How Much Money Should Be in Your Emergency Fund?

September 17, 2018 · 5 minute read

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How Much Money Should Be in Your Emergency Fund?

Finding financial security is a lifelong quest that usually requires a sensible blend of hard work, determination, patience, and discipline. And occasionally some luck along the way. Landing a good job at the right company happens easily for some people, but may take a while for others. And hopefully once you’ve landed, your career takes a foothold and your future starts to solidify.

But what happens if things take an unexpected turn? Your company hits a rough patch and has to reorganize its workforce, and your job is eliminated in the process. Or you encounter a serious healthcare emergency. Have you set aside an emergency fund to help you through difficult days?

Nailing down an emergency fund amount can be difficult, because it depends on each person, what their spending looks like, and whether they have a spouse or dependents. But an emergency fund is one of the best ways to make sure you’re not relying on credit cards to make ends meet.

Any number of unexpected turns could potentially throw your financial life into a tailspin. The important takeaway is to get started saving right away, if you haven’t already and ensure that you have a reasonable emergency fund amount set aside that you can access easily in a time of need.

How to Start Saving for an Emergency Fund

Figuring out how much money should be in your emergency fund is a fundamental step in building your financial plan for the future. Conventional wisdom says you should have between three months and six months’ worth of expenses set aside for an emergency. It all depends on your financial situation.

Do you have a spouse or a partner whom you share expenses with? Do you have a mortgage or do you rent an apartment? Do you have small children? What is the status of your credit card debt or student loans? These are the kinds of factors that can make your decision-making process more or less complicated accordingly.

The first step to saving for an emergency fund is to create a budget that you can actually live with. Once you’ve determined what your take-home pay is, calculate all your monthly expenses including rent or a mortgage, insurance, healthcare, utilities, phone, car, etc. And of course, factor in student loan or credit card debt.

After you tally all your expenses, deduct that amount from your take-home pay and then see what is left. This is where you’ll need to figure out how much you can realistically set aside each week or pay period for your emergency fund. These funds should be in a separate account that can be accessed easily without penalty.

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The Issues with Not Having an Emergency Fund

When it comes to these simple kinds of ideas on budgeting and emergency funds, we Americans are a curious lot. For whatever reason, many of us struggle with what would appear on the surface to be simple common sense issues. For example, according to the Federal Reserve Board’s 2016 Report on the Economic Well-Being of U.S. Households, “44% of all respondents could not cover an unexpected $400 emergency expense or would rely on borrowing or selling something to do so.”

But what if you are faced with a much more serious financial hardship than $400? Imagine the impact that a long-term stretch of unemployment or a medical misfortune could have on your credit record? In circumstances like these, an inability to pay your bills could trigger delinquency or default, ultimately damaging your credit standings for years to come.

And while there is a silver lining, in that this 44% represents steady improvement over previous results dating back to 2013, it is still a telling cautionary tale that encourages starting an emergency savings account now.

How to Get an Emergency Fund Going

So then, what are your next steps to change or improve your situation? Saving money for an emergency fund is a process, and it’s okay to start small, even at $25 a week. While it may not appear in the beginning that you are making much progress, that will start to change before you know it. Slow and steady wins the race. The main thing is to save regularly and eventually to try to boost that amount up as your earnings increase. Ultimately, you have to find a balance that will work for you.

Typically, people opt for putting away their emergency funds into a checking or savings account. This is more secure than just keeping cash around the house, and can be easy to access in a crunch.

A faster option to build up your emergency fund is to look at higher interest-bearing accounts. These types of cash vehicles, like a money management account, offer higher interest than the typical bank account so that your money actually grows instead of just being stacked on every time you add more cash.

Fortunately, you can get started right away by opening up a money management account for your emergency fund. It’s easy to sign up online for your SoFi Money™ account, and as soon as you do, you can start earning a higher interest rate on your money with no fees.

On top of adding on higher interest than a typical checking or savings account, SoFi offers a full range of benefits that includes access to complimentary career coaching and community resources, the option to link to a flexible checking account, use of any ATM (even internationally) with no cost up to six times per month, a debit card, mobile transfers, photo check deposit, and exceptional customer service.

If you’re ready to start saving for your emergency fund, SoFi has an easy-to-access, no fee, cash management account for you. SoFi Money can simplify the way you bank, combining the benefits of checking and savings into one high-interest account.


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