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How Much Should You Have in an Emergency Fund?


Financial emergencies are unpredictable, and they can happen to anyone. Whether you’ve lost a job, you need to repair a vehicle or you’ve suddenly incurred a high medical bill, financial difficulties can strike at any time, leading you need to borrow money immediately to get out of trouble fast. 

That’s why, everyone should invest in an emergency fund which can help in a financial crisis. Read our quick guide on what an emergency fund is, how they work and what you can do to start one. 

What Is an Emergency Fund?

In short, the definition of an emergency fund is: a personal budget set aside by an individual which is there in the case of a financial mishap or for unexpected costs. Emergency funds do not account for long-term savings, such as college tuition, car financing or even mortgages. Instead, emergency funds are there to fall back on in times of uncertainty or crisis. 

Emergency funds can be set up through savings accounts with your current bank account, or by saving up in cash and putting the money away somewhere safely. Whichever option you choose, it’s always good to have an emergency fund as a safety net! 

An emergency fund is a safety net and can help you in unprecedented financial situations.

How Much Emergency Fund Should I Have?

How much you should have in an emergency fund will depend on your current personal and financial situation. You can use an emergency fund calculator online to figure out how much you should be setting aside in savings for an emergency. Generally speaking, experts suggest individual’s should have at least 3 to 6 months worth of everyday living expenses in an emergency fund. This takes into account:

  • Housing
  • Utility bills
  • Any debt 
  • Transport costs 
  • Medical costs 
  • Food 
  • Personal expenses

What an emergency fund shouldn’t take into account is:

  • Personal shopping
  • Entertainment costs e.g. Netflix or Apple Music subscriptions
  • Vacations 
  • Other savings e.g. for college, a house or a car etc. 

However, that’s not to say you can’t put more than 6 months of your expenses into an emergency fund! This way, you’ll always be sure there’s something to fall back on in a financial crisis. 

Why Should You Have an Emergency Fund?

The main reason you should have an emergency fund is that life is truly unpredictable. Jobs can be lost, you may be told to leave your rental property and have to put a new security deposit down, or perhaps you go through an unexpected break-up and need to get your feet back up and running. In short, emergency funds are needed for any unexpected costs or payments life may throw at you. 

Having an emergency fund will be particularly beneficial for:

  • Recessions: These bring higher unemployment and higher interest rates so, making life more expensive. An emergency fund could help during the times where costs of living continue to rise
  • High-Risk Employment: If you work in an industry where you may be laid off, then an emergency fund is key
  • Irregular Employment: For freelancers or those that work in jobs where the money isn’t stable, then an emergency fund will give you peace of mind that life’s costs can be taken care of
  • Retirees: If you can’t access your pension yet or are retired and may be on a lower-income, an emergency fund could ensure your bills and the rest are taken care of

When Should You Use an Emergency Fund? 

You should only use an emergency fund for emergencies. By setting a goal for how much you’d like to save, this will then help you when you have to take money out of the emergency fund. Emergencies like vehicle repairs, household repairs, paying for bills and other debts are what is considered emergency payments. These types of expenses, if not paid for, will lead to more debt so having an emergency fund is key!

Emergency funds can be used for:

  • Medical bills
  • Energy bills 
  • Rent money 
  • Paying towards debts to avoid incurring more interest 
  • Veterinary bills 
  • Unexpected travel costs 
  • Household repairs 

How to Start an Emergency Fund 

You can start an emergency fund by setting up a savings account with your current bank or an alternative one. Likewise, you can save up in cash if you’d prefer. 

To start an emergency fund you simply need to start saving wherever possible. For example, if you put away $20 per week you would be able to save $1,040 by the end of a year. Likewise, if you put a little more such as $50 per week then that would be a grand total of $2,600 in just one year.

However much or little you save, it will definitely go a long way! Whatever your personal budget is, emergency funds can be made by anyone, and should be as financial emergencies are unpredictable and unavoidable. 

Where to Keep an Emergency Fund 

The best place for an emergency fund, however, is in a savings account that has interest on and can be accessed without penalties. By doing so, you’ll build up more money by the interest accumulating and will also mean you can access the money whenever without having to pay for it or wait for it!