How Much Money Does Your Emergency Fund Really Need?

rainy day emergency fund how much money

Emergencies are always waiting to strike. It could be weather or a job loss. Your car could break down, or you could have an unexpected medical bill pop up. Regardless of the situation, having a stockpile of money to help you through these problems is extremely important. Not only will it help you weather these emergencies, but it will give you peace of mind that you can weather these emergencies. But how much money should you have saved? Well, that entirely depends on what your emergency fund is for.

Build Your Bare Bones Emergency Fund

The first step to building your emergency fund is to get $1,000. For high income people this should take a month or two. But for the majority of the country, building up $1,000 is a challenge. This is in fact so hard that 46% of Americans say they could not come up with $400 to cover an emergency. Now just think about how long it takes the average person to save $1,000.

This is what I call your “bare bones” or “baby” emergency fund. It will cover many emergencies such as a (small) medical bill or a flat tire. Having this amount of money should help you rest easier knowing that you can now tolerate some stuff happening. When people who are in over their heads financially show up onto r/personalfinance, the first set of actionable advice is to build this small emergency fund to help stop the debt cycle.

But this isn’t even close to being enough of an emergency for the average American. Compare yourself to the Average income of $38,000. Do you make more? If you do, $1,000 isn’t even in the same area code, it might not even be in the same state. You probably need to save significantly more to build you emergency fund, but how much more?

Assume The (Most Realistic) Worst Case Scenario

The point of your emergency fund is to help you weather emergencies. When you are assessing your emergency preparedness, you must consider the worst case scenario. When engineers build bridges, they must support a bridge full of tractor trailers while it is snowing 1 foot per hour. When software engineers design websites, they must assume high amounts of traffic when determining resources so the site site never goes down. Why? Because failure is not an option. When it comes to an emergency, you must design your safety net such that it will not fail. Failure means catastrophic repercussions.

This means you must look at the most realistic financial emergency that you can encounter, and dial it all the way up to 11. In general, these emergencies will be the same for most people. Here are a selected few:

There are of course many other things that could happen, but these are the most common. Particularly the last one. People break their electronics all the time. Dropping your beloved MacBook Pro into the tub right after you get laid off would have absolutely catastrophic ramifications.

How Big Should Your Emergency Fund Be?

I asked people on Twitter how big their emergency fund are. I was extremely surprised by the results. To be fair, I didn’t know what the results would actually be so I was going to be surprised no matter what! What surprised me most is that 56% of voters have less than $10,000 in their emergency fund. This sound like a lot and it definitely is. But anyone who owns a home or has children knows that expenses can spike, and having less than $10,000 means you could be wiped out by having to replace a roof or braces.


To determine how big your emergency fund should be, I recommend taking the two most likely events on this list, and figuring out how much the combination of them would cost over a 3-12 month time period. I’ll use myself as an example. I am not concerned about natural disasters because I am pretty prepared (definitely not a prepper though). Besides, in the event of a terrible natural disaster, I’m not going to care about money. My car is still relatively new so I shouldn’t have any major repairs to complete, plus I have full coverage insurance. If I break my iPhone or electronics, that will only be about a $1,000 set back.

Losing my job and getting sick at the same time are what I need to plan for. This is probably the case for most people to be honest. These two, in combination, can be an extremely challenging emergency to deal with. When you lose your job, you must pay for your everyday spending from savings. Looking at my average spending, I usually come in at about $3,000 per month. In addition, losing my job means paying for COBRA which will cost me an additional $800 per month, bringing my total monthly spend to $3,800.

In addition, my out of pocket maximum is $1,500 per year (thanks to my high premium healthcare plan). When I “run” my model, I assume I must pay $1,500 in the first month and $0 thereafter. I personally want my emergency fund to cover 6 months of this emergency. From here, it is just math. My emergency fund must be $24,300! That is a ridiculous amount of money to save in an emergency fund. But is it?

This Is Ludicrous!

ludirous emergency fund account!

My emergency fund should be $24,300. That is an insane amount of money. In fact, you might say ludicrous. But let’s go back to my original parameters for an emergency fund. It must completely protect you in the event of an emergency. It must not fail. My emergency fund must cover 6 months of my regular expenses assuming that I lose my job right as I get sick. Consider how much money your family spends per year. Now cut that in half. That number probably falls closer to $24,300.

Once my emergency fund is that large, I know that I can comfortably weather being laid off and getting sick for an entire 6 months. That is plenty of time to get better and also look for a new job. But do I really need that much? I’d rather have that saved just in case, especially because of my risk tolerance.

