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How Much Should You Be Saving for an Emergency Fund?

Updated: May 3, 2023


An emergency fund in a glass.

I've had more than one emergency fund conversation with friends and family, and it always goes the same way: They ask me about my savings account balance. I explain that I'm trying to build up an emergency fund so that if something bad happens like losing my job or getting hit by a car, I'd have money set aside to help pay for unexpected expenses. They usually reply by saying how much they wish they could save up some money in case of emergencies like these — then they ask me what kind of amount is ideal for an emergency fund. And that's when things get complicated!


Emergency funds are designed to cover you in case of an unexpected financial setback. If your car breaks down, or if there is a fire or flood at home that damages your property, an emergency fund can help pay for repairs and replace lost items. It can also be used when faced with other unexpected expenses such as medical bills or legal fees. It's important not to tap into this money unless absolutely necessary because once it's gone, that's it--the only way to replenish an emergency fund is by saving more money! It's recommended that everyone has at least three months' worth of living expenses saved up as part of their overall financial plan (more on this later).


The goal is to save enough money to handle three to six months' worth of expenses. This is the bare minimum, but it's better to have more than you need than less than you need. You don't want to run out of cash and be forced into taking out a loan or putting yourself into credit card debt because you were unprepared for an emergency expense.


A good rule of thumb is to aim for saving about six months' worth of regular living costs. This amount will vary depending on your income and expenses, so let's look at an example:


Let's say that you earn $2,000 per month (not including any bonuses), and spend $1,500 on bills and other necessities. In this case, you would need to save up enough money so that if something unexpected happened and all of your income was cut off for six months (or however long it takes), then you'd still have enough left over each month to cover the cost of living under those conditions. That means saving up about $9,000 total in order to safely guard against emergencies--but if something did happen during those six months (such as losing your job), then having this much saved would mean not having any problems paying rent/bills or buying groceries until things got sorted out again!


The amount you save for an emergency fund is up to you and your situation. The general rule of thumb is to have three months' worth of expenses in savings, but this can vary based on income, expenses, and how long you need the money for. If a job loss or medical emergency were to occur tomorrow, would it be enough? If not--and if saving more than three months' worth isn't feasible--it's better to have some savings than none at all. However much money is available should go toward building up that safety net as soon as possible; otherwise when an unforeseen expense arises (like car repairs), it could throw off your budget even further than expected.


Once you have an emergency fund, use it only for emergencies -- not for routine expenses like car repairs or furniture replacement. An emergency fund is designed to be accessed in times of financial crisis, and using it for things like fixing your car may not qualify as an actual emergency. You can use the money in your emergency fund to pay off debt or cover large unexpected expenses (like hospital bills), but not things like routine home maintenance costs.


You can also use your emergency fund to help pay off debt -- especially high-interest debt, like credit cards and personal loans that charge interest rates higher than 15 percent. If you have high-interest credit card debt, for example, putting money into an emergency savings account may be a good way to start paying it down each month. However, don't use your emergency fund for non-emergencies like routine expenses like groceries or rent. If you do this consistently over time and don't build up a sufficient emergency fund again in the future, then when something bad does happen (like losing your job), there won't be anything left over in case of an actual emergency!


If you have children or dependents who live with you full time, you should consider saving more than three months' worth of expenses so they won't go without food or healthcare if they're unable to work during an emergency situation. This is because the amount of time it takes for your savings to run out depends on your income level and type of job as well as other factors like how much debt you carry or housing costs. The more money that comes in each month and the higher those expenses are, the longer those funds will last. If there's a chance that someone could be out of work for several months (or even longer), it might make sense for them to have enough money saved up so no one goes hungry or without healthcare during that time period.


Having an emergency fund will help keep your finances stable when life throws a curveball at you. It's easy to forget about unexpected expenses, but they can add up quickly. If you don't have the money for them, it's better to have it tucked away somewhere rather than getting into debt. Having an emergency fund means that if there's ever something that comes up and requires immediate attention (like needing to replace your car because it broke down), then there won't be any hesitation or worry about whether or not this expense is going to put too much strain on your budget. It also means that if something does happen like losing one's job or having medical bills pile up unexpectedly, then one has time to figure out how best handle these issues before they become too big of problems--and thus become larger and more difficult problems later down the line when things go wrong because someone didn't prepare properly beforehand!


The best way to save for an emergency fund is by setting aside money every month. We recommend starting with a small amount and gradually increasing it over time until you reach your goal. You can do this automatically by linking up your checking account with an online savings account or creating automatic transfers from each paycheck into a separate savings account (or even a jar at home!). When life gets busy and stressful, it's easy to forget about saving money -- but if you make it part of your routine like getting groceries or paying bills, then hopefully that will keep things in check!





Disclosure: For Change Financial only recommends products we would use ourselves. All opinions expressed here are our own. This page may contain affiliate links and we may earn a small commission, at no extra cost to you. Read our full privacy policy on our website.


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