Emergency Fund: How Much Should You Save?

If you are planning to build an emergency fund and don’t know where to begin then don’t worry, you are at the right place. In this article, we will cover the topic of how much of your money should you save as an emergency fund so that you can cope with unexpected or expected financial stress and emergencies. So make sure to read the article till the end. 

Most people know that they should have an emergency fund but only a few know how much to save for this. Dave Ramsey has a simple rule of thumb: Save $1,000 for every member of your household. That’s enough to cover most emergencies.

But what if you have more than one emergency? Or what if your expenses are higher than average?

There’s no one-size-fits-all answer to these questions. But there are some general guidelines you can follow.

What Is an Emergency Fund?

An emergency fund is a monetary safety net you set aside for unexpected expenses and mishaps. 

This fund is also known as a contingency fund. Ideally, you should have at least three to five years’ worth of expenses in your account. The goal of having an emergency fund is to prevent your life from being turned upside down so that you’ll have money in case of any emergencies that may arise. If you set aside money now, you can access this money when you need it most.

Having an emergency fund is a lifesaver when bad things happen to you. It’s a safe place to turn when life is rough. If you lose your job, you’ll be able to cover your necessary expenses, such as paying rent or mortgage payments. 

A fund will prevent you from dipping into your savings to purchase frivolous goods or use your high-interest credit card. Such irresponsible behavior will result in higher debt repayment.

Why Is an Emergency Fund Important?

A good emergency fund is a critical part of financial stability which makes it even more necessary to save. The average person does not have enough cash on hand to cover six months of living expenses. Emergency expenses can happen to anyone, including a failed alternator. 

In addition to medical expenses, an emergency fund can also help you make career decisions if you are laid off from your job. The following are some reasons why people need an emergency fund. 

The amount you set aside for an emergency fund should be equivalent to six months of your salary.

The primary reason for having an emergency fund is that you might need to pay the bills for several months without a job. 

The average length of unemployment is forty weeks, and you’ll need some emergency cash to make ends meet. Depending on the reasons for your job loss, you can choose a target amount for your emergency fund. 

However, most financial experts recommend setting aside three to six months’ worth of living expenses. This is a good rule of thumb for establishing an emergency fund.

How Much Should You Save in Your Emergency Fund?

Saving for an emergency fund is important, but how much should you save? Dave Ramsey recommends saving enough to cover three to six months of expenses. 

However, some experts say that you should save closer to eight or even twelve months of living expenses. Ultimately, the amount you should save depends on your financial situation. 

If you have a steady income and few debts, you may be able to get by with a smaller emergency fund. But if you are self-employed or have a lot of debt, you may want to save more. emergency fund Dave Ramsey

No matter how much you save, it’s important to have an emergency fund that you can tap into when unexpected expenses arise. A good rule of thumb is to have at least three to six months of living expenses saved up. 

But if you are self-employed or have a lot of debt, you may want to save even more. Dave Ramsey recommends saving enough to cover three to six months of expenses, but some experts say that you should save closer to eight or even twelve months of living expenses. 

Ultimately, the amount you should save depends on your financial situation. 

What Are the Benefits of Having an Emergency Fund?

If you are still not sure of whether you should go for an emergency fund and save for it or not, then hopefully knowing these benefits can help you take your decision.

Here are 10 benefits of having an emergency fund: 

  1. Emergency funds provide a safety net in the event of an unexpected job loss or financial emergency.
  2. Having an emergency fund can help you avoid going into debt if an unexpected expense arises.
  3. It helps you avoid using high-interest credit cards in the event of an emergency.
  4. Emergency funds can help you avoid borrowing money from family or friends in the event of an emergency.
  5. Emergency funds also help you cover unexpected medical expenses.
  6. An emergency fund covers the costs of car repairs.
  7. It can even help you cover the cost of a home repair.
  8. This fund can help you pay for pet care in the event of an emergency.
  9. Helps you pay for child care during an emergency.
  10. The emergency fund can help you pay for unexpected travel expenses.

Where to Keep Your Emergency Fund?

If you are saving for emergencies, you have many options. One option is a savings account at your primary bank or credit union. Other options are money market accounts and short-term certificates of deposit. 

While these options have low-interest rates, they do not offer the convenience of instant access to your funds. You must decide where to keep your emergency fund based on your needs. 

However, it is always a good idea to have more than enough money for unexpected emergencies.

