How much money should be in an emergency fund? Here are specific emergency fund example amounts to help you build a safe amount.
I’ve had to use my emergency fund more than once over the years.
Which is why I want to offer you emergency fund examples so that you can understand the amount of emergency fund you need in your own situation to be safe, examples of emergency expenses versus things you should not use your emergency fund to pay for, and more.
Going through this article and sitting down to figure out how safe your emergency fund is (or how to start one and the amount you need), could mean the difference between:
- you riding out the next financial storm
- you ending up on your mother’s couch
So, let’s get started!
Why People Need an Emergency Fund
Before we dive into actual examples, I want to really help you to understand why people (and you!) need an emergency fund at all.
Every account in your life has its place.
A checking account is where your bills come out of it, and should be filled with enough money to cover monthly expenses plus a small buffer for covering variable spending and expenses (like when your natural gas bill goes up in the winter versus in the summer).
A savings account is where you stash money away for specific savings goals.
And an emergency fund?
Well, that’s for life’s unexpected expenses and financial surprises.
Not all of them, mind you. Just the ones that you can’t cover from either:
- The buffer in your checking account
- By spending less in one month
- By taking out of your regular savings
What types of unexpected expenses and financial surprises am I talking about?
What are Examples of Emergency Expenses?
Emergency funds should not be tapped for when you spend a bit more than you should in a week or until next payday.
Rather, they are something you have in the event that unexpected and unforeseen expenses come at you and there’s no way they can be absorbed from your checking or savings account.
They’re sort of like your own personal safety net.
Unexpected emergencies and financial surprises include things like:
- Job Loss: Losing your job, and needing money to cover your basic bills
- Car Accident without Comprehensive Auto Insurance: When you don’t have comprehensive auto insurance, and you suddenly have no more transportation until you get your own car repaired
- Unexpected Travel Plans for a Funeral: Someone near and dear to you passes away unexpectedly, and you need to get airfare and a hotel to make the funeral
- Unexpected Medical Emergencies: Such as when I gave birth to our son, he was in the NICU for three days and I had to be readmitted for a total of 10 days (resulting in medical bills more than twice the $5,000 I had set aside into a regular savings account for our planned birth costs)
Notice that there are lots of things not on this list (some you may even be thinking should definitely be on this list)?
Let’s talk about planned, unexpected expenses and why they should be part of your savings vs. your emergency fund account.
Emergency Fund VS Savings
I’d like to address one more thing here that can be a sticky subject, but needs to be talked about.
Because understanding this can save you big time when an actual emergency does hit.
There are areas in your life where you can predict certain “unexpected” expenses.
You may be thinking, “what do you mean predicting unexpected expenses? Doesn’t part of the definition of unexpected include not being able to foresee it?”
Think about this – if you own a home, then you know you’re going to spend money on maintenance. If you own a car? Then you know you might blow a tire.
These are just things that we all know, but hardly any of us take the time to estimate what these more “maintenance” financial surprise costs could equal over a year or two years’ time, and then to set that money aside in regular savings.
Let me give you some rules of thumb, so that you can start to see these expenses as predictable, unpleasant surprises rather than emergencies.
- Home Maintenance Surprises: The experts tell us that we should expect to spend between 1% and 3% of our home’s value on maintenance issues that creep up throughout the year. Having owned an older home for over 10 years where we’ve been “surprised” by things like water heater failings and pipe failures, I can say this is quite true. Our last home was purchased for $165,000, so using this rule, we should set aside between $1,650 and $4,950 each year in a savings account to deal with these issues.
- Car Maintenance Surprises: Take into account the age of your vehicles, and set aside money in a savings account for car maintenance and repair issues. Triple AAA says the average auto repair costs between $500 and $600, and that you should be setting aside $50/month in a car care fund for these “unexpected” (but semi-plannable) expenses.
