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How Much Money Should Be in Your Emergency Fund?

Having an emergency fund is a good safety net if you get hit with an unexpected car repair bill or get laid off. You know you’ll have cash available. But how much should you actually have in the bank? Most experts recommend that you have at least three to six months’ worth of living expenses, but that can vary on factors like your age, your health, how many dependents you have, and your cost of living.

An emergency fund is one of the best ways to make sure you’re not relying on credit cards to make ends meet if a worst-case situation were to crop up. Just knowing it’s there might even help you sleep better at night. To help you determine how much you need in the bank, read on. You’ll learn about how to tuck away the right amount, and answer such questions as:

•   What is an emergency fund?

•   What is the issue with not having an emergency fund?

•   How can I start saving for an emergency fund?

•   How much should an emergency fund be?

•   What are the factors that influence how much I should have in an emergency fund?

•   How can I build my emergency fund?

What Is an Emergency Fund?

An emergency fund is money set aside in case an urgent and unexpected expense comes your way. This could be a medical or dental bill, a car repair, or travel to visit a family member who is ill or injured. The money can also be used in situations where a person is laid off or their hours are reduced and they don’t have enough cash to make ends meet.

Financial experts typically recommend that people prioritize saving an emergency fund and have at least three to six months’ worth of basic living expenses covered. In some cases, you may want to stash away more.

Also worth noting: An emergency fund needs to be liquid and accessible. When an emergency strikes, you want to be able to access your money quickly, without penalties for making a withdrawal. This is why a 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.

Also, an emergency fund should be in an account that is insured by either the Federal Deposit Insurance Corporation (FDIC) or NCUA, the National Credit Union Administration. Due to its volatility, the market is not a good place for an emergency fund.

How Much Should You Have in an Emergency Fund?

As briefly mentioned above, most experts recommend that you have at least three to six months’ worth of basic living expenses in the bank. This means that if you were, say, injured and unable to work or is you lost your job, you could keep going for a few or several months.

So let’s say you typically spend $4,000 a month on housing, food, utilities, and debt payments. In that case, the answer to “Is $20,000 enough for an emergency fund?” would be yes. That sum would see you through five months if you needed it.

However, if your monthly living expenses are $10,000, then $20,000 would only last two months. Instead, $30,000 would be enough for an emergency fund in your situation. Some experts would say even more, up to $60,000, would be a better figure.

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 you are not alone in needed time to build an emergency fund. Barely half of Americans surveyed could pay an unexpected bill of $1,000 (you’ll learn more on that in a moment).

Also know that if, due to other expenses or life circumstances, you can’t accumulate that amount in savings, 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.

How to Calculate Your Emergency Fund Amount

If you’re convinced of the value of an emergency fund, it’s time to drill down on just how much to save. Figuring out how much money should be in your emergency fund is a fundamental step in building your financial plan for the future. Here are some ways to calculate your goal and achieve it:

•   Conventional wisdom says you should have between three months and six months’ worth of living expenses set aside for an emergency. To calculate your expenses, you might create a line-item budget. It will also give you a clearer view of how much money you have coming in and going out. Once you’ve determined what your take-home pay is, calculate all your monthly necessary 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. Aim to accrue your goal amount in a year, if possible.

   Let’s say you’re a recent grad whose minimum monthlies total $2,000. In this case, $10K is a good emergency fund. It could float you if it took you, say, five months to find a job.

•   Another method for saving is to look at your insurance deductibles for your medical, dental, household, and car policies. Although it’s no fun, imagine having some kind of accident that triggered your needing to pay a few or even all of those deductibles at once. This is especially daunting if you have a high deductible health plan (HDHP); if you need to cover that amount all of a sudden, you could wind up with debt. Make sure you have enough in the bank to cover that amount.

•   You might also see what unemployment would pay you per month if you were to lose your job. See how that compares to your living expenses, calculate the shortfall monthly, and work towards saving, say, six times that amount.

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Factors That Determine How Much to Save for an Emergency Fund

When considering how much an emergency fund should be, three to six months’ worth of living expenses is a good baseline. That said, there are certain situations that may require a bit more saving, as in at least six months’ worth and possibly a year’s worth. Also, when you are thinking “How much emergency savings should I have?” know that the figure will likely vary, person by person. Even if you have an identical twin, your goals will probably differ. Here are some factors to consider.

Health

If you or a member of your immediate family has a medical condition, you probably will want to save a bit more in your emergency fund. You might have additional doctors’ or lab expenses. The price of prescription drugs could increase. Or you could be dealing with a situation where your insurance doesn’t pay or takes a long time to do so. An emergency fund can be your lifeline.

Also, if you have a medical condition that could have you out of work for a period of time, your emergency fund could help you pay the bills.