In a Savings Account at Your Primary Bank

The ideal amount of money to keep in an emergency fund depends on the amount of debt you have and how much you can afford to save. 

The amount of money you should set aside should equal at least a month’s worth of living expenses. It would be wise to have six to eight months of living expenses. 

This amount will protect you from unforeseen expenses, such as unexpected medical bills, and is a good idea to keep separate from your regular bank accounts.

While money market accounts offer the best flexibility, you should still be aware of the costs. Although you can withdraw money anytime, money market accounts tend to have higher fees. Be sure to compare the features and fees before deciding on a bank. 

If you can’t make payments on a savings account, consider a CD. This type of savings account earns interest and is a great choice for emergency funds.

In a Savings Account at a Credit Union

While it might be tempting to keep all of your emergency money in cash, this is a bad idea. 

Cash at home may not be accessible during an emergency, or you may lose it if your home is broken into or stolen. Luckily, there are a variety of financial institutions that can help you store emergency funds. 

They can offer insurance coverage and competitive interest rates. You should look for one that is a member of the NCUA or FDIC.

Setting a specific dollar amount for emergencies is one of the best ways to build an emergency fund. 

By drawing from your emergency savings regularly, you’ll quickly start to build up a large enough emergency fund to pay for any unforeseen expenses. 

If you find yourself having to use your emergency fund, remember to replenish it as soon as you can. This will make building your emergency fund easier in the future.

In a Money Market Account

If you’re looking to build a larger emergency fund, consider putting your money in a money market account. These accounts typically have higher interest rates than savings accounts, and many are insured by the Federal Deposit Insurance Corporation. 

They’re also generally easier to maintain, offering pristine records and more flexibility. Most money market accounts are linked to checking accounts and high-yield savings accounts. 

You can access your money by debit card or by writing a check.

Money market accounts are very convenient and often offer competitive APYs. Money market accounts also provide access to ATMs and check-writing privileges, making them ideal for emergency savings. 

However, some money market accounts charge hefty fees, so it’s best to shop around and find a bank with low fees. For example, some banks require an opening deposit of $2,500 or more to open a money market account.

In a Short-term Certificate of Deposit

An emergency fund is a great way to protect yourself from unexpected expenses. Ideally, it is liquid and large enough to cover a full year of expenses. A common rule of thumb is to have six months’ worth of expenses set aside. 

That will cover most unexpected expenses and provide a cushion during a job loss. Having this money available can also help you avoid debt while you search for a new job.

Savings accounts are important for keeping emergency funds, but certificates of deposit offer the flexibility of immediate access. Savings accounts earn interest on the money they hold, and certificates of deposit allow you to withdraw the principal at any time. 

The problem with saving money on CDs is that withdrawal penalties can be substantial. If you need immediate access to your money, you should keep your emergency fund in a savings account.

In a High-yield Savings Account

If you’re not sure where to put your emergency fund, you may want to open a high-yield savings account. These accounts are usually higher than the average interest rate of a regular savings account. 

The best high-yield savings accounts have higher interest rates and liquidity. While high-yield savings accounts are not as convenient as checking accounts, they can be beneficial if you have excess cash on hand.

When choosing a high-yield savings account, look for one that is insured by the National Credit Union Administration and the Federal Deposit Insurance Corporation (FDIC). 

These institutions offer deposits of up to $250,000 of insurance per person. High-yield savings accounts are most commonly found with online banks or new financial technology companies. The deposit insurance offered by the FDIC is a great benefit if the bank is closed.

What Are the Situations in Which I Should Use My Emergency Fund?

An emergency fund is a money reserve that you can draw from to help you get by in the event of an emergency. Using your emergency fund in such situations can help you avoid a financial crisis that could wipe out your savings. 

This type of fund is best used when you can’t find another source of income to meet your financial obligations. 

Here are some scenarios when you should use your emergency fund:

When you lose your job

You should always have an emergency fund in case you lose your job. This money is meant for unforeseen expenses that you simply can’t avoid. 

Among them are the replacement of electronic devices, repairing car brakes, or replacing broken clothes. These expenses are usually covered by your emergency fund, but in some cases, you’ll need to tap into this fund to survive. 

When you lose your job, you should ask your employer about the amount of your last paycheck. Some states require employers to give you your last paycheck if they fire you, while others cut your checks based on your normal pay schedule.

Severance pay is also available for unused vacation or sick days. Consult your employee handbook to determine if you are eligible for it. In most cases, it is worth asking your former employer to send you your final paycheck.

