Emergency Fund: How Much Do You ACTUALLY Need?

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Have you ever had a financial emergency?

You know, the thing that only happens at the WORST time possible?

Like a fender bender when you’re already late for work?

Or the dishwasher decides to throw a bubble party in your kitchen?

Or your kids decide to use your flat screen TV for Nerf target practice (just before the Super Bowl?!)

Life happens.

And that’s where your Emergency Fund steps in to save the day!

Emergency Fund 6

An emergency fund is money that you have set aside for any large, “unplanned” expenses that come up.

A few examples of this could be:

  • A car accident
  • A broken appliance
  • A medical emergency,
  • or job loss.

The money should be put away in a savings account (NOT your checking account), and should NOT be touched unless it’s a true emergency.

(Finding a “deal” on concert tickets, or wanting to buy Amazon’s “Deal of the Day” does NOT qualify as an emergency!)

Let’s break down the details of saving an emergency fund, specifically talking about Why, How MuchWhere, and For What it should be used.

Why Should I Have An Emergency Fund?

Why should you have a pile of cash that is used exclusively for emergencies?

An emergency fund functions as a brick wall to block out potential financial disasters.

When an emergency arises, you want to have the cash to take care of it, otherwise that emergency will haunt you for far longer.

If you don’t have the cash on hand, you will throw the cost of that emergency on a credit card and NOT pay it off before the end of the billing cycle (because you don’t have the money).

You will then pay interest on your emergency, which is just rubbing salt in the wound of having to deal with the emergency in the first place.

RelatedA Complete Guide To Paying Off Credit Card Debt

Having an emergency fund allows you focus on the emergency at hand instead of wondering how to finance it.

How Much Should I Save In My Emergency Fund?

I think a better questions is:

How much helps you sleep better at night?

Everyone has a different answer to this question. Depending on your life circumstances, this answer may vary.

But what do the experts say?

Many financial gurus recommend saving $1,000 in your emergency fund before tackling your debt, then raising that amount to 3-6 months of expenses after your debt is paid off.

Some say you need as much as 8 months of expenses set aside.

I think $1,000 is far too little to deal with a real emergency. But I also don’t think you need 6 months of savings sitting there, untouched, until later.

I recommend having 1-Month of Expenses set aside in your Emergency Fund.

This amount serves 2 purposes:

  1. It gives you a few thousand dollars to deal with larger emergencies (car transmission replacement, ER medical bills, etc.), and
  2. It gives you the ability to have ALL your money for the next month saved up BEFORE the month begins.

The goal is to be able to absorb the cost of life’s fun little “financial detours”, without affecting your monthly budget, or your goals.


Having 1 months of expenses is hardly enough if something serious occurs.

Job loss, or a major medical situation requires a larger buffer.

In my 5 Steps To Financial Freedom, I outline that Step 1 is to save one month of expenses.

Then you should pay off debt and invest before building a larger emergency fund.

Once you are debt free and investing, I recommend saving (up to ) 12 months of expenses in your Emergency Fund

Again, the exact amount here is a general guideline, but the real answer is what makes YOU feel comfortable.

For some, 3 months is just fine, for others, they NEED 12 months to enjoy life.

Whatever that number is, just make sure it’s in the right type of savings account (see below).

Where Should I Keep It?

So now that you are saving up an emergency fund for the reasons stated above, where are you going to store this cash?

I suggest not keeping it in your checking or savings account where you have immediate access to it.

I definitely don’t suggest in an envelope under your mattress!

If you do this, you run the risk of tapping your emergency fund for non-emergencies. Now, I know YOU have more self-control than that, but I certainly don’t!

I recommend stashing it in a Money Market or High-Yield Savings account. This will keep it from being spent, AND earn you the highest interest possible.

The CIT Bank Money Market account is currently the highest rate around, has a slick mobile app, and you can get started with as little at $100. CapitalOne 360 Performance Savings also offers a great rate and simple sign up.

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Or you can check out the list of Top High-Yield Savings Accounts to find one that works for you.

Here’s my method for stashing away your emergency fund:

  1. Sign up for a CIT Bank Money Market account.
  2. Once signed up, go into your new savings account and setup an automatic transfer from your checking account.
  3. Start with a small amount, and challenge yourself to up the amount every month!
CapitalOne 360 Emergency Fund

You can call this account “Emergency Fund” while you’re building it up.

