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How Much Do You Need to Save for Emergencies?

Saving for emergencies is an important part of responsible money management. Unfortunately, many Americans cannot even afford a $400 emergency. Without some sort of emergency savings, you risk digging yourself deeper into debt any time an unexpected expense comes up. Financial experts recommend saving around 15% of your income, but how much of that should go into an emergency fund? How do you know when you have enough in your emergency fund? American Consumer Credit Counseling is here to answer those questions.

If you save for emergencies, it can prevent - or reduce - debt.

If you save for emergencies, it can prevent – or reduce – debt.

What are considered emergency expenses?

When exactly should you use your emergency fund, and what constitutes an emergency? Medical emergencies are usually the first situation that come to mind for most people. Ambulance rides, hospital stays, and certain medications are not cheap, especially if your health insurance doesn’t cover as much as you had hoped it would. Without an adequate emergency fund, you could be left with thousands of dollars in medical debt from just one medical emergency.

Another situation in which you can use your emergency fund would be urgent home or car repairs. This doesn’t mean a home improvement project, like new decor, or adding things to your car that you don’t really need. These would be things like a hot water heater needing to be replaced so your household can have hot water, or the brakes being fixed on your car so you can drive safely.

Emergency funds can also be used for unexpected family emergencies, such as the death of a family member. The cost of travel if you live far away can be expensive. If you are also contributing to funeral costs, those expenses can add up very quickly.

Perhaps the most relevant situation currently in which people should use their emergency funds would be job loss or furlough. When you have no money coming in, but you still have to pay rent, buy groceries, and take care of other essential living expenses, an emergency fund can help alleviate the financial stress.

How much should you have saved for emergencies?

Our credit counseling advice is to have around 3-6 months’ worth of expenses in your emergency fund. The specific amount for each individual will vary based on individual budgets. To determine the amount you need in your emergency fund, create a budget if you haven’t already.

Look at the expenses in your budget. These include housing, transportation, childcare, other household expenses, and debt payments. Multiply that number by 3. That is the minimum dollar amount you should have in your emergency fund. Multiply your expenses by 6. That is ideally what you should have saved for emergencies.

You might be thinking, “Do I really need that much?” Think about the COVID-19 pandemic. Non-essential workers and those unable to work from home have been out of work for nearly two months at this point. While this is an unprecedented situation for the country, there are other circumstances in which people can be out of work for extended periods of time. Injuries, family emergencies, and struggling to find work after a job loss happen all the time. You never know when any of these situations will happen to you, so it’s best to be prepared (financially, at least) for the worst.

How can I start saving?

Saving doesn’t have to be overwhelming. If you can’t afford to save as much as you would like to, just save what you can. Maybe that means $20 a month. Something is better than nothing! Once you can afford to save more, you can put more into savings, but don’t feel bad if you aren’t at that point just yet.

An easy way to start saving is to automate your savings. This way, you won’t have to think about it or do anything. Even if you forget, your bank account won’t! You can set up automatic deposits to your savings account on a monthly basis. If you aren’t sure how to do that, contact your bank, and they can help you get that set up.

Also, any extra money that you get, such as a bonus at work, should be put straight into your emergency fund until you reach your savings goal. Those boosts in savings with bonuses or extra cash will help you reach that goal sooner!

What kind of account should I use for my emergency fund?

A regular savings account should be just fine for your emergency fund. The most important part of an emergency fund is that it is easily accessible when you need it. There are some financial bloggers out there who might encourage consumers to use a CD rather than a regular savings account because it has a better interest rate. However, you must keep in mind that the funds in a CD are often not accessible for a year or more without penalty. You wouldn’t want an emergency expense to cost you more than it should with the penalty for withdrawing from a CD too soon.

Regardless of how you save, the important thing is that you are saving for emergencies. You never know when one could strike, so it’s best to be financially prepared!

If you’re struggling to pay off debt, ACCC may be able to help. Sign up for a free credit counseling session with us today.    


Madison is a Marketing Communications & Programs Associate at ACCC. She is excited to share her tips on saving money and being financially responsible here on the Talking Cents blog!

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