Amount of Debt

If you have more than minimal debt in your life, it can be a good thing to have an extra cushion of money 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 that all of those payments can’t be met. That can trigger considerably late charges, possibly non-sufficient funds or overdraft charges as well, and can also lower your credit score. Having money in the bank can keep you afloat in an emergency situation.

Cost of Living

It’s no secret that inflation has been extremely high lately. Many people’s raises at work don’t come close to offsetting the uptick they have seen in the price of groceries, gas, heating, and more. An emergency fund can help make ends meet if a big bill hits amidst this situation.

Also, if you live in an area with a high cost of living, you may be more vulnerable and need emergency funds. For instance, in major metropolitan areas, rents have recently seen a sizable uptick. A significant rent increase could mean it’s a challenge to afford your monthly bills until you recalibrate. An emergency fund could help if a huge rent hike comes your way.

Recommended: What Is Cost of Living?

Job Security

While there are no guarantees in life or in work, some jobs are more secure than others. If you have a very specialized skill set that would make it hard to quickly find another job should you need one, save a bit more. Also, if you are a freelance or seasonal worker, your income may be less predictable than those with salary jobs. You may want to make sure you have the higher end of the range for emergency funds.

Children or Dependents

If you have children or dependents, you know how important it is to keep all the plates spinning and pay for their needs. This level of responsibility means it would likely be wise to save extra. You are also more vulnerable to having emergency expenses if you have dependents as well: A child could have more medical or dental bills than you expected, or an elder could be sick and you might have to take unpaid leave to care for them.

Having Financial Support

Some of us have a support network that could lend us money or otherwise help out in case of an emergency. For others, there is no one in their immediate family or friends group that could provide a loan or gift if an urgent expense were to crop up. If you are more of the “all by myself” type in this regard, that’s another reason to add a bit more to an emergency fund.

Your Age

Typically, your saving goals vary by age, and so should the amount in your emergency fund. If you are retired or nearing retirement age, you probably should set aside more for an emergency fund. As you age, medical expenses tend to rise, and you might also be on a fixed income. These variables make having more money available a wise move.

The Issues With Not Having an Emergency Fund

When it comes to having an emergency fund, Americans struggle with what would appear to be a simple, commonsensical idea.

The average person does not put enough in an emergency fund. In fact, 56% of Americans said they could not cover an unexpected $1,000 emergency expense, according to a recent survey. That means they would likely have to either put the amount on their credit cards (which is a form of high-interest debt which can be hard to pay off), borrow, or sell something to cover the cost.

But you could be faced with a much more serious financial hardship than $1,000. Or you might endure a long-term stretch of unemployment or a medical misfortune that could have a nasty impact on your finances.

In circumstances like these, an inability to pay your bills could potentially damage your credit score and keep you in debt for years to come.

Tips for Building an Emergency Fund

If you’ve figured out how much emergency savings you should have (or at least a ballpark figure), it’s time to start saving! Here are some pointers to help you bulk up your account and know where to keep it.

•   Set up automatic deductions. Let’s say you have figured out how much per paycheck you can put into your emergency fund. Whether it’s $25 or $250 or more, know that any amount will get you on a path to meeting your goal and having peace of mind. If you have a linked savings account, set up payday automatic transfers so the cash is whisked into your rainy day fund. You don’t want it sitting in your checking account, tempting you to spend it.

•   If you don’t have a savings account you can use for your emergency fund, it’s likely a good idea to open one. A high-yield one can help you earn a bit of interest. Whether you choose an online vs. traditional bank is up to you, though online ones tend to offer higher interest rates. (Incidentally, some people keep their emergency fund as a mix of checking and savings accounts; the choice is yours, as long as that money is sitting in case it’s needed.)

•   Consider growing your savings by depositing windfall money in your emergency fund. Perhaps you’ll receive a tax refund, a bonus, a rebate, or other unexpected source of funds. It can go into your account.

•   If you are having a hard time finding room in your budget to enrich your emergency fund, see if you can challenge yourself to make temporary, rotating budget cuts (going to the movies one month, buying clothes the next). Then put the saved money into your account. Or take up a side hustle, and put your earnings into the emergency fund.

Recommended: How to Manage Your Money Better

The Takeaway

Having an emergency fund is an important element of your financial fitness. It’s a cushion of money socked away, to be used if you have unexpected, urgent bills or face a loss of income. The amount you should save will vary depending on a variety of personal factors, such as whether or not you have dependents and how easily you could find a new job if laid off. Whatever the amount you want to have in your emergency fund may be, it’s important to start saving, little by little, so you can enjoy the peace of mind that this account can bring.

Wondering where to start and grow your emergency fund? SoFi has a simple, accessible, and top-notch solution. If you open a bank account online for your emergency fund with us, with direct deposit you’ll earn a competitive APY and pay no account fees. That can help your money increase faster.

If you’re ready to start saving for your emergency fund, see how SoFi Checking and Savings can help.

