What's the Right Emergency Fund Amount?

What's the Right Emergency Fund Amount?

How much should you save for emergencies?

Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months' worth of living expenses.
 

Setting your savings goal.

Start by estimating your costs for critical expenses, such as:

  • Housing
  • Food
  • Health care expenses, including insurance premiuns and copays
  • Utilities
  • Transportation
  • Personal expenses
  • Debt

You don't need to include expenses for anything you'd cut from your budget in the event of a job loss or major catastrophe. For example:

  • Entertainment
  • Dining out
  • Nonessential shoppings
  • Vacations


Is 3 to 6 months enough?
 
Putting aside 3 to 6 months' worth of expenses is a good rule of thumb, but sometimes it's not enough. If you can save more, you might want to think about expanding your emergency savings.

Here are some situations where having more in your savings could benefit you:

  • During a recession (when unemployment rates are higher and the length of unemployment is often longer)
  • If you're in a high-risk industry where layoffs are common
  • If your income isn't steady
  • If you're retired (and most of your money is in more-volatile stock and bond investments)


Something is better than nothing

Don't think you can save enough? Don't panic. You can build up to it by saving smaller amounts on a regular basis, like every week or every paycheck. If you keep it up, over time you'll eventually meet your goal.

The important thing is that you've started saving something.

For instance, let's say you set aside $25 a week in an emergency fund. At the end of 2 years, you could have $2,600 saved. Increase that amount to $50 a week and your savings could grow to $5,200. Make it $75 a week and you'll see an even larger amount saved — $7,800.
 

How do you establish an automated savings plan?

Schools Financial offers great savings options for members who want to establish the habit of savings regularly. You can establish your account online or in any branch. We’ll help you set up direct deposit or automated transfers to fund your account each week or month. 

Having the money come out of your paycheck or account automatically is the best way to establish the savings habit. Because you never “see” the money, you aren’t tempted to spend it.
 
Source: vanguard.com/emergency-fund