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Emergency Fund Calculator: How Much Should I Save?
Most experts recommend that you have at least three to six months’ worth of basic living expenses in your emergency fund.
By Sarah Li Cain | Updated April 4, 2024
An emergency fund can be one of the best ways to ensure that you don’t rely on high-interest credit cards if you’re low on cash and the unexpected happens. However, how much you should save may vary depending on such factors as your age, your cost of living, how many dependents you have, and your health status. Use the emergency fund calculator below to help you figure that out and to help you prepare properly for a rainy day.
Calculator Definitions
• Rent or mortgage: This expense only includes the amount you pay to your landlord or mortgage lender. If you put money into an escrow account for taxes, include that amount as well. Property taxes and PMI may be factors to add, too.
• Utilities: Consider using an average amount you pay for bills such as electricity, sewage and water, as some months may be higher or lower than others.
• Telecom charges: Costs include internet, phone (landline and/or mobile access), and other related expenses.
• Insurance: This can include health, car, and homeowners insurance. If you included homeowners insurance above (as part of the escrow charges), eliminate them here.
• Transportation: Includes expenses such as parking fees, gas, car maintenance, public transportation, and toll expenses.
• Credit card and/or loan payments: Put all non-mortgage debt here, including car loans, personal loans, student loans, and minimum monthly credit card payments.
• Food: Include your usual costs, such as food from grocery stores vs. spending lavishly on dining out.
• Other costs: Any necessities you pay aside from any of the above categories can go here. Expenses can include daycare fees, child support, medications, and uniforms required for work.
What Is an Emergency Fund?
An emergency fund is cash kept in a safe, liquid way to ensure that money is available if you were to face a financial emergency. The idea is that if you experience a big hiccup, ranging from job loss to an emergency home or car repair, you would be able to tap these funds. If you were trying to survive financially when laid off, you could dip into this account, too. Doing so would help you avoid turning to high-interest sources of cash, like credit cards, which could leave you with considerable debt to pay down.
How Much Should I Save In an Emergency Fund?
A general rule of thumb is your emergency fund should have at least three to six months’ worth of expenses. That way, if you experience a job loss or a drastic drop in income, you still have the means to pay your bills or debt obligations without resorting to high-interest credit cards. The actual amount of your emergency fund will depend on factors such as your existing expenses and income situation.
“An emergency fund is intended to be used at a moment’s notice. For the most part, you’ll hear that a healthy emergency fund should cover between three and six months worth of living expenses – which would include rent, mortgage, bills, food, and other essentials. And since you never know when an emergency might happen, it’s best to keep your fund relatively liquid.” – Brian Walsh, CFP® at SoFi
This amount can seem daunting, but remember, you aren’t expected to have it set aside in one lump sum. You will save up to reach this goal. And if you can’t accumulate that amount, know that something (anything) is better than nothing. Don’t feel defeated and not save at all. If you can put away $1,000 over the course of a year, do it.
One clarification: You may hear the terms emergency fund vs. a cash cushion used interchangeably, but they are actually not identical. The words “cash cushion” are often used to describe a smaller sum kept in your checking account as a hedge against overdrafting.
Where to Keep Your Emergency Fund
In terms of where to keep an emergency fund, it’s important that the money be liquid and accessible. When an emergency strikes, you want to be able to access your money quickly, without penalties for making a withdrawal. Some options to consider:
• An online high-yield savings account can be a good choice. Your money will earn some interest and be available when you need it, unlike, say, a certificate of deposit (CD), which ties up your money for a period of time.
• A money market account is another option. These are typically offered by banks and credit unions and are usually insured by the FDIC or NCUA. They can offer an interest-bearing hybrid of checking and savings accounts, but are not the same as a money market fund, which is an investment.
• Low-risk investment accounts. As mentioned above, investments can present challenges for those looking to save an emergency fund because they are not insured and the value could fall. In addition, it can take a few days to sell stocks.
However, some people feel comfortable putting their cash in low-risk investments, and a wide array of options are available.
How to Calculate an Emergency Fund
Calculating your emergency fund as accurately as possible requires a few straightforward steps.
1. Determine Your Essential Monthly Expenses
Calculating how much you spend each month is key to understanding the correct amount for your emergency fund. Start by looking at what your essential spending needs are, including housing, transportation, and food. Other financial obligations include debt payments, insurance premiums and other recurring bills.
One of the simplest ways to find out how much you spend on necessities is by looking at your bank and credit card statements. Consider averaging your costs over several months, especially if your spending fluctuates depending on the time of the year.
2. Consider Your Family’s Situation
Some individuals or families may have work or personal situations where they’ll need to save more. For example, if you are self-employed and are the breadwinner in the family, it may make sense to set aside at least six months’ worth of expenses in case your employment situation changes. Same goes for those who may have a traditional 9-to-5 job, but the industry you work in is fickle or volatile based on how the economy is faring.