FAQ

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.

Do you need an emergency fund if you are rich?

Everyone needs an emergency fund. People who are rich may have bigger expenses and bills than those who have less money, so they definitely want funds accessible if an emergency were to strike. What’s more, a wealthy person may have their money in investments like real estate, meaning it’s not liquid nor easily tapped, which is all the more reason to have some cash in the bank.

Can you have financial freedom without an emergency fund?

For most people, having an emergency fund is part of financial freedom. When you know you have enough cash to manage a worst-case scenario, it takes away a layer of worry. Many financial experts recommend having at least three to six months’ worth of living expenses in the bank and available.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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Why an Emergency Fund Is a Necessary Financial Priority

Life can be unpredictable, and financial setbacks can crop up at any time — whether that’s a job loss, medical or dental bills, a fender bender, or a major appliance that suddenly stops working. If you aren’t convinced of that, just think of the COVID-19 pandemic and how disruptive it was to daily life and many people’s finances.

That’s why it’s important to have an emergency fund. An emergency savings fund is a lump sum of cash set aside to cover any unanticipated expenses or financial emergencies that may come your way.

Besides offering peace of mind, an emergency fund can help save you from having to rely on high-interest debt options. These include credit cards or unsecured loans which can snowball. Not having rainy-day savings can also threaten to undermine your future security if you wind up tapping into retirement funds to get by.

If you don’t yet have any emergency savings set aside, however, don’t panic. Below, we break down:

•   Why an emergency fund can be a key part of financial planning

•   How long it takes to save an emergency fund

•   How to prioritize your financial goals to include an emergency fund

Why Do You Need an Emergency Fund?

With all of the bills that a person typically has to pay, you may wonder, “Why should creating an emergency fund be a top priority?” Here’s why: An emergency fund can be a kind of self-funded insurance policy. Instead of paying an insurance company to back you up if something goes wrong, you’re paying yourself by setting aside these funds for the future. Building this cushion into your budget can be a vital step in better money management.

How you invest emergency funds is of course up to you, but keeping the money in a high-yield savings account typically gives you the liquidity you need while earning some interest.

Having this kind of financial safety net comes with a range of benefits. Below are some of the key perks of having an ample emergency fund.

Preventing You From Going into Debt

Yes, there may be other ways to quickly access cash to cover the cost of an emergency, such as credit cards, unsecured loans, home equity lines of credit, or pulling from other sayings, like retirement funds.

Preventing debt is one of the most important reasons to have an emergency fund.

But these options typically come with high interest fees or penalties. Though there are many reasons for having an emergency fund, preventing debt is among the most important and enticing.

Providing Peace of Mind

Here’s another reason why it is important to have an emergency fund: Living without a safety net and simply hoping to get by can cause you to stress. Thoughts about what would happen if you got hit with a large, unanticipated expense could keep you up at night.

Being prepared with an emergency fund, on the other hand, can give you a sense of confidence that you can tackle any of life’s unexpected events without experiencing financial hardship.

Providing Finances During Unemployment

Applying for unemployment benefits, if you are entitled to them, can help you afford some of your daily expenses. Unfortunately, these payments are generally not enough to cover your entire cost of living.

If you have an emergency fund, you can tap into it to cover the cost of everyday expenses — like utility bills, groceries, and insurance payments — while you’re unemployed.

Starting an emergency fund also gives you the freedom to leave a job you dislike, without having to secure a new job first. Sometimes this can be the best move if you stuck in a toxic situation.

Making Better Financial Decisions

Having extra cash set aside in an emergency fund helps keep that money out of sight and out of mind. Having money out of your immediate reach can make you less likely to spend it on a whim, no matter how much you’d like to.

Also by having a separate emergency account, you’ll know exactly how much you have — and how much you may still need to save. This can be preferable to keeping a cash cushion in your checking account and hoping it will be enough.

Recommended: Guide to Practicing Financial Self-Care

What the COVID-19 Pandemic Showed Us About Emergency Funds

For many people, the COVID-19 crisis revealed just how important having an emergency fund could be. It demonstrated that an emergency of a huge, global magnitude could occur without much warning. There wasn’t time to plan or save money gradually.

The situation unfolded and triggered major medical bills that couldn’t be paid for some, led to job losses for many, and disrupted just about everyone’s life in some way. For those who lost income and/or faced rising debts, it became clear that a cushion of cash was a great thing to have to stay afloat financially.

In terms of numbers, research reveals that among those who had emergency savings before the pandemic, 40% withdrew funds during the initial stages of the pandemic. Of those, almost three out of four spent half or more of their funds.

The other pandemic lesson regarding emergency funds was that a crisis can last a long time. At the beginning of the COVID-19 outbreak, many people thought the situation would resolve within perhaps a couple of weeks or months. Instead, it stretched on and continues to impact some people’s lives. Having an emergency fund to dip into during this long and challenging period proved to be of great value for many. This reveals why creating an emergency fund should be a top priority.

