How Big Should My Emergency Fund Be?

Life is unpredictable. One day, everything is running smoothly, and the next, you’re hit with a medical emergency, job loss, or unexpected home repair. That’s why having an emergency fund is crucial. But how much should you save? The answer depends on your financial situation, lifestyle, and risk tolerance. Let’s dive in.

The General Rule: 3 to 6 Months of Expenses

Financial experts commonly suggest setting aside three to six months’ worth of essential living expenses. This range offers a buffer against unforeseen events such as medical emergencies, job loss, and major home repairs.

To determine your target amount:

• Calculate your essential monthly expenses: Add up costs for housing (rent or mortgage), utilities, groceries, insurance premiums, transportation, and minimum debt payments.
• Set your savings goal: Multiply your total monthly essential expenses by three to six, depending on your comfort level and job security.

For example, if your essential expenses total $3,000 monthly, aim for an emergency fund between $9,000 and $18,000.

When to Save More

While the three- to six-month guideline is a good starting point, individual circumstances may warrant saving more. Here are a few times when that might make sense:

Job Stability

If you’re in a volatile industry or role, consider saving more. Recent data indicates that the average duration of unemployment is 23.7 weeks (approximately 5.5 months), with some industries experiencing even more extended periods. This is the longest average since April 2022.¹

Income Variability

Freelancers, contractors, or those with irregular income should aim for a larger cushion, possibly up to 12 months of expenses.

Dependents and Obligations

Having dependents or significant financial commitments may require a more substantial emergency fund.

Health Considerations

Additional savings can provide peace of mind if you or a family member have ongoing medical needs.

The Reality of Emergency Savings Among Americans

Despite recommendations, many Americans are unprepared for financial emergencies:

• Approximately 37 percent of Americans can’t afford an unexpected expense over $400.²
• The median emergency savings for Americans is $600.³
• In 2022, 54 percent of adults had set aside money for three months of expenses in an emergency savings or “rainy day” fund, down from previous years.²

How to Build Your Emergency Fund

If you don’t have an emergency fund yet, here are some tips to help:

Start Small and Be Consistent

Begin by setting aside manageable amounts regularly. Consistency is key.

Automate Savings

Set up automatic transfers to your emergency fund to ensure regular contributions.

Reduce Unnecessary Expenses

Identify and cut discretionary spending, redirecting those funds to your savings.

Utilize Windfalls Wisely

Allocate bonuses, tax refunds, or monetary gifts to bolster your emergency fund.

Choose the Right Savings Vehicle

Keep your emergency fund in a liquid, easily accessible account, such as a high-yield savings account or money market account. This ensures you can access funds quickly without penalties.

The right emergency fund size depends on your unique situation. A solid savings cushion provides peace of mind and financial stability. Start where you can and build over time; your future self will thank you!).

Jeff Spitzmiller is the CEO of Ohana Wealth & Life Planning based in Cincinnati, OH.   Ohana specializes in life and financial planning for professionals in the healthcare and university fields.   The firm is an independent financial advisor and a fee-only fiduciary.  Jeff and the firm also enjoy volunteering and giving back to the local community.  You can reach Jeff at jeff@ohanaplanning.com.