The goal is to eventually turn this into your “Month Ahead” account, and have your paychecks deposit directly in here. Then you only transfer over what you need for the next month to your checking account.

How To Save For My Emergency Fund

Automating your savings is a great way to get started, but saving up $4,000 or $5,000 might seem like a HUGE task.

Here are a few ways to speed up your savings and build your emergency fund quickly!

Sell your stuff! This is a fantastic way to jump start your savings account. Michelle and I sold a TON of stuff when we sold our house, and we didn’t realize the gold mine we were sitting on. We made over $7,000 selling stuff we didn’t use or didn’t need anymore. We sold anything we thought was worth $5 or more.

I challenge you to sell 3 THINGS from every room in your house THIS MONTH. This includes bedrooms, kitchen, living spaces, bathrooms, and garage. For a typical 3-bed/1-bath house, this simple exercise could net you at least $100!

Stretch Goal: Sell 5 things per room, and try to average $10 per sale. This is a HUGE boost to your savings account.

Save Your Extra Paycheck. For those getting paid bi-weekly, you get an “extra” paycheck every 6 months. If that paycheck is coming up, simply transfer it straight to your Emergency Fund for a quick boost!

Cut expenses. To harness the power of your budget, you can go through an find places to save extra money. Then transfer that savings into your emergency fund savings account at the end of the month.

Looking for ways to save? Check out THIS POST for over $20,000 worth of ideas!

What Can I Spend My Emergency Fund On?

Now the real question. When do I get to use all this money?! 

You don’t.

Seriously. Stop staring at this pile of cash and drooling over the possibilities. You should probably forget this money even exists.

Your emergency fund is meant for true emergencies only.

A hole in your sock is not an emergency that requires a new wardrobe.

A scratch in your car doesn’t mean you can now declare a federal state of emergency and go buy a new car.

And yes, even minor car repairs are not an emergency (because you having a car repair fund in your savings buckets for that….right?).

An emergency is a completely unforeseen circumstance that puts you without a necessity.

You are required to fix this issue or you will be without something that you actually need.

And when you happen upon an emergency, you should have no guilt or qualms about paying for it with your emergency fund. That is what it is there for.

This is where the peace of mind really comes into play.

Your emergency that could destroy your financial life suddenly becomes a manageable event.


Just over a year after moving into our first home, our hot water heater died!

More accurately, it started leaking all over the garage floor, and needed to be replaced ASAP before it damaged anything.

Remembering that we were already living ONE MONTH AHEAD of our expenses, I knew we had the money to replace the water heater.

I quickly shut off the water, and hopped on the Google to find out how much it was going to cost. A quick search showed that it could be up to $3,000 to have someone replace it for me.

We could have happily paid someone to take care of the mess, but my frugal muscles were activated, and I said “I can do this myself!”

I found out how to DIY replace it myself, and then went to the nearest Home Depot to get a quick replacement water heater.


This is the process we use to put our emergency fund into action was simple.

  1. Purchase the required materials using our credit card.
  2. Add up the total cost and transfer that amount from our CapitalOne 360 Savings account (where our emergency fund is stored) into our checking account.
  3. Pay off the credit card right away so it does not interrupt our normal monthly budget.

And that’s it! As usual, spending the money was the easy part.

I then followed the step-by-step instructions from Youtube. With a LOT of help from my brother-in-law and some tips from a friendly neighbor, we had it replaced that afternoon.

Though it took most of my Saturday to replace the unit, we were only out $550 instead of the possible $2,000+ had we hired out the labor.

There are two things you should take away from this story:

The internet can save you money. If you are reading this blog, then you have access to the most powerful, comprehensive knowledge database in the history of mankind at your fingertips. As the saying goes, “knowledge is power”, but it can also save you from paying for someone else’ knowledge or labor.

I am from the school of thought that you can be your own emergency fund on some occasions if you take the time to educate yourself on how to find information on the internet.

You MUST have an emergency fund in place before you start doing anything else with your money. Life is unpredictable, so plan for the unexpected.

