A recent SecureSave survey found that 63% of Americans don't have enough money in the bank to cover an unplanned $500 expense. But the reality is that the typical worker should have way more than $500 in savings.
You'll often hear that it's important to maintain an emergency fund with enough cash to cover at least three months of essential expenses. The logic there is that if you were to lose your job, a three-month emergency fund would allow you to pay your bills for a period of time without resorting to debt.
But is a three-month emergency fund really enough? Here's why it may not be.
A recession could keep you out of work longer than expected
It's one thing to lose your job because your employer had financial problems or because your industry has been a bit sluggish. But it's another thing to lose your job during a full-blown recession.
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If that were to happen, it's conceivable you could be out of work for far longer than just three months. This especially holds true if you have a unique job or are a higher-level employee. Oddly enough, sometimes, having a higher-level job that requires more skills puts you at a disadvantage when looking for work because there are fewer jobs of that nature to fill.
It's for this reason that you may want to aim for more like a six-month emergency fund. That gives you more leeway to do some job-hunting without having to resort to debt to pay your bills.
You could run into issues if you lose your job at the same time home or car repairs arise
Let's say you lose your job and aren't entitled to severance or unemployment. Perhaps you'll manage to find a replacement job in three months. But what if you happen to need a $3,000 car repair or $5,000 home repair at the exact same time you're out of work? Suddenly, you're in a jam.
That's why, again, a six-month emergency fund might be a better target to aim for. Alternatively, you could aim to sock away enough cash to pay for three months of bills but also add a few thousand dollars on top of that for home and vehicle repairs.
How to build up a larger emergency fund
Seeing as how the majority of Americans clearly don't even have a three-month emergency fund, building a six-month fund might seem next to impossible. But one thing to remember is that you don't need to come up with six months' worth of expenses in savings today.
It might take you a couple of years to complete your emergency fund if you're aiming for a higher number, and that's okay. The key is to build up gradually as you can.
That said, there are steps you can take to move the process along. First, consider taking on a temporary side hustle. Since that money won't be earmarked for existing bills, you can sock it away in the bank for emergencies.
Next, if you're used to living on a certain income and you get a raise at work, set that extra sum to get transferred to your savings account automatically. If it's not money you need to pay your bills, you should be able to part with it pretty easily. And if you set up that automatic transfer right away, it's money you won't even miss.
Having a three-month emergency fund puts you in a solid position to deal with unplanned expenses or a period of joblessness. But if you're able to save for emergencies beyond that, you'll buy yourself that much more protection and peace of mind.
FAQs
Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000. This might not seem like a lot, but it's just a temporary buffer while you pay off that debt. Fully funded emergency fund: Once that debt's gone, you need a fully funded emergency fund of 3–6 months of expenses.
Is a 3 month emergency fund enough? ›
Over 1 in 4 people have no emergency savings. Keeping at least three months of expenses saved can help you weather a job loss, major unexpected bill or other sudden expense.
How much do I really need in my emergency fund? ›
Financial planners generally recommend stashing three to six months' worth of living expenses away in an emergency fund.
Is $5,000 enough for emergency fund? ›
For many people, $5,000 would be inadequate to cover several months' expenses in the event of job loss or an expensive emergency. If that is the case for you, $5,000 would not be considered an overfunded account.
Is $20000 too much for an emergency fund? ›
While $20,000 may be more than what many Americans have in savings, it's not guaranteed to be an adequate emergency fund for you. Your emergency fund should be set up to cover at least three full months of essential bills. If your monthly expenses are high, you may need to save more than $20,000.
How many Americans have $100,000 in savings? ›
How many Americans have $100,000 in savings? About 26% of U.S. households had more than $100,000 in savings in retirement accounts as of 2022, according to USAFacts, a nonprofit organization that analyzes data from the Federal Reserve and other government agencies.
What is the 3 6 9 rule in finance? ›
Once you have this amount in your emergency savings account, you can focus on growing it to your personal savings target while also tackling other goals. Those general saving targets are often called the “3-6-9 rule”: savings of 3, 6, or 9 months of take-home pay.
What is the average emergency fund in the US? ›
The median emergency savings for Americans is $600; men have double the stores compared to women – with a median of $1,000 versus $500. For 62%, having a dedicated emergency savings is a priority, yet nearly half (47%) of people say regular monthly expenses are too high for them to put money away.
Is $10,000 enough for emergency fund? ›
When asked how much money they'd need to save for a financial emergency to avoid additional stress, 40% would feel comfortable having a modest amount — below $2,500 — set aside. 21% say they'd need at least $10,000 saved to feel secure.
Is 30k enough for an emergency fund? ›
For your longer-term goal of an emergency fund that will cover income shocks, aim to save $15,000 to $30,000 total.
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
According to our survey, roughly 28% of Americans across all four generations currently have less than $1,000 in personal savings, including emergency funds, non-workplace retirement accounts and investments.
Why is it so hard to save money in 2024? ›
As Americans continue bearing the brunt of a higher-than-normal inflation rate and higher costs, saving money could prove to be more challenging than it was just a few years ago. However, there are ways to reevaluate your current spending habits and cut costs to designate more toward your savings account.
Is a 6 month emergency fund too much? ›
Your emergency fund could be too big if it exceeds three to six months' worth of expenses. That said, everyone has a different financial picture. Some people keep up to a year's worth of savings in an emergency fund, while others might find that sticking to closer to three months frees them up to pursue other goals.
How much should a 20 year old have in emergency fund? ›
Emergency savings goals
Rule of thumb? Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
How many months of emergency fund should I have? ›
Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses. 1 That doesn't mean 3 to 6 months of your salary, but how much it would cost you to get by for that length of time.
How long should an emergency fund last? ›
Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses. 1 That doesn't mean 3 to 6 months of your salary, but how much it would cost you to get by for that length of time.
How to build a 3 month emergency fund? ›
Steps to Build an Emergency Fund
- Set several smaller savings goals, rather than one large one. Set yourself up for success from the start. ...
- Start with small, regular contributions. ...
- Automate your savings. ...
- Don't increase monthly spending or open new credit cards. ...
- Don't over-save.