- Insurance Coverage Surprises: If you have to use one of your insurance policies, do you have enough to cover your deductible cost? Look up the deductibles you’re responsible for on each of your insurance plans – medical, dental, vision, auto, rental, home, etc. – and have that in a savings account outside of your emergency fund.
How Much Money Should Be in an Emergency Fund?
To figure out how much should be in an emergency fund, you have to know two things:
- Your expenses each month
- How many months you want to set aside funds for
Then, you just multiply those two numbers together. For example, if your expenses each month are $2,500, and you want to set aside enough funds to cover you for 8 months, then your emergency fund needs to be $20,000 ($2,500 X 8 = $20,000).
We’ll look closer at how to come up with those two pieces of information for your specific situation.
Figuring Out Your Monthly Expenses
Here’s a key piece of information that I want you to take away from this article:
Your emergency fund is calculated off of your basic expenses each month, not off of your entire spending or your take-home pay each month.
Some basic expenses examples for you:
- Minimum debt payments
Notice what’s not on that list? Things like entertainment costs, beauty costs, and subscription costs should not be included in your emergency fund calculation.
That’s because if you were facing an actual emergency – like one person losing their income – then you can just stop spending in those extra categories.
You could go down to what I like to call a bare-bones budget as part of your strategy to stay afloat.
This is actually great news – because it makes it much more doable to save up that 6 to 8-month fund.
Figuring Out How Many Months Your Emergency Fund Needs to Cover
How many months your emergency fund should cover your bare bones expenses really depends on what financial and life situation you’re in at the moment, and on your risk tolerance level.
- 3-4 Month Emergency Fund (Risky): This is on the low side of how much you should put away, and could be recommended for younger people without families to feed (and with parents to fall back on in times of trouble). You might also consider just a 3 to 4-month emergency fund if you’re deep in trying to pay down your debt (here’s our own get out of debt story), and certainly only if you have other financial things to fall back on like full insurance policies.
- 6-8 Month Emergency Fund (Moderate Risk): There are many reasons to save up at least 6 to 8-months of expenses to get you through. Families with just one working spouse will want to at least have this much, since unexpectedly losing a job would wipe out your entire household’s income instead of just part of it. If you’ve got kids? Then this is a good category to shoot for.
- 9-12 Month Emergency Fund (Conservative): This is much more conservative, where I tend to fall when it comes to my money. You’ll want an emergency fund that can sustain you for 9 to 12 months if you’re starting a business (for sure – you might even want to build up one bigger than this), and for all of the other reasons discussed in the 6 to 8-month fund category. Also, when it looks like the economy is on the decline (here’s my article on how to prepare for a recession), then you definitely want to get more into your emergency fund to sustain you over the long haul.
Alright – let’s make this come alive. We’re now going to look at some specific examples and calculations that you might be able to relate to, so that you can start to see what your own emergency fund should be.
Emergency Fund Examples
Let me give you an example of just how much easier this makes it to save up for an emergency fund.
Emergency Fund Example #1: Sue and John
Household Makeup: A dual-income household with two kids, who own their own home.
Let’s say Sue and John bring home a combined $5,000 per month after taxes, retirement contributions, and everything else is deducted from their paychecks.
A typical month’s spending is about $4,500 for them, and they stash away $500 each month towards regular savings.
Sue originally thought that they needed to base their emergency fund amount on the $4,500 in monthly expenses. Which means they would need to have a whopping $27,000 to $36,000 set aside for a 6 to 8-month emergency fund!
<Sue panics a little>.
But then she looked closer at their spending, and realized that basic expenses for them each month is only $3,000, not $4,500.
They multiply that $3,000 out, and find that a 6 to 8-month emergency fund would be between $18,000 and $24,000 ($3,000 X 6 = $18,000, and $3,000 X 8 = $24,000).
Not the $27,000 to $36,000 they had feared!
Emergency Fund Example #2: Carly
Household Makeup: A single-income, single-person household, only two years out of college, and rents.