Do you need that much? Maybe, maybe not. That entirely depends on you. If you have a family on a single income, you should have at least $25,000 and probably more. When I have a family with young children, I will bump up my emergency fund to at least $50,000 which will pay for an entire year of expenses and healthcare. If you are a young single person living at home, maybe $3,000 will do. Life’s always easier when you get to stay in the hotel of mom and dad for free, and your expenses will reflect that. The point is save enough to cover what you consider to be the gravest emergency that you may encounter. Peace of mind is so valuable. In fact, it is worth every penny.

How much do you have in your emergency fund? After reading this post, are you considering saving more? I’d really like to know.

Good Hunting,

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43 Responses

  1. Jax says:

    I actually don’t really have an emergency fund. I have savings should I need cash immediately, but it is earmarked for something else and fluctuates. I also have rental income that I could conceivably live on if I lost my job. I work for a public university and have great job security. If my position were to be eliminated, my university would find work for me elsewhere in the system (whether I would be happy there is another story.) It is highly unlikely that I would lose my job and my tenants at the same time, but if I did I would leverage my very good credit.

    The caveat with to this, though, is that I’m unmarried with no kids. If I had people depending on me to take care of them, I wouldn’t be so cavalier about no emergency fund.

    • David says:

      Honestly, it sounds like you don’t need a large emergency fund. When I did my expenses calculation, I must deal with that fact that I don’t have any passive income. Zilch, nada. I only have a single income which is my day job. Technically I earn about $20-$30 a month in dividends but that’ll cover a few trips to McDonalds at best. Combine this with relatively high expenses ($3,000 as an average), and losing my day job would be catastrophic.

      Over time as my passive income increases, maybe I can decrease my e-fund. However, I’ll have a family at that point so maybe not. Only the future will tell. Thanks for commenting!

  2. RAnn says:

    I think it depends on your definition of an emergency fund, and your personal family situation. If you define an emergency fund as money sitting in the bank (earning almost nothing), our “emergency fund”is about four months expenses. We don’t like out checking account balance to fall below $5,000. We have $5,000 in a credit union account I keep open mainly to maintain membership in the CU (which paid off big time when they gave us a 1.5% loan on our newest car). We have about $6,000 in a savings account. However, my husband and I work in totally different industries and neither of us is likely to be laid off or fired. We have a lot of money in investments, and while we’d rather not have to go into them, and liquidating them could take some time, they are there. We have weathered unemployment and maternity leave, and our day in and day out spending is quite a bit below our income. For us, a huge pot of money in the bank is silly. On the other hand a single-income family, particularly a single person, that spends almost all of their income each month needs a big cushion unless there is some quick way expenses could be drastically reduced (like moving back in with mom and dad).

    • David says:

      Absolutely, everyone is different. For my own personal situation, we will become a single income family at some point, living in an extremely expensive area. I fear for my job not because of my skill, but because I work for a startup. Odds are it will fail, regardless of how well I perform. I don’t let my checking account stay above $1,000. The second it goes over, I transfer money to savings (“high” interest online bank) and my Roth IRA. Given my startup’s financial position and the work that I do, the odds of losing my job may be 10% this year. But the impact of losing my job would be catastrophic so I need a bit of a cushion.

      As I get older, develop more income streams and my fiancee’s side income improves, we can probably save less money in our e-funds overall.

  3. Finances with Purpose says:

    Love the question. Like you, my day job is key, and could disappear sometime.

    Also like you, I keep about $20,000+ in my emergency fund. 6 months at 3k/month = 18k, plus some change for good measure. It takes a bit to transition from normal down to emergency-style frugal.

    Another asset we have: a savings account making 2.5%, which makes it easier to leave the emergency fund sitting there in cash.

    Thankfully, we’ve tested ours: we’ve been through an emergency and the fund weathered it fine, without even much draw down, because things worked out better than expected. However, even if they hadn’t, it would have worked out fine due to the emergency fund.

    Here’s the value, though: we weathered a storm without ever having to *worry* about the storm, really. We had a plan, we executed it, and we sailed along. That’s what the fund is for.

    This all reminds me, too, that I need to finish my own post on emergency funds soon! Thanks for the post.

  4. LadyFIRE says:

    Aiming for 15-20k. That amount should cover 6 months of expenses at my current spending. But I also expect that in an emergency I could cut my spending to the bone (less meat, no booze) and my bank will allow me to takr a repayment break if needed.