Emergency Fund Statistics

Curious about how much other people have in their emergency funds? Or what percentage of Americans actually have a rainy-day account? Here are some recent research numbers to know:

•   About 50% of people report having emergency savings.

•   23% have enough money to cover six months’ worth of expenses.

•   56% of Americans say they couldn’t cover a $1,000 emergency expense.

•   26% of people overall have no emergency savings at all.

•   37% of those who earn less than $50,000 per year have no emergency savings at all.

•   Less than half of people earning between $50,000 and $99,999 per year are comfortable with how much they have saved for a rainy day.

•   More than half of Americans are concerned about the amount of their emergency savings.

How Long Does It Take to Grow an Emergency Fund?

Emergency funds don’t necessarily come together overnight. Saving after-tax dollars to equal six months’ worth of typical living expenses can take some work and time. Here’s an example to consider: If your monthly costs are $3,000, you would want to have between $9,000 and $18,000 set aside for an emergency, such as being laid-off.

•   If your goal is $9,000 and you can set aside $200 per month, that would take you 45 months, or almost four years, to accumulate the funds.

•   If you can put aside $300 a month, you’d hit your goal in 30 months, or two and a half years.

•   If you can stash $500 a month, you’d have $9,000 saved in one and a half years.

A terrific way to grow your emergency fund is to set up automatic transfers from your checking account into your rainy-day savings. That way, you won’t see the money sitting in your checking and feel as if it’s available to be spent.

Next, we’ll take a look at how to accelerate saving for an emergency fund.

Growing Your Emergency Fund Faster

You’ve just seen how gradually saving can build a cash cushion should an emergency hit. Here are some ways to save even faster:

•   Put a windfall into your emergency fund. This could be a tax refund, a bonus at work, or gift money from a relative perhaps.

•   Sell items you don’t need or use. If you have gently used clothing, electronics, jewelry, or furniture, you might sell it on a local site, such a Facebook group or Craigslist, or, if small in size, on eBay or Etsy.

•   Start a side hustle. One of the benefits of a side hustle is bringing in extra cash; it can also be a fun way to explore new directions, build your skills, and fill free time.

These techniques can help you ramp up your savings even faster and be prepared for an emergency that much sooner.

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Prioritizing Your Emergency Fund When You Have Other Financial Obligations

Even with the lessons of the pandemic in recent memory, it can be hard to prioritize emergency savings. Most of us have competing financial goals: paying down student debt or a credit card balance; accumulating enough money for a down payment on a house; saving for college for kids; and socking away money for retirement. In many cases, you’ll see variability in financial goals by age, but there are often several needs vying for your dollars at any given time.

Here’s advice on how to allocate funds:

•   Definitely start or continue saving towards your emergency fund. Even if you can only spare $25 per month right now, do it! It will get you on the road to hitting your goal and earning you compound interest. Otherwise, if an emergency were to strike, you’ll likely have to resort to credit cards or tapping any retirement savings, which probably involves a penalty.

•   Continue to pay down high-interest debt, like credit card debt. You want to get this kind of debt out of your life, given the interest rates that currently sit between 15% and 19%. You might explore balance transfer offers that let you pay no or very low interest for a period of time (say, 18 months) which can help you pay down your debt.

•   Steadily stick to your schedule for low-interest debt, which typically includes student loans and mortgages.

•   Fund your retirement savings as much as you can. As with an emergency fund, even a small amount will be worthwhile, especially with the benefit of compound interest. Make sure to contribute enough to take advantage of the company match if your employer offers that as part of a 401(k) plan; that is akin to free money.

Banking with SoFi

If you’re looking for ways to save for an emergency and want your money to grow fast, why not open an online banking account with SoFi? When you start a Checking and Savings account with direct deposit, you’ll have automatic savings features at your fingertips, earn a super competitive APY, and pay zero fees. That’s what we call banking smarter.

Better banking is here with up to 4.20% APY on SoFi Checking and Savings.

FAQ

What is the purpose of an emergency fund?

An emergency fund is a financial safety net. It’s money set aside that you can use if you are hit with a big, urgent, unexpected bill (like a medical expense or car repair) or endure a loss of income. In these situations, an emergency fund can help you avoid using your credit cards and taking on high-interest debt or hurting your credit score by paying bills late. How to invest an emergency fund is up to you, but a high-interest savings account is one good, liquid option.

Can I use an emergency fund for a non-emergency expense?

Technically, you can use an emergency fund for a non-emergency expense. After all, it’s your money. But it’s not wise to do so and defeats the whole purpose of saving this cash. If you use your emergency funds to pay for a vacation or new clothes, then if a true emergency arises, you won’t be prepared.

