How much money should be in your emergency fund?

How much is enough to have in savings? The general rule of thumb is to save three to six months’ worth of living expenses, but that guideline might not be possible or right for every family. Here are factors to consider when deciding how much money you should stash away: 

Factor #1: Your monthly budget

The first factor to think about is how much you spend each month. The purpose behind putting away several months of expenses is to establish a fund to fall back on for any unforeseeable circumstances or income changes.

Putting away three months of living expenses is a good starting point for calculating a savings baseline.¹ 

Here’s how to calculate a three-month emergency fund:

1. Review your bank and credit card statements.
2. Write down the amount you pay monthly for your rent/mortgage, phone service, insurance, utilities, transportation, food, and other expenses. 
3. Add up the expenses.
4. Multiply the sum by three months.

After reviewing your statements and doing the calculation, you might find that there are expense areas where you can cut back on — that’s a good thing. 

Reducing your expenses can free up more money to put in your emergency fund. Plus, it means you’ll have fewer bills to cover with emergency savings if you do happen to have income changes.

You can also try using a budget calculator. Making budget cuts doesn’t mean you have to trim out everything you enjoy because that may not be sustainable. Prioritizing savings contributions can help grow your balance faster, but making too many sacrifices can cause you to lose momentum.

Factor #2: Your household income

Besides your household expenses, your income will impact how much you’re able to set aside.

If you’re unexpectedly in a single-income household because of the pandemic, money may already be tight, and three months of savings may seem impossible. Don’t let that deter you from putting away small amounts from each paycheck — progress is progress. 

Single-income households want to consider saving beyond three to six months, if possible. That way, you’ll have a financial cushion to rely on if the one income stream runs dry. 

For dual-income households where one income can cover the bills, having just a few months of savings may suffice because you can comfortably cover expenses if one job is lost. Although being financially secure does put you in a position to sock away even more money, which can give you an extra layer of protection if both income earners end up out of work. 

Factor #3: Your job stability 

Aside from your actual income, consider job stability. Industries such as tourism, hospitality, manufacturing, and entertainment are still on the rebound.² If you’re a professional in these sectors, you may want to limit spending to the bare essentials to boost your savings until the industry recovers.

Self-employed workers specifically should think about building a savings account that can cover expenses for six months to a year (or even more) since income can ebb and flow. 

Of course, saving four- and five-figures of cash isn’t a small sum, particularly at a time when the economy may be in flux. If you’re facing a decrease in revenue, you might qualify for federal and state programs to bridge the gap. 

Start now and build momentum 

The pandemic has had a long-term financial impact on most people. So, after your basic needs are met, building up your savings account can help alleviate stress as you get back on your feet. 

Once you decide how much you need to save to be financially secure, the act of saving months’ of living expenses might seem like a daunting task, especially if you’re already counting every penny.³

Instead of thinking about the large number, think about short-term goals. Write down how much you need to save each day and week to get to the ideal savings balance. You could be saving $5 or $50 per week, and it will add up. Automate those daily or monthly transfers from your bank account to savings, and your balance can grow before your eyes.