    • David says:

      That is very useful! I would probably apply for a 0% APR credit card and pay minimums on that with savings to help smooth things out

  5. Finances with Purpose says:

    Great question, because it is a crazy rate. Credit union here does it if you do a direct deposit and so many ATM transactions per month, which we do, for balances up to $50k. So we keep a good chunk there, as do some friends here who pointed it out to me. It won’t help you at all unless you’re Texas, though. I’ve found that credit unions tend to offer some great teaser things like that to lure in banking business hoping to get financing business: mortgages, car loans, HELOCs, and so on. I’ll take their free money. It’s something I’ve been meaning to write up into a blog post. My wife and I also have small CDs and IRAs at a bank that offers 5% interest, though they only give you the rate for balances up to $1,000. But they can give me that free 5% as long as they like – they have for years now – and I’ll just transfer the proceeds to my real brokerage account every year or two and keep investing it.

    • David says:

      Wow that is awesome! I use Discover Bank and get 1.1% interest on my savings. My parents use a CU on Long Island and they get 3%-4% on their checking account up to $25,000, but they need to meet a bunch of criteria. Looking at things from an FI perspective, 5% CD rates seem incredible, and if things are timed right, someone could setup a CD ladder when it is time to retire and just live off CD income in perpetuity.

  6. Finances with Purpose says:

    Also, since you guys mentioned it: it’s harder to get credit/credit cards w/o a job, which is when most people most need to draw down their emergency fund. If you’re married, your spouse could potentially apply with his/her job, otherwise it may not work.

    Another thing, also from experience: you can go with things cheaper than COBRA. Marketplace plans are way cheaper. They have a higher OOP max, but if you don’t spend much on healthcare, they’re a way to save $$$ for a few months (with your HSA or whatever as backstop if, by chance, you get run over by a bus).

    On that note, I’m annoyed that we can no longer buy catastrophic plans with lower OOP maximum to cover us at low cost now that the US government has banned them (thanks, Obamacare), which has raised the cost for those trying to be frugal but facing difficult times. (Or simply for those who are healthy but poor.) :/

    • David says:

      Very good points. I assumed that I would be able to get a credit card in case of an emergency, but that isn’t guaranteed. I would opt to keep COBRA because if something medically happened to me, I wouldn’t want to deal with switching healthcare plans. In addition, my COBRA premiums would be high (about $1,500 per month for my family), but that’s about all I pay. $0 deductible, and $1500 out of pocket max.

      I’m hoping that our government figures something out with this whole healthcare thing. The ACA enabled people to FIRE because of subsidies. I hope this remains in the future but nobody knows at this point.

  7. @MillJourney87 says:

    I love your take on the $1,000 bare bones emergency fund. I think it’s crucial to allow for a small fund while tackling your other financial matters first. I do see you are interested in some day building a 1 year emergency fund? Don’t forget that cash sitting in a savings or checking account causes overall cash drag on your portfolio though. If you really want such a large amount of liquid assets available to you you’re better off having around 6 months and then put that other 6 months into the bond portion of your portfolio. Rational? You’d get some return on your capital with low risk. Don’t let inflation eat your hard earned money.

    • David says:

      Thank you! As I get older and have more money, I will convert my emergency fund into a CD ladder. My guess is maybe 50% of my e-fund in an online savings account (right now getting 1.1%), and then the rest distributed across 12-month, 18-month, and 24-month CDs. This way I’ll lose less money to inflation. You hit the nail on the head: the biggest risk of having a large emergency fund is that you lose money to inflation and over time, this becomes significant.

  8. Lily @ The Frugal Gene says:

    I don’t know why but it just hit me (we have the same emergency fund as you) that a quarter of $100K IS a ridiculous amount of money. It just is. We have always had it but I never went in and stared at that number like I did here. Since we have about the same number I’m thinking…geez, should we even have that much. A friend of mine just stashed together $1000 after being Ramsey-ed and she’s extremely proud of herself but if you go and tell her to do 25x that – no, most people simply can’t and won’t.

    • David says:

      It is a huge amount of money, and I don’t have it all yet. My e-fund is currently at $18k, hopefully around $24k by the end of the summer. I’ve still gotta save another $200k for a house down payment

  9. Jover says:

    I have a totally different take, having gone through a rough patch that included 2.5 years of unemployment/underemployment that came just months after I had a burglary: you can cut your expenses by drastic amounts if/when necessary.
    I keep $5k in savings, $1k in checking, and anything left at the end of a month goes to my taxable brokerage, that way it is helping me along my FI journey but is available if some HUGE emergency came along (like a hurricane, since I live in Florida).
    Run of the mill “emergencies” are put onto a credit card (to buy me 30-45 days to figure out where the money is coming from) and paid off in full each month. Larger emergencies would come from savings or brokerage, if the bill was that high. I also have some precious metals that could be liquidated in a pinch, not for top dollar, but they are a store of value available to me. Lastly, I could withdraw my Roth IRA contributions, if things were really really rough.