Carly just graduated college about two years ago, and landed herself an entry-level position making $40,000 per year (right in her old college town).
She brings home around $2,500 each month, after paycheck deductions.
She’s got almost two years of experience under her belt at this job!
Her rent and expenses are pretty cheap – just $2,300/month – but since she’s just starting her career, they eat up most of her paycheck.
With debt payments (her student loans and car note), her bare-bone expenses each month are still around $1900/month.
For a 3-4 month emergency fund, she calculates that she’ll need to set aside between $5,700 and $7,600.
She’s working hard at making this happen, and has about $3,400 set aside so far for unexpected emergencies.
Good thing she only lives 1.5 hours away from her parents, and that they haven’t turned her bedroom into a spare library yet!
Emergency Fund Example #3: Sandy and Jeff
Household Makeup: A dual-income household turned single income (with some money coming in from one person’s business they’re working on building), three kids, and they own their own home.
Sandy and Jeff used to be a dual-income household, but they saved up a 12-month emergency fund so that Jeff could quit his daytime job and start his own company from home.
Their original take-home pay each month was $7,000, with spending at $6,000/month (and then setting aside $1,000 each month to build up that emergency fund so that Jeff could quit his job).
Now, their take-home pay fluctuates. With Sue’s steady job, they at least have $3,500 each month they can count on. Then Jeff’s business brings in anywhere from $0-$2,500/month right now.
They took the time to really decrease their spending and cut costs so that their expenses were less each month, and now they only spend around $4,000/month on bare-bone necessities.
Their 12-month emergency fund is stocked with $60,000, since they based it on their previous spending of $5,000/month.
Next up, I’ll share with you where we park our own emergency fund, and what you want to look for when deciding on where to store yours.
Where to Park Your Emergency Fund
Now that you have a much better idea of how much you need to set aside for your emergency fund, let’s talk about where to put it.
You need to keep this money in a safe location that is also very accessible, first and foremost. For these reasons, most people keep their emergency fund in an FDIC-insured savings account that earns some interest.
Keeping your emergency fund in a mason jar at home may make things highly accessible – but that’s often the problem with choosing a mason jar for your money. Others find it accessible as well. Not only that, but what if the unthinkable happens and there’s a fire in your apartment or home? Your emergency savings could literally go up in smoke.
Having said that, it’s not a bad idea to keep some money at home that’s accessible in an emergency situation (here’s my article on creating homemade diversion safes).
And don’t forget that online savings accounts tend to earn much more interest than a savings account from your brick-and-mortar bank.
We personally use PurePoint Financial for our savings accounts (including our emergency account). They not only pay us 1.25% APY interest on our money, BUT, they only take one-day to withdraw that money and put it back into our checking account in the event that we need it (at no extra cost).
Now, let’s talk about one last thing.
You Need to Always Replenish Your Emergency Fund
I want to leave you with this last tidbit that will keep you off of your mother’s couch, or otherwise out of some bad financial circumstances.
Each time you reach into your emergency fund for a true emergency expense, you need to then replenish what you took out.
Please don’t forget about this!
Because the truth is? More emergencies are going to come your way, and my way. It’s just a matter of time.
Hopefully, you’ll have enough months and years in-between emergencies to give you plenty of time to save back up to your optimal fund amount.
To do this, you might temporarily just make minimum debt payments again (if you were overpaying to get gazelle intense and pay off your debts quicker) and funnel that money to your emergency savings, instead.
OR, you might find ways to make extra cash from home, and then funnel that money towards replenishing your account until it’s all the way back up to where it should be.
Maybe, you just take about 10 of these 250 money saving tips of mine, and buckle down until the job is done.
Whatever you have to do to replenish your emergency fund, just get it done. Your future self will thank you.
Which one of these emergency fund examples best describes your current situation and risk tolerance level? How far away are you from reaching your full emergency fund amount (or are you good to go)?
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