How Much Should Your Emergency Savings Account Contain?

By John Atkins

Having an emergency savings account is an important indicator of good financial health. But why exactly do you need one and how much money is enough when it comes to building your safety net?

Here's what to consider as you build your emergency savings.

But first...

Why is an emergency savings account so important?

The number one reason you need an emergency fund? Life doesn't always go according to plan.

Contrary to some youthful beliefs, you are not invincible, says Carla Dearing, CEO of SUM180, an online financial planning service.

Catastrophes happen everyday and you should never consider yourself immune. Instead of relying on good fortune, take comfort in knowing that you have some money set aside for when life takes a turn for the worst.

“The truth is no one should be without an emergency fund. Unexpected expenses happen all the time. Without a cushion of savings, whenever something goes wrong (e.g. a fender bender, a roof that needs repairs, a pet that needs surgery), it is too tempting to fall into debt, to drain a long-term savings account, or to borrow from a 401(k),” said Dearing. “In a very real sense, not having an emergency fund is the worst money mistake a person can make because it often leads to other serious money mistakes.”

It’s important to have a financial plan for emergencies to turn to when life turns against you.

How much is "enough" for an emergency savings?

The answer, like many aspects of finance, depends on your individual situation. Here are three major questions to ask yourself when planning your emergency funds:

  1. How much do you make per month?
  2. How many people live in your household?
  3. How many assets (houses and cars) do you own?

Since the answers to these questions differ depending on who you are, the amount you need in your emergency fund could also be very different than how much your friend or parents might need, for example.

“Many factors go into generating an emergency savings number, but a general rule of thumb is to have enough to cover three to six months of expenses if you were to experience loss of income; think three if you have a job that is easy to find and six if you’re in a more niche space,” said Ashley Agnew, Associate Director of Relationship Development at Centerpoint Advisors, LLC. “Additionally, if you are a homeowner, you should have roughly 3% additional savings to account for maintenance and repairs.”

Remember, not everyone will need the maximum amount of six months. If you live with a roommate, have no children and make a higher-than-average salary, then you won’t need as much as someone with a higher cost of living or a family.

If you work in an industry where job searches can take longer than three to six months, it’s important to adjust your emergency savings account to reflect this, advises Abby Eisenkraft, EA, ATA, ATP, CRPC of Choice Tax Solutions.

“Back in the day, funds to cover three to six months was advisable, because the job search hardly took longer than that,” says Eisenkraft. “In 2008, we know that people often didn’t obtain new employment after a job loss, even after a year’s search. Now, six to nine months is advisable, but in my office, we know it can be more.”

Bad at saving? Try automating

Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t have a savings account at all, according to a survey of more than 5,000 adults conducted by Google Consumer Survey for

If you consistently forget to save, try using an app that forces you to save, or automating your savings deductions from your paycheck each pay period.

It’s all about commitment

Commitment is one of the biggest aspects of savings, says Eric Hutchinson, the managing director of Hutchinson Financial.

“If you are committed to building your emergency cash reserves, you may need to begin making some trade offs and lifestyle adjustments to help you reach your goal,” said Hutchinson. “Maybe you take a sandwich for lunch at work one or two days a week instead of eating out with the gang from the office.”

Whatever tradeoffs you make to help build savings, whether it means finding ways to earn more or spend less, try to commit yourself fully to reaching your goal.

About the author

John Atkins was the community manager for Self.

Written on September 26, 2016

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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