Anyone who doesn’t have risk factors such as increased health risks or multiple dependents may be able to get away from saving less. Typically, though, this is the answer to “How much should I have in an emergency fund?”: Financial experts recommend having no less than three months’ worth of basic living expenses set aside in case of an emergency, such as a major medical bill or job loss.
3. Consider How You’ll Feel Financially Secure
Ultimately, the amount you need to save depends on how much will help you feel financially secure in an emergency. If you want to save more than several months’ worth of expenses to help you sleep better at night, then as long as you can afford to, go ahead. However, if you need to free up your cash for other types of spending, saving less for now can also be fine. Any type of emergency savings is better than none.
You might want to automate savings by having a recurring transfer made from checking, right after you are paid, into your emergency savings account, where it can be accessible but still earn interest and grow.
Key Factors in Determining Your Emergency Fund
Health
If you or a member of your immediate family has a medical condition, you probably will want to stash a bit more in your emergency fund. You might have additional doctors’ or lab expenses or prescription costs. Or you could be in a situation where your insurance company isn’t paying quickly or at all. Your emergency fund could help you pay the bills.
Amount of Debt
If you have a fair amount of debt, it can be a good thing to have extra cash in your emergency fund. Let’s say you have student loan debt, car payments, a mortgage, and credit card debt, as many Americans do. An unexpected expense or loss of work could mean you can’t make all those payments, triggering late and overdraft fees. An emergency fund is protection against that scenario.
Cost of Living
It’s no secret that inflation has been extremely high lately. An emergency fund can help make ends meet if a big bill hits when your budget is stretched thin.
Also, if you live in an area with a high cost of living, you may be more vulnerable and need extra emergency funds. For instance, a huge rent increase could make it hard to afford your monthly bills until you recalibrate. An emergency fund could help if a major rent hike comes your way.
Job Security
There are no guarantees in life or work, and downsizing is a frequent occurrence these days. An emergency fund can provide backup in a worst-case scenario. Also, if you are a freelance or seasonal worker, your income could be unpredictable vs. those with full-time jobs, so you might want to stow more money in your emergency fund.
Children or Dependents
Do you have children or dependents? Then you are probably more vulnerable to having emergency expenses. A kid might have, say, more dental bills than expected. An older relative who relies on you might need you to take time off work unpaid to care for them, or they might have significant healthcare expenses.
Having Financial Support
If you don’t have close friends or relatives who might lend you money in an emergency, then it’s even more important to plump up your emergency fund.
Your Age
Usually, saving goals vary by age, and so should the amount of cash in your emergency fund. If you’re retired or reaching retirement age, you may want to keep more in your emergency fund, since your medical expenses will likely rise over time and your income might well decrease.
How to Start an Emergency Fund
You can choose from a variety of strategies that can help you move towards your emergency savings goal.
1. Define Your Savings Goal
Setting a specific goal can help you to monitor your progress and keep you motivated. Since establishing an emergency month can take many months, figuring out your end goal can help you to see whether you’re on track. Work backwards to see what’s a realistic amount to save each month — start with how much you want to save and divide it by the number of months it’ll take.
2. Set Up Automatic Transfers
As mentioned above, setting up recurring transfers can help you consistently and automatically save. Or you might set up reminders so you don’t forget to transfer money to your emergency fund. Even if you believe you have enough in your bank account to cover the transfer, regularly check your transactions so that you don’t risk any overdrafts or failed payments.
3. Find Ways to Adjust Spending
Looking at what you’re currently spending on can help you see where you can make adjustments. If you’re able to cut back on expenses, it may be a smart choice to set that money aside for your emergency fund. Or, find a way to adjust your bill due dates with creditors and utility companies so you may have times where you have more money to transfer to savings.
4. Take Advantage of Financial Windfalls
Perhaps you get a larger than expected tax refund, or received a cash gift from your aunt for your birthday. Any amount counts, and if you can afford to go without the funds for the time being, you can use a windfall towards your emergency fund.
5. Reflect and Celebrate Your Progress
Working towards a financial goal over months can feel tiring if you’re not sure whether you’re hitting your target. To keep yourself motivated, check your savings progress, and do something small to celebrate.
FAQ
How often should I review and update my emergency fund?
It’s wise to review your plan at least once a year. Also take a look when you have a significant change in status, such as getting married, having a child, changing jobs or getting a raise, buying a home, and so forth. You want to be sure the amount in the fund is keeping up with your potential needs.
How do I balance saving for an emergency fund with other financial goals?
t can be wise to put 20% of your take-home pay toward savings, according to the popular 50/30/20 budget rule. Of that 20%, you should definitely put some cash into your emergency fund, since that is a short-term, high-priority goal. Even if you only save $20 or $25 a month toward your emergency fund, saving consistently is a solid financial move.
Can you have too much in an emergency fund?
It’s wise to have at least three to six months’ worth of basic living expenses in an emergency fund. Depending on your specific situation, you might even want twice that. However, since emergency funds are usually held in savings accounts, which don’t earn all that much interest, you might look elsewhere if you have more than that sum to invest and grow.
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