How Much Should You Have On Hand for Emergencies?

Financial emergencies come in all shapes and sizes. From unexpected medical bills for you (or even a pet) to furnace or other vital home system breakdown, there’s no way of predicting when they’ll happen or how much they’ll set you back.

Which is why establishing an emergency fund is so important.

How much you should set aside for emergencies is dictated in part by your status in life and financial circumstances. The general rule of thumb for working individuals is to tuck away 3-6 months of living expenses.

When determining your ideal emergency fund amount, consider:

►  Your monthly expenses
►  Job security
►  Number of income earners in your household
►  Health and insurance coverage and cost

Based on that information, here’s what you might aim to set aside:

For Working Individuals

While you're employed, aim to save:

►  At least $1,000 to start
►  Build up to 3-6 months of expenses
► If you have a single income or unpredictable earnings, consider saving up to 6 months or more of expenses.

For Retirees

In retirement, it's advisable to have:

►  1-2 years of living expenses in cash or cash equivalents
►  This "cash cushion" can help you avoid having to sell investments at inopportune times during market downturns.

If saving several months—or years—of expenses seems daunting, start small:

►  Begin with whatever you can afford, even if it's just $25-$50 per month. Increase the amount as your financial situation improves.
►  Set up automatic transfers from your checking account to your emergency fund.
►  This helps build a consistent savings habit.
►  Look for ways to build your fund that don’t rely exclusively on your paycheck. For example, you might consider selling unused items online or picking up a side hustle or part-time job until your fund is established.
►  If you come into unexpected money (tax refunds, bonuses, gifts), consider putting it directly in your emergency fund.

Remember, any amount you save for emergencies is better than nothing. Be patient and consistent and celebrate the milestones as you build your fund.

As for where to keep your emergency fund, the key consideration is easy access. You don’t want to have to jump through hoops or incur exorbitant fees to get at cash when you need it most.

Good options include:

►  High-yield savings accounts

►  Money market accounts

►  Short-term certificates of deposit (CDs)

Remember, an emergency fund is your financial safety net. Make saving for it a priority and  avoid tapping into it for non-emergencies or predictable expenses.

Having cash readily available for unexpected expenses, will make it easier to weather financial storms and maintain financial stability

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.