americans have accumulated a median emergency savings of just $600, according to Empower research. Baby Boomers and Gen Xers have put aside the most for the unforeseen with median savings of $1,000 and $868, respectively, and Millennials and Gen Zers the least with median savings of $500 and $200, respectively. The median savings for men sits at $1,000 — twice as much as the median savings for women.
Finding what amount works best for will requires getting personal. First, calculate your monthly earnings and your average monthly spending. This number can exclude non-essential spending, such as dining out, travel, or shopping. Just concentrate on your unavoidable costs, such as housing, utilities, healthcare, transportation, food, debt or credit card payments, or other expenses.
Then, add up your current savings.Do you have enough in savings in case you lose your job or have a minor emergency? Consider how much you're setting aside monthly, as well as how soon you’d like to achieve your savings goal.
Once you determine how much you need for one month, consider how many months you’d like to save for. Picking your multiplier depends on your personal circ*mstances. Is your job secure? Do you have a family depending on your income? Do you have other sources of income?
If you are healthy, have a working spouse and no children, three months of savings will likely suffice. If you support children, have one income source, or simply want to have a larger safety net, six months or more might be the right number. As your circ*mstances change, your savings goal may need adjustments, as well.
Once you have a well-considered, rational amount for your emergency-fund level, you’ve found your number.