How difficult is it to rebuild an emergency fund?

It can be difficult to rebuild an emergency fund, just as it was to accumulate the money in the first place. But even if it takes years to achieve your goal, it is worth it. Putting away money gradually for an emergency is an important step towards being financially fit.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Starting (and Keeping) an Emergency Fund

How many times have you heard the financial advice, “Start an emergency fund”?

Probably dozens of times. But much as most people would like to have an emergency fund, it can be hard to prioritize saving for a rainy day when the sun is out and you want to plan a beach getaway…or just pay your current bills.

But what would happen if your car conked out en route to the beach and you needed a $800 repair? Or if you were unfortunately laid off and couldn’t pay the pile of bills without reaching for your credit card?

Those are examples of why emergency savings are so vital. It can be especially hard to save, though, when you don’t know how to build up that financial safety net. This article will change that. It shares step-by-step advice about how to ensure that you can handle the unexpected expenses that can be part of life. Read on to learn:

•   How many people have an emergency fund

•   How much money you should have in an emergency fund

•   How to save for an emergency fund

•   Where to keep an emergency fund

•   When to use an emergency fund

What Percentage of Americans Have an Emergency Fund?

Only about 44% of Americans could pay for an unexpected $1,000 emergency expense, according to a recent survey. This means that for 56%, or the majority of citizens, their emergency fund is effectively their credit cards.

And remember, a sudden bill of $1,000 isn’t the only reason an emergency fund is crucial — it can also keep you stay afloat if you suddenly lose your job or need to take unpaid time off work.

When you consider how to define an emergency fund, you may think it’s just cash to pay those urgent, unexpected bills. And, yes, that’s vital. But if you turn it over a bit, you’ll realize that in addition to covering the out-of-ordinary expenses, it can also keep you out of debt and your phone number out of the hands of creditors. What’s more, an emergency fund should help prevent you from reaching for your plastic when a big bill hits. The idea is not to rack up that kind of high-interest debt, which can be so challenging to pay off. These situations underscore the importance of having an emergency fund.

Rule of Thumb When Saving for an Emergency Fund

Most financial experts say you should have at least three to six months’ worth of basic living expenses in your emergency fund. That means you should add up the necessities that keep your household afloat (such as shelter, food, medical costs, utilities, WiFi, and so forth) and see what you would need if, say, you lost your job, became disabled, or had to take a leave of absence from work to care for a sick family member.

When deciding how much you’d like to have in your emergency fund, you might use another technique vs. adding up all your monthly expenses. Some people prefer to start with their take-home pay, subtract any money they’re already saving, and subtract money they don’t need to spend.

With this method, what’s left are your monthly expenses. Another benefit of this method is that it gives you the opportunity to see what spending you can live without, which you can cut out of your budget now and start weaving into your safety net.

Some people recommend yet another way to calculate how much should be in your emergency fund. They say to look at the deductibles for auto and health insurance you would have to pay in the event of an accident, emergency room visit, or ambulance ride. That cost is the very minimum amount of money you would have to shell out for a minor misfortune. If money is super tight, that could be a good goal for your emergency fund.

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Steps for Starting and Building Your Emergency Fund

If you are convinced of the value of having this sort of savings and are wondering how to start an emergency fund, follow these steps. They’ll help you know how to save for an emergency fund even if you feel your budget is already quite tight.

1. Setting a Specific Savings Goal

As mentioned above, most financial pros will recommend that you save three to six months’ worth of living expenses. You might come up with that sum and then divide it by 12 to see how much you’d have to save monthly if you wanted to accrue the whole amount.

Too steep? Try dividing by 24, and see what the two-year horizon looks like.

2. Starting Small and Stockpiling When You’re Able

Most young professionals don’t happen to have three to six months’ worth of income just sitting in their checking accounts, waiting to be moved to an emergency fund. If the method above of dividing your goal by 12 or 24 still yields a monthly number that’s too intimidating, start with whatever you can afford. If it’s $25 per month, great: The point is to pick a number and start stashing some cash.

You can also look for ways to fund your account from other sources. For instance, you could deposit any minor windfall — a tax refund, bonus, or even a birthday check from Grandma.

3. Making Consistent Transfers

If you use the method above of putting a windfall into your account, don’t forget about the emergency fund after that. It’s important to keep adding to it, especially in periods of high inflation. The amount of money you’d need to, say, pay the heating bill or plunk down for a car repair is likely to go up over time.

That’s why it’s important to keep funneling some money into your savings. If you have a side hustle going, you might want to make a rule to always deposit 10% or 20% of your earnings into the emergency fund to keep that account growing. Sure, you could spend all that pay and feel rich in the moment, or you can save it and increase your wealth over time.

4. Managing Your Expenses and Spending

If you’re feeling as if you just don’t have wiggle room to fund emergency savings, there’s a simple solution: Manage your money better and cut your budget a bit.