When You Have a Medical Emergency

Your emergency fund should only be used for true emergencies. It should not be used for regular expenses like holiday gifts or semi-annual car insurance payments. These expenses should come from other sources. 

Think of your emergency fund as a self-funded insurance policy that you pay for with savings. In times of emergency, it can come in handy. You can quickly access the funds in case of an unexpected car repair or emergency medical treatment.

Your emergency fund can help you deal with many unforeseen expenses. During pregnancy, complications can put your health at risk and increase your costs. An extreme allergic reaction can also require emergency medical treatment. 

Having emergency cash on hand could help you avoid racking up debt and paying for your care out of pocket. When you are diagnosed with COVID, your emergency fund will help you pay the bills without having to wait for a credit card.

When Your Car Breaks Down

An emergency fund can come in handy when you have a sudden medical need, such as a trip to the hospital or a broken car. 

Other things you might use it for include a sudden illness or a broken car, extensive dental work, or surgery. Here are some ways to use your emergency fund:

First, you need to establish an emergency fund and save for it. Developing an emergency fund is similar to creating an insurance policy. Having money set aside for unexpected expenses, like a broken-down car, can help you keep from falling into debt. 

If you have a car that is 10 years old, you are likely to face car repair bills shortly, so you’ll need to build these expenses into your emergency fund. Other emergency fund examples include medical bills from an illness, home repairs, and unexpected rent costs. 

This fund will help you cover these unexpected costs, and can even prevent you from falling into debt in the future.

When You Have to Make a Major Home Repair

There are several different ways to access emergency funds. If you are concerned about the safety of your emergency fund, you may want to consider a home equity line of credit. 

This type of loan is based on your home equity and can be accessed as needed. You pay down the loan like you would a credit card and you can use the money for home repair emergencies as needed. 

Home equity lines of credit are available for up to 90% of your home’s value.

Your emergency fund is a safe place to keep cash in case you have an unexpected home repair. A major repair can cost several thousand dollars. By setting aside this money, you can avoid incurring debt

And because you can rebuild your emergency fund when you have recovered from the repair, you can use your emergency fund for another unexpected expense. 

In addition, you can use it for other, less significant, expenses, such as vacations.

When You Have an Unexpected Pet Emergency

Veterinary bills can be expensive, but many people do not realize how much they can spend on unexpected veterinary emergencies. 

A recent survey showed that only 39 percent of Americans have enough money in their emergency fund to cover a $1,000 emergency.

Luckily, there are ways to plan for these unforeseen expenses, such as creating an emergency fund for your pets. Fortunately, there are many ways to do this.

First, start a separate bank account for your emergency fund. Once you have this account, make regular contributions. 

By adding just a few dollars each month, you can save enough for several months’ worth of pet expenses. 

You may want to consider getting a part-time job or even an online job to make up the difference.

This way, you can keep your emergency fund separate from your regular budget. After all, you don’t want to worry about your dog’s health during a crisis.

When You Have to Travel for an Emergency

An unexpected trip can be costly, whether you need to travel for a medical appointment, funeral, or memorial service. 

When this happens, you can use your emergency fund to cover the costs of the flight, train ticket, and lodging. Try to find cheap accommodations when you can. 

A liquid emergency fund can help you sleep better during an emergency. Here are some ways to use your emergency fund:

Having an emergency fund is like an insurance policy. You pay yourself a certain amount of money each month that can be accessed quickly in times of need. 

Unfortunately, the COVID-19 pandemic has been raging for 18 months and could erode even the most generous emergency fund. The Center for Global Development estimates that there are approximately ten to twenty-five percent chances that an epidemic will happen in the next 10 to 25 years. 

However, there are plenty of less dire events that can make you need your emergency fund. For example, a broken car or arm can be expensive, so you may want to reduce your spending by getting a cheaper phone data package.

When You Have a Family Emergency

An emergency fund is a money you set aside for yourself or your family to use in case of emergencies. It focuses on essential expenses and potential must-haves. 

These circumstances include loss of income, health events, and even saving money for a family vacation. To create a family emergency fund, analyze your monthly expenses and divide them into two categories: essential and discretionary. 

Depending on your situation, an essential expense may mean a different thing for you. If you have a new baby, for example, childcare and school expenses may be the most important things to cut.

The amount of money you need to create an emergency fund depends on your lifestyle, income, and the number of dependents. 