    • David says:

      Thank you for your perspective. I’ve never had to deal with a terrible emergency (worst was a $2,000 car repair bill), so this is all speculation and analysis from my viewpoint.

      I do have about $25,000 in my Roth IRA (about $21,000 in contributions) so I could withdraw that as an emergency fund. I also have a combined credit limit of about $30,000 and paying interest on it for a few months isn’t terrible compared to the impact of a true emergency. In reality, I’d probably open a 0% APR card and just throw expenses on that. For me personally, I don’t want to have to touch investments in case of emergency, because the odds of an emergency will increase during a recession when my asset values may be deflated.

      Thank you for your comment!

  10. Alli Rosenblum says:

    I have about $5k in my emergency fund and for right now that is enough for me. I am single with no kids. I am currently saving for a down payment and a few other sinking funds so I cannot increase it at this time but eventually when I have a family I would like to have more just in case. I don’t think I’ll ever have $25k for an emergency fund though haha I do have a decent retirement fund ($33k at 25 years old) and some stocks so if needed I do have more saved. Great post!

    • David says:

      Thanks, great job on building your emergency fund!

      I would be careful if you consider your investment portfolio an emergency fund. Odds are that if we hit a recession and you end up losing your job, your portfolio is down and you’ll have to sell at a loss — a double whammy.

  11. Amy @ LifeZemplified says:

    We keep around 3 months of expenses in our e-fund. With a dual income I feel it’s sufficient. Although there are days I debate having more and others I think it’s too much.

    • David says:

      With a dual income household it is definitely easier. Are you able to pay all of your bills on a single income? If that’s the case, going with 3 months is definitely ideal because you probably wouldn’t have to dip into your e-fund. Even if you had to draw $1,000 per month to cover a temporary job loss, it would last a very long time. Combined with 0% intro APR credit card deals, you’re probably set for more than a year with 3 months of expenses saved.

  12. JJ says:

    Interesting post. I’ve gone back and forth on the idea of an e-fund. We currently have $30K+ at Betterment (40/60 Stocks/Bonds) and have cash at Ally to cover 10mo of expenses but that’s more intended for a rental property. At the end of the day I believe should an emergency arise I would use a 0% APR CC or pull money out of our Roth. I hate to have money sitting not doing anything.

    • David says:

      Sounds like your 10 months of expenses can serve as an emergency fund and for your rental property. When you decide to take the plunge, definitely save some cash just in case, but it sounds like you are experienced.

  13. Dividend Cake says:

    Hi David

    I wrote a very similar blog post with a link to an emergency calculator. It is European based tough. Healthcare costs are lower in EU but principles and math remain the same

    I got my emergency fund in place and now focus on building the passive income
    Reviewing your emergency fund once and a while is a wise thing to do. Cheers


    • David says:

      Great, I’ll definitely check it out! Building your emergency fund is the first, most important thing you can do to get started with securing your finances.

  14. Leeann says:

    I definitely believe everyone needs an emergency fund and it needs to be tailored for the individual. Here’s a question I have wondered about that’s rarely discussed. Where do you keep this “emergency fund.”. We have around $1000 hidden in a couple of locations (fireproof safe and behind locked door at work) plus over $20k (likely more than this) in a bank money market. I hate having that much money in the bank earning 0.05% interest. I can easily take out a loan against my retirement fund for up to $50K in a matter of days (or even just take out some after tax money). So, my question is should people look to invest the money into something with higher yields than a money market that could be accessed within a reasonable amount of time?

    • David says:

      Hey Leeann,

      Thanks for your comment! It is definitely a good idea to have some physical cash on you. I typically carry $100-200 on me just in case, with another few hundred in my car, and then some money hidden in the house as well.

      For your regular emergency fund, you should open up an online bank account. You can get a Discover Savings Account with 1.1% interest. I believe Goldman Sachs offers a savings account with 1.2% interest as well. At least you’ll lose pace with inflation more slowly. It is tough relying on loans for an emergency because if an emergency happens, you cannot predict the financial situation of your bank. It was hard to get loans or open up credit cards during the Great Recession.

      You have a lot of cash so that’ll smooth out anything that could happen which is good. To answer your question, I wouldn’t invest the first 6 month of expenses in my emergency fund. After that, I might put money into high-quality corporate/government bonds (like AGG), or even do something with junk bonds (like HYG, but much higher risk).