Take a look, and see where you can make budget cuts. Do you need to eat dinner out three nights a week, or can you cut it down to one? Do you need all of those streaming services you pay for? See where you can eliminate some costs in your budget, and put that extra money towards your emergency fund.

5. Turning on Automatic Saving

Automating your savings is a great, relatively painless way to continue saving money for your emergency fund. Set up regular payments from your checking account into your savings account so that money automatically gets transferred on a weekly or monthly basis. You won’t see the cash in your checking and be tempted to spend it.

6. Not Increasing Your Monthly Spending

Are you familiar with the phrase “lifestyle creep”? This means that, as you earn more, you start spending more. This means that even as your income grows, you’re not building wealth. If you get a raise and then use it on a more expensive car lease or frequent vacations, your savings will struggle to increase.

If you keep your spending in check, you can apply at least some of your salary increases to building up that emergency savings account.

Where to Keep Your Emergency Fund

Now that you know how to start an emergency fund, consider where to keep it. The whole point of an emergency fund is that it is easily accessible money, so when and if the unexpected happens (like a big dental bill), you will be able to dip into your account. That means it needs to be liquid. You will likely want to avoid accounts that require your money to be kept on deposit for a certain amount of time, like a certificate of deposit (or CD) account. These typically penalize you if you withdraw the funds early.

Interest rates are often fairly low for savings accounts, but if you shop around, you’ll find some out there that pay almost 2%. These high-yield savings accounts are typically offered by online banks. Because they don’t have bricks-and-mortar branches and the related expenses, they can pass the savings along to their clients.

Another point to note as you build your emergency savings: Look for an account that is FDIC-insured . Putting this kind of money into the market, which means there’s risk of loss, is probably not a wise idea. You don’t want to have the value of the fund drop.

Adding to Your Emergency Fund

As noted above, it’s fine to take your time building up your fund, but if you don’t take the first step and start, you’ll never get ahead. If you are struggling (as many people do), to find the cash for this goal, consider these hints:

•   Start a side hustle. You could get a weekend gig walking dogs. Or do you love ceramics? Try selling your pieces on Etsy. There is no limit to what you can try, plus a key benefit of a side hustle is making some extra cash, which you can put towards your emergency fund.

•   Gamify your savings. One month, go without fancy coffee-bar drinks and put the money saved into your emergency fund. The next month, skip takeout and cook at home. Put the extra cash into your rainy day account. You are likely to see the amount climb.

Tips for Staying Motivated to Build Your Emergency Fund

One of the biggest challenges some people face in saving for an emergency fund is motivation. If you find yourself tempted to spend your yearly bonus on a new car or status wristwatch, try this instead: For one week, live on the money you’d get if you filed for unemployment in your state.

This is no easy task, and it will give you an idea of exactly what you’re saving up to avoid. If you make it a week, consider if that’s really what you want to go through if you lose your job with no backup in place. Once you commit to focusing on your emergency fund, use the money you didn’t spend that week to start your account.

While saving an emergency fund is one of many competing financial priorities, having a cushion to catch you when you fall can prevent a minor calamity from spiraling into lasting debt. The toughest part may be getting started and staying motivated. Just remember, you walk 10 miles by walking 10 feet at a time.

When Should I Use an Emergency Fund?

When you know you have funds in your emergency savings, it can be tempting to dip into it for a variety of reasons that feel urgent but in truth aren’t. For instance, if a coat you have been coveting is marked down by 60% off, that is not a valid use of your emergency fund. Nor is upgrading to the latest mobile phone because you see a good deal.

Here’s when you should use an emergency fund:

•   An unplanned, unexpected event

•   An expense that is absolutely necessary

•   A cost that cannot be covered any other way

•   An expense that is urgent and must be paid ASAP

Examples of when these situations might occur include a major car repair that must be paid so you can commute to work regularly or your home insurance plan’s deductible after you experienced storm damage.

If an expense meets the criteria above, you can breathe easier knowing that you have the money to take care of the bill.

Banking with SoFi

Starting and keeping an emergency fund isn’t the most exciting place to put your money, but it is one of the most important. By keeping at least three to six months’ worth of expenses in a liquid account that earns a bit interest, you will be rewarded with peace of mind and an important cushion if you should hit one of life’s unexpected speedbumps.

If you’re looking for a place to begin and grow an emergency fund, see what SoFi Checking and Savings offers. When you open a SoFi bank account with direct deposit, you’ll earn a competitive APY, and you won’t pay any account fees, so your money can grow faster.

Better banking is here with up to 4.20% APY on SoFi Checking and Savings.

FAQ

Should I put my windfall towards my emergency fund?

