How Much Do You Really Need in an Emergency Financial Fund?

Job loss. An economic recession. An unexpected medical expense. A car breakdown.

There’s a lot that can — and eventually will — go wrong for you in life, and that’s why many financial planners and economists steadfastly agree that all Americans should have some sort of emergency savings fund. After all, you never know when a financial hardship will arise, and stowing away money in an emergency fund that you don’t touch until you absolutely need it can help you tread water while you get back on your feet.

But, how much you need to put into this emergency savings account becomes a subjective topic. Some say that it should be at least three months worth of living expenses. Others argue it should be at least six months worth of expenses. Some even say it should be up to a year. Look, more is always going to be better when it comes to any type of savings account, let alone an emergency savings account. But how much do you really need?

Thankfully, Emily Gallagher and Jorge Sabat — two respected economists known for their report, Rules of Thumb in Household Savings Decisions — have crunched the data and come up with more of a scientific explanation for how much you should have in your emergency savings fund. Let’s take a look at what they found:

  • The minimum, $2,467: Minimally, Gallagher and Sabat say that all Americans should have $2,467 packed away in an emergency fund. How did they come up with this number? They used data from the Survey of Income and Program Participation (SIPP) to chart the relationship about the chances of falling into hardship in the near-term versus the amount of savings you should have. For low-income families, generally recognized as households earning $30,000 or less a year, this is a safe savings goal. For all other Americans, it’s the minimum amount of total savings that should be in their emergency accounts.
  • More is always better: Gallagher and Sabat found that if all Americans can save at least $2,467, then building out a savings account for middle class and upper class individuals becomes all the more manageable. For starters, being disciplined enough to reach the $2,467 goal is a great way to build good money saving habits. And while the data shows that low income families can stop at this number, others will likely need to save more to cover themselves in the event of an emergency. However, it’s also important to note that households with higher income levels have a much easier time absorbing any unexpected costs that may come in. In other words, an upper class household might have zero problem paying a $750 car repair bill out of their basic checking account, while a low income family would be forced to dip into this emergency fund. More is always better, but at the same time it’s important not to be putting too much money in an emergency account when it could be better invested in the market or toward your retirement.
  • It’s important to set goals: What’s nice about the $2,467 emergency savings goal is that it’s attainable for most American households. It’s not too ambitious of a goal, which can actually be a discouraging factor rather than a motivator. The $2,467 savings goal is seemingly a reachable one, and when goals seem like they’re easier to achieve, studies show that Americans are more likely to hit them.

Rainy day emergency funds are very important, especially when you consider studies that state a majority of Americans wouldn’t have the funds in savings to cover a $400 unexpected expense. Obviously, the amount you save in an emergency fund will depend largely upon your income level, but generally speaking, Gallagher and Sabat say setting a goal of at least $2,467 is a great place to start and a nice point to build on moving forward.

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These content links are provided by Content.ad. Both Content.ad and the web site upon which the links are displayed may receive compensation when readers click on these links. Some of the content you are redirected to may be sponsored content. View our privacy policy here.

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