Inside: You know you need an emergency fund, but do you know how big it needs to be? Here are some guidelines to figure out how much to save.
Having a fully-stocked emergency fund is one of the single best things you can do to protect yourself from surprise expenses like a trip to the doctor’s office, a job loss, or a flying monkey invasion.
Most people don’t have a large enough emergency savings fund, if they have one at all. In fact, 46% of adults can’t even cover a $400 emergency.
I know, because I used to be that person (I have $500 saved up so far in my emergency fund, thank you! I am working to grow it quickly, though).
Whenever I had an emergency, I would have to run back to my parents with my tail between my legs and beg for a loan. That got embarrassing real quick (especially as a grown-ass woman), and so I even relied on credit cards a few times.
We just paid off our last credit card balance this month (hooray!), and in accordance with our Four-Step Plan, we’re now moving on to building up our emergency fund.
First, though, we had to decide how big our emergency fund should be—what sort of target size we were shooting for.
The Horror! (via GIPHY)
What Should You Consider When Deciding How Big Your Emergency Fund Should Be?
How much are you on the hook for each month? Do you have kids, a stay-at-home-spouse, a mortgage, child support, alimony, debt payments, etc…?
The more obligations you have, the bigger an emergency fund you’ll need.
Here are our monthly obligations:
- Rent ($995)
- Mortgage ($1,236.65)
- Debt payments ($940.96)
- Other Bills ($351.41)
- Pets (variable)
- Truck (variable)
- Health (variable, but low—we’re still young and healthy)
How stable is your job?
Are you a tenured professional, or a seasonal worker? Do you work for a small company or a government agency?
The more unstable your job situation, the bigger an emergency fund you’ll need.
Here’s what we’re working with:
- Zach: intern until at least the end of summer 2017
- Lindsay: currently being hired on a government term position (up to four years)
Big Upcoming Plans
Planning any moves in the future? Going back to college soon? Expecting quadruplets?
You’ll need a bigger emergency fund for things like these.
Here are our big upcoming plans:
- Potential move to West coast in Spring 2018
- Potential switch to full-time freelance work (both me and Zach) in Spring 2018
How Much Have You Saved For Other “Emergencies”?
Do you already have money saved up for things like car repairs, health care, household goods, etc…? If so, you might not need as large of an emergency fund.
We save up separately for many different things. For example, we put aside $100/month for car repairs—which came in handy last month when we needed to take the truck in for $1,000 worth of work. This was the exact amount we had saved up!
We didn’t need to take money out of the emergency fund because we already had it saved up in a separate account. In our case, we’re mainly using our emergency fund for truly unforeseen expenses and as unemployment insurance of sorts.
So….How Much Should I Save Up In My Emergency Fund?
Different experts recommend different sizes of emergency funds.
Dave Ramsey, for instance, recommends an emergency fund of just $1,000 if you’re working to get out of debt. Personally, I think that’s fine if you don’t have a lot of obligations, big upcoming plans, or a stable job, but for most people (even those getting out of debt), I think that might be a bit too small.
Most experts suggest an emergency fund of 3-6 months’ worth of living expenses for the average person. That can seem like a big number! Remember, though: Rome wasn’t built in a day, and neither will your emergency fund be. It’s fine if you’re just getting started saving up and it’s low—as long as you’re getting started.
For people who have a lot of obligations and/or little job stability, some experts even suggest saving up 9 months’ of living expenses. This would be for people who have multiple children and a stay-at-home-spouse, for example. There’s a lot riding on that one income.
How Much We’re Saving Up For Emergencies
We’ve got a lot of obligations and big future plans coming up, which means we should probably be leaning towards 6-9 months’ of living expenses.
But, we’ve also got a lot of money saved up for other “emergencies”: here’s a full list of what we’re saving up for. We’re more comfortable backing our target goal down to three months’ worth of living expenses because we have all of these extra savings.
Related: Budgeting for Budget Haters ecourse
So far, we’ve got one months’ expenses saved up. This was our first priority (even over paying off debt) because it gives us breathing room and peace of mind to focus on our long-term debt-payoff goal rather than frantically figuring out how to pay overdue electricity bills.
We’ve developed an action plan to balance our debt payoff with our savings. Since we’ve paid off our last credit card last month (woo hoo!), now we’re focusing on saving up two months’ more of living expenses.
That way, we’ll have a total of three months’ worth of living expenses in our emergency fund.
No flying monkey invasions are going to catch us off-guard! Now excuse me while I go check the latches on my windows…
How big of an emergency fund are you looking to save? Leave a comment below!