rules for emergency savings (2024)

FAQs

Rules for emergency savings? ›

Those general saving targets are often called the “3-6-9 rule”: savings of 3, 6, or 9 months of take-home pay. Here are some guidelines to help you decide what total savings fits your needs.

Income shocks tend to be more expensive and last longer than spending shocks. They also tend to happen less frequently. To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses.

Try to avoid using your savings on nonessential items and services, such as a vacation or entertainment expenses. Here's a good barometer: Consider whether you actually need something to survive. If not, think twice before using emergency fund money for the purchase.

Saving $5,000 in an emergency fund can be enough for some people, but it is unlikely sufficient for a family. The amount you need in your emergency fund depends on your unique financial situation.

Most of us have seen the guideline: You should have three to six months of living expenses saved up in an emergency fund. For the average American household, that's $15,000 to $30,000¹ stashed in an easily accessible account.

Once you have this amount in your emergency savings account, you can focus on growing it to your personal savings target while also tackling other goals. Those general saving targets are often called the “3-6-9 rule”: savings of 3, 6, or 9 months of take-home pay.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

Drawbacks of Emergency Funds

By adding money to an emergency fund, it reduces the option of allocating any additional funds to other programs, such as retirement savings or paying down a mortgage. Thus, emergency funds reduce the likelihood of achieving other financial goals.

How many Americans have $100,000 in savings? ›

How many Americans have $100,000 in savings? About 26% of U.S. households had more than $100,000 in savings in retirement accounts as of 2022, according to USAFacts, a nonprofit organization that analyzes data from the Federal Reserve and other government agencies.

The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.

While $20,000 may be more than what many Americans have in savings, it's not guaranteed to be an adequate emergency fund for you. Your emergency fund should be set up to cover at least three full months of essential bills. If your monthly expenses are high, you may need to save more than $20,000.

There's no one-size-fits-all number in your bank or investment account that means you've achieved this stability, but $100,000 is a good amount to aim for. For most people, it's not anywhere near enough to retire on, but accumulating that much cash is usually a sign that something's going right with your finances.

“Every family should have an emergency savings account that can cover at least eight months of living expenses,” Orman wrote in a post on Oprah.com.

Recent data from Webster Bank finds that 57% of Americans consider saving for emergencies a top financial priority. But unfortunately, a good 31% of Americans don't have emergency cash reserves. And only 23% have an emergency fund that could cover more than six months of expenses.

How much should I have in an emergency fund? The rule of thumb is that individuals should have enough in an emergency fund to cover three to six months of living expenses.

While experts generally recommend building an emergency fund equal to three to six months' worth of expenses, this is only a guideline. Calculating your personal emergency savings goal requires having a clear picture of your financial situation.

More often than not, financial experts will advise you to save between three to six months of living expenses. But it's not uncommon to hear even larger numbers, like six to 12 months, or, for those nearing retirement, one to two years' worth of emergency savings.