Do YOU have an emergency fund in place? How much do you have saved?

Jacob Wade

Jacob Wade

Jacob Wade has been a nationally-recognized personal finance expert for the past decade. He has written professionally for The Balance, The Spruce, LendingTree, Investing Answers, and other widely-followed sites. 
He’s also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, Go Banking Rates, and AOL Finance.

In 2018, Jacob quit his job and his family decided to sell everything (including their home) to take off on an adventure. They traveled the country in an RV for nearly 3 years, visiting over 38 states, 20+ national parks and eventually settling in the sunshine state!

33 thoughts on “Emergency Fund: How Much Do You ACTUALLY Need?”

  1. Personally in my situation I’m not a big believer in having a hefty emergency. I do make a point of keeping at least $1000 easily available, but that’s about as far as I go. I’d just rather have my cash working for me somewhere better than an online bank account. If something did arise I could put it on my credit card interest free for 1 billing cycle and then transfer it to my line of credit. I just think an emergency fund is more suited to people who have had debt problems.

    • I agree with the part that the size of your EF should be based on your situation, but I do not think it’s wise to put an emergency on a credit card, only to transfer it to a line of credit. Unless you really enjoy paying interest on emergencies, then go for it.

      I am still toying with the idea of finding somewhere more lucrative to put part of my EF, but it kind of defeats the purpose of having a reliable chunk of money that’s always there. Emergency funds are kind of like comprehensive insurance against life events. Except you are paying yourself, not some other company 🙂

      • Yeah I’d rather pay a bit of interest on the rare emergency instead of losing interest each and every month. I’m just not a fan of Ramsey or his principals. They are intended for people with debt problems and just doesn’t make sense for a lot of people.

        • At least you have a plan in place, that’s a good thing! Honestly, I have definitely considered putting a bit of my EF into some investment that I know really well, just so my 6 months of expenses is doing a little work for me. The important thing for me is to know that it is my cash and available to me when I need it.

          I have a special place in my heart for Dave Ramsey. Some will say he’s too elementary, but his advice is just what I needed at the right time! He has definitely focused on those struggling with their finances because that’s a majority of Americans. Like he’s said, if people were good at math, they wouldn’t be in the type’s of horrible financial situiations they find themselves in.

          I am curious what about his principals you find to be disadventageous? You can PM me if you don’t want to post a response here :). Just wondering, because I’m always open to learning new things and better ways of planning my finances.

          • No I’m sure his strategies are advantageous for people with debt problems. I just find that for me personally, his advice just doesn’t make sense. I don’t agree with things like paying off the smallest debt first and funding an emergency fund while in debt. I admit I don’t know all of the strategies he recommends, nor have I read any of his books. If it helps people that’s awesome. For other people though that can just result in paying extra interest or missing out on extra investment interest.

          • Gotcha. Good to know. I would submit that Dave Ramsey is more a motivational speaker than anything. So that’s why some if his strategies might not be the best for people that can figure out how to efficiently pay off debt and save on interest. You’re spot on there.

  2. I have around $15K in an EF. Both his job and my job are extremely stable though so we do want to scale back on this. However, our EF covers basically everything, job loss, something going wrong with the cars, house, etc.

    • That’s an awesome fund you’ve got there. Two stable jobs means you should be able to scale back to 3 months of expenses without any worry. Isn’t it nice to know that pile of cash is there and you can have it pummel any emergency that comes along?

  3. I’d like to add my voice to that. I started saving as much as I could one year ago. I don’t have much, but it just saved my cat’s life. He’s in the hospital right now, still fighting for his life. If I didn’t have money, he would be dead now. And I can’t tell you how much it helped knowing that I could pay when I brought him to the ER the other night. I had to empty my savings account and am just now starting to borrow from the EF.

    So when I think about it, all those things I didn’t let myself buy, all those things just saved my cat’s life. I realized, in the course of a few hours, that I just swapped material, instant gratification stuff, for my cat’s life. And this has no price.

    If you have kids, or older parents, just think about that. It’s not only being able to pay for a new water heater.

