Keeping This Much in Your Emergency Fund Should Be the Absolute Minimum

It’s a good financial goal to have an emergency fund ready if needed.

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Updated May 28, 2024
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Life can throw any number of surprises your way, and some of those surprises could cost you financially. To prepare, you may want to have an emergency fund, which is a reserve of money that won’t be touched unless you’re facing the unforeseen. Things like illness, loss of employment, accident or injury, and home or car repairs are where you’d use these reserves to help you through.

To know how much you should have in this fund, carefully examine your finances as a whole, along with other details that make up your life and lifestyle. Here are some ways to know if your emergency fund is enough, and a few ideas to help your savings work best for you.

Consider your monthly costs

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An emergency fund isn’t just to pay for the emergency itself, but the fallout you may incur as a result. For example, if you can’t work as a result of the emergency, you could still have a cushion to get you through.

Take a look at your monthly costs — rent or mortgage, groceries, utilities, and credit card bills. Once you get a general number for your monthly costs, multiply it by the months you’ll want to cover. A good rule to have for your emergency fund is to keep about three to six months’ worth of those costs on hand.

Don’t forget your income

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Factor your income into your calculations because it can help you decide how much you can set aside in your budget for your fund. An emergency fund may take some time to build up, so look at your income when deciding how much you’re comfortable saving each month for an emergency fund. If you have a higher income, you may want to consider saving a little more and perhaps try to cover closer to six months of expenses in your emergency fund.

Count your dependents

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If you’re a parent, calculate how much you spend on your kids each month. Include day care or preschool expenses, after-school activities, and sports or club fees. Don’t forget older dependents like a parent who may be getting financial assistance from you. And remember your furry friends. Dogs and cats require food and medical care, so you may want to have your emergency fund cover them.

Look at your lifestyle

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Your own spending habits may also be accounted for when considering your emergency fund. If you enjoy going out with friends on a regular basis or spend money on big-ticket items like the latest phone, you should factor that into calculations. Also think about what you can and can’t forgo if you need to dip into your emergency fund. If you don’t mind skipping dinner out, then don’t include that in your fund. On the other hand, if there are things you still want to have covered by your fund, consider adding some extra cash to cover those expenses.

Consider how to save for your emergency fund

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After looking at your expenses, your next step is to save money within your budget. Think about other expenses that you would like to cover each month and which ones you can cut if needed. Perhaps you can lower your credit card bill or pay off any existing debt. Or you may want to put money into a retirement fund or 401(k) before you save money for an emergency fund. It’s good to factor in these non-emergency costs because it could set a specific amount for your emergency fund to help you stick with your budgeting goal and save money on a regular basis.

Be smart about where to put your emergency fund

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One of the most important factors to consider when deciding where to put your emergency fund is liquidity. You’ll want to have that money available immediately when an emergency arises. Think about using one of the best savings accounts for an emergency fund like this. It will allow you to earn interest on the money you’re saving while still being able to pull cash out quickly if you need it. And if you have it earmarked in a savings account, it may be less tempting to use it for other expenses than if you had it in a checking account. 

You may also want to consider having a prepaid card that you add money to. Then set the card aside in a safe place and only take it out if you need it for an emergency. And of course, you can also have some cash set aside at home as well in case you need it on hand for any expenses.

Know when to use your emergency fund

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Remember to set some limits for yourself about what is and isn’t an emergency. A car accident or losing your job are good reasons to use the fund. Even an unexpected co-pay at a doctor’s office might make you dip into the savings. It may be tempting to see that large chunk of money you worked so hard to save and spend it on non-emergency items instead. Setting clear goals now for that cash could help prevent you from spending it later. That being said, don’t be afraid to use it if you need it.

Bottom line

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An emergency fund is a good thing to have during good economic times and bad economic times. Talk to your bank about them about the different ways you can start saving now for surprise expenses later. You never know when you may need a little bit of help to cover unexpected expenses or your typical monthly bills.

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Author Details

Jenny Cohen

Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and