Experts recommend setting aside three to six months’ worth of living expenses for such emergencies. 

However, you may need a larger emergency fund if you have a variable income or if you are self-employed. When you are ready, you can increase your emergency fund’s size and use it for other financial goals.

When You Suffer a Natural Disaster

Whether you live in the country or an area affected by natural disasters, your emergency fund can come in handy. Many people do not realize that they have a reserve available to cover unforeseen costs. 

For example, if a hurricane hits your area, you may need to evacuate quickly. Evacuation may entail spending money on food, gas, and lodging. Luckily, there are many ways to save money for these situations.


If you have an emergency fund, make sure it is safely deposited in a bank and that you have cash on hand. The power outage may not allow ATMs to operate, and a natural disaster will likely prevent merchants from accepting credit cards. 

Having cash available to make essential purchases is vital for your survival. If your emergency fund is in a jar, you could lose it during the disaster. In such cases, your emergency fund can supplement or replace your income.

When You Have to Make a Last-minute Emergency Trip

In case of an unexpected trip, your emergency fund should cover the costs. It could be for medical reasons or memorial service. 

If you have enough money in your emergency fund, you can use it to buy airplane or train tickets, and also cover the costs of lodging. Try to find budget accommodations, so that you won’t have to use your emergency fund money to stay in expensive hotels.

An emergency is defined as a sudden and unplanned expense. It includes things like losing your job, unexpected medical bills, or a broken water heater. Things that you may want but don’t need are not emergencies. 

You can still save for them if you want them. When deciding whether or not to use your emergency fund, ask yourself three questions.

How to Rebuild Your Emergency Fund After Using It?

Here are 10 ways to rebuild your emergency fund after using it.

1. Make a budget

The first step to rebuilding your emergency fund is to figure out where your money is going. Track your spending for a month or two to get an accurate idea of your regular expenses. Then, use that information to create a budget that includes room for saving.

2. Automate your savings

Once you have a budget in place, automate your savings so that money is automatically transferred from your checking account to your emergency fund each month. This will help you make saving a priority and make it easier to rebuild your fund quickly.

3. Cut back on expenses

If you find that your regular expenses are eating up most of your income, it may be necessary to cut back to free up more money for saving. Take a close look at your budget and see where you can make adjustments, such as eating out less or cutting back on entertainment expenses.

4. Make extra money

Making extra money is a great way to quickly rebuild your emergency fund. You could pick up a part-time job, start a side hustle, or sell items you no longer need. Any extra money you can bring in should be funneled into your emergency fund.

5. Invest in high-yield savings accounts

If you want to earn more interest in your emergency fund, invest in a high-yield savings account. These accounts typically offer higher interest rates than traditional savings accounts, which can help you grow your fund more quickly.

6. Use windfalls wisely

If you receive a windfall, such as a bonus from work or a tax refund, resist the urge to spend it all. Instead, use some or all of the money to help rebuild your emergency fund.

  1. Live below your means

If you want to maintain a healthy emergency fund, it’s important to live below your means. This means spending less than you earn and being mindful of your expenses. When you live below your means, you’ll have more money available to save.

  1. Avoid using credit cards

If you’re trying to rebuild your emergency fund, it’s important to avoid using credit cards. Using credit cards can quickly put you in debt and make it harder to save. If you’re struggling to resist the temptation of using credit cards, try to keep them out of sight and out of mind by cutting up your cards or storing them in a safe place.

  1. Start small

If you’re feeling overwhelmed by the task of rebuilding your emergency fund, start small. Begin by saving $50 or $100 each month. Once you’ve built up a bit of a cushion, you can start saving more each month.

  1. Be patient

Rebuilding your emergency fund can take time, so be patient. Don’t get discouraged if it takes a few months (or longer) to reach your goal. The important thing is to keep at it and stay focused on your goal.


It’s important to have an emergency fund saved up so that you’re not left in a difficult situation if something unexpected comes up. How much should you save in your emergency fund? Dave Ramsey recommends having $1,000 saved up, but you may want to save more depending on your circumstances. No matter how much you decide to save, make sure you have a plan in place so that you can reach your goal.

Saving for an emergency fund is important, but how much should you save? Dave Ramsey recommends having $1,000 saved up, but depending on your circumstances, you may want to save more. No matter how much you decide to save, make sure you have a plan in place so that you can reach your goal.

Leave a Comment