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The amount you actually need in your emergency fund

Feb. 9, 2021 • 5 min read

What we'll cover

  • The essential expenses an emergency fund should cover

  • How to calculate the amount you need for an emergency fund

  • How many months of savings you need for your emergency fund 

When it comes to emergency funds, one size does not fit all. The amount you'll want to save will vary from other people and depends on factors like your income, monthly costs, and if you have any dependents. So, how much do you need in your emergency fund? The general rule of thumb is to have three to six months’ worth of essential expenses set aside in your emergency savings.

But what exactly does that mean? And what is considered an essential expense?

Essential expenses are those things that you truly need to live. This list probably includes rent or mortgage, utilities, groceries, and transportation. 

Essential expenses are those things that you truly need to live. This list probably includes rent or mortgage, utilities, groceries, and transportation. To calculate three to six months’ worth of expenses, start by making a list of the essentials you spend money on each month.

You might find yourself wondering about expenses like dining out, entertainment (such as sporting event tickets), a gym membership, travel, and/or clothes. These outlays are considered discretionary and shouldn’t be considered when calculating how much to set aside in your emergency fund.

Let’s look at an example. Say each month you spend $700 on rent, $100 on your car loan, $25 on gas, $100 on groceries, $50 on utilities, $20 on your streaming subscriptions, and $75 dining out. Your monthly expenses would be $975, because the streaming subscriptions and dining out are non-essential costs.

It might be helpful to visualize your expenses by sorting them in a chart, like the one below.

Essential vs. non-essential expenses

Expense type
Essential Expenses Non-essential Expenses
Rent $700  
Car Loan $100  
Gas $25  
Groceries $100  
Utilities $50  
Streaming Services   $20
Dining Out   $75
Total Monthly Essentials $975 -
Total Monthly Non-Essentials - $95

Once you’ve sorted your expenses, take your monthly essential expenses ($975) and multiply it by the number of months you decide to save for (6) to help determine how much you should have in your emergency fund:

$975 x 6 months = $5,850

Don’t worry if that emergency fund amount doesn’t seem reasonable, because it’s all about finding the number that seems right to you.

Once you’ve determined your target emergency fund amount, you’ll need to figure out how much to save each month to reach your goal. An easy way to do this is to subtract your monthly expenses from your monthly income to determine how much money you have left over each month. With that information in hand, decide on an amount you want to put towards your emergency fund each month, and start saving.

Once you determine your monthly expenses and savings goal, you can also use our emergency fund calculator to help identify how much you can afford to save each month.

If you feel discouraged about ever achieving your savings goal, think in small amounts first. You can start by microsaving. With this technique, you’ll save small amounts of money — consistently working your way towards your target.

Should you save for three or six months’ worth of expenses?

Understanding how many months to save for your emergency fund may seem confusing. Three months? Six months? Somewhere in between? Always keep in mind that the most important thing is to find a number that you feel good about for your specific situation.

Evaluating your job security and household income can help you when deciding — would a job loss affect your insurance? If you’re in a two-income household, it’s also worth considering how much you might need in the event that both incomes are affected. Other items to factor in might be things out of your control, like if you own an older vehicle, home, or household appliances. Thinking about your current lifestyle expenses will also help give you an idea of how much you should save to be comfortable.

For example, let’s take an average 30-year-old, who spends around $4,705 each month on both essential and non-essential expenses (according to the 2018 Consumer Expenditure Survey). This means if they were planning on saving for three months, $14,115 would be an advantageous amount to have in their emergency fund. If they choose to save for six months’ worth of expenses, they should probably pan to save $28,230 in their savings fund. Of course, there’s nothing that says you shouldn’t save more than six months’ worth of expenses — you can always save more, if that makes you feel safer and better prepared for an emergency.

Don’t forget that these amounts above are based on national averages from the U.S. Bureau of Labor Statistics and may not resonate with your lifestyle, as everyone’s situation is different.

Where should you save your emergency fund?

You may be debating a certificate of deposit  (CD) vs. savings account when determining where to keep your emergency fund.

In an emergency, you will likely need to have immediate access to your savings. For instance, keeping your emergency fund in a savings account with a competitive interest rate, like our Online Savings Account , allows you to easily withdraw your money without a penalty, while earning compound interest on your original principal and your accumulated interest.

Money Market vs Savings Account
Account Account description
Certificate of Deposit (CD)
A certificate of deposit offers a fixed interest rate on your savings, but it is harder to access your money in one. If you withdraw your money before the agreed upon term, you will likely have to pay an early withdrawal penalty.
Savings Account
A savings account allows to grow your money and easily access it, typically without a fee. Online savings accounts also offer competitive annual percentage yields (APYs). There may be limited withdrawals each month, but you could transfer funds into your checking account to write checks.
Checking Account Your checking account allows you to access your money whenever you would like, but you might not earn any interest (or the interest rate might be low). Also, depositing your emergency fund in your checking account may blur the lines between the money you’re saving and the money you’re spending, making it easier to fritter away your savings.
Money Market Account
A money market account pays interest and provides easy access to your funds. But you may have to maintain a minimum balance to avoid maintenance fees, plus you’re only able to make a few withdrawals each month — making it difficult to pay for a financial emergency if it involves numerous bills.
Investing Account Investing your money in stocks, bonds and mutual funds has the potential to increase your returns, your assets won’t be easily accessible and you also risk losing money.

To make saving for an emergency easier, we allow you to create savings buckets within your Online Savings Account. Think of these as digital envelopes that help you differentiate your emergency fund from your other saving goals.

When you can separate your different savings goals, it’s easier to achieve them and resist from dipping into your emergency-specific fund.

Start building your emergency fund now, and you’ll thank yourself when your car needs an expensive repair, or you receive an unexpected medical bill. Use this guide to help you set your emergency savings goal amount and strategize how to meet it.

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