How Much Should an Emergency Fund Be?

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An emergency fund can be a financial lifesaver when unexpected expenses or job loss occur. A common rule of thumb is to save three to six months’ worth of expenses — closer to six if your income is variable, and around three if you have a stable paycheck.

Good To Know: Emergency Fund Basics

• What it is: A cash reserve for unexpected expenses — so you don’t have to dip into your regular savings.
• How much to save: Aim for three to six months’ worth of expenses.
• When to use it: Job loss, medical emergencies, car or home repairs, unexpected travel costs
• Where to keep it: A high-yield savings account for easy access and better interest

How Much Should You Save in an Emergency Fund?

A good rule of thumb is to save three to six months’ worth of expenses. A three-month cushion may fit those who have a stable, consistent income, while a six-month fund is more appropriate for freelancers and independent contractors.

Not sure how much to set aside? This table offers a quick guide.

What Factors Influence Your Emergency Fund Size?

Building the right-sized emergency fund requires evaluating certain factors. 

Household Size

Larger families will need more of an emergency fund than a single adult or a couple. The expenses in a larger family will likely include food, health care and childcare. Your emergency fund should be able to support you, your partner and any dependents. 

Monthly Expenses

Consider your monthly expenses. If you suddenly lost your source of income, 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

Job Stability and Income

If you’re a contractor, freelancer or someone who doesn’t necessarily receive a consistent paycheck, consider saving closer to six to nine months’ worth of savings. Those who have more of a stable income may be able to have a smaller cushion. 

Location and Risk Factors

Living in a place where health care costs are high or there are greater chances of natural disasters may justify having a larger emergency fund. 

Where To Keep Your Emergency Fund

Not all savings accounts are created equal — here’s how the top options compare.

Where Not To Keep Your Emergency Fund

If you want to keep your emergency fund safe, you want to avoid accounts and investments that are too risky or volatile. Those accounts include: 

• Stocks or mutual funds: The shifts in the market could wipe out your savings. You don’t want to be vulnerable to the volatility of the market especially when you need the funds the most. 
• Cryptocurrency: It isn’t ideal to invest in crypto since it has wide fluctuations. 
• Retirement accounts: You want easy, penalty-free access to your funds, and withdrawing funds from retirement accounts may trigger various penalties. 

How To Start Building Your Emergency Fund

It is easy to start building an emergency fund, but you need to be consistent in order to make it grow. Here are a few tips: 

Set a Target Goal

Decide how much you need to save for your emergency fund. It may be $500 or $1,000 to start. Keep building toward saving three to six months’ worth of savings. 

Open a Separate Account

Ideally, you want to open a separate account for your emergency funds. A high-yield savings account will help your money grow.

Automate Your Savings

You can set up automatic transfers so that every time you get paid, funds will be sent to your savings account.

Cut Unnecessary Spending

Take a look at your expenses and determine if you can cut some of these costs. You can look at cutting subscription services, eating out or impulse shopping. 

Mistakes To Avoid With Emergency Funds

Here are some common mistakes you should avoid with your emergency fund:

• Not saving enough. Don’t underestimate how much you should save. It could leave you short, especially when you need the money. 
• Letting the funds sit in a low-interest account. Give your money a chance to grow, and make sure you invest the funds in a high-yield savings account. 
• Keeping funds in a risky investment. Don’t place your funds in stocks or other volatile investments. 
• Using the funds. Don’t spend the funds on vacations or shopping. You need to use your funds for true emergencies. 

Final Take: Just Start Saving What You Can

Ready to build your fund? Start with these practical steps.

• Tailor your emergency fund based on the number of people in your household, your monthly budget, job stability and risk exposure. 
• Start small and stay consistent with your emergency fund. Begin with $500 to $1,000 and automate transfers. Build up gradually without derailing your other financial goals.
• Save three to six months of expenses. Independent contractors or those with less stable income may want to consider saving six months’ worth, while those who have stable jobs may want to think about saving three months’ worth of expenses. 
• Allow your emergency fund to grow in a high-yield savings account.
• Don’t use your emergency fund for vacations, shopping trips or a non-emergency. 

Quinlan Grim and Jacob Wade contributed to the reporting for this article.

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