Putting a windfall, like a tax refund or a bonus, towards an emergency fund can be a great idea. Instead of spending the money on a purchase, which is likely to be a passing pleasure, you can put the cash aside and enjoy peace of mind. If an unexpected, urgent bill comes up, you will likely be better prepared to pay it.

How much of my paycheck should go to my emergency fund?

It can be a good idea to calculate what your monthly living expenses are and then multiply that by at least three or six to determine your goal for your emergency fund; then see how much you need to save to reach that in a year or two. If you do like a specific guideline, some experts say to save 20% of your take-home pay for emergencies and retirement.

Does the 50/30/20 rule apply to emergency funds?

The 50/30/20 rule is, in part, designed to help people have funds on hand for an emergency (as well as save money for retirement). The idea is that you spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings. How much of that 20% you allocate to an emergency fund will depend on your own personal situation and your other savings goals.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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How Much Money Should I Save a Month?

You likely already know it can be wise to save money every month. Whatever your income or age, putting money aside for the future can help you maintain financial stability and achieve your goals.

But how much of your paycheck should you save each month? Financial experts often recommend putting at least 20 percent of your monthly take-home income into savings for future financial goals, such as buying a home and funding your retirement.

Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.

Here are some guidelines to help you figure out how much of your income you may want to set aside each month, plus some simple ways to jump start (or build) your savings.

Knowing What You’re Saving For

It can be difficult to know how much money you should save each month without having a sense of what you are saving for. Setting a few financial goals can also help motivate you to save, rather than spend all of your income.

There are some savings goals that can make sense for everyone. If you don’t already have at least three to six-months worth of living expenses stashed in an emergency fund, for example, that can be a good place to start.

Without a solid contingency fund, any financial set-back– such as a job layoff, large medical bill, or costly home or car repair–can throw you off balance and cause you to rely on high interest credit cards.

Many people will also want to save for retirement. At the very least, savers may want to take advantage of company matches offered in their workplace retirement plan by contributing the maximum amount the company matches.

After emergency savings and retirement, goals may start to look different from person to person. One person may want to save up for a down payment on a home, another may want to save up to start a business, and yet another may be interested in college savings.

How Much to Save Each Month

A rule of thumb that is sometimes used in personal financial planning is a spending/saving breakdown of 50/30/20. Using this guideline, you would spend 50% of your take-home income on essentials (including minimum payments towards debts), 30% on nonessential (or “fun”) spending, and 20% on savings goals, including debt payments beyond the minimum.

To use the 50/30/20 method to determine how much you should save, you can simply calculate 20% of your monthly after-tax pay. For example, if you earn $3,000 each month after taxes, $600 would go towards savings or other short term financial goals.

You may want to keep in mind that your 20% savings goal can include the money you’re saving for retirement. You can determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. If your employer is automatically depositing money into your 401(k), you may be able to put less into savings each month.

While the 50/30/20 can be a helpful guideline, how much you should–and can afford–to save each month will ultimately depend on your individual circumstances, such as your current income, monthly expenses, and future goals.

If the cost of living is high in your area, for example, you may not be able to swing 20 percent savings each month.

On the other hand, if you make a significant amount more than you need to live on each month, you may want to put away more than 20 percent, especially if you’re working towards a large short-term savings goal, such as buying a home in the next couple of years.

Recommended: Cost of Living by State Comparison (2022)

Where Should You Put Your Savings?

The best account for building savings will depend on what you are saving for.

If you are saving up for retirement, for example, you’ll likely want to use a designated retirement account, like a 401(k) or IRA, since they allow you to contribute pre-tax dollars (which can help lower your annual tax bill).

You may want to keep in mind, however, that there are annual contribution limits to retirement funds.

For an emergency fund or other short-term savings goals (within three to five years), you may want to open a separate savings account, such as a high-yield savings account, money market account, or a checking and savings account. These savings vehicles typically offer more interest than a traditional savings account, yet allow you to easily access your money when you need it.

Easy Ways to Boost Savings

Below are some strategies that can help make it easier to start–and build–your monthly savings.

Automating Savings

One great way to make sure you stick to a money-saving plan is to automate the process. You may want to set up a recurring transfer from your checking into your savings account on the same day each month, perhaps the day after your paycheck clears. Even setting aside just a small amount of money each month now can, little by little, add up to a significant sum in the future.

Putting Spare Change to Work

There are apps that will automatically round-up any amount paid on a credit or debit card and then put that little bit of extra money into savings accounts or even invest it. This “pocket change” can add up over time.

Using Windfalls Wisely

If a lump sum of cash, such as a bonus or monetary gift, comes your way, you may want to consider funnelling all or part of it right into savings.

Or, if you get a percentage raise on your salary, you might want to boost your automatic monthly transfer from checking to savings by the same percentage.

Reviewing Your Budget

If you feel like your budget is too tight to save anything at the end of the month, you may want to review your monthly and habitual expenses.