    • Wow, so sorry to hear about your cat, but definitely glad to hear that you started building a fund that in turn saved his life!! And you’re absolutely right. Health issues are the most important emergency that you can have, and you’d better have some real cash on hand to take care of those. I think our society helps influence us to think that we’ll live for a long time and health issues won’t affect us until we’re older. But when that cancer diagnosis comes in, or someone in your family gets seriously injured, the last thing that should be on your mind is “how am I going to pay for this?” Money is pretty low on the totem pole of priorities at that point, and should not influence your decisions to take care of those emergencies. Having and emergency fund takes money out of the equation and allow you to focus on what’s important.

      Thank you for that reminder.

  4. An emergency fund is critical or it’s just a matter of time before you’re in hock to a high-interest lender and holding on for dear life. I think of an emergency fund as a sentry keeping the credit card companies from worming their way into my life and making me their slave.

  5. I’m still currently building up my real emergency fund. My reasoning behind this is that I currently am also building up a car fund and a medical fund. In a real emergency, both of those could be grabbed. I like having the idea of a car fund because my little $500 car can kind of suck sometimes. We want to be able to purchase a new to us car and also be able to pull from that fund for any maitenance for our current car or for tags. This way I’m not pulling from our emergency fund for non emergency reasons. Same for the medical fund. We eventually want to be able to put at least 3 months worth of expenses into it. But we are also trying to get out of debt so it’s being slowly built at the same that that those other funds are.

    • Sounds like a solid plan to me. Once you are out of debt, you can really bulk up the EF. I call the other savings you have put away “savings buckets”. You save up for a car replacement, or car maintenance, or medical expenses, etc….because those are expenses you can predict and save for, they are not emergencies. 🙂

  6. Having that $1,000 – $2,000 in the bank while you’re paying down debt is so, SO important! My EF has been wiped out lately, so I have to build it back up, but I still have a couple of other savings buckets I could touch if another emergency came along before I can build it back.

    • It really can kill your momentum if you don’t have this money in place while plowing through your debt. What a bummer to spend a few months knocking out a few thousand dollars in debt, only to have it reset because your cat flushed the toilet too many times in a row and floods the basement!

  7. So this is the third post this week that I’ve read and enjoyed that touted of Dave Ramsey’s wisdom. It’s like someone’s trying to tell me something…or it’s possible that I just read a ton of PF blogs these days. I better read his book and find out! I agree with the EF advice entirely. We have about $1000 in our EF currently as we are climbing out of debt, but I don’t feel “secure” with that amount and won’t until we have several months’ pay set aside. That way, if God forbid, anything happened, we would be able to sustain while picking ourselves up or looking for alternative sources for income.

    • You should read it! It’s a great motivator! Getting out of debt is a tough process and having a cushion can help keep you going. If you don’t have a plan in place for emergencies, you’ll always be worried that something can come along and ruin everything you’ve worked for.

  8. Great post explaining the basics of the EF. LOL at “hole in your sock” not being an emergency.

    We have about 6 months of bare bones living expenses in our EF. We have never used it for anything (mind you we are not homeowners or parents yet). Once we own a home and I am a SAHM we might increase it a little bit. It’s good that my husband has discipline b/c without his accountability I would probably be dreaming of shopping sprees…

    We also keep a bit of a cushion in our checking account for various unexpected expenses that are not emergencies but also not within our normal budget. Recently, when a family member was ill in the hospital, we were able to spend more on gas and eating out and coffees than we normally do without having to worry about overdrafting our account.

    • Emergency funds are SOOO tempting to raid! Seriously, I could get a sweet ride right now…..BUT NOT WORTH IT!

      I like te idea of a buffer in the monthly budget. Since we are a month ahead, we have our expenses planned to the penny, but I always know that something can and will come up to throw us off. Having a buffer helps cashflow those smaller “emergencies” and not have to touch any savings.

  9. guys & gals, old guy here. just heard of dave ramsey in the past few years. we went thru decades, getting thru school, raising babies, etc and NEVER had an EF until we stumbled across him. Since that time, we built up a bit of an EF and wow did that help us out. Kid needed a new car (beater), grand daughter had serious medical problems, as did our daughter, FIL died – lots of expenses involved with that, and on and on and on. Great thing about it was that we were able to cash flow all of those crises because we actually had an EF in place. Please – just do it – way sooner than we ever did. You’ll never regret it.


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