How much to save in an emergency fund is one of the tougher personal finance questions. For a long time, the go-to advice was three to six months’ worth of living expenses; that way, if you lost your job or had some other type of emergency, you’d have sufficient funds to draw from until you got back on your feet.
But that advice feels increasingly out-of-date in today’s economy. Unemployment is technically low, but it’s taking those who lose their jobs much longer to find something new. And when they do, anecdotally, it often seems not on par, salary-wise, with their previous job. In my own opinion, a six-month emergency fund, at a minimum, makes more sense.
But I’m fairly risk averse. I’d much rather know the security is there than worry about finding ways to scrounge together cash in the event of an emergency. Others will have different philosophies about this. Maybe three months is enough of a runway for you to be confident you’ll be able to replenish your income and pay all of your bills, and you’d rather invest the rest.
The general caveat here, of course, is that you’re able to save that much in the first place. Around one-third of Americans say they don’t have an emergency fund, according to an August survey from financial services company Empower, and Bankrate reports 29% of Americans have more credit card debt than emergency savings. That’s in line with the Federal Reserve’s finding that around 63% of U.S. adults would be able to pay for a hypothetical $400 expense using cash, savings, or a credit card paid off at the next statement. The rest—37%—said they would have to borrow money, sell something, or simply not cover the expense.
While more than half (55%) of adults said they have enough money set aside to cover three months of expenses in a rainy day fund, 30% said they wouldn’t be able to cover three months of expenses by any means. Men are more likely than women to have three months of expenses saved up (57% vs. 53%).
The size of one’s emergency savings is my most closely watched metric in each edition of Home Economics, and I’m always impressed when the women we feature have significantly more than $10,000 saved. (I also know that those we feature are not typical for most Americans!) That 10k number, for many years, was the benchmark I aimed for, and it took me much longer than I care to admit to actually reach it.
In my 20s, that seemed like a safe amount, and a little impressive, to boot. But at 33, having experienced my first job loss, I’ve doubled my baseline. In fact, I was always much better about investing in my 20s than putting aside money in a savings account. But I switched those goals over the past 10 months and focused on building my liquid savings rather than adding more to my IRA.
The end result: I feel much more secure, even if I haven’t saved as much as I normally do for retirement. I’m also proud that I finally accomplished a goal that eluded me for so long.
What about you: Do you have an emergency savings goal? If you’ve reached it, how long did it take? Has it changed over time? Any tips for reaching it? Let us know!