You can do this by combing through your checking and credit card statements and receipts for the past few months. Or, you may want to actually track your spending for a month or two.

You can then come up with a list of spending categories and determine how much you are spending on average for each.

Once you can see exactly where your money is going each month, you may find places where you can fairly easily cut back, such as getting rid of streaming subscriptions you rarely watch, quitting the gym and working out at home, or cooking more and getting take-out less often.

The Takeaway

The right amount to save each month will be unique to you and includes factors such as your financial goals, how much you earn, and how much you spend each month on essential expenses.

One of the most important keys to saving is consistency. No matter how much of your income you choose to set aside each month, depositing small amounts regularly can build to a large sum over time to achieve your goals.

Looking to get into the savings habit? You may want to consider opening a SoFi Checking and Savings checking and savings account.

With SoFi Checking and Savings’s “vaults” feature, you can separate your spending from your savings while earning competitive interest on all your money. You can even create different vaults for different goals, then set up recurring deposits to help you reach those goals faster.

Start saving money every month with SoFi Checking and Savings.



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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How to Save Money From Your Salary

When times are tight, it can feel as though putting even a few dollars away every month is next to impossible. How can you save money when you have a low salary and so many expenses?

There are ways to get that arrow moving in the right direction—even for those who are new to working full time and living on their own.

Taking Advantage of the Employer Match

According to the National Institute on Retirement Security four in five , Americans have saved less than their annual salary in retirement accounts. Thankfully, it’s never too early, or too late, to invest for retirement. Enrolling in your company’s 401(k) plan could be a place to start, and they may even offer matching contributions.

Not every employer offers a match—or a 401(k), for that matter—but if it’s a perk that you can take advantage of, getting more information about how your plan works could open up an avenue for retirement savings.

Employers differ in their plan contributions. Some employers might contribute a dollar for every dollar or a percentage of every dollar an employee puts into the plan, up to a designated percentage of the employee’s salary.

Plans are frequently set up so that employee contributions are taken directly from their paycheck, so the decision to contribute is automated instead of being something to think about each month.

Recommended: How an Employer 401(k) Match Works

Preparing a Budget and Following It

If the idea of a budget seems daunting—or past attempts have been less than successful—it might be because the chosen process is too complicated. It’s not necessary to create a complex set of spreadsheets. When you’re new to budgeting, it might help to start with something simple.

The 50/30/20 rule for budgeting streamlines expenses into three categories so you don’t have to monitor every single expenditure to make it work. Instead, this method recommends dividing take-home pay—what you make after taxes—into three main categories: needs, wants, and savings.

•   Put 50% of your money toward needs: housing, utilities, groceries, transportation, insurance, prescription medications and any other payments you have to make such as credit card or student debt, alimony or child support, for example. If you require a cell phone or other equipment for work, that might be a need, but if it’s the newest, most expensive model, you may be slipping into the wants category.

•   Put 30% toward wants. Here’s where everything from vacations to vending machine snacks can come in. If it isn’t essential, it goes into this chunk of your budget, so consider each expense carefully. This is where many people go wrong financially. Do you have to go to a gym to work out? Do you need Netflix and a weekly movie night? It’s all your call—but these costs all must fit into the allotted amount of money.

•   Put 20% toward savings or toward paying extra on your debt. This category could include your emergency fund, a savings account where you stash away extra cash for short- and long-term goals and your investment savings or retirement account. Keep in mind that some or all of these amounts may already be automatically deducted from your paychecks, so those amounts wouldn’t need to be included here. If you’re planning to pay more than the minimum each month toward credit card and student loan debt, include those expenses in this category, as well.

•   Feel free to tweak. If you want to save more than 20%, or you’re in a hurry to pay down debt, you can cut back on your wants to make it work. The key to budget success is to stick with your plan, though, so don’t make it so tough you can’t maintain it.

Automating Your Savings and Payments

Being paid by direct deposit is common these days,, so you might consider it an opportunity to eliminate at least some temptation when payday rolls around. You may be able to split your direct deposit into multiple accounts—a cash savings account and a Roth IRA or traditional IRA, for example—so you won’t be tempted to spend those dollars.

If a payroll split isn’t an option, you might consider setting up an automatic transfer from a checking account to a savings account. In today’s internet age it’s possible to set up automatic payments for a variety of expenses.

The Takeaway

A savings plan doesn’t have to be complicated. By starting small and keeping things simple and steady, budgeting and saving may just become a habit. While that first goal could be as basic as just getting started, it might not take long to realize where the budget can be adjusted to maximize savings.

SoFi Checking and Savings® is a checking and savings account that lets you save, spend and earn all in the same place without spending your money on account fees. In addition to earning higher-than-average interest, SoFi members get discounts, offers and rewards at various companies.

Learn more about how SoFi Checking and Savings® could help you start saving.



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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