      • Leeann says:

        Thanks for the reply, it’s helpful. I will look into those online bank accounts. I should have clarified the loan comment. That would be a loan against my retirement fund so I’d be paying myself back (assuming the emergency isn’t job loss) but that would negative impact my retirement funds. But depending on the emergency, it’s an option.

        • David says:

          Ah I see. So would that be a loan against a 401(k) or IRA? I would strongly discourage taking a loan out against your retirement accounts, if only because you are in a financial position where that isn’t necessary. You’ve already got a sizeable savings, and you can always try and take out a 0% intro APR credit card in case of emergency.

          • Leeann says:

            Great idea on the 0% APR card! We’ll just keep doing what we’re doing and hope we don’t need our “big” emergency fund… we’re prepared if we need it though.

          • David says:

            Being prepared is the most important part!

  15. Counting Quarters says:

    You and I seem to be in very similar financial standing. Our household requires roughly $3,500 a month in order to meet mortgage, insurance, car payments, food, etc.

    I have experience two emergency situations in my few years after graduating college. My first being a rather expensive surgery within a month of closing on our home which forced me to have to pull money out of my mutual fund accounts. The second was being laid off from my job. These happened so close together that my emergency fund was depleted from the surgery and closing on the house that I was in rough shape. Luckily I had kept my resume and portfolios completely up to date as well as built a network of connections that I was able to find a new job less than a week later.

    • David says:

      Sounds like we’re in similar positions.

      Having 2 emergencies hit that close together is tough, I’m glad that you powered through it and had enough money in your e-fund to cover everything.

  16. Grant @ Life Prep Couple says:

    $11,000. We both work and can easily live off one income so we probably don’t need that much but feels good to have a little cash for the just in case.

  17. Dave @ Married with Money says:

    We currently have 5 grand. It’s enough for now but once we move into our house later this year (which we’re building) I’ll bulk that up to around $15k minimum.

    We did have to weather a storm early this year. In February I got laid off. We had already committed to a house (and had put about 3% down as earnest money already to get the building process going) and we had a wedding we still needed to pay for. It was hell for a month while I hunted for a new job. We were prepared enough to cover a month without too much stress, and could have easily ridden the storm out for another 6 months or more if we didn’t have the wedding and house to consider. It was basically the worst possible time to lose my job.

    I’m still considering how much I really need to have as 100% liquid in a savings account though, versus being able to take out contributions from a Roth or sell stocks in a taxable account, etc. Certainly having enough liquid in savings to cover a few months seems logical, but the thought of so much extra money sitting there earning next to nothing is a tough pill to swallow. My risk tolerance is a bit higher than it seems yours may be, though. 🙂

    Being DINKs definitely helps with that.

    • David says:

      Hi Dave, thanks for your comment!

      It sounds like you weathered the storm very well, and everything went wrong at the worst possible time. The lower your net worth, the bigger a cash buffer you need just in case. If you’ve got a $500,000 investment portfolio, you probably don’t need a huge emergency fund because you’ve got so much capital. On the flip side, even if you have 5% cash and 10% bonds in your $500k portfolio, you’re still looking at $25k cash which is a perfect emergency fund.

  18. Really good advice to start small and work toward getting that first thousand saved. It really is amazing how the average American doesn’t have that much saved. I think it people realized their basis to the present and stopped discounting potential future issues so much then they would work toward saving more.

  19. The Dollar Build says:

    You’re right. $25k is a huge number and probably way beyond what the average person could manage. Between aggressively paying off law school loan and saving for a mortgage, my emergency fund is relatively small. Maybe that’s risky; I’m not sure. In a worst-case scenario where I lost my job, I’d like to think I’d cut back expenses significantly and find some type of employment pretty quickly. But there’s no guarantee that would happen. It might be time for me to build up that emergency fund!

    • David says:

      Thanks for your comment! The thing about emergency funds is that they need to make you feel safe. For me right now, that’s a very large number. I’m actually moving in with my parents for several months to save money, and that’ll mean I can cut my emergency fund by about 25%, but it’ll still be pretty large because I work for a startup. If I was still at my old mega corporation with $25+ billion in revenue, I wouldn’t care too much. But startups rise and fall very quickly, so I need to be prepared for that.

  20. zeejaythorne says:

    My EF took a beating this year. My preference is for it to be $5000. I can defer many expenses in a standard emergency. Once I own a condo, I will want it to be $10,000. The places I’ll consider will be less than my current rent, but I don’t want to ever have to consider defaulting